MSR Transfers Not Qualifying for Sale Accounting

9 Months Ended

Sep. 30, 2023

MSR Transfers Not Qualifying for Sale Accounting


Note 8 — Other Financing Liabilities, at Fair Value

The following tables presents financing liabilities carried at fair value which include pledged MSR liabilities recorded in connection with MSR transfers, subservicing retained, that do not qualify for sale accounting, liabilities of consolidated mortgage-backed securitization trusts and MSR excess servicing spread (ESS) financing liability carried at fair value (see Note 12 – Borrowings for ESS financing liability carried at amortized cost).


			Outstanding Balance
Borrowing Type	Collateral	Maturity	September 30, 2023		December 31, 2022
MSR transfers not qualifying for sale accounting (1):
Original Rights to MSRs Agreements, at fair value - Rithm	MSRs	(1)	$	577.8	$	601.2
Pledged MSR liability, at fair value - MAV	MSRs	(1)	420.4		329.8
Pledged MSR liability, at fair value - Others	MSRs	(1)	120.8		0.7
			1,119.1		931.7
Financing liability - Owed to securitization investors, at fair value: Residential Asset Securitization Trust 2003-A11 (RAST 2003-A11) (2)	Loans held for investment	October 2033	5.9		6.7
ESS financing liability, at fair value (3)	MSRs (3)	(3)	255.4		199.0
Total Other financing liabilities, at fair value			$	1,380.3	$	1,137.4

(1)MSRs transferred, subservicing retained, or sold in transactions which do not qualify for sale accounting treatment are accounted for as secured financings.

(2)Consists of securitization debt certificates due to third parties that represent beneficial interests in trusts that are consolidated.

(3)Consists of the obligation to remit to a third party a specified percentage of future servicing fee collections (servicing spread) on reference pools of MSRs, which we are entitled to as owner of the related MSRs.

With the exception of the MSRs for which title has not transferred to Rithm ($10.1 billion UPB at September 30, 2023 - discussed below), the MSR and Pledged MSR liability associated with Rithm servicing agreements will be derecognized on December 31, 2023 as MSR sale accounting criteria will be met (specifically, the parties may cancel or decline to renew the servicing agreements after a reasonable period). As of September 30, 2023, the MSR and the Pledged MSR liability subject to derecognition amounted to $450.7 million and $450.7 million, respectively, resulting in no gain or loss upon derecognition. The statement of operations will prospectively reflect subservicing fee revenue as opposed to the current gross presentation of servicing fee revenue and separate presentation of servicing fee remittances within Pledged MSR liability expense.

The following tables present the activity of the pledged MSR liability recorded in connection with the MSR transfer agreements with MAV, Rithm and others that do not qualify for sale accounting.


	Three Months Ended September 30,
	2023						2022
Pledged MSR Liability	Rithm and Others		MAV (1)		Total		Original Rights to MSRs Agreements - Rithm		MAV (1)		Total
Beginning Balance	$	689.9	$	319.7	$	1,009.5	$	550.8	$	355.5	$	906.3

MSR transfers	0.9		80.8		81.7		—		11.9		11.9
Derecognition of financing liability (2)	—		—		—		—		(39.0)		(39.0)
Calls	—		—		—		(0.1)		—		(0.1)
Fair value gain (loss)
Changes in fair value due to inputs and assumptions	16.3		29.2		45.5		71.1		20.0		91.1


Realization of expected cash flows	(8.4)		(9.2)		(17.6)		(17.1)		(6.5)		(23.6)
Total fair value (gain) loss	7.9		20.0		27.9		53.9		13.6		67.5
Ending Balance	$	698.6	$	420.4	$	1,119.1	$	604.7	$	342.0	$	946.6


	Nine Months Ended September 30,
	2023						2022
Pledged MSR Liability	Rithm and Others		MAV Agreements (1)		Total		Original Rights to MSRs Agreements - Rithm		MAV Agreements (1)		Total
Beginning Balance	$	601.9	$	329.8	$	931.7	$	558.9	$	238.1	$	797.1

MSR transfers	98.5		81.0		179.5		—		81.6		81.6
Derecognition of financing liability (2)	—		(32.5)		(32.5)		—		(39.0)		(39.0)
Calls	—		—		—		(0.6)		—		(0.6)
Fair value gain (loss)
Changes in fair value due to inputs and assumptions	19.8		68.4		88.2		102.6		85.7		188.3
Realization of expected cash flows	(21.6)		(26.2)		(47.8)		(56.2)		(24.4)		(80.6)
Total fair value (gain) loss (3)	(1.7)		42.2		40.5		46.4		61.3		107.7
Ending Balance	$	698.6	$	420.4	$	1,119.1	$	604.7	$	342.0	$	946.6

(1)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 contractually retained by PMC (shared between PMC and MAV) and other contractual cash flows during the expected life of the subservicing agreement.

(2)During the three months ended June 30, 2023 and September 30, 2022, we derecognized a portion of the MAV Pledged MSR liability upon sale of the related MSRs by MAV to a third party with a UPB of $2.3 billion and $2.9 billion, respectively.

(3)The changes in fair value of the MAV Pledged MSR liability includes a $14.1 million loss associated with the amendment to the MAV Subservicing Agreement in March 2022, resulting in lower contractual ancillary income retained by PMC.

The following table presents the Pledged MSR liability expense recorded in connection with the MSR sale agreements with MAV, Rithm and others that do not qualify for sale accounting and the ESS financing liabilities.


	Three Months Ended September 30,
	2023						2022
	Rithm and Others		MAV		Total		Rithm		MAV		Total
Servicing fees collected on behalf of Rithm, MAV and others	$	62.1	$	17.2	$	79.3	$	63.4	$	17.8	$	81.2
Less: Subservicing fee retained by Ocwen	(17.2)		(2.3)		(19.6)		(17.8)		(2.3)		(20.1)
Ancillary fee/income and other settlement (including expense reimbursement)	3.5		(0.3)		3.2		3.3		—		3.3
Transferred MSR net servicing fee remittance	$	48.4	$	14.5	62.9		$	48.9	$	15.5	64.4
ESS servicing spread remittance					13.6						1.2
Pledged MSR liability expense					$	76.5					$	65.6


	Nine Months Ended September 30,
	2023						2022
	Rithm and Others		MAV		Total		Rithm		MAV		Total
Servicing fees collected on behalf of Rithm, MAV and others	$	180.9	$	49.1	$	230.0	$	195.2	$	51.0	$	246.3
Less: Subservicing fee retained by Ocwen	(51.4)		(6.7)		(58.1)		(56.0)		(6.7)		(62.6)
Ancillary fee/income and other settlement (including expense reimbursement)	10.4		(0.5)		9.9		2.8		0.7		3.4
Transferred MSR net servicing fee remittance	$	139.9	$	41.8	181.7		$	142.1	$	45.0	187.1
ESS servicing spread remittance					38.1						1.2
Pledged MSR liability expense					$	219.8					$	188.3

On May 2, 2022, Ocwen entered into amendments to its servicing agreements with Rithm to extend their terms to December 31, 2023 and provide for subsequent, automatic one-year renewals, unless Ocwen provides six months’ advance notice of termination (by July 1), or Rithm provides three months’ advance notice of termination (by October 1), among other changes. Ocwen did not provide notice of termination on July 1, 2023. Ocwen and Rithm agreed to extend certain of Rithm’s termination rights through November 1, 2023. Rithm did not provide notice of termination on November 1, 2023. Accordingly, all servicing agreements with Rithm are extended through December 31, 2024, with subsequent, automatic one-year renewals.

As of September 30, 2023, the UPB of MSRs subject to the servicing agreements with Rithm subsidiaries is $46.0 billion, including $1.8 billion for which Ocwen or Rithm is subservicer for another entity as servicer of record and $10.1 billion for which title has not transferred to Rithm. We describe Rithm’s rights and obligations with respect to such non-transferred MSRs as “Rights to MSRs”. As the third-party consents required for title to the MSRs to transfer were not obtained, the $10.1 billion Rights to MSRs may (i) be acquired by Ocwen at a price determined in accordance with the terms of the previously disclosed agreements entered into in January 2018 (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, 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 subservicing agreement.

As stated above, Rithm has the right to terminate the $10.1 billion Rights to MSRs for convenience, in whole but not in part, subject to three months’ advance notice of termination. If Rithm exercises this termination right, Rithm 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 under which we would transfer title to the MSRs to a successor servicer and Rithm 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 described above. If Rithm is not able to sell the Rights to MSRs or establish a substitute RMSR arrangement with another servicer, Rithm has the right to revoke its

termination notice and re-instate the applicable 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.