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Mortgage Servicing
12 Months Ended
Dec. 31, 2014
Transfers and Servicing [Abstract]  
Mortgage Servicing
Note 9 — Mortgage Servicing
Mortgage Servicing Rights – Amortization Method
Servicing Assets. The following tables summarize the activity in the carrying value of amortization method servicing assets for the years ended December 31. Amortization of mortgage servicing rights is reported net of the amortization of any servicing liabilities and includes the amount of charges we recognized to increase servicing liability obligations, if any.
 
 
2014
 
2013
 
2012
Beginning balance
 
$
1,953,352

 
$
678,937

 
$
293,152

Additions recognized in connection with business acquisitions :
 
 

 
 

 
 
OSI
 
9,008

 

 

ResCap Acquisition
 
11,370

 
389,944

 

Liberty Acquisition
 

 
2,840

 

Homeward Acquisition
 

 

 
278,069

Additions recognized in connection with asset acquisitions:
 
 
 
 
 
 
Ally MSR Transaction
 

 
683,787

 

OneWest MSR Transaction (1)
 
14,408

 
398,804

 

Greenpoint MSR Transaction (2)
 
3,690

 
33,647

 

Saxon
 

 

 
77,881

JPMorgan
 

 

 
23,445

Bank of America
 

 

 
64,569

Other
 
17,228

 
8,764

 
16,084

Additions recognized on the sale of mortgage loans
 
63,310

 
74,784

 

Sales (3)
 
(137
)
 
(28,403
)
 

Servicing transfers and adjustments
 
(1,763
)
 
(8,883
)
 
(4
)
Change in valuation allowance
 

 
2,375

 
(88
)
Amortization
 
(250,375
)
 
(283,244
)
 
(74,171
)
Ending balance
 
$
1,820,091

 
$
1,953,352

 
$
678,937

 
 
 
 
 
 
 
Estimated fair value at end of year
 
$
2,237,703

 
$
2,441,719

 
$
743,830


(1)
The OneWest MSR Transaction closed in stages, and the majority of loans were boarded onto our primary servicing platform as of December 31, 2013. MSRs acquired in the final closing of the OneWest MSR Transaction in 2014 relate to mortgage loans with a UPB of $1.1 billion and related servicing advances of $34.3 million. Total UPB and related servicing advances acquired in the OneWest MSR Transaction were $70.1 billion and $2.1 billion, respectively. No operations or other assets were purchased in the transaction. As part of the OneWest MSR Transaction, both the seller and OLS have agreed to indemnification provisions for the benefit of the other party.
(2)
The MSRs acquired in 2014 relate to mortgage loans with a UPB of $948.9 million and related servicing advances of $47.6 million. Total UPB and related servicing advances acquired were $7.3 billion and $469.7 million, respectively.
(3)
Cash proceeds from the 2013 sale were $34.8 million. These MSRs were sold with subservicing retained. The gain on the sale of $5.1 million has been deferred and will be recognized in earnings over the life of the subservicing contract.
On February 26, 2014, we issued $123.6 million of OASIS Series 2014-1 Notes secured by Ocwen-owned MSRs relating to Freddie Mac mortgages of $11.8 billion UPB. We account for these transactions as financings.
The estimated amortization expense for MSRs is projected as follows over the next five years:
 
Amortization Method MSRs as of December 31, 2014 (1)
 
Less: MSRs to be Measured at Fair Value as of January 1, 2015 (2)
 
Estimated Amortization Expense
2015
$
222,006

 
$
86,112

 
$
135,894

2016
186,018

 
73,297

 
112,721

2017
174,097

 
65,527

 
108,570

2018
158,107

 
58,592

 
99,515

2019
138,495

 
52,402

 
86,093

(1)
Estimated amortization expense for all MSRs accounted for using the amortization method as of December 31, 2014, calculated based on assumptions used at December 31, 2014.
(2)
Estimated amortization expense attributed to non-Agency MSRs accounted for using the amortization method as of December 31, 2014 for which we subsequently elected to account for using the fair value measurement method effective January 1, 2015.
Servicing Liabilities. Servicing liabilities, if any, are included in Other liabilities.
Mortgage Servicing Rights—Fair Value Measurement Method
This portfolio comprises servicing rights for which we elected the fair value option and includes Agency forward residential mortgage loans for which we previously hedged the related market risks.
The following table summarizes the activity related to fair value servicing assets for the years ended December 31:
 
2014
 
2013
 
2012
Beginning balance
$
116,029

 
$
85,213

 
$

Amount recognized in connection with the Homeward Acquisition

 

 
82,275

Additions recognized on the sale of residential mortgage loans

 

 
2,908

Changes in fair value (1):
 
 
 
 
 
Changes in assumptions
(15,028
)
 
44,199

 
30

Realization of cash flows and other changes
(7,100
)
 
(13,383
)
 

Ending balance
$
93,901

 
$
116,029

 
$
85,213

(1)
Changes in fair value are recognized in Servicing and origination expense in the Consolidated Statements of Operations.
Because the mortgages underlying these MSRs permit the borrowers to prepay the loans, the value of the MSRs generally tends to diminish in periods of declining interest rates (as prepayments increase) and increase in periods of rising interest rates (as prepayments decrease). The following table summarizes the estimated change in the value of the MSRs that we carry at fair value as of December 31, 2014 given hypothetical instantaneous parallel shifts in the yield curve:
 
Adverse change in fair value
 
10%
 
20%
Weighted average prepayment speeds
$
(8,101
)
 
$
(15,760
)
Discount rate (Option-adjusted spread)
$
(3,553
)
 
$
(6,860
)
 
The sensitivity analysis measures the potential impact on fair values based on hypothetical changes (increases and decreases) in interest rates.
Portfolio of Assets Serviced
The following table presents the composition of our primary servicing and subservicing portfolios by type of property serviced as measured by UPB. The servicing portfolio represents loans for which we own the MSRs while subservicing represents all other loans. The UPB of assets serviced for others are not included on our Consolidated Balance Sheets.
 
Residential
 
Commercial
 
Total
UPB at December 31, 2012
 

 
 

 
 

Servicing (1)
$
175,762,161

 
$

 
$
175,762,161

Subservicing
27,903,555

 
401,031

 
28,304,586

 
$
203,665,716

 
$
401,031

 
$
204,066,747

UPB at December 31, 2013
 

 
 

 
 

Servicing (1)
$
397,546,635

 
$

 
$
397,546,635

Subservicing
67,104,697

 
400,502

 
67,505,199

 
$
464,651,332

 
$
400,502

 
$
465,051,834

UPB at December 31, 2014
 

 
 

 
 

Servicing (1)
$
361,288,281

 
$

 
$
361,288,281

Subservicing
37,439,446

 
149,737

 
37,589,183

 
$
398,727,727

 
$
149,737

 
$
398,877,464

(1)
Includes primary servicing UPB of $160.8 billion, $175.1 billion and $79.4 billion at December 31, 2014, 2013 and 2012, respectively, for which the Rights to MSRs have been sold.
Residential assets serviced includes foreclosed real estate. Residential assets serviced also includes small-balance commercial assets with a UPB of $2.3 billion, $2.6 billion and $2.1 billion at December 31, 2014, 2013 and 2012, respectively, that are managed using the REALServicing® platform. Commercial assets consist of large-balance foreclosed real estate.
A significant portion of the servicing agreements for our non-Agency servicing portfolio contain provisions where we could be terminated as servicer without compensation upon the failure of the serviced loans to meet certain portfolio delinquency or cumulative loss thresholds or in the event we fail to maintain required servicer ratings, among other provisions. As a result of the economic downturn of recent years, the portfolio delinquency and/or cumulative loss threshold provisions have been breached by many private-label securitizations in our non-Agency servicing portfolio. Terminations as servicer as a result of a breach of any of these provisions have been minimal. In the event we are terminated as servicer and the Rights to MSRs were sold to HLSS (now owned by NRZ), we are obligated to compensate NRZ. As a result of the transfer of servicing to another party in 2014 related to Rights to MSRs sold to HLSS, we were required to reimburse HLSS $2.0 million for the loss of servicing revenues.
At December 31, 2014, the geographic distribution of the UPB and count of residential loans and real estate we serviced was as follows:
 
Amount
 
Count
California
$
96,727,239

 
382,859

Florida
31,922,669

 
212,623

New York
28,113,154

 
118,661

New Jersey
18,599,585

 
89,507

Texas
17,149,095

 
175,210

Other
206,215,985

 
1,507,178

 
$
398,727,727

 
2,486,038


Servicing Revenue
The following table presents the components of servicing and subservicing fees for the years ended December 31:
 
2014
 
2013
 
2012
Loan servicing and subservicing fees:
 
 
 
 
 
Servicing
$
1,363,800

 
$
1,246,882

 
$
535,415

Subservicing
128,797

 
146,605

 
45,713

 
1,492,597

 
1,393,487

 
581,128

Home Affordable Modification Program (HAMP) fees
141,121

 
152,812

 
76,764

Late charges
121,618

 
115,826

 
69,281

Loan collection fees
33,983

 
31,022

 
15,960

Custodial accounts (float earnings)
6,693

 
5,332

 
3,749

Other
98,163

 
125,080

 
57,525

 
$
1,894,175

 
$
1,823,559

 
$
804,407


Float balances amounted to $3.4 billion, $3.2 billion and $1.3 billion at December 31, 2014, 2013 and 2012, respectively.