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MSR Transfers Not Qualifying for Sale Accounting | 3 Months Ended
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Mar. 31, 2022
Transfers and Servicing [Abstract] |
MSR Transfers Not Qualifying for Sale Accounting |
Note 8 — MSR Transfers Not Qualifying for Sale Accounting
MSRs transferred or sold in transactions which do not qualify for sale accounting treatment are accounted for as secured financings. Until such time as the transaction qualifies as a sale for accounting purposes, we continue to recognize the MSRs and related financing liability on our unaudited consolidated balance sheets, as well as the full amount of servicing fee collected as revenue and the servicing fee remitted as pledged MSR liability expense in our unaudited consolidated statements of operations. In addition, changes in fair value of the transferred MSRs are recognized in MSR valuation adjustments, net in the unaudited consolidated statements of operations, while changes in fair value of the related MSR financing liability are reported in Pledged MSR liability expense. In 2021 and 2022, PMC entered into agreements to sell MSR portfolios to MAV on a bulk and flow basis. In each such agreement, PMC has been retained as subservicer for the sold portfolio in accordance with the terms of the subservicing agreement entered into on May 3, 2021. The transactions do not qualify for sale accounting treatment predominantly due to the termination restrictions of the subservicing agreement. See Note 10 - Investment in Equity Method Investee and Related Party Transactions. Starting in 2012, Ocwen and PMC entered into agreements to sell MSRs or Rights to MSRs and the related servicing advances to NRZ, and in all cases have been retained by NRZ as subservicer. Due to the length of the non-cancellable term of the subservicing agreements, the transactions did not qualify for sale accounting treatment which resulted in such transactions being accounted for as secured financings. In the case of Rights to MSRs transactions with NRZ, legal title was retained by Ocwen, causing the transactions to be accounted for as secured financings. The following tables present the activity of the pledged MSR liability recorded in connection with the MSR transfer agreements with NRZ and MAV that do not qualify for sale accounting.
| Three Months Ended March 31, |  |  |  |
| 2022 |  | 2021 |  |  |  |
Pledged MSR Liability | Original Rights to MSRs Agreements - NRZ |  | MAV Agreements (2) |  | Total |  | Original Rights to MSRs Agreements - NRZ |  |  |  |
Beginning Balance | $ | 558,940 |  |  | $ | 238,144 |  |  | $ | 797,084 |  |  | $ | 566,952 |  |  |  |  |
MSR transfers | (10) |  |  | 40,606 |  |  | 40,597 |  |  | — |  |  |  |  |
Changes in fair value (3) | 6,798 |  |  | 48,661 |  |  | 55,459 |  |  | 1,551 |  |  |  |  |
Runoff and settlement | (19,863) |  |  | (8,402) |  |  | (28,265) |  |  | (17,616) |  |  |  |  |
Calls (1) | (560) |  |  | — |  |  | (560) |  |  | (523) |  |  |  |  |
Ending Balance | $ | 545,306 |  |  | $ | 319,009 |  |  | $ | 864,315 |  |  | $ | 550,364 |  |  |  |  |
(1)Represents the carrying value of MSRs in connection with call rights exercised by NRZ, or by Ocwen at NRZ’s direction. Ocwen derecognizes the MSRs and the related financing liability upon collapse of the securitization. (2)The fair value of the Pledged MSR liability differs from the fair value of the associated transferred MSR asset mostly due to the portion of ancillary income that is retained by PMC (shared between PMC and MAV) and other contractual cash flows under the terms of the subservicing agreement. As the MSR sales to MAV do not achieve sale accounting, the MSR asset transferred remains on the consolidated balance sheet and the proceeds from the sale are initially recognized as a financing liability (Pledged MSR liability), which is recorded at fair value with changes in fair value reported in Pledged MSR liability expense. (3)The changes in fair value of the MAV Pledged MSR Liability include a $14.1 million loss associated with the amendment to the MAV Subservicing Agreement in March 2022, resulting in lower contractually retained ancillary income by PMC. See Note 10 - Investment in Equity Method Investee and Related Party Transactions. The following table presents selected assets and liabilities recorded on our unaudited consolidated balance sheets in connection with the MSR transfer agreements with NRZ that do not qualify for sale accounting (refer to Note 9 – Receivables and Note 14 – Other Liabilities for receivables and other liabilities, respectively, related to MAV):
| March 31, 2022 |  | December 31, 2021
Balance Sheet |  |  |
NRZ - Transferred MSRs, at fair value | $ | 545,306 |  |  | $ | 558,940 |
Other financing liability - Pledged MSR liability, at fair value |  |  |
NRZ - Original Rights to MSRs Agreements | 545,306 |  |  | 558,940 |
Due from NRZ (Receivables) - Advance funding, subservicing fees and reimbursable expenses | 1,814 |  |  | 3,781 |
Due to NRZ (Other liabilities) | $ | 75,548 |  |  | $ | 76,590 |
The following tables present selected items in our unaudited consolidated statements of operations in connection with the MSR transfer agreements with NRZ and MAV that do not qualify for sale accounting.
| Three Months Ended March 31, |  |  |
| 2022 |  | 2021 |  |  |  |  |
Statements of Operations |  |  |  |  |  |  |  |
Servicing fees |  |  |  |  |  |  |  |
Servicing fees collected on behalf of NRZ | $ | 67,146 |  |  | $ | 80,385 |  |  |  |  |  |
Servicing fees collected on behalf of MAV | 15,733 |  |  | — |  |  |  |  |  |
| $ | 82,879 |  |  | $ | 80,385 |  |  |  |  |  |
Pledged MSR liability expense |  |  |  |  |  |  |  |
NRZ (see further details below) | $ | 32,382 |  |  | $ | 37,850 |  |  |  |  |  |
MAV (see further details below) | 54,515 |  |  | — |  |  |  |  |  |
| $ | 86,897 |  |  | $ | 37,850 |  |  |  |  |  |
NRZ Pledged MSR liability expense: | Three Months Ended March 31, |  |
| 2022 |  | 2021 |  |  |  |
Servicing fees collected on behalf of NRZ | $ | 67,146 |  |  | $ | 80,385 |  |  |  |  |
Less: Subservicing fee retained by Ocwen | 19,367 |  |  | 23,991 |  |  |  |  |
Net servicing fees remitted to NRZ | 47,779 |  |  | 56,394 |  |  |  |  |
Less: Reduction (increase) in Pledged MSR liability |  |  |  |  |  |  |
Changes in fair value due to valuation inputs or assumptions: |  |  |  |  |  |  |
Original Rights to MSRs Agreements | (6,798) |  |  | (1,551) |  |  |  |  |
Runoff and settlement: |  |  |  |  |  |  |
Original Rights to MSRs Agreements | 19,863 |  |  | 17,616 |  |  |  |  |
Other | 2,332 |  |  | 2,479 |  |  |  |  |
Pledged MSR liability expense - NRZ | $ | 32,382 |  |  | $ | 37,850 |  |  |  |  |
MAV Pledged MSR liability expense: | Three Months Ended March 31, 2022 |  |  |  |  |  |
Servicing fees collected on behalf of MAV | $ | 15,733 |  |  |  |  |  |  |
Less: Subservicing fee retained by Ocwen | 2,092 |  |  |  |  |  |  |
Net servicing fees remitted to MAV | 13,641 |  |  |  |  |  |  |
Less: Reduction (increase) in Pledged MSR liability |  |  |  |  |  |  |
Changes in fair value due to valuation inputs or assumptions | (48,661) |  |  |  |  |  |  |
Runoff and settlement | 8,403 |  |  |  |  |  |  |
| (40,258) |  |  |  |  |  |  |
Other (1) | (616) |  |  |  |  |  |  |
Pledged MSR liability expense - MAV | $ | 54,515 |  |  |  |  |  |  |
(1)Includes $0.6 million of early payment protection associated with the transfer (which did not qualify for sale accounting) of MSR portfolios by PMC to MAV. NRZ - Ocwen Transactions Prior to the transfer of legal title under the Master Servicing Rights Purchase Agreement dated as of October 1, 2012, as amended, and certain Sale Supplements, as amended (collectively, the Original Rights to MSRs Agreements), Ocwen agreed to service the mortgage loans underlying the MSRs on the economic terms set forth in the Original Rights to MSRs Agreements. After the transfer of legal title as contemplated under the Original Rights to MSRs Agreements, Ocwen was to service the mortgage loans underlying the MSRs as subservicer on substantially the same economic terms. On July 23, 2017 and January 18, 2018, we entered into a series of agreements with NRZ that collectively modify, supplement and supersede the arrangements among the parties as set forth in the Original Rights to MSRs Agreements. The July 23, 2017 agreements, as amended, include a Master Agreement, a Transfer Agreement and the Subservicing Agreement between Ocwen and New Residential Mortgage LLC (NRM), a subsidiary of NRZ, relating to non-Agency loans (the NRM Subservicing Agreement) (collectively, the 2017 Agreements) pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to the remaining MSRs that were subject to the Original Rights to MSRs Agreements and under which Ocwen would subservice mortgage loans underlying the MSRs for an initial term ending in July 2022 (the Initial Term). On January 18, 2018, the parties entered into new agreements (including a Servicing Addendum) regarding the Rights to MSRs related to MSRs that remained subject to the Original Rights to MSRs Agreements as of January 1, 2018 and amended the Transfer Agreement (collectively, New RMSR Agreements) to accelerate the implementation of certain parts of our arrangements in order to achieve the intent of the 2017 Agreements sooner. Under the new agreements, following receipt of the required consents and transfer of the MSRs, Ocwen subservices the mortgage loans underlying the transferred MSRs pursuant to the 2017 Agreements and the August 2018 subservicing agreement with NewRez LLC dba Shellpoint Mortgage Servicing (Shellpoint) described below. On August 17, 2018, Ocwen and NRZ entered into certain amendments (i) to the New RMSR Agreements to include Shellpoint, a subsidiary of NRZ, as a party to which legal title to the MSRs could be transferred after related consents are received, (ii) to add a Subservicing Agreement between Ocwen and Shellpoint relating to non-Agency loans (the Shellpoint Subservicing Agreement), (iii) to add an Agency Subservicing Agreement between Ocwen and NRM relating to Agency loans (the Agency Subservicing Agreement), and (iv) to conform the New RMSR Agreements and the NRM Subservicing Agreement to certain of the terms of the Shellpoint Subservicing Agreement and the Agency Subservicing Agreement. At any time during the Initial Term, NRZ may terminate the Subservicing Agreements and Servicing Addendum for convenience with 180 days’ notice of the effective date of termination. If the effective date of termination is during the Initial Term, NRZ will be required to pay Ocwen a termination fee and deboarding fees that would cover Ocwen’s servicing transfer costs. The termination fee is calculated as specified in the Subservicing Agreements and Servicing Addendum, and is a discounted percentage of the expected revenues that would be owed to Ocwen over the remaining contract term based on certain portfolio run-off assumptions. We did not receive any such notice of termination from NRZ 180 days prior to the end of the Initial Terms of the Subservicing Agreements or the Servicing Addendum. Although no termination fee will be payable if NRZ provides a 180-day notice of termination during the remaining Initial Term of any of the agreements, NRZ will be required to pay deboarding fees that would cover Ocwen’s servicing transfer costs in connection with the effective date of termination that occurs after the Initial Term. Following the Initial Term in July 2022, NRZ may extend the term of the Subservicing Agreements and Servicing Addendum for additional three-month periods by providing proper notice prior to the end of the Initial Term or the end of any three-month extended term after the Initial Term. Absent any notice of extension, each of the agreements will terminate at the end of its Initial Term in July 2022 or the end of any three-month extended term. In addition, the Subservicing Agreements and Servicing Addendum may be terminated by Ocwen without cause on an annual basis (in effect a non-renewal) by providing at least 225 days’ notice in advance of the last day of the Initial Term or the last day of each one-year extension of the applicable terms after the Initial Term. Ocwen did not exercise its termination option. Therefore, the Subservicing Agreements and Servicing Addendum will automatically renew to July 2023, unless NRZ terminates or does not extend the term per the above discussion. NRZ and Ocwen have the ability to terminate the Subservicing Agreements and Servicing Addendum for cause if certain specified conditions occur. The terminations must be terminations in whole (i.e., cover all the loans under the relevant Subservicing Agreement or Servicing Addendum) and not in part, except for limited circumstances specified in the agreements. In addition, if NRZ terminates any of the NRM or Shellpoint Subservicing Agreements or the Servicing Addendum for cause, the other agreements will also terminate automatically. Under the terms of the Subservicing Agreements and Servicing Addendum, in addition to a base servicing fee, Ocwen receives certain ancillary fees, primarily late fees, loan modification fees and convenience or Speedpay® fees. We may also receive certain incentive fees or pay penalties tied to various contractual performance metrics. NRZ receives all float earnings and deferred servicing fees related to delinquent borrower payments, as well as being entitled to receive certain REO related income including REO referral commissions. As of March 31, 2022, the UPB of MSRs subject to the Servicing Agreements and the New RMSR Agreements is $53.6 billion, including $11.7 billion for which title has not transferred to NRZ. As the third-party consents required for title to the MSRs to transfer were not obtained by May 31, 2019, the New RMSR Agreements set forth a process under which NRZ’s $11.7 billion Rights to MSRs may (i) be acquired by Ocwen at a price determined in accordance with the terms of the New RMSR Agreements, at the option of Ocwen, or (ii) be sold, together with Ocwen’s title to those MSRs, to a third party in accordance with the terms of the New RMSR Agreements, subject to an additional Ocwen option to acquire at a price based on the winning third-party bid rather than selling to the third party. If the Rights to MSRs are not transferred pursuant to these alternatives, then the Rights to MSRs will remain subject to the New RMSR Agreements. In addition, during the Initial Term, NRZ has the right to terminate the $11.7 billion New RMSR Agreements for convenience, in whole but not in part, subject to payment of a termination fee and 180 days’ notice. As noted above NRZ did not provide us with a notice of termination in January 2022, 180 days prior to the end of the Initial Term, so no termination fee will be payable if NRZ provides a notice of termination before the end of the Initial Term. If NRZ exercises this termination right, NRZ has the option of seeking (i) the transfer of the MSRs through a sale to a third party of its Rights to MSRs (together with a transfer of Ocwen’s title to those MSRs) or (ii) a substitute RMSR arrangement that substantially replicates the Rights to MSRs structure (a Substitute RMSR Arrangement) under which we would transfer title to the MSRs to a successor servicer and NRZ would continue to own the economic rights and obligations related to the MSRs. In the case of option (i), we have a purchase option as specified in the New RMSR Agreements. If NRZ is not able to sell the Rights to MSRs or establish a Substitute RMSR Arrangement with another servicer, NRZ has the right to revoke its termination notice and re-instate the Servicing Addendum or to establish a subservicing arrangement whereby the MSRs remaining subject to the New RMSR Agreements would be transferred to up to three subservicers who would subservice under Ocwen’s oversight. If such a subservicing arrangement were established, Ocwen would receive an oversight fee and reimbursement of expenses. We may also agree on alternative arrangements that are not contemplated under our existing agreements or that are variations of those contemplated under our existing agreements. See further information related to the extension of the agreements with NRZ in Note 22 – Subsequent Events.

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