Price | 10.84 | EPS | -4 | |
Shares | 33 | P/E | -3 | |
MCap | 354 | P/FCF | 1 | |
Net Debt | -317 | EBIT | -149 | |
TEV | 37 | TEV/EBIT | -0 | TTM 2018-06-30, in MM, except price, ratios |
10-Q | 2018-06-30 | Filed 2018-08-03 |
10-Q | 2018-03-31 | Filed 2018-05-09 |
10-K | 2017-12-31 | Filed 2018-03-01 |
10-Q | 2017-09-30 | Filed 2017-11-08 |
10-Q | 2017-06-30 | Filed 2017-08-09 |
10-Q | 2017-03-31 | Filed 2017-05-10 |
10-K | 2016-12-31 | Filed 2017-02-28 |
10-Q | 2016-09-30 | Filed 2016-11-09 |
10-Q | 2016-06-30 | Filed 2016-08-09 |
10-Q | 2016-03-31 | Filed 2016-05-05 |
10-K | 2015-12-31 | Filed 2016-02-26 |
10-Q | 2015-09-30 | Filed 2015-11-05 |
10-Q | 2015-06-30 | Filed 2015-08-06 |
10-Q | 2015-03-31 | Filed 2015-05-07 |
10-K | 2014-12-31 | Filed 2015-02-27 |
10-Q | 2014-09-30 | Filed 2014-11-05 |
10-Q | 2014-06-30 | Filed 2014-08-05 |
10-Q | 2014-03-31 | Filed 2014-05-08 |
10-K | 2013-12-31 | Filed 2014-02-26 |
10-Q | 2013-09-30 | Filed 2013-11-07 |
10-Q | 2013-06-30 | Filed 2013-08-01 |
10-Q | 2013-03-31 | Filed 2013-05-02 |
10-K | 2012-12-31 | Filed 2013-02-28 |
10-Q | 2012-09-30 | Filed 2012-11-08 |
10-Q | 2012-06-30 | Filed 2012-08-08 |
10-Q | 2012-03-31 | Filed 2012-05-02 |
10-K | 2011-12-31 | Filed 2012-02-28 |
10-Q | 2011-09-30 | Filed 2011-11-02 |
10-Q | 2011-06-30 | Filed 2011-07-29 |
10-Q | 2011-03-31 | Filed 2011-05-04 |
10-K | 2010-12-31 | Filed 2011-02-28 |
10-Q | 2010-09-30 | Filed 2010-11-03 |
10-Q | 2010-06-30 | Filed 2010-08-03 |
10-Q | 2010-03-31 | Filed 2010-04-30 |
10-K | 2009-12-31 | Filed 2010-03-01 |
8-K | 2018-10-04 | |
8-K | 2018-10-01 | |
8-K | 2018-09-28 | |
8-K | 2018-08-03 | |
8-K | 2018-06-11 | |
8-K | 2018-06-01 | |
8-K | 2018-05-24 | |
8-K | 2018-05-09 | |
8-K | 2018-05-08 | |
8-K | 2018-04-26 | |
8-K | 2018-02-27 | |
8-K | 2018-02-27 | |
8-K | 2018-01-25 | |
8-K | 2017-12-31 |
Part I - Financial Information |
Item 1. Financial Statements |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
Item 4. Controls and Procedures |
Part II - Other Information |
Item 1. Legal Proceedings |
Item 1A. Risk Factors |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
Item 3. Defaults Upon Senior Securities |
Item 4. Mine Safety Disclosures |
Item 5. Other Information |
Item 6. Exhibits |
EX-31.1 | phhex31120180630.htm |
EX-31.2 | phhex31220180630.htm |
EX-32.1 | phhex32120180630.htm |
EX-32.2 | phhex32220180630.htm |
Balance Sheet | Income Statement | Cash Flow |
---|---|---|
Assets, Equity
|
Rev, G Profit, Net Income
|
Ops, Inv, Fin
|
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
MARYLAND | 52-0551284 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) | |
3000 LEADENHALL ROAD | 08054 | |
MT. LAUREL, NEW JERSEY | (Zip Code) | |
(Address of principal executive offices) |
TABLE OF CONTENTS | ||
Page | ||
▪ | our expectations related to our strategic actions, their outcomes or the timing of any such actions, including our proposed Merger with Ocwen Financial Corporation ("Ocwen"), our estimates of transaction proceeds, operating losses and exit costs, the amount, timing and our expected use of any proceeds, and any other anticipated impacts on our results, client and counterparty relationships, debt arrangements, employee relations or expected value to shareholders; |
▪ | our projected financial results and expected capital structure for the remaining business after executing our strategic actions based on our assessment of the market for subservicing and portfolio retention services, our business strategy, our competitive position and our ability to execute; |
▪ | the method, amounts and timing of any capital returns to shareholders; |
▪ | the potential results of our subservicing business development efforts and actions to improve portfolio retention results; |
▪ | anticipated future origination volumes and loan margins in the mortgage industry; |
▪ | our expectations of the impacts of regulatory changes on our business; |
▪ | our assessment of legal and regulatory proceedings, other contingencies and reserves, and the associated impact on our financial statements and liquidity position; and |
▪ | the impact of the adoption of recently issued accounting pronouncements on our financial statements. |
▪ | the effects of our strategic actions, and any associated transactions, on our business, management resources, customer, counterparty and employee relationships, capital structure and financial position; |
▪ | our ability to execute and complete our remaining strategic actions and implement changes to meet our operational and financial objectives, including (i) restructuring our shared services platform; (ii) achieving our growth objectives and assumptions and (iii) meeting all of the closing conditions and completing our proposed Merger with Ocwen; |
▪ | any failure to execute any portion of the sales of private MSRs under our existing agreements, or realize estimated proceeds from the transactions, which may be driven by the following reasons, among other factors: (i) not receiving required private loan investor, trustees and/or client (originations source) approvals; (ii) changes in the composition of the portfolio and related servicing advances outstanding on each sale date; and (iii) not meeting any other conditions precedent to closing, as defined in the respective agreements; |
▪ | available excess cash from our strategic actions is dependent upon a variety of factors, including the execution of the sale of our private MSRs, the resolution of our outstanding legal and regulatory matters and the successful completion of other restructuring and capital management activities, including any unsecured debt repayments, in accordance with our assumptions; |
▪ | the effects of any significant reduction in subservicing units, whether by termination of our subservicing agreements or by transfers of units out of our portfolio, by any of our largest subservicing clients on a material portion of our subservicing portfolio; |
▪ | the ability to maintain our relationships with our existing clients, including our ability to comply with the terms of our private label and subservicing client agreements and any related service level agreements; |
▪ | the inability or unwillingness of any of the counterparties to our significant customer contracts, hedging agreements, or financing arrangements to perform their respective obligations under such contracts, or to renew on terms favorable to us, if at all; |
▪ | the effects of market volatility or macroeconomic changes and financial market regulations on the availability and cost of our financing arrangements, the value of our assets and the housing market; |
▪ | the effects of changes in current interest rates on our business, the value of our mortgage servicing rights and our financing costs; |
▪ | the impact of changes in U.S. financial conditions and fiscal and monetary policies, or any actions taken or to be taken by the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System on the credit markets and the U.S. economy; |
▪ | the effects of any significant adverse changes in the underwriting criteria or the existence or programs of government-sponsored entities, such as Fannie Mae and Freddie Mac, including any changes caused by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other actions of the federal government; |
▪ | the ability to maintain our status as a government sponsored entity-approved seller and servicer, including the ability to continue to comply with the respective selling and servicing guides, our ability to operationalize changes necessary to comply with updates to such guides and programs and our ability to maintain the required minimum capital; |
▪ | the effects of changes in, or our failure to comply with, laws and regulations, including mortgage- and real estate-related laws and regulations and those that we are exposed to through our private label relationships until the complete exit from this business channel; |
▪ | the effects of the outcome or resolutions of any inquiries, investigations or appeals related to our mortgage origination or servicing activities, any litigation related to our mortgage origination or servicing activities, or any related fines, penalties and increased costs, and the associated impact on our liquidity; |
▪ | the ability to obtain or renew financing on acceptable terms, if at all, to finance our mortgage loans held for sale and servicing advances; |
▪ | the ability to operate within the limitations imposed by our financing arrangements and to maintain or generate the amount of cash required to service our indebtedness and operate our business; |
▪ | any failure to comply with covenants or asset eligibility requirements under our financing arrangements; and |
▪ | the effects of any failure in or breach of our technology infrastructure, or those of our outsource providers, or any failure to implement changes to our information systems in a manner sufficient to comply with applicable laws, regulations and our contractual obligations. |
Item 1. Financial Statements |
June 30, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 453 | $ | 509 | |||
Restricted cash | 41 | 33 | |||||
Mortgage loans held for sale | 55 | 103 | |||||
Accounts receivable, net | 58 | 73 | |||||
Servicing advances, net | 302 | 356 | |||||
Mortgage servicing rights | 483 | 476 | |||||
Property and equipment, net | 18 | 22 | |||||
Other assets | 28 | 25 | |||||
Assets related to discontinued operations (Note 8) | 4 | 214 | |||||
Total assets (1) | $ | 1,442 | $ | 1,811 | |||
LIABILITIES | |||||||
Accounts payable and accrued expenses | $ | 67 | $ | 98 | |||
Subservicing advance liabilities | 194 | 232 | |||||
Mortgage servicing rights secured liability | 437 | 419 | |||||
Mortgage warehouse and advance facilities | 59 | 117 | |||||
Unsecured debt, net | 118 | 118 | |||||
Loan repurchase and indemnification liability | 27 | 29 | |||||
Other liabilities | 42 | 46 | |||||
Liabilities related to discontinued operations (Note 8) | 9 | 199 | |||||
Total liabilities (1) | 953 | 1,258 | |||||
Commitments and contingencies (Note 11) | |||||||
EQUITY | |||||||
Preferred stock, $0.01 par value; 1,090,000 shares authorized; none issued or outstanding | — | — | |||||
Common stock, $0.01 par value; 273,910,000 shares authorized; 32,577,256 shares issued and outstanding at June 30, 2018; 32,547,258 shares issued and outstanding at December 31, 2017 | — | — | |||||
Additional paid-in capital | 566 | 565 | |||||
Retained deficit | (68 | ) | (3 | ) | |||
Accumulated other comprehensive loss (2) | (9 | ) | (9 | ) | |||
Total PHH Corporation stockholders’ equity | 489 | 553 | |||||
Total liabilities and equity | $ | 1,442 | $ | 1,811 |
(1) | The Condensed Consolidated Balance Sheets include assets and liabilities of variable interest entities which can be used only to settle the obligations and liabilities of the variable interest entities which creditors or beneficial interest holders do not have recourse to PHH Corporation and subsidiaries. Refer to Note 12, 'Variable Interest Entities' for information about PHH Home Loans, LLC, whose assets and liabilities are part of the Company's discontinued operations, and as of June 30, 2018 is no longer a variable interest entity. The following assets and liabilities relate solely to risks associated with the Company's ongoing involvement in Servicing Advance Receivables Trust: |
June 30, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Restricted cash | $ | 10 | $ | 10 | |||
Servicing advances, net | 46 | 56 | |||||
Total assets | $ | 56 | $ | 66 | |||
Assets held as collateral | $ | 56 | $ | 66 | |||
LIABILITIES | |||||||
Mortgage warehouse and advance facilities | $ | 20 | $ | 32 | |||
Total liabilities | $ | 20 | $ | 32 |
(2) | Includes amounts recorded related to the Company’s defined benefit pension plan, net of income tax benefits of $6 million as of both June 30, 2018 and December 31, 2017. During both the three and six months ended June 30, 2018 and June 30, 2017, there were no amounts reclassified out of Accumulated other comprehensive loss. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
REVENUES | |||||||||||||||
Loan servicing income, net | $ | 40 | $ | 28 | $ | 83 | $ | 61 | |||||||
Gain on loans held for sale, net | 5 | 9 | 10 | 21 | |||||||||||
Origination and other loan fees | 1 | — | 2 | 1 | |||||||||||
Net interest expense | (11 | ) | (6 | ) | (25 | ) | (14 | ) | |||||||
Other income | — | — | 15 | 2 | |||||||||||
Total net revenues | 35 | 31 | 85 | 71 | |||||||||||
EXPENSES | |||||||||||||||
Salaries and related expenses | 28 | 36 | 60 | 72 | |||||||||||
Foreclosure and repossession expenses | 3 | 5 | 6 | 12 | |||||||||||
Professional and third-party service fees | 16 | 22 | 34 | 53 | |||||||||||
Technology equipment and software expenses | 7 | 7 | 14 | 14 | |||||||||||
Occupancy and other office expenses | 6 | 6 | 12 | 11 | |||||||||||
Depreciation and amortization | 2 | 3 | 5 | 7 | |||||||||||
Exit and disposal costs | — | 4 | — | 13 | |||||||||||
Other operating expenses | 9 | 23 | 16 | 41 | |||||||||||
Total expenses | 71 | 106 | 147 | 223 | |||||||||||
Loss from continuing operations before income taxes | (36 | ) | (75 | ) | (62 | ) | (152 | ) | |||||||
Income tax expense (benefit) | 1 | (33 | ) | 1 | (57 | ) | |||||||||
Loss from continuing operations, net of tax | (37 | ) | (42 | ) | (63 | ) | (95 | ) | |||||||
Income (loss) from discontinued operations, net of tax | 2 | (8 | ) | (2 | ) | (26 | ) | ||||||||
Net loss | (35 | ) | (50 | ) | (65 | ) | (121 | ) | |||||||
Less: net loss attributable to noncontrolling interest from discontinued operations | — | (4 | ) | — | (8 | ) | |||||||||
Net loss attributable to PHH Corporation | $ | (35 | ) | $ | (46 | ) | $ | (65 | ) | $ | (113 | ) | |||
Comprehensive loss attributable to PHH Corporation | $ | (35 | ) | $ | (46 | ) | $ | (65 | ) | $ | (113 | ) | |||
Basic and Diluted earnings (loss) per share: | |||||||||||||||
From continuing operations | $ | (1.11 | ) | $ | (0.78 | ) | $ | (1.92 | ) | $ | (1.77 | ) | |||
From discontinued operations | 0.04 | (0.08 | ) | (0.08 | ) | (0.34 | ) | ||||||||
Total attributable to PHH Corporation | $ | (1.07 | ) | $ | (0.86 | ) | $ | (2.00 | ) | $ | (2.11 | ) | |||
Weighted-average common shares outstanding: | |||||||||||||||
Basic and Diluted | 32,668,668 | 53,342,256 | 32,657,107 | 53,511,445 |
PHH Corporation Stockholders’ Equity | |||||||||||||||||||||||||||
Total Equity | Common Stock | Additional Paid-In Capital | Retained (Deficit) Earnings | Accumulated Other Comprehensive Loss | Redeemable Noncontrolling Interest | ||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||
Six Months Ended June 30, 2018 | |||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | 553 | 32,547,258 | $ | — | $ | 565 | $ | (3 | ) | $ | (9 | ) | $ | — | ||||||||||||
Total comprehensive loss | (65 | ) | — | — | — | (65 | ) | — | — | ||||||||||||||||||
Stock compensation expense | 1 | — | — | 1 | — | — | — | ||||||||||||||||||||
Stock issued under share-based payment plans | — | 29,998 | — | — | — | — | — | ||||||||||||||||||||
Balance at June 30, 2018 | $ | 489 | 32,577,256 | $ | — | $ | 566 | $ | (68 | ) | $ | (9 | ) | $ | — | ||||||||||||
Six Months Ended June 30, 2017 | |||||||||||||||||||||||||||
Balance at December 31, 2016 | $ | 1,090 | 53,599,433 | $ | 1 | $ | 885 | $ | 214 | $ | (10 | ) | $ | 33 | |||||||||||||
Total comprehensive loss | (113 | ) | — | — | — | (113 | ) | — | (8 | ) | |||||||||||||||||
Adjustment to redemption value of noncontrolling interest | (7 | ) | — | — | (7 | ) | — | — | 7 | ||||||||||||||||||
Stock compensation expense | 5 | — | — | 5 | — | — | — | ||||||||||||||||||||
Reclassification of stock awards | (4 | ) | — | — | (4 | ) | — | — | — | ||||||||||||||||||
Stock issued under share-based payment plans | (1 | ) | 110,550 | — | (1 | ) | — | — | — | ||||||||||||||||||
Repurchase of Common stock | (24 | ) | (1,760,964 | ) | — | (24 | ) | — | — | — | |||||||||||||||||
Balance at June 30, 2017 | $ | 946 | 51,949,019 | $ | 1 | $ | 854 | $ | 101 | $ | (10 | ) | $ | 32 |
Six Months Ended June 30, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (65 | ) | $ | (121 | ) | |
Adjustments to reconcile Net loss to net cash provided by operating activities: | |||||||
Capitalization of originated mortgage servicing rights | (3 | ) | (18 | ) | |||
Change in fair value of mortgage servicing rights and related derivatives | (13 | ) | 58 | ||||
Change in fair value of mortgage servicing rights secured liability | 18 | 1 | |||||
Origination of mortgage loans held for sale | (417 | ) | (3,791 | ) | |||
Proceeds on sale of and payments from mortgage loans held for sale | 646 | 3,977 | |||||
Net gain on interest rate lock commitments, mortgage loans held for sale and related derivatives | (13 | ) | (121 | ) | |||
Depreciation and amortization | 5 | 7 | |||||
Deferred income tax benefit | — | (90 | ) | ||||
Other adjustments and changes in other assets and liabilities, net | (50 | ) | 148 | ||||
Net cash provided by operating activities | 108 | 50 | |||||
Cash flows from investing activities: | |||||||
Net cash paid on derivatives related to mortgage servicing rights | — | (45 | ) | ||||
Proceeds on sale of mortgage servicing rights | 9 | 91 | |||||
Proceeds on sale of servicing advances | — | 11 | |||||
Purchases of property and equipment | (2 | ) | — | ||||
Net cash provided by investing activities | 7 | 57 | |||||
Cash flows from financing activities: | |||||||
Proceeds from secured borrowings | 722 | 4,463 | |||||
Principal payments on secured borrowings | (914 | ) | (4,533 | ) | |||
Proceeds from mortgage servicing rights secured liability | 8 | 102 | |||||
Repurchase of common stock | — | (24 | ) | ||||
Cash used to acquire mandatorily redeemable noncontrolling interest | (19 | ) | — | ||||
Other, net | — | (2 | ) | ||||
Net cash (used in) provided by financing activities | (203 | ) | 6 | ||||
Net (decrease) increase in Cash, cash equivalents and restricted cash | (88 | ) | 113 | ||||
Cash, cash equivalents and restricted cash at beginning of period | 583 | 963 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 495 | $ | 1,076 | |||
Cash, cash equivalents and restricted cash at end of period - continuing operations | $ | 494 | $ | 1,000 | |||
Cash, cash equivalents and restricted cash at end of period - discontinued operations | $ | 1 | $ | 76 |
1. Summary of Significant Accounting Policies |
June 30, | |||||||
2018 | 2017 | ||||||
(In millions) | |||||||
Cash and cash equivalents | $ | 453 | $ | 940 | |||
Restricted cash (1) | 41 | 60 | |||||
Assets related to discontinued operations | 1 | 76 | |||||
Total Cash, cash equivalents and restricted cash | $ | 495 | $ | 1,076 |
(1) | Represents amounts specifically designated to repay debt, provide additional collateral to support certain obligations with Fannie Mae, to provide over-collateralization within warehouse facilities and the servicing advance facility and to support letters of credit. |
Accounting Standard Update | |
ASU 2017-09 | Stock Compensation: Scope of Modification Accounting |
ASU 2017-07 | Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost |
ASU 2017-05 | Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets |
ASU 2017-01 | Business Combinations: Clarifying the Definition of a Business |
ASU 2016-15 | Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments |
ASU 2016-01 | Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities |
2. Earnings Per Share |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(In millions, except share and per share data) | |||||||||||||||
Loss from continuing operations, net of tax | $ | (37 | ) | $ | (42 | ) | $ | (63 | ) | $ | (95 | ) | |||
Income (loss) from discontinued operations attributable to PHH Corporation, net of tax | 2 | (4 | ) | (2 | ) | (18 | ) | ||||||||
Net loss attributable to PHH Corporation | $ | (35 | ) | $ | (46 | ) | $ | (65 | ) | $ | (113 | ) | |||
Weighted-average common shares outstanding—basic & diluted (1) (2) | 32,668,668 | 53,342,256 | 32,657,107 | 53,511,445 | |||||||||||
Basic and Diluted earnings (loss) per share: | |||||||||||||||
From continuing operations | $ | (1.11 | ) | $ | (0.78 | ) | $ | (1.92 | ) | $ | (1.77 | ) | |||
From discontinued operations | 0.04 | (0.08 | ) | (0.08 | ) | (0.34 | ) | ||||||||
Total attributable to PHH Corporation | $ | (1.07 | ) | $ | (0.86 | ) | $ | (2.00 | ) | $ | (2.11 | ) | |||
Anti-dilutive securities excluded from the computation of diluted shares: | |||||||||||||||
Outstanding stock-based compensation awards (3) | 224,448 | 1,098,464 | 224,448 | 1,098,464 |
(1) | For the three and six months ended June 30, 2017, includes the reduction of 1,760,964 shares repurchased pursuant to an open market repurchase program during May 2017 and June 2017. |
(2) | For the three months ended June 30, 2018, the Company had a net loss from continuing operations and, as a result, there were no potentially dilutive securities included in the denominator for computing dilutive earnings per share. |
(3) | For the three and six months ended June 30, 2018, excludes 62,201 shares that are contingently issuable for which the contingency has not been met. |
3. Revenues |
Three Months Ended June 30, 2018 | |||||||||||||||||||
Mortgage Servicing Segment | Mortgage Production Segment | ||||||||||||||||||
Subservicing | Owned Servicing | Portfolio Retention | Total Continuing Operations | Discontinued Operations | |||||||||||||||
(In millions) | |||||||||||||||||||
Loan servicing income | $ | 26 | $ | 18 | $ | — | $ | 44 | $ | — | |||||||||
Changes in fair value of MSRs and secured liability | — | (4 | ) | — | (4 | ) | — | ||||||||||||
Origination and other loan fees | — | — | 1 | 1 | — | ||||||||||||||
Gain on loans held for sale, net | — | — | 5 | 5 | 1 | ||||||||||||||
Net interest expense | — | (11 | ) | — | (11 | ) | — | ||||||||||||
Other income | — | — | — | — | 1 | ||||||||||||||
Total net revenues (1) | $ | 26 | $ | 3 | $ | 6 | $ | 35 | $ | 2 |
Six Months Ended June 30, 2018 | |||||||||||||||||||
Mortgage Servicing Segment | Mortgage Production Segment | ||||||||||||||||||
Subservicing | Owned Servicing | Portfolio Retention | Total Continuing Operations | Discontinued Operations | |||||||||||||||
(In millions) | |||||||||||||||||||
Loan servicing income | $ | 50 | $ | 38 | $ | — | $ | 88 | $ | — | |||||||||
Changes in fair value of MSRs and secured liability | — | (5 | ) | — | (5 | ) | — | ||||||||||||
Origination and other loan fees | — | — | 2 | 2 | 3 | ||||||||||||||
Gain on loans held for sale, net | — | — | 10 | 10 | 2 | ||||||||||||||
Net interest expense | — | (25 | ) | — | (25 | ) | — | ||||||||||||
Other income (2) | — | 15 | — | 15 | 4 | ||||||||||||||
Total net revenues (1) | $ | 50 | $ | 23 | $ | 12 | $ | 85 | $ | 9 |
(1) | During the three and six months ended June 30, 2018 discontinued operations includes $1 million and $5 million, respectively, of revenue that was accounted for under ASC 606 as discussed below. During both the three and six months ended June 30, 2018, Subservicing includes $2 million of revenue that was accounted for under ASC 606, which primarily related to certain ancillary fees associated with subservicing contracts that are recognized over the term of the contract. |
(2) | During the six months ended June 30, 2018, Other income within the Mortgage Servicing segment includes a $15 million gain related to a settlement with an insurance carrier for certain claims related to the Company's previously disclosed legal and regulatory settlements. Refer to Note 11, 'Commitments and Contingencies' for additional information. |
• | Origination and other loan fees. The Company provided origination and fulfillment services to PLS clients under Origination Assistance Agreements ("OAA") through March 31, 2018, and the origination assistance fees associated with fee-based closings under these agreements are subject to the new revenue standard. The services performed under the OAA represent a stand-ready obligation, and the Company has applied the practical expedient to recognize revenue in the amount it has the right to invoice, which occurs at the time the loan is originated and funded. The right to invoice practical expedient is consistent with the historical accounting treatment of origination assistance fees in prior periods. During the six months ended June 30, 2018, within revenues from discontinued operations, Origination and other loans fees includes $2 million of origination assistance fees that were accounted for under ASC 606. |
• | Other income. In connection with the exit of the PLS business, the Company is contractually required to provide certain transition support services to its clients, which includes the return of records and loan document images. The Company is entitled to certain transition support fees associated with these services, and the fees are recognized upon the transfer of control of the records and loan document images to the customer. During the three and six months ended June 30, 2018, within revenues from discontinued operations, Other income includes $1 million and $3 million, respectively, of transition support fees that were accounted for under ASC 606. |
4. Servicing Activities |
June 30, 2018 | December 31, 2017 | ||||||||||||||
Fair Value | UPB | Fair Value | UPB | ||||||||||||
(In millions) | |||||||||||||||
Capitalized MSRs owned | $ | 46 | $ | 7,121 | $ | 57 | $ | 8,592 | |||||||
Capitalized MSRs under secured borrowing arrangements and subserviced | 437 | 45,770 | 419 | 49,193 | |||||||||||
Total capitalized MSRs | $ | 483 | $ | 52,891 | $ | 476 | $ | 57,785 | |||||||
Subserviced | 75,810 | 89,844 | |||||||||||||
Other servicing | 323 | 526 | |||||||||||||
Total | $ | 129,024 | $ | 148,155 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(In millions) | |||||||||||||||
Servicing fees from capitalized portfolio | $ | 6 | $ | 48 | $ | 12 | $ | 102 | |||||||
Subservicing fees | 16 | 10 | 33 | 21 | |||||||||||
MSR yield on secured asset (1) | 13 | 1 | 27 | 1 | |||||||||||
Late fees and other ancillary revenue | 10 | 6 | 18 | 15 | |||||||||||
Loss on sale of MSRs and related costs | (1 | ) | (4 | ) | (1 | ) | (13 | ) | |||||||
Curtailment interest paid to investors | — | (3 | ) | (1 | ) | (6 | ) | ||||||||
Loan servicing income | 44 | 58 | 88 | 120 | |||||||||||
Change in fair value of MSRs, net of related derivatives (2) | (10 | ) | (29 | ) | 13 | (58 | ) | ||||||||
Change in fair value of MSRs secured liability | 6 | (1 | ) | (18 | ) | (1 | ) | ||||||||
Loan servicing income, net | $ | 40 | $ | 28 | $ | 83 | $ | 61 |
(1) | Amounts are related to the secured borrowing treatment of the MSR sales to New Residential. The income from the MSR yield on secured asset is fully offset by the implied interest cost recognized on the MSRs secured liability within Net interest expense. Refer to Note 9, 'Debt and Borrowing Arrangements' for additional information on the components of Net interest expense. |
(2) | There was no MSR derivative activity during the three and six months ended June 30, 2018. MSR derivative gains during the three and six months ended June 30, 2017 were not significant. |
Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
MSRs Owned | MSRs Secured Asset | ||||||||||||||
(In millions) | |||||||||||||||
Balance, beginning of period | $ | 8,592 | $ | 84,657 | $ | 49,193 | $ | — | |||||||
Additions from loans sold with servicing retained | 871 | 1,605 | — | — | |||||||||||
Payoffs and curtailments | (744 | ) | (6,649 | ) | (4,027 | ) | (80 | ) | |||||||
Sales that have been derecognized | (994 | ) | (12,516 | ) | — | — | |||||||||
Sales accounted for as secured borrowing | (604 | ) | (13,164 | ) | 604 | 13,164 | |||||||||
Balance, end of period | $ | 7,121 | $ | 53,933 | $ | 45,770 | $ | 13,084 |
Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
MSRs Owned | MSRs Secured Asset | ||||||||||||||
(In millions) | |||||||||||||||
Balance, beginning of period | $ | 57 | $ | 690 | $ | 419 | $ | — | |||||||
Additions from loans sold with servicing retained | 3 | 18 | — | — | |||||||||||
Sales that have been derecognized | (9 | ) | (95 | ) | — | — | |||||||||
Sales accounted for as secured borrowing | — | (113 | ) | — | 113 | ||||||||||
Changes in fair value due to: | |||||||||||||||
Realization of expected cash flows | (4 | ) | (53 | ) | (37 | ) | — | ||||||||
Changes in market inputs or assumptions used in the valuation model | (1 | ) | (6 | ) | 55 | 1 | |||||||||
Balance, end of period | $ | 46 | $ | 441 | $ | 437 | $ | 114 |
June 30, 2018 | |||||||
UPB | Fair Value | ||||||
(In millions) | |||||||
MSR commitments: | |||||||
New Residential | $ | 5,257 | $ | 30 | |||
Other counterparties | 14 | — | |||||
MSRs capitalized under secured borrowing arrangements and subserviced | 45,770 | 437 | |||||
Non-committed | 1,850 | 16 | |||||
Total MSRs | $ | 52,891 | $ | 483 |
Six Months Ended June 30, | |||||||
2018 | 2017 | ||||||
(In millions) | |||||||
Proceeds from new loan sales or securitizations | $ | 584 | $ | 1,651 | |||
Servicing fees from capitalized portfolio (1) | 29 | 104 | |||||
Purchases of previously sold loans (2) | (2 | ) | (15 | ) | |||
Servicing advances (3) | (244 | ) | (627 | ) | |||
Repayment of servicing advances (3) | 301 | 782 |
(1) | Includes servicing fees, late fees and other ancillary servicing revenue in which the Company has continuing involvement. |
(2) | Includes purchases of repurchase eligible loans and excludes indemnification payments to investors and insurers of the related mortgage loans. |
(3) | Outstanding servicing advance receivables are presented in Servicing advances, net in the Condensed Consolidated Balance Sheets, except for advances related to loans in foreclosure or real estate owned, which are included in Other assets. During the six months ended June 30, 2018, repayment of servicing advances for advances associated with sales of MSRs were not significant. During the six months ended June 30, 2017, repayment of servicing advances included $21 million received for advances associated with sales of MSRs. |
5. Derivatives |
June 30, 2018 | December 31, 2017 | ||||||
(In millions) | |||||||
Interest rate lock commitments | $ | 51 | $ | 139 | |||
Forward delivery commitments | 126 | 614 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(In millions) | |||||||||||||||
Gain on loans held for sale, net: | |||||||||||||||
Interest rate lock commitments | $ | 4 | $ | 7 | $ | 7 | $ | 19 | |||||||
Forward delivery commitments | — | (1 | ) | 5 | (2 | ) |
6. Fair Value Measurements |
June 30, 2018 | |||||||||||||||||||
Level One | Level Two | Level Three | Cash Collateral and Netting | Total | |||||||||||||||
(In millions) | |||||||||||||||||||
ASSETS | |||||||||||||||||||
Mortgage loans held for sale | $ | — | $ | 50 | $ | 5 | $ | — | $ | 55 | |||||||||
Mortgage servicing rights | — | — | 483 | — | 483 | ||||||||||||||
Other assets—Derivative assets: | |||||||||||||||||||
Interest rate lock commitments | — | — | 2 | — | 2 | ||||||||||||||
Assets related to discontinued operations | — | 3 | — | — | 3 | ||||||||||||||
LIABILITIES | |||||||||||||||||||
Mortgage servicing rights secured liability | $ | — | $ | — | $ | 437 | $ | — | $ | 437 | |||||||||
Other liabilities: | |||||||||||||||||||
Liability to deliver MSRs | — | — | 1 | — | 1 |
December 31, 2017 | |||||||||||||||||||
Level One | Level Two | Level Three | Cash Collateral and Netting | Total | |||||||||||||||
(In millions) | |||||||||||||||||||
ASSETS | |||||||||||||||||||
Mortgage loans held for sale | $ | — | $ | 94 | $ | 9 | $ | — | $ | 103 | |||||||||
Mortgage servicing rights | — | — | 476 | — | 476 | ||||||||||||||
Other assets—Derivative assets: | |||||||||||||||||||
Interest rate lock commitments | — | — | 4 | — | 4 | ||||||||||||||
Assets related to discontinued operations | — | 167 | 1 | — | 168 | ||||||||||||||
LIABILITIES | |||||||||||||||||||
Mortgage servicing rights secured liability | $ | — | $ | — | $ | 419 | $ | — | $ | 419 | |||||||||
Other liabilities: | |||||||||||||||||||
Liability to deliver MSRs | — | — | 2 | — | 2 |
June 30, 2018 | December 31, 2017 | ||||||||||||||
Total | Loans 90 days or more past due and on non-accrual status | Total | Loans 90 days or more past due and on non-accrual status | ||||||||||||
(In millions) | |||||||||||||||
Carrying amount | $ | 55 | $ | 1 | $ | 103 | $ | 1 | |||||||
Aggregate unpaid principal balance | 55 | 1 | 103 | 2 | |||||||||||
Difference | $ | — | $ | — | $ | — | $ | (1 | ) |
Six Months Ended June 30, | |||||
2018 | 2017 | ||||
Initial capitalization rate of additions to MSRs owned | 1.12 | % | 1.14 | % |
June 30, 2018 | December 31, 2017 | ||||
MSRs Owned | |||||
Capitalization servicing rate | 0.65 | % | 0.67 | % | |
Capitalization servicing multiple | 2.2 | 2.3 | |||
Weighted-average servicing fee (in basis points) | 29 | 29 | |||
Weighted-average life (years) | 4.7 | 5.7 |
June 30, 2018 | December 31, 2017 | ||||
MSRs Under Secured Borrowing Arrangement | |||||
Capitalization servicing rate | 0.95 | % | 0.85 | % | |
Capitalization servicing multiple | 3.6 | 3.2 | |||
Weighted-average servicing fee (in basis points) | 27 | 27 | |||
Weighted-average life (years) | 5.9 | 5.6 |
June 30, 2018 | December 31, 2017 | ||||
MSRs Owned | |||||
Weighted-average prepayment speed (CPR) | 13.2 | % | 9.2 | % | |
Option adjusted spread, in basis points (OAS) | 736 | 393 | |||
Weighted-average delinquency rate | 11.8 | % | 12.4 | % |
June 30, 2018 | December 31, 2017 | ||||
MSRs Under Secured Borrowing Arrangement | |||||
Weighted-average prepayment speed (CPR) | 9.9 | % | 11.2 | % | |
Option adjusted spread, in basis points (OAS) | 861 | 928 | |||
Weighted-average delinquency rate | 4.0 | % | 4.0 | % |
June 30, 2018 | |||||||||||
Weighted- Average Prepayment Speed | Option Adjusted Spread | Weighted- Average Delinquency Rate | |||||||||
(In millions) | |||||||||||
MSRs Owned | |||||||||||
Impact on fair value of 10% adverse change | $ | (3 | ) | $ | (1 | ) | $ | (2 | ) | ||
Impact on fair value of 20% adverse change | (5 | ) | (2 | ) | (5 | ) | |||||
MSRs Under Secured Borrowing Arrangement | |||||||||||
Impact on fair value of 10% adverse change | $ | (15 | ) | $ | (18 | ) | $ | (5 | ) | ||
Impact on fair value of 20% adverse change | (29 | ) | (35 | ) | (9 | ) |
June 30, 2018 | December 31, 2017 | ||||
Weighted-average prepayment speed (CPR) | 9.9 | % | 11.2 | % | |
Option adjusted spread, in basis points (OAS) | 861 | 928 | |||
Weighted-average delinquency rate | 4.0 | % | 4.0 | % |