Business Context and Reporting Period
This Form 8-K was filed by New Residential Investment Corp. on January 18, 2018. The filing details the entry into a Material Definitive Agreement with Ocwen Financial Corporation regarding the conversion of mortgage servicing rights (MSRs). The transaction involves approximately $86.8 billion in unpaid principal balance of loans as of January 1, 2018.
Key Financial Metrics
- Fee Restructuring Payment: Holdings (a subsidiary of New Residential) agreed to make a lump-sum payment of $279.6 million to Ocwen on the date of the agreement.
- Loan Portfolio Size: The Subject MSRs relate to loans with an unpaid principal balance of approximately $86.8 billion.
- Compensation Structure: Ocwen will receive substantially identical compensation for servicing the loans under the new arrangement as it would have received if the MSRs had been fully transferred to New Residential with Ocwen acting as subservicer.
Material Changes Versus Prior Period
The filing describes new agreements entered on January 18, 2018, which modify and supplement arrangements originally established in July 2017. The primary change is the acceleration of the implementation of the MSR conversion process. While the July 2017 agreements required third-party consents before transferring MSRs and making lump-sum payments, the new agreements allow for an immediate $279.6 million payment to Ocwen while the transfer process continues. Additionally, New Residential waived its right to replace Ocwen as the named servicer based on rating agency downgrades.
Guidance, Outlook, and Risks
Management Commentary and Outlook: The new agreements are designed to achieve the intent of the July 2017 agreements sooner. Ocwen will continue to service the loans until third-party consents are obtained for the full transfer of MSRs to New Residential.
Contingencies and Risks:
- Consent Failure: If required third-party consents are not obtained by specified dates, the Rights to MSRs may remain under the new agreement, be acquired by Ocwen at a determined price, or be sold to a third party.
- Termination Rights: Holdings may terminate the Servicing Addendum for convenience during the initial five-year term (subject to a termination fee). Following the initial term, the agreement may be extended in three-month increments or terminated annually by Ocwen.
- Rating Downgrades: New Residential has waived the right to replace Ocwen as servicer due to residential servicer rating agency downgrades.
Important Facts for Investor Verification
- Verify the exact timing and conditions for the $279.6 million Fee Restructuring Payment.
- Confirm the status of third-party consents required to transfer the $86.8 billion portfolio of MSRs.
- Review the specific terms regarding the termination fee if Holdings exercises its right to terminate the Servicing Addendum for convenience.
- Assess the impact of the waiver regarding Ocwen's rating agency downgrades on future servicing stability.