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Mortgage Servicing Rights and Related Liabilities
 9 Months Ended
Sep. 30, 2023
Transfers and Servicing [Abstract]  
Mortgage Servicing Rights and Related Liabilities
4. Mortgage Servicing Rights and Related Liabilities

The following table sets forth the carrying value of the Company’s MSR and the related liabilities. In estimating the fair value of all mortgage servicing rights and related liabilities, the impact of the current environment was considered in the determination of key assumptions.
MSRs and Related LiabilitiesSeptember 30, 2023December 31, 2022
MSRs - fair value$8,504 $6,654 
Excess spread financing at fair value$446 $509 
Mortgage servicing rights financing at fair value21 19 
MSR related liabilities - nonrecourse at fair value$467 $528 

Mortgage Servicing Rights
The following table sets forth the activities of MSRs:
Nine Months Ended September 30,
MSRs - Fair Value20232022
Fair value - beginning of period$6,654 $4,223 
Additions:
Servicing retained from mortgage loans sold219 481 
Purchases and acquisitions of servicing rights2,305 1,256 
Dispositions:
Sales of servicing assets and excess yield(555)(293)
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM)304 1,363 
Changes in valuation due to amortization(444)(644)
Other changes(1)
21 22 
Fair value - end of period$8,504 $6,408 

(1)Amounts primarily represent negative fair values reclassified from the MSR asset to reserves as underlying loans are removed from the MSR and other reclassification adjustments.

During the nine months ended September 30, 2023 and 2022, the Company sold $23,789 and $20,723 in unpaid principal balance (“UPB”) of MSRs, of which $22,640 and $19,692 were retained by the Company as subservicer, respectively.

During the nine months ended September 30, 2023, certain agencies entered into agreements with the Company to purchase excess servicing cash flows (“excess yield”) on certain agency loans with a total UPB of approximately $41,958 for total proceeds of $294. The Company recorded a gain of $33 through the mark-to-market adjustments within “revenues - service related, net” in the condensed consolidated statements of operations.
MSRs are segregated between investor type into agency and non-agency pools (referred to herein as “investor pools”) based upon contractual servicing agreements with investors at the respective balance sheet date to evaluate the MSR portfolio and fair value of the portfolio. Agency investors primarily consist of government sponsored enterprises (“GSE”), such as the Federal Home Loan Mortgage Corp (“Freddie Mac” or “FHLMC”), the Federal National Mortgage Association (“Fannie Mae” or “FNMA”), and the Government National Mortgage Association (“Ginnie Mae” or “GNMA”). Non-agency investors consist of investors in private-label securitizations.

The following table provides a breakdown of UPB and fair value for the Company’s MSRs:
September 30, 2023December 31, 2022
MSRs - UPB and Fair Value Breakdown by Investor PoolsUPBFair ValueUPBFair Value
Agency$501,315 $8,193 $380,502 $6,322 
Non-agency27,009 311 30,880 332 
Total$528,324 $8,504 $411,382 $6,654 

Refer to Note 14, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in estimating the fair value of MSRs.

The following table shows the hypothetical effect on the fair value of the Company’s MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated:
Option Adjusted Spread(1)
Total Prepayment Speeds
Cost to Service per Loan
MSRs - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
September 30, 2023
Mortgage servicing rights$(341)$(655)$(179)$(348)$(80)$(159)
Discount Rate
Total Prepayment Speeds
Cost to Service per Loan
MSRs - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
December 31, 2022
Mortgage servicing rights$(266)$(511)$(136)$(264)$(61)$(122)

(1)Beginning in the second quarter of 2023, the Company valued MSRs using a stochastic option adjusted spread (“OAS”) instead of a static discount rate. Refer to Note 14, Fair Value Measurements, for further discussion.

These hypothetical sensitivities should be evaluated with care. The effect on fair value of an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.

Excess Spread Financing - Fair Value
The Company had excess spread financing liability of $446 and $509, with UPB of $76,732 and $83,706 as of September 30, 2023 and December 31, 2022, respectively. Refer to Note 14, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of excess spread financing liability.
The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated:
Option Adjusted Spread(1)
Prepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
September 30, 2023
Excess spread financing$15 $32 $9 $17 
Discount Rate
Prepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
December 31, 2022
Excess spread financing$19 $40 $11 $22 

(1)Beginning in the second quarter of 2023, the Company valued excess spread financing using a stochastic OAS instead of a static discount rate. Refer to Note 14, Fair Value Measurements, for further discussion.

These hypothetical sensitivities should be evaluated with care. The effect on fair value of an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing. Excess spread financing’s cash flow assumptions that are utilized in determining fair value are based on the related cash flow assumptions used in the financed MSRs. Any fair value change recognized in the financed MSRs attributable to related cash flows assumptions would inherently have an inverse impact on the carrying amount of the related excess spread financing.

Mortgage Servicing Rights Financing - Fair Value
The Company had MSR financing liability of $21 and $19 as of September 30, 2023 and December 31, 2022, respectively. Refer to Note 14, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of the MSR financing liability.
Revenues - Service Related, net
The following table sets forth the items comprising total “revenues - service related, net”:
Three Months Ended September 30,Nine Months Ended September 30,
Revenues - Service Related, net2023202220232022
Contractually specified servicing fees(1)
$440 $371 $1,231 $1,076 
Other service-related income(1)
25 22 58 94 
Incentive and modification income(1)
18 4 32 22 
Servicing late fees(1)
24 19 68 57 
Mark-to-market adjustments - Servicing
MSR MTM270 239 304 1,363 
Loss on MSR hedging activities(192)(100)(244)(329)
(Loss) gain on MSR sales(3)(2)29 (1)
Reclassifications(2)
(8)(10)(26)(22)
Excess spread / MSR financing MTM(4)(3)2 (134)
Total mark-to-market adjustments - Servicing63 124 65 877 
Amortization, net of accretion
MSR amortization(171)(183)(444)(644)
Excess spread accretion11 14 32 74 
Total amortization, net of accretion(160)(169)(412)(570)
Originations service fees(3)
18 20 45 86 
Corporate/Xome related service fees22 22 62 56 
Other(4)
(18)(18)(54)(88)
Total revenues - Service Related, net$432 $395 $1,095 $1,610 

(1)The Company recognizes revenue on an earned basis for services performed. Amounts include subservicing related revenues. Amounts also include servicing fees from loans sold with servicing retained of $175 and $172 for the three months ended September 30, 2023 and 2022, respectively, and $528 and $488 for the nine months ended September 30, 2023 and 2022, respectively.
(2)Reclassifications include the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio.
(3)Amounts include fees collected from customers for originated loans and from other lenders for loans purchased through the correspondent channel, and include loan application, underwriting, and other similar fees.
(4)Other represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements, portfolio runoff and the payments made associated with MSR financing arrangements.