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NOTE 9 MORTGAGE SERVICING
 3 Months Ended
Mar. 31, 2013
Transfers and Servicing [Abstract]  
MORTGAGE SERVICING
Note 9 Mortgage Servicing

Mortgage Servicing Rights – Amortization Method

The following table summarizes our activity related to MSRs for the three months ended March 31:

    2013     2012  
Balance at December 31, 2012   $ 676,712     $ 293,152  
    Additions recognized in connection with purchase transactions (1)     394,862       —  
    Additions recognized on sale of residential mortgage loans     28,705       —  
    Servicing transfers, adjustments and other     (124 )     (204 )
    Amortization (2)     (47,987 )     (15,232 )
Balance at March 31, 2013   $ 1,052,168     $ 277,716  
Estimated fair value at March 31   $ 1,288,732     $ 316,078  

(1) Includes $393.9 million acquired in the ResCap Acquisition. See Note 3 – Business Acquisitions for additional information.

(2) 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.

As disclosed in Note 4 – Asset Sales and Financing, we sold certain Rights to MSRs during 2012 and in the first quarter of 2013 as part of the HLSS Transactions. The carrying value of the related MSRs which have not been derecognized at March 31, 2013 was $357.0 million.

Mortgage Servicing Rights—Fair Value Measurement Method

This portfolio comprises servicing rights for which we elected the fair value option and includes prime mortgage loans that were acquired by Homeward through asset or flow purchases or retained on loans originated and subsequently sold for which we hedged the related market risks. The following table summarizes our activity related to our fair value MSRs for the three months ended March 31, 2013:

Balance at December 31, 2012   $ 85,213  
   Changes in fair value:        
       Due to changes in valuation assumptions     4,650  
       Realization of cash flows and other changes     (5,329 )
Balance at March 31, 2013   $ 84,534  

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 our MSRs as of March 31, 2013 given hypothetical instantaneous parallel shifts in the yield curve:

    Adverse change in fair value  
    10%   20%
Weighted average prepayment speeds   $ (5,164 )   $ (9,912 )
Discount rate (Option-adjusted spread)   $ (2,804 )   $ (5,444 )

The sensitivity analysis measures the potential impact on fair values based on hypothetical changes (increases and decreases) in interest rates.

 

Servicing Revenue

The following table presents the components of servicing and subservicing fees for the three months ended March 31:

    2013     2012  
Loan servicing and subservicing fees   $ 269,022     $ 112,589  
Home Affordable Modification Program (HAMP) fees     40,147       12,684  
Late charges     25,896       18,845  
Loan collection fees     6,382       3,339  
Float earnings     1,680       787  
Other     26,182       6,859  
    $ 369,309     $ 155,103  

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 March 31, 2013                        
     Servicing (1)    $ 273,970,522     $ —     $ 273,970,522  
     Subservicing     195,484,010       392,584       195,876,594  
    $ 469,454,532     $ 392,584     $ 469,847,116  
                         
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 $92.5 billion and $79.4 billion at March 31, 2013 and December 31, 2012, respectively, for which the Rights to MSRs have been sold to HLSS.

Residential assets serviced consist principally of residential mortgage loans, but also include foreclosed real estate. Residential assets serviced also include small-balance commercial assets with a UPB of $2.0 billion and $2.1 billion at March 31, 2013 and December 31, 2012, respectively, that are managed using the REALServicing™ application. Commercial assets consist of large-balance foreclosed real estate. Assets serviced for others are not included on our unaudited Consolidated Balance Sheet.

Custodial accounts, which hold funds representing collections of principal and interest that we receive from borrowers, are held in escrow by an unaffiliated bank and are excluded from our unaudited Consolidated Balance Sheet. Custodial accounts amounted to $4.7 billion and $1.3 billion at March 31, 2013 and December 31, 2012, respectively.