XML 47 R32.htm IDEA: XBRL DOCUMENT v3.24.0.1
GUARANTEES
 12 Months Ended
Dec. 31, 2023
Guarantees [Abstract]  
GUARANTEES GUARANTEES
At December 31, 2023 and 2022, the notional amount of the obligations undertaken in issuing the guarantees under standby letters of credit represented a liability of $24.0 million and $24.7 million, respectively.
OFG has a liability for residential mortgage loans sold subject to credit recourse pursuant to FHLMC's, GNMA's, and FNMA's residential mortgage loan sales and securitization programs. At December 31, 2023 and 2022, the unpaid principal balance of residential mortgage loans sold subject to credit recourse under the residential mortgage loan sales programs was $98.7 million and $110.9 million, respectively. The estimated losses to be absorbed under the credit recourse arrangements were recorded as a liability when the credit recourse was assumed and are updated on a quarterly basis. At December 31, 2023, OFG's liability for estimated credit losses related to loans sold with credit recourse amounted to $102 thousand (December 31, 2022– $147 thousand). On May 1, 2023, OFG and a third-party servicer terminated a subservicing agreement by mutual agreement. Pursuant to such termination, the third-party servicer assumed the direct servicing of the subserviced loans pursuant to FNMA's residential mortgage loans sales program, thereby relieving OFG of its corresponding recourse obligation under that program.
The following table shows the changes in OFG’s liability for estimated losses from these credit recourse agreements, included in the consolidated statements of financial condition during 2023, 2022 and 2021:
Year Ended December 31,
202320222021
(In thousands)
Balance at beginning of year
$147 $294 $218 
Net recoveries (charge-offs/terminations)(45)(147)76 
Balance at end of year
$102 $147 $294 
The expected loss, which represents the amount expected to be lost on a given loan, considers the probability of default and loss severity. The probability of default represents the probability that a loan in good standing would become 120 days delinquent, in which case OFG is obligated to repurchase the loan.
If a borrower defaults, pursuant to the credit recourse provided, OFG is required to repurchase the loan or reimburse the third-party investor for the incurred loss. The maximum potential amount of future payments that OFG would be required to make under the recourse arrangements is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During 2023, 2022 and 2021, OFG repurchased $1.2 million, $1.5 million and $3.1 million, respectively, in such mortgage loans. If a borrower defaults, OFG has rights to the underlying collateral securing the mortgage loan. OFG suffers losses on these mortgage loans when the proceeds from a foreclosure sale of the collateral property are less than the outstanding principal balance of the loan, any uncollected interest advanced, and the costs of holding and disposing the related property.
When OFG sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. OFG’s mortgage operations division groups conforming mortgage loans into pools which are exchanged for FNMA and GNMA mortgage-backed securities, which are generally sold to private investors, or are sold directly to FNMA or other private investors for cash. As required under such mortgage-backed securities programs, quality review procedures are performed by OFG to ensure that asset guideline qualifications are met. To the extent the loans do not meet specified characteristics, OFG may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. During 2023, OFG repurchased $9.6 million (December 31, 2022 –$24.2 million) of unpaid principal balance in mortgage loans, excluding mortgage loans subject to such credit recourse provision. At December 31, 2023 and 2022, OFG had a $405 thousand and a $1.4 million liability, respectively, for the estimated credit losses related to these loans.
During 2023, 2022 and 2021, OFG recognized $220 thousand and $148 thousand in gains and $157 thousand in losses, respectively, from the repurchase of residential mortgage loans sold subject to credit recourse, and $678 thousand in gains, $281 thousand and $4.3 million in losses, respectively, from the repurchase of residential mortgage loans as a result of breaches of customary representations and warranties.
At December 31, 2023, OFG serviced $5.6 billion (December 31, 2022 - $5.8 billion) in mortgage loans for third parties. Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including FHLMC, require OFG to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. OFG generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantee programs. However, in the meantime, OFG must absorb the cost of the funds it advances during the time the advance is outstanding. OFG must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and OFG would not receive any future servicing income with respect to that loan. At December 31, 2023, the outstanding balance of funds advanced by OFG under such mortgage loan servicing agreements was approximately $4.2 million (December 31, 2022 - $7.8 million). To the extent the mortgage loans underlying OFG’s servicing portfolio experience increased delinquencies, OFG would be required to dedicate additional cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.