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Note 8 MORTGAGE SERVICING | 12 Months Ended
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Dec. 31, 2012
Transfers and Servicing of Financial Assets [Text Block] |
NOTE 8 | MORTGAGE SERVICING
The following table presents the components of servicing and subservicing fees for the years ended December 31:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Loan servicing and subservicing fees |  | $ | 581,067 |  |  | $ | 341,438 |  |  | $ | 226,284 |
Home Affordable Modification Program (HAMP) fees |  |  | 76,764 |  |  |  | 42,025 |  |  |  | 32,363 |
Late charges |  |  | 69,281 |  |  |  | 38,557 |  |  |  | 32,760 |
Loan collection fees |  |  | 15,960 |  |  |  | 11,223 |  |  |  | 8,958 |
Float earnings |  |  | 3,749 |  |  |  | 2,105 |  |  |  | 2,843 |
Other |  |  | 57,604 |  |  |  | 23,527 |  |  |  | 18,491 |
|  | $ | 804,425 |  |  | $ | 458,875 |  |  | $ | 321,699 |
Mortgage Servicing Rights – Amortization Method Servicing Assets. The following table summarizes the activity in the carrying value of residential servicing assets for the years ended December 31:
For the year ended December 31, |  | 2012 |  |  | 2011 |  |  | 2010 |
Beginning balance |  | $ | 293,152 |  |  | $ | 193,985 |  |  | $ | 117,802 |
Purchases: |  |  |  |  |  |  |  |  |  |  |  |
HomEq Acquisition |  |  | — |  |  |  | — |  |  |  | 84,324 |
Litton Acquisition |  |  | — |  |  |  | 144,314 |  |  |  | — |
Homeward Acquisition (1) |  |  | 275,844 |  |  |  | — |  |  |  | — |
MSR asset acquisitions (2) |  |  | 181,979 |  |  |  | — |  |  |  | 23,425 |
Servicing transfers and adjustments |  |  | (4 | ) |  |  | — |  |  |  | (29 | )
Decrease in impairment valuation allowance |  |  | (88 | ) |  |  | 574 |  |  |  | 90 |
Amortization (3) |  |  | (74,171 | ) |  |  | (45,721 | ) |  |  | (31,627 | )
Ending balance |  | $ | 676,712 |  |  | $ | 293,152 |  |  | $ | 193,985 |
Fair value at end of year |  | $ | 743,830 |  |  | $ | 340,015 |  |  | $ | 237,407 |
(1) | See Note 2 for additional information regarding the acquisition of MSRs from Homeward.
(2) | MSR asset acquisitions for 2012 include:
| • | On April 2, 2012, we completed an acquisition from Saxon Mortgage Services, Inc. (Saxon) of an MSR portfolio of approximately $22.2 billion in UPB of residential mortgage loans, approximately $9.9 billion of which Ocwen had previously subserviced, and approximately $1.2 billion of associated servicing advances (the 2012 Saxon MSR Transaction). To finance the 2012 Saxon MSR Transaction, we utilized a combination of available cash and two new two-year servicing advance facilities. On April 2, 2012, we also completed an acquisition of MSRs from JPMorgan Chase Bank, N.A. (JPMCB) which includes servicing rights for non-prime loans with a UPB of approximately $8.1 billion (the JPMCB MSR Transaction) and $557,184 of servicing advances. Ocwen financed the purchase price through available cash and an existing servicing advance facility.
| • | On May 31, 2012, we completed the acquisition of MSRs from Aurora Bank FSB (Aurora) on a portfolio of small-balance commercial mortgage loans with a total UPB of $1.8 billion and $52,911 of servicing advances.
| • | On June 11, 2012, we purchased residential MSRs from Bank of America, N.A. (BANA) with respect to mortgage loans with a UPB of approximately $10.1 billion owned by Freddie Mac. We entered into a new servicing advance facility to finance a portion of the related servicing advances acquired in the transaction. At December 31, 2012, the acquired MSRs, which had a carrying value of $58,472, were pledged as collateral for the promissory note used to finance the purchase.
| • | On July 2 and 16, 2012, we closed on the acquisitions of MSR portfolios totaling approximately $316 million in UPB of residential mortgage loans owned by Fannie Mae and Freddie Mac.
| • | On September 4, 2012, we purchased an additional MSR portfolio of approximately $2.2 billion in UPB of residential mortgage loans owned by Fannie Mae. We boarded these loans on October 1, 2012.
(3) | In the Consolidated Statement of Operations, Amortization of mortgage servicing rights is reported net of the amortization of servicing liabilities and includes the amount of charges we recognized to increase servicing liability obligations.
See Note 13 and Note 14 for additional information regarding the advance facilities and promissory note used to finance the advances and MSRs acquired in the transactions described above. As disclosed in Note 3, we sold certain Rights to MSRs during 2012 as part of the HLSS Transactions. The carrying value of the related MSRs which have not been derecognized at December 31, 2012 was $273,028. The estimated amortization expense for MSRs, calculated based on assumptions used at December 31, 2012, is projected as follows over the next five years:
2013 |  | $ | 122,365 |
2014 |  |  | 100,316 |
2015 |  |  | 82,240 |
2016 |  |  | 67,421 |
2017 |  |  | 55,273 |
Valuation Allowance for Impairment. During 2008, we established a valuation allowance for impairment of $3,624 on the high-loan-to-value stratum of our mortgage servicing rights as the estimated fair value was less than the carrying value. Changes in the valuation allowance for impairment are reflected in Servicing and origination expenses in the Consolidated Statement of Operations. Net of the valuation allowance of $2,378 and $2,290, the carrying value of this stratum was $0 and $214 at December 31, 2012 and 2011, respectively. For all other strata, the fair value exceeded the carrying value. Servicing Liabilities. Servicing liabilities are included in Other liabilities. See Note 16 for additional information. Mortgage Servicing Rights—Fair Value Measurement Method This portfolio comprises servicing rights for prime mortgage loans that were acquired by Homeward through asset or flow purchases or retained on loans originated and subsequently sold. We acquired these loans as part of the Homeward Acquisition at an initial fair value of $82,275. See Note 4 for a reconciliation of changes in the fair value from the acquisition date to $85,213 at December 31, 2012. Because the mortgages underlying these MSRs permit the borrowers to prepay the loans, the value of the MSRs generally tends to diminish in periods of declining interest rates (as prepayments increase) and increase in periods of rising interest rates (as prepayments decrease). The following table summarizes the estimated change in the fair value of the MSRs and related derivatives as of December 31, 2012 given hypothetical instantaneous parallel shifts in the yield curve:
|  | Adverse change in fair value |
|  | 10% |  |  | 20% |
Weighted average prepayment speeds |  | $ | (6,374 | ) |  | $ | (13,681 | )
Discount rate (Option-adjusted spread) |  | $ | (3,533 | ) |  | $ | (6,448 | )
The sensitivity analysis measures the potential impact on fair values based on hypothetical changes (increases and decreases) in interest rates. Portfolio of Assets Serviced The following table presents the composition of our servicing and subservicing portfolios by type of property serviced as measured by UPB. The servicing portfolio represents loans for which we own the MSRs while subservicing represents all other loans.
|  | Residential |  |  | Commercial |  |  | Total |
UPB at December 31, 2010 |  |  |  |  |  |  |  |  |  |  |  |
Servicing |  | $ | 51,252,380 |  |  | $ | — |  |  | $ | 51,252,380 |
Subservicing |  |  | 22,634,011 |  |  |  | 434,305 |  |  |  | 23,068,316 |
|  | $ | 73,886,391 |  |  | $ | 434,305 |  |  | $ | 74,320,696 |
UPB at December 31, 2011 |  |  |  |  |  |  |  |  |  |  |  |
Servicing |  | $ | 78,675,160 |  |  | $ | — |  |  | $ | 78,675,160 |
Subservicing |  |  | 23,524,062 |  |  |  | 290,863 |  |  |  | 23,814,925 |
|  | $ | 102,199,222 |  |  | $ | 290,863 |  |  | $ | 102,490,085 |
UPB at December 31, 2012 |  |  |  |  |  |  |  |  |  |  |  |
Servicing (1) |  | $ | 175,762,161 |  |  | $ | — |  |  | $ | 175,762,161 |
Subservicing |  |  | 27,903,555 |  |  |  | 401,031 |  |  |  | 28,304,586 |
|  | $ | 203,665,716 |  |  | $ | 401,031 |  |  | $ | 204,066,747 |
(1) | Includes UPB of $79,360,874 for which the Rights to MSRs have been sold to HLSS.
Residential assets serviced consist principally of mortgage loans, primarily subprime, but also include foreclosed real estate. Residential assets serviced also include small-balance commercial assets with a UPB of $2.1 billion and $586,080 at December 31, 2012 and 2011, respectively that are managed using the REALServicing™ application. Commercial assets subserviced consist of large-balance foreclosed real estate. Assets serviced for others are not included on our Consolidated Balance Sheet. At December 31, 2012, the geographic distribution of the UPB and count of residential loans and real estate we serviced was as follows:
|  | Amount |  |  | Count |
California |  | $ | 45,851,476 |  |  |  | 160,501 |
Florida |  |  | 22,731,227 |  |  |  | 136,224 |
New York |  |  | 17,276,718 |  |  |  | 67,725 |
Texas |  |  | 9,151,031 |  |  |  | 99,935 |
Illinois |  |  | 8,174,504 |  |  |  | 53,203 |
Other |  |  | 100,480,760 |  |  |  | 702,368 |
|  | $ | 203,665,716 |  |  |  | 1,219,956 |
Float balances amounted to approximately $1.3 billion and $555,500 at December 31, 2012 and 2011, respectively.

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- Definition The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 50 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7882072&loc=d3e122739-111746 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Staff Position (FSP) -Number FAS140-4/FIN46(R)-8 -Paragraph 6 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=13989330&loc=d3e107207-111719 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Staff Position (FSP) -Number FAS140-4/FIN46(R)-8 -Paragraph B1-B12 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=13989330&loc=d3e107314-111719 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7519067&loc=SL6226443-111709 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 50 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7882072&loc=d3e122625-111746 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7519067&loc=SL6226446-111709 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 50 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7882072&loc=d3e122596-111746 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 140 -Paragraph 17 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7523297&loc=d3e113969-111729 + Details
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