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Business Segment Reporting
 3 Months Ended
Mar. 31, 2021
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. Our reportable business segments consist of Servicing, Originations, and Corporate Items and Other. During the three months ended March 31, 2021, there have been no changes to our business segments as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Effective with the fourth quarter of 2020, we have reported the results of Reverse Servicing within the Servicing segment. Previously, the Reverse Servicing business was included in the reported results of the Originations segment. This alignment of our business segments is consistent with a change in the management of the business and a change in the internal management reporting to the chief operating decision maker. Segment results for 2020 have been recast to conform to the current segment presentation. Reverse Servicing generated Revenue and Income before income taxes of $16.0 million and $12.2 million, respectively, for the three months ended March 31, 2020. Reverse Servicing assets consist primarily of securitized Loans held for investment - Reverse Mortgages.
Revenues and expenses directly associated with each respective business segments are included in determining its results of operations. We allocate certain expenses incurred by corporate support services that are not directly attributable to a segment to each business segment. We allocate overhead costs incurred by corporate support services to the Servicing and Originations segments which incorporates the utilization of various measurements primarily based on time studies, personnel volumes and service consumption levels. 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 initiatives, and other costs related to operating as a public company. We allocate a portion of interest income to each business segment, including interest earned on cash balances.
Interest expense on direct asset-backed financings are recorded in the respective Servicing and Originations segments. Beginning in the third quarter of 2020, we began allocating interest expense on corporate debt, including the SSTL and Senior Notes, used to fund servicing advances and other servicing assets from Corporate Items and Other to Servicing. Amortization of debt issuance costs and discount are excluded from the interest expense allocation. The interest expense related to the corporate debt has been allocated to the Servicing segment for periods prior to the third quarter of 2020 to conform to the current period presentation. The interest expense allocation is $10.5 million for the three months ended March 31, 2020.
As a result of our risk management strategy to hedge the interest rate risk of our net MSR portfolio, the fair value changes of third-party derivative instruments are reported within MSR valuation adjustments, net. For management segment reporting purposes, we establish inter-segment derivative instruments to transfer the risks and allocate the associated fair value changes of derivatives between Servicing and Originations, and specifically between MSR valuation adjustments, net and Gain on loans held for sale, net (Gain/loss on economic hedge instruments). The inter-segment derivative fair value changes are eliminated in the consolidated financial statements in the Corporate Elimination column in the table below.
Financial information for our segments is as follows:
Three Months Ended March 31, 2021
Results of Operations ServicingOriginationsCorporate Items and OtherCorporate Eliminations (1)Business Segments Consolidated
Servicing and subservicing fees$169,354 $2,384 $— $— $171,738 
Reverse mortgage revenue, net2,035 19,791 — — 21,826 
Gain on loans held for sale, net 3,521 37,593 — (35,393)5,721 
Other revenue, net502 6,518 1,289 — 8,309 
Revenue175,412 66,286 1,289 (35,393)207,594 
MSR valuation adjustments, net (22,690)8,505 — 35,393 21,208 
Operating expenses 82,753 37,328 19,548 — 139,629 
Other (expense) income:
Interest income1,257 2,566 113 — 3,936 
Interest expense (20,309)(3,552)(4,591)— (28,452)
Pledged MSR liability expense(37,883)— 33 — (37,850)
Loss on extinguishment of debt— — (15,458)— (15,458)
Other 452 50 (212)— 290 
Other expense, net(56,483)(936)(20,115)— (77,534)
Income (loss) before income taxes
$13,486 $36,527 $(38,374)$— $11,639 
Three Months Ended March 31, 2020
Results of Operations ServicingOriginationsCorporate Items and OtherCorporate Eliminations (1)Business Segments Consolidated
Servicing and subservicing fees$211,469 $1 $13 $— $211,483 
Reverse mortgage revenue, net16,673 6,124 — — 22,797 
Gain on loans held for sale, net229 13,102 — — 13,331 
Other revenue, net1,159 2,445 — 2,627 — 6,231 
Revenue 229,530 21,672 2,640 — 253,842 
MSR valuation adjustments, net(174,448)328 — — (174,120)
Operating expenses 84,479 22,952 29,783 — 137,214 
Other (expense) income:
Interest income2,529 1,623 1,243 — 5,395 
Interest expense (24,581)(2,433)(2,968)— (29,982)
Pledged MSR liability expense(6,623)— 29 — (6,594)
Other 3,655 (22)(2,305)— 1,328 
Other expense, net(25,020)(832)(4,001)— (29,853)
Loss before income taxes$(54,417)$(1,784)$(31,144)$— $(87,345)
(1)Corporate Eliminations for the three months ended March 31, 2021 includes an inter-segment derivatives elimination of $35.4 million with a corresponding offset in MSR valuation adjustments, net; nil for the three months ended March 31, 2020.
Total AssetsServicingOriginationsCorporate Items and OtherBusiness Segments Consolidated
March 31, 2021$9,869,673 $525,610 $376,505 $10,771,788 
December 31, 2020$9,847,603 $379,233 $424,291 $10,651,127 
March 31, 2020$9,321,628 $205,198 $459,198 $9,986,024 

Depreciation and Amortization ExpenseServicingOriginationsCorporate Items and OtherBusiness Segments Consolidated
Three months ended March 31, 2021
Depreciation expense$209 $24 $2,626 $2,859 
Amortization of debt issuance costs and discount129 — 1,495 1,624 
Three months ended March 31, 2020
Depreciation expense$215 $37 $3,745 $3,997 
Amortization of debt issuance costs and discount112 — 2,550 2,662