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Mortgage Servicing
 6 Months Ended
Jun. 30, 2020
Transfers and Servicing [Abstract]  
Mortgage Servicing
Note 7 – Mortgage Servicing


During each period, we remeasure our MSR at fair value, which contemplates the receipt or nonreceipt of the servicing income for that period. The servicing income, including expectations of future servicing cash flows, are inputs for the measurement of the MSR fair value. The net result on the statement of operations is that we record the contractual cash received in each period as revenue within Servicing and subservicing fees, partially offset by the remeasurement of the MSR fair value within MSR valuation adjustments, net.
MSRs – Fair Value Measurement Method
Three Months Ended June 30,
2020
 
2019
 
Agency
 
Non-Agency
 
Total
 
Agency
 
Non-Agency
 
Total
Beginning balance
$
294,227

 
$
756,001

 
$
1,050,228

 
$
825,692

 
$
574,499

 
$
1,400,191

Sales and other transfers
—

 
(51
)
 
(51
)
 
406

 
(409
)
 
(3
)
Additions:
 
 
 
 
 
 
 
 
 
 
 
Recognized on the sale of residential mortgage loans
9,128

 
—

 
9,128

 
1,188

 
—

 
1,188

Purchase of MSRs
15,255

 
—

 
15,255

 
59,892

 
87

 
59,979

Servicing transfers and adjustments (1)
11

 
1,296

 
1,307

 
—

 
(1,454
)
 
(1,454
)
Changes in fair value (2):
 
 
 
 
 
 
 
 
 
 
 
Changes in valuation inputs or other assumptions
3,711

 
(3,462
)
 
249

 
(107,559
)
 
12,739

 
(94,820
)
Realization of expected future cash flows and other changes
(17,247
)
 
(13,955
)
 
(31,202
)
 
(33,884
)
 
(18,564
)
 
(52,448
)
Ending balance
$
305,085

 
$
739,829

 
$
1,044,914

 
$
745,735

 
$
566,898

 
$
1,312,633

 
 
 
 
 
 
 
 
 
 
 
 
MSRs – Fair Value Measurement Method
Six months ended June 30,
2020
 
2019
 
Agency
 
Non-Agency
 
Total
 
Agency
 
Non-Agency
 
Total
Beginning balance
$
714,006

 
$
772,389

 
$
1,486,395

 
$
865,587

 
$
591,562

 
$
1,457,149

Sales and other transfers
—

 
(107
)
 
(107
)
 
(29
)
 
(541
)
 
(570
)
Additions:
 
 
 
 

 
 
 
 
 

Recognized on the sale of residential mortgage loans
15,689

 
—

 
15,689

 
2,698

 
—

 
2,698

Purchase of MSRs
46,745

 
—

 
46,745

 
114,302

 
87

 
114,389

Servicing transfers and adjustments (1)
(263,846
)
 
403

 
(263,443
)
 
—

 
(4,767
)
 
(4,767
)
Changes in fair value (2):
 
 
 
 

 
 
 
 
 

Changes in valuation inputs or other assumptions
(163,425
)
 
6,930

 
(156,495
)
 
(171,676
)
 
12,583

 
(159,093
)
Realization of expected future cash flows and other changes
(44,084
)
 
(39,786
)
 
(83,870
)
 
(65,147
)
 
(32,026
)
 
(97,173
)
Ending balance
$
305,085

 
$
739,829

 
$
1,044,914

 
$
745,735

 
$
566,898

 
$
1,312,633

(1)
Servicing transfers and adjustments include a $263.7 million derecognition of MSRs/Rights to MSRs effective with the February 20, 2020 notice of termination of the subservicing agreement between NRZ and PMC. See Note 8 — Rights to MSRs for further information.
(2)
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 primary servicing and subservicing portfolios as measured by UPB. The UPB amounts in the table below are not included on our unaudited consolidated balance sheets, with the exception of the Reverse mortgage loans.
 
UPB at
 
June 30, 2020
 
December 31, 2019
 
June 30, 2019
Servicing
$
70,463,896

 
$
70,428,208

 
$
74,320,255

Reverse mortgage loan servicing (1)
6,521,219

 
6,229,724

 
5,820,873

Subservicing
20,007,180

 
17,120,905

 
27,432,019

NRZ (2) (3)
109,020,760

 
118,587,594

 
121,709,898

 
$
206,013,055

 
$
212,366,431

 
$
229,283,045


(1)
Reverse mortgage loans are reported on our unaudited consolidated balance sheets at fair value and are classified as loans held for investment. No separate MSRs are recognized in our unaudited consolidated balance sheets.
(2)
UPB of loans for which the Rights to MSRs have been sold to NRZ, including $54.0 billion for which third-party consents have been received and the MSRs have been transferred to NRZ (the MSRs remain on balance sheet as the transactions do not achieve sale accounting treatment).
(3)
Includes $37.1 billion of servicing UPB at June 30, 2020 pursuant to the subservicing agreement between NRZ and PMC for which we received a notice of termination from NRZ on February 20, 2020. While the MSRs and the Rights to MSRs associated with these loans are derecognized from our consolidated balance sheet, we continue to service these loans until deboarding. See Note 8 — Rights to MSRs.
We acquired MSRs with a UPB of $5.7 billion and $10.8 billion during the six months ended June 30, 2020 and 2019, respectively. We sold MSRs with a UPB of $41.7 million and $100.1 million during the six months ended June 30, 2020 and 2019, respectively.
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. We have not had any terminations as servicer as a result of a breach of any of these provisions in 2020 and 2019.
At June 30, 2020, the S&P Global Ratings, Inc.’s (S&P’s) servicer ratings outlook for PMC is stable. On March 24, 2020, Fitch Ratings, Inc. (Fitch) placed all U.S Residential Mortgage Backed Securities (RMBS) servicer ratings on Outlook Negative, resulting from a rapidly evolving economic and operating environment due to the sudden impact of the COVID-19 virus. Downgrades in servicer ratings could adversely affect our ability to service loans, 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 some 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 June 30,
 
Six Months Ended June 30,
2020
 
2019
 
2020
 
2019
Loan servicing and subservicing fees
 
 
 
 
 
 
 
Servicing
$
52,336

 
$
55,387

 
$
107,745

 
$
108,569

Subservicing
10,630

 
4,203

 
15,820

 
10,410

NRZ
88,405

 
141,091

 
208,073

 
296,938

 
151,371

 
200,681

 
331,638

 
415,917

Late charges
12,672

 
13,242

 
27,311

 
28,682

Custodial accounts (float earnings)
1,590

 
13,341

 
7,731

 
25,275

Loan collection fees
2,744

 
3,401

 
7,000

 
7,750

Home Affordable Modification Program (HAMP) fees (1)
20

 
1,565

 
428

 
3,342

Other, net
6,843

 
7,730

 
12,615

 
15,610

 
$
175,240

 
$
239,960

 
$
386,723

 
$
496,576


(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 $1.9 billion, $1.7 billion and $2.0 billion at June 30, 2020, December 31, 2019 and June 30, 2019, respectively.