Mortgage Servicing Rights and Related Liabilities

12 Months Ended

Dec. 31, 2021

Transfers and Servicing [Abstract]

Mortgage Servicing Rights and Related Liabilities

4. Mortgage Servicing Rights and Related Liabilities

The following table sets forth the carrying value of the Company’s 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 Liabilities	December 31, 2021		December 31, 2020
Forward MSRs at fair value	$	4,223	$	2,703
Excess spread financing at fair value	$	768	$	934
Mortgage servicing rights financing at fair value	10		33
MSR related liabilities - nonrecourse at fair value	$	778	$	967

Forward Mortgage Servicing Rights

The Company owns and records at fair value the rights to service traditional residential mortgage (“forward”) loans for others either as a result of purchase transactions or from the retained servicing associated with the sales and securitizations of loans originated. MSRs are comprised of servicing rights of both agency and non-agency loans.

The following table sets forth the activities of forward MSRs:

	Year Ended December 31,
Forward MSRs - Fair Value	2021		2020
Fair value - beginning of year	$	2,703	$	3,496
Additions:
Servicing retained from mortgage loans sold	1,077		687
Purchases of servicing rights	948		124
Dispositions:
Sales of servicing assets	(55)		(9)
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM)	502		(819)
Changes in valuation due to amortization	(1,008)		(848)
Other changes	56		72
Fair value - end of year	$	4,223	$	2,703

From time to time, the Company sells its ownership interest in certain MSRs and is retained as the subservicer for the sold assets. The Company has evaluated the sale accounting requirements related to these transactions, including the Company’s continued involvement as the subservicer, and concluded that these transactions qualify for sale accounting treatment. During the years ended December 31, 2021 and 2020, the Company sold $5,163 and $1,070 in unpaid principal balance of forward MSRs, of which $3,937 and $960 was 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 GSEs, 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:

	December 31, 2021				December 31, 2020
Forward MSRs - UPB and Fair Value Breakdown	UPB		Fair Value		UPB		Fair Value
Investor Pools
Agency	$	302,851	$	3,859	$	227,136	$	2,305
Non-agency	36,357		364		44,053		398
Total	$	339,208	$	4,223	$	271,189	$	2,703

Refer to Note 17, 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
December 31, 2021
Mortgage servicing rights	$	(141)	$	(272)	$	(148)	$	(286)	$	(46)	$	(93)
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 a 10% 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

In order to finance the acquisition of certain MSRs on various portfolios, the Company previously entered into sale and assignment agreements with third parties and sold to these entities the right to receive a specified percentage of the excess cash flow generated from the portfolios in excess of a fixed base servicing fee per loan. The Company retains all the base servicing fees, ancillary income and interest float earnings on principal along with interest payments and escrow, and also incurs costs to service the specified pool. The Company is the legal owner and the servicer of the portfolios and provides all servicing and advancing functions.

In connection with the above transactions, the Company entered into refinanced loan obligations with third parties that require the Company to transfer the new loan or a replacement loan of similar economic characteristics into the respective portfolio if the Company refinances any loan in the portfolio. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above.

The Company had excess spread financing liability of $768 and $934 as of December 31, 2021 and 2020, respectively. Refer to Note 17, Fair Value Measurements, for further discussion on 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
December 31, 2021
Excess spread financing	$	26	$	54	$	28	$	58
December 31, 2020
Excess spread financing	$	30	$	62	$	41	$	84

These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% variation 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

The Company had MSR financing liability of $10 and $33 as of December 31, 2021 and 2020, respectively. Refer to Note 2, Significant Accounting Policies, for further discussion on MSR financing, and Note 17, Fair Value Measurements, for further discussion on 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:

	Year Ended December 31,
Total Revenues - Servicing	2021		2020
Contractually specified servicing fees(1)	$	1,122	$	1,141
Other service-related income(1)	640		290
Incentive and modification income(1)	51		39
Late fees(1)	71		83
Mark-to-market adjustments(2)	421		(609)
Amortization, net of accretion(3)	(753)		(510)
Other(4)	(279)		(371)
Total revenues - Servicing	$	1,273	$	63

(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 $35 and $28 for the years ended December 31, 2021 and 2020, respectively.

(3)Amortization for the Company is net of excess spread accretion of $255 and $338 for the years ended December 31, 2021 and 2020, 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.