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Mortgage Servicing Rights and Related Liabilities (Tables) | 6 Months Ended
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Jun. 30, 2020
Transfers and Servicing [Abstract] |
Schedule of servicing assets at fair value | The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities. In estimating the fair value of all servicing rights and related liabilities, the impact of the COVID-19 pandemic was considered in the determination of key assumptions.
MSRs and Related Liabilities | June 30, 2020 |  | December 31, 2019
Forward MSRs - fair value | $ | 2,757 |  |  | $ | 3,496 |
Reverse MSRs - amortized cost | 6 |  |  | 6 |
Mortgage servicing rights | $ | 2,763 |  |  | $ | 3,502 |
Mortgage servicing liabilities - amortized cost | $ | 48 |  |  | $ | 61 |
Excess spread financing - fair value | $ | 1,124 |  |  | $ | 1,311 |
Mortgage servicing rights financing - fair value | 49 |  |  | 37 |
MSR related liabilities - nonrecourse at fair value | $ | 1,173 |  |  | $ | 1,348 |
The following table sets forth the activities of forward MSRs:
| Six Months Ended June 30, |  |  |  |  |
Forward MSRs - Fair Value | 2020 |  | 2019 |  |  |
Fair value - beginning of period | $ | 3,496 |  |  | $ | 3,665 |  |  |  |
Additions: |  |  |  |  |  |
Servicing retained from mortgage loans sold | 249 |  |  | 169 |  |  |  |
Purchases of servicing rights(1) | 24 |  |  | 689 |  |  |  |
Dispositions: |  |  |  |  |  |
Sales of servicing assets | — |  |  | (294) |  |  |  |
Changes in fair value: |  |  |  |  |  |
Changes in valuation inputs or assumptions used in the valuation model | (717) |  |  | (542) |  |  |  |
Other changes in fair value | (295) |  |  | (182) |  |  |  |
Fair value - end of period | $ | 2,757 |  |  | $ | 3,505 |  |  |  |
(1)Purchases of servicing rights during the six months ended June 30, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 2, Acquisitions, for further discussion. In addition, in January 2019, the Company entered into a subservicing contract for $24 billion in mortgages, which were subsequently purchased in May 2019, resulting in additional $253 servicing rights in the second quarter of 2019. The following table provides a breakdown of UPB and fair value for the Company’s forward MSRs:
| June 30, 2020 |  |  |  | December 31, 2019 |  |
Forward MSRs - UPB and fair value breakdown | UPB |  | Fair Value |  | UPB |  | Fair Value
Acquisition Pools |  |  |  |  |  |  |
Credit sensitive | $ | 131,105 |  |  | $ | 1,307 |  |  | $ | 147,895 |  |  | $ | 1,613 |
Interest sensitive | 146,870 |  |  | 1,450 |  |  | 148,887 |  |  | 1,883 |
Total | $ | 277,975 |  |  | $ | 2,757 |  |  | $ | 296,782 |  |  | $ | 3,496 |
Investor Pools |  |  |  |  |  |  |
Agency(1) | $ | 228,680 |  |  | $ | 2,308 |  |  | $ | 240,688 |  |  | $ | 2,944 |
Non-agency(2) | 49,295 |  |  | 449 |  |  | 56,094 |  |  | 552 |
Total | $ | 277,975 |  |  | $ | 2,757 |  |  | $ | 296,782 |  |  | $ | 3,496 |
(1)Agency investors primarily consist of government sponsored enterprises (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan Mortgage Corp (“Freddie Mac” or “FHLMC”), and the Government National Mortgage Association (“Ginnie Mae” or “GNMA”). (2)Non-agency investors consist of investors in private-label securitizations.
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 forward MSRs:
Forward MSRs - Key inputs and assumptions | June 30, 2020 |  | December 31, 2019
Total MSR Portfolio |  |  |
Discount rate | 9.5 | % |  | 9.7 | %
Prepayment speeds | 14.2 | % |  | 13.1 | %
Average life | 5.3 years |  | 5.8 years
Acquisition Pools: |  |  |
Credit Sensitive |  |  |
Discount rate | 9.9 | % |  | 10.4 | %
Prepayment speeds | 12.6 | % |  | 12.7 | %
Average life | 5.6 years |  | 6.0 years
Interest Sensitive |  |  |
Discount rate | 9.0 | % |  | 9.1 | %
Prepayment speeds | 15.8 | % |  | 13.5 | %
Average life | 4.9 years |  | 5.7 years
Investor Pools: |  |  |
Agency |  |  |
Discount rate | 8.9 | % |  | 9.0 | %
Prepayment speeds | 14.4 | % |  | 13.0 | %
Average life | 5.2 years |  | 5.8 years
Non-agency |  |  |
Discount rate | 12.0 | % |  | 12.6 | %
Prepayment speeds | 13.4 | % |  | 13.8 | %
Average life | 5.6 years |  | 6.2 years
The Company used the following weighted-average assumptions in the Company’s valuation of excess spread financing:
Excess Spread Financing Assumptions | June 30, 2020 |  | December 31, 2019
Discount rate | 12.0 | % |  | 11.6 | %
Prepayment speeds | 13.4 | % |  | 12.6 | %
Recapture rate | 18.7 | % |  | 20.1 | %
Average life | 5.4 years |  | 5.8 years
The following table sets forth the weighted-average assumptions used in the valuation of the mortgage servicing rights financing liability:
Mortgage Servicing Rights Financing Assumptions | June 30, 2020 |  | December 31, 2019
Advance financing rates | 4.3 | % |  | 3.5 | %
Annual advance recovery rates | 18.6 | % |  | 18.8 | %
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 forward MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated:
| Discount Rate |  |  |  | Total Prepayment Speeds |  |
Forward MSRs - Hypothetical Sensitivities | 100 bps Adverse Change |  | 200 bps Adverse Change |  | 10% Adverse Change |  | 20% Adverse Change
June 30, 2020 |  |  |  |  |  |  |
Mortgage servicing rights | $ | (104) |  |  | $ | (201) |  |  | $ | (175) |  |  | $ | (335) |
December 31, 2019 |  |  |  |  |  |  |
Mortgage servicing rights | $ | (127) |  |  | $ | (245) |  |  | $ | (165) |  |  | $ | (317) |
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:
| Discount Rate |  |  |  | Prepayment Speeds |  |
Excess Spread Financing - Hypothetical Sensitivities | 100 bps Adverse Change |  | 200 bps Adverse Change |  | 10% Adverse Change |  | 20% Adverse Change
June 30, 2020 |  |  |  |  |  |  |
Excess spread financing | $ | 38 |  |  | $ | 78 |  |  | $ | 47 |  |  | $ | 97 |
December 31, 2019 |  |  |  |  |  |  |
Excess spread financing | $ | 46 |  |  | $ | 95 |  |  | $ | 46 |  |  | $ | 96 |
Schedule of reverse mortgage servicing rights and liabilities - amortized cost | The following table sets forth the activities of reverse MSRs and mortgage servicing liabilities (“MSL”):
| Six Months Ended June 30, |  |  |  |  |  |
| 2020 |  |  |  | 2019 |  |
Reverse MSRs and Liabilities - Amortized Cost | Assets |  | Liabilities |  | Assets |  | Liabilities
Balance - beginning of period | $ | 6 |  |  | $ | 61 |  |  | $ | 11 |  |  | $ | 71 |
Amortization/accretion | — |  |  | (13) |  |  | (1) |  |  | (28) |
Adjustments(1) | — |  |  | — |  |  | (4) |  |  | 37 |
Balance - end of the period | $ | 6 |  |  | $ | 48 |  |  | $ | 6 |  |  | $ | 80 |
Fair value - end of period | $ | 6 |  |  | $ | 12 |  |  | $ | 7 |  |  | $ | 44 |
(1)Reverse MSR and MSL net adjustments recorded by the Company during the six months ended June 30, 2019 primarily relate to the fair value adjustments for reverse MSR and MSL assumed from the Merger resulting from the revised cost to service assumption used in the valuation of reverse MSR and MSL during the measurement period.
Schedule of fees earned in exchange for servicing financial assets | The following table sets forth the items comprising total revenues for the Servicing segment:
| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
Total Revenues - Servicing | 2020 |  | 2019 |  | 2020 |  | 2019
Contractually specified servicing fees(1) | $ | 285 |  |  | $ | 307 |  |  | $ | 582 |  |  | $ | 588 |
Other service-related income(1) | 62 |  |  | 32 |  |  | 111 |  |  | 82 |
Incentive and modification income(1) | 8 |  |  | 10 |  |  | 18 |  |  | 17 |
Late fees(1) | 20 |  |  | 27 |  |  | 47 |  |  | 52 |
Reverse servicing fees | 7 |  |  | 8 |  |  | 13 |  |  | 17 |
Mark-to-market adjustments(2) | (261) |  |  | (231) |  |  | (644) |  |  | (524) |
Counterparty revenue share(3) | (88) |  |  | (70) |  |  | (164) |  |  | (118) |
Amortization, net of accretion(4) | (102) |  |  | (56) |  |  | (178) |  |  | (79) |
Total revenues - Servicing | $ | (69) |  |  | $ | 27 |  |  | $ | (215) |  |  | $ | 35 |
(1)The Company recognizes revenue on an earned basis for services performed. Amounts include subservicing related revenues. (2)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 was $3 and $17 for the three months ended June 30, 2020 and 2019 and $13 and $28 for the six months ended June 30, 2020 and 2019, respectively. (3)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 MSR financing arrangements. (4)Amortization is net of excess spread accretion of $79 and $59 and MSL accretion of $5 and $11 for the three months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, amortization is net of excess spread accretion of $147 and $95 and MSL accretion of $13 and $29, respectively.

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- Definition Tabular disclosure of all information related to the key inputs and assumptions (including, at a minimum, but not limited to, and if applicable, quantitative information about discount rates, expected prepayments including the expected weighted-average life of prepayable financial assets, and anticipated credit losses) used in measuring the fair value of assets or liabilities that relate to the transferor's continuing involvement with transferred financial assets, as of the balance sheet date. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 20 -Section 50 -Paragraph 4 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121570589&loc=d3e107314-111719 + Details
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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://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 20 -Section 50 -Paragraph 4 -Subparagraph (c) -URI http://asc.fasb.org/extlink&oid=121570589&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://www.xbrl.org/2009/role/commonPracticeRef -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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