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Servicing of Residential Loans (Tables)
 6 Months Ended
Jun. 30, 2014
Schedule of Total Servicing Portfolio
Provided below is a summary of the Company’s total servicing portfolio (dollars in thousands):
 
 
June 30, 2014
 
December 31, 2013
 
 
Number
of Accounts
 
Unpaid Principal
Balance
 
Number
of Accounts
 
Unpaid Principal
Balance
Third-party investors (1)
 
 
 
 
 
 
 
 
Capitalized servicing rights
 
1,561,604

 
$
176,305,631

 
1,310,357

 
$
146,143,213

Capitalized sub-servicing (2)
 
217,692

 
11,996,994

 
235,112

 
13,369,236

Sub-servicing
 
442,151

 
51,727,596

 
393,640

 
47,006,325

Total third-party servicing portfolio
 
2,221,447

 
240,030,221

 
1,939,109

 
206,518,774

On-balance sheet residential loans and real estate owned
 
115,118

 
12,050,445

 
112,687

 
11,442,362

Total servicing portfolio (3)
 
2,336,565

 
$
252,080,666

 
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
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 Three Months  
 Ended June 30,
 
For the Six Months 
 Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Servicing fees
 
$
173,147

 
$
143,473

 
$
339,180

 
$
263,345

Incentive and performance fees
 
41,482

 
41,379

 
84,339

 
75,104

Ancillary and other fees (1)
 
20,087

 
18,586

 
42,740

 
34,397

Servicing revenue and fees
 
234,716

 
203,438

 
466,259

 
372,846

Amortization of servicing rights
 
(10,188
)
 
(11,209
)
 
(21,305
)
 
(22,533
)
Change in fair value of servicing rights
 
(83,552
)
 
65,077

 
(131,186
)
 
44,002

Net servicing revenue and fees
 
$
140,976

 
$
257,306

 
$
313,768

 
$
394,315

__________
(1)
Includes late fees of $10.3 million and $9.7 million for the three months ended June 30, 2014 and 2013, respectively, and $22.6 million and $17.0 million for the six months ended June 30, 2014 and 2013, respectively.
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):
 
 
For the Six Months Ended June 30, 2014
 
 
Forward Loan
 
Reverse Loan
 
Total
Balance at January 1, 2014
 
$
161,782

 
$
11,994

 
$
173,776

Amortization
 
(10,367
)
 
(750
)
 
(11,117
)
Balance at March 31, 2014
 
151,415

 
11,244

 
162,659

Amortization
 
(9,495
)
 
(693
)
 
(10,188
)
Balance at June 30, 2014
 
$
141,920

 
$
10,551

 
$
152,471

 
 
For the Six Months Ended June 30, 2013
 
 
Forward Loan
 
Reverse Loan
 
Total
Balance at January 1, 2013
 
$
227,191

 
$
15,521

 
$
242,712

Reclassifications (1)
 
(26,382
)
 
—

 
(26,382
)
Purchases
 
36

 
—

 
36

Amortization
 
(10,406
)
 
(918
)
 
(11,324
)
Balance at March 31, 2013
 
190,439

 
14,603

 
205,042

Amortization
 
(10,334
)
 
(875
)
 
(11,209
)
Balance at June 30, 2013
 
$
180,105

 
$
13,728

 
$
193,833

_______
(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 Three Months  
 Ended June 30,
 
For the Six Months 
 Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Balance at beginning of period (1)
 
$
1,513,830

 
$
766,943

 
$
1,131,124

 
$
26,382

Acquisition of EverBank net assets
 
—

 
—

 
58,680

 
—

Acquisition of ResCap net assets
 
—

 
—

 
—

 
242,604

Purchases (2)
 
20,241

 
19,885

 
339,288

 
537,627

Servicing rights capitalized upon sales of loans
 
45,554

 
36,305

 
98,167

 
37,595

Changes in fair value due to:
 
 
 
 
 
 
 
 
Changes in valuation inputs or other assumptions (3)
 
(43,376
)
 
93,311

 
(68,994
)
 
89,331

Other changes in fair value (4)
 
(40,176
)
 
(28,234
)
 
(62,192
)
 
(45,329
)
Balance at end of period
 
$
1,496,073

 
$
888,210

 
$
1,496,073

 
$
888,210

__________
(1)
There were no servicing rights carried at fair value at December 31, 2012. The balance at the beginning of the period for the six months ended June 30, 2014 presented above represents those servicing rights for which the Company elected fair value accounting as of January 1, 2013.
(2) Purchases for the six months ended June 30, 2014 primarily include a pool of Fannie Mae MSRs. Refer to Note 3 for additional information. Purchases for the six months ended June 30, 2013 primarily include servicing rights associated with an asset purchase from BOA.
(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 change in servicing rights carried at fair value due to the realization of expected cash flows over time.

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):
 
 
June 30, 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
 
9.59
%
 
$
(57,852
)
 
$
(114,304
)
 
9.76
%
 
$
(49,687
)
 
$
(95,531
)
Conditional prepayment rate
 
8.05
%
 
(61,333
)
 
(118,572
)
 
7.06
%
 
(47,114
)
 
(88,411
)
Conditional default rate
 
2.44
%
 
(25,058
)
 
(40,182
)
 
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 forward 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.
 
 
For the Three Months  
 Ended June 30,
 
For the Six Months 
 Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Weighted-average life in years
 
6.8-7.3
 
7.2-9.6
 
6.8-7.7
 
 6.1-9.6
Weighted-average stated borrower interest rate on underlying collateral
 
4.48% - 4.54%
 
3.85% - 4.20%
 
4.48% - 4.67%
 
3.85% - 4.20%
Weighted-average discount rates
 
9.50%
 
 9.50% - 10.40%
 
9.50%
 
9.50% - 12.30%
Conditional prepayment rates
 
8.11% - 8.76%
 
3.00% - 5.10%
 
7.26% - 8.76%
 
3.00% - 8.10%
Conditional default rates
 
0.59% - 0.67%
 
0.50% - 2.00%
 
0.59% - 0.67%
 
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 (in thousands):
 
 
June 30, 2014
 
 
Forward Loan
 
Reverse Loan
Fair value of servicing rights carried at amortized cost
 
$
172,149

 
$
15,430

Inputs and assumptions:
 
 
 
 
Weighted-average remaining life in years
 
5.5

 
3.3

Weighted-average stated borrower interest rate on underlying collateral
 
7.80
%
 
3.44
%
Weighted-average discount rate
 
12.16
%
 
15.00
%
Conditional prepayment rate
 
6.29
%
 
(1 
) 
Conditional default rate
 
3.30
%
 
(1 
) 
Conditional repayment rate
 
(2 
) 
 
23.45
%
__________
(1)
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.
(2)
For the forward loan class, voluntary and involuntary prepayment rates have been presented as conditional prepayment rate and conditional default rate, respectively.
Servicing Rights Carried at Fair Value [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:
 
 
June 30, 
 2014
 
December 31,  
 2013
Weighted-average remaining life in years
 
6.5

 
6.8

Weighted-average stated borrower interest rate on underlying collateral
 
4.87
%
 
5.20
%
Weighted-average discount rate
 
9.59
%
 
9.76
%
Conditional prepayment rate
 
8.05
%
 
7.06
%
Conditional default rate
 
2.44
%
 
2.90
%