Note 10. Other Assets

Other assets at March 31, 2012 and December 31, 2011, are summarized in the following table.

Other Assets


(In Thousands)	March 31, 2012		December 31, 2011
REO	$	5,498	$	5,669
Fixed assets and leasehold improvements		1,104		2,048
Margin posted, net		52,072		71,976
Mortgage servicing rights		1,562		-
Investment receivable		7,478		1,741
Income tax receivables		4,684		4,741
Prepaid expenses		1,179		1,706
Other		2,568		381

Total Other Assets	$	76,145	$	88,262

REO consists of foreclosed properties received in full satisfaction of defaulted real estate loans. The carrying value of REO at March 31, 2012 was $5 million, which includes the net effect of $3 million related to transfers into REO during 2012, offset by $2 million of REO liquidations, a $1 million reduction related to the deconsolidation of five Sequoia securitization entities, and less than $1 million of negative market valuation adjustments. At March 31, 2012, there were 38 REO properties recorded on our consolidated balance sheet, all of which were owned at Sequoia. At December 31, 2011, there were 43 REO properties recorded on our consolidated balance sheet, all of which were owned at Sequoia. Properties located in Ohio, Michigan, Georgia, and California accounted for 75% of our REO properties at March 31, 2012.

Margin posted, net, resulted from margin calls from our swap, master repurchase agreement, and warehouse facility counterparties that required us to post collateral.

Mortgage Servicing Rights

During the first quarter of 2012, we transferred an aggregate of $743 million (principal balance) of residential loans to two Sequoia securitization entities and accounted for the transfers as sales in accordance with GAAP. In conjunction with these transfers, we recorded $2 million of MSRs at a taxable REIT subsidiary of ours. These MSRs represent rights we had acquired and retained to service $208 million original principal balance of loans transferred to these securitizations. At March 31, 2012, the principal balance of the loans underlying our MSRs was $206 million.

The following table presents activity for residential first-lien MSRs for the three months ended March 31, 2012.


(In Thousands)	Three Months Ended March 31, 2012
Balance at beginning of period	$	-
Additions:
Servicing from securitizations		1,579
Changes in fair value:
Due to changes in assumptions ⁽¹⁾		-
Other changes in fair value ⁽²⁾		(17)

Balance at End of Period	$	1,562

(1)	Principally reflects changes in discount rates and prepayment assumptions, mostly due to changes in interest rates.

(2)	Reflects the changes in fair value due to the impact (collection) of expected cash flows (customer payments) received during the period.

We do not service residential loans, and instead employ a licensed subservicer to handle all servicing functions for loans underlying our MSRs. The following table presents the income and expense associated with our MSRs, as well as the additional items that compose Mortgage Banking Activities, net on our consolidated income statement for the three months ended March 31, 2012.


(In Thousands)	Three Months Ended March 31, 2012
Servicing income, net:
Contractually specified servicing fees	$	14
Servicing expense		(4)

Servicing income, net		10

Net valuation losses from MSRs		(17)
Net valuation losses from economic hedges		(3,056)
Net gains on mortgage loan securitizations		7,365

Mortgage Banking Activities, Net	$	4,302