Mortgage Servicing Rights

12 Months Ended

Dec. 31, 2023

Transfers and Servicing [Abstract]

Mortgage Servicing Rights

MORTGAGE SERVICING RIGHTS

Mortgage servicing rights are recognized on the consolidated balance sheets when loans are sold and the associated servicing rights are retained. The Company's MSRs are measured at fair value, which is determined using a valuation model that calculates the present value of estimated future net servicing cash flows. The model includes estimates of prepayment speeds, discount rate, cost to service, float earnings, contractual servicing fee income, and ancillary income and late fees, among others. These estimates are supported by market and economic data collected from various external sources.

The unpaid principal balance of mortgage loans serviced for others approximated $299.5 billion and $312.5 billion at December 31, 2023 and December 31, 2022, respectively. Conforming conventional loans serviced by the Company have previously been sold to Fannie Mae and Freddie Mac on a non-recourse basis, whereby credit losses are generally the responsibility of Fannie Mae and Freddie Mac, and not the Company. Loans serviced for Ginnie Mae are insured by the FHA, guaranteed by the VA, or insured by other applicable government programs. While the above guarantees and insurance are the responsibility of those parties, the Company is still subject to potential losses related to its servicing of these loans. Those estimated losses are incorporated into the valuation of MSRs.

The following table summarizes changes in the MSR assets for the years ended December 31, 2023, 2022 and 2021 (in thousands):

	For the year ended December 31,
	2023		2022		2021
Fair value, beginning of period	$	4,453,261	$	3,314,952	$	1,760,304
Capitalization of MSRs	2,269,378		2,213,572		2,397,483
MSR and excess servicing sales	(1,881,683)		(1,387,180)		(269,925)
Changes in fair value:
Due to changes in valuation inputs or assumptions	(330,031)		868,803		286,348
Due to collection/realization of cash flows/other	(484,789)		(556,886)		(859,258)
Fair value, end of period	$	4,026,136	$	4,453,261	$	3,314,952

The following is a summary of the components of the total change in fair value of MSRs as reported in the consolidated statements of operations (in thousands):

	For the year ended December 31,
	2023		2022		2021
Changes in fair value:
Due to changes in valuation inputs and assumptions	$	(330,031)	$	868,803	$	286,348
Due to collection/realization of cash flows and other	(484,789)		(556,886)		(859,258)
Net reserves and transaction costs on sales of servicing rights	(39,328)		(27,813)		(14,903)
Changes in fair value of mortgage servicing rights	$	(854,148)	$	284,104	$	(587,813)

During the years ended December 31, 2023, 2022 and 2021, the Company sold MSRs on loans with an aggregate UPB of approximately $99.2 billion, $112.9 billion and $22.7 billion, respectively, for proceeds of approximately $1.3 billion, $1.4 billion and $269.9 million, respectively. In addition, during the year ended December 31, 2023, the Company sold excess servicing cash flows on certain agency loans with a total UPB of approximately $94.9 billion for proceeds of approximately $588.6 million. In connection with these sales, the Company recorded a net $39.3 million, $27.8 million and $14.9 million, respectively, for its estimated obligation for protection provisions granted to the buyers and transaction costs, which is reflected as part of the change in fair value of MSRs in the consolidated statements of operations. There were no excess servicing cash flow sales during the years ended December 31, 2022 and 2021.

The following table summarizes the loan servicing income recognized during the years ended December 31, 2023, 2022 and 2021, respectively (in thousands):

	For the year ended December 31,
	2023		2022		2021
Contractual servicing fees	$	803,750	$	781,109	$	632,276
Late, ancillary and other fees	14,953		10,963		6,462
Loan servicing income	$	818,703	$	792,072	$	638,738

The key unobservable inputs used in determining the fair value of the Company’s MSRs were as follows at December 31, 2023 and December 31, 2022, respectively:

	December 31, 2023							December 31, 2022
	Range					Weighted Average		Range					Weighted Average
Discount rates	10.0	%	—	16.0	%	11.1	%	9.5	%	—	15.0	%	10.1	%
Annual prepayment speeds	5.3	%	—	21.9	%	9.6	%	6.7	%	—	14.0	%	7.9	%
Cost of servicing	$74		—	$111		$84		$75		—	$108		$80

The hypothetical effect of adverse changes in these key assumptions would result in a decrease in fair values as follows at December 31, 2023 and December 31, 2022, respectively, (in thousands):

	December 31, 2023		December 31, 2022
Discount rate:
+ 10% adverse change – effect on value	$	(140,727)	$	(183,972)
+ 20% adverse change – effect on value	(269,702)		(353,120)
Prepayment speeds:
+ 10% adverse change – effect on value	$	(124,651)	$	(143,483)
+ 20% adverse change – effect on value	(240,082)		(277,992)
Cost of servicing:
+ 10% adverse change – effect on value	$	(31,869)	$	(39,362)
+ 20% adverse change – effect on value	(63,738)		(78,724)

These sensitivities are hypothetical and should be used with caution. As the table demonstrates, the Company’s methodology for estimating the fair value of MSRs is highly sensitive to changes in assumptions. For example, actual prepayment experience may differ, and any difference may have a material effect on MSR fair value. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the table above, the effect of a variation in a particular assumption of the fair value of the MSRs is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may indicate higher prepayments; however, this may be partially offset by lower prepayments due to other factors such as a borrower’s diminished opportunity to refinance, or lower discount rates as investors may accept lower returns in a lower interest rate environment), which may magnify or counteract the sensitivities. Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made as of a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.