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Mortgage Servicing Rights and Related Liabilities
 9 Months Ended
Sep. 30, 2021
Transfers and Servicing [Abstract]  
Mortgage Servicing Rights and Related Liabilities
3. Mortgage Servicing Rights and Related Liabilities

The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities. In estimating the fair value of all mortgage servicing rights and related liabilities, the impact of the current environment was considered in the determination of key assumptions.
MSRs and Related LiabilitiesSeptember 30, 2021December 31, 2020
Forward MSRs - fair value$3,666 $2,703 
Excess spread financing - fair value$822 $934 
Mortgage servicing rights financing - fair value20 33 
MSR related liabilities - nonrecourse at fair value$842 $967 

Forward Mortgage Servicing Rights
The following table sets forth the activities of forward MSRs:
Nine Months Ended September 30,
Forward MSRs - Fair Value20212020
Fair value - beginning of period$2,703 $3,496 
Additions:
Servicing retained from mortgage loans sold790 412 
Purchases of servicing rights438 30 
Dispositions:
Sales of servicing assets(13)— 
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM)476 (727)
Changes in valuation due to amortization(772)(605)
Other changes44 57 
Fair value - end of period$3,666 $2,663 

During the nine months ended September 30, 2021 and 2020, the Company sold $1,226 and $94 in unpaid principal balance (“UPB”) of forward MSRs, of which $1,144 and none were retained by the Company as subservicer, respectively.

Forward MSRs are segregated between investor type into agency and non-agency pools (referred to herein as “investor pools”) based upon contractual servicing agreements with investors at the respective balance sheet date to evaluate the MSR portfolio and fair value of the portfolio. Agency investors primarily consist of government sponsored enterprises (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan Mortgage Corp (“Freddie Mac” or “FHLMC”), and the Government National Mortgage Association (“Ginnie Mae” or “GNMA”). Non-agency investors consist of investors in private-label securitizations.

The following table provides a breakdown of UPB and fair value for the Company’s forward MSRs:
September 30, 2021December 31, 2020
Forward MSRs - UPB and Fair Value BreakdownUPBFair ValueUPBFair Value
Investor Pools
Agency$266,588 $3,329 $227,136 $2,305 
Non-agency36,503 337 44,053 398 
Total$303,091 $3,666 $271,189 $2,703 

Refer to Note 13, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in estimating the fair value of forward MSRs.
The following table shows the hypothetical effect on the fair value of the Company’s forward MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated:
Discount Rate
Total Prepayment Speeds
Cost to Service per Loan
Forward MSRs - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
September 30, 2021
Mortgage servicing rights$(133)$(257)$(145)$(279)$(45)$(89)
December 31, 2020
Mortgage servicing rights$(100)$(192)$(181)$(347)$(45)$(89)

These hypothetical sensitivities should be evaluated with care. The effect on fair value of an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.

Excess Spread Financing - Fair Value
The Company had excess spread financing liability of $822 and $934 as of September 30, 2021 and December 31, 2020, respectively. Refer to Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of excess spread financing.

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:
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, 2021
Excess spread financing$28 $58 $30 $63 
December 31, 2020
Excess spread financing$30 $62 $41 $84 

These hypothetical sensitivities should be evaluated with care. The effect on fair value of an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing. Excess spread financing’s cash flow assumptions that are utilized in determining fair value are based on the related cash flow assumptions used in the financed MSRs. Any fair value change recognized in the financed MSRs attributable to related cash flows assumptions would inherently have an inverse impact on the carrying amount of the related excess spread financing.

Mortgage Servicing Rights Financing - Fair Value
The Company had MSR financing liability of $20 and $33 as of September 30, 2021 and December 31, 2020, respectively. Refer to Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of the MSR financing liability.
Servicing Segment Revenues
The following table sets forth the items comprising total revenues for the Servicing segment:
Three Months Ended September 30,Nine Months Ended September 30,
Total Revenues - Servicing2021202020212020
Contractually specified servicing fees(1)
$280 $282 $831 $864 
Other service-related income(1)
158 60 517 171 
Incentive and modification income(1)
10 12 38 30 
Late fees(1)
19 18 53 65 
Mark-to-market adjustments(2)
151 (16)376 (618)
Amortization, net of accretion(3)
(202)(129)(567)(362)
Other(4)
(65)(104)(224)(268)
Total revenues - Servicing$351 $123 $1,024 $(118)

(1)The Company recognizes revenue on an earned basis for services performed. Amounts include subservicing related revenues.
(2)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 was $8 and $7 for the three months ended September 30, 2021 and 2020 and $28 and $20 for the nine months ended September 30, 2021 and 2020, respectively.
(3)Amortization is net of excess spread accretion of $59 and $96 during the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, amortization is net of excess spread accretion of $205 and $243, respectively.
(4)Other represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements, portfolio runoff and the payments made associated with MSR financing arrangements.