XML 91 R11.htm IDEA: XBRL DOCUMENT v2.4.0.8
Securitization and Variable Interest Entities
 3 Months Ended
Mar. 31, 2014
Transfers and Servicing [Abstract]  
Securitizations and Variable Interest Entities
Note 2 — Securitizations and Variable Interest Entities
We securitize, sell and service forward and reverse residential mortgage loans and regularly transfer financial assets in connection with asset-backed financing arrangements. We have aggregated these securitizations and asset-backed financing arrangements into two groups: (1) securitizations of residential mortgage loans and (2) financings of advances on loans serviced for others.
We have determined that the special purpose entities (SPEs) created in connection with our match funded financing facilities are variable interest entities (VIEs) of which we are the primary beneficiary.
Securitizations of Residential Mortgage Loans
Currently, we securitize forward and reverse residential mortgage loans involving the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively the GSEs) and loans insured by the Federal Housing Authority (FHA) or Department of Veterans Affairs (VA). We retain the right to service these loans and receive servicing fees based upon the securitized loan balances and certain ancillary fees, all of which are reported in Servicing and subservicing fees on the unaudited Consolidated Statements of Operations.
Transfers of Forward Loans
We sell or securitize forward loans that we originate or that we purchase from third parties, generally in the form of mortgage-backed securities guaranteed by the GSEs or the Government National Mortgage Association (Ginnie Mae). Securitization usually occurs within 30 days of loan closing or purchase. We retain servicing rights associated with the transferred loans and receive a servicing fee for services provided. We act only as a fiduciary and do not have a variable interest in the securitization trusts. As a result, we account for these transactions as sales upon transfer.
We report the gain or loss on the transfer of the loans held for sale in Gain on loans held for sale, net in the unaudited Consolidated Statement of Operations along with changes in fair value of the loans and the gain or loss on the related derivatives. See Note 15 — Derivative Financial Instruments and Hedging Activities for information on these derivative financial instruments. We include all changes in loans held for sale and related derivative balances in operating activities in the unaudited Consolidated Statement of Cash Flows.
The following table presents a summary of cash flows received from and paid to securitization trusts related to transfers accounted for as sales that were outstanding during the three months ended March 31:
 
2014
 
2013
Proceeds received from securitizations
$
1,534,251

 
$
2,576,792

Servicing fees collected
5,194

 
1,518

 
$
1,539,445

 
$
2,578,310


In connection with these transfers, we recorded MSRs of $11.6 million and $28.7 million during the three months ended March 31, 2014 and 2013, respectively. We initially record the MSRs at fair value and subsequently account for them at amortized cost. See Note 9 — Mortgage Servicing for information relating to MSRs.
Certain obligations arise from agreements associated with our transfers of loans. Under these agreements, we may be obligated to repurchase the loans, or otherwise indemnify or reimburse the investor or insurer for losses incurred due to material breach of contractual representations and warranties. See Note 13 — Other Liabilities for further information.
The following table presents the carrying amounts of our assets that relate to our continuing involvement with forward loans that we have transferred with servicing rights retained as well as our maximum exposure to loss including the UPB of the transferred loans at the dates indicated:
 
March 31, 2014
 
December 31, 2013
Carrying value of assets:
 
 
 
Mortgage servicing rights, at amortized cost
$
49,219

 
$
44,615

Mortgage servicing rights, at fair value
3,079

 
3,075

Advances and match funded advances
11,069

 
15,888

Unpaid principal balance of loans transferred (1)
6,497,814

 
5,641,277

Maximum exposure to loss
$
6,561,181

 
$
5,704,855

(1)
The UPB of the loans transferred is the maximum exposure to loss under our standard representations and warranties obligations.
At March 31, 2014 and December 31, 2013, 2.9% and 2.6%, respectively, of the transferred residential loans that we serviced were 60 days or more past due. During the three months ended March 31, 2014, there were no charge-offs, net of recoveries, associated with these transferred loans.
Transfers of Reverse Mortgages
We are an approved issuer of Ginnie Mae Home Equity Conversion Mortgage-Backed Securities (HMBS) that are guaranteed by Ginnie Mae. We originate Home Equity Conversion Mortgages (HECMs, or reverse mortgages) that are insured by the FHA. We then pool the loans into HMBS that we sell into the secondary market with servicing rights retained. We have determined that loan transfers in the HMBS program do not meet the definition of a participating interest because of the servicing requirements in the product that require the issuer/servicer to absorb some level of interest rate risk, cash flow timing risk and incidental credit risk. As a result, the transfers of the HECMs do not qualify for sale accounting, and we, therefore, account for these transfers as financings. Under this accounting treatment, the HECMs are classified as Loans held for investment - reverse mortgages, at fair value, on our unaudited Consolidated Balance Sheets. We record the proceeds from the transfer of assets as secured borrowings (HMBS-related borrowings) in Financing liabilities and recognize no gain or loss on the transfer. Holders of participating interests in the HMBS have no recourse against the assets of Ocwen, except for standard representations and warranties and our contractual obligation to service the HECMs and the HMBS.
We have elected to measure the HECMS and HMBS-related borrowings at fair value. The changes in fair value of the HECMs and HMBS-related borrowings are included in Other revenues in our unaudited Consolidated Statement of Operations. Included in net fair value gains on the HECMs and related HMBS borrowings are the interest income that we expect to be collected on the HECMs and the interest expense that we expect to be paid on the HMBS-related borrowings. We report originations and collections of HECMs in investing activities in the unaudited Consolidated Statement of Cash Flows. We report net fair value gains on HECMs and the related HMBS borrowings as an adjustment to the net cash provided by or used in operating activities in the unaudited Consolidated Statement of Cash Flows. Proceeds from securitizations of HECMs and payments on HMBS-related borrowings are included in financing activities in the unaudited Consolidated Statement of Cash Flows.
At March 31, 2014 and December 31, 2013, we had HMBS-related borrowings of $870.5 million and $615.6 million and HECMs pledged as collateral to the pools of $923.5 million and $618.0 million, respectively. See Note 5 — Fair Value for a reconciliation of the changes in fair value of HECMs and HMBS-related borrowings for the three months ended March 31, 2014.
Financings of Advances on Loans Serviced for Others
Match funded advances on loans serviced for others result from our transfers of residential loan servicing advances to SPEs in exchange for cash. We consolidate these SPEs either because the transfers do not qualify for sales accounting treatment or because Ocwen is the primary beneficiary of the SPE. These SPEs issue debt supported by collections on the transferred advances.
We make these transfers under the terms of our advance facility agreements. We classify the transferred advances on our unaudited Consolidated Balance Sheets as Match funded advances and the related liabilities as Match funded liabilities. The SPEs use collections of the pledged advances to repay principal and interest and to pay the expenses of the SPE. Holders of the debt issued by these entities can look only to the assets of the SPE for satisfaction of the debt and have no recourse against Ocwen. However, Ocwen and OLS have guaranteed the payment of the obligations under the securitization documents of one of the entities. The maximum amount payable under the guarantee is limited to 10% of the notes outstanding at the end of the facility’s revolving period in December 2014. The entity to which this guarantee applies had $31.4 million of notes outstanding at March 31, 2014. The assets and liabilities of the advance financing SPEs are comprised solely of Match funded advances, Debt service accounts, Match funded liabilities and amounts due to affiliates. Amounts due to affiliates are eliminated in consolidation.
See Note 8 — Match Funded Advances, Note 11 - Other Assets and Note 12 — Borrowings for additional information.
Note 9 — Mortgage Servicing
Mortgage Servicing Rights – Amortization Method
The following tables summarize the activity in the carrying value of amortization method servicing assets for the three months ended March 31:
 
 
2014
 
2013
Beginning balance
 
$
1,953,352

 
$
678,937

Additions recognized in connection with business acquisitions:
 
 

 
 

OSI (1)
 
8,954

 
—

ResCap Acquisition (1)
 
11,370

 
393,891

Additions recognized in connection with asset acquisitions:
 
 
 
 
OneWest MSR Transaction (2)
 
1,516

 
—

Greenpoint MSR Transaction (3)
 
3,700

 
—

Other
 
1,481

 
972

Additions recognized on the sale of mortgage loans
 
11,614

 
28,705

Servicing transfers and adjustments
 
(364
)
 
(124
)
Amortization (4)
 
(62,094
)
 
(47,987
)
Ending balance
 
$
1,929,529

 
$
1,054,394

 
 
 
 
 
Estimated fair value at end of period
 
$
2,774,910

 
$
1,288,732

(1)
See Note 3 — Business Acquisitions for additional information regarding MSRs recognized in connection with business acquisitions.
(2)
The acquired MSRs relate to mortgage loans with a UPB of $1.1 billion and related servicing advances of $34.3 million acquired in the final closing of the OneWest MSR Transaction. The OneWest MSR Transaction closed in stages, and the majority of loans were boarded onto our primary servicing platform as of December 31, 2013.
(3)
The acquired MSRs relate to mortgage loans with a UPB of $948.9 million and related servicing advances of $47.6 million.
(4)
In the unaudited 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.
As disclosed in Note 4 — Sales of Advances and MSRs, we have sold certain Rights to MSRs as part of the HLSS Transactions which did not qualify as sales for accounting purposes. In addition, on February 26, 2014, we issued $123.6 million of Ocwen Asset Servicing Income Series (OASIS), Series 2014-1 Notes secured by Ocwen-owned MSRs relating to Freddie Mac mortgages of $11.8 billion UPB. We accounted for this transaction as a financing. See Note 12 — Borrowings for additional information.
The estimated amortization expense for MSRs, calculated based on assumptions used at March 31, 2014, is projected as follows over the next five years (See Note 1 — Description of Business and Basis of Presentation regarding a change in accounting estimate applicable to MRS amortization.):
2015
$
227,807

2016
193,589

2017
166,401

2018
143,094

2019
68,417


Mortgage Servicing Rights—Fair Value Measurement Method
This portfolio comprises servicing rights for which we elected the fair value option and includes Agency forward residential mortgage loans for which we previously hedged the related market risks.
The following table summarizes the activity related to fair value servicing assets for the three months ended March 31:
 
2014
 
2013
Beginning balance
$
116,029

 
$
85,213

Changes in fair value (1):
 
 
 
Changes in market value assumptions
(3,155
)
 
4,650

Realization of cash flows and other changes
(2,048
)
 
(5,329
)
Ending balance
$
110,826

 
$
84,534

(1)
Changes in fair value are recognized in Servicing and origination expense in the unaudited Consolidated Statement of Operations.
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 March 31, 2014 given hypothetical instantaneous parallel shifts in the yield curve:
 
Adverse change in fair value
 
10%
 
20%
Weighted average prepayment speeds
$
(8,475
)
 
$
(16,635
)
Discount rate (Option-adjusted spread)
$
(4,881
)
 
$
(9,371
)
 
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 primary 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. The UPB of assets serviced for others are not included on our unaudited Consolidated Balance Sheets.
 
Residential
 
Commercial
 
Total
UPB at March 31, 2014
 

 
 

 
 

Servicing (1)
$
391,701,237

 
$
—

 
$
391,701,237

Subservicing
57,869,359

 
318,507

 
58,187,866

 
$
449,570,596

 
$
318,507

 
$
449,889,103

UPB at December 31, 2013
 

 
 

 
 

Servicing (1)
$
397,546,635

 
$
—

 
$
397,546,635

Subservicing
67,104,697

 
400,502

 
67,505,199

 
$
464,651,332

 
$
400,502

 
$
465,051,834

UPB at March 31, 2013
 

 
 

 
 

Servicing (1)
$
272,252,405

 
$
—

 
$
272,252,405

Subservicing
194,819,256

 
392,584

 
195,211,840

 
$
467,071,661

 
$
392,584

 
$
467,464,245

(1)
Includes primary servicing UPB of $170.8 billion, $175.1 billion and $92.5 billion at March 31, 2014, December 31, 2013 and March 31, 2013, respectively, for which the Rights to MSRs have been sold to HLSS.
Residential assets serviced includes foreclosed real estate. Residential assets serviced also includes small-balance commercial assets with a UPB of $2.5 billion, $2.6 billion and $2.0 billion at March 31, 2014, December 31, 2013 and March 31, 2013, respectively, that are managed using the REALServicing™ platform. Commercial assets consist of large-balance foreclosed real estate.
Servicing Revenue
The following table presents the components of servicing and subservicing fees for the three months ended March 31:
 
2014
 
2013
Loan servicing and subservicing fees:
 
 
 
Servicing
$
351,823

 
$
235,156

Subservicing
33,725

 
33,866

 
385,548

 
269,022

Home Affordable Modification Program (HAMP) fees
36,699

 
40,147

Late charges
36,835

 
25,896

Loan collection fees
8,294

 
6,382

Custodial accounts (float earnings)
1,721

 
1,680

Other
21,362

 
26,182

 
$
490,459

 
$
369,309


Float balances (balances in custodial accounts, which represent collections of principal and interest that we receive from borrowers, are held in escrow by an unaffiliated bank and are excluded from our balance sheet) amounted to $3.5 billion and $4.7 billion at March 31, 2014 and 2013, respectively.