ONITY GROUP INC. (ONIT) FY 2022 MD&A

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions, except per share amounts and unless otherwise indicated)

The Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-K generally discusses 2022 and 2021 items and provides year-to-year comparisons between 2022 and 2021. Discussions of year-to-year comparisons between 2021 and 2020 are not included in this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25, 2022.

OVERVIEW

We are a leading non-bank mortgage servicer and originator providing solutions through our primary brands, PHH Mortgage and Liberty Reverse Mortgage. PHH Mortgage is one of the largest servicers in the country, focused on delivering a variety of servicing and lending programs. Liberty is one of the nation’s largest reverse mortgage lenders dedicated to education and providing loans that help customers meet their personal and financial needs. We serviced 1.4 million loans with a total UPB of $289.8 billion on behalf of more than 3,800 investors and 114 subservicing clients as of December 31, 2022. We service all mortgage loan classes, including conventional, government-insured, non-Agency, small-balance commercial and multi-family loans. Our Originations business is part of our balanced business model to generate gains on loan sales and profitable returns, and to support the replenishment and the growth of our servicing portfolio. Through our retail, correspondent and wholesale channels, we originate and purchase conventional and government-insured forward and reverse mortgage loans that we sell or securitize on a servicing retained basis. In addition, we grow our mortgage servicing volume through MSR flow purchase agreements, Agency Cash Window and co-issue programs, bulk MSR purchase transactions, and subservicing agreements.

The table below summarizes the volume of Originations by channel during 2022, compared with the volume of the prior years. The volume of Originations is a key driver of the profitability of our Originations segment, together with margins, and a

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key driver of the replenishment and growth of our Servicing segment. In 2022, we added $88.8 billion of new volume, with $4.3 billion MSR bulk acquisitions, $54.8 billion of new subservicing and $29.5 billion of non-bulk Originations volume, as further detailed in the below table.

(1)Represents the UPB of loans that have been originated or purchased (funded) during the respective periods and for which we recognize a new MSR on our consolidated balance sheets upon sale or securitization.

(2)Represents the UPB of loans for which the MSR is purchased.

(3)Represents the UPB of reverse mortgage loans that have been securitized on a servicing retained basis. The loans are recognized on our consolidated balance sheets under GAAP without any separate recognition of MSRs.

(4)Includes interim subservicing, including the volume of UPB associated with short-term interim subservicing for certain clients as a support to their originate-to-sell business.

(5)Bulk purchases during 2022 include 12,931 loans with a UPB of $4.1 billion for which PMC was previously performing the subservicing that were purchased from third parties.

Subservicing additions for 2022 and 2021 include reverse mortgage loan subservicing and new subservicing on behalf of MAV:

•On October 1, 2021, in connection with the transaction with MAM (RMS), PMC became the subservicer for approximately 57,000 reverse mortgages, or approximately $14.3 billion in UPB pursuant to subservicing agreements with various clients, including MAM (RMS). Under the five-year subservicing agreement with MAM (RMS), we added subservicing of approximately 59,000 reverse mortgage loans or approximately $13.2 billion in UPB in 2022.

•In the second quarter of 2021, we launched MAV, our joint venture MSR investment with Oaktree for which PMC is the subservicer. MAV purchased approximately $21.0 billion and $9.4 billion GSE MSRs from unrelated third parties that transferred onto the PMC servicing system in 2022 and 2021, respectively.

The following table summarizes the average volume of our Servicing segment in 2022, compared with prior years. The average volume of Servicing is a key driver of the profitability of our Servicing segment. The relative weight of performing and delinquent loans or servicing and subservicing also drive the gross revenue and expenses, and their timing. In 2022, our total average servicing portfolio increased by $4.6 billion, net of runoff, with subservicing growth generated from our MSR investment joint venture with Oaktree through MAV and our reverse subservicing acquisition from MAM (RMS). The year 2021 established the foundation of a transformed servicing portfolio, with the significant addition of a high credit quality GSE MSR portfolio and the continued reduction of our non-Agency servicing through runoff, also reducing our concentration with Rithm servicing agreements.

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As of December 31, 2022 and 2021, the total serviced and subserviced UPB amounted to $289.8 billion and $268.0 billion, respectively, a net increase of $21.8 billion or 8%.

Financial Highlights

Results of operations for 2022

•Net income of $26 million, or $2.97 per share basic and $2.85 per share diluted

•Servicing and subservicing fee revenue of $863 million

•Originations gain on sale of $53 million

•$129 million MSR valuation gain in Servicing attributable to rate and assumption changes, net of hedging

Financial condition at the end of the year

•Stockholders’ equity of $457 million, or $60.68 book value per common share

•MSR investment of $2.7 billion, up $415 million, and $60.9 billion increase in the average serviced and subserviced UPB for the year

•Cash position of $208 million

•Total assets of $12.4 billion

Business Initiatives

We established the following key operating objectives to return to sustainable profitability and drive improved value for shareholders in 2022. As our near-term priority remains to return to sustainable profitability, we continue to execute our strategy around these objectives:

•Leveraging the core strengths of our balanced and diversified business model through a continued focus on servicing and maintaining agility to address a potential recession;

•Driving prudent growth adapted for the environment, including emphasis on subservicing to drive servicing portfolio UPB growth and expansion of higher margin originations products and clients;

•Reducing cost structure across the organization to achieve industry cost leadership by maintaining continuous cost improvement discipline and optimizing technology, global operations, and scale;

•Optimizing liquidity, diversifying capital sources, including leveraging our MSR asset vehicle with Oaktree and expanding multi-investor partnership model to fund new MSR originations, repositioning for higher rates and allocating capital to deliver value for shareholders.

In 2022, market interest rates rose faster and higher than the industry consensus at the beginning of the year, reducing production volumes and Originations profitability more than expected. To achieve our profitability goals, we have responded to the market shift by rapidly scaling down our operations in 2022 and continue to reduce our expenses. We have also accelerated our goals relating to business process rationalization and optimization, including further off-shoring of operations, enterprise-wide.

Our growth strategy includes acquiring assets and/or operations of complementary businesses, by means of acquisition, merger or other transaction forms. Our strategy may also include pursuing large transactions, including bulk purchases or sales of MSRs. We have engaged in such transactions in the past, and we continue to explore opportunities that may be accretive to our business and stockholders’ value.

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Results of Operations and Financial Condition

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our audited consolidated financial statements and the related notes thereto appearing elsewhere in this Annual Report on Form 10-K.

Ocwen reported $25.7 million net income in 2022, up 42%, as compared to $18.1 million net income in 2021, as a result of the following:

•A $77.4 million increase in Servicing income before income taxes, primarily due to the increase in servicing and subservicing volume, cost reductions and fair value gains on the MSR portfolio, net of hedging, driven by increasing interest rates; and

•A $38.8 million decrease in Corporate loss before income taxes, primarily due to cost reductions of the Corporate functions and recoveries of prior year legal expenses due to favorable settlements; partially offset by

•An $86.9 million decrease in Originations income before income taxes, primarily due to lower Originations volume and margins, driven by the higher interest rate environment, partially offset by headcount and cost reductions; and

•A $21.6 million decrease in income tax benefit, primarily due to $12.6 million benefits recognized in 2021 in connection with the CARES Act.

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Total Revenue

The below table presents total revenue by segment:

(1)The fair value change of inter-segment economic hedge derivatives reported within Total revenue (Gain on loans held for sale, net) is eliminated at the consolidated level with an offset in MSR valuation adjustments, net.

Total segment revenue for 2022 was $105.7 million, or 10%, lower as compared to 2021 due to a $108.8 million decrease in Originations revenue partially offset by a $2.3 million net increase in Servicing revenue.

•The decrease in Originations revenue is driven by the challenging origination market environment in 2022 with interest rate hikes at a historic pace that contrasted with favorable market conditions in 2021 due to historically low interest rates. As a result, the high volume of refinance activity dropped precipitously in 2022 and the competition on pricing further distressed margin levels. Similar to the industry trend, our Originations business faced a significant decrease in volumes and margins across all products (reverse and forward). We reported a $77.7 million decrease in Gain on loans held for sale, net in Consumer Direct, a $20.8 million decrease in Gain on reverse loans held for investment and HMBS-related borrowings, net and a decline in fees due to lower origination volume.

•The net increase in Servicing revenue includes an $87.0 million increase in servicing and subservicing fees due to our continued portfolio growth, including the launch of MAV and the acquisition of reverse subservicing from MAM (RMS). The increase in fees was largely offset by a $61.7 million decline in Gain on loans held for sale (forward) and a $22.8 million decline in Gain on reverse loans held for investment and HMBS-related borrowings, net due to higher unrealized fair value losses on the HECM loan portfolio, net attributable to lower margins resulting from the increase in interest rates and the widening of yield spreads. The decline in Gain on loans held for sale (forward) is driven by lower redelivery gains and losses on repurchased loans in connection with Ginnie Mae loan modifications and EBO program and a $27.1 million gain on sale of loans acquired through the exercise of non-Agency call rights recorded in 2021.

MSR Valuation Adjustments, Net

The table below presents the key components of MSR valuation adjustments, net:

(1)Includes $15.7 million, $25.3 million and $(17.4) million for 2022, 2021 and 2020, respectively of inter-segment derivative fair value gains (losses) reported within Total revenue and eliminated at the consolidated level - also see Revenue table above.

(2)Refer to Change in Presentation - Consolidated Statements of Operations in Note 1 to the consolidated financial statements

MSR valuation adjustments, net includes the loss on the MSR portfolio associated with the realization of its expected cash flows, or runoff, due to the passage of time, and any fair value gains or losses due to inputs, market interest rates or assumptions, net of hedging gains and losses. Included in the valuation adjustments are fair value gains and losses of the related MSR pledged liability and Excess Servicing Spread (ESS) financing liability. We reported a $10.4 million loss in MSR valuation adjustments, net in 2022 as compared to a $98.5 million loss in 2021. The year over year reduction in the fair value

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loss is driven by favorable MSR fair value changes in 2022 due to significant interest rate increases, net of (economic) hedging losses. The 10-year swap rate increased by 222 basis points in 2022 as compared to 66 basis points in 2021. Also refer to the MSR Hedging Strategy section of Item 7A. Quantitative and Qualitative Disclosures about Market Risks for further detail.

Operating Expenses

The table below presents the key components of operating expenses:

Compensation and benefits expense for 2022 decreased $8.5 million, or 3%, as compared to 2021 largely due to a $28.9 million reduction in incentive compensation, partially offset by a $14.1 million increase in severance expense predominantly due to enterprise-wide headcount reductions, and a $6.0 million increase in salaries and benefits, mostly attributed to the increase in Servicing headcount to support the development of our reverse subservicing platform and the MAM (RMS) subservicing portfolio acquisition. The $28.9 million reduction in incentive compensation included a $12.9 million decline in expense for cash-settled share-based awards as a result of a decrease in our common stock price and forfeitures, a $10.5 million decline in annual incentive plan (AIP) awards partially due to a reduction in headcount and a $3.3 million decrease in commissions due to lower origination volumes.

Servicing and origination expense for 2022 decreased $48.7 million, or 43%, as compared to 2021, mostly attributed to an $18.3 million decrease in satisfaction and interest on payoff expenses attributable to lower payoff volume, a $13.8 million decrease in reverse subservicing expenses driven by the transfer of our owned reverse portfolio from a subservicer onto our platform beginning in the fourth quarter of 2021, an $8.1 million reduction in interim subservicing costs incurred on MSR bulk acquisitions in 2021, a $4.0 million reduction in Servicing-related provision expense and a $3.9 million decrease in our Originations expenses primarily driven by lower volume.

Professional services expense for 2022 decreased $32.6 million, or 40%, as compared to 2021 primarily due to a $26.6 million decline in legal expenses and a $6.3 million decline in other professional services. The decline in legal expenses is largely due to reimbursements received from mortgage loan investors related to prior year legal expenses, and to payments received following favorable resolution of legacy litigation matters. Professional services for 2021 included $3.2 million of advisory fees related to the launch of our MSR investment joint venture with Oaktree, MAV Canopy. Refer to the respective segment results discussion for other offsetting factors.

Occupancy and equipment expense for 2022 increased $5.3 million, or 15%, as compared to 2021 largely driven by a $2.9 million repair cost in connection with our exit of our New Jersey leased office facility.

Other expenses for 2022 increased $5.8 million as compared to 2021 mainly due to a $3.6 million increase in amortization expense on the reverse subservicing contract intangible assets recognized in October 2021 and April 2022.

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Other Income (Expense)

(1)Refer to Change in Presentation - Consolidated Statements of Operations in Note 1 to the Consolidated Financial Statements

Net interest expense for 2022 increased $22.8 million, or 19%, as compared to 2021 primarily due to an increase in the cost of funds of our asset-backed financing facilities, driven by increased interest rates, a higher average debt balance to finance our MSR portfolio growth, and higher corporate debt cost due to the OFC senior secured notes issued on March 4, 2021 and May 3, 2021.

Pledged MSR liability expense reflects the servicing fee remittance, net of subservicing fee, associated with the MSR transfers that do not meet sale accounting treatment. Pledged MSR liability expense for 2022 increased $33.7 million, or 15%, as compared to 2021 primarily due to the increase in the MSR portfolio transferred to MAV and partially offset by the Rithm MSR runoff.

Gain on debt extinguishment of $0.9 million for 2022 resulted from our repurchase of $25.0 million PMC 7.875% Senior Secured Notes due March 2026 at a discount. Loss on debt extinguishment of $15.5 million for 2021 was recognized upon the early repayment of the Senior Secured Term Loan (SSTL) due May 2022 and the early redemption of the PHH 6.375% senior unsecured notes due August 2021 and the PMC 8.375% senior secured notes due November 2022.

Earnings of equity method investee represent our 15% share of MAV Canopy, our MSR investment joint venture with Oaktree that we launched in May 2021. The $18.5 million earnings for 2022 are predominantly driven by the fair value gains recorded by MAV Canopy on its MSR portfolio due to higher interest rates. See Note 11 — Investment in Equity Method Investee and Related Party Transactions for further detail.

Income Tax Benefit (Expense)

Our effective tax rate for the periods indicated in the table above differs from the federal statutory income tax rate primarily due to the full valuation allowance recorded on our net U.S. federal and state deferred tax assets. While Ocwen generates positive income before income taxes, the U.S. filing jurisdiction is in a cumulative loss position for the three-year period ended December 31, 2022. We evaluated all positive and negative evidence and determined that a full valuation allowance at December 31, 2022 remains appropriate. The income tax expense (benefit) is primarily comprised of income taxes in foreign jurisdictions and changes in uncertain tax positions. Refer to Note 19 — Income Taxes for further details on deferred tax assets.

For 2022, income tax benefit of $0.8 million was driven primarily by income tax expense related to pre-tax earnings, offset by income tax benefit related to the favorable resolution of uncertain tax positions. The $21.6 million reduction in income tax benefit for 2022, compared with 2021, is primarily due to higher pre-tax earnings, a $12.6 million reduction in the amount of income tax benefit recognized under the CARES Act, a $2.1 million reduction in the amount of income tax benefit recognized for interest from taxing authorities on refund claims, and a $5.3 million reduction in the amount of income tax benefit related to the favorable resolution of uncertain tax positions. The decline in the effective tax rate is primarily due to the $29.3 million increase in pre-tax earnings in 2022 compared to 2021, as well as the reduction in income tax benefit recognized under the CARES Act, the reduction in income tax benefit recognized for interest from taxing authorities on refund claims, and the reduction in income tax benefit related to the favorable resolution of uncertain tax positions.

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Under our transfer pricing agreements, our operations in India and Philippines are compensated on a cost-plus basis for the services they provide, such that even when we have a consolidated pre-tax loss from operations these foreign operations have taxable income, which is subject to statutory tax rates in these jurisdictions that are higher than the U.S. statutory rate of 21%.

Financial Condition

Total assets increased by $252.1 million, or 2%, between December 31, 2021 and December 31, 2022 due to a $415.1 million increase in our MSR portfolio mostly attributed to fair value gains due to rising interest rates and net additions through purchases, sales and retained servicing on loan sales, and a $303.1 million increase in loans held for investment, mostly driven by our reverse mortgage origination and bulk acquisition. These increases were offset by a $305.8 million decrease in our loans

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held for sale portfolio driven by lower forward loan production volumes than sales, a $143.0 million decrease in other assets mostly attributable to the decrease in contingent repurchase rights related to delinquent loans that have been repurchased in 2022 under the Ginnie Mae EBO program, and a $53.5 million decline in servicing advances, mainly due to lower new advances, increased recoveries on delinquent and default loans, and loan repurchases under the Ginnie Mae EBO program and sold to third parties.

Total liabilities increased by $272.1 million, or 2%, as compared to December 31, 2021 with similar effects as described above. Our HMBS-related borrowings increased by $441.8 million due to the continued growth of our reverse mortgage originations business and its securitization. The $332.4 million increase in Other financing liabilities is primarily due to the issuance of $199.0 million ESS financing liabilities, and the increase in 2022 in the fair value Pledged MSR liabilities due to rising interest rates. Borrowings under our MSR financing facilities increased $53.1 million to fund the increase in our MSR portfolio. Our borrowings under warehouse lines decreased $382.3 million due to lower loan production volumes. Senior notes, net decreased $15.2 million due to our repurchase in 2022 of $25.0 million PMC 7.875% Senior Secured Notes due March 2026. Other liabilities declined $159.0 million mostly due to a decrease in the Ginnie Mae contingent repurchase rights of loans related to delinquent loans that have been repurchased in 2022.

Total equity decreased $20.0 million during 2022 mostly due to $50.0 million stock repurchased under the $50.0 million repurchase program approved in May 2022, partially offset by $25.7 million net income. See Note 15 — Stockholders’ Equity for additional information.

Key Trends

The following discussion provides information regarding certain key drivers of our financial performance and includes certain forward-looking statements that are based on the current beliefs and expectations of Ocwen’s management and are subject to significant risks and uncertainties. Refer to Forward-Looking Statements beginning on page 2 and the Risk Factors section beginning on page 18, for discussion of certain of those risks and uncertainties and other factors that could cause Ocwen’s actual results to differ materially because of those risks and uncertainties. There is no assurance that actual results in 2023 will be in line with the outlook information set forth below, and Ocwen does not undertake to update any forward-looking statements. Also refer to the Segment results of operations section for further detail, the description of our business environment, initiatives and risks.

Servicing and subservicing fee revenue - Our servicing fee revenue is a function of the volume being serviced - UPB for servicing fees and loan count for subservicing fees. We expect we will continue to modestly grow our servicing portfolio through our multi-channel Originations platform and through MAV and other capital partners. In addition, we continuously evaluate the relative mix between servicing and subservicing volume.

Gain on sale of loans held for sale - Our gain on sale is driven by both volume and margin and is channel-sensitive. The industry outlook for 2023 remains largely similar to the second half of 2022, with origination volume expected by the industry to continue to decline and mortgage interest rates to remain elevated although lower than recent peak levels. We expect recapture volumes in our Consumer Direct channel to remain at depressed levels absent any significant interest rate decrease and expect lower margins across all channels due to heightened competition. We expect to continue to prudently manage our Correspondent volume at margins that are accretive to the business.

Gain on reverse loans held for investment and HMBS-related borrowings, net - The reverse mortgage origination gain is driven by the same factors as gain on sale of loans held for sale, with smaller volumes in the reverse mortgage market and generally larger margins. With our experience and brand in the marketplace, we expect to continue to maintain or prudently grow our portfolio albeit with some channel mix changes. We expect continued uncertain market interest rate and spread conditions. The fair value of the net reverse servicing asset is expected to continue to follow market conditions, with fair value gains or losses generally associated with declining or increasing interest rates, respectively, and is part of our forward MSR hedging strategy.

MSR valuation adjustments, net - Our net MSR fair value changes include multiple components. First, amortization of our investment is a function of the UPB, capitalized value of the MSR relative to the UPB, and the level of scheduled payments and prepayments. We expect the MSR realization of cash flows to increase as we continue to grow our MSR portfolio. Second, MSR fair value changes are driven by changes in interest rates and assumptions, such as forecasted prepayments. Third, the MSR fair value changes are partially offset by derivative fair value changes that economically hedge the MSR portfolio. We are exposed to increased interest rate volatility due to our interest rate sensitive GSE MSR portfolio. Our hedging strategy provides only partial hedge coverage and we would expect net MSR fair value losses if interest rates drop and conversely, net MSR fair value gains if interest rates rise. Refer to the sensitivity analysis in the Market Risk sections of Item 7A.Quantitative and Qualitative Disclosures About Market Risk for further detail.

Operating expenses - Compensation and benefits are a significant component of our cost-to-service and cost-to-originate and is directly correlated to headcount levels. Headcount in Servicing is primarily driven by the number of loans or UPB being serviced and subserviced, and by the relative mix of performing, delinquent and defaulted loans. As servicing volume is

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expected to modestly increase (see above), we expect a stable to modest increase in our workforce with some offset from an increased relative share of performing loans. We expect to continue to right-size and prudently manage our Originations headcount and operating expenses to align with funded volume. Other operating expenses are expected to correlate with volumes, with some productivity and efficiencies expected through our technology and continuous improvement initiatives. An elevated inflation may result in higher operating expenses due to increases in salaries and benefits and rates charged by our vendors.

Stockholders’ equity - With the above considerations, we expect our businesses to generate net income and increase our equity in 2023, absent any significant adverse change in interest rates or other factors.

SEGMENT RESULTS OF OPERATIONS

We report our activities in three segments, Servicing, Originations and Corporate Items and Other that reflect other business activities that are currently individually insignificant. Our business segments reflect the internal reporting that we use to evaluate operating and financial performance and to assess the allocation of our resources.

Servicing

We earn contractual monthly servicing fees pursuant to servicing agreements pertaining to MSRs we own, which are typically payable as a percentage of UPB, as well as ancillary fees, including late fees, modification incentive fees, REO referral commissions, float earnings and convenience or other loan collection fees, where permitted. We also earn fees under both subservicing and special servicing arrangements with banks and other institutions, including MAV, that own the MSRs. Subservicing and special servicing fees are earned either as a percentage of UPB or on a per-loan basis. Subservicing per-loan fees typically vary based on type of investor and on loan delinquency status.

As of December 31, 2022, we serviced 1.4 million mortgage loans with an aggregate UPB of $289.8 billion, an increase of 2% and 8%, respectively, from December 31, 2021. The average UPB of loans serviced during 2022 increased by 28% or $60.9 billion compared to 2021. The increase in our servicing volume is mostly due to MSR acquisitions, forward and reverse subservicing additions and MSR originations, offset in part by portfolio runoff. We manage the size of our servicing portfolio with our Originations business and by selectively purchasing MSRs based on capital allocation and financial return targets.

In May 2021, PMC entered into a subservicing agreement with MAV for exclusive rights to service the mortgage loans underlying MSRs owned by MAV. MAV provides us with a source of additional subservicing volume, either with the MSRs that MAV purchases outright from third parties or with the MSRs that MAV purchases from PMC. In November 2022, we upsized MAV Canopy capacity with an additional $250 million capital commitment with Oaktree. Refer to Note 11 — Investment in Equity Method Investee and Related Party Transactions.

In October 2021, PMC acquired reverse mortgage subservicing contracts from MAM (RMS) and became its exclusive subservicer under a five-year subservicing agreement. PMC boarded approximately 59,000 additional reverse mortgage loans onto our servicing platform in 2022 under the agreement.

Rithm (formerly NRZ) remains our largest subservicing client, accounting for 17% and 28% of the total serviced UPB and loan count, respectively, in our servicing portfolio as of December 31, 2022. Rithm servicing fees retained by Ocwen represented approximately 13% and 19% of the total servicing and subservicing fees earned by Ocwen, net of servicing fees remitted to Rithm, for 2022 and 2021, respectively. Rithm’s portfolio represents approximately 68% of all delinquent loans that Ocwen serviced, for which the cost to service and the associated risks are higher. Consistent with a subservicing relationship, Rithm is responsible for funding the advances we service for Rithm. In May 2022, Ocwen and Rithm agreed to extend the servicing agreements to December 31, 2023 with subsequent automatic one-year renewals and to amend the sharing of certain ancillary revenue.

The financial performance of our servicing segment is impacted by the changes in fair value of the MSR portfolio due to changes in market interest rates, among other factors. Our MSR portfolio is carried at fair value, with changes in fair value recorded in earnings, within MSR valuation adjustments, net. The fair value of our MSRs is typically correlated to changes in market interest rates; as interest rates decrease, the value of the servicing portfolio typically decreases as a result of higher anticipated prepayment speeds, and the reverse is true. The sensitivity of MSR fair value to interest rates is typically higher for higher credit quality loans, such as our Agency loans. Our Non-Agency portfolio is significantly seasoned, with an average loan age of approximately 17 years, exhibiting little response to movements in market interest rates. Our hedging strategy is designed to reduce the volatility of the MSR portfolio to interest rates.

As of December 31, 2022, we managed 14,233 loans under forbearance associated with borrowers impacted by the COVID-19 pandemic (or 1.0% of our total portfolio), 3,069 of which related to our owned MSRs, or 0.5% of our owned MSR servicing portfolio (excluding failed sale transactions), a reduction of 50% and 55%, respectively, compared to December 31, 2021.

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Loan Resolutions

We have a strong track record of success as a leader in the servicing industry in foreclosure prevention and loss mitigation that helps homeowners stay in their homes and improves financial outcomes for mortgage loan investors. Reducing delinquencies also enables us to recover advances and recognize additional ancillary income, such as late fees, which we do not recognize on delinquent loans until they are brought current. Loan resolution activities address the pipeline of delinquent loans and generally lead to (i) modification of the loan terms, (ii) repayment plan alternatives, (iii) a discounted payoff of the loan (e.g., a “short sale”), or (iv) foreclosure or deed-in-lieu-of-foreclosure and sale of the resulting REO. Loan modifications must be made in accordance with the applicable servicing agreement as such agreements may require approvals or impose restrictions upon, or even forbid, loan modifications. To select an appropriate loan modification option for a borrower, we perform a structured analysis, using a proprietary model, of all options using information provided by the borrower as well as external data, including recent broker price opinions to value the mortgaged property. Our proprietary model includes, among other things, an assessment of re-default risk.

Advance Obligation

As a servicer, we are generally obligated to advance funds in the event borrowers are delinquent on their monthly mortgage related payments. We advance principal and interest (P&I Advances), taxes and insurance (T&I Advances) and legal fees, property valuation fees, property inspection fees, maintenance costs and preservation costs on properties that have been foreclosed (Corporate Advances). For certain loans in non-Agency securitization trusts, we have the ability to cease making P&I advances and immediately recover advances previously made from the general collections of the respective trust if we determine that our P&I advances cannot be recovered from the projected future cash flows. With T&I and Corporate advances, we continue to advance if net future cash flows exceed projected future advances without regard to advances already made.

Most of our advances have the highest reimbursement priority (i.e., they are “top of the waterfall”) so that we are entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. The costs incurred in meeting these obligations consist principally of the interest expense incurred in financing the servicing advances. Most subservicing agreements, including our agreements with Rithm, provide for prompt reimbursement of any advances from the owner of the servicing rights. Refer to Note 24 — Commitments to the Consolidated Financial Statements for further description of servicer advance obligations.

Significant Variables

The following factors could significantly impact the results of our Servicing segment from period to period.

Aggregate UPB and Loan Count. Servicing fees are generally earned as a percentage of UPB and subservicing fees are earned on a per-loan basis or as a percentage of UPB. As a result, the change in aggregate UPB and loan count for which we have servicing rights or subservicing rights will directly impact our revenue contributed by our Servicing segment. Aggregate UPB and loan count decline as a result of portfolio run-off and increase to the extent we retain MSRs from new originations or engage in MSR acquisitions.

Cost to Service and Operating Efficiency. Our operating results for our Servicing segment are heavily dependent on our ability to scale our operations to cost-effectively and efficiently perform servicing activities in accordance with our servicing agreements.

Delinquencies. Delinquencies impact our financial results and operating cash flows for our Servicing segment. Non-performing loans are more expensive to service because the loss mitigation activities that we must undertake to keep borrowers in their homes or to foreclose, if necessary, are costlier than the activities required to service a performing loan. These loss mitigation activities include increased contact with the borrower for collection and the development of forbearance plans or loan modifications by highly skilled associates who command higher compensation as well as the higher compliance costs associated with these, and similar activities. While the higher cost is somewhat offset by ancillary fees for severely delinquent loans or loans that enter the foreclosure process, the incremental revenue opportunities are generally not sufficient to cover our increased costs.

In addition, when borrowers are delinquent, the amount of funds that we are required to advance to the investors increases. We utilize servicing advance financing facilities, which are asset-backed (i.e., match funded liabilities) securitization facilities, to finance a portion of our advances. As a result, increased delinquencies result in increased interest expense.

Prepayment Speed. The rate at which portfolio UPB declines can have a significant impact on our Servicing segment. Items reducing UPB include scheduled and unscheduled principal payments (runoff), refinancing, loan modifications involving forgiveness of principal, voluntary property sales and involuntary property sales such as foreclosures. Prepayment speed impacts future servicing fees, runoff and valuation of MSRs, float earnings on float balances and interest expense on advances. Increases in anticipated lifetime prepayment speeds generally cause MSR valuation adjustments to increase because MSRs are

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valued based on total expected servicing income over the life of a portfolio. The converse is true when expectations for prepayment speeds decrease.

Reverse Mortgage

The activities and financial performance related to reverse mortgage loans that are securitized and classified as held for investment, at fair value, together with the HMBS-related borrowings, at fair value (internally identified as our Reverse Owned Servicing business) are reflected in the Servicing segment, consistent with how the activities are managed and internally reported. Once a reverse mortgage loan is securitized, our activities are generally consistent with other loan servicing as described above, with the following variations.

Under the terms of ARM-based HECM loan agreements, the borrowers have additional borrowing capacity of $1.8 billion at December 31, 2022. These draws or tails are funded by the servicer and can be subsequently securitized. We do not incur any substantive underwriting, marketing or compensation costs in connection with any future draws, although we must maintain sufficient capital resources and available borrowing capacity to ensure that we are able to fund these future draws prior to securitization with Ginnie Mae (generally less than 30 days).

As an HMBS issuer, we assume certain obligations related to each security issued. In addition to our obligation to fund tails, the most significant obligation is the requirement to purchase loans out of the Ginnie Mae securitization pools once they reach 98% of the maximum claim amount (MCA repurchases or active buyouts). Active repurchased loans or buyouts are assigned to HUD and payment is received from HUD through a claims process, generally within 90 days. HUD reimburses us for the outstanding principal balance on the loan up to the maximum claim amount; we bear the risk of exposure if the outstanding balance on a loan exceeds the maximum claim amount. Inactive repurchased loans or buyouts (loans that are in default for one of the following reasons - title conveyances or the borrower is deceased, no longer occupies the property or is delinquent on tax and insurance payments) are generally liquidated through foreclosure and subsequent sale of REO. State specific foreclosure and REO liquidation timelines have a significant impact on the timing and amount of our recovery. If we are unable to sell the property securing the inactive reverse loan for an acceptable price within the timeframe established by HUD (six months), we are required to make an appraisal-based claim to HUD. In such cases, HUD reimburses us for the loan balance, eligible expenses and interest, less the appraised value of the underlying property. Thereafter, all the risks and costs associated with maintaining and liquidating the property remains with us; we may incur additional losses on REO properties as they progress through the liquidation processes related to delayed timelines due to market conditions, sales commissions, property preservation costs or property tax and insurance advances. The significance of future losses associated with appraisal-based claims is dependent upon the volume of inactive loans, condition of foreclosed properties and the general real estate market.

The Gain on reverse loans held for investment and HMBS-related borrowings, net reported within the Servicing segment includes the net fair value changes of securitized reverse mortgage loans held for investment and HMBS-related borrowings. We elected the fair value accounting election for both our reverse mortgage loans held for investment and the HMBS-related borrowings. The net fair value changes of the reverse mortgage loans and related borrowings reported within the Servicing segment include the following:

•contractual interest income earned on securitized reverse mortgage loans, net of interest expense on HMBS-related borrowings, that is, the servicing fee we are contractually entitled to and collect on a monthly basis under the Ginnie Mae MBS Guide regarding servicing HMBS;

•cash gains on tail securitization. Tails are participations in previously securitized HECMs and are created by additions to principal for borrower draws on lines-of-credit (scheduled and unscheduled), interest, servicing fees, and mortgage insurance premiums;

•fair value changes due to the realization of other expected cash flows of the net asset balance of securitized loans held for investment and HMBS-related borrowings; and

•fair value changes due to the inputs and assumptions of the net balance of securitized loans held for investment and HMBS-related borrowings.

The fair value of our Ginnie Mae securitized HECM loan portfolio generally decreases as market interest rates rise and increases as market rates fall. As our HECM loan portfolio is predominantly comprised of ARMs, higher interest rates cause the loan balance to accrue and reach a 98% maximum claim amount liquidation event more quickly, with lower interest rates extending the timeline to liquidation. HECM loans have a longer duration than HMBS-related borrowings as a result of the future draw commitments, and our obligations as issuer of HMBS to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM loan is equal to 98% of the maximum claim amount.

The financial performance associated with the subservicing of reverse mortgage loans associated with the MAM (RMS) transaction is primarily reflected within Servicing and subservicing fees, net since Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net strictly reflects the financial performance of owned loans/servicing. We collect

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higher subservicing fees for inactive loans relative to the base subservicing fee for performing loans or active repurchased loans, commensurate with the level of servicing efforts, as described above.

The following table presents selected results of operations of our Servicing segment. The amounts presented are before the elimination of balances and transactions with our other segments:

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The following table provides selected operating statistics for our Servicing segment:

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(1)Performing loans include those loans that are less than 90 days past due and those loans for which borrowers are making scheduled payments under loan modification, forbearance or bankruptcy plans. We consider all other loans to be non-performing.

(2)Conventional loans at December 31, 2022 include 66,796 prime loans with a UPB of $13.2 billion which we service or subservice. This compares to 73,340 prime loans with a UPB of $13.7 billion at December 31, 2021. Prime loans are generally good credit quality loans that meet GSE underwriting standards.

(3)Includes $7.6 billion UPB of reverse mortgage loans that are recognized in our consolidated balance sheet at December 31, 2022.

(4)Includes $22.1 billion UPB subserviced and $26.1 billion UPB of MSRs sold to MAV that have not achieved sale accounting treatment. Excludes subserviced loans with a UPB of $2.4 billion that have not yet transferred onto the PMC servicing system as of December 31, 2022.

(5)Loans serviced or subserviced pursuant to our agreements with Rithm or MAV.

(6)Includes $1.9 billion UPB of subserviced loans at December 31, 2022.

(7)Total 12-month % CPR includes voluntary and involuntary prepayments, as shown in the table, plus scheduled principal amortization.

The following table provides selected operating statistics related to our owned reverse mortgage loans held for investment reported within our Servicing segment:

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(1)Securitized loans only; excludes unsecuritized loans as reported within the Originations segment.

(2)Buyouts are reported as Loans held for sale, Receivables or REO depending on the loan and foreclosure status.

The following table provides a breakdown of our servicer advances:

The following table provides the rollforward of activity of our portfolio of mortgage loans serviced for the years ended December 31, that includes MSRs, whole loans and subserviced loans, both forward and reverse:

(1)Includes the volume of UPB associated with short-term interim subservicing for some clients as a support to their originate-to-sell business, where loans are boarded and deboarded within the same quarter.

(2)Includes MSRs sold to an unrelated third party in the first quarter of 2022 consisting of 38,850 loans with a UPB of $11.1 billion, with the remaining active loans transferred out of the PMC servicing system in the third quarter of 2022, and for which PMC performed interim subservicing.

(3)Additions include purchased MSRs on portfolios consisting of 79 loans with a UPB of $24.1 million that have not yet transferred to the PMC servicing system as of December 31, 2022. Because we have legal title to the MSRs, the UPB and count of the loans are included in our reported servicing portfolio. The seller continues to subservice the loans on an interim basis between the transaction closing date and the servicing transfer date.

(4)Excludes MSRs acquired from unrelated third parties in the third quarter of 2022 consisting of 12,931 loans with a UPB of $4.1 billion for which PMC was previously performing the subservicing.

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(5)2020 includes 270,218 deboarded loans with a UPB of $34.2 billion related to the termination of the subservicing agreement between Rithm and PMC on February 20, 2020. Refer to Note 8 — Other Financing Liabilities, at Fair Value.

Year Ended December 31, 2022 versus 2021

Servicing and Subservicing Fees

The $87.0 million, or 11% increase in total servicing and subservicing fees in 2022 as compared to 2021 is primarily driven by our successful volume growth strategy, selectively balanced between servicing and subservicing, and the gradual runoff of the Rithm volume and growth of MAV and other new relationships. The increase in ancillary income is driven by float earnings at higher interest rates, as further discussed below.

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The following table presents the respective drivers of residential loan servicing (owned MSRs) and subservicing fees.

(1)Excludes owned reverse mortgages effective with the three months ended June 30, 2022. Prior periods of 2021 and 2020 have been recast to conform to the current presentation.

(2)Subservicing fees for 2020 includes $15.9 million of fees earned on the Rithm PMC MSR Agreements upon receiving the notice of cancellation in February 2020.

(3)Excludes MAV portfolio and includes reverse subservicing beginning in the fourth quarter of 2021.

The table above reflects our strategy to grow our subservicing business, including reverse subservicing, and the increased use of MAV to grow our servicing volume. Comparing 2022 with 2021, we achieved a net $58.2 million servicing and subservicing fee increase, or 9%. Our servicing fee from MAV increased by $57.1 million and our subservicing fee grew by $51.8 million. Partially offsetting these increases, we reported a $49.2 million reduction in fees collected on behalf of Rithm due to portfolio runoff, and servicing fees from our owned MSR portfolio declined by $1.5 million. The $51.8 million increase in subservicing fees is driven by the boarding of new reverse mortgage loans under the subservicing agreement with MAM (RMS). The average subservicing fee per loan increased from $18 to $28 dollars, driven by the additions of reverse mortgage loans that yield relatively higher compensation for both active and inactive loans.

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The following table presents both servicing fees collected and subservicing fees retained by Ocwen under the Rithm (formerly NRZ) agreements.

(1)Reported within Pledged MSR liability expense. The Rithm servicing fee includes the total servicing fees collected on behalf of Rithm relating to the MSR sold but not derecognized from our balance sheet. Under GAAP, we separately present servicing fees collected and remitted on a gross basis, with the servicing fees remitted to Rithm reported as Pledged MSR liability expense.

(2)Excludes the servicing fees of loans under the PMC Servicing Agreement after February 20, 2020 due to the notice of termination by Rithm, and subservicing fees earned under subservicing agreements. Also excludes ancillary income.

(3)Excludes the UPB of loans subserviced under the PMC Servicing Agreement after February 20, 2020 due to the notice of termination by Rithm, and excludes the UPB of loans under subservicing agreements.

The net retained fee on our Rithm portfolio for 2022 declined by $14.4 million, or 16% as compared to 2021. The decline in the Rithm fee collection and remittance is primarily driven by the decline in the average UPB of 15% due to portfolio runoff and prepayments. As the Rithm relationship is effectively a subservicing agreement, the COVID-19 environment, loans under forbearance and the fee collection do not impact our financial results to the same extent as for serviced loans with our owned MSRs.

The following table presents the detail of our ancillary income:

Ancillary income for 2022 increased by $28.8 million as compared to 2021 largely due to an increase in float earnings of $21.5 million due to higher interest rates in 2022, and a $19.0 million increase in reverse servicing ancillary fees on reverse mortgage loans boarded under the subservicing agreement with MAM (RMS) in 2022 and the fourth quarter of 2021. Partially offsetting these increases, recording fees were $7.5 million lower in 2022 due to the reduction in payoff volume.

Gain (Loss) on Loans Held for Sale, Net

Loss on loans held for sale, net for 2022 was $15.1 million, as compared to the $46.6 million gain recognized in 2021. In addition to the $8.8 million loss recognized in 2022 on certain delinquent and aged loans repurchased in connection with the Ginnie Mae EBO program (net of the associated Ginnie Mae MSR fair value adjustment), losses in 2022 are driven by decreased volume and margins on redelivery of repurchased loans in connection with Ginnie Mae loan modifications and EBO activities as a result of higher market interest rates. The unfavorable change is also explained by a $27.1 million gain recognized in 2021 on the sale of loans acquired in connection with the exercise of our servicer call rights of certain Non-Agency trusts.

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Gain (Loss) on Reverse Loans Held for Investment and HMBS-Related Borrowings, Net

Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net reported in the Servicing segment is the net change in fair value of securitized loans held for investment and HMBS-related borrowings. Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net excludes reverse subservicing that is reflected in Servicing and subservicing fees. The following table presents the components of the net fair value change and is comprised of net interest income and other fair value gains or losses. Net interest income is primarily driven by the volume of securitized UPB as it is the interest income earned on the securitized loans offset against interest expense incurred on the HMBS-related borrowings, and represents a component of our compensation for servicing the portfolio, that is a percentage of the outstanding UPB. Other fair value changes are primarily driven by changes in market-based inputs or assumptions. Lower interest rates generally result in favorable net fair value impacts on our HECM reverse mortgage loans and the related HMBS financing liability and higher interest rates generally result in unfavorable net fair value impacts. Note that the fair value changes of the net asset value between securitized HECM loans and HMBS (referred to as our reverse MSR) attributable to interest rate changes are effectively used as a hedge of our forward MSR portfolio. See further description of our hedging strategy in Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

(1)     Includes realization of expected cash flows and fair value gains and losses due to inputs and assumptions.

Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net for 2022 declined $22.8 million, or 975%, as compared to 2021 primarily driven by higher unrealized fair value losses due to increasing interest rates and widening yield spread directly impacting projected asset life and the tail value of the HECM reverse mortgage loans. Realized gains on tail securitization declined by $10.4 million in 2022 as compared to 2021, mostly due to a widening yield spread. Tails represent the future draws of borrowers, scheduled and unscheduled, as well as capitalized interest and are included in the fair value of the underlying loans. As our HECM loan portfolio is predominantly comprised of ARMs, higher interest rates cause the loan balance to accrue and reach the 98% maximum claim amount liquidation event more quickly. The increase in rates and widening of yield spread resulted in additional $17.7 million fair value losses. Net interest income, that effectively represents our servicing fee increased $2.0 million in 2022 as compared with 2021 mostly due to the growth of the loan portfolio.

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MSR Valuation Adjustments, Net

The following table summarizes the components of MSR valuation adjustments, net reported in our Servicing segment, with additional related measures:

(1)The terms runoff and realization of expected future cash flows may be used interchangeably within this discussion.

(2)Excludes gains of $9.9 million, $19.6 million and $41.7 million in 2022, 2021, and 2020, respectively, on the revaluation of MSRs purchased at a discount, that is reported in the Originations segment as MSR valuation adjustments, net.

(3)For Owned MSRs, i.e., excludes MSRs subject to sale agreements with Rithm, MAV and others that do not meet sale accounting criteria.

MSR valuation adjustments, net include the fair value gain and losses of the MSR portfolio, the MSR pledged liability associated with the MSR transfers that do not meet sale accounting and the ESS financing liabilities for which we elected the fair value option and that is collateralized by MSRs. The $36.0 million loss in MSR valuation adjustments, net in 2022, comprised of $164.5 million runoff partially offset by a $128.5 million fair value gain due to rates and assumptions. MSR portfolio runoff represents the realization of expected cash flows and yield based on projected borrower behavior, including scheduled amortization of the loan UPB together with projected voluntary prepayments. The runoff in 2022 was relatively stable vs. 2021 (increased by $3.7 million or 2%) when compared with the UPB of the owned portfolio. The $128.5 million fair value gain due to rates and assumptions is primarily driven by an increase in market interest rates (the 10-year swap rate increased by 222 basis points in 2022), partially offset by a $122.6 million hedging loss and a loss attributed to 50 basis point yield or discount rate assumption update by our third-party valuation experts across all investors.

MSR valuation adjustments, net increased by $107.4 million (lower loss) in 2022 as compared to 2021, primarily due to a $111.1 million increase in the gain attributed to rates and assumptions, net of an $87.7 million increase in the hedging loss, driven by an increase in market interest rates (the 10-year swap rate increased by 222 basis points in 2022 as compared to 66 basis points in 2021).

Our MSR hedging policy is designed to reduce the volatility of the MSR portfolio fair value due to market interest rates. Refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risks for further detail on our hedging strategy and its effectiveness.

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The following table provides information regarding the changes in the fair value and the UPB of our portfolio of Owned MSRs (excluding MSRs transferred to MAV, Rithm and others ) during 2022, with the breakdown by investor type.

(1)See Note 7 — Mortgage Servicing and Note 8 — Other Financing Liabilities, at Fair Value for further information on the Rithm and MAV portfolios.

(2)Includes $97.8 million fair value and $7.4 billion UPB of MSR sales to MAV in 2022 that did not achieve sale accounting treatment.

(3)Mostly changes in interest rates, except for gains of $9.9 million on the revaluation of purchased MSRs, that are reported in the Originations segment.

(4)Multiple of average servicing fee and UPB.

Compensation and Benefits

Compensation and benefits expense for 2022 increased $17.9 million, or 17%, as compared to 2021 primarily due to an $18.2 million increase in salaries and benefit expense driven by a 15% increase in our average servicing headcount, mostly onshore. The increase in Servicing headcount primarily reflects the hiring of employees to support the growth of the reverse mortgage subservicing platform, specifically with the acquisition of reverse mortgage subservicing from MAM (RMS). In addition, severance expense increased $2.6 million due to forward servicing headcount reductions in 2022, and commissions were $1.1 million higher primarily driven by the MAM (RMS) acquisition. Partially offsetting these increases in expense, incentive compensation decreased $4.7 million primarily due to a decrease in cash-settled share-based awards expense

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associated with the decrease in our common stock price and forfeitures of unvested awards, and a decline in AIP awards. partially due to a reduction in headcount.

Servicing Expense

Servicing expense primarily includes claim losses and interest curtailments on government-insured loans, provision expense for advances and servicing representation and warranties, and certain loan-volume related expenses.

Servicing expense for 2022 declined $45.9 million, or 47%, as compared to 2021. This decline is primarily due to an $18.3 million decrease in satisfaction and interest on payoff expense attributable to lower payoff volume, a $13.8 million decrease in reverse subservicing expenses driven by the transfer of our owned reverse portfolio from a subservicer onto our platform beginning in the fourth quarter of 2021, an $8.1 million reduction in interim subservicing costs incurred on MSR bulk acquisitions in 2021, a $2.3 million decrease in certain indemnification reserves and a $1.7 million decline in provision expense on government-insured claims receivables primarily due to decreased claim volumes.

Other Operating Expenses

Other operating expenses (total operating expenses less Compensation and benefit expense and Servicing expense) for 2022 decreased by $0.2 million as compared to 2021. Professional services declined $5.3 million due to a $13.3 million decrease in legal expenses, mostly driven by reimbursements received from mortgage loan investors related to prior year legal expenses and to payments received following resolution of legacy litigation matters, partially offset by an increase in other litigation and legal expenses and a $7.5 million increase in other professional fees primarily related to our reverse subservicing business and MSR sales. The $1.5 million decline in Corporate overhead allocations is primarily attributable to the decline in support group operating expenses, mostly legal and compensation and benefits. Offsetting these decreases, Occupancy and equipment expense increased $4.6 million primarily due to an increase in printing and mailing expenses mostly as a result of the increase in the average number of loans serviced and additional mailing driven by our acquisition of reverse mortgage subservicing. Other expense increased by $1.0 million driven primarily by the $3.6 million increase in amortization expense recognized during 2022 on the reverse subservicing contract intangible asset recorded in October 2021 and April 2022 as part of the transactions with MAM (RMS), partially offset by a $3.1 million decrease in bank charges driven by increased earning credits due to interest rate increases.

Other Income (Expense)

Interest income for 2022 increased $4.7 million, or 57%, compared to 2021 primarily due to an increase in interest rates during 2022 and higher delinquent interest payments in 2021 related to Ginnie Mae EBO loan repurchases.

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The following table provides information regarding Interest expense:

(1)Effective in the first quarter of 2022, interest expense on the OFC Senior Secured Notes issued in March 2021 is no longer allocated to the Servicing segment. Corporate debt interest expense allocation for prior periods has been recast to conform to the current period presentation. The interest expense allocation adjustment for 2021 is $23.7 million (nil in 2020).

Interest expense for 2022 increased by $34.0 million, or 42%, compared to 2021, primarily due to a $21.0 million increase on MSR financing facilities as a result of an overall increase in the average debt balances to finance the growth of the MSR portfolio and a higher funding cost driven by increasing market interest rates. The $5.6 million increase (39%) in interest expense on advance match funded facilities is due to higher funding cost, driven by increasing market interest rates and our repayment of low-cost OMART term notes during 2022, offset in part by lower average balances of advances and borrowings. The $5.9 million increase in corporate debt interest expense allocation is mostly due to a higher corporate debt allocation to finance the growth of the MSR portfolio.

Pledged MSR liability expense includes the servicing fee remittance related to the MSR transfers that do not meet sale accounting criteria and are presented on a gross basis in our consolidated financial statements and the servicing spread remittance associated with our ESS financing liability at fair value. See Note 8 — Other Financing Liabilities, at Fair Value to the Consolidated Financial Statements. The following table provides the components of Pledged MSR liability expense:

(1)For MSR transfers that do not meet sale accounting criteria.

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Pledged MSR liability expense for 2022 increased $33.7 million as compared to 2021, primarily due to a $24.6 million increase in net servicing fee remittance of MSR transfers that do not meet sale accounting criteria. This increase is primarily due to an increase in the MSR portfolio transferred to MAV, launched in the second half of 2021, offset in part by a decline in runoff on the Rithm MSR portfolio. In addition, we recorded $9.1 million servicing spread remittance on the ESS financing liabilities issued in 2022.

Other, net expense for 2022 increased $12.5 million, as compared to 2021, primarily due to income of $4.6 million recognized in 2021 in connection with our exercise of call rights and $1.3 million of termination fees recognized in 2021 as a result of call rights exercised by Rithm. Additionally, in connection with our MSR sales, we recorded $4.9 million early payout protection expense in 2022.

Originations

We originate and purchase loans and MSRs through multiple channels, including retail, wholesale, correspondent, flow MSR purchase agreements, the Agency Cash Window and Co-issue programs and bulk MSR purchases.

We originate and purchase conventional loans (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as Agency loans) and government-insured (FHA, VA or USDA) forward mortgage loans. The GSEs and Ginnie Mae guarantee these mortgage securitizations. We originate HECM loans, or reverse mortgages, that are mostly insured by the FHA and we are an approved issuer of HMBS that are guaranteed by Ginnie Mae.

Within retail, our Consumer Direct channel for forward mortgage loans focuses on targeting existing servicing customers by offering them competitive mortgage refinance opportunities, where permitted by the governing servicing and pooling agreement. In doing so, we generate revenues for our forward lending business and protect the servicing portfolio by retaining these customers. A portion of our servicing portfolio is susceptible to refinance activity during periods of declining interest rates. Origination recapture volume and related gains are a natural economic hedge, to a certain degree, to the impact of declining MSR values as interest rates decline. To the extent we refinance a loan underlying the MSRs subject to the MAV subservicing agreement, we are obligated to transfer such recaptured MSR to MAV under the terms of the joint-marketing agreement. In addition to refinance activities, our Consumer Direct channel targets purchase mortgage loans, cash-out, debt consolidation, mortgage insurance premium reduction, and new customer acquisition.

Our forward lending correspondent channel drives higher servicing portfolio replenishment. We purchase closed loans that have been underwritten to investor guidelines from our network of correspondent sellers and sell and securitize them, on a servicing retained basis. We offer correspondent sellers the choice to take out mandatory or best efforts contracts, under which the seller's obligation to deliver the mortgage loan becomes mandatory only when and if the mortgage is closed and funded. Additionally, we offer correspondent sellers the opportunity to leverage a non-delegated underwriting option for best-efforts deliveries. As of December 31, 2022, we have relationships with 600 approved correspondent sellers, or 162 new sellers since December 31, 2021. On June 1, 2021, we expanded our network through the assignment by TCB to us, of all its correspondent loan purchase agreements with its correspondent sellers (approximately 220 sellers).

We originate and purchase reverse mortgage loans through our retail, wholesale and correspondent lending channels, under the guidelines of the HECM reverse mortgage insurance program of the FHA. Loans originated under this program are generally insured by the FHA, which provides protection against risk of borrower default.

After origination, we package and sell the loans in the secondary mortgage market, through GSE and Ginnie Mae securitizations on a servicing retained basis. Origination revenue mostly includes interest income earned for the period the loans are held by us, gain on sale revenue, which represents the difference between the origination or purchase value and the sale value of the loan including its MSR value, and fee income earned at origination. As the securitizations of reverse mortgage loans do not achieve sale accounting treatment and the loans are classified as loans held for investment, at fair value, reverse mortgage revenues include the fair value changes of the loan from lock date to securitization date.

We provide customary origination representations and warranties to investors in connection with our GSE loan sales and securitization activities. We receive customary origination representations and warranties from our network of approved correspondent lenders. We recognize the fair value of the liability for our representations and warranties at the time of sale. In the event we cannot remedy a breach of a representation or warranty, we may be required to repurchase the loan or provide an indemnification payment to the mortgage loan investor. To the extent that we have recourse against a third-party originator, we may recover part or all of any loss we incur. We actively monitor our counterparty risk associated with our network of correspondent lenders-sellers.

We purchase MSRs through flow purchase agreements, the Agency Cash Window programs and bulk MSR purchases. The Agency Cash Window programs we participate in, and purchase MSR from, allow mortgage companies and financial institutions to sell whole loans to the respective agency and sell the MSR to the winning bidder servicing released. In addition, we partner with other originators to replenish our MSRs through flow purchase agreements. We do not provide any origination representations and warranties in connection with our MSR purchases through MSR flow purchase agreements or Agency Cash

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Window programs. As of December 31, 2022, we have relationships with 238 approved sellers through the Agency Cash Window co-issue programs, or 84 new sellers since December 31, 2021.

We initially recognize our MSR origination with the associated economics in our Originations segment, and transfer the MSR to our Servicing segment once the MSR is initially recognized on our balance sheet with all subsequent performance associated with the MSR, including funding cost, run-off and other fair value changes reflected in our Servicing segment. However, effective in the first quarter of 2022, we report those MSRs purchased through the Fannie Mae Cash Window program that are transferred to MAV and the associated economics in our Servicing segment upon acquisition, as such MSRs are transferred to MAV monthly under an MSR flow sale agreement and subserviced by PMC. Segment results for prior periods have been recast as applicable to conform to the current segment presentation. See the “MSR Valuations Adjustments, net” section below for additional information.

We source additional servicing volume through our subservicing and interim servicing agreements, through our existing relationships and our enterprise sales initiatives. We do not report any revenue or gain associated with subservicing within the Originations segment as the impact is captured in the Servicing segment. However, sales efforts and certain costs - marginal compensation and benefits - are managed and reported within the Originations segment.

For 2022, our Originations business originated or purchased forward and reverse mortgage loans with a UPB of $16.8 billion and $1.4 billion, respectively. In addition, we purchased $11.3 billion UPB MSR through the Agency Cash Window and flow purchase programs during 2022.

Significant Variables

The following factors could significantly impact the results of our Originations segment from period to period.

Economic Conditions. General economic conditions can impact the growth and revenue of our Originations segment by impacting the capacity for consumer credit and the supply of capital. More specifically, employment levels and home prices are variables that can each have a material impact on mortgage volume. Employment levels, the level of wages and the stability of employment are underlying factors that impact credit qualification. The effect of home prices on lending volumes is significant and complex. As home prices go up, home equity increases and this improves the position of existing homeowners either to refinance or to sell their home, which often leads to a new home purchase and a new forward mortgage loan, or in the case of a reverse mortgage, increase the size of the mortgage loan available and the number of potential borrowers. However, if home prices increase rapidly, the effect on affordability for first-time and move-up buyers can dampen the demand for mortgage loans. The more restrictive standards for loan to value (LTV) ratios, debt to income (DTI) ratios and employment that characterize the current market amplify the significance and sensitivity of the housing market and related mortgage lending volumes to employment levels and home prices. If home prices decline due to increased mortgage interest rates or for other reasons, home sales may decline and it may be more difficult for homeowners to refinance existing mortgages, thereby negatively impacting mortgage volume.

Mortgage Rates. Changes in mortgage rates directly impact the demand for both purchase and refinance forward mortgages and therefore can impact the financial results of our Originations segment. Small changes in mortgage rates directly impact housing affordability for both first-time and move-up home buyers and affect their ability to purchase a home. For refinance loans, current market mortgage rates must be considered relative to the rates on the current mortgage debt outstanding. As the time and cost to refinance has decreased, relatively small reductions in mortgage rates can trigger higher refinancing activity. Given the large size of U.S. residential forward mortgage debt outstanding, the impact of mortgage rate changes can drive significant swings in mortgage refinance volume.

Market Size and Composition. The volume of new or refinanced loans is impacted by changes to existing, or development of new, GSE or other government sponsored programs. Changes in GSE or HUD guidelines and costs and the availability of alternative financing sources, such as non-Agency proprietary loans and traditional home equity loans, impact borrower demand for forward and reverse mortgages and therefore can impact the volume of mortgage originations.

Investor Demand. The liquidity of the secondary market for mortgage loans impacts the size of the mortgage loan market by defining loan attributes and credit guidelines for loans that investors are willing to buy and at what price. In recent years, the GSEs have been the dominant providers of secondary market liquidity for forward mortgages, keeping the product and credit spectrum relatively homogeneous and risk averse (higher credit standards).

Margins. Changes in pricing margin for mortgages are closely correlated with changes in market size for mortgage loans. As loan demand and market capacity move out of alignment, pricing adjusts. In a growing market, margins expand and in a contracting market, margins tighten as lenders seek to keep their production at or close to full capacity. Managing capacity and cost is critical as volumes change. Among our channels, our margins per loan are highest in the retail channel and lowest in the correspondent channel. We work directly with the borrower to process, underwrite and close loans in our retail and reverse wholesale channels. In our retail channel, we also identify the customer and take loan applications. As a result, our retail channel is the most people- and cost-intensive and experiences the greatest volume volatility.

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The following table presents the results of operations of our Originations segment. The amounts presented are before the elimination of balances and transactions with our other segments:

(1)Includes $2.1 million, $8.5 million and $6.0 million ancillary fee income related to MSR acquisitions reported as Servicing and subservicing fees at the consolidated level for 2022, 2021 and 2020, respectively.

(2)Effective in the first quarter of 2022, we report those MSRs purchased through the Fannie Mae Cash Window program that are transferred to MAV and the associated economics in our Servicing segment upon acquisition, as such MSRs are transferred to MAV monthly under an MSR flow sale agreement and subserviced by PMC. Segment results for prior periods have been recast as applicable to conform to the current segment presentation. The MSR valuation adjustments, net reclassified to the Servicing segment for 2021 was $5.6 million. No such gains were recognized in 2020.

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The following table provides selected operating statistics for our Originations segment:

(1)Loan production excludes reverse mortgage loan draws by borrowers disbursed subsequent to origination that are reported within the Servicing segment.

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Gain on Loans Held for Sale, Net

The following table provides information regarding Gain on loans held for sale by channel and the related forward loan origination volume and margins (excluding fees that are presented in Other revenue, net):