Note 25 — Commitments

Unfunded Lending Commitments

We have originated floating-rate reverse mortgage loans under which the borrowers have additional borrowing capacity of $1.5 billion at December 31, 2019. This additional borrowing capacity is available on a scheduled or unscheduled payment basis. We also had short-term commitments to lend $204.0 million and $28.5 million in connection with our forward and reverse mortgage loan IRLCs, respectively, outstanding at December 31, 2019. We finance originated and purchased forward and reverse mortgage loans with repurchase and participation agreements, commonly referred to as warehouse lines.

HMBS Issuer Obligations

As an HMBS issuer, we assume certain obligations related to each security issued. The most significant obligation is the requirement to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM is equal to or greater than 98% of the maximum claim amount (MCA repurchases). Active repurchased loans are assigned to HUD and payment is received from HUD, typically within 60 days of repurchase. HUD reimburses us for the outstanding principal balance on the loan up to the maximum claim amount. We bear the risk of exposure if the amount of the outstanding principal balance on a loan exceeds the maximum claim amount. Inactive repurchased loans (the borrower is deceased, no longer occupies the property or is delinquent on tax and insurance payments) are generally liquidated through foreclosure and subsequent sale of REO, with a claim filed with HUD for recoverable remaining principal and advance balances. The recovery timeline for inactive repurchased loans depends on various factors, including foreclosure status at the time of repurchase, state-level foreclosure timelines, and the post-foreclosure REO liquidation timeline.

The timing and amount of our obligation with respect to MCA repurchases is uncertain as repurchase is dependent largely on circumstances outside of our control including the amount and timing of future draws and the status of the loan. MCA repurchases are expected to continue to increase due to the increased flow of HECMs and REO that are reaching 98% of their maximum claim amount. Activity with regard to HMBS repurchases, including MCA repurchases, follows:



	Year Ended December 31, 2019
	Active					Inactive					Total
	Number		Amount			Number		Amount			Number		Amount
Beginning balance	10		$	2,047		252		$	14,833		262		$	16,880
Additions (1)	81		19,671			241		24,517			322		44,188
Recoveries, net (2)	(30	)	(10,414		)	(234	)	(12,520		)	(264	)	(22,934		)
Transfers	1		(785		)	(1	)	785			—		—
Changes in value	—		27			—		(2,468		)	—		(2,441		)
Ending balance	62		$	10,546		258		$	25,147		320		$	35,693


(1)	Total repurchases during the year ended December 31, 2019, includes 189 loans totaling $38.4 million related to MCA repurchases.


(2)	Includes amounts received upon assignment of loan to HUD, loan payoff, REO liquidation and claim proceeds less any amounts charged off as unrecoverable.

Active loan repurchases are classified as Receivables as reimbursement from HUD is generally received within 60 days and are initially recorded at fair value. Inactive loan repurchases are classified as Loans held for sale and are initially recorded at fair value. Loans are reclassified to REO in Other assets or Receivables as the loans move through the resolution process and permissible claims are submitted to HUD for reimbursement. Loans held for sale repurchased prior to October 1, 2018 are carried at the lower of cost or fair value. Receivables are valued at net realizable value. REO is valued at the estimated value of the underlying property less cost to sell.

Lease Commitments

We lease certain of our premises and equipment under non-cancelable operating leases with terms expiring through 2025 exclusive of renewal option periods. At December 31, 2019, the weighted average remaining term of our leases was 3.3 years. A maturity analysis of our lease liability as of December 31, 2019 is summarized as follows:



2020	$	16,652
2021	15,356
2022	13,102
2023	3,088
2024	697
Thereafter	654
	49,549
Less: Adjustment to present value	(5,061		)
Total lease payments, net	$	44,488


(1)	At December 31, 2019, the weighted average of the discount rate used to estimate the present value was 7.5% based on our incremental borrowing rate.

We converted rental commitments for our facilities outside the U.S. to U.S. dollars using exchange rates in effect at December 31, 2019. Operating lease cost for 2019 and Rent expense for 2018 and 2017 was $26.1 million, $16.6 million and $18.8 million, respectively. The operating lease cost for 2019 includes $5.4 million of variable lease expense.

We have subleased certain of our premises with terms expiring through 2022. Sublease income for 2019, 2018 and 2017 was $1.5 million, $0.9 million and $0.8 million, respectively. For 2020, 2021 and 2022, our future annual aggregate minimum sublease income is $1.7 million, $1.6 million and $1.2 million, respectively.

NRZ Relationship

Our Servicing segment has exposure to concentration risk and client retention risk. As of December 31, 2019, our servicing portfolio included significant client relationships with NRZ which represented 56% and 61% of our servicing portfolio UPB and loan count, respectively. The NRZ servicing portfolio accounts for approximately 74% of all delinquent loans that Ocwen services. The current terms of our agreements with NRZ extend through June 2020, subject to an automatic renewal provision (legacy PMC agreement) and July 2022 (legacy Ocwen agreements).

Currently, subject to proper notice (generally 180 days’ notice), the payment of deboarding fees (in the case of the legacy PMC agreement) and termination fees (in the case of the legacy Ocwen agreements) and certain other provisions, NRZ has rights to terminate these agreements for convenience. Because of the large percentage of our servicing business that is represented by agreements with NRZ, if NRZ exercised all or a significant portion of these termination rights, we might need to right-size or restructure certain aspects of our servicing business as well as the related corporate support functions.

We currently account for the MSR sale agreements with NRZ as secured financings as the transactions did not achieve sale accounting treatment. Accordingly, our balance sheet reflects a $915.1 million MSR asset pledged to NRZ out of a total $1.5 billion MSRs at fair value at December 31, 2019, and a corresponding $915.1 million pledged MSR liability at fair value within Other financing liabilities. Similarly, our statement of operations reflects $437.7 million net servicing fee collected on behalf of, and remitted to NRZ out of a total $975.5 million Servicing and subservicing fees for the year ended December 31, 2019, and a corresponding $437.7 million expense reported within Pledged MSR liability expense. The $437.7 million net servicing fees collected on behalf of, and remitted to NRZ did not affect our net earnings. In addition, we recognize amortization income related to lump sum payments we received from NRZ in 2017 and 2018, through April 2020, with an outstanding unamortized balance of $35.4 million at December 31, 2019. The reporting of MSRs and revenue gross versus net in our financial statements is required until sale accounting criteria are met, upon the earliest of the terms of the agreements or any termination notice.

The NRZ agreements affect our net earnings through the recognition of subservicing fees we retain, which amounted $139.3 million for the year ended December 31, 2019, and ancillary income, which we estimated to be $84.7 million for the year ended December 31, 2019. If NRZ were to exercise its termination rights, our net earnings would be affected by the loss of such subservicing revenue and the decrease of operating expenses for servicing the NRZ portfolio and the associated corporate overhead allocation.

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 are disclosed in Note 10 — Rights to MSRs.

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.