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Business Segment Reporting | 6 Months Ended
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Jun. 30, 2020
Segment Reporting [Abstract] |
Business Segment Reporting |
Note 18 – Business Segment Reporting
Our business segments reflect the internal reporting that we use to evaluate operating performance of services and to assess the allocation of our resources. A brief description of our current business segments is as follows: Servicing. This segment is primarily comprised of our core residential mortgage servicing business and currently accounts for most of our total revenues. We provide residential and commercial mortgage loan servicing, special servicing and asset management services. We earn fees for providing these services to owners of the mortgage loans and foreclosed real estate. In most cases, we provide these services either because we purchased the MSRs from the owner of the mortgage, retained the MSRs on the sale or securitization of residential mortgage loans or because we entered into a subservicing or special servicing agreement with the entity that owns the MSR. Our residential servicing portfolio includes conventional, government-insured and non-Agency loans. Non-Agency loans include subprime loans, which represent residential loans that generally did not qualify under GSE guidelines or have subsequently become delinquent. Originations. The Originations segment (previously labeled as Lending) purchases and originates conventional and government-insured residential forward and reverse mortgage loans through multiple channels. The loans are typically sold shortly after origination into a liquid market on a servicing retained (securitization) or servicing released (sale to a third party) basis. We originate forward mortgage loans directly with customers (recapture channel) as well as through correspondent lending arrangements since the second quarter of 2019. We originate reverse mortgage loans in all three channels, through our correspondent lending arrangements, broker relationships (wholesale) and retail channels. In addition to our originated MSRs, we acquire MSRs through multiple channels, including flow purchase agreements, the GSE Co-issue and Cash Window programs and bulk MSR purchases, and we acquire new subservicing through our enterprise sales. The pricing and acquisition decisions are made relative to other originated MSR channels. Accordingly, as part of our internal management reporting we renamed the Lending segment as Originations effective in the first quarter 2020, without any other changes to our operating and reporting segments. Corporate Items and Other. Corporate Items and Other includes revenues and expenses of corporate support services, CR Limited (CRL), our wholly-owned captive reinsurance subsidiary, discontinued operations and inactive entities, business activities that are individually insignificant, revenues and expenses that are not directly related to other reportable segments, interest income on short-term investments of cash and interest expense on corporate debt. Corporate Items and Other also includes severance, retention, facility-related and other expenses incurred in 2019 and 2020 related to our cost re-engineering plan and initiatives. Our cash balances are included in Corporate Items and Other. CRL provides re-insurance related to coverage on foreclosed real estate properties owned or serviced by us. We allocate a portion of interest income to each business segment, including interest earned on cash balances. We also allocate certain expenses incurred by corporate support services that are not directly attributable to a segment to each business segment. Beginning in 2020, we updated our methodology to allocate overhead costs incurred by corporate support services to the Servicing and Originations segments which now incorporates the utilization of various measurements primarily based on time studies, personnel volumes and service consumption levels. In 2019, corporate support services costs were primarily allocated based on relative segment size. Support services costs not allocated to the Servicing and Originations segments are retained in the Corporate Items and Other segment along with certain other costs including certain litigation and settlement related expenses or recoveries, costs related to our re-engineering plan, and other costs related to operating as a public company. Interest expense on direct asset-backed financings are recorded in the respective Servicing and Originations segments, while interest expense on the SSTL and Senior Notes is recorded in Corporate Items and Other and is not allocated. Financial information for our segments is as follows:
| Three Months Ended June 30, 2020
Results of Operations | Servicing |  | Originations |  | Corporate Items and Other |  | Business Segments Consolidated
Revenue | $ | 180,436 |  |  | $ | 45,545 |  |  | $ | 1,043 |  |  | $ | 227,024 |
MSR valuation adjustments, net | (36,604 | ) |  | 13,170 |  |  | — |  |  | (23,434 | )
Operating expenses (1) | 82,740 |  |  | 28,750 |  |  | 33,319 |  |  | 144,809 |
Other (expense) income: |  |  |  |  |  |  |
Interest income | 1,438 |  |  | 1,874 |  |  | 254 |  |  | 3,566 |
Interest expense | (12,890 | ) |  | (2,399 | ) |  | (11,471 | ) |  | (26,760 | )
Pledged MSR liability expense | (41,714 | ) |  | — |  |  | 28 |  |  | (41,686 | )
Other | 2,459 |  |  | (1 | ) |  | (2,515 | ) |  | (57 | )
Other expense, net | (50,707 | ) |  | (526 | ) |  | (13,704 | ) |  | (64,937 | )
Income (loss) before income taxes | $ | 10,385 |  |  | $ | 29,439 |  |  | $ | (45,980 | ) |  | $ | (6,156 | )
| Three Months Ended June 30, 2019
Results of Operations | Servicing |  | Originations |  | Corporate Items and Other |  | Business Segments Consolidated
Revenue | $ | 242,510 |  |  | $ | 28,794 |  |  | $ | 3,034 |  |  | $ | 274,338 |
MSR valuation adjustments, net | (147,199 | ) |  | (69 | ) |  | — |  |  | (147,268 | )
Operating expenses (1) | 142,888 |  |  | 20,957 |  |  | 20,381 |  |  | 184,226 |
Other (expense) income: |  |  |  |  |  |  |
Interest income | 1,872 |  |  | 1,546 |  |  | 419 |  |  | 3,837 |
Interest expense | (11,261 | ) |  | (1,399 | ) |  | (15,981 | ) |  | (28,641 | )
Pledged MSR liability expense | (2,930 | ) |  | — |  |  | — |  |  | (2,930 | )
Other | 890 |  |  | 444 |  |  | (777 | ) |  | 557 |
Other (expense) income, net | (11,429 | ) |  | 591 |  |  | (16,339 | ) |  | (27,177 | )
Income (loss) before income taxes | $ | (59,006 | ) |  | $ | 8,359 |  |  | $ | (33,686 | ) |  | $ | (84,333 | )
| Six Months Ended June 30, 2020
Results of Operations | Servicing |  | Originations |  | Corporate Items and Other |  | Business Segments Consolidated
Revenue | $ | 393,991 |  |  | $ | 83,192 |  |  | $ | 3,683 |  |  | $ | 480,866 |
MSR valuation adjustments, net | (211,040 | ) |  | 13,486 |  |  | — |  |  | (197,554 | )
Expenses (1) | 163,213 |  |  | 55,708 |  |  | 63,102 |  |  | 282,023 |
Other (expense) income: |  |  |  |  |  |  |
Interest income | 3,324 |  |  | 4,140 |  |  | 1,497 |  |  | 8,961 |
Interest expense | (26,557 | ) |  | (5,260 | ) |  | (24,925 | ) |  | (56,742 | )
Pledged MSR liability expense | (48,337 | ) |  | — |  |  | 57 |  |  | (48,280 | )
Other | 6,121 |  |  | (30 | ) |  | (4,820 | ) |  | 1,271 |
Other expense, net | (65,449 | ) |  | (1,150 | ) |  | (28,191 | ) |  | (94,790 | )
Income (loss) before income taxes | $ | (45,711 | ) |  | $ | 39,820 |  |  | $ | (87,610 | ) |  | $ | (93,501 | )
| Six months ended June 30, 2019
Results of Operations | Servicing |  | Originations |  | Corporate Items and Other |  | Business Segments Consolidated
Revenue | $ | 501,784 |  |  | $ | 69,885 |  |  | $ | 6,557 |  |  | 578,226 |
MSR valuation adjustments, net | (256,113 | ) |  | (153 | ) |  | — |  |  | (256,266 | )
Expenses (1) (2) | 299,871 |  |  | 42,204 |  |  | 13,258 |  |  | 355,333 |
Other (expense) income: |  |  |  |  |  |  |
Interest income | 4,165 |  |  | 3,095 |  |  | 1,135 |  |  | 8,395 |
Interest expense | (22,003 | ) |  | (3,067 | ) |  | (30,060 | ) |  | (55,130 | )
Pledged MSR liability expense | (46,886 | ) |  | — |  |  | — |  |  | (46,886 | )
Other | 2,416 |  |  | 663 |  |  | (1,502 | ) |  | 1,577 |
Other (expense) income, net | (62,308 | ) |  | 691 |  |  | (30,427 | ) |  | (92,044 | )
Income (loss) before income taxes | $ | (116,508 | ) |  | $ | 28,219 |  |  | $ | (37,128 | ) |  | $ | (125,417 | )
(1) | Compensation and benefits expense in the Corporate Items and Other segment for the three and six months ended June 30, 2020 and 2019 includes $1.3 million and $1.5 million, and $0.8 million and $19.2 million, respectively, of severance expense attributable to PHH integration-related headcount reductions of primarily U.S.-based employees in 2019, as well as our overall efforts to reduce costs.
(2) | Included in the Corporate Items and Other segment for the six months ended June 30, 2019, we recorded in Professional services expense a recovery from a service provider of $30.7 million during the first quarter of 2019 of amounts previously recognized as expense.
Total Assets | Servicing |  | Originations |  | Corporate Items and Other |  | Business Segments Consolidated
June 30, 2020 | $ | 2,835,486 |  |  | $ | 6,965,683 |  |  | $ | 509,269 |  |  | $ | 10,310,438 |
December 31, 2019 | $ | 3,378,515 |  |  | $ | 6,459,367 |  |  | $ | 568,317 |  |  | $ | 10,406,199 |
June 30, 2019 | $ | 3,195,218 |  |  | $ | 5,978,325 |  |  | $ | 454,250 |  |  | $ | 9,627,793 |
Depreciation and Amortization Expense | Servicing |  | Originations |  | Corporate Items and Other |  | Business Segments Consolidated
Three months ended June 30, 2020
Depreciation expense | $ | 218 |  |  | $ | 34 |  |  | $ | 6,844 |  |  | $ | 7,096 |
Amortization of debt discount | — |  |  | — |  |  | (286 | ) |  | (286 | )
Amortization of debt issuance costs | 116 |  |  | — |  |  | 1,689 |  |  | 1,805 |
Three months ended June 30, 2019
Depreciation expense | $ | 761 |  |  | $ | 46 |  |  | $ | 10,205 |  |  | $ | 11,012 |
Amortization of debt discount | — |  |  | — |  |  | 350 |  |  | 350 |
Amortization of debt issuance costs | — |  |  | — |  |  | 751 |  |  | 751 |
Six Months Ended June 30, 2020
Depreciation expense | $ | 433 |  |  | $ | 71 |  |  | $ | 10,589 |  |  | $ | 11,093 |
Amortization of debt discount | — |  |  | — |  |  | 643 |  |  | 643 |
Amortization of debt issuance costs | 228 |  |  | — |  |  | 3,310 |  |  | 3,538 |
Six months ended June 30, 2019
Depreciation expense | $ | 1,569 |  |  | $ | 81 |  |  | $ | 17,913 |  |  | $ | 19,563 |
Amortization of debt discount | — |  |  | — |  |  | 701 |  |  | 701 |
Amortization of debt issuance costs | — |  |  | — |  |  | 1,451 |  |  | 1,451 |

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 31 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8924-108599 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 34 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8981-108599 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 21 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 40 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9031-108599 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -Subparagraph (e) -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 26 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8844-108599 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 41 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9038-108599 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 22 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8736-108599 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 42 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9054-108599 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8657-108599 Reference 13: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 21 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599 Reference 14: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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