Note 10 — Rights to MSRs

Ocwen and PMC have entered into agreements to sell MSRs or Rights to MSRs and the related servicing advances to NRZ, and in all cases have been retained by NRZ as subservicer. In the case of Ocwen Rights to MSRs transactions, while the majority of the risks and rewards of ownership were transferred in 2012 and 2013, legal title was retained by Ocwen, causing the Rights to MSRs transactions to be accounted for as secured financings. In the case of the PMC transactions, and for those Ocwen MSRs where consents were subsequently received and legal title was transferred to NRZ, due to the length of the non-cancellable term of the subservicing agreements, the transactions do not qualify as a sale and are accounted for as secured financings. As a result, we continue to recognize the MSRs and related financing liability on our consolidated balance sheets, as well as the full amount of servicing revenue and changes in the fair value of the MSRs and related financing liability in our consolidated statements of operations. Changes in fair value of the Rights to MSRs are recognized in MSR valuation adjustments, net in the consolidated statements of operations. Changes in fair value of the MSR related financing liability are reported in Pledged MSR liability expense.

The following tables present selected assets and liabilities recorded on our consolidated balance sheets as well as the impacts to our consolidated statements of operations in connection with our NRZ agreements.



	Years Ended December 31,
	2019			2018		2017
Balance Sheets
MSRs, at fair value	$	915,148		$	894,002	$	499,042
Due from NRZ (Receivables)
Sales and transfers of MSRs (1)	24,167			23,757		—
Advance funding, subservicing fees and reimbursable expenses	9,197			30,845		14,924
	$	33,364		$	54,602	$	14,924

Due to NRZ (Other liabilities)	$	63,596		$	53,001	$	98,493
Financing liability - MSRs pledged, at fair value
Original Rights to MSRs Agreements	$	603,046		$	436,511	$	499,042
2017 Agreements and New RMSR Agreements (2)	35,445			138,854		9,249
PMC MSR Agreements	312,102			457,491		—
	$	950,593		$	1,032,856	$	508,291

Statements of Operations
Servicing fees collected on behalf of NRZ	$	577,015		$	539,039	$	549,411
Less: Subservicing fee retained	139,343			142,334		295,192
Net servicing fees remitted to NRZ	437,672			396,705		254,219

Less: Reduction (increase) in financing liability
Changes in fair value:
Original Rights to MSRs Agreements	(229,198		)	171		(83,300		)
2017 Agreements and New RMSR Agreements	(5,866		)	14,369		42,018
PMC MSR Agreements	82,078			4,729		—
	(152,986		)	19,269		(41,282		)



	Years Ended December 31,
	2019		2018			2017
Runoff and settlement:
Original Rights to MSRs Agreements	48,729		58,837			57,264
2017 Agreements and New RMSR Agreements	101,003		134,509			1,926
PMC MSR Agreements	64,631		18,420			—
	214,363		211,766			59,190

Other	4,206		(6,000		)	—

Pledged MSR liability expense	$	372,089	$	171,670		$	236,311


(1)	Balance represents the holdback of proceeds from PMC MSR sales and transfers to address indemnification claims and mortgage loan document deficiencies. These sales were executed by PMC prior to the acquisition date.


(2)	$35.4 million income is expected to be recognized for the year ended December 31, 2020 as a reduction in the pledged MSR liability.



	Year Ended December 31, 2019
Financing Liability - MSRs Pledged	Original Rights to MSRs Agreements			2017 Agreements and New RMSR Agreements			PMC MSR Agreements			Total
Beginning balance	$	436,511		$	138,854		$	457,491		$	1,032,856
Additions	—			—			1,276			1,276
Sales	—			—			44			44
Changes in fair value:
Original Rights to MSRs Agreements	229,198			—			—			229,198
2017 Agreements and New RMSR Agreements	—			5,866			—			5,866
PMC MSR Agreements	—			—			(82,078		)	(82,078		)
Runoff and settlement:
Original Rights to MSRs Agreements	(48,730		)	—			—			(48,730		)
2017 Agreements and New RMSR Agreements	—			(101,003		)	—			(101,003		)
PMC MSR Agreements	—			—			(64,631		)	(64,631		)
Calls (1):
Original Rights to MSRs Agreements	(13,933		)	—			—			(13,933		)
2017 Agreements and New RMSR Agreements	—			(8,272		)	—			(8,272		)
PMC MSR Agreements	—			—			—			—
Ending balance	$	603,046		$	35,445		$	312,102		$	950,593



	Year Ended December 31, 2018
Financing Liability - MSRs Pledged	Original Rights to MSRs Agreements			2017 Agreements and New RMSR Agreements			PMC MSR Agreements			Total
Beginning balance	$	499,042		$	9,249		$	—		$	508,291
Additions	—			—			667			667
Assumed in connection with the acquisition of PHH	—			—			481,020			481,020
Receipt of lump-sum cash payments	—			279,586			—			279,586
Changes in fair value:
Original Rights to MSRs Agreements	(171		)	—			—			(171		)
2017 Agreements and New RMSR Agreements	—			(14,369		)	—			(14,369		)
PMC MSR Agreements	—			—			(4,729		)	(4,729		)
Runoff and settlement:
Original Rights to MSRs Agreements	(58,837		)	—			—			(58,837		)
2017 Agreements and New RMSR Agreements	—			(134,509		)	—			(134,509		)
PMC MSR Agreements	—			—			(18,420		)	(18,420		)
Calls (1):	—			—			—
Original Rights to MSRs Agreements	(3,523		)	—			—			(3,523		)
2017 Agreements and New RMSR Agreements	—			(1,103		)	—			(1,103		)
PMC MSR Agreements	—			—			(1,047		)	(1,047		)
Ending balance	$	436,511		$	138,854		$	457,491		$	1,032,856


(1)	Represents the carrying value of MSRs in connection with call rights exercised by NRZ, for MSRs transferred to NRZ under the 2017 Agreements and New RMSR Agreements, or by Ocwen at NRZ’s direction, for MSRs underlying the Original Rights to MSRs Agreements. Ocwen derecognizes the MSRs and the related financing liability upon collapse of the securitization.

Ocwen Transactions

Prior to the transfer of legal title under the Master Servicing Rights Purchase Agreement dated as of October 1, 2012, as amended, and certain Sale Supplements, as amended (collectively, the Original Rights to MSRs Agreements), Ocwen agreed to service the mortgage loans underlying the MSRs on the economic terms set forth in the Original Rights to MSRs Agreements. After the transfer of legal title as contemplated under the Original Rights to MSRs Agreements, Ocwen was to service the mortgage loans underlying the MSRs as subservicer on substantially the same economic terms.

On July 23, 2017 and January 18, 2018, we entered into a series of agreements with NRZ that collectively modify, supplement and supersede the arrangements among the parties as set forth in the Original Rights to MSRs Agreements. The July 23, 2017 agreements, as amended, include a Master Agreement, a Transfer Agreement and the Subservicing Agreement between Ocwen and New Residential Mortgage LLC (NRM), a subsidiary of NRZ, relating to non-agency loans (the NRM Subservicing Agreement) (collectively, the 2017 Agreements) pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to the remaining MSRs that were subject to the Original Rights to MSRs Agreements and under which Ocwen would subservice mortgage loans underlying the MSRs for an initial term ending July 2022 (the Initial Term).

On January 18, 2018, the parties entered into new agreements (including a Servicing Addendum) regarding the Rights to MSRs related to MSRs that remained subject to the Original Rights to MSRs Agreements as of January 1, 2018 and amended the Transfer Agreement (collectively, New RMSR Agreements) to accelerate the implementation of certain parts of our arrangements in order to achieve the intent of the 2017 Agreements sooner. Under the new agreements, following receipt of the required consents and transfer of the MSRs, Ocwen subservices the mortgage loans underlying the transferred MSRs pursuant to the 2017 Agreements and the August 2018 subservicing agreement with NewRez LLC dba Shellpoint Mortgage Servicing (Shellpoint) described below.

Ocwen received lump-sum cash payments of $54.6 million and $279.6 million in September 2017 and January 2018 in accordance with the terms of the 2017 Agreements and New RMSR Agreements, respectively. These upfront payments generally represent the net present value of the difference between the future revenue stream Ocwen would have received under the Original Rights to MSRs Agreements and the future revenue stream Ocwen expects to receive under the 2017 Agreements and the New RMSR Agreements. We recognized the cash received as a financing liability that we are accounting for at fair value through the remaining term of the original agreements (April 2020). Changes in fair value are recognized in Pledged MSR liability expense in the consolidated statements of operations.

On August 17, 2018, Ocwen and NRZ entered into certain amendments (i) to the New RMSR Agreements to include Shellpoint, a subsidiary of NRZ, as a party to which legal title to the MSRs could be transferred after related consents are received, (ii) to add a Subservicing Agreement between Ocwen and Shellpoint relating to non-agency loans (the Shellpoint Subservicing Agreement), (iii) to add an Agency Subservicing Agreement between Ocwen and NRM relating to agency loans (the Agency Subservicing Agreement), and (iv) to conform the New RMSR Agreements and the NRM Subservicing Agreement to certain of the terms of the Shellpoint Subservicing Agreement and the Agency Subservicing Agreement.

At any time during the Initial Term, NRZ may terminate the Subservicing Agreements and Servicing Addendum for convenience, subject to Ocwen’s right to receive a termination fee and 180 days’ notice. The termination fee is calculated as specified in the Subservicing Agreements and Servicing Addendum, and is a discounted percentage of the expected revenues that would be owed to Ocwen over the remaining contract term based on certain portfolio run off assumptions.

Following the Initial Term, NRZ may extend the term of the Subservicing Agreements and Servicing Addendum for additional three-month periods by providing proper notice. Following the Initial Term, the Subservicing Agreements and Servicing Addendum can be cancelled by Ocwen on an annual basis. NRZ and Ocwen have the ability to terminate the Subservicing Agreements and Servicing Addendum for cause if certain specified conditions occur. The terminations must be terminations in whole (i.e., cover all the loans under the relevant Subservicing Agreement or Servicing Addendum) and not in part, except for limited circumstances specified in the agreements. In addition, if NRZ terminates any of the NRM or Shellpoint Subservicing Agreements or the Servicing Addendum for cause, the other agreements will also terminate automatically.

Under the terms of the Subservicing Agreements and Servicing Addendum, in addition to a base servicing fee, Ocwen receives certain ancillary fees, primarily late fees, loan modification fees and Speedpay^® fees. We may also receive certain incentive fees or pay penalties tied to various contractual performance metrics. NRZ receives all float earnings and deferred servicing fees related to delinquent borrower payments, as well as being entitled to receive certain real estate owned (REO) related income including REO referral commissions.

As of December 31, 2019, the UPB of MSRs subject to the Servicing Agreements and the New RMSR Agreements is $76.1 billion, including $18.5 billion for which title has not transferred to NRZ. We and NRZ are currently discussing various alternative arrangements for the servicing of these MSRs. As the third-party consents required for title to the MSRs to transfer were not obtained by May 31, 2019, the New RMSR Agreements set forth a process under which NRZ’s $18.5 billion Rights to MSRs may (i) be acquired by Ocwen at a price determined in accordance with the terms of the New RMSR Agreements, at the option of Ocwen, or (ii) be sold, together with Ocwen’s title to those MSRs, to a third party in accordance with the terms of the New RMSR Agreements, subject to an additional Ocwen option to acquire at a price based on the winning third-party bid rather than selling to the third party. If the Rights to MSRs are not transferred pursuant to these alternatives, then the Rights to MSRs will remain subject to the New RMSR Agreements.

In addition, as noted above, during the Initial Term, NRZ has the right to terminate the $18.5 billion New RMSR Agreements for convenience, in whole but not in part, subject to payment of a termination fee and 180 days’ notice. If NRZ exercises this termination right, NRZ has the option of seeking (i) the transfer of the MSRs through a sale to a third party of its Rights to MSRs (together with a transfer of Ocwen’s title to those MSRs) or (ii) a substitute RMSR arrangement that substantially replicates the Rights to MSRs structure (a Substitute RMSR Arrangement) under which we would transfer title to the MSRs to a successor servicer and NRZ would continue to own the economic rights and obligations related to the MSRs. In the case of option (i), we have a purchase option as specified in the New RMSR Agreements. If NRZ is not able to sell the Rights to MSRs or establish a Substitute RMSR Arrangement with another servicer, NRZ has the right to revoke its termination notice and re-instate the Servicing Addendum or to establish a subservicing arrangement whereby the MSRs remaining subject to the New RMSR Agreements would be transferred to up to three subservicers who would subservice under Ocwen’s oversight. If such a subservicing arrangement were established, Ocwen would receive an oversight fee and reimbursement of expenses. We may also agree on alternative arrangements that are not contemplated under our existing agreements or that are variations of those contemplated under our existing agreements.

PMC Transactions

On December 28, 2016, PMC entered into an agreement to sell substantially all of its MSRs, and the related servicing advances, to NRM (the 2016 PMC Sale Agreement). In connection with this agreement, on December 28, 2016, PMC also entered into a subservicing agreement with NRZ, which was subsequently amended and restated as of March 29, 2019 (together with the 2016 PMC Sale Agreement, the PMC MSR Agreements). The PMC subservicing agreement has an initial term of three years from the initial transaction date of June 16, 2017, subject to certain transfer and termination provisions.

The PMC subservicing agreement generates revenue based on a schedule of fees per loan per month that includes revenue adjustments for delinquent loans to cover the incremental cost associated with servicing such loans. As of December 31, 2019, Ocwen serviced 278,909 loans (with a UPB of $35.5 billion) under this arrangement, excluding loans added by NRZ in 2019, and recorded servicing fee revenues for 2019 and 2018 of $28.8 million and $7.4 million, respectively. In addition to the $35.5 billion in UPB of loans in the PMC subservicing agreement for which the MSR sale transaction did not achieve sale accounting treatment, PMC is also subservicing loans with approximately $6.6 billion in UPB at December 31, 2019 that NRZ added to the PMC subservicing agreement after NRZ acquired the MSRs from an unrelated party during 2019. Consistent with a subservicing relationship, no MSR or pledged MSR liability is recorded on our consolidated balance sheets for the $6.6 billion loan UPB.

Through its acquisition of PHH on October 4, 2018, Ocwen added MSRs with $42.3 billion UPB related to the 2016 PMC Sale Agreement. As of December 31, 2019, $2.7 billion UPB of MSRs and related advances remain to be sold to NRZ under this agreement. Ocwen and NRZ are in discussions regarding the disposition of these remaining assets.

Subject to the payment of the applicable deboarding fee and proper notice, NRZ has the right to terminate an amount not to exceed 25% of the underlying mortgage loans (not including loans added by NRZ in 2019) being subserviced during the period from June 2019 through the end of the initial term in June 2020. The PMC subservicing agreement automatically renews for successive one-year terms unless either party provides notice of non-renewal in accordance with the PMC subservicing agreement, which is 180 days’ notice in the case of NRZ and nine months’ notice in the case of PMC. NRZ and PMC each also has the right to terminate the PMC subservicing agreement after the initial term without cause subject to 180 days’ notice in the case of NRZ and nine months’ notice in the case of PMC and, if NRZ elects to terminate, NRZ’s payment of deboarding fees. NRZ and PMC each has the ability to terminate the subservicing agreement for cause if certain specified conditions occur.

On February 20, 2020, we received a notice of termination from NRZ with respect to the subservicing agreement between NRZ and PMC, which accounted for 20% of our servicing portfolio UPB at December 31, 2019. See Note 28 — Subsequent Events.