Investment in Equity Method Investee and Related Party Transactions

9 Months Ended

Sep. 30, 2023

Equity Method Investments and Joint Ventures [Abstract]

Investment in Equity Method Investee and Related Party Transactions


Note 10 - Investment in Equity Method Investee and Related Party Transactions

We account for our 15% investment in MAV Canopy under the equity method. Under the Amended & Restated Limited Liability Company Agreement with MAV Canopy, Ocwen is entitled to receive its 15% percentage interest share of MAV Canopy’s earnings, subject to certain adjustments. In addition, upon MAV Canopy liquidation or upon determination of the MAV Canopy Board of Directors to make advance distributions, Ocwen is entitled to receive a specified portion of the distribution amount available (Promote Distribution), after satisfaction of required distribution thresholds, including a specified internal rate of return threshold on the Oaktree member’s gross adjusted capital contributions. We determined that the Promote Distribution represents an incentive fee under our various service agreements with MAV with a variable consideration and is recognized in earnings when it is probable that a significant reversal will not occur. As of September 30, 2023, Ocwen has not recognized any such Promote Distribution income.

PMC entered into a Subservicing Agreement with MAV for exclusive rights to service the mortgage loans underlying MSRs owned by MAV. The Subservicing Agreement will continue until terminated by mutual agreement of the parties or for cause, as defined. MAV is permitted to sell the underlying MSR, in whole or in part, without Ocwen’s consent after May 3, 2024. As of September 30, 2023, PMC subserviced a total of $56.7 billion UPB on behalf of MAV under the Subservicing

Agreement, of which $29.2 billion of MSRs were previously sold by PMC to MAV and do not qualify for sale accounting and thus remain reported on the consolidated balance sheet of PMC, with a fair value of $433.1 million MSR and $420.4 million Pledged MSR liability. The fair value of the Pledged MSR liability is determined using the fair value mark provided by third-party valuation experts, consistent with the associated MSR, using the same methodology and assumptions, while considering cash flows contractually retained by PMC during the expected life of the Subservicing Agreement.

During the nine months ended September 30, 2023 and 2022, PMC transferred UPB of $25.0 million and $261.3 million under a flow MSR sale agreement (Recapture Agreement), respectively. During the nine months ended September 30, 2023 and 2022, PMC transferred MSRs with UPB of $6.8 billion and $6.9 billion to MAV under various MSR purchase and sale agreements, respectively. These MSR sale transactions between PMC and MAV do not qualify for sale accounting primarily due to the termination restrictions of the subservicing agreement, and are accounted for as secured borrowings. See Note 8 — Other Financing Liabilities, at Fair Value.

MAV Canopy, MAV and Oaktree are deemed related parties to Ocwen. In addition to the transactions described above, Ocwen issued common stock, warrants and senior secured notes to Oaktree in 2021. See also Note 12 – Borrowings and Note 15 – Interest Expense.