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Rights to MSRs | 9 Months Ended
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Sep. 30, 2019
Transfers and Servicing [Abstract] |
Rights to MSRs |
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 in 2012 and 2013, 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 sheets, 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. Changes in fair value of the Rights to MSRs are recognized in MSR valuation adjustments, net in the unaudited consolidated statements of operations. Changes in fair value of the MSR related financing liability are reported in Interest expense. The following tables present selected 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 | September 30, 2019 |  | December 31, 2018
MSRs, at fair value | $ | 925,507 |  |  | $ | 894,002 |
Due from NRZ (Receivables) |  |  |
Sales and transfers of MSRs (1) | $ | 25,531 |  |  | $ | 23,757 |
Advance funding, subservicing fees and reimbursable expenses | 7,615 |  |  | 30,845 |
| $ | 33,146 |  |  | $ | 54,602 |
Due to NRZ (Other liabilities) | $ | 63,304 |  |  | $ | 53,001 |
Financing liability - MSRs pledged, at fair value |  |  |
Original Rights to MSRs Agreements | $ | 627,287 |  |  | $ | 436,511 |
2017 Agreements and New RMSR Agreements (2) | 61,445 |  |  | 138,854 |
PMC MSR Agreements | 298,220 |  |  | 457,491 |
| $ | 986,952 |  |  | $ | 1,032,856 |
(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) | $104.7 million and $34.1 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.
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Statements of Operations |  |  |  |  |  |  |
Servicing fees collected on behalf of NRZ | $ | 146,567 |  |  | $ | 120,593 |  |  | $ | 443,505 |  |  | $ | 374,322 |
Less: Subservicing fee retained by Ocwen | 35,462 |  |  | 33,335 |  |  | 108,774 |  |  | 101,997 |
Net servicing fees remitted to NRZ | 111,105 |  |  | 87,258 |  |  | 334,731 |  |  | 272,325 |
Less: Reduction (increase) in financing liability |  |  |  |  |  |  |
Changes in fair value: |  |  |  |  |  |  |
Original Rights to MSRs Agreements | (228,644 | ) |  | 4,844 |  |  | (230,193 | ) |  | (3,938 | )
2017 Agreements and New RMSR Agreements | (2,216 | ) |  | (2,163 | ) |  | (4,562 | ) |  | 15,261 |
PMC MSR Agreements | 30,156 |  |  | — |  |  | 111,034 |  |  | — |
| (200,704 | ) |  | 2,681 |  |  | (123,721 | ) |  | 11,323 |
Runoff and settlement: |  |  |  |  |  |  |
Original Rights to MSRs Agreements | 11,170 |  |  | 15,896 |  |  | 31,617 |  |  | 50,739 |
2017 Agreements and New RMSR Agreements | 26,705 |  |  | 33,724 |  |  | 76,087 |  |  | 103,390 |
PMC MSR Agreements | 15,881 |  |  | — |  |  | 49,469 |  |  | — |
| 53,756 |  |  | 49,620 |  |  | 157,173 |  |  | 154,129 |
Other | 1,637 |  |  | (1,760 | ) |  | (2,022 | ) |  | (4,383 | )
Interest expense | $ | 256,416 |  |  | $ | 36,717 |  |  | $ | 303,301 |  |  | $ | 111,256 |
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 | — |  |  | — |  |  | 1,221 |  |  | 1,221 |
Sales | — |  |  | — |  |  | 11 |  |  | 11 |
Changes in fair value: |  |  |  |  |  |  |
Original Rights to MSRs Agreements | 230,193 |  |  | — |  |  | — |  |  | 230,193 |
2017 Agreements and New RMSR Agreements | — |  |  | 4,562 |  |  | — |  |  | 4,562 |
PMC MSR Agreements | — |  |  | — |  |  | (111,034 | ) |  | (111,034 | )
Runoff and settlement: |  |  |  |  |  |  |
Original Rights to MSRs Agreements | (31,617 | ) |  | — |  |  | — |  |  | (31,617 | )
2017 Agreements and New RMSR Agreements | — |  |  | (76,087 | ) |  | — |  |  | (76,087 | )
PMC MSR Agreements | — |  |  | — |  |  | (49,469 | ) |  | (49,469 | )
Calls (1): |  |  |  |  |  |  |
Original Rights to MSRs Agreements | (7,800 | ) |  | — |  |  | — |  |  | (7,800 | )
2017 Agreements and New RMSR Agreements | — |  |  | (5,884 | ) |  | — |  |  | (5,884 | )
Balance at September 30, 2019 | $ | 627,287 |  |  | $ | 61,445 |  |  | $ | 298,220 |  |  | $ | 986,952 |
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 | 3,938 |  |  | — |  |  | 3,938 |
2017 Agreements and New RMSR Agreements | — |  |  | (15,261 | ) |  | (15,261 | )
Runoff and settlement: |  |  |  |  |
Original Rights to MSRs Agreements | (50,739 | ) |  | — |  |  | (50,739 | )
2017 Agreements and New RMSR Agreements | — |  |  | (103,390 | ) |  | (103,390 | )
Calls (1): |  |  |  |  |
Original Rights to MSRs Agreements | (1,396 | ) |  | — |  |  | (1,396 | )
2017 Agreements and New RMSR Agreements | — |  |  | (830 | ) |  | (830 | )
Balance at September 30, 2018 | $ | 450,845 |  |  | $ | 169,354 |  |  | $ | 620,199 |
(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 September 30, 2019, the UPB of MSRs for which legal title has not transferred to NRZ is $19.2 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. 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. 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 September 30, 2019, Ocwen serviced 289,272 loans under this arrangement and recorded servicing fee revenues for the three and nine months ended September 30, 2019 of $7.5 million and $21.6 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 September 30, 2019, $2.8 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 remaining 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 prior notice of termination in accordance with the PMC subservicing agreement. NRZ and PMC each have the ability to terminate the subservicing agreement for cause if certain specified conditions occur.

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