Note 5 — Investments in Servicing Related Assets

Excess MSRs

In 2013 and 2014, the Company acquired Excess MSRs from Freedom Mortgage and entered into recapture agreements with Freedom Mortgage. For reporting purposes, these Excess MSRs were aggregated into three pools: Excess MSR Pool 1, Excess MSR Pool 2 and Excess MSR Pool 2014.

Excess MSR Pool 1 and Excess MSR Pool 2014 were sold to Freedom Mortgage on November 15, 2016, and Excess MSR Pool 2 was sold to Freedom Mortgage on February 1, 2017. Each recapture agreement between the Company and Freedom Mortgage was terminated at the time the related pool was sold. See Note 7.

In connection with the sale of its Excess MSRs, the Company elected a settlement date accounting policy to account for the gain on sale from that transaction. For a further discussion of the Company’s sale of its Excess MSRs, see Note 7.

MSRs

On May 29, 2015, in conjunction with the acquisition of Aurora, the Company acquired MSRs on conventional mortgage loans with an aggregate UPB of approximately $718.4 million at the time of acquisition.

Subsequently, Aurora acquired portfolios of Fannie Mae, Freddie Mac and Ginnie Mae MSRs with an aggregate UPB of approximately $27.5 billion as of the respective acquisition dates. See Note 7 for a description of the Company’s acquisition of Ginnie Mae MSRs from Freedom Mortgage in connection with the sale by the Company of its Excess MSRs to Freedom Mortgage.

The following is a summary of the Company’s Servicing Related Assets as of the dates indicated (dollars in thousands):

Servicing Related Assets Summary

As of December 31, 2018

	Unpaid Principal Balance		Cost Basis			Carrying Value^(A)		Weighted Average Coupon			Weighted Average Maturity (Years)^(B)		Changes in Fair Value Recorded in Other Income (Loss)
MSRs
Conventional	$	21,366,980	$	258,070	^(C)	$	254,691		4.37	%		27.3	$	(3,379	)
Government		3,480,009		40,410	^(C)		40,216		3.37	%		26.8		(194	)
Total / Weighted Average	$	24,846,989	$	298,480		$	294,907		4.23	%		27.2	$	(3,573	)

As of December 31, 2017

	Unpaid Principal Balance		Cost Basis			Carrying Value^(A)		Weighted Average Coupon			Weighted Average Maturity (Years)^(B)		Changes in Fair Value Recorded in Other Income (Loss)
MSRs
Conventional	$	7,724,397	$	81,499	^(C)	$	82,150		3.89	%		25.2	$	651
Government		3,986,254		32,148	^(C)		40,656		3.36	%		27.8		8,508
Total / Weighted Average	$	11,710,651	$	113,647		$	122,806		3.71	%		26.1	$	9,159

(A)	Carrying value approximates the fair value of the pools (see Note 9).

(B)	The weighted average maturity represents the weighted average expected timing of the receipt of cash flows of each investment.

(C)	MSR cost basis consists of the carrying value of the prior period, adjusted for any purchases, sales and principal paydowns of the underlying mortgage loans.

The tables below summarize the geographic distribution for the states representing 5% or greater of the underlying residential mortgage loans of the Servicing Related Assets:

Geographic Concentration of Servicing Related Assets

As of December 31, 2018

	Percentage of Total Outstanding Unpaid Principal Balance
California		12.7	%
Texas		6.4	%
Florida		5.1	%
All other		75.8	%
Total		100.0	%

As of December 31, 2017

	Percentage of Total Outstanding Unpaid Principal Balance
California		13.7	%
New Jersey		7.2	%
Florida		5.3	%
All other		73.8	%
Total		100.0	%

Geographic concentrations of investments expose the Company to the risk of economic downturns within the relevant states. Any such downturn in a state where the Company holds significant investments could affect the underlying borrower’s ability to make the mortgage payment and, therefore, could have a meaningful, negative impact on the Company’s Servicing Related Assets.