Quarterly report pursuant to Section 13 or 15(d)

Servicing Activities

v3.24.3
Servicing Activities
 9 Months Ended
Sep. 30, 2024
Transfers and Servicing [Abstract]  
Servicing Activities Servicing Activities
Mortgage Servicing Rights, at Fair Value
One of the Company’s wholly owned subsidiaries, TH MSR Holdings, has approvals from Fannie Mae and Freddie Mac to own and manage MSR, which represent the right to control the servicing of residential mortgage loans. TH MSR Holdings acquires MSR from third-party originators through flow and bulk purchases, as well as through the recapture of MSR on loans in its MSR portfolio that refinance. TH MSR Holdings does not directly service mortgage loans; instead, it engages its wholly owned subsidiary, RoundPoint, to handle substantially all servicing functions in the name of the subservicer for the mortgage loans underlying the Company’s MSR. RoundPoint also services mortgage loans underlying MSR owned by third parties. RoundPoint has approvals from Fannie Mae and Freddie Mac to service residential mortgage loans.
The following table summarizes activity related to the Company’s MSR portfolio for the three and nine months ended September 30, 2024 and 2023.
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2024 2023 2024 2023
Balance at beginning of period $ 3,065,415  $ 3,273,956  $ 3,052,016  $ 2,984,937 
Purchases of mortgage servicing rights
 43,088  6,756  87,224  305,729 
Additions from sales of mortgage loans 166  —  166  — 
Sales of mortgage servicing rights
 (68,143) (112,351) (81,014) (115,044)
Changes in fair value due to:
Changes in valuation inputs or assumptions used in the valuation model (1)
(93,828) 111,186  775  213,803 
Other changes in fair value (2)
(62,481) (63,999) (174,239) (172,177)
Other changes (3)
87  (2,435) (624) (4,135)
Balance at end of period (4)
$ 2,884,304  $ 3,213,113  $ 2,884,304  $ 3,213,113 
____________________
(1)Includes the impact of acquiring MSR at a cost different from fair value.
(2)Primarily represents changes due to the realization of cash flows.
(3)Includes purchase price adjustments, contractual prepayment protection, and changes due to the Company’s purchase of the underlying collateral.
(4)Based on the prior month-end’s principal balance of the loans underlying the Company’s MSR, increased for current month purchases.

At September 30, 2024, the Company pledged MSR with a carrying value of $2.9 billion as collateral for repurchase agreements and revolving credit facilities. See Note 13 - Repurchase Agreements and Note 14 - Revolving Credit Facilities. At December 31, 2023, the Company pledged MSR with a carrying value of $3.0 billion as collateral for repurchase agreements, revolving credit facilities and term notes payable. See Note 13 - Repurchase Agreements, Note 14 - Revolving Credit Facilities and Note 16 - Term Notes Payable.
As of September 30, 2024 and December 31, 2023, the key economic assumptions and sensitivity of the fair value of MSR to immediate 10% and 20% adverse changes in these assumptions were as follows:
(dollars in thousands, except per loan data) September 30,
2024		 December 31,
2023
Weighted average prepayment speed: 6.6  % 6.2  %
Impact on fair value of 10% adverse change $ (78,785) $ (74,042)
Impact on fair value of 20% adverse change $ (153,445) $ (146,237)
Weighted average delinquency: 0.8  % 0.9  %
Impact on fair value of 10% adverse change $ (5,076) $ (4,654)
Impact on fair value of 20% adverse change $ (13,037) $ (12,376)
Weighted average option-adjusted spread: 5.4  % 5.3  %
Impact on fair value of 10% adverse change $ (66,728) $ (59,285)
Impact on fair value of 20% adverse change $ (130,169) $ (119,776)
Weighted average per loan annual cost to service: $ 68.56  $ 68.27 
Impact on fair value of 10% adverse change $ (28,598) $ (24,111)
Impact on fair value of 20% adverse change $ (58,941) $ (48,985)

These assumptions and sensitivities are hypothetical and should be considered with caution. Changes in fair value based on 10% and 20% variations in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of MSR is calculated without changing any other assumptions. In reality, changes in one factor may result in changes in another (e.g., increased market interest rates may result in lower prepayments and increased credit losses) that could magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset balances and do not show any expected change in the fair value of the instruments used to manage the interest rates and prepayment risks associated with these assets.
Risk Mitigation Activities
The primary risks associated with the Company’s MSR are changes in interest rates, mortgage spreads and prepayments. The Company economically hedges interest rate and mortgage spread risk primarily with its Agency RMBS portfolio. Prepayment risk is carefully monitored and partially mitigated through the Company’s ability to retain the MSR, in certain circumstances, through recapture if the underlying loan is refinanced.
Mortgage Servicing Income and Costs
The following table presents the components of servicing income recorded on the Company’s condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2024 2023 2024 2023
Servicing fee income $ 126,597  $ 141,816  $ 400,278  $ 415,423 
Ancillary and other fee income 3,928  476  12,220  2,236 
Float income 41,207  36,333  101,582  89,509 
Total $ 171,732  $ 178,625  $ 514,080  $ 507,168 

Prior to the acquisition of RoundPoint, the Company did not directly service mortgage loans; instead, it contracted with appropriately licensed third-party subservicers to handle substantially all servicing functions in the name of the subservicer for the mortgage loans underlying the Company’s MSR. These third-party subservicing costs and other servicing expenses directly related to the Company’s MSR portfolio are included within the servicing costs line item on the Company’s condensed consolidated statements of comprehensive income (loss). Post-acquisition, all servicing-related expenses incurred by RoundPoint as an operating company are included within the compensation and benefits and other operating expenses line items on the Company’s condensed consolidated statements of comprehensive income (loss).
Mortgage Servicing Advances
As the servicer of record for the MSR assets, the Company may be required to advance principal and interest payments to security holders, and intermittent tax and insurance payments to local authorities and insurance companies on mortgage loans that are in forbearance, delinquency or default. The Company is responsible for funding these advances, potentially for an extended period of time, before receiving reimbursement from Fannie Mae and Freddie Mac. Servicing advances are priority cash flows in the event of a loan principal reduction or foreclosure and ultimate liquidation of the real estate-owned property, thus making their collection reasonably assured. These servicing advances totaled $92.0 million and $143.2 million and were included in other assets on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively. At September 30, 2024 and December 31, 2023, mortgage loans in 60+ day delinquent status (whether or not subject to forbearance) accounted for approximately 0.8% and 0.7%, respectively, of the aggregate principal balance of loans for which the Company had servicing advance funding obligations.
The Company has one revolving credit facility to finance its servicing advance obligations. At September 30, 2024 and December 31, 2023, the Company had pledged servicing advances with a carrying value of $86.6 million and $79.7 million, respectively, as collateral for this revolving credit facility. See Note 14 - Revolving Credit Facilities.