Fair value is estimated based on a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is given to Level 1 inputs and the lowest to Level 3 inputs.


		December 31,
		2020				2019
	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Loans held for sale
Loans held for sale, at fair value (a) (e)	3, 2	$	366,364	$	366,364	$	208,752	$	208,752
Loans held for sale, at lower of cost or fair value (b)	3	21,472		21,472		66,517		66,517
Total Loans held for sale		$	387,836	$	387,836	$	275,269	$	275,269
Loans held for investment
Loans held for investment - Reverse mortgages (a)	3	$	6,997,127	$	6,997,127	$	6,269,596	$	6,269,596
Loans held for investment - Restricted for securitization investors (a)	3	9,770		9,770		23,342		23,342
Total loans held for investment		7,006,897		7,006,897		6,292,938		6,292,938

Advances, net (c)	3	828,239		828,239		1,056,523		1,056,523
Receivables, net (c)	3	187,665		187,665		201,220		201,220
Mortgage-backed securities (a)	3	2,019		2,019		2,075		2,075

Corporate bonds (a)	2	211		211		441		441


		December 31,
		2020				2019
	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial liabilities:
Advance match funded liabilities (c)	3	$	581,288	$	581,997	$	679,109	$	679,507
Financing liabilities:
HMBS-related borrowings (a)	3	$	6,772,711	$	6,772,711	$	6,063,435	$	6,063,435
Financing liability - MSRs pledged (Rights to MSRs) (a)	3	566,952		566,952		950,593		950,593
Financing liability - Owed to securitization investors (a)	3	9,770		9,770		22,002		22,002

Total Financing liabilities		$	7,349,433	$	7,349,433	$	7,036,030	$	7,036,030
Other secured borrowings:
Senior secured term loan (c) (d)	2	$	179,776	$	184,639	$	322,758	$	324,643
Mortgage warehouse and MSR financing (c)	3	889,385		858,573		703,033		686,146
Total Other secured borrowings		$	1,069,161	$	1,043,212	$	1,025,791	$	1,010,789
Senior notes:
Senior unsecured notes (c) (d)	2	$	21,357	$	20,625	$	21,046	$	13,821
Senior secured notes (c) (d)	2	290,541		300,254		290,039		256,201
Total Senior notes		$	311,898	$	320,879	$	311,085	$	270,022

Derivative financial instrument assets (liabilities)
Interest rate lock commitments (a) (f)	3, 2	$	22,706	$	22,706	$	4,878	$	4,878

Forward trades - Loans held for sale (a)	1	(50)		(50)		(21)		(21)
TBA / Forward mortgage-backed securities (MBS) trades and futures- MSR hedging (a)	1	(4,554)		(4,554)		1,121		1,121
Derivatives futures (a)	1	504		504		—		—


MSRs (a)	3	$	1,294,817	$	1,294,817	$	1,486,395	$	1,486,395

(e)Loans repurchased from Ginnie Mae securitizations with a fair value of $51.1 million at December 31, 2020 are classified as Level 3. The remaining balance of loans held for sale at fair value at December 31, 2020 is classified as Level 2. The entire balance of Loans held for sale at fair value at December 31, 2019 was classified as Level 2.


	Loans Held for Investment - Restricted for Securitization Investors		Financing Liability - Owed to Securitiza - tion Investors		Loans Held for Sale - Fair Value		Mortgage-Backed Securities		IRLCs
Year Ended December 31, 2020
Beginning balance	$	23,342	$	(22,002)	—		$	2,075	$	—
Purchases, issuances, sales and settlements
Purchases	—		—		162,589		—		—

Issuances	—		—		—		—		286,992
De-consolidation of mortgage-backed securitization trusts	(10,715)		9,519		—		—		—
Sales	—		—		(137,780)		—		—
Settlements	(2,857)		2,857		—		—		—
Transfers to:

Loans held for sale, at fair value	—		—		—		—		(285,198)
Receivables, net	—		—		(969)		—		—


	(13,572)		12,376		23,840		—		1,794

Change in fair value included in earnings	—		(144)		1,650		(56)		10,434





Transfers in and / or out of Level 3	—		—		25,582		—		10,478
Ending balance	$	9,770	$	(9,770)	$	51,072	$	2,019	$	22,706


	Loans Held for Investment - Restricted for Securitization Investors		Financing Liability - Owed to Securitiza - tion Investors		Mortgage-Backed Securities		Derivatives - Interest Rate Caps
Year Ended December 31, 2019
Beginning balance	$	26,520	$	(24,815)	$	1,502	$	678
Purchases, issuances, sales and settlements
Purchases	—		—		—		—

Issuances	—		—		—		—

Sales	—		—		—		—
Settlements	(3,178)		2,813		—		—





	(3,178)		2,813		—		—


Change in fair value included in earnings	—		—		573		(678)




Transfers in and / or out of Level 3	—		—		—		—
Ending balance	$	23,342	$	(22,002)	$	2,075	$	—


	Loans Held for Investment - Restricted for Securitization Investors		Financing Liability - Owed to Securitiza - tion Investors		Mortgage-Backed Securities		Derivatives - Interest Rate Caps
Year Ended December 31, 2018
Beginning balance	$	—	$	—	$	1,592	$	2,056
Purchases, issuances, sales and settlements
Purchases	—		—		—		95
Issuances	—		—		—		—
Consolidation of mortgage-backed securitization trusts	28,373		(26,643)		—		—
Sales	—		—		—		—
Settlements	(1,853)		1,828		—		(371)




	26,520		(24,815)		—		(276)


Change in fair value	—		—		(90)		(1,102)




Transfers in and / or out of Level 3	—		—		—		—
Ending balance	$	26,520	$	(24,815)	$	1,502	$	678

The methodologies that we use and key assumptions that we make to estimate the fair value of financial instruments and other assets and liabilities measured at fair value on a recurring or non-recurring basis and those disclosed, but not carried, at fair value are described below.

Residential forward and reverse mortgage loans that we intend to sell are carried at fair value as a result of a fair value election. Such loans are subject to changes in fair value due to fluctuations in interest rates from the closing date through the date of the sale of the loan into the secondary market. These loans are generally classified within Level 2 of the valuation hierarchy because the primary component of the price is obtained from observable values of mortgage forwards for loans of similar terms and characteristics. We have the ability to access this market, and it is the market into which conventional and government-insured mortgage loans are typically sold.

We purchase certain loans from Ginnie Mae guaranteed securitizations in connection with loan modifications, strategic early buyouts (EBO) and loan resolution activity as part of our contractual obligations as the servicer of the loans. Effective January 1, 2020, we elected to classify any repurchased loans as loans held for sale at fair value as we expect to redeliver (sell) the loans into new Ginnie Mae guaranteed securitizations (in the case of modified loans) or sell the loans to a private investor (in the case of EBO loans). Modified and EBO loans purchased before January 1, 2020 are classified as loans held for sale at the lower of cost or fair value. The fair value of these loans is estimated using both observable and unobservable inputs, including published forward Ginnie Mae prices or existing sale contracts, as well as estimated default, prepayment, and discount rates. The significant unobservable input in estimating fair value is the estimated default rate. Accordingly, these repurchased Ginnie Mae loans are classified as Level 3 within the valuation hierarchy.

Loans repurchased in connection with loan resolution activities are classified as receivables. Because these loans are insured or guaranteed by the FHA or VA, the fair value of these loans represents the net recovery value taking into consideration the insured or guaranteed claim.

When we enter into an agreement to sell a loan or pool of loans to an investor at a set price, we value the loan or loans at the commitment price, unless facts and circumstances exist that could impact deal economics, at which point we use judgment to determine appropriate adjustments to recorded fair value, if any. We determine the fair value of loans for which we have no agreement to sell on the expected future cash flows discounted at a rate commensurate with the risk of the estimated cash flows.

We measure these loans at fair value based on the expected future cash flows discounted over the expected life of the loans at a rate commensurate with the risk of the estimated cash flows, including future draw commitments for HECM loans. Inputs of the discounted cash flows of these assets include future draws and tail spread gains, voluntary prepayments, defaults, and discount rate. On January 1, 2019, we made an irrevocable fair value election on all future draw commitments for HECM loans that were purchased or originated on or after January 1, 2019. In connection with our adoption of ASU 2016-13 on January 1,

We engage third-party valuation experts to support our valuation and provide observations and assumptions related to market activities. We evaluate the reasonableness of our fair value estimate and assumptions using historical experience, or cash flow backtesting, adjusted for prevailing market conditions and benchmarks with third-party expert valuations.

Significant unobservable assumptions include voluntary prepayment speeds, defaults and discount rate. The conditional prepayment speed assumption displayed in the table below is inclusive of voluntary (repayment or payoff) and involuntary (inactive/delinquent status and default) prepayments. The discount rate assumption is primarily based on an assessment of current market yields on reverse mortgage loan and tail securitizations, expected duration of the asset and current market interest rates.

Significant increases or decreases in any of these assumptions in isolation could result in a significantly lower or higher fair value, respectively. The effects of changes in the assumptions used to value the loans held for investment, excluding future draw commitments, are partially offset by the effects of changes in the assumptions used to value the HMBS-related borrowings that are associated with these loans.

We have elected to measure loans held by consolidated mortgage-backed securitization trusts at fair value. The loans are secured by first liens on single family residential properties. Fair value is based on proprietary cash flow modeling processes from a third-party broker/dealer and a third-party valuation expert. Significant assumptions used in the valuation include projected monthly payments, projected prepayments and defaults, property liquidation values and discount rates.

We determine the fair value of MSRs primarily using discounted cash flow methodologies. The significant components of the estimated future cash inflows for MSRs include servicing fees, late fees, float earnings and other ancillary fees. Significant cash outflows include the cost of servicing, the cost of financing servicing advances and compensating interest payments.

We engage third-party valuation experts who generally utilize: (a) transactions involving instruments with similar collateral and risk profiles, adjusted as necessary based on specific characteristics of the asset or liability being valued; and/or (b) industry-standard modeling, such as a discounted cash flow model and prepayment model, in arriving at their estimate of fair value. The prices provided by the valuation experts reflect their observations and assumptions related to market activity, incorporating available industry survey results and client feedback, and including risk premiums and liquidity adjustments. While the models and related assumptions used by the valuation experts are proprietary to them, we understand the methodologies and assumptions used to develop the prices based on our ongoing due diligence, which includes regular discussions with the valuation experts. We believe that the procedures executed by the valuation experts, supported by our verification and analytical procedures, provide reasonable assurance that the prices used in our consolidated financial statements comply with the accounting guidance for fair value measurements and disclosures and reflect the assumptions that a market participant would use.


•	Mortgage prepayment speeds	•	Delinquency rates
•	Cost of servicing	•	Interest rate used for computing float earnings
•	Discount rate	•	Compensating interest expense
•	Interest rate used for computing the cost of financing servicing advances	•	Collection rate of other ancillary fees
•	Curtailment on advances

MSRs are carried at fair value and classified within Level 3 of the valuation hierarchy. The fair value is determined using the mid-point of the range of prices provided by third-party valuation experts, without adjustment, except in the event we have a potential or completed sale, including transactions where we have executed letters of intent, in which case the fair value of the MSRs is recorded at the estimated sale price. Fair value reflects actual Ocwen sale prices for orderly transactions where available in lieu of independent third-party valuations. Our valuation process includes discussions of bid pricing with the third-party valuation experts and are contemplated along with other market-based transactions in their model validation.

A change in the valuation inputs or assumptions may result in a significantly higher or lower fair value measurement. Changes in market interest rates predominantly impact the fair value for Agency MSRs via prepayment speeds by altering the borrower refinance incentive and the non-Agency MSRs due to the impact on advance costs. The significant unobservable assumptions used in the valuation of these MSRs include prepayment speeds, delinquency rates, cost to service and discount rates.


	December 31,
Significant unobservable assumptions	2020						2019
	Agency			Non-Agency			Agency			Non-Agency
Weighted average prepayment speed	11.8		%	11.5		%	11.7		%	12.2		%
Weighted average delinquency rate	3.0		%	28.0		%	3.2		%	27.3		%
Weighted average discount rate	9.2		%	11.4		%	9.3		%	11.3		%
Weighted average cost to service (in dollars)	$	79		$	270		$	85		$	277

Because the mortgages underlying these MSRs permit the borrowers to prepay the loans, the value of the MSRs generally tends to diminish in periods of declining interest rates, an improving housing market or expanded product availability (as prepayments increase) and increase in periods of rising interest rates, a deteriorating housing market or reduced product availability (as prepayments decrease). The following table summarizes the estimated change in the value of the MSRs as of December 31, 2020 given hypothetical shifts in lifetime prepayments and yield assumptions:

We value advances at their net realizable value, which generally approximates fair value. Servicing advances have no stated maturity and do not bear interest. Principal and interest advances are generally realized within a relatively short period of time. The timing of recovery of taxes, insurance and other corporate advances depends on the underlying loan attributes, performance, and in many cases, foreclosure or liquidation timeline. The fair value adjustment to servicing advances associated with the estimated time to recover such advances is separately measured and reported as a component of the fair value of the associated MSR, consistent with actual market transactions. Refer to MSRs above for a description of the valuation methodology and assumptions related to the cost of financing servicing advances and discount rate, among other factors.

Our subordinate and residual securities are not actively traded, and therefore, we estimate the fair value of these securities using a process based upon the use of an independent third-party valuation expert. Where possible, we consider observable trading activity in the valuation of our securities. Key inputs include expected prepayment rates, delinquency and cumulative loss curves and discount rates commensurate with the risks. Where possible, we use observable inputs in the valuation of our securities. However, the subordinate and residual securities in which we have invested trade infrequently and therefore have few or no observable inputs and little price transparency. Additionally, during periods of market dislocation, the observability of inputs is further reduced. We classify subordinate and residual securities as trading securities and account for them at fair value on a recurring basis. Changes in the fair value of our investment in subordinate and residual securities are recognized in Other, net in the consolidated statements of operations.

For advance match funded liabilities that bear interest at a rate that is adjusted regularly based on a market index, the carrying value approximates fair value. For advance match funded liabilities that bear interest at a fixed rate, we determine fair value by discounting the future principal and interest repayments at a market rate commensurate with the risk of the estimated cash flows. We assume the notes are refinanced at the end of their revolving periods, consistent with how we manage our advance facilities.

We have elected to measure these borrowings at fair value. These borrowings are not actively traded, and therefore, quoted market prices are not available. We determine fair value using a discounted cash flow approach, by discounting the projected recovery of principal and interest over the estimated life of the borrowing at a market rate commensurate with the risk of the estimated cash flows.

Significant unobservable assumptions include yield spread and discount rate. The yield spread and discount rate assumption for these liabilities are primarily based on an assessment of current market yields for newly issued HMBS, expected duration and current market interest rates.

Significant increases or decreases in any of these assumptions in isolation could result in a significantly higher or lower fair value, respectively. The effects of changes in the assumptions used to value the HMBS-related borrowings are partially offset by the effects of changes in the assumptions used to value the associated pledged loans held for investment, excluding future draw commitments.

We have elected to measure and record these borrowings at fair value. We recognize the proceeds received in connection with Rights to MSRs transactions as a secured borrowing that we account for at fair value. We determine the fair value of the pledged MSR liability following a similar approach as for the associated pledged MSRs. Fair value for the portion of the borrowing attributable to the MSRs underlying the Rights to MSRs is determined using the mid-point of the range of prices provided by third-party valuation experts. Fair value for the portion of the borrowing attributable to any lump sum payments received in connection with the transfer of MSRs underlying such Rights to MSRs to the extent such transfer is accounted for as a financing is determined by discounting the relevant future cash flows that were altered through such transfer using assumptions consistent with the mid-point of the range of prices provided by third-party valuation experts for the related MSR.

Consists of securitization debt certificates due to third parties that represent beneficial ownership interests in mortgage-backed securitization trusts that we include in our consolidated financial statements. We determine fair value using the measurement alternative to ASC Topic 820, Fair Value Measurement. In accordance with the measurement alternative, the fair value of the consolidated securitization debt certificates is measured as the fair value of the loans held by the trust less the fair value of the beneficial interests held by us in the form of residual securities.

The carrying value of secured borrowings that bear interest at a rate that is adjusted regularly based on a market index approximates fair value. For other secured borrowings that bear interest at a fixed rate, we determine fair value by discounting the future principal and interest repayments at a market rate commensurate with the risk of the estimated cash flows. For the SSTL, we base the fair value on valuation data obtained from a pricing service.

In 2014, we issued Ocwen Asset Servicing Income Series (OASIS), Series 2014-1 Notes secured by Ocwen-owned MSRs relating to Freddie Mac mortgages. In 2019, we issued Ocwen Excess Spread-Collateralized Notes, Series 2019-PLS1 notes secured by certain of PMC’s private label MSRs. We determine the fair value of these notes based on bid prices provided by third parties involved in the issuance and placement of the notes.

Interest rate lock commitments (IRLCs) represent an agreement to purchase loans from a third-party originator or an agreement to extend credit to a mortgage applicant (locked pipeline), whereby the interest rate is set prior to funding. As of December 31, 2019, IRLCs were classified within Level 2 of the valuation hierarchy as the primary component of the price was obtained from observable values of mortgage forwards for loans of similar terms and characteristics. Fair value amounts of IRLCs are adjusted for expected “fallout” (locked pipeline loans not expected to close) using models that consider cumulative historical fallout rates and other factors. As of December 31, 2020, IRLCs are classified as Level 3 assets as fallout rates were determined to be significant unobservable assumptions.

We entered into forward MBS trades to provide an economic hedge against changes in the fair value of residential forward and reverse mortgage loans held for sale that we carry at fair value until August 2019 and, beginning in September 2019, to hedge of our net MSR portfolio. We use derivative instruments, including forward trades of MBS or Agency TBAs and exchange-traded interest rate swap futures, as economic hedging instruments. Forward contracts, TBAs and interest rate swap futures are actively traded in the market and we obtain unadjusted market quotes for these derivatives; thus, they are classified within Level 1 of the valuation hierarchy.

In addition, we may use interest rate caps to minimize future interest rate exposure on variable rate debt issued on servicing advance financing facilities from increases in one-month or three-month Eurodollar rate (1ML or 3ML, respectively) interest rates. The fair value for interest rate caps is based on counterparty market prices and adjusted for counterparty credit risk.