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Business Segment Reporting
 9 Months Ended
Sep. 30, 2022
Segment Reporting [Abstract]  
Business Segment Reporting
Note 19 – 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 nine months ended September 30, 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 have been revised for prior periods to conform to the current segment presentation. Such revaluation gains were $1.5 million for the three and nine months ended September 30, 2021.
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. 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 and nine months ended September 30, 2021 is $7.5 million ($7.3 million Servicing and $0.2 million Originations) and $14.9 million ($14.7 million Servicing and $0.2 million Originations), 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 September 30, 2022
Results of Operations ServicingOriginationsCorporate Items and OtherCorporate Eliminations (1)Business Segments Consolidated
Servicing and subservicing fees$214,977 $585 $— $— $215,562 
Reverse mortgage revenue, net(3,636)10,521 — — 6,885 
Gain (loss) on loans held for sale, net (1)154 20,746 — (1,969)18,931 
Other revenue, net343 6,457 1,544 — 8,344 
Revenue211,838 38,309 1,544 (1,969)249,722 
MSR valuation adjustments, net (1)89,569 3,621 — 1,969 95,159 
Operating expenses (2)86,100 33,256 22,052 — 141,408 
Other (expense) income:
Interest income2,895 10,361 476 — 13,732 
Interest expense (30,907)(8,931)(10,557)— (50,395)
Pledged MSR liability expense(131,672)— 37 — (131,635)
Earnings of equity method investee3,346 — — — 3,346 
Other (4,000)(605)(933)— (5,538)
Other income (expense), net(160,338)825 (10,977)— (170,490)
Income (loss) before income taxes
$54,969 $9,499 $(31,485)$— $32,983 
Three Months Ended September 30, 2021
Results of Operations ServicingOriginationsCorporate Items and OtherCorporate Eliminations (1)Business Segments Consolidated
Servicing and subservicing fees$205,430 $1,155 $— $— $206,585 
Reverse mortgage revenue, net(13,032)18,067 — — 5,035 
Gain on loans held for sale, net (1)31,555 29,604 — (1,457)59,702 
Other revenue, net303 9,947 1,529 — 11,779 
Revenue 224,256 58,773 1,529 (1,457)283,101 
MSR valuation adjustments, net (1)(9,117)1,340 — 1,457 (6,320)
Operating expenses 80,849 43,966 20,621 — 145,436 
Other (expense) income:
Interest income2,417 5,348 104 — 7,869 
Interest expense (21,643)(6,542)(12,438)— (40,623)
Pledged MSR liability expense(91,120)— (40)— (91,160)
Earnings of equity method investee932 — — — 932 
Other 1,443 122 335 — 1,900 
Other expense, net(107,971)(1,072)(12,039)— (121,082)
Income (loss) before income taxes$26,319 $15,075 $(31,131)$— $10,263 
Nine Months Ended September 30, 2022
Results of Operations ServicingOriginationsCorporate Items and OtherCorporate Eliminations (1)Business Segments Consolidated
Servicing and subservicing fees$641,679 $1,638 $— $— $643,316 
Reverse mortgage revenue, net(34,517)51,896 — — 17,379 
Gain on loans held for sale, net (1)(14,015)46,059 — (15,379)16,665 
Other revenue, net1,107 19,999 4,978 — 26,084 
Revenue 594,254 119,592 4,978 (15,379)703,444 
MSR valuation adjustments, net (1)168,300 7,310 — 15,379 190,989 
Operating expenses (2)242,882 121,966 47,949 — 412,797 
Other (expense) income:
Interest income9,946 19,942 701 — 30,590 
Interest expense (76,305)(18,301)(31,525)— (126,131)
Pledged MSR liability expense(292,677)— 61 — (292,616)
Earnings of equity method investee19,281 — — — 19,281 
Gain (loss) on extinguishment of debt(33)— 947 — 914 
Other (7,564)(1,731)(641)— (9,936)
Other expense, net
(347,352)(90)(30,457)— (377,898)
Income (loss) before income taxes$172,320 $4,846 $(73,428)$— $103,738 
Nine Months Ended September 30, 2021
Results of Operations ServicingOriginationsCorporate Items and OtherCorporate Eliminations (1)Business Segments Consolidated
Servicing and subservicing fees$556,927 $5,837 $— $— $562,764 
Reverse mortgage revenue, net(511)56,673 — — 56,162 
Gain on loans held for sale, net (1)39,206 94,471 — (25,541)108,136 
Other revenue, net1,302 23,450 4,326 — 29,078 
Revenue596,924 180,431 4,326 (25,541)756,140 
MSR valuation adjustments, net (1)(101,755)18,652 — 25,541 (57,562)
Operating expenses 247,228 121,877 65,768 — 434,873 
Other (expense) income:
Interest income4,905 10,776 312 — 15,993 
Interest expense (57,861)(14,794)(29,936)— (102,591)
Pledged MSR liability expense(168,847)— 27 — (168,820)
Earnings of equity method investee1,282 — — — 1,282 
Gain (loss) on extinguishment of debt— — (15,458)— (15,458)
Other4,787 4 763 — 5,554 
Other expense, net(215,734)(4,014)(44,292)— (264,040)
Income (loss) before income taxes$32,207 $73,192 $(105,734)$— $(335)
(1)Corporate Eliminations includes inter-segment derivatives eliminations of $2.0 million and $15.4 million for the three and nine months ended September 30, 2022, respectively, and $1.5 million and $25.5 million for the three and nine months ended September 30, 2021, respectively, reported as Gain on loans held for sale, net with a corresponding offset in MSR valuation adjustments, net.
(2)Included in Professional services expense are reimbursements received from mortgage loan investors related to prior year legal expenses and payments received following resolution of legacy litigation matters of $4.3 million (Servicing) and $25.3 million ($18.4 million Servicing and $6.9 million Corporate) during the three and nine months ended September 30, 2022, respectively.
Total AssetsServicingOriginationsCorporate Items and OtherBusiness Segments Consolidated
September 30, 2022$11,322,586 $731,057 $306,426 $12,360,069 
December 31, 2021$10,999,204 $823,530 $324,389 $12,147,123 
September 30, 2021$10,810,298 $865,018 $364,922 $12,040,238 
Depreciation and Amortization ExpenseServicingOriginationsCorporate Items and OtherBusiness Segments Consolidated
Three months ended September 30, 2022
Depreciation expense$245 $108 $2,127 $2,480 
Amortization of debt issuance costs and discount203 — 2,240 2,443 
Amortization of intangibles1,207 — — 1,207 
Three months ended September 30, 2021
Depreciation expense$137 $77 $2,247 $2,461 
Amortization of debt issuance costs and discount129 — 2,076 2,205 
Nine months ended September 30, 2022
Depreciation expense$669 $322 $6,658 $7,649 
Amortization of debt issuance costs and discount618 — 6,908 7,526 
Amortization of intangibles3,332 — — 3,332 
Nine months ended September 30, 2021
Depreciation expense$514 $125 $6,888 $7,527 
Amortization of debt issuance costs and discount388 — 5,050 5,438