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Mortgage Servicing Rights ("MSRs") and Related Liabilities (Tables) | 9 Months Ended
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Sep. 30, 2019
Transfers and Servicing [Abstract] |
Schedule of Servicing Assets at Fair Value | The following table sets forth the activities of forward MSRs.
| Successor |  |  | Predecessor
MSRs - Fair Value | Nine Months Ended September 30, 2019 |  | Two Months Ended September 30, 2018 |  |  | Seven Months Ended July 31, 2018
Fair value - beginning of period | $ | 3,665 |  |  | $ | 3,413 |  |  |  | $ | 2,937 |
Additions: |  |  |  |  |  |
Servicing retained from mortgage loans sold | 298 |  |  | 43 |  |  |  | 162 |
Purchases of servicing rights(1) | 732 |  |  | 72 |  |  |  | 144 |
Dispositions: |  |  |  |  |  |
Sales of servicing assets(2) | (317 | ) |  | (63 | ) |  |  | 4 |
Changes in fair value: |  |  |  |  |  |
Changes in valuation inputs or assumptions used in the valuation model | (716 | ) |  | 65 |  |  |  | 330 |
Other changes in fair value | (323 | ) |  | (45 | ) |  |  | (164 | )
Fair value - end of period | $ | 3,339 |  |  | $ | 3,485 |  |  |  | $ | 3,413 |
(1) | Purchases of servicing rights during the nine months ended September 30, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 2, Acquisitions for further discussion. In addition, on January 3, 2019, the Company entered into a subservicing contract for $24 billion unpaid principal balance in mortgages. The related servicing rights were subsequently purchased on May 1, 2019, resulting in additional $253 servicing rights during the second quarter of 2019.
(2) | Amount for the seven months ended July 31, 2018 is related to the sale of MSRs collateralized by nonperforming loans, which have a negative MSR value.
The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities.
| Successor
MSRs and Related Liabilities | September 30, 2019 |  | December 31, 2018
Forward MSRs - fair value | $ | 3,339 |  |  | $ | 3,665 |
Reverse MSRs - amortized cost | 7 |  |  | 11 |
Mortgage servicing rights | $ | 3,346 |  |  | $ | 3,676 |
Mortgage servicing liabilities - amortized cost | $ | 69 |  |  | $ | 71 |
Excess spread financing - fair value | $ | 1,281 |  |  | $ | 1,184 |
Mortgage servicing rights financing - fair value | 47 |  |  | 32 |
MSR related liabilities - nonrecourse at fair value | $ | 1,328 |  |  | $ | 1,216 |
The following table provides a breakdown of credit sensitive and interest sensitive unpaid principal balance (“UPB”) for the Company’s forward MSRs.
| Successor
| September 30, 2019 |  | December 31, 2018
MSRs - Sensitivity Pools | UPB |  | Fair Value |  | UPB |  | Fair Value
Credit sensitive | $ | 157,898 |  |  | $ | 1,661 |  |  | $ | 135,752 |  |  | $ | 1,495 |
Interest sensitive | 148,783 |  |  | 1,678 |  |  | 159,729 |  |  | 2,170 |
Total | $ | 306,681 |  |  | $ | 3,339 |  |  | $ | 295,481 |  |  | $ | 3,665 |
Schedule of Assumptions for Fair Value of Mortgage Service Rights | The Company used the following key weighted-average inputs and assumptions in estimating the fair value of MSRs.
| Successor
| September 30, 2019 |  | December 31, 2018
Credit Sensitive |  |  |
Discount rate | 10.4 | % |  | 11.3 | %
Prepayment speeds | 13.2 | % |  | 11.8 | %
Average life | 5.9 years |  |  | 6.4 years |
Interest Sensitive |  |  |
Discount rate | 9.0 | % |  | 9.3 | %
Prepayment speeds | 14.6 | % |  | 10.0 | %
Average life | 5.4 years |  |  | 7.0 years |
Total MSR Portfolio |  |  |
Discount rate | 9.7 | % |  | 10.2 | %
Prepayment speeds | 13.9 | % |  | 10.8 | %
Average life | 5.6 years |  |  | 6.7 years |
The following table sets forth the weighted average assumptions used in the valuation of the mortgage servicing rights financing liability.
| Successor
Mortgage Servicing Rights Financing Assumptions | September 30, 2019 |  | December 31, 2018
Advance financing rates | 3.7 | % |  | 4.2 | %
Annual advance recovery rates | 18.7 | % |  | 19.0 | %
The Company used the following weighted-average assumptions in the Company’s valuation of excess spread financing.
| Successor
| September 30, 2019 |  | December 31, 2018
Excess Spread Financing Assumptions |  |  |
Discount rate | 11.9 | % |  | 10.4 | %
Prepayment speeds | 13.3 | % |  | 11.0 | %
Recapture rate | 22.3 | % |  | 18.6 | %
Average life | 5.7 years |  |  | 6.5 years |
Schedule of Sensitivity Analysis of Fair Value, Transferor's Interests in Transferred Financial Assets | The following table shows the hypothetical effect on the fair value of the Company’s MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated.
| Successor
| Discount Rate |  | Total Prepayment Speeds
MSRs - Hypothetical Sensitivities | 100 bps Adverse Change |  | 200 bps Adverse Change |  | 10% Adverse Change |  | 20% Adverse Change
September 30, 2019 |  |  |  |  |  |  |
Mortgage servicing rights | $ | (117 | ) |  | $ | (226 | ) |  | $ | (164 | ) |  | $ | (316 | )
December 31, 2018 |  |  |  |  |  |  |
Mortgage servicing rights | $ | (137 | ) |  | $ | (265 | ) |  | $ | (129 | ) |  | $ | (250 | )
The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated.
| Successor
| Discount Rate |  | Prepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities | 100 bps Adverse Change |  | 200 bps Adverse Change |  | 10% Adverse Change |  | 20% Adverse Change
September 30, 2019 |  |  |  |  |  |  |
Excess spread financing | $ | 42 |  |  | $ | 87 |  |  | $ | 44 |  |  | $ | 93 |
December 31, 2018 |  |  |  |  |  |  |
Excess spread financing | $ | 47 |  |  | $ | 99 |  |  | $ | 38 |  |  | $ | 81 |
Schedule of Fees Earned in Exchange for Servicing Financial Assets | The following table sets forth the items comprising revenues associated with servicing loan portfolios.
| Successor |  |  | Predecessor
Servicing Revenue | Three Months Ended September 30, 2019 |  | Nine Months Ended September 30, 2019 |  | Two Months Ended September 30, 2018 |  |  | One Month Ended July 31, 2018 |  | Seven Months Ended July 31, 2018
Contractually specified servicing fees(1) | $ | 305 |  |  | $ | 893 |  |  | $ | 163 |  |  |  | $ | 79 |  |  | $ | 574 |
Other service-related income(1)(2) | 51 |  |  | 133 |  |  | 18 |  |  |  | 10 |  |  | 66 |
Incentive and modification income(1) | 12 |  |  | 29 |  |  | 8 |  |  |  | 4 |  |  | 37 |
Late fees(1) | 30 |  |  | 82 |  |  | 14 |  |  |  | 7 |  |  | 53 |
Reverse servicing fees | 7 |  |  | 24 |  |  | 13 |  |  |  | 4 |  |  | 37 |
Mark-to-market adjustments(3) | (83 | ) |  | (607 | ) |  | 24 |  |  |  | 25 |  |  | 196 |
Counterparty revenue share(4) | (86 | ) |  | (204 | ) |  | (26 | ) |  |  | (16 | ) |  | (111 | )
Amortization, net of accretion(5) | (73 | ) |  | (152 | ) |  | (31 | ) |  |  | (16 | ) |  | (112 | )
Total servicing revenue | $ | 163 |  |  | $ | 198 |  |  | $ | 183 |  |  |  | $ | 97 |  |  | $ | 740 |
(1) | Amounts include subservicing related revenues.
(2) | Amount for the nine months ended September 30, 2019 includes a gain of $21 from the execution of a clean-up call option on a reverse mortgage loan trust, as the Company was the master servicer and holder of clean-up call rights.
(3) | Mark-to-market (“MTM”) adjustments include fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows for the Company was $18, $46, and $13 for the three and nine months ended September 30, 2019 and two months ended September 30, 2018, respectively. The impact of negative modeled cash flows for the Predecessor totaled $4 and $38 for the one and seven months ended July 31, 2018, respectively.
(4) | Counterparty revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSRs financing arrangements.
(5) | Amortization for the Company is net of excess spread accretion of $77 and $172 and MSL accretion of $10 and $39 for the three and nine months ended September 30, 2019, respectively. Amortization for the Company is net of excess spread accretion of $22 for the two months ended September 30, 2018. Amortization of the Predecessor is net of excess spread of $11 and $78 for the one and seven months ended July 31, 2018, respectively. The Predecessor recorded MSL accretion within reverse servicing fees, whereas the Successor has elected to record MSL accretion within amortization, net of accretion.

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- Definition Tabular disclosure of a sensitivity analysis or stress test showing the hypothetical effect on the fair value of the transferor's interests in transferred financial assets (including any servicing assets or servicing liabilities) of two or more unfavorable variations from the expected levels for each key assumption that is reported, independently determined from any change in another key assumption, and a description of the objectives, methodology, and limitations of the sensitivity analysis or stress test. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 20 -Section 50 -Paragraph 4 -Subparagraph (c) -URI http://asc.fasb.org/extlink&oid=118948506&loc=d3e107314-111719 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 20 -Section 50 -Paragraph 4 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=118948506&loc=d3e107314-111719 + Details
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- Definition Tabular disclosure of the activity in the balance of servicing assets (including a description of where changes in fair value are reported in the statement of income for each period for which results of operations are presented), including but not limited to, the following: beginning and ending balances, additions (for instance, through purchases of servicing assets), disposals, changes in fair value during the period resulting from changes in inputs or assumptions used in the valuation model, other changes in fair value along with a description of those changes, and other changes that affect the balance along with a description of those changes. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 50 -Section 50 -Paragraph 3 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=116651436&loc=d3e122625-111746 + Details
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