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Securitizations and Variable Interest Entities | 9 Months Ended
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Sep. 30, 2022
Transfers and Servicing [Abstract] |
Securitizations and Variable Interest Entities |
Note 2 – Securitizations and Variable Interest Entities
We securitize, sell and service forward and reverse residential mortgage loans and regularly transfer financial assets in connection with asset-backed financing arrangements. We have aggregated these transfers of financial assets and asset-backed financing arrangements using special purpose entities (SPEs) or variable interest entities (VIEs) into the following groups: (1) securitizations of residential mortgage loans, (2) financings of loans held for sale, (3) financings of advances and (4) MSR financings. Financing transactions that do not use SPEs or VIEs are disclosed in Note 13 – Borrowings. From time to time, we may acquire beneficial interests issued in connection with mortgage-backed securitizations where we may also be the master and/or primary servicer. These beneficial interests consist of subordinate and residual interests acquired from third-parties in market transactions. We consolidate the VIE when we conclude we are the primary beneficiary. Securitizations of Residential Mortgage Loans Transfers of Forward Loans We sell or securitize forward loans that we originate or purchase from third parties, generally in the form of mortgage-backed securities guaranteed by the GSEs or Ginnie Mae. Securitization typically occurs within 30 days of loan closing or purchase. We act only as a fiduciary and do not have a variable interest in the securitization trusts. As a result, we account for these transactions as sales upon transfer. The following table presents a summary of cash flows received from and paid to securitization trusts related to transfers of loans accounted for as sales that were outstanding:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
2022 |  | 2021 |  | 2022 |  | 2021
Proceeds received from securitizations | $ | 5,227,470 |  |  | $ | 5,823,765 |  |  | $ | 12,925,295 |  |  | $ | 12,220,596 |
Servicing fees collected (1) | 21,577 |  |  | 16,440 |  |  | 67,154 |  |  | 43,968 |
Purchases of previously transferred assets, net of claims reimbursed | (3,500) |  |  | (6,065) |  |  | (10,324) |  |  | (16,085) |
| $ | 5,245,547 |  |  | $ | 5,834,140 |  |  | $ | 12,982,125 |  |  | $ | 12,248,479 |
(1)We receive servicing fees based upon the securitized loan balances and certain ancillary fees, all of which are reported in Servicing and subservicing fees in the unaudited consolidated statements of operations. In connection with these transfers, we retained MSRs of $70.2 million and $176.2 million during the three and nine months ended September 30, 2022, respectively, and $66.4 million and $136.5 million during the three and nine months ended September 30, 2021, respectively. We securitize forward and reverse residential mortgage loans involving the GSEs and loans insured by the FHA, VA or USDA through Ginnie Mae. Certain obligations arise from the agreements associated with our transfers of loans. Under these agreements, we may be obligated to repurchase the loans, or otherwise indemnify or reimburse the investor or insurer for losses incurred due to material breach of contractual representations and warranties. We receive customary origination representations and warranties from our network of approved correspondent lenders. To the extent that we have recourse against a third-party originator, we may recover part or all of any loss we incur. Also refer to Note 22 – Contingencies - Loan Put-Back and Related Contingencies. The following table presents the carrying amounts of our assets that relate to our continuing involvement with forward loans that we have transferred with servicing rights retained as well as an estimate of our maximum exposure to loss including the UPB of the transferred loans:
| September 30, 2022 |  | December 31, 2021
Carrying value of assets |  |  |
MSRs, at fair value | $ | 510,427 |  |  | $ | 360,830 |
Advances | 63,396 |  |  | 151,166 |
UPB of loans transferred (1) | 34,060,639 |  |  | 31,864,769 |
Maximum exposure to loss (2) | $ | 34,634,462 |  |  | $ | 32,376,765 |
(1)Includes $6.3 billion and $5.6 billion of loans delivered to Ginnie Mae as of September 30, 2022 and December 31, 2021, respectively, and includes loan modifications repurchased and delivered through the Ginnie Mae Early Buyout Program (EBO). (2)The maximum exposure to loss does not take into consideration any recourse available to us, including from the underlying collateral or from correspondent sellers. Also, refer to Loan Put-Back and Related Contingencies in Note 22 – Contingencies. At September 30, 2022 and December 31, 2021, 2.4% and 3.6%, respectively, of the transferred residential loans that we service were 60 days or more past due, including 60 days or more past due loans under forbearance. This includes 7.7% and 12.0%, respectively, of loans delivered to Ginnie Mae that are 60 days or more past due. Transfers of Reverse Mortgages We pool HECM loans into HMBS that we sell into the secondary market with servicing rights retained. We have determined that loan transfers in the HMBS program do not meet the definition of a participating interest and the servicing requirements require the issuer/servicer to absorb some level of interest rate risk, cash flow timing risk and incidental credit risk. As a result, the transfers of the HECM loans do not qualify for sale accounting, and therefore, we account for these transfers as financings. Under this accounting treatment, the HECM loans are classified as Loans held for investment, at fair value, on our unaudited consolidated balance sheets. Holders of participating interests in the HMBS have no recourse against the assets of Ocwen, except with respect to standard representations and warranties and our contractual obligation to service the HECM loans and the HMBS. Financing of Loans Held for Sale using SPEs We entered into a warehouse mortgage loan financing facility with a third-party lender involving an SPE (trust). This facility is structured as a gestation repurchase facility whereby Agency mortgage loans are transferred by PMC to the trust for collateralization purposes. We have designed the trust to facilitate the third party financing facility and have determined that the trust is a VIE for which we are the primary beneficiary. Therefore, we have included the trust in our consolidated financial statements. As of September 30, 2022, the certificates issued by the trust that are pledged as collateral have been reduced to zero. See Note 13 – Borrowings. The table below presents the carrying value and classification of the assets and liabilities of the loans held for sale financing facility:
| September 30, 2022 |  | December 31, 2021 |  |
Mortgage loans (Loans held for sale, at fair value) | $ | — |  |  | $ | 462,144 |  |  |
Outstanding borrowings (Mortgage loan warehouse facilities) | — |  |  | 459,344 |  |  |
Financings of Advances using SPEs Match funded advances, i.e., advances that are pledged as collateral to our advance facilities, result from our transfers of residential loan servicing advances to SPEs in exchange for cash. We consolidate these SPEs because we have determined that we are the primary beneficiary of the SPEs. Through wholly-owned subsidiaries we hold the sole equity interests in the SPEs and service the mortgage loans that generate the advances. These SPEs issue debt supported by collections on the transferred advances, and we refer to this debt as Advance match funded liabilities. Holders of the debt issued by the SPEs have recourse only to the assets of the SPE for satisfaction of the debt. The table below presents the carrying value and classification of the assets and liabilities of the advance financing facilities:
| September 30, 2022 |  | December 31, 2021
Match funded advances (Advances, net) | $ | 540,142 |  |  | $ | 587,059 |
Debt service accounts (Restricted cash) | 10,064 |  |  | 7,687 |
Unamortized deferred lender fees (Other assets) | 2,379 |  |  | 1,305 |
Prepaid interest (Other assets) | 477 |  |  | 225 |
Advance match funded liabilities | 456,233 |  |  | 512,297 |
MSR Financings using SPEs We established two SPEs (trusts) in connection with a third-party financing facility secured by certain Fannie Mae and Freddie Mac MSRs (Agency MSRs). We determined that the trusts are VIEs for which we are the primary beneficiary. Therefore, we have included the trusts in our consolidated financial statements. We have the power to direct the activities of the VIEs that most significantly impact the VIE’s economic performance given that we are the servicer of the Agency MSRs that result in cash flows to the trusts. In addition, we have designed the trusts at inception to facilitate the third-party funding facility under which we have the obligation to absorb the losses of the VIEs that could be potentially significant to the VIEs. The table below presents the carrying value and classification of the assets and liabilities of the Agency MSR financing facility:
| September 30, 2022 |  | December 31, 2021
MSRs pledged (MSRs, at fair value) | $ | 820,382 |  |  | $ | 630,605 |
Unamortized deferred lender fees (Other assets) | 1,716 |  |  | 1,495 |
Debt service account (Restricted cash) | 103 |  |  | 104 |
Outstanding borrowings (MSR financing facilities, net) | 412,287 |  |  | 317,523 |
In 2019, we issued Ocwen Excess Spread-Collateralized Notes, Series 2019-PLS1 Class A (PLS Notes) secured by certain of PMC’s private label MSRs (PLS MSRs). On March 15, 2022, we replaced the existing PLS Notes with a new series of notes, Ocwen Excess Spread-Collateralized Notes, Series 2022-PLS1 Class A, at an initial principal amount of $75.0 million. An SPE, PMC PLS ESR Issuer LLC (PLS Issuer), was established in this connection as a wholly owned subsidiary of PMC. Ocwen guarantees the obligations of PLS Issuer under the facility. We determined that PLS Issuer is a VIE for which we are the primary beneficiary. Therefore, we have included PLS Issuer in our consolidated financial statements. We have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance given that we are the servicer of the MSRs that result in cash flows to PLS Issuer. In addition, PMC has designed PLS Issuer at inception to facilitate the funding of PMC’s MSRs. In return for the participation interests, PMC received the proceeds from issuance of the PLS Notes. PMC is the sole member of PLS Issuer, thus PMC has the obligation to absorb the losses of the VIE that could be potentially significant to the VIE. The table below presents the carrying value and classification of the assets and liabilities of the PLS Notes facility:
| September 30, 2022 |  | December 31, 2021
MSRs pledged (MSRs, at fair value) | $ | 129,586 |  |  | $ | 99,833 |
Debt service account (Restricted cash) | 1,692 |  |  | 1,968 |
Outstanding borrowings (MSR financing facilities, net) | 61,752 |  |  | 41,663 |
Unamortized debt issuance costs (MSR financing facilities, net) | 884 |  |  | 413 |

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