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Investment in Equity Method Investee | 9 Months Ended
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Sep. 30, 2021
Equity Method Investments and Joint Ventures [Abstract] |
Investment in Equity Method Investee |
Note 10 - Investment in Equity Method Investee
On December 21, 2020, Ocwen entered into a transaction agreement (the Transaction Agreement) with Oaktree Capital Management L.P. and certain affiliates (collectively Oaktree) to form a strategic relationship to invest in MSRs subserviced by PMC. The parties have agreed to invest their pro rata portions of up to an aggregate of $250.0 million in an intermediate holding company, MAV Canopy, held 15% by Ocwen and 85% by Oaktree. On May 3, 2021, pursuant to the Transaction Agreement, Ocwen contributed MAV, which had total member’s equity and cash balances of approximately $5.0 million, to MAV Canopy, and received 15% of MAV Canopy and cash consideration. MAV is a licensed mortgage servicing company approved to purchase GSE MSRs. PMC and MAV entered into a number of definitive agreements which govern the terms of their business relationship: Subservicing Agreement. Effective May 3, 2021, PMC entered into a subservicing agreement with MAV for exclusive rights to service the mortgage loans underlying MSRs owned by MAV in exchange for a per-loan subservicing fee and certain other ancillary fees. The subservicing agreement will continue until terminated by mutual agreement of the parties or for cause, as defined. If either party terminates the agreement for cause, the other party is required to pay certain fees and costs. Joint Marketing Agreement and Recapture Agreement. Effective May 3, 2021, in conjunction with the subservicing agreement, PMC and MAV entered into a joint marketing agreement and a flow MSR sale agreement (MSR recapture), whereby PMC is entitled to the exclusive right to solicit and refinance borrowers with loans underlying the MSR owned by MAV, and is obligated to transfer to MAV the MSR associated with the loans so originated. The joint marketing agreement and flow MSR sale agreement will continue until terminated by mutual agreement of the parties or for cause, as defined, or at the option of either party if the subservicing agreement is terminated. Administrative Services Agreement: Pursuant to the Transaction Agreement, Ocwen entered into an agreement to provide certain administrative services to MAV, including accounting, treasury, human resources, management information, MSR transaction management support, and certain licensing, regulatory and risk management support. Ocwen is entitled to a fee for such services, subject to an annual cap of $0.5 million. Following the execution of the Transaction Agreement and until the parties have contributed their pro rata portions of the $250.0 million aggregate capital contributions, Ocwen and its affiliates may not acquire, without Oaktree’s prior written approval, GSE MSRs that meet certain underwriting and other criteria (such criteria are referred to as the “buy-box”) unless Ocwen notifies MAV of the opportunity and MAV does not pursue it by submitting a competitive bid to the MSR seller. In addition, until the earlier of (i) the time that MAV has been fully funded and (ii) May 3, 2024 (subject to two annual extensions by mutual agreement), if Ocwen seeks to sell any GSE MSRs that meet the buy-box, Ocwen must first offer such MSRs to MAV before initiating a sale process with a third party. If MAV does not accept Ocwen’s offer, Ocwen may sell the MSRs to a third party on terms no more favorable to the purchaser than those offered to MAV. The price at which Ocwen and its affiliates will offer MSRs to MAV will be based on the valuation of an independent third-party. This first offer provision does not apply to MSRs acquired by PMC prior to May 3, 2021. On June 1, 2021, PMC agreed to sell and MAV agreed to purchase a Fannie Mae MSR portfolio of approximately $4.1 billion, with certain pricing adjustments, subject to MAV obtaining the necessary regulatory approval. MAV has subsequently obtained approval from Fannie Mae and the transaction closed on September 1, 2021. In addition, on September 30, 2021, PMC agreed to sell and MAV agreed to purchase a GSE MSR portfolio of approximately $8.2 billion. Forward Bulk Servicing Rights Purchase and Sale Agreement: On September 9, 2021, PMC and MAV entered into an MSR purchase and sale agreement whereby PMC agreed to sell and MAV agreed to purchase certain Fannie Mae MSRs acquired by PMC on a monthly basis. As of September 30, 2021, PMC sold MSRs with UPB of $1.3 billion to MAV under this agreement. The MSR sale transactions do not qualify for sale accounting and are accounted for as secured borrowings primarily due to the termination restrictions of the subservicing agreement. See Note 8 — MSR Transfers Not Qualifying for Sale Accounting for a summary of transactions under this agreement. We account for our investments in unconsolidated entities using the equity method. These investments include our investment in MAV Canopy in which we hold a significant, but less than controlling, ownership interest. Under the equity method of accounting, investments are initially recorded at cost and thereafter adjusted for additional investments, distributions and the proportionate share of earnings or losses of the investee. We evaluate our equity method investments for impairment when events or changes in circumstances indicate that any other than‐temporary decline in value may have occurred. Under ASC 323, Investments - Equity Method and Joint Ventures, an investment of less than 20 percent of the voting stock of an investee shall lead to a presumption that an investor does not have the ability to exercise significant influence unless such ability can be demonstrated. Ocwen determined it has significant influence over MAV Canopy based on its representation on the MAV Canopy Board of Directors and certain services it provides, amongst other factors. Accordingly, Ocwen deemed it appropriate to account for its investment in MAV Canopy under the equity method. Our investment in MAV Canopy is comprised of following at September 30, 2021:
Capital contribution | $ | 18,512 |
Earnings of equity method investee | 1,282 |
Investment in equity method investee | $ | 19,794 |
MAV Canopy, MAV and Oaktree are deemed related parties to Ocwen. In addition to its investment in MAV Canopy, the subservicing agreement by PMC and the other agreements described above, Ocwen issued common stock, warrants and senior secured notes to Oaktree as described in Note 12 – Borrowings and Note 14 – Equity. The following tables present a summary of our transactions with MAV, MAV Canopy or Oaktree as related parties, as of or for the three and nine months ended September 30, 2021:
Balance Sheet |
MSRs, at fair value (1) | $ | 144,893 |
Receivables |
Reimbursable expenses |
MSR sales price holdback - (MAV) (1) | $ | 1,644 |
Due from MAV | 2,657 |
Transferred MSR liability, at fair value (2) | $ | 128,887 |
Other liabilities |
Due to MAV | 226 |
Revenue |
Servicing and subservicing fees |
Servicing fees collected on behalf of MAV (1) | $ | 1,001 |
Subservicing fees - Subservicing agreement (MAV) | 574 |
Ancillary fees (MAV) (1) | 707 |
| $ | 2,282 |
MSR valuation adjustments, net (MAV) (1) | $ | (3,116) |
Other income (expense) |
Interest expense - OFC senior secured notes (Oaktree) | $ | (21,351) |
Pledged MSR liability expense - MAV (1) | 2,094 |
Other income - Administrative services agreement (MAV) | 140 |
Other |
UPB of MSR transferred by PMC to MAV in the three and nine months ended September 30, 2021 | $ | 13,683,143 |
Cash proceeds from transfers of MSRs by PMC to MAV in the three and nine months ended September 30, 2021 | $ | 130,024
UPB of loans sub-serviced - Subservicing agreement (MAV) as of September 30, 2021 |
MSR transferred to MAV, not qualifying for sale accounting | 13,570,892
Ocwen subservicer | 7,855,112
| $ | 21,426,004
(1)For sales of MSRs to MAV which did not qualify as a sale for accounting purposes, we continue to recognize the MSRs and related pledged MSR liability on our consolidated balance sheets, as well as the full amount of servicing revenue and changes in the fair value of the MSRs and related financing liability in our unaudited consolidated statements of operations. Changes in fair value of the Rights to MSRs are recognized in MSR valuation adjustments, net in the unaudited consolidated statements of operations. Changes in fair value of the MSR related financing liability are reported in Pledged MSR liability expense. (2)Also referred to as Pledged MSR liability. The fair value of the transferred MSR liability differs from the fair value of the MSR due to certain cash flows being retained by Ocwen in connection with the subservicing agreement.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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