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Business Segment Reporting
 3 Months Ended
Mar. 31, 2022
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, 2022, 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, 2021, with the exception of certain reclassifications disclosed below.
Effective in the first quarter of 2022, we recognize revaluation gains on Fannie Mae MSRs purchased through the Agency Cash Window Program within the Servicing segment that were historically reported in the Originations segment. MSR valuation adjustments, net for the Servicing and Originations segments has been revised for prior periods to conform to the current segment presentation. Such revaluation gains were $3.6 million and $— (nil) for the three months ended March 31, 2022 and 2021, respectively.
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 to each business segment using various methodologies intended to approximate the utilization of such services. 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. We allocate interest expense on corporate debt from Corporate Items and Other to the Servicing segment and the Originations segment (starting in the fourth quarter of 2021) based on relative financing requirements. Effective in the first quarter of 2022, we no longer allocate interest expense on the OFC Senior Secured Notes to the Servicing and Originations segments. Interest expense allocated to the Servicing and Originations segments for prior periods has been revised to conform to the current period presentation. The interest expense allocation adjustment for the three months ended March 31, 2022 and 2021 is $10.2 million ($9.9 million Servicing and $0.3 million Originations) and $1.5 million (all Servicing), respectively.
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 were reported within MSR valuation adjustments, net. For management segment reporting purposes, we established 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). In the second quarter of 2021, we began separately hedging our MSR portfolio and pipeline. We may, from time to time, establish intersegment derivative instruments between our MSR and pipeline hedging strategies to optimize the use of third-party derivatives. The inter-segment derivative fair value changes are eliminated in the consolidated financial statements in the Corporate Eliminations column in the table below.
Financial information for our segments is as follows:
Three Months Ended March 31, 2022
Results of Operations ServicingOriginationsCorporate Items and OtherCorporate Eliminations (1)Business Segments Consolidated
Servicing and subservicing fees$212,168 $455 $— $— $212,623 
Reverse mortgage revenue, net(11,853)24,963 — — 13,110 
Gain (loss) on loans held for sale, net (1)(2,701)12,773 — (13,277)(3,206)
Other revenue, net405 6,828 1,803 — 9,036 
Revenue198,019 45,019 1,803 (13,277)231,563 
MSR valuation adjustments, net (1)48,290 1,065 — 13,277 62,632 
Operating expenses 74,250 46,235 6,533 — 127,018 
Other (expense) income:
Interest income4,060 2,973 79 — 7,112 
Interest expense (23,101)(4,234)(10,540)— (37,875)
Pledged MSR liability expense(86,909)— 12 — (86,897)
Earnings of equity method investee12,003 — — — 12,003 
Loss on extinguishment of debt(33)— — — (33)
Other 715 (1,411)534 — (162)
Other income (expense), net(93,265)(2,672)(9,915)— (105,852)
Income (loss) before income taxes
$78,794 $(2,823)$(14,645)$— $61,325 
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 (1)3,521 37,593 — (35,393)5,721 
Other revenue, net502 6,518 1,289 — 8,309 
Revenue 175,412 66,286 1,289 (35,393)207,594 
MSR valuation adjustments, net (1)(22,690)8,505 — 35,393 21,208 
Operating expenses 82,753 37,737 19,139 — 139,629 
Other (expense) income:
Interest income1,257 2,566 113 — 3,936 
Interest expense (18,816)(3,552)(6,084)— (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 income (expense), net(54,990)(936)(21,608)— (77,534)
Income (loss) before income taxes$14,979 $36,118 $(39,458)$— $11,639 
(1)Corporate Eliminations for the three months ended March 31, 2022 and 2021 includes inter-segment derivatives eliminations of $13.3 million and $35.4 million, respectively, reported as Gain on loans held for sale, net with a corresponding offset in MSR valuation adjustments, net.
Total AssetsServicingOriginationsCorporate Items and OtherBusiness Segments Consolidated
March 31, 2022$11,251,806 $610,925 $435,078 $12,297,809 
December 31, 2021$10,999,204 $823,530 $324,389 $12,147,123 
March 31, 2021$9,869,673 $525,630 $376,485 $10,771,788 

Depreciation and Amortization ExpenseServicingOriginationsCorporate Items and OtherBusiness Segments Consolidated
Three months ended March 31, 2022
Depreciation expense$171 $107 $2,324 $2,602 
Amortization of debt issuance costs and discount203 — 2,336 2,539 
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