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Mortgage Servicing Rights ("MSRs") and Related Liabilities (Tables)
 6 Months Ended
Jun. 30, 2019
Transfers and Servicing [Abstract]  
Schedule of Servicing Assets at Fair Value
The following table provides a breakdown of credit sensitive and interest sensitive unpaid principal balance (“UPB”) for the Company’s forward MSRs.
 
Successor
 
June 30, 2019
 
December 31, 2018
MSRs - Sensitivity Pools
UPB
 
Fair Value
 
UPB
 
Fair Value
Credit sensitive
$
167,381

 
$
1,797

 
$
135,752

 
$
1,495

Interest sensitive
148,631

 
1,708

 
159,729

 
2,170

Total
$
316,012

 
$
3,505

 
$
295,481

 
$
3,665

The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities.
 
Successor
MSRs and Related Liabilities
June 30, 2019
 
December 31, 2018
Forward MSRs - fair value
$
3,505

 
$
3,665

Reverse MSRs - amortized cost
6

 
11

Mortgage servicing rights
$
3,511

 
$
3,676

 
 
 
 
Mortgage servicing liabilities - amortized cost
$
80

 
$
71

 
 
 
 
Excess spread financing - fair value
$
1,429

 
$
1,184

Mortgage servicing rights financing - fair value
43

 
32

MSR related liabilities - nonrecourse at fair value
$
1,472

 
$
1,216



The following table sets forth the activities of forward MSRs.
 
Successor
 
 
Predecessor
MSRs - Fair Value
Six Months Ended June 30, 2019
 
 
Six Months Ended June 30, 2018
Fair value - beginning of period
$
3,665

 
 
$
2,937

Additions:
 
 
 
 
Servicing retained from mortgage loans sold
169

 
 
139

Purchases of servicing rights(1)
689

 
 
132

Dispositions:
 
 
 
 
Sales of servicing assets
(294
)
 
 
4

Changes in fair value:
 
 
 
 
Changes in valuation inputs or assumptions used in the valuation model
(542
)
 
 
283

Other changes in fair value
(182
)
 
 
(139
)
Fair value - end of period
$
3,505

 
 
$
3,356



(1) 
Purchases of servicing rights during the six months ended June 30, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 2, Acquisitions for further discussion. In addition, on January 3, 2019, the Company entered into a subservicing contract for $24 billion in mortgages, which were subsequently purchased on May 1, 2019, resulting in additional $253 servicing rights in the second quarter of 2019.
Schedule of Assumptions for Fair Value of Mortgage Service Rights
The following table sets forth the weighted average assumptions used in the valuation of the mortgage servicing rights financing liability.
 
Successor
Mortgage Servicing Rights Financing Assumptions
June 30, 2019
 
December 31, 2018
Advance financing rates
3.7
%
 
4.2
%
Annual advance recovery rates
19.3
%
 
19.0
%
The Company used the following weighted-average assumptions in the Company’s valuation of excess spread financing.
 
Successor
 
June 30, 2019
 
December 31, 2018
Excess Spread Financing
 
 
 
Discount rate
9.6
%
 
10.4
%
Prepayment speeds
13.1
%
 
11.0
%
Recapture rate
20.2
%
 
18.6
%
Average life
5.7 years

 
6.5 years

The Company used the following key weighted-average inputs and assumptions in estimating the fair value of MSRs.
 
Successor
 
June 30, 2019
 
December 31, 2018
Credit Sensitive
 
 
 
Discount rate
10.6
%
 
11.3
%
Prepayment speeds
13.5
%
 
11.8
%
Average life
5.9 years

 
6.4 years

 
 
 
 
Interest Sensitive
 
 
 
Discount rate
8.9
%
 
9.3
%
Prepayment speeds
13.9
%
 
10.0
%
Average life
5.6 years

 
7.0 years

 
 
 
 
Total MSR Portfolio
 
 
 
Discount rate
9.7
%
 
10.2
%
Prepayment speeds
13.7
%
 
10.8
%
Average life
5.8 years

 
6.7 years
Schedule of Sensitivity Analysis of Fair Value, Transferor's Interests in Transferred Financial Assets
The following table shows the hypothetical effect on the fair value of the Successor’s MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated.
 
Successor
 
Discount Rate
 
Total Prepayment Speeds
MSRs - Hypothetical Sensitivities
100 bps
Adverse
Change
 
200 bps
Adverse
Change
 
10%
Adverse
Change
 
20%
Adverse
Change
June 30, 2019
 
 
 
 
 
 
 
Mortgage servicing rights
$
(127
)
 
$
(245
)
 
$
(169
)
 
$
(325
)
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
Mortgage servicing rights
$
(137
)
 
$
(265
)
 
$
(129
)
 
$
(250
)
The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated.
 
Successor
 
Discount Rate
 
Prepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities
100 bps
Adverse
Change
 
200 bps
Adverse
Change
 
10%
Adverse
Change
 
20%
Adverse
Change
June 30, 2019
 
 
 
 
 
 
 
Excess spread financing
$
53

 
$
111

 
$
58

 
$
121

 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
Excess spread financing
$
47

 
$
99

 
$
38

 
$
81
Schedule of Fees Earned in Exchange for Servicing Financial Assets
The following table sets forth the items comprising revenues associated with servicing loan portfolios.
 
Successor
 
 
Predecessor
Servicing Revenue
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
 
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
Contractually specified servicing fees(1)
$
307

 
$
588

 
 
$
245

 
$
495

Other service-related income(1)(2)
32

 
82

 
 
28

 
56

Incentive and modification income(1)
10

 
17

 
 
18

 
33

Late fees(1)
27

 
52

 
 
22

 
46

Reverse servicing fees
8

 
17

 
 
14

 
33

Mark-to-market adjustments(3)
(231
)
 
(524
)
 
 
19

 
171

Counterparty revenue share(4)
(70
)
 
(118
)
 
 
(50
)
 
(95
)
Amortization, net of accretion(5)
(56
)
 
(79
)
 
 
(48
)
 
(96
)
Total servicing revenue
$
27

 
$
35

 
 
$
248

 
$
643



(1) 
Amounts include subservicing related revenues.
(2) 
Amount for the six months ended June 30, 2019 includes a gain of $21 from the execution of a clean-up call option on a reverse mortgage loan trust, as the Company was the master servicer and holder of clean-up call rights.
(3) 
Mark-to-market (“MTM”) adjustments include fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows for the Company and Predecessor was $17 and $22 for the three months ended June 30, 2019 and 2018, respectively, and $28 and $34 for the six months ended June 30, 2019 and 2018, respectively.
(4) 
Counterparty revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSRs financing arrangements.
(5) 
Amortization for the Company is net of excess spread accretion of $59 and MSL accretion of $11 for the three months ended June 30, 2019. Amortization for the Predecessor is net excess spread accretion of $37 for the three months ended June 30, 2018. For the six months ended June 30, 2019, the amortization for the Company is net of excess spread accretion of $95 and MSL accretion of $29. Amortization of the Predecessor is net of excess spread of $67 for the six months ended June 30, 2018. The Predecessor recorded MSL accretion within reverse servicing fees, whereas the Successor has elected to record MSL accretion within Amortization, net of accretion.