Servicing Advance Liabilities

Servicing advance liabilities, which are carried at amortized cost, consist of the following (in thousands):



	December 31,
	2016		2015
Servicing advance facilities ⁽¹⁾	$	708,462	$	1,072,541
Early Advance Reimbursement Agreement	74,767		156,739
Total servicing advance liabilities ⁽²⁾	$	783,229	$	1,229,280

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(1)	Servicing advance facilities are net of $1.5 million and $2.9 million in deferred issuance costs relating to term notes at December 31, 2016 and 2015, respectively.


(2)	During the year ended December 31, 2016, the Company transitioned a large portion of its mortgage loan servicing portfolio to MSP, which resulted in a reduction to certain servicing advance liabilities as a result of changes in the structure and timing of the flow of funds to certain custodial accounts that are not reflected in the consolidated balance sheets.

The Company's subsidiaries have four servicing advance facilities through several lenders and an Early Advance Reimbursement Agreement with Fannie Mae, which, in each case, are used to fund servicer and protective advances that are the responsibility of the Company under certain servicing agreements. The servicing advance facilities and the Early Advance Reimbursement Agreement had an aggregate capacity of $1.2 billion at December 31, 2016. These facilities include $300.0 million of term notes at a weighted-average fixed interest rate of 2.68% expiring in October 2018 and $140.0 million of term notes at a weighted-average fixed interest rate of 3.45% expiring October 2018. The interest rates on the remaining capacities are primarily based on LIBOR plus between 2.50% and 3.00%, and have various expiration dates through July 2018. The facilities had a weighted-average stated interest rate of 3.32% and 3.25% at December 31, 2016 and 2015, respectively. Payments on the amounts due under these agreements are paid from certain proceeds received by the subsidiaries (i) in connection with the liquidation of mortgaged properties, (ii) from repayments received from mortgagors, or (iii) from reimbursements received from the owners of the mortgage loans, such as Fannie Mae, Freddie Mac and private label securitization trusts, or (iv) issuance of new notes or other refinancing transactions. Accordingly, repayment of the servicing advance liabilities is dependent on the proceeds that are received on the underlying advances associated with the agreements. Two of the servicing advance facilities are non-recourse to the Company. Refer to Note 5 for additional information regarding these facilities.

Servicing Advance Facilities

The servicing advance facilities had $0.8 billion of collateral pledged by the Company's subsidiaries under these agreements at December 31, 2016. The servicing advance facilities contain customary events of default and covenants, including financial covenants. Financial covenants most sensitive to the Company’s operating results and financial position are the requirements that Ditech Financial maintain minimum tangible net worth, indebtedness to tangible net worth and minimum liquidity. Ditech Financial was in compliance with these financial covenants at December 31, 2016.

The Company's subsidiaries are dependent on the ability to secure servicing advance facilities on acceptable terms and to renew, replace or resize existing facilities as they expire. If the Company fails to comply with the terms of an agreement that results in an event of default or breach of covenant without obtaining a waiver or amendment, the Company may be subject to termination of future funding, enforcement of liens against assets securing the respective facility, repurchase of assets pledged in a repurchase agreement, acceleration of outstanding obligations, or other adverse actions.

One of the Company's subsidiaries has a non-recourse servicer advance facility that provides funding for servicer and protective advances made in connection with its servicing of certain Fannie Mae and Freddie Mac mortgage loans. On September 30, 2016, an additional $300.0 million of two-year term notes were issued under this facility. Subsequently, on October 5, 2016, the terms of the variable funding notes issued pursuant to this facility were amended to, among other things, (i) extend the applicable expected repayment date and revolving period for such variable funding notes from October 19, 2016 to October 4, 2017, (ii) decrease the applicable interest rate margins, and (iii) decrease the maximum permitted principal balance of the variable funding notes from $600.0 million in the aggregate to $400.0 million in the aggregate. Further, on October 17, 2016, $360.0 million of one-year term notes previously issued under this facility were fully redeemed.

After giving effect to the issuance of new term notes, the redemption of certain existing term notes and the amendment to the terms of the variable funding notes, each as described above, this facility consists of (i) previously issued three-year term notes with an aggregate principal balance of $140.0 million and an expected repayment date of October 15, 2018, (ii) two-year term notes issued September 30, 2016 with an aggregate principal balance of $300.0 million and an expected repayment date of October 15, 2018, and (iii) up to $400.0 million of previously issued variable funding notes with an expected repayment date of October 4, 2017. At December 31, 2016, an aggregate principal balance of $440.0 million of various series of term notes and $142.0 million of variable funding notes were outstanding under this facility.

Early Advance Reimbursement Agreement

Ditech Financial's Early Advance Reimbursement Agreement with Fannie Mae is used exclusively to fund certain principal and interest, servicer and protective advances that are the responsibility of Ditech Financial under its Fannie Mae servicing agreements. This agreement was renewed in March 2016 and expires in March 2017. If not renewed in 2017, there will be no additional funding by Fannie Mae of new advances under the agreement. In addition, collections recovered during the 18 months following the expiration of the agreement are to be remitted to Fannie Mae to settle any remaining outstanding balance due under such agreement. Upon expiration of the 18 month period, any remaining balance would become due and payable. At December 31, 2016, the Company had borrowings of $74.8 million under the Early Advance Reimbursement Agreement, which has a capacity of $200.0 million.