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Mortgage Servicing | 9 Months Ended
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Sep. 30, 2019
Transfers and Servicing [Abstract] |
Mortgage Servicing |
Note 9 – Mortgage Servicing
MSRs – Amortization Method | Nine Months Ended September 30, 2018
Beginning balance | $ | 336,882 |
Fair value election - transfer of MSRs carried at fair value (1) | (361,670 | )
Decrease in impairment valuation allowance (1) (2) | 24,788 |
Ending balance | $ | — |
(1) | Effective January 1, 2018, we elected fair value accounting for our MSRs previously accounted for using the amortization method, which included Agency MSRs and government-insured MSRs. This irrevocable election applies to all subsequently acquired or originated servicing assets and liabilities that have characteristics consistent with each of these classes. We recorded a cumulative-effect adjustment of $82.0 million to retained earnings as of January 1, 2018 to reflect the excess of the fair value of the Agency MSRs over their carrying amount. We also recognized the tax effect of this adjustment through an increase in retained earnings of $6.8 million and a deferred tax asset for the same amount. However, we established a full valuation allowance on the resulting deferred tax asset through a reduction in retained earnings. The government-insured MSRs were impaired by $24.8 million at December 31, 2017; therefore, these MSRs were already effectively carried at fair value.
(2) | Impairment valuation allowance balance of $24.8 million was reclassified to reduce the carrying value of the related MSRs on January 1, 2018 in connection with our fair value election.
MSRs – Fair Value Measurement Method | Three Months Ended September 30,
2019 |  | 2018
| Agency |  | Non-Agency |  | Total |  | Agency |  | Non-Agency |  | Total
Beginning balance | $ | 745,735 |  |  | $ | 566,898 |  |  | $ | 1,312,633 |  |  | $ | 427,597 |  |  | $ | 616,398 |  |  | $ | 1,043,995 |
Fair value election - transfer from MSRs carried at amortized cost | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Cumulative effect of fair value election | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales and other transfers | — |  |  | (15 | ) |  | (15 | ) |  | (5,950 | ) |  | (20 | ) |  | (5,970 | )
Additions: |  |  |  |  |  |  |  |  |  |  |
Recognized on the sale of residential mortgage loans | 1,235 |  |  | — |  |  | 1,235 |  |  | 1,503 |  |  | — |  |  | 1,503 |
Purchase of MSRs | 9,298 |  |  | 1,268 |  |  | 10,566 |  |  | 1,421 |  |  | — |  |  | 1,421 |
Servicing transfers and adjustments | — |  |  | (3,105 | ) |  | (3,105 | ) |  | — |  |  | (219 | ) |  | (219 | )
Changes in fair value (1): |  |  |  |  |  |  |  |  |  |  |
Changes in valuation inputs or other assumptions | (63,360 | ) |  | 252,293 |  |  | 188,933 |  |  | (1,243 | ) |  | (5,413 | ) |  | (6,656 | )
Realization of expected future cash flows and other changes | (36,898 | ) |  | (17,796 | ) |  | (54,694 | ) |  | (13,912 | ) |  | (20,880 | ) |  | (34,792 | )
Ending balance | $ | 656,010 |  |  | $ | 799,543 |  |  | $ | 1,455,553 |  |  | $ | 409,416 |  |  | $ | 589,866 |  |  | $ | 999,282 |
MSRs – Fair Value Measurement Method | Nine Months Ended September 30,
2019 |  | 2018
| Agency |  | Non-Agency |  | Total |  | Agency |  | Non-Agency |  | Total
Beginning balance | $ | 865,587 |  |  | $ | 591,562 |  |  | $ | 1,457,149 |  |  | $ | 11,960 |  |  | $ | 660,002 |  |  | $ | 671,962 |
Fair value election - transfer from MSRs carried at amortized cost | — |  |  | — |  |  | — |  |  | 336,882 |  |  | — |  |  | 336,882 |
Cumulative effect of fair value election | — |  |  | — |  |  | — |  |  | 82,043 |  |  | — |  |  | 82,043 |
Sales and other transfers | (29 | ) |  | (556 | ) |  | (585 | ) |  | (5,950 | ) |  | (175 | ) |  | (6,125 | )
Additions: |  |  |  |  |  |  |  |  |  |  |
Recognized on the sale of residential mortgage loans | 3,933 |  |  | — |  |  | 3,933 |  |  | 6,080 |  |  | — |  |  | 6,080 |
Purchase of MSRs | 123,600 |  |  | 1,355 |  |  | 124,955 |  |  | 2,729 |  |  | — |  |  | 2,729 |
Servicing transfers and adjustments | — |  |  | (7,872 | ) |  | (7,872 | ) |  | — |  |  | (2,594 | ) |  | (2,594 | )
Changes in fair value (1): |  |  |  |  |  |  |  |  |  |  |
Changes in valuation inputs or other assumptions | (235,036 | ) |  | 264,876 |  |  | 29,840 |  |  | 19,217 |  |  | (424 | ) |  | 18,793 |
Realization of expected future cash flows and other changes | (102,045 | ) |  | (49,822 | ) |  | (151,867 | ) |  | (43,545 | ) |  | (66,943 | ) |  | (110,488 | )
Ending balance | $ | 656,010 |  |  | $ | 799,543 |  |  | $ | 1,455,553 |  |  | $ | 409,416 |  |  | $ | 589,866 |  |  | $ | 999,282 |
(1) | Changes in fair value are recognized in MSR valuation adjustments, net in the unaudited consolidated statements of operations.
Portfolio of Assets Serviced The following table presents the composition of our residential primary servicing and subservicing portfolios as measured by UPB, including foreclosed real estate and small-balance commercial loans. The UPB amounts in the table below are not included on our unaudited consolidated balance sheets.
UPB at September 30, 2019 |  |
Servicing | $ | 76,523,660 |
Subservicing | 23,175,607 |
NRZ | 117,055,517 |
| $ | 216,754,784 |
UPB at December 31, 2018 |  |
Servicing | $ | 72,378,693 |
Subservicing | 53,104,560 |
NRZ | 130,517,237 |
| $ | 256,000,490 |
UPB at September 30, 2018 |  |
Servicing | $ | 68,076,254 |
Subservicing | 1,387,641 |
NRZ | 91,532,579 |
| $ | 160,996,474 |
During the nine months ended September 30, 2019, we acquired MSRs on portfolios consisting of 50,421 loans with a UPB of $11.9 billion. During the nine months ended September 30, 2019, we also sold MSRs on portfolios consisting of 435 loans with a UPB of $116.1 million. 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. To date, terminations as servicer as a result of a breach of any of these provisions have been minimal. At September 30, 2019, the S&P Global Ratings, Inc.’s (S&P) and Fitch Ratings, Inc.’s (Fitch) servicer ratings outlook for PMC is stable. Downgrades in servicer ratings could adversely affect our ability to sell or finance servicing advances and could impair our ability to consummate future servicing transactions or adversely affect our dealings with lenders, other contractual counterparties, and regulators, including our ability to maintain our status as an approved servicer by Fannie Mae and Freddie Mac. The servicer rating requirements of Fannie Mae do not necessarily require or imply immediate action, as Fannie Mae has discretion with respect to whether we are in compliance with their requirements and what actions it deems appropriate under the circumstances in the event that we fall below their desired servicer ratings. Certain of our servicing agreements require that we maintain specified servicer ratings from rating agencies such as Moody’s and S&P. As a result of our current servicer ratings, termination rights have been triggered in certain of our non-Agency servicing agreements. To date, terminations as servicer as a result of a breach of any of these provisions have been minimal.
Servicing Revenue | Three Months Ended September 30, |  | Nine Months Ended September 30,
2019 |  | 2018 |  | 2019 |  | 2018
Loan servicing and subservicing fees |  |  |  |  |  |  |
Servicing | $ | 60,682 |  |  | $ | 52,610 |  |  | $ | 167,720 |  |  | $ | 167,389 |
Subservicing | 1,365 |  |  | 658 |  |  | 11,775 |  |  | 2,443 |
NRZ | 146,567 |  |  | 120,593 |  |  | 443,505 |  |  | 374,322 |
| 208,614 |  |  | 173,861 |  |  | 623,000 |  |  | 544,154 |
Late charges | 14,105 |  |  | 14,839 |  |  | 42,786 |  |  | 44,743 |
Custodial accounts (float earnings) | 13,464 |  |  | 10,241 |  |  | 38,739 |  |  | 25,965 |
Loan collection fees | 3,862 |  |  | 4,916 |  |  | 11,613 |  |  | 14,700 |
Home Affordable Modification Program (HAMP) fees (1) | 1,216 |  |  | 3,365 |  |  | 4,558 |  |  | 11,622 |
Other, net | 6,453 |  |  | 6,508 |  |  | 22,063 |  |  | 16,911 |
| $ | 247,714 |  |  | $ | 213,730 |  |  | $ | 742,759 |  |  | $ | 658,095 |
(1) | The HAMP expired on December 31, 2016. Borrowers who had requested assistance or to whom an offer of assistance had been extended as of that date had until September 30, 2017 to finalize their modification. We continue to earn HAMP success fees for HAMP modifications that remain less than 90 days delinquent at the first-, second- and third-year anniversary of the start of the trial modification.
Float balances (balances in custodial accounts, which represent collections of principal and interest that we receive from borrowers) are held in escrow by unaffiliated banks and are excluded from our unaudited consolidated balance sheets. Float balances amounted to $2.1 billion, $1.7 billion and $1.7 billion at September 30, 2019, December 31, 2018 and September 30, 2018, 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -URI http://asc.fasb.org/topic&trid=2197590 + Details
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