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Servicing of Residential Loans (Tables)
 12 Months Ended
Dec. 31, 2014
Schedule of Total Servicing Portfolio
Provided below is a summary of the Company’s total servicing portfolio (dollars in thousands):
 
 
December 31, 2014
 
December 31, 2013
 
 
Number
of Accounts
 
Unpaid Principal
Balance
 
Number
of Accounts
 
Unpaid Principal
Balance
Third-party credit owners (1)
 
 
 
 
 
 
 
 
Capitalized servicing rights
 
1,573,867

 
$
182,207,043

 
1,310,357

 
$
146,143,213

Capitalized sub-servicing (2)
 
187,747

 
10,443,480

 
235,112

 
13,369,236

Sub-servicing
 
431,271

 
50,882,152

 
393,640

 
47,006,325

Total third-party servicing portfolio
 
2,192,885

 
243,532,675

 
1,939,109

 
206,518,774

On-balance sheet residential loans and real estate owned
 
116,763

 
12,579,467

 
112,687

 
11,442,362

Total servicing portfolio (3)
 
2,309,648

 
$
256,112,142

 
2,051,796

 
$
217,961,136

__________
(1)
Includes real estate owned serviced for third parties.
(2)
Consists of sub-servicing contracts acquired through business combinations whereby the benefits from the contract are greater than “adequate compensation” for performing the servicing.
(3)
Includes accounts serviced by the Servicing and Reverse Mortgage segments and excludes charged-off loans managed by the ARM segment.
Schedules of Concentration of Risk, by Risk Factor
The Company’s geographic diversification of its third-party servicing portfolio, based on the outstanding unpaid principal balance, is as follows (dollars in thousands):
 
 
December 31, 2014
 
December 31, 2013
 
 
Number
of Accounts
 
Unpaid Principal
Balance
 
Percentage of Total
 
Number
of Accounts
 
Unpaid Principal
Balance
 
Percentage of Total
California
 
239,450

 
$
42,499,413

 
17.5
%
 
215,010

 
$
37,461,223

 
18.1
%
Florida
 
189,111

 
22,378,614

 
9.2
%
 
176,819

 
21,143,369

 
10.2
%
Texas
 
172,999

 
13,724,469

 
5.6
%
 
147,654

 
10,700,328

 
5.2
%
Other <5%
 
1,591,325

 
164,930,179

 
67.7
%
 
1,399,626

 
137,213,854

 
66.5
%
Total
 
2,192,885

 
$
243,532,675

 
100.0
%
 
1,939,109

 
$
206,518,774

 
100.0
%
Servicing Revenue and Fees
The following table presents the components of net servicing revenue and fees, which includes revenues earned by the Servicing, ARM and Reverse Mortgage segments (in thousands):
 
 
For the Years Ended December 31,
 
 
2014
 
2013
 
2012
Servicing fees
 
$
675,335

 
$
544,544

 
$
274,713

Incentive and performance fees
 
157,148

 
156,279

 
105,073

Ancillary and other fees (1)
 
88,430

 
77,091

 
39,184

Servicing revenue and fees
 
920,913

 
777,914

 
418,970

Amortization of servicing rights
 
(43,101
)
 
(42,583
)
 
(50,461
)
Change in fair value of servicing rights
 
(273,502
)
 
48,058

 
—

Change in fair value of excess servicing spread liability (2)
 
(2,800
)
 
—

 
—

Net servicing revenue and fees
 
$
601,510

 
$
783,389

 
$
368,509

__________
(1)
Includes late fees of $48.4 million, $39.9 million and $16.2 million for the years ended December 31, 2014, 2013 and 2012, respectively.
(2)
Includes interest expense on the excess servicing spread liability, which represents the accretion of fair value, of $4.9 million for the year ended December 31, 2014.
Servicing Asset at Amortized Cost
The following tables summarize the activity in the carrying value of servicing rights accounted for at amortized cost by class (in thousands):
 
 
Mortgage Loan
 
Reverse Loan
Balance at January 1, 2012
 
$
250,329

 
$
—

Acquisition of RMS
 
—

 
15,916

Acquisition of S1L
 
67

 
311

Purchases
 
26,550

 
—

Amortization
 
(49,755
)
 
(706
)
Balance at December 31, 2012
 
227,191

 
15,521

Reclassifications (1)
 
(26,382
)
 
—

Purchases
 
36

 
—

Amortization
 
(39,057
)
 
(3,526
)
Other
 
(6
)
 
(1
)
Balance at December 31, 2013
 
161,782

 
11,994

Amortization
 
(40,418
)
 
(2,683
)
Balance at December 31, 2014
 
$
121,364

 
$
9,311

_______
(1)
Represents servicing rights for which the Company elected fair value accounting as of January 1, 2013. This election had no impact on retained earnings.
Summary of Activity in Servicing Rights Carried at Fair Value
The following table summarizes the activity in servicing rights carried at fair value (in thousands):
 
 
For the Years Ended December 31,
 
 
2014
 
2013
Balance at beginning of the year (1)
 
$
1,131,124

 
$
26,382

Acquisition of EverBank net assets
 
58,680

 
—

Acquisition of ResCap net assets
 
—

 
242,604

Purchases (2)
 
479,820

 
626,331

Servicing rights capitalized upon sales of loans
 
214,285

 
187,749

Sales
 
(10,866
)
 
—

Change in fair value due to:
 
 
 
 
Changes in valuation inputs or other assumptions (3)
 
(124,471
)
 
153,331

Other changes in fair value (4)
 
(149,031
)
 
(105,273
)
Total change in fair value
 
(273,502
)
 
48,058

Balance at end of the year
 
$
1,599,541

 
$
1,131,124

__________
(1)
There were no servicing rights carried at fair value at December 31, 2012. The balance at the beginning of the year ended December 31, 2013 presented above represents those servicing rights for which the Company elected fair value accounting as of January 1, 2013.
(2)
Included in purchases is the pool of Fannie Mae MSRs acquired during the year ended December 31, 2014 and servicing rights associated with an asset purchase from BOA acquired during the year ended December 31, 2013. Refer to Note 3 for additional information.
(3)
Represents the change in servicing rights carried at fair value resulting primarily from market-driven changes in interest rates and prepayment speeds.
(4)
Represents the realization of expected cash flows over time and includes $12.9 million in servicing rights transferred to the Company for no consideration for the year ended December 31, 2013.
Schedule of Sensitivity Analysis of Fair Value, Transferor's Interests in Transferred Financial Assets
The following table summarizes the hypothetical effect on the fair value of servicing rights carried at fair value using adverse changes of 10% and 20% to the weighted-average of certain significant assumptions used in valuing these assets (dollars in thousands):
 
 
December 31, 2014
 
December 31, 2013
 
 
 
 
Decline in fair value due to
 
 
 
Decline in fair value due to
 
 
Actual
 
10% adverse change
 
20% adverse change
 
Actual
 
10% adverse change
 
20% adverse change
Weighted-average discount rate
 
9.55
%
 
$
(62,785
)
 
$
(121,117
)
 
9.76
%
 
$
(49,687
)
 
$
(95,531
)
Conditional prepayment rate
 
7.87
%
 
(59,344
)
 
(114,523
)
 
7.06
%
 
(47,114
)
 
(88,411
)
Conditional default rate
 
2.36
%
 
(15,388
)
 
(30,285
)
 
2.90
%
 
(12,778
)
 
(25,110
)
Schedule of Fair Value Assumption, Date of Securitization or Asset-backed Financing Arrangement, Transferor's Continuing Involvement, Servicing Assets or Liabilities
For mortgage loans sold with servicing retained, the Company used the following inputs and assumptions to determine the fair value of servicing rights at the dates of sale. These servicing rights are included in servicing rights capitalized upon sales of loans in the table presented above that summarizes the activity in servicing rights accounted for at fair value. There were no servicing rights recognized in connection with transfers with servicing rights retained during the year ended December 31, 2012.
 
 
For the Years Ended December 31,
 
 
2014
 
2013
Weighted-average life in years
 
5.6 - 7.8
 
 6.1 - 9.6
Weighted-average stated borrower interest rate on underlying collateral
 
4.31% - 4.67%
 
3.73% - 4.54%
Discount rates
 
9.30% - 9.50%
 
9.50% - 12.30%
Weighted-average conditional prepayment rates
 
6.08% - 8.76%
 
3.00% - 8.10%
Weighted-average conditional default rates
 
0.59% - 0.83%
 
0.50% - 2.00%
Servicing Rights Carried at Amortized Cost [Member]  
Significant Judgment and Key Economic Assumptions Used in Estimation of Fair Value of Servicing Rights
The estimation of fair value requires significant judgment and uses key economic inputs and assumptions, which are provided in the table below:
 
 
December 31, 2014
 
 
Mortgage Loan
 
Reverse Loan
Weighted-average remaining life in years
 
5.6

 
3.2

Weighted-average stated borrower interest rate on underlying collateral
 
7.90
%
 
3.50
%
Weighted-average discount rate
 
12.10
%
 
15.00
%
Conditional prepayment rate (1)
 
6.49
%
 
N/A

Conditional default rate (1)
 
2.77
%
 
N/A

Conditional repayment rate (2)
 
N/A

 
24.74
%
__________
(1)
For the mortgage loan class, voluntary and involuntary prepayment rates have been presented as conditional prepayment rate and conditional default rate, respectively.
(2)
For the reverse loan class, conditional repayment rate includes assumptions for both voluntary and involuntary rates as well as assumptions for the assignment of HECMs to HUD, in accordance with obligations as servicer.
Servicing Rights Carried at Fair Value [Member]  
Significant Judgment and Key Economic Assumptions Used in Estimation of Fair Value of Servicing Rights
he estimation of fair value requires significant judgment and uses key economic inputs and assumptions, which are provided in the table below:
 
 
December 31,
 
 
2014
 
2013
Weighted-average remaining life in years
 
6.6

 
6.8

Weighted-average stated borrower interest rate on underlying collateral
 
4.65
%
 
5.20
%
Weighted-average discount rate
 
9.55
%
 
9.76
%
Conditional prepayment rate
 
7.87
%
 
7.06
%
Conditional default rate
 
2.36
%
 
2.90
%