XML 98 R14.htm IDEA: XBRL DOCUMENT
v2.4.0.8

Fair Value | 3 Months Ended
--- | ---
Mar. 31, 2014
Fair Value Disclosures [Abstract] |
Fair Value | Note 5 — Fair Value Fair value is estimated based on a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is given to Level 1 inputs and the lowest to Level 3 inputs.
Level 1: | Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2: | Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: | Unobservable inputs for the asset or liability.
We classify assets in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying amounts and the estimated fair values of our financial instruments and our nonfinancial assets measured at fair value on a recurring or non-recurring basis are as follows at the dates indicated:
|  |  | March 31, 2014 |  | December 31, 2013
| Level |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans held for sale: |  |  |  |  |  |  |  |  |
Loans held for sale, at fair value (a) | 2 |  | $ | 338,228 |  |  | $ | 338,228 |  |  | $ | 503,753 |  |  | $ | 503,753 |
Loans held for sale, at lower of cost or fair value (b) | 3 |  | 45,475 |  |  | 45,475 |  |  | 62,907 |  |  | 62,907 |
Total Loans held for sale |  |  | $ | 383,703 |  |  | $ | 383,703 |  |  | $ | 566,660 |  |  | $ | 566,660 |
Loans held for investment - Reverse mortgages, at fair value (a) | 3 |  | $ | 923,464 |  |  | $ | 923,464 |  |  | $ | 618,018 |  |  | $ | 618,018 |
Advances and match funded advances (c) | 3 |  | 3,593,780 |  |  | 3,593,780 |  |  | 3,443,215 |  |  | 3,443,215 |
Receivables, net (c) | 3 |  | 182,724 |  |  | 182,724 |  |  | 152,516 |  |  | 152,516 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Match funded liabilities (c) | 3 |  | $ | 2,361,662 |  |  | $ | 2,361,662 |  |  | $ | 2,364,814 |  |  | $ | 2,364,814 |
Financing liabilities: |  |  |  |  |  |  |  |  |
HMBS-related borrowings, at fair value (a) | 3 |  | $ | 870,462 |  |  | $ | 870,462 |  |  | $ | 615,576 |  |  | $ | 615,576 |
Other (c) | 3 |  | 822,685 |  |  | 822,685 |  |  | 668,653 |  |  | 668,653 |
Total Financing liabilities |  |  | $ | 1,693,147 |  |  | $ | 1,693,147 |  |  | $ | 1,284,229 |  |  | $ | 1,284,229 |
Other secured borrowings: |  |  |  |  |  |  |  |  |
Senior secured term loan (c) | 3 |  | $ | 1,281,981 |  |  | $ | 1,267,043 |  |  | $ | 1,284,901 |  |  | $ | 1,270,108 |
Other (c) | 3 |  | 352,018 |  |  | 352,018 |  |  | 492,768 |  |  | 492,768 |
Total Other secured borrowings |  |  | $ | 1,633,999 |  |  | $ | 1,619,061 |  |  | $ | 1,777,669 |  |  | $ | 1,762,876 |
Derivative financial instruments (a): |  |  |  |  |  |  |  |  |  |  |  |  |
IRLCs | 2 |  | $ | 9,420 |  |  | $ | 9,420 |  |  | $ | 8,433 |  |  | $ | 8,433 |
Forward MBS trades | 1 |  | 699 |  |  | 699 |  |  | 6,905 |  |  | 6,905 |
Interest rate caps | 3 |  | 324 |  |  | 324 |  |  | 442 |  |  | 442 |
MSRs: |  |  |  |  |  |  |  |  |
MSRs, at fair value (a) | 3 |  | $ | 110,826 |  |  | $ | 110,826 |  |  | $ | 116,029 |  |  | $ | 116,029 |
MSRs, at amortized cost (c) | 3 |  | 1,929,529 |  |  | 2,774,910 |  |  | 1,953,352 |  |  | 2,441,719 |
Total MSRs |  |  | $ | 2,040,355 |  |  | $ | 2,885,736 |  |  | $ | 2,069,381 |  |  | $ | 2,557,748 |
(a) | Measured at fair value on a recurring basis.
(b) | Measured at fair value on a non-recurring basis.
(c) | Disclosed, but not carried, at fair value.
The following tables present a reconciliation of the changes in fair value of Level 3 assets and liabilities that we measure at fair value on a recurring basis:
| Loans Held for Investment - Reverse Mortgages |  | HMBS-Related Borrowings |  | Derivative Financial Instruments, net |  | MSRs |  | Total
Fair value at January 1, 2014 | $ | 618,018 |  |  | $ | (615,576 | ) |  | $ | 442 |  |  | $ | 116,029 |  |  | $ | 118,913 |
Purchases, issuances, sales and settlements: |  |  |  |  |  |  |  |  |  |  |  |
Purchases | — |  |  | — |  |  | — |  |  | — |  |  | — |
Issuances | 176,658 |  |  | (226,626 | ) |  | 24 |  |  | — |  |  | (49,944 | )
Transfer from loans held for sale, at fair value | 110,874 |  |  | — |  |  | — |  |  | — |  |  | 110,874 |
Sales | — |  |  | — |  |  | — |  |  | — |  |  | — |
Settlements | (14,029 | ) |  | 5,386 |  |  | — |  |  | — |  |  | (8,643 | )
| 273,503 |  |  | (221,240 | ) |  | 24 |  |  | — |  |  | 52,287 |
Total realized and unrealized gains and (losses): (1) |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings | 31,943 |  |  | (33,646 | ) |  | (142 | ) |  | (5,203 | ) |  | (7,048 | )
Included in Other comprehensive income (loss) | — |  |  | — |  |  | — |  |  | — |  |  | — |
| 31,943 |  |  | (33,646 | ) |  | (142 | ) |  | (5,203 | ) |  | (7,048 | )
Transfers in and / or out of Level 3 | — |  |  | — |  |  | — |  |  | — |  |  | — |
Fair value at March 31, 2014 | $ | 923,464 |  |  | $ | (870,462 | ) |  | $ | 324 |  |  | $ | 110,826 |  |  | $ | 164,152 |
|  | Derivative Financial Instruments, net |  | MSRs |  | Total
Fair value at January 1, 2013 |  | $ | (10,668 | ) |  | $ | 85,213 |  |  | $ | 74,545 |
Purchases, issuances, sales and settlements: |  |  |  |  |  |  |  |  |
Purchases |  | — |  |  | — |  |  | — |
Issuances |  | — |  |  | — |  |  | — |
Sales |  | — |  |  | — |  |  | — |
Settlements |  | 310 |  |  | — |  |  | 310 |
|  | 310 |  |  | — |  |  | 310 |
Total realized and unrealized gains and (losses) (1): |  |  |  |  |  |  |  |  |
Included in earnings |  | (1,353 | ) |  | (679 | ) |  | (2,032 | )
Included in Other comprehensive income (loss) |  | (6,924 | ) |  | — |  |  | (6,924 | )
|  | (8,277 | ) |  | (679 | ) |  | (8,956 | )
Transfers in and / or out of Level 3 |  | — |  |  | — |  |  | — |
Fair value at March 31, 2013 |  | $ | (18,635 | ) |  | $ | 84,534 |  |  | $ | 65,899 |
(1) | Total losses attributable to derivative financial instruments still held at March 31, 2014 and March 31, 2013 were $0.1 million and $4.8 million, respectively.
The methodologies that we use and key assumptions that we make to estimate the fair value of instruments and other assets and liabilities measured at fair value on a recurring or non-recurring basis and those disclosed, but not carried, at fair value are described below: Loans Held for Sale We originate and purchase residential forward and reverse mortgage loans that we intend to sell to the GSEs. We also own residential mortgage loans that are not eligible to be sold to the GSEs due to delinquency or other factors. Residential forward and reverse mortgage loans that we intend to sell to the GSEs are carried at fair value as a result of a fair value election. Such loans are subject to changes in fair value due to fluctuations in interest rates from the closing date through the date of the sale of the loan into the secondary market. These loans are classified within Level 2 of the valuation hierarchy because the primary component of the price is obtained from observable values of mortgage forwards for loans of similar terms and characteristics. We have the ability to access this market, and it is the market into which conventional and government insured mortgage loans are typically sold. We repurchase certain loans from Ginnie Mae guaranteed securitizations in connection with loan modifications and loan resolution activity as part of our servicing obligations. These are classified as loans held for sale at the lower of cost or fair value, in the case of modified loans, as we expect to redeliver (sell) the loans to new Ginnie Mae guaranteed securitizations. The fair value of these loans is estimated using published forward Ginnie Mae prices. Loans repurchased in connection with loan resolution activities are modified or otherwise remediated through loss mitigation activities or are reclassified to receivables. Because these loans are insured or guaranteed by the FHA or VA, the fair value of these loans represents the net recovery value taking into consideration the insured or guaranteed claim For all other loans held for sale, which we report at the lower of cost or fair value, market illiquidity has reduced the availability of observable pricing data. When we enter into an agreement to sell a loan or pool of loans to an investor at a set price, we value the loan or loans at the commitment price. We base the fair value of uncommitted loans on the expected future cash flows discounted at a rate commensurate with the risk of the estimated cash flows. Loans Held for Investment – Reverse Mortgages We have elected to measure these loans at fair value. For transferred reverse mortgage loans that do not qualify as sales for accounting purposes, we base the fair value on the expected future cash flows discounted over the expected life of the loans at a rate commensurate with the risk of the estimated cash flows. Significant assumptions include expected prepayment and delinquency rates and cumulative loss curves. The discount rate assumption for these assets is primarily based on an assessment of current market yields on newly originated reverse mortgage loans, expected duration of the asset and current market interest rates. The more significant assumptions used in the March 31, 2014 valuation include:
• | Life in years ranging from 2.56 to 22.86 (weighted average of 8.05);
• | Conditional repayment rate ranging from 4.79% to 56.59% (weighted average of 8.84%); and
• | Discount rate of 1.63%.
Significant increases or decreases in any of these assumptions in isolation could result in a significantly lower or higher fair value, respectively. Mortgage Servicing Rights Amortized Cost MSRs We estimate the fair value of MSRs carried at amortized cost using a combination of internal models and data provided by third-party valuation experts. The most significant assumptions used in our internal valuation are the speed at which mortgages prepay and delinquency experience. Other assumptions typically used in the internal valuation are:
• | Cost of servicing | • | Interest rate used for computing float earnings
• | Discount rate | • | Compensating interest expense
• | Interest rate used for computing the cost of financing servicing advances | • | Collection rate of other ancillary fees
The significant components of the estimated future cash inflows for MSRs include servicing fees, late fees, float earnings and other ancillary fees. Significant cash outflows include the cost of servicing, the cost of financing servicing advances and compensating interest payments. We estimate fair value using internal models and with the assistance of third-party valuation experts. Our internal models calculate the present value of expected future cash flows utilizing assumptions that we believe are used by market participants. We derive prepayment speeds and delinquency assumptions from historical experience adjusted for prevailing market conditions. We utilize a discount rate provided by third-party valuation experts, and we consider external market-based assumptions in determining the interest rate for the cost of financing advances, the interest rate for float earnings and the cost of servicing. Third-party valuation experts generally utilize: (a) transactions involving instruments with similar collateral and risk profiles, adjusted as necessary based on specific characteristics of the asset or liability being valued; and/or (b) industry-standard modeling, such as a discounted cash flow model, in arriving at their estimate of fair value. The prices provided by the valuation experts reflect their observations and assumptions related to market activity, including risk premiums and liquidity adjustments. The models and related assumptions used by the valuation experts are owned and managed by them and, in many cases, the significant inputs used in the valuation techniques are not reasonably available to us. However, we have an understanding of the processes and assumptions used to develop the prices based on our ongoing due diligence, which includes regular discussions with the valuation experts. We believe that the procedures executed by the valuation experts, combined with our internal verification and analytical procedures, provide assurance that the prices used in our unaudited consolidated financial statements comply with the accounting guidance for fair value measurements and disclosures and reflect the assumptions that a market participant would use. The more significant assumptions used in the March 31, 2014 valuation of our MSRs carried at amortized cost include:
• | Prepayment speeds ranging from 6.62% to 17.63% (weighted average of 13.78%) depending on loan type;
• | Delinquency rates ranging from 7.02% to 31.04% (weighted average of 16.59%) depending on loan type;
• | Interest rate of 1-month LIBOR plus a range of 0.00% to 3.50% for computing the cost of financing servicing advances;
• | Interest rate of 1-month LIBOR for computing float earnings; and
• | Discount rates ranging from 9.88%% to 16.46% (weighted average of 11.67%)
We perform an impairment analysis based on the difference between the carrying amount and fair value after grouping the underlying loans into the applicable strata. In response to the significant change in the composition of our MSR portfolio as a result of recent acquisitions, our stratum are defined as conventional, government insured, non-Agency (i.e. all private label primary and master serviced loans except non-Agency prime) and non-Agency prime (loans generally conforming to the underwriting standards of Fannie Mae and Freddie Mac that exceeded GSE loan limits, commonly referred to as jumbo mortgage loans). Fair Value MSRs MSRs carried at fair value are classified within Level 3 of the valuation hierarchy due to the use of third party valuation expert pricing without adjustment. The fair value of these MSRs is within the range of prices provided by the valuation experts; however, a change in the valuation inputs utilized by the valuation expert or a change in the best point price in the range might result in a significantly higher or lower fair value measurement. The key assumptions (generally unobservable inputs) used in the valuation of these MSRs include:
• | Mortgage prepayment speeds;
• | Delinquency rates; and
• | Discount rates.
The primary assumptions used in the March 31, 2014 valuation include an 8.35% weighted average constant prepayment rate and a discount rate equal to 1-Month LIBOR plus 10.28%. Advances We value advances at their net realizable value, which generally approximates fair value, because advances have no stated maturity, generally are realized within a relatively short period of time and do not bear interest. Receivables The carrying value of receivables generally approximates fair value because of the relatively short period of time between their origination and realization. Borrowings Match Funded Liabilities For match funded liabilities that bear interest at a rate that is adjusted regularly based on a market index, the carrying value approximates fair value. For match funded liabilities that bear interest at a fixed rate, we determine fair value by discounting the future principal and interest repayments at a market rate commensurate with the risk of the estimated cash flows. We estimate principal repayments of match funded liabilities during the amortization period based on our historical advance collection rates and taking into consideration any plans to refinance the notes. At March 31, 2014, the interest on all borrowings under match funded facilities was based on a variable rate adjusted regularly using a market index, and therefore, the carrying value approximates fair value. HMBS-Related Borrowings We have elected to measure these borrowings at fair value. We recognize the proceeds from the transfer of reverse mortgages as a secured borrowing that we account for at fair value. These borrowings are not actively traded and therefore quoted market prices are not available. We determine fair value by discounting the future principal and interest repayments over the estimated life of the borrowing at a market rate commensurate with the risk of the estimated cash flows. Significant assumptions include prepayments, discount rate and borrower mortality rates for reverse mortgages. The discount rate assumption for these liabilities is based on an assessment of current market yields for newly issued HMBS, expected duration and current market interest rates. The more significant assumptions used in the March 31, 2014 valuation include:
• | Life in years ranging from 2.54 to 22.24 (weighted average of 7.01);
• | Conditional repayment rate ranging from 4.79% to 56.02% (weighted average of 8.84%); and
• | Discount rate of 1.06%.
Significant increases or decreases in any of these assumptions in isolation would result in a significantly higher or lower fair value. Financing Liability - MSRs Pledged The carrying value of the Financing Liability - MSRs Pledged approximates fair value. We initially establish the value of the Financing Liability - MSRs Pledged based on the price at which the Rights to MSRs are sold to HLSS. Thereafter, the carrying value of the Financing Liability - MSRs pledged is adjusted from time to time to reflect changes in the net present value of the estimated future cash flows of the underlying MSRs. Since these cash flows are ceded to HLSS as part of the HLSS Transactions, the future cash flows of the underlying MSRs also represent the future payments to HLSS of principal and interest on the Financing Liability - MSRs Pledged. As a result, the net present value of the future cash flows related to the underlying MSRs also represent the net present value of the principal and interest payments to be made on the Financing Liability - MSRs Pledged. The net present value of these future cash flows represents the fair value of the Financing Liability - MSRs Pledged. Other Secured Borrowings The carrying value of secured borrowings that bear interest at a rate that is adjusted regularly based on a market index approximates fair value. For other secured borrowings that bear interest at a fixed rate, we determine fair value by discounting the future principal and interest repayments at a market rate commensurate with the risk of the estimated cash flows. For the SSTL, we used a discount rate of 5.6% and the repayment schedule specified in the loan agreement to determine fair value at March 31, 2014. Derivative Financial Instruments Interest rate lock commitments (IRLCs) represent an agreement to purchase loans from a third-party originator, an agreement to extend credit to a mortgage applicant (locked pipeline) or an agreement to sell a loan to investors, whereby the interest rate is set prior to funding. IRLCs are classified within Level 2 of the valuation hierarchy as the primary component of the price is obtained from observable values of mortgage forwards for loans of similar terms and characteristics. Fair value amounts of IRLCs are adjusted for expected “fallout” (locked pipeline loans not expected to close) using models that consider cumulative historical fallout rates and other factors. We enter into forward mortgage-backed securities (MBS) trades to provide an economic hedge against changes in fair value of residential forward and reverse mortgage loans held for sale that we carry at fair value. Forward MBS trades are primarily used to fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. Forward contracts are actively traded in the market and we obtained unadjusted market quotes for these derivatives, thus they are classified within Level 1 of the valuation hierarchy. In addition, we may use interest rate caps to minimize future interest rate exposures on variable rate debt issued on servicing advance facilities from increases in one-month LIBOR interest rates. The fair value for interest rate caps is based on counterparty market prices and adjusted for counterparty credit risk. See Note 15 — Derivative Financial Instruments and Hedging Activities for additional information regarding derivative financial instruments.

X
- Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25499696&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13504-108611 + Details
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration