Note 10 — Rights to MSRs

Ocwen and PMC 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 PMC 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 agreements, 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, including related interest expense, in our consolidated statements of operations.

The following tables present 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	June 30, 2019		December 31, 2018
MSRS, at fair value	$	756,810	$	894,002

Due from NRZ (Receivables)
Sales and transfers of MSRs (1)	$	25,575	$	23,757
Advance funding, subservicing fees and reimbursable expenses	15,102		30,845
	$	40,677	$	54,602

Due to NRZ (Other Liabilities)	$	46,956	$	53,001

Financing liability - MSRs pledged, at fair value
Original Rights to MSRs Agreements	$	412,909	$	436,511
2017 Agreements and New RMSR Agreements (2)	88,103		138,854
PMC MSR Agreements	343,901		457,491
	$	844,913	$	1,032,856



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Statements of Operations
Servicing fees collected on behalf of NRZ	$	141,091		$	126,712		$	296,938		$	253,729
Less: Subservicing fee retained by Ocwen	35,905			34,444			73,312			68,661
Net servicing fees remitted to NRZ	105,186			92,268			223,626			185,068

Less: Reduction (increase) in financing liability
Changes in fair value:
Original Rights to MSRs Agreements	(1,671		)	(8,897		)	(1,550		)	(8,782		)
2017 Agreements and New RMSR Agreements	4,634			828			(2,346		)	17,424
PMC MSR Agreements	47,782			—			80,878			—
	50,745			(8,069		)	76,982			8,642
Runoff and settlement:
Original Rights to MSRs Agreements	11,412			15,991			20,447			34,843
2017 Agreements and New RMSR Agreements	26,062			33,971			49,382			69,666
PMC MSR Agreements	15,814			—			33,588			—
	53,288			49,962			103,417			104,509

Other	(1,777		)	(1,115		)	(3,658		)	(2,622		)

Interest expense	$	2,930		$	51,490		$	46,885		$	74,539


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


(2)	$104.9 million and $34.0 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			PMC MSR Agreements			Total
Balance at December 31, 2018	$	436,511		$	138,854		$	457,491		$	1,032,856
Additions	—			—			876			876
Changes in fair value:
Original Rights to MSRs Agreements	1,550			—			—			1,550
2017 Agreements and New RMSR Agreements	—			2,346			—			2,346
PMC MSR Agreements	—			—			(80,878		)	(80,878		)
Runoff and settlement:
Original Rights to MSRs Agreements	(20,447		)	—			—			(20,447		)
2017 Agreements and New RMSR Agreements	—			(49,382		)	—			(49,382		)
PMC MSR Agreements	—			—			(33,588		)	(33,588		)
Calls (1):
Original Rights to MSRs Agreements	(4,705		)	—			—			(4,705		)
2017 Agreements and New RMSR Agreements	—			(3,715		)	—			(3,715		)
Balance at June 30, 2019	$	412,909		$	88,103		$	343,901		$	844,913



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	8,782			—			8,782
2017 Agreements and New RMSR Agreements	—			(17,424		)	(17,424		)
Runoff and settlement:
Original Rights to MSRs Agreements	(34,843		)	—			(34,843		)
2017 Agreements and New RMSR Agreements	—			(69,666		)	(69,666		)
Calls (1):
Original Rights to MSRs Agreements	(1,319		)	—			(1,319		)
2017 Agreements and New RMSR Agreements	—			(788		)	(788		)
Balance at June 30, 2018	$	471,662		$	200,957		$	672,619


(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, a Transfer Agreement and the Subservicing Agreement between Ocwen and New Residential Mortgage LLC (NRM), a subsidiary of NRZ, relating to non-agency loans (the NRM 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. We recognized the cash received as a financing liability that we are accounting for at fair value through the remaining term of the original agreements (April 2020). Changes in fair value are recognized in Interest expense in the unaudited consolidated statements of operations.

On August 17, 2018, Ocwen and NRZ entered into certain amendments (i) to the New RMSR Agreements to include NewRez, LLC dba Shellpoint Mortgage Servicing (Shellpoint), a subsidiary of NRZ, as a party to which legal title to the MSRs could be transferred after related consents are received, (ii) to add a Subservicing Agreement between Ocwen and Shellpoint relating to non-agency loans (the Shellpoint Subservicing Agreement), (iii) to add an Agency Subservicing Agreement between Ocwen and NRM relating to agency loans (the Agency Subservicing Agreement), and (iv) to conform the New RMSR Agreements and the NRM Subservicing Agreement to certain of the terms of the Shellpoint Subservicing Agreement and the Agency Subservicing Agreement.

As of June 30, 2019, the UPB of MSRs for which legal title has not transferred to NRZ is $19.8 billion. In the event the required third-party consents were not obtained by May 31, 2019, and in accordance with the process set forth in, the New RMSR Agreements, such MSRs would 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 at the option of Ocwen, or (iii) be sold to a third party in accordance with the terms of the New RMSR Agreements, subject to an additional Ocwen option to acquire at a price based on the winning third-party bid rather than selling to the third party. NRZ did not exercise its option to designate the remaining MSRs to continue to be subject to the New RMSR Agreements. Ocwen and NRZ are in discussions regarding the information needed for Ocwen to assess whether or not it will exercise its option under (ii) above to acquire all or some of the MSRs that currently remain in the New RMSR Agreements, or what other arrangements will be made with respect to these remaining MSRs.

At any time during the Initial Term, NRZ may terminate the Subservicing Agreements and Servicing Addendum for convenience, subject to Ocwen’s right to receive a termination fee and proper notice. The termination fee is calculated as specified in the Subservicing Agreements and Servicing Addendum, and is a discounted percentage of the expected revenues that would be owed to Ocwen over the remaining life of the contract based on certain portfolio run off assumptions.

Following the Initial Term, NRZ may extend the term of the Subservicing Agreements and Servicing Addendum for additional three-month periods by providing proper notice. Following the Initial Term, the Subservicing Agreements and Servicing Addendum can be cancelled by Ocwen on an annual basis. NRZ and Ocwen have the ability to terminate the Subservicing Agreements and Servicing Addendum for cause if certain specified conditions occur. The terminations must be terminations in whole (i.e., cover all the loans under the relevant agreement) and not in part, except for limited circumstances specified in the agreements. In addition, if NRZ terminates any of the NRM or Shellpoint Subservicing Agreements or the Servicing Addendum for cause, the other agreements will also terminate automatically. If NRZ terminates the ShellPoint Subservicing Agreement for convenience within the first year after the execution of the Shellpoint Subservicing Agreement, the NRM Subservicing Agreement and the Servicing Addendum will also terminate automatically.

Under the terms of the Subservicing Agreements and Servicing Addendum, in addition to a base servicing fee, Ocwen will continue to receive certain ancillary fees, primarily late fees, loan modification fees and Speedpay^® fees. We may also receive certain incentive fees or pay penalties tied to various contractual performance metrics. NRZ will receive all float earnings and deferred servicing fees related to delinquent borrower payments, as well as be entitled to receive certain 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.

PMC Transactions

On December 28, 2016, PMC 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, PMC also entered into a subservicing agreement with NRZ (collectively, the PMC MSR Agreements). The PMC 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.

The PMC subservicing arrangement generates revenue based on a schedule of fees per loan per month that includes revenue adjustments for delinquent loans to cover the incremental cost associated with servicing such loans. As of June 30, 2019, Ocwen serviced 300,149 loans under this arrangement and recorded servicing fee revenues for the three and six months ended June 30, 2019 of $7.0 million and $14.2 million, respectively.

Through its acquisition of PHH on October 4, 2018, Ocwen added MSRs with $42.3 billion UPB related to the PMC MSR Agreements. As of June 30, 2019, $3.0 billion in UPB of MSRs and related advances remain to be sold to NRZ under the PMC MSR Agreements pending receipt of required third-party consents. Ocwen and NRZ are in discussions regarding the 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 and proper notice, NRZ may terminate an amount not to exceed 25% of the underlying mortgage loans being subserviced under the PMC subservicing agreement. The PMC subservicing agreement automatically renews for successive one-year terms unless either party provides notice of termination. NRZ and PMC each have the ability to terminate the subservicing agreement for cause if certain specified conditions occur.