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Commitments | 6 Months Ended
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Jun. 30, 2020
Other Commitments [Abstract] |
Commitments |
Note 20 — Commitments
Servicer Advance Obligations In the normal course of business as servicer or master servicer, we are required to advance loan principal and interest payments (P&I), property taxes and insurance premiums (T&I) on behalf of the borrower to the investor of the loan, if delinquent or delinquent and under a forbearance plan. We also advance legal fees, inspection, maintenance, and preservation costs (Corporate advances) on properties that are in default or have been foreclosed. Our obligations to make these advances are governed by servicing agreements or guides, depending on investors or guarantor. For PLS loans, generally, we may stop advancing for P&I once future advances are deemed non-recoverable from the net proceeds of the property, although we are generally obligated to continue T&I and Corporate advances until the loan is brought current or until completion of a foreclosure, in which case, we generally recover our advances from the net proceeds of the property or the pool level proceeds, i.e., generally after the completion of the foreclosure. For Ginnie Mae loans, we are required to make advances for the life of the loan without regard to whether we will be able to recover those payments from cure, liquidation proceeds, insurance proceeds, or late payments. We may stop advancing P&I by purchasing loans out of the pool when they are more than 90 days delinquent. To the extent there are excess funds in the custodial accounts, we are permitted to net for our P&I remittance. We are also required to advance both T&I and Corporate advances until cure or liquidation. For GSE loans, we are required to advance interest payments until the borrower is 120 days delinquent for Freddie Mac loans and P&I until borrower resolution or liquidation for Fannie Mae loans. For Freddie Mac loans, servicers may submit claims for T&I and Corporate advances upon borrower resolution or liquidation. For Fannie Mae loans, we can submit reimbursement claims for certain T&I and Corporate advances after incurring the expense. T&I and Corporate advancing on GSE loans continues until the property is sold. As subservicer, we are required to make P&I, T&I and Corporate advances on behalf of servicers following the servicing agreements or guides. Servicers are generally required to reimburse us within 30 days of our advancing under the terms of the subservicing agreements. We are generally reimbursed by NRZ the same day we fund P&I advances, or within no more than three days for servicing advances and certain P&I advances under the Ocwen agreements. NRZ is obligated to fund new servicing advances with respect to the MSRs underlying the Rights to MSRs (RMSR), pursuant to the 2017 Agreements and New RMSR Agreements. NRZ has the responsibility to fund advances for loans where they own the MSR, i.e., are the servicer of record. We are dependent upon NRZ for funding the servicing advance obligations for Rights to MSRs where we are the servicer. As the servicer, we are contractually required under our servicing agreements to make certain servicing advances even if NRZ does not perform its contractual obligations to fund those advances. NRZ currently uses advance financing facilities in order to fund a substantial portion of the servicing advances that they are contractually obligated to purchase pursuant to our agreements with them. See Note 8 — Rights to MSRs and Note 11 – Borrowings for additional information. As of June 30, 2020, the UPB of loans serviced on behalf of NRZ comprised the following:
Ocwen servicer of record (MSR title retained by Ocwen) - Ocwen MSR (1) | $ | 17,424,584 |
NRZ servicer of record (MSR title transferred to NRZ) - Ocwen MSR (1) | 91,419,371 |
Ocwen subservicer | 176,805 |
Total NRZ UPB at June 30, 2020 | $ | 109,020,760 |
(1) | The MSR sale transactions did not achieve sale accounting treatment.
COVID-19 Update On March 27, 2020, the CARES Act was signed into law. The CARES Act allows borrowers with federally backed mortgage loans who are affected by COVID-19 to request temporary loan forbearance. Servicers must provide such forbearance for up to 180 days if requested by the borrower. Borrowers may request an additional forbearance period of up to 180 days for FHA and VA guaranteed loans. Although PLS loans are not explicitly covered under the CARES Act, these loans are subject to various requirements and expectations from state Governors, regulators, and Attorneys General to assist borrowers enduring financial hardship due to COVID-19 with forbearance and other requirements. Ocwen provides payment relief to such borrowers in accordance with these requirements and expectations, as well as our servicing agreements. For example, we have granted eligible borrowers an initial three months of forbearance and related protection, including suspension of late fees, as well as suspension of foreclosure and eviction activity. For eligible PLS loans that are not significantly delinquent at the time forbearance was applied to the account, Ocwen places these borrowers on initial forbearance plans of three months. Ocwen provides monthly payment deferrals throughout the forbearance period which advance the due date and move the resulting missed payments to or near the loan’s maturity as a non-interest bearing balance. As such, Ocwen does not expect to be out of pocket cash for P&I and T&I advances for any more than one month for each of these eligible loans with forbearance protection. For Ginnie Mae loans, advance requirements until cure or liquidation are mitigated by the ability to use excess funds in custodial accounts to cover principal and interest advances, though the remaining advances are covered by corporate cash. For loans in forbearance, we advance P&I while the forbearance plan is active. Reimbursement of such P&I advance is expected after the forbearance period ends, through loan resolution, cure or liquidation. For GSE loans, once we have advanced four months of missed payments on a loan, we have no further obligation to advance scheduled payments as the loan will be moved into an “Actual/Actual” remittance status. Reimbursement of such P&I advance is expected after the forbearance period ends, through loan resolution, cure or liquidation. We are required to make T&I and Corporate advances until the property is sold but can submit reimbursement claims for certain T&I and Corporate advances after incurring the expense on Fannie Mae loans. Freddie Mac requires servicers to wait until borrower resolution or liquidation to submit claims for T&I and Corporate advances. In June 2020, Fannie Mae and Freddie Mac announced a new servicer incentive related to their previously announced COVID-19 payment deferral, and temporary updates to other servicer incentives, which became effective on July 1, 2020. Subject to certain eligibility criteria, servicers will receive incentive fees of $500 for repayment plans with a first payment due date on or after July 1, 2020 and for payment deferrals completed on or after July 1, 2020, and will receive an incentive fee of $1,000 for completed Flex Modifications® with a trial plan period effective date on or after July 1, 2020. Total servicer incentives per mortgage loan will be cumulatively capped at $1,000. The below table shows the requests for forbearance plans and the estimated obligation to advance monthly P&I:
| As of June 30, 2020 |  | As of March 31, 2020
Number of Forbearance Plans (3) |  | Estimated Monthly P&I Advance Obligation ($ million) |  | Number of Forbearance Plans (3) |  | Estimated Monthly P&I Advance Obligation ($ million)
GSE loans | 6,600 |  |  | $ | 8.3 |  |  | 1,400 |  |  | $ | 1.8 |
Ginnie Mae loans | 9,900 |  |  | 9.2 |  |  | 400 |  |  | 0.5 |
PLS loans | 18,000 |  |  | 26.5 |  |  | 3,700 |  |  | 5.8 |
Servicer | 34,500 |  |  | $ | 44.0 |  |  | 5,500 |  |  | $ | 8.1 |
GSE loans | 10,100 |  |  | $ | 11.0 |  |  | 2,300 |  |  | $ | 2.6 |
PLS loans | 73,800 |  |  | 70.8 |  |  | 14,500 |  |  | 14.0 |
NRZ’s responsibility (1) | 83,900 |  |  | $ | 81.8 |  |  | 16,800 |  |  | $ | 16.6 |
Subservicer (2) | 7,600 |  |  | $ | 10.1 |  |  | 3,900 |  |  | $ | 4.5 |
No advance requirements | 5,400 |  |  | — |  |  | 1,300 |  |  | — |
Total | 131,400 |  |  | $ | 135.9 |  |  | 27,500 |  |  | $ | 29.2 |
(1) | Ocwen is obligated to advance under the terms of the 2017 Agreements and New RMSR Agreements, and NRZ is obligated to reimburse Ocwen daily for PLS and weekly for Freddie Mac and Fannie Mae servicing advances. See above, Note 8 — Rights to MSRs and Note 11 – Borrowings for additional information, and below description of NRZ Relationship.
(2) | Ocwen is obligated to advance under the terms of subservicing agreements, and subservicing clients (servicers) are generally obligated to reimburse Ocwen within one day to 30 days for P&I advances.
(3) | Numbers have been rounded.
Unfunded Lending Commitments We have originated floating-rate reverse mortgage loans under which the borrowers have additional borrowing capacity of $1.6 billion at June 30, 2020. This additional borrowing capacity is available on a scheduled or unscheduled payment basis. We also had short-term commitments to lend $477.5 million and $30.2 million in connection with our forward and reverse mortgage loan IRLCs, respectively, outstanding at June 30, 2020. We finance originated and purchased forward and reverse mortgage loans with repurchase and participation agreements, commonly referred to as warehouse lines. HMBS Issuer Obligations As an HMBS issuer, we assume certain obligations related to each security issued. The most significant obligation is the requirement to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM is equal to or greater than 98% of the maximum claim amount (MCA repurchases). Active repurchased loans are assigned to HUD and payment is received from HUD, typically within 60 days of repurchase. HUD reimburses us for the outstanding principal balance on the loan up to the maximum claim amount. We bear the risk of exposure if the amount of the outstanding principal balance on a loan exceeds the maximum claim amount. Inactive repurchased loans (the borrower is deceased, no longer occupies the property or is delinquent on tax and insurance payments) are generally liquidated through foreclosure and subsequent sale of REO, with a claim filed with HUD for recoverable remaining principal and advance balances. The recovery timeline for inactive repurchased loans depends on various factors, including foreclosure status at the time of repurchase, state-level foreclosure timelines, and the post-foreclosure REO liquidation timeline. The timing and amount of our obligation with respect to MCA repurchases is uncertain as repurchase is dependent largely on circumstances outside of our control including the amount and timing of future draws and the status of the loan. MCA repurchases are expected to continue to increase due to the increased flow of HECMs and REO that are reaching 98% of their maximum claim amount. Activity with regard to HMBS repurchases, including MCA repurchases, follows:
| Six Months Ended June 30, 2020
| Active |  | Inactive |  | Total
| Number |  | Amount |  | Number |  | Amount |  | Number |  | Amount
Beginning balance | 62 |  |  | $ | 10,546 |  |  | 258 |  |  | $ | 25,147 |  |  | 320 |  |  | $ | 35,693 |
Additions (1) | 111 |  |  | 27,464 |  |  | 157 |  |  | 18,780 |  |  | 268 |  |  | 46,244 |
Recoveries, net (2) | (5 | ) |  | (6,872 | ) |  | (16 | ) |  | (5,588 | ) |  | (21 | ) |  | (12,460 | )
Transfers | (2 | ) |  | (958 | ) |  | 2 |  |  | 958 |  |  | — |  |  | — |
Changes in value | — |  |  | 43 |  |  | — |  |  | (1,842 | ) |  | — |  |  | (1,799 | )
Ending balance | 166 |  |  | $ | 30,223 |  |  | 401 |  |  | $ | 37,455 |  |  | 567 |  |  | $ | 67,678 |
(1) | Total repurchases during the six months ended June 30, 2020 includes 207 loans totaling $42.3 million related to MCA repurchases.
(2) | Includes amounts received upon assignment of loan to HUD, loan payoff, REO liquidation and claim proceeds less any amounts charged off as unrecoverable.
Active loan repurchases are classified as Receivables as reimbursement from HUD is generally received within 60 days and are initially recorded at fair value. Inactive loan repurchases are classified as Loans held for sale and recorded at fair value. Loans are reclassified to REO in Other assets or Receivables as the loans move through the resolution process and permissible claims are submitted to HUD for reimbursement. Receivables are valued at net realizable value. REO is valued at the estimated value of the underlying property less cost to sell. NRZ Relationship Our Servicing segment has exposure to concentration risk and client retention risk. As of June 30, 2020, our servicing portfolio included significant client relationships with NRZ which represented 53% and 60% of our servicing portfolio UPB and loan count, respectively. The NRZ servicing portfolio accounts for approximately 65% of all delinquent loans that Ocwen services. The current terms of our agreements with NRZ extend through July 2022 (legacy Ocwen agreements). On February 20, 2020, we received a notice of termination from NRZ with respect to the subservicing agreement between NRZ and PMC, which accounted for 18% of our servicing portfolio UPB at June 30, 2020. Currently, subject to proper notice (generally 180 days’ notice), the payment of termination fees and certain other provisions, NRZ has rights to terminate the legacy Ocwen agreements for convenience. Because of the large percentage of our servicing business that is represented by agreements with NRZ, if NRZ exercised all or a significant portion of these termination rights, we might need to right-size or restructure certain aspects of our servicing business as well as the related corporate support functions. We currently account for the MSR sale agreements with NRZ as secured financings as the transactions did not achieve sale accounting treatment, except for the PMC agreement since February 2020. Accordingly, our balance sheet reflects a $582.6 million MSR asset pledged to NRZ out of a total $1.0 billion MSRs at fair value at June 30, 2020, and a corresponding $582.6 million pledged MSR liability at fair value within Other financing liabilities. Similarly, our unaudited consolidated statement of operations reflects $62.9 million and $153.2 million net servicing fees collected on behalf of, and remitted to, NRZ out of a total $175.2 million and $386.7 million Servicing and subservicing fees for the three and six months ended June 30, 2020, respectively, and a corresponding $62.9 million and $153.2 million expense reported within Pledged MSR liability expense. The net servicing fees collected on behalf of, and remitted to, NRZ did not affect our net earnings. In addition, we recognized amortization income related to lump sum payments we received from NRZ in 2017 and 2018, through April 2020. The reporting of MSRs and revenue gross versus net in our financial statements is required until sale accounting criteria are met, upon the earliest of the terms of the agreements or any termination notice. The NRZ agreements affect our net earnings through the recognition of subservicing fees we retain, which amounted to $25.5 million and $54.9 million for the three and six months ended June 30, 2020, respectively, and ancillary income. If NRZ were to exercise its termination rights, our net earnings would be affected by the loss of such subservicing revenue and a decrease in direct operating expenses for servicing the NRZ portfolio. Selected assets and liabilities recorded on our consolidated balance sheets as well as the impacts to our unaudited consolidated statements of operations in connection with our NRZ agreements are disclosed in Note 8 — Rights to MSRs. NRZ is obligated to fund new servicing advances with respect to the MSRs underlying the Rights to MSRs, pursuant to the 2017 Agreements and New RMSR Agreements. We are dependent upon NRZ for funding the servicing advance obligations for Rights to MSRs where we are the servicer. As part of our risk management practices, we closely monitor the counterparty exposure arising from the funding obligations of our servicer clients, including NRZ, to ensure timely advance remittance in accordance with contractual requirements. Refer to the Servicer Advance Obligations above.

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