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Mortgage Servicing | 9 Months Ended
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Sep. 30, 2015
Transfers and Servicing [Abstract] |
Mortgage Servicing | Note 8 – Mortgage Servicing Mortgage Servicing Rights – Amortization Method The following table summarizes the activity in the carrying value of amortization method servicing assets for the nine months ended September 30. Amortization of mortgage servicing rights is reported net of the amortization of any servicing liabilities and includes the amount of charges we recognized to increase servicing liability obligations, if any.
|  | 2015 |  | 2014
Beginning balance |  | $ | 1,820,091 |  |  | $ | 1,953,352 |
Fair value election - transfer to MSRs carried at fair value (1) |  | (787,142 | ) |  | — |
Additions recognized in connection with business acquisitions |  | — |  |  | 20,378 |
Additions recognized in connection with asset acquisitions |  | 10,055 |  |  | 19,338 |
Additions recognized on the sale of mortgage loans |  | 27,791 |  |  | 50,480 |
Sales |  | (591,605 | ) |  | (137 | )
Servicing transfers and adjustments |  | — |  |  | (518 | )
|  | 479,190 |  |  | 2,042,893 |
Amortization |  | (88,188 | ) |  | (186,075 | )
Impairment |  | (25,051 | ) |  | — |
Ending balance |  | $ | 365,951 |  |  | $ | 1,856,818 |
Estimated fair value at end of period |  | $ | 404,533 |  |  | $ | 2,364,393 |
(1) | Effective January 1, 2015, we elected fair value accounting for a newly-created class of non-Agency MSRs, which were previously accounted for using the amortization method. This irrevocable election applies to all subsequently acquired or originated servicing assets and liabilities that have characteristics consistent with this class. We recorded a cumulative-effect adjustment of $52.0 million (before deferred income taxes of $9.2 million) to retained earnings as of January 1, 2015 to reflect the excess of the fair value of these MSRs over their carrying amount. At December 31, 2014, the UPB of the loans related to the non-Agency MSRs for which the fair value election was made was $195.3 billion.
Mortgage Servicing Rights—Fair Value Measurement Method This portfolio comprises servicing rights for which we elected the fair value option and includes Agency residential mortgage loans for which we previously hedged the related market risks and a new class of non-Agency residential mortgage loans for which we elected fair value as of January 1, 2015. The following table summarizes the activity related to fair value servicing assets for the nine months ended September 30:
| 2015 |  | 2014
| Agency | Non-Agency | Total |  | Agency
Beginning balance | $ | 93,901 |  | $ | — |  | $ | 93,901 |  |  | $ | 116,029 |
Fair value election - transfer from MSRs carried at amortized cost | — |  | 787,142 |  | 787,142 |  |  | — |
Cumulative effect of fair value election | — |  | 52,015 |  | 52,015 |  |  | — |
Sales | (70,084 | ) | (1,234 | ) | (71,318 | ) |  | — |
Servicing transfers and adjustments | — |  | (1,139 | ) | (1,139 | ) |  | (934 | )
Changes in fair value (1): |  |  |  |  |
Changes in valuation inputs or other assumptions | (2,592 | ) | 12,031 |  | 9,439 |  |  | (12,217 | )
Realization of expected future cash flows and other changes | (6,808 | ) | (75,888 | ) | (82,696 | ) |  | (930 | )
Ending balance | $ | 14,417 |  | $ | 772,927 |  | $ | 787,344 |  |  | $ | 101,948 |
(1) | Changes in fair value are recognized in Servicing and origination expense in the Unaudited Consolidated Statements 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 or an improving housing market (as prepayments increase) and increase in periods of rising interest rates or deteriorating housing market (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, 2015 given hypothetical shifts in lifetime prepayments and yield assumptions:
| Adverse change in fair value
| 10% |  | 20%
Weighted average prepayment speeds | $ | (68,927 | ) |  | $ | (145,410 | )
Discount rate (option-adjusted spread) | $ | (21,359 | ) |  | $ | (39,902 | )
The sensitivity analysis measures the potential impact on fair values based on these hypothetical changes, which in the case of our portfolio at September 30, 2015 are increased prepayment speeds and a decrease in the yield assumption. 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 September 30, 2015 |  |  |  |  |  |  |  |
Servicing (1) | $ | 238,108,447 |  |  | $ | — |  |  | $ | 238,108,447 |
Subservicing | 49,960,702 |  |  | 180,877 |  |  | 50,141,579 |
| $ | 288,069,149 |  |  | $ | 180,877 |  |  | $ | 288,250,026 |
UPB at December 31, 2014 |  |  |  |  |  |  |  |
Servicing (1) | $ | 361,288,281 |  |  | $ | — |  |  | $ | 361,288,281 |
Subservicing | 37,439,446 |  |  | 149,737 |  |  | 37,589,183 |
| $ | 398,727,727 |  |  | $ | 149,737 |  |  | $ | 398,877,464 |
UPB at September 30, 2014 |  |  |  |  |  |  |  |
Servicing (1) | $ | 360,919,248 |  |  | $ | — |  |  | $ | 360,919,248 |
Subservicing | 50,360,366 |  |  | 216,111 |  |  | 50,576,477 |
| $ | 411,279,614 |  |  | $ | 216,111 |  |  | $ | 411,495,725 |
(1) | Includes primary servicing UPB of $146.0 billion, $160.8 billion and $160.8 billion at September 30, 2015, December 31, 2014 and September 30, 2014, respectively, for which the Rights to MSRs have been sold to NRZ.
Residential assets serviced includes foreclosed real estate. Residential assets serviced also includes small-balance commercial assets with a UPB of $1.9 billion, $2.3 billion and $2.4 billion at September 30, 2015, December 31, 2014 and September 30, 2014, respectively. Commercial assets consist of large-balance foreclosed real estate. A significant portion of the servicing agreements for our non-Agency servicing portfolio contain provisions where we could be terminated as servicer without compensation upon the failure of the serviced loans to meet certain portfolio delinquency or cumulative loss thresholds or in the event we fail to maintain required servicer ratings, among other provisions. As a result of the economic downturn of recent years, the portfolio delinquency and/or cumulative loss threshold provisions have been breached by many private-label securitizations in our non-Agency servicing portfolio. Terminations as servicer as a result of a breach of any of these provisions have been minimal. In the event we are terminated as servicer and the Rights to MSRs were sold, we are obligated to compensate NRZ. As a result of the transfer of servicing to another party during 2015 related to Rights to MSRs, we were required to reimburse NRZ $2.2 million in accordance with our agreements. Servicing Revenue The following table presents the components of servicing and subservicing fees for the three and nine months ended September 30:
| Three Months |  | Nine Months
| 2015 |  | 2014 |  | 2015 |  | 2014
Loan servicing and subservicing fees: |  |  |  |  |  |  |
Servicing | $ | 274,089 |  |  | $ | 331,794 |  |  | $ | 879,098 |  |  | $ | 1,039,033 |
Subservicing | 14,354 |  |  | 30,926 |  |  | 72,968 |  |  | 95,509 |
| 288,443 |  |  | 362,720 |  |  | 952,066 |  |  | 1,134,542 |
Home Affordable Modification Program (HAMP) fees | 32,318 |  |  | 37,644 |  |  | 108,698 |  |  | 111,000 |
Late charges | 19,162 |  |  | 27,634 |  |  | 63,557 |  |  | 97,002 |
Loan collection fees | 6,682 |  |  | 8,655 |  |  | 25,176 |  |  | 25,573 |
Custodial accounts (float earnings) | 836 |  |  | 1,831 |  |  | 4,633 |  |  | 5,235 |
Other | 12,576 |  |  | 27,480 |  |  | 49,411 |  |  | 74,744 |
| $ | 360,017 |  |  | $ | 465,964 |  |  | $ | 1,203,541 |  |  | $ | 1,448,096 |
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 Unaudited Consolidated Balance Sheets) amounted to $2.0 billion and $3.7 billion at September 30, 2015 and September 30, 2014, 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 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=13989330&loc=d3e107207-111719 Reference 2: 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 3: 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 4: 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 5: 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 6: 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 7: 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 + Details
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