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Mortgage Servicing Rights ("MSRs") and Related Liabilities (Tables)
 9 Months Ended
Sep. 30, 2019
Transfers and Servicing [Abstract]  
Schedule of Servicing Assets at Fair Value
The following table sets forth the activities of forward MSRs.
 
Successor
 
 
Predecessor
MSRs - Fair Value
Nine Months Ended September 30, 2019
 
Two Months Ended September 30, 2018
 
 
Seven Months Ended July 31, 2018
Fair value - beginning of period
$
3,665

 
$
3,413

 
 
$
2,937

Additions:
 
 
 
 
 
 
Servicing retained from mortgage loans sold
298

 
43

 
 
162

Purchases of servicing rights(1)
732

 
72

 
 
144

Dispositions:
 
 
 
 
 
 
Sales of servicing assets(2)
(317
)
 
(63
)
 
 
4

Changes in fair value:
 
 
 
 
 
 
Changes in valuation inputs or assumptions used in the valuation model
(716
)
 
65

 
 
330

Other changes in fair value
(323
)
 
(45
)
 
 
(164
)
Fair value - end of period
$
3,339

 
$
3,485

 
 
$
3,413



(1) 
Purchases of servicing rights during the nine months ended September 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 unpaid principal balance in mortgages. The related servicing rights were subsequently purchased on May 1, 2019, resulting in additional $253 servicing rights during the second quarter of 2019.
(2) 
Amount for the seven months ended July 31, 2018 is related to the sale of MSRs collateralized by nonperforming loans, which have a negative MSR value.
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
September 30, 2019
 
December 31, 2018
Forward MSRs - fair value
$
3,339

 
$
3,665

Reverse MSRs - amortized cost
7

 
11

Mortgage servicing rights
$
3,346

 
$
3,676

 
 
 
 
Mortgage servicing liabilities - amortized cost
$
69

 
$
71

 
 
 
 
Excess spread financing - fair value
$
1,281

 
$
1,184

Mortgage servicing rights financing - fair value
47

 
32

MSR related liabilities - nonrecourse at fair value
$
1,328

 
$
1,216



The following table provides a breakdown of credit sensitive and interest sensitive unpaid principal balance (“UPB”) for the Company’s forward MSRs.
 
Successor
 
September 30, 2019
 
December 31, 2018
MSRs - Sensitivity Pools
UPB
 
Fair Value
 
UPB
 
Fair Value
Credit sensitive
$
157,898

 
$
1,661

 
$
135,752

 
$
1,495

Interest sensitive
148,783

 
1,678

 
159,729

 
2,170

Total
$
306,681

 
$
3,339

 
$
295,481

 
$
3,665
Schedule of Assumptions for Fair Value of Mortgage Service Rights
The Company used the following key weighted-average inputs and assumptions in estimating the fair value of MSRs.
 
Successor
 
September 30, 2019
 
December 31, 2018
Credit Sensitive
 
 
 
Discount rate
10.4
%
 
11.3
%
Prepayment speeds
13.2
%
 
11.8
%
Average life
5.9 years

 
6.4 years

 
 
 
 
Interest Sensitive
 
 
 
Discount rate
9.0
%
 
9.3
%
Prepayment speeds
14.6
%
 
10.0
%
Average life
5.4 years

 
7.0 years

 
 
 
 
Total MSR Portfolio
 
 
 
Discount rate
9.7
%
 
10.2
%
Prepayment speeds
13.9
%
 
10.8
%
Average life
5.6 years

 
6.7 years

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
September 30, 2019
 
December 31, 2018
Advance financing rates
3.7
%
 
4.2
%
Annual advance recovery rates
18.7
%
 
19.0
%
The Company used the following weighted-average assumptions in the Company’s valuation of excess spread financing.
 
Successor
 
September 30, 2019
 
December 31, 2018
Excess Spread Financing Assumptions
 
 
 
Discount rate
11.9
%
 
10.4
%
Prepayment speeds
13.3
%
 
11.0
%
Recapture rate
22.3
%
 
18.6
%
Average life
5.7 years

 
6.5 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 Company’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
September 30, 2019
 
 
 
 
 
 
 
Mortgage servicing rights
$
(117
)
 
$
(226
)
 
$
(164
)
 
$
(316
)
 
 
 
 
 
 
 
 
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
September 30, 2019
 
 
 
 
 
 
 
Excess spread financing
$
42

 
$
87

 
$
44

 
$
93

 
 
 
 
 
 
 
 
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 September 30, 2019
 
Nine Months Ended September 30, 2019
 
Two Months Ended September 30, 2018
 
 
One Month Ended July 31, 2018
 
Seven Months Ended July 31, 2018
Contractually specified servicing fees(1)
$
305

 
$
893

 
$
163

 
 
$
79

 
$
574

Other service-related income(1)(2)
51

 
133

 
18

 
 
10

 
66

Incentive and modification income(1)
12

 
29

 
8

 
 
4

 
37

Late fees(1)
30

 
82

 
14

 
 
7

 
53

Reverse servicing fees
7

 
24

 
13

 
 
4

 
37

Mark-to-market adjustments(3)
(83
)
 
(607
)
 
24

 
 
25

 
196

Counterparty revenue share(4)
(86
)
 
(204
)
 
(26
)
 
 
(16
)
 
(111
)
Amortization, net of accretion(5)
(73
)
 
(152
)
 
(31
)
 
 
(16
)
 
(112
)
Total servicing revenue
$
163

 
$
198

 
$
183

 
 
$
97

 
$
740



(1) 
Amounts include subservicing related revenues.
(2) 
Amount for the nine months ended September 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 was $18, $46, and $13 for the three and nine months ended September 30, 2019 and two months ended September 30, 2018, respectively. The impact of negative modeled cash flows for the Predecessor totaled $4 and $38 for the one and seven months ended July 31, 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 $77 and $172 and MSL accretion of $10 and $39 for the three and nine months ended September 30, 2019, respectively. Amortization for the Company is net of excess spread accretion of $22 for the two months ended September 30, 2018. Amortization of the Predecessor is net of excess spread of $11 and $78 for the one and seven months ended July 31, 2018, respectively. The Predecessor recorded MSL accretion within reverse servicing fees, whereas the Successor has elected to record MSL accretion within amortization, net of accretion.