Note 10 — Rights to MSRs

Ocwen and PHH have entered into agreements to sell MSRs or Rights to MSRs and the related servicing advances to NRZ, and in all cases have been retained by NRZ as subservicer. In the case of Ocwen Rights to MSRs transactions, while the majority of the risks and rewards of ownership were transferred, legal title was retained by Ocwen, causing the Rights to MSRs transactions to be accounted for as secured financings. In the case of the PHH transactions, and for those Ocwen MSRs where consents were subsequently received and legal title was transferred to NRZ, due to the length of the non-cancellable term of the subservicing agreement, the transactions do not qualify as a sale and are accounted for as secured financings. As a result, we continue to recognize the MSRs and related financing liability on our consolidated balance sheet, as well as the full amount of servicing revenue and changes in the fair value of the MSRs and related financing liability in our consolidated statements of operations.

NRZ is our largest servicing client, accounting for 50% of the UPB of residential assets serviced and 73% of our loan servicing and subservicing fee revenue as of and for the three months ended March 31, 2019, respectively.

The following table presents the assets and liabilities recorded on our unaudited consolidated balance sheets as well as the impacts to our unaudited consolidated statements of operations in connection with our NRZ agreements.



Balance Sheets	March 31, 2019			December 31, 2018
MSRs, at fair value	$	831,284		$	894,002
Due from NRZ
Sales and transfers of MSRs (1)	23,430			23,757
Advance funding, subservicing fees and reimbursable expenses	9,238			30,845
Due to NRZ	55,907			53,001
Financing liability - MSRs pledged, at fair value
Original Rights to MSRs Agreements	424,086			436,511
2017 Agreements and New RMSR Agreements (2)	119,932			138,854
PHH MSR Agreements	407,198			457,491
Financing liability - MSRs pledged, at fair value	$	951,216		$	1,032,856

	Three Months Ended March 31,
	2019			2018
Statements of Operations
Servicing fees collected on behalf of NRZ	$	155,847		$	127,017
Less: Subservicing fee retained by Ocwen	37,407			34,217
Net servicing fees remitted to NRZ	118,440			92,800

Less: Reduction (increase) in financing liability
Changes in fair value:
Original Rights to MSRs Agreements	121			116
2017 Agreements and New RMSR Agreements	(6,980		)	16,596
PHH MSR Agreements	33,096			—
	26,237			16,712
Runoff and settlement:
Original Rights to MSRs Agreements	9,035			18,852
2017 Agreements and New RMSR Agreements	23,320			35,695
PHH MSR Agreements	17,774			—
	50,129			54,547

Other	(1,882		)	(1,509		)

Interest expense	$	43,956		$	23,050


(1)	Balance represents the holdback of proceeds from PHH MSR sales and transfers to address indemnification claims and mortgage loan document deficiencies. These sales were executed by PHH prior to the acquisition date.


(2)	$105.8 million and $33.0 million is expected to be recognized as a reduction in the financing liability and interest expense for the years ended December 31, 2019 and 2020, respectively.



Financing Liability - MSRs Pledged	Original Rights to MSRs Agreements			2017 Agreements and New RMSR Agreements			PHH MSR Agreements			Total
Balance at December 31, 2018	$	436,511		$	138,854		$	457,491		$	1,032,856
Additions	—			—			577			577
Changes in fair value:
Original Rights to MSRs Agreements	(121		)	—			—			(121		)
2017 Agreements and New RMSR Agreements	—			6,980			—			6,980
PHH MSR Agreements	—			—			(33,096		)	(33,096		)
Runoff and settlement:
Original Rights to MSRs Agreements	(9,035		)	—			—			(9,035		)
2017 Agreements and New RMSR Agreements	—			(23,320		)	—			(23,320		)
PHH MSR Agreements	—			—			(17,774		)	(17,774		)
Calls (1):
Original Rights to MSRs Agreements	(3,269		)	—			—			(3,269		)
2017 Agreements and New RMSR Agreements	—			(2,582		)	—			(2,582		)
Balance at March 31, 2019	$	424,086		$	119,932		$	407,198		$	951,216



Financing Liability - MSRs Pledged	Original Rights to MSRs Agreements			2017 Agreements and New RMSR Agreements			Total
Balance at December 31, 2017	$	499,042		$	9,249		$	508,291
Receipt of lump-sum cash payments	—			279,586			279,586
Changes in fair value:
Original Rights to MSRs Agreements	(116		)	—			(116		)
2017 Agreements and New RMSR Agreements	—			(16,596		)	(16,596		)
Runoff and settlement:
Original Rights to MSRs Agreements	(18,852		)	—			(18,852		)
2017 Agreements and New RMSR Agreements	—			(35,695		)	(35,695		)
Calls (1):
Original Rights to MSRs Agreements	(420		)	—			(420		)
2017 Agreements and New RMSR Agreements	—			(274		)	(274		)
Balance at March 31, 2018	$	479,654		$	236,270		$	715,924


(1)	Represents the carrying value of MSRs in connection with call rights exercised by NRZ, for MSRs transferred to NRZ under the 2017 Agreements and New RMSR Agreements, or by Ocwen at NRZ’s direction, for MSRs underlying the Original Rights to MSRs Agreements. Ocwen derecognizes the MSRs and the related financing liability upon collapse of the securitization.

Ocwen Transactions

Prior to the transfer of legal title under the Master Servicing Rights Purchase Agreement dated as of October 1, 2012, as amended, and certain Sale Supplements, as amended (collectively, the Original Rights to MSRs Agreements), Ocwen agreed to service the mortgage loans underlying the MSRs on the economic terms set forth in the Original Rights to MSRs Agreements. After the transfer of legal title as contemplated under the Original Rights to MSRs Agreements, Ocwen was to service the mortgage loans underlying the MSRs as subservicer on substantially the same economic terms.

On July 23, 2017 and January 18, 2018, we entered into a series of agreements with NRZ that collectively modify, supplement and supersede the arrangements among the parties as set forth in the Original Rights to MSRs Agreements. The July 23, 2017 agreements, as amended, include a Master Agreement, Transfer Agreement and Subservicing Agreement (collectively, the 2017 Agreements) pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to the remaining MSRs that were subject to the Original Rights to MSRs Agreements and under which Ocwen would subservice mortgage loans underlying the MSRs for an initial term of five years (the Initial Term).

On January 18, 2018, the parties entered into new agreements (including a Servicing Addendum) regarding the Rights to MSRs related to MSRs that remained subject to the Original Rights to MSRs Agreements as of January 1, 2018 and amended the Transfer Agreement (collectively, New RMSR Agreements) to accelerate the implementation of certain parts of our arrangements in order to achieve the intent of the 2017 Agreements sooner. Upon receiving the required consents and transferring the MSRs, Ocwen will subservice the mortgage loans underlying the MSRs pursuant to the 2017 Agreements.

Ocwen received lump-sum cash payments of $54.6 million and $279.6 million in September 2017 and January 2018 in accordance with the terms of the 2017 Agreements and New RMSR Agreements, respectively. These upfront payments generally represent the net present value of the difference between the future revenue stream Ocwen would have received under the Original Rights to MSRs Agreements and the future revenue stream Ocwen expects to receive under the 2017 Agreements and the New RMSR Agreements.

On August 17, 2018, Ocwen and NRZ entered into certain amendments to the New RMSR Agreements to include New Penn Financial, LLC dba Shellpoint Mortgage Servicing (Shellpoint), a subsidiary of NRZ, as a party and to conform the New RMSR Agreements to certain of the terms of the Shellpoint Subservicing Agreement between Ocwen and Shellpoint.

As of March 31, 2019, there remains $25.9 billion in UPB of MSRs for which legal title has not transferred to NRZ. In the event the required third-party consents are not obtained by May 31, 2019, and in accordance with the process set forth in, the New RMSR Agreements, such MSRs will either: (i) remain subject to the New RMSR Agreements at the option of NRZ, (ii) be acquired by Ocwen at a price determined in accordance with the terms of the New RMSR Agreements, or (iii) be sold to a third party in accordance with the terms of the New RMSR Agreements. Ocwen and NRZ are in discussions regarding the arrangements that will be made with respect to these MSRs.

At any time during the Initial Term, NRZ may terminate the Subservicing Agreement and Servicing Addendum for convenience, subject to Ocwen’s right to receive a termination fee and proper notice. Following the Initial Term, NRZ may extend the term of the Subservicing Agreement and Servicing Addendum for additional three-month periods by providing proper notice. Following the Initial Term, the Subservicing Agreement and Servicing Addendum can be cancelled by Ocwen on an annual basis. NRZ and Ocwen have the ability to terminate the Subservicing Agreement and Servicing Addendum for cause if certain specified conditions occur.

Under the terms of the Subservicing Agreement and Servicing Addendum, in addition to a base servicing fee, Ocwen will continue to receive ancillary income, which primarily includes late fees, loan modification fees and Speedpay^® fees. NRZ will receive all float earnings and deferred servicing fees related to delinquent borrower payments, as well as be entitled to receive certain real estate owned (REO) related income including REO referral commissions.

Prior to January 18, 2018, MSRs as to which necessary transfer consents had not yet been obtained continued to be subject to the terms of the agreements entered into in 2012 and 2013. Under the 2012 and 2013 agreements, the servicing fees payable under the servicing agreements underlying the Rights to MSRs were apportioned between NRZ and us. NRZ retained a fee based on the UPB of the loans serviced, and OLS received certain fees, including a performance fee based on servicing fees paid less an amount calculated based on the amount of servicing advances and the cost of financing those advances.

PHH Transactions

On December 28, 2016, PHH entered into an agreement to sell substantially all of its MSRs, and the related servicing advances, to New Residential Mortgage LLC, a wholly-owned subsidiary of NRZ. In connection with this agreement, on December 28, 2016, PHH also entered into a subservicing agreement with NRZ (collectively, the PHH MSR Agreements). The PHH subservicing agreement has an initial term of three years from the initial transaction date of June 16, 2017, subject to certain transfer and termination provisions.

Through its acquisition of PHH on October 4, 2018, Ocwen recognized MSRs of $42.3 billion UPB related to the PHH MSR Agreements. As of March 31, 2019, $3.2 billion in UPB of MSRs and related advances remain to be sold to NRZ under the PHH MSR Agreements pending receipt of required third-party consents. Ocwen and NRZ are in discussions regarding disposition of these assets.

At any time during each of the second and third years of the initial term, and subject to the payment of the applicable deboarding fee, NRZ may terminate an amount not to exceed 25% of the underlying mortgage loans with proper notice. The PHH MSR Agreements automatically renew for successive one-year terms unless either party provides notice of termination. NRZ and PHH each have the ability to terminate the subservicing agreement for cause if certain specified conditions occur.