Mortgage Banking Activities

9 Months Ended

Sep. 30, 2012

Mortgage Banking Activities

Note 17. Mortgage Banking Activities

The following table presents the components of Mortgage Banking Activities, Net, on our consolidated income statement for the three and nine months ended September 30, 2012.

Components of Mortgage Banking Activities, Net

(In Thousands)	Three Months Ended     September 30, 2012		Nine Months Ended     September 30, 2012
Income from MSRs, net:
Income	$	231	$	368
Late charges		2		3
Cost of sub-servicer		(55)		(89)
Income from MSRs, net:		178		282
Changes in fair value of:
Residential loans, at fair value		14,976		14,992
MSRs		(650)		(1,194)
Risk management derivatives (1)		(2,385)		(8,784)
Net market valuation adjustments		11,941		5,014
Net gains on mortgage loan sales		4,611		17,447
Mortgage Banking Activities, Net	$	16,730	$	22,743

(1) Represents market valuations of derivatives that are used to manage risks associated with our accumulation of residential loans.

Mortgage Servicing Rights

During the three and nine months ended September 30, 2012, we transferred an aggregate $313 million and $1.35 billion (principal balance), respectively, of residential loans to three Sequoia securitization entities and accounted for the transfers as sales in accordance with GAAP. As a result of these sales, during the three and nine months ended September 30, 2012, we recorded MSRs of $1 million and $4 million, respectively, at a taxable REIT subsidiary of ours. These MSRs represent rights we had acquired and retained to service $593 million of loans transferred (original principal balance) to these securitizations or sold to third parties. At September 30, 2012, the principal balance of the loans underlying our MSRs was $566 million.

We contract with a licensed sub-servicer to perform all servicing functions for loans underlying our MSRs. The following table presents activity for MSRs for the three and nine months ended September 30, 2012.

MSR Activity

(In Thousands)	Three Months Ended     September 30, 2012		Nine Months Ended     September 30, 2012
Balance at beginning of period	$	2,064	$	-
Additions		1,241		3,849
Changes in fair value due to:
Changes in assumptions (1)		(584)		(1,065)
Other changes (2)		(66)		(129)
Balance at End of Period	$	2,655	$	2,655

(1) Primarily reflects changes in discount rates and prepayment assumptions due to changes in interest rates.

(2) Reflects the impact of MSR-related cash flows received during the period.