Annual report pursuant to Section 13 and 15(d)

Servicing Activities

v3.24.0.1
Servicing Activities
 12 Months Ended
Dec. 31, 2023
Disclosures Pertaining to Servicing Assets and Servicing Liabilities [Abstract]  
Servicing Activities Servicing Activities
Mortgage Servicing Rights, at Fair Value
One of the Company’s wholly owned subsidiaries, Matrix, 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. Matrix acquires MSR from third-party originators through flow and bulk purchases but does not directly service mortgage loans; instead, it contracts with appropriately licensed subservicers to handle substantially all servicing functions in the name of the subservicer for the mortgage loans underlying the Company’s MSR. On October 1, 2023, the Company, through its newly acquired subsidiary RoundPoint, began directly servicing a portion of the mortgage loans underlying the Company’s MSR portfolio as well as servicing 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 years ended December 31, 2023, 2022 and 2021.
Year Ended
December 31,
(in thousands) 2023 2022 2021
Balance at beginning of period $ 2,984,937  $ 2,191,578  $ 1,596,153 
Purchases of mortgage servicing rights
 317,194  640,051  777,305 
Sales of mortgage servicing rights (1)
(115,754) (259,059) (43,411)
Changes in fair value due to:
Changes in valuation inputs or assumptions used in the valuation model (2)
97,859  793,631  562,843 
Other changes in fair value (3)
(227,663) (371,023) (666,160)
Other changes (4)
(4,557) (10,241) (35,152)
Balance at end of period (5)
$ 3,052,016  $ 2,984,937  $ 2,191,578 
____________________
(1)During the year ended December 31, 2023, excess MSR was transferred to Agency-sponsored trusts in exchange for stripped mortgage backed securities, or SMBS. In each transaction, a portion of the SMBS was acquired by third parties and the Company acquired the remaining balance of those SMBS, which are included within Agency AFS securities unless sold prior to December 31, 2023.
(2)Includes the impact of acquiring MSR at a cost different from fair value.
(3)Primarily represents changes due to the realization of cash flows.
(4)Includes purchase price adjustments, contractual prepayment protection, and changes due to the Company’s purchase of the underlying collateral.
(5)Based on the principal balance of the loans underlying the MSR reported by servicers on a month lag, adjusted for current month purchases.

At December 31, 2023 and December 31, 2022, the Company pledged MSR with a carrying value of $3.0 billion and $3.0 billion, respectively, as collateral for repurchase agreements, revolving credit facilities and term notes payable. See Note 12 - Repurchase Agreements, Note 13 - Revolving Credit Facilities and Note 14 - Term Notes Payable.
As of December 31, 2023 and December 31, 2022, 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) December 31,
2023		 December 31,
2022
Weighted average prepayment speed: 6.2  % 6.9  %
Impact on fair value of 10% adverse change $ (74,042) $ (50,192)
Impact on fair value of 20% adverse change $ (146,237) $ (100,995)
Weighted average delinquency: 0.9  % 0.9  %
Impact on fair value of 10% adverse change $ (4,654) $ (3,880)
Impact on fair value of 20% adverse change $ (12,376) $ (7,777)
Weighted average option-adjusted spread: 5.3  % 5.3  %
Impact on fair value of 10% adverse change $ (59,285) $ (44,431)
Impact on fair value of 20% adverse change $ (119,776) $ (87,354)
Weighted average per loan annual cost to service: $ 68.27  $ 67.92 
Impact on fair value of 10% adverse change $ (24,111) $ (20,148)
Impact on fair value of 20% adverse change $ (48,985) $ (39,401)

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 agreements with its subservicers if the underlying loan is refinanced.
Mortgage Servicing Income
The following table presents the components of servicing income recorded on the Company’s consolidated statements of comprehensive loss for the years ended December 31, 2023, 2022 and 2021:
Year Ended
December 31,
(in thousands) 2023 2022 2021
Servicing fee income $ 555,221  $ 564,923  $ 461,381 
Ancillary and other fee income 5,149  1,932  2,436 
Float income 125,407  37,056  4,589 
Total $ 685,777  $ 603,911  $ 468,406 
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 $143.2 million and $119.0 million and were included in other assets on the consolidated balance sheets as of December 31, 2023 and December 31, 2022, respectively. At December 31, 2023 and December 31, 2022, mortgage loans in 60+ day delinquent status (whether or not subject to forbearance) accounted for approximately 0.7% and 0.8%, 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 December 31, 2023 and December 31, 2022, the Company had pledged servicing advances with a carrying value of $79.7 million and $67.8 million, respectively, as collateral for this revolving credit facility. See Note 13 - Revolving Credit Facilities.