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NOTE 9 MORTGAGE SERVICING

9 Months Ended

Sep. 30, 2013

Mortgage Servicing [Abstract]

MORTGAGE SERVICING

Note 9

Mortgage Servicing

Mortgage Servicing Rights – Amortization Method

The following table summarizes our activity related to MSRs for the nine months ended September 30:

	2013			2012
Balance at December 31	$	678,937		$	293,152
Additions recognized in connection with business and asset acquisitions (1)		1,208,222			181,949
Additions recognized on the sale of residential mortgage loans		63,154			—
Sales (2)		(17,523	)		—
Servicing transfers, adjustments and other		2,052			(88	)
Amortization (3)		(197,899	)		(54,678	)
Balance at September 30	$	1,736,943		$	420,335

Estimated fair value at September 30	$	2,532,239		$	488,499

(1)

MSR recognized in connection with business and asset acquisitions during the first nine months of 2013 include:

●

MSRs of $391.9 million acquired in the ResCap Acquisition. See Note 4 – Business Acquisitions for additional information.

●

MSRs of $683.8 million acquired in the Ally MSR Transaction. The acquired MSRs relate to mortgage loans with a UPB of $87.5 billion owned by Freddie Mac and Fannie Mae. We also acquired servicing advances and other receivables of $73.6 million. We assumed the origination representation and warranty obligations of approximately $136.7 million in connection with a majority of the acquired MSRs. We had been subservicing these MSRs on behalf of Ally under a subservicing contract assumed by us in connection with the ResCap Acquisition.

●

MSRs of $127.0 million with a UPB of approximately $30.5 billion and related servicing advance receivables of $371.6 million acquired in the OneWest MSR Transaction. We expect the remainder of the transaction to close during the fourth quarter. The total estimated purchase price is approximately $2.4 billion with $432.2 million attributed to MSRs and $2.0 billion attributed to servicing advances. The total UPB to be acquired is estimated at $72.4 billion. No operations or other assets were purchased in the transaction. In October 2013, we closed the purchase of approximately $6.6 million of MSRs with a UPB of approximately $1.1 billion and approximately $37.1 million of servicing advances. On November 1, 2013, we closed the purchase of approximately $235.6 million of MSRs with a UPB of approximately $32.9 billion and approximately $1.3 billion of servicing advances. See Note 26 - Subsequent Events for additional information.

(2)

Cash proceeds from the sale were $21.5 million. These MSRs were sold with subservicing retained. The gain on the sale of $3.2 million has been deferred and will be recognized in earnings over the life of the subservicing contract.

(3)

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 3 – Transfers of Financial Assets, we sold certain Rights to MSRs during 2012 and 2013 as part of the HLSS Transactions. The carrying value of the related MSRs which have not been derecognized at September 30, 2013 was $465.8 million.

Mortgage Servicing Rights—Fair Value Measurement Method

This portfolio comprises servicing rights for which we elected the fair value option and includes prime forward mortgage loans for which we hedged the related market risks. We acquired these MSRs as part of the Homeward Acquisition. See Note 4 – Business Acquisitions for additional information.

The following table summarizes the activity related to our fair value MSRs for the nine months ended September 30, 2013:

Balance at December 31, 2012	$	85,213
Changes in fair value:
Due to changes in market valuation assumptions		19,800
Realization of cash flows and other changes		(8,075	)
Balance at September 30, 2013	$	96,938

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 value of the MSRs that we carry at fair value as of September 30, 2013 given hypothetical instantaneous parallel shifts in the yield curve:

	Adverse change in fair value
	10%			20%
Weighted average prepayment speeds	$	(3,695	)	$	(7,234	)
Discount rate (Option-adjusted spread)	$	(2,148	)	$	(4,128	)

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 periods ended September 30:

	Three Months				Nine Months
	2013		2012		2013		2012
Loan servicing and subservicing fees:
Servicing	$	335,884	$	145,861	$	887,500	$	394,454
Subservicing		35,286		14,257		115,437		27,619
		371,170		160,118		1,002,937		422,073
Home Affordable Modification Program (HAMP) fees		40,213		21,687		118,412		55,761
Late charges		30,445		16,370		85,930		52,891
Loan collection fees		8,387		4,102		22,524		11,271
Custodial accounts (float earnings)		743		942		4,533		2,393
Other		32,309		19,792		99,056		34,046
	$	483,267	$	223,011	$	1,333,392	$	578,435

Portfolio of Assets Serviced

The following table presents the composition of our servicing and subservicing portfolios by type of asset 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 September 30, 2013
Servicing (1)	$	362,792,312	$	—	$	362,792,312
Subservicing		72,027,114		495,312		72,522,426
	$	434,819,426	$	495,312	$	435,314,738

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 $177.1 billion and $79.4 billion at September 30, 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 $2.5 billion and $2.1 billion at September 30, 2013 and December 31, 2012, respectively, that are managed using the REALServicing™ application. Commercial assets consist of large-balance foreclosed real estate. The UPB of assets serviced for others are not included on our unaudited Consolidated Balance Sheets.

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 Sheets. Custodial accounts amounted to $3.5 billion and $1.3 billion at September 30, 2013 and December 31, 2012, respectively.