NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(millions of dollars, unless otherwise stated)
1. Nature of Business and Basis of Presentation
Nature of Business
Mr. Cooper Group Inc., collectively with its consolidated subsidiaries, (“Mr. Cooper,” the “Company,” “we,” “us” or “our”) provides servicing, origination and transaction-based services related to single family residences throughout the United States with operations under its primary brands: Mr. Cooper® and Xome®. Mr. Cooper is one of the largest home loan originators and servicers in the country focused on delivering a variety of servicing and lending products, services and technologies. Xome provides technology and data enhanced solutions to homebuyers, home sellers, real estate agents and mortgage companies. The Company’s corporate website is located at www.mrcoopergroup.com. The Company has provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-Q.
On March 12, 2021, the Company entered into a Stock Purchase Agreement with Blend Labs, Inc. (“Blend Labs”), a Delaware corporation, pursuant to which Blend Labs will acquire the title business of the Company for a purchase price of $500, consisting of $450 in cash, subject to certain adjustments specified therein, and a retained interest of 9.9% for the Company (the “Title Transaction”). Pursuant the Stock Purchase Agreement, all cash generated, subject to certain adjustments, between March 13, 2021 and the closing date of the Title Transaction will be held for the benefit of Blend Labs. No gain or loss on the Title Transaction has been or will be recorded until the closing date, which is anticipated to be in the second quarter of 2021. The carrying amounts of assets and liabilities associated with the title business are not material to the condensed consolidated balance sheets and are reported under the Xome segment.
Basis of Presentation
The consolidated interim financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2020.
The interim condensed consolidated financial statements are unaudited; however, in the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation of the results of the interim periods have been included. Dollar amounts are reported in millions, except per share data and other key metrics, unless otherwise noted.
Basis of Consolidation
The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, other entities in which the Company has a controlling financial interest and those variable interest entities (“VIE”) where the Company’s wholly-owned subsidiaries are the primary beneficiaries. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that the Company became the primary beneficiary through the date the Company ceases to be the primary beneficiary. The Company applies the equity method of accounting to investments where it is able to exercise significant influence, but not control, over the policies and procedures of the entity and owns less than 50% of the voting interests. Investments in certain companies over which the Company does not exert significant influence are accounted for as cost method investments. Intercompany balances and transactions on consolidated entities have been eliminated.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates due to factors such as adverse changes in the economy, changes in interest rates, secondary market pricing for loans held for sale and derivatives, strength of underwriting and servicing practices, changes in prepayment assumptions, declines in home prices or discrete events adversely affecting specific borrowers, uncertainties in the economy from the COVID-19 pandemic, and such differences could be material.
Recent Accounting Guidance Adopted
Accounting Standards Update 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”) simplifies accounting for income taxes by removing certain exceptions from the general principles in Topic 740 including elimination of the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items such as other comprehensive income. ASU 2019-12 also clarifies and amends certain guidance in Topic 740. ASU 2019-12 is effective for the Company on January 1, 2021. The adoption of the standard did not have a material impact to the Company’s condensed consolidated financial statements.
2. Mortgage Servicing Rights and Related Liabilities
The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities. In estimating the fair value of all mortgage servicing rights and related liabilities, the impact of the COVID-19 pandemic was considered in the determination of key assumptions.
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|
|
|
|
|
|
|
|
|
|
|
MSRs and Related Liabilities
|
March 31, 2021
|
|
December 31, 2020
|
Forward MSRs - fair value
|
$
|
3,354
|
|
|
$
|
2,703
|
|
Reverse MSRs - amortized cost
|
5
|
|
|
5
|
|
Mortgage servicing rights
|
$
|
3,359
|
|
|
$
|
2,708
|
|
|
|
|
|
Mortgage servicing liabilities - amortized cost
|
$
|
38
|
|
|
$
|
41
|
|
|
|
|
|
Excess spread financing - fair value
|
$
|
934
|
|
|
$
|
934
|
|
Mortgage servicing rights financing - fair value
|
23
|
|
|
33
|
|
MSR related liabilities - nonrecourse at fair value
|
$
|
957
|
|
|
$
|
967
|
|
Forward Mortgage Servicing Rights
The following table sets forth the activities of forward MSRs:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Forward MSRs - Fair Value
|
2021
|
|
2020
|
|
|
|
Fair value - beginning of period
|
$
|
2,703
|
|
|
$
|
3,496
|
|
|
|
|
Additions:
|
|
|
|
|
|
|
Servicing retained from mortgage loans sold
|
288
|
|
|
123
|
|
|
|
|
Purchases of servicing rights
|
67
|
|
|
24
|
|
|
|
|
Dispositions:
|
|
|
|
|
|
|
Sales of servicing assets
|
(2)
|
|
|
—
|
|
|
|
|
Changes in fair value:
|
|
|
|
|
|
|
Changes in valuation inputs or assumptions used in the valuation model
|
510
|
|
|
(401)
|
|
|
|
|
Other changes in fair value
|
(212)
|
|
|
(133)
|
|
|
|
|
Fair value - end of period
|
$
|
3,354
|
|
|
$
|
3,109
|
|
|
|
|
During the three months ended March 31, 2021 and 2020, the Company sold $50 and $40 in unpaid principal balance (“UPB”) of forward MSRs, of which none were retained by the Company as subservicer, respectively.
MSRs measured at fair value are segregated between investor type into agency and non-agency pools (referred to herein as “investor pools”) based upon contractual servicing agreements with investors at the respective balance sheet date to evaluate the MSR portfolio and fair value of the portfolio. Agency investors primarily consist of government sponsored enterprises (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan Mortgage Corp (“Freddie Mac” or “FHLMC”), and the Government National Mortgage Association (“Ginnie Mae” or “GNMA”). Non-agency investors consist of investors in private-label securitizations.
The following table provides a breakdown of UPB and fair value for the Company’s forward MSRs:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Forward MSRs - UPB and Fair Value Breakdown
|
UPB
|
|
Fair Value
|
|
UPB
|
|
Fair Value
|
Investor Pools
|
|
|
|
|
|
|
|
Agency
|
$
|
234,589
|
|
|
$
|
2,965
|
|
|
$
|
227,136
|
|
|
$
|
2,305
|
|
Non-agency
|
41,439
|
|
|
389
|
|
|
44,053
|
|
|
398
|
|
Total
|
$
|
276,028
|
|
|
$
|
3,354
|
|
|
$
|
271,189
|
|
|
$
|
2,703
|
|
Refer to Note 13, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in estimating the fair value of forward MSRs.
The following table shows the hypothetical effect on the fair value of the Company’s forward MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
Total Prepayment Speeds
|
|
Cost to Service per Loan
|
Forward MSRs - Hypothetical Sensitivities
|
100 bps
Adverse
Change
|
|
200 bps
Adverse
Change
|
|
10%
Adverse
Change
|
|
20%
Adverse
Change
|
|
10%
Adverse
Change
|
|
20%
Adverse
Change
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
$
|
(142)
|
|
|
$
|
(273)
|
|
|
$
|
(187)
|
|
|
$
|
(360)
|
|
|
$
|
(49)
|
|
|
$
|
(99)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
$
|
(100)
|
|
|
$
|
(192)
|
|
|
$
|
(181)
|
|
|
$
|
(347)
|
|
|
$
|
(45)
|
|
|
$
|
(89)
|
|
These hypothetical sensitivities should be evaluated with care. The effect on fair value of an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
Reverse Mortgage Servicing Rights and Liabilities - Amortized Cost
The Company services certain Home Equity Conversion Mortgage (“HECM”) reverse mortgage loans with an unpaid principal balance of $17,269 and $18,091 as of March 31, 2021 and December 31, 2020, respectively. The following table sets forth the activities of reverse MSRs and mortgage servicing liabilities (“MSL”):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2021
|
|
2020
|
Reverse MSRs and MSLs - Amortized Cost
|
Reverse MSRs
|
|
Reverse MSLs
|
|
Reverse MSRs
|
|
Reverse MSLs
|
Balance - beginning of period
|
$
|
5
|
|
|
$
|
41
|
|
|
$
|
6
|
|
|
$
|
61
|
|
Amortization/accretion
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(8)
|
|
Balance - end of the period
|
$
|
5
|
|
|
$
|
38
|
|
|
$
|
6
|
|
|
$
|
53
|
|
Fair value - end of period
|
$
|
5
|
|
|
$
|
38
|
|
|
$
|
6
|
|
|
$
|
27
|
|
Management evaluates reverse MSRs and MSLs each reporting period for impairment. Based on management’s assessment at March 31, 2021, no impairment or increased obligation was recorded.
Excess Spread Financing - Fair Value
The Company had excess spread financing liability of $934 as of March 31, 2021 and December 31, 2020. Refer to Note 13, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in the valuation of excess spread financing.
The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
Prepayment Speeds
|
Excess Spread Financing - Hypothetical Sensitivities
|
100 bps
Adverse
Change
|
|
200 bps
Adverse
Change
|
|
10%
Adverse
Change
|
|
20%
Adverse
Change
|
March 31, 2021
|
|
|
|
|
|
|
|
Excess spread financing
|
$
|
33
|
|
|
$
|
68
|
|
|
$
|
36
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
Excess spread financing
|
$
|
30
|
|
|
$
|
62
|
|
|
$
|
41
|
|
|
$
|
84
|
|
These hypothetical sensitivities should be evaluated with care. The effect on fair value of an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing. Excess spread financing’s cash flow assumptions that are utilized in determining fair value are based on the related cash flow assumptions used in the financed MSRs. Any fair value change recognized in the financed MSRs attributable to related cash flows assumptions would inherently have an inverse impact on the carrying amount of the related excess spread financing.
Mortgage Servicing Rights Financing - Fair Value
The Company had MSR financing liability of $23 and $33 as of March 31, 2021 and December 31, 2020, respectively. Refer to Note 13, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in the valuation of the MSR financing liability.
Servicing Segment Revenues
The following table sets forth the items comprising total revenues for the Servicing segment:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Total Revenues - Servicing
|
2021
|
|
2020
|
|
|
|
|
Contractually specified servicing fees(1)
|
$
|
276
|
|
|
$
|
297
|
|
|
|
|
|
Other service-related income(1)
|
145
|
|
|
49
|
|
|
|
|
|
Incentive and modification income(1)
|
14
|
|
|
10
|
|
|
|
|
|
Late fees(1)
|
18
|
|
|
27
|
|
|
|
|
|
Reverse servicing fees
|
5
|
|
|
6
|
|
|
|
|
|
Mark-to-market adjustments(2)
|
354
|
|
|
(383)
|
|
|
|
|
|
Counterparty revenue share(3)
|
(83)
|
|
|
(76)
|
|
|
|
|
|
Amortization, net of accretion(4)
|
(153)
|
|
|
(76)
|
|
|
|
|
|
Total revenues - Servicing
|
$
|
576
|
|
|
$
|
(146)
|
|
|
|
|
|
(1)The Company recognizes revenue on an earned basis for services performed. Amounts include subservicing related revenues.
(2)Mark-to-market (“MTM”) adjustments include fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $12 and $10 during the three months ended March 31, 2021 and 2020, respectively.
(3)Counterparty revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSR financing arrangements.
(4)Amortization is net of excess spread accretion of $76 and $68 and MSL accretion of $3 and $8 during the three months ended March 31, 2021 and 2020, respectively.
3. Advances and Other Receivables
Advances and other receivables, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Advances and Other Receivables, Net
|
March 31, 2021
|
|
December 31, 2020
|
Servicing advances, net of $63 and $72 purchase discount, respectively
|
$
|
882
|
|
|
$
|
975
|
|
Receivables from agencies, investors and prior servicers, net of $20 and $21 purchase discount, respectively
|
162
|
|
|
173
|
|
Reserves
|
(206)
|
|
|
(208)
|
|
Total advances and other receivables, net
|
$
|
838
|
|
|
$
|
940
|
|
The following table sets forth the activities of the servicing reserves for advances and other receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Reserves for Advances and Other Receivables
|
2021
|
|
2020
|
Balance - beginning of period
|
$
|
208
|
|
|
$
|
168
|
|
Provision and other additions(1)
|
15
|
|
|
30
|
|
Write-offs
|
(17)
|
|
|
(5)
|
|
Balance - end of period
|
$
|
206
|
|
|
$
|
193
|
|
(1)The Company recorded a provision of $12 and $10 through the MTM adjustments in revenues - service related, net, in the unaudited condensed consolidated statements of operations during the three months ended March 31, 2021 and 2020, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.
Purchase Discount for Advances and Other Receivables
The following tables set forth the activities of the purchase discounts for advances and other receivables:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2021
|
|
2020
|
Purchase Discount for Advances and Other Receivables
|
Servicing Advances
|
|
Receivables from Agencies, Investors and Prior Servicers
|
|
Servicing Advances
|
|
Receivables from Agencies, Investors and Prior Servicers
|
Balance - beginning of period
|
$
|
72
|
|
|
$
|
21
|
|
|
$
|
131
|
|
|
$
|
21
|
|
Utilization of purchase discounts
|
(9)
|
|
|
(1)
|
|
|
(6)
|
|
|
—
|
|
Balance - end of period
|
$
|
63
|
|
|
$
|
20
|
|
|
$
|
125
|
|
|
$
|
21
|
|
Credit Loss for Advances and Other Receivables
During the three months ended March 31, 2021 and 2020, the Company increased the current expected credit loss (“CECL”) reserve by $1 and $6, respectively. As of March 31, 2021, the total CECL reserve was $39, of which $22 and $17 were recorded in reserves and purchase discount for advances and other receivables, respectively. As of March 31, 2020, the total CECL reserve was $23, of which $6 and $17 were recorded in reserves and purchase discount for advances and other receivables, respectively.
The Company determined that the credit-related risk associated with applicable financial instruments typically increase with the passage of time. The CECL reserve methodology considers these financial instruments collectible to a point in time of 39 months. Any projected remaining balance at the end of the collection period is considered a loss and factors into the overall CECL loss rate required.
4. Reverse Mortgage Interests
Reverse mortgage interests, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Reverse Mortgage Interests, Net
|
March 31, 2021
|
|
December 31, 2020
|
Participating interests in HECM mortgage-backed securities (“HMBS”)
|
$
|
3,304
|
|
|
$
|
3,471
|
|
Unsecuritized interests
|
972
|
|
|
964
|
|
Other interests securitized
|
908
|
|
|
945
|
|
Purchase discount, net
|
(93)
|
|
|
(127)
|
|
Total reverse mortgage interests, net
|
$
|
5,091
|
|
|
$
|
5,253
|
|
Participating Interests in HMBS
The Company does not originate reverse mortgages, but during the three months ended March 31, 2021 and 2020, a total of $33 and $52 in UPB associated with new draws on existing loans was transferred to GNMA and securitized by the Company, respectively.
Other Interests Securitized
The reverse mortgage interests under other interest securitized have been transferred to private securitization trusts and are accounted for as a secured borrowing. No such securitization occurred during the three months ended March 31, 2021 and 2020.
Unsecuritized Interests
Unsecuritized interests in reverse mortgages consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Unsecuritized Interests
|
March 31, 2021
|
|
December 31, 2020
|
Repurchased HECM loans (exceeds 98% of their Max Claim Amount (“MCA”))
|
$
|
699
|
|
|
$
|
665
|
|
HECM related receivables(1)
|
180
|
|
|
208
|
|
Funded borrower draws not yet securitized
|
77
|
|
|
72
|
|
Real estate owned (“REO”) related receivables
|
16
|
|
|
19
|
|
Total unsecuritized interests
|
$
|
972
|
|
|
$
|
964
|
|
(1)HECM related receivables consist primarily of receivables from FNMA for corporate advances and service fees and claims receivables from the U.S. Department of Housing and Urban Development (“HUD”) on reverse mortgage interests.
The Company repurchased a total of $216 and $383 of HECM loans out of GNMA HMBS securitizations during the three months ended March 31, 2021 and 2020, respectively, of which $66 and $103 were subsequently assigned to a third party in accordance with applicable servicing agreements, respectively. To the extent a loan is not subject to applicable servicing agreements and assigned to a third party, the loan is either subject to assignment to HUD, per contractual obligations with GNMA, liquidated via a payoff from the borrower or liquidated via a foreclosure according to the terms of the underlying mortgage. The Company assigned a total of $137 and $266 of HECM loans to HUD during the three months ended March 31, 2021 and 2020, respectively.
Purchase Discount, net, for Reverse Mortgage Interests
The following table sets forth the activities of the purchase discounts, net, for reverse mortgage interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Purchase Discount, Net, for Reverse Mortgage Interests(1)
|
2021
|
|
2020
|
Balance - beginning of period
|
$
|
(127)
|
|
|
$
|
(114)
|
|
Utilization of purchase discounts(2)
|
35
|
|
|
10
|
|
Amortization, net of accretion
|
(1)
|
|
|
(25)
|
|
Balance - end of period
|
$
|
(93)
|
|
|
$
|
(129)
|
|
(1)Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans.
(2)Utilization of purchase discounts on liquidated loans, for which the remaining receivable was written off.
Credit Loss for Reverse Mortgage Interests
The Company determined that credit-related losses are immaterial given the government insured nature of the HECM loan product. Any expected credit-related losses are contemplated in the Company’s existing reserve methodology due to the nature of this financial instrument. Accordingly, no cumulative effect adjustment was required upon adoption of CECL related accounting guidance on January 1, 2020 and no additional CECL reserve was recorded as of March 31, 2021 and 2020.
The credit-risk characteristics of reverse mortgage interests do not vary with time as the financial instruments have no contractual life or financial profile as the primary counterparty is the government agency insuring the loans.
Reverse Mortgage Interest Income
Total interest earned on the Company’s participating interest in reverse mortgages was $40 and $62 during the three months ended March 31, 2021 and 2020, respectively.
5. Mortgage Loans Held for Sale
Mortgage loans held for sale are recorded at fair value as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans Held for Sale
|
March 31, 2021
|
|
December 31, 2020
|
Mortgage loans held for sale – UPB
|
$
|
6,204
|
|
|
$
|
5,438
|
|
Mark-to-market adjustment(1)
|
147
|
|
|
282
|
|
Total mortgage loans held for sale
|
$
|
6,351
|
|
|
$
|
5,720
|
|
(1)The mark-to-market adjustment includes net change in unrealized gain/loss, premium on correspondent loans and fees on direct-to-consumer loans. The mark-to-market adjustment is recorded in net gain on mortgage loans held for sale in the unaudited condensed consolidated statements of operations.
The following table sets forth the activities of mortgage loans held for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Mortgage Loans Held for Sale
|
2021
|
|
2020
|
Balance - beginning of period
|
$
|
5,720
|
|
|
$
|
4,077
|
|
Loans sold
|
(26,734)
|
|
|
(13,510)
|
|
Mortgage loans originated and purchased, net of fees
|
25,214
|
|
|
12,375
|
|
Repurchase of loans out of Ginnie Mae securitizations
|
2,255
|
|
|
919
|
|
Net change in unrealized (loss) gain on loans held for sale
|
(105)
|
|
|
61
|
|
Net transfers of mortgage loans held for sale(1)
|
1
|
|
|
—
|
|
Balance - end of period
|
$
|
6,351
|
|
|
$
|
3,922
|
|
(1)Amount reflects transfers to other assets for loans transitioning into REO status and transfers to advances and other receivables, net, for claims made on certain government insurance mortgage loans. Transfers out are net of transfers in upon receipt of proceeds from an REO sale or claim filing.
During the three months ended March 31, 2021 and 2020, the Company received proceeds of $27,152 and $13,724, respectively, on the sale of mortgage loans held for sale, resulting in gains of $418 and $214, respectively.
The total UPB and fair value of mortgage loans held for sale on non-accrual status was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Mortgage Loans Held for Sale
|
UPB
|
|
Fair Value
|
|
UPB
|
|
Fair Value
|
Non-accrual(1)
|
$
|
67
|
|
|
$
|
54
|
|
|
$
|
64
|
|
|
$
|
54
|
|
(1)Non-accrual UPB includes $48 of UPB related to Ginnie Mae repurchased loans as of March 31, 2021 and December 31, 2020.
The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $18 and $20 as of March 31, 2021 and December 31, 2020, respectively.
6. Loans Subject to Repurchase from Ginnie Mae
Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. The Company, as the issuer of the mortgage backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including payments not being received from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its condensed consolidated balance sheets and establishes a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The Company had loans subject to repurchase from Ginnie Mae of $5,816 and $6,159 as of March 31, 2021 and December 31, 2020, respectively, which are included in both other assets and payables and other liabilities in the condensed consolidated balance sheets. Loans subject to repurchase from Ginnie Mae as of March 31, 2021 and December 31, 2020 include $5,557 and $5,879 loans in forbearance related to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), respectively, whereby no payments have been received from borrowers for greater than 90 days.
7. Goodwill and Intangible Assets
The Company had goodwill of $120 as of March 31, 2021 and December 31, 2020. The Company had intangible assets of $30 and $34 as of March 31, 2021 and December 31, 2020, respectively. Goodwill and intangible assets are included in other assets within the condensed consolidated balance sheets.
8. Derivative Financial Instruments
Derivative instruments are used as part of the overall strategy to manage exposure to market risks primarily associated with fluctuations in interest rates related to originations. Derivative instruments utilized by the Company primarily include interest rate lock commitments (“IRLCs”), loan purchase commitments (“LPCs”), forward Mortgage Backed Securities (“MBS”) purchase commitments, Eurodollar and Treasury futures and interest rate swap agreements.
The following tables provide the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses) for the derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
Three Months Ended March 31, 2021
|
Derivative Financial Instruments
|
Expiration
Dates
|
|
Outstanding
Notional
|
|
Fair
Value
|
|
|
|
Gains/(Losses)
|
Assets
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
Loan sale commitments
|
2021
|
|
$
|
2,341
|
|
|
$
|
42
|
|
|
|
|
$
|
(60)
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
IRLCs
|
2021
|
|
8,950
|
|
|
232
|
|
|
|
|
(182)
|
|
LPCs
|
2021
|
|
1,165
|
|
|
8
|
|
|
|
|
(30)
|
|
Forward MBS trades
|
2021
|
|
22,566
|
|
|
286
|
|
|
|
|
249
|
|
Total derivative financial instruments - assets
|
|
|
$
|
32,681
|
|
|
$
|
526
|
|
|
|
|
$
|
37
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
IRLCs
|
2021
|
|
$
|
240
|
|
|
$
|
1
|
|
|
|
|
$
|
1
|
|
LPCs
|
2021
|
|
3,974
|
|
|
38
|
|
|
|
|
37
|
|
Forward MBS trades
|
2021
|
|
6,341
|
|
|
76
|
|
|
|
|
(80)
|
|
Swap futures
|
2021
|
|
60
|
|
|
1
|
|
|
|
|
1
|
|
Total derivative financial instruments - liabilities
|
|
|
$
|
10,615
|
|
|
$
|
116
|
|
|
|
|
$
|
(41)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
Three Months Ended March 31, 2020
|
Derivative Financial Instruments
|
Expiration
Dates
|
|
Outstanding
Notional
|
|
Fair
Value
|
|
Gains/(Losses)
|
Assets
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
Loan sale commitments
|
2020
|
|
$
|
2,598
|
|
|
$
|
111
|
|
|
$
|
79
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
2020
|
|
6,923
|
|
|
263
|
|
|
128
|
|
LPCs
|
2020
|
|
834
|
|
|
25
|
|
|
13
|
|
Forward MBS trades
|
2020
|
|
886
|
|
|
6
|
|
|
—
|
|
Eurodollar futures
|
2020-2021
|
|
6
|
|
|
—
|
|
|
—
|
|
Total derivative financial instruments - assets
|
|
|
$
|
8,649
|
|
|
$
|
294
|
|
|
$
|
141
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
2020
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
LPCs
|
2020
|
|
10
|
|
|
—
|
|
|
(3)
|
|
Forward MBS trades
|
2020
|
|
10,229
|
|
|
223
|
|
|
211
|
|
Eurodollar futures
|
2020-2021
|
|
6
|
|
|
—
|
|
|
—
|
|
Total derivative financial instruments - liabilities
|
|
|
$
|
10,267
|
|
|
$
|
223
|
|
|
$
|
208
|
|
As of March 31, 2021, the Company held $2 and $113 in collateral deposits and collateral obligations on derivative instruments, respectively. As of December 31, 2020 the Company held $61 in collateral deposits on derivative instruments. Collateral deposits and collateral obligations are recorded in other assets and payable and other liabilities, respectively, in the Company’s condensed consolidated balance sheets. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the condensed consolidated balance sheets.
9. Indebtedness
Advance and Warehouse Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Interest Rate
|
|
Maturity Date
|
|
Collateral
|
|
Capacity Amount
|
|
Outstanding
|
|
Collateral Pledged
|
|
Outstanding
|
|
Collateral Pledged
|
Advance Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$875 advance facility
|
|
CP+2.0% to 6.5%
|
|
January 2022
|
|
Servicing advance receivables
|
|
$
|
875
|
|
|
$
|
140
|
|
|
$
|
165
|
|
|
$
|
168
|
|
|
$
|
195
|
|
$640 advance facility(1)
|
|
LIBOR+3.9%
|
|
August 2022
|
|
Servicing advance receivables
|
|
640
|
|
|
231
|
|
|
299
|
|
|
235
|
|
|
305
|
|
$425 advance facility
|
|
LIBOR+1.6% to 6.5%
|
|
October 2021
|
|
Servicing advance receivables
|
|
425
|
|
|
197
|
|
|
250
|
|
|
192
|
|
|
246
|
|
$100 advance facility
|
|
LIBOR+2.5%
|
|
January 2022
|
|
Servicing advance receivables
|
|
100
|
|
|
70
|
|
|
92
|
|
|
74
|
|
|
98
|
|
Advance facilities principal amount
|
|
|
|
|
|
638
|
|
|
806
|
|
|
669
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2,500 warehouse facility(2)
|
|
LIBOR+1.6% to 1.9%
|
|
October 2021
|
|
Mortgage loans or MBS
|
|
2,500
|
|
|
1,442
|
|
|
1,495
|
|
|
1,003
|
|
|
1,037
|
|
$2,000 warehouse facility
|
|
LIBOR+1.6% to 2.0%
|
|
February 2023
|
|
Mortgage loans or MBS
|
|
2,000
|
|
|
940
|
|
|
1,055
|
|
|
339
|
|
|
392
|
|
$1,500 warehouse facility
|
|
LIBOR+1.5%
|
|
June 2021
|
|
Mortgage loans or MBS
|
|
1,500
|
|
|
867
|
|
|
838
|
|
|
1,081
|
|
|
1,028
|
|
$1,350 warehouse facility(3)
|
|
LIBOR+1.7% to 3.9%
|
|
September 2022
|
|
Mortgage loans or MBS
|
|
1,350
|
|
|
918
|
|
|
990
|
|
|
1,067
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Interest Rate
|
|
Maturity Date
|
|
Collateral
|
|
Capacity Amount
|
|
Outstanding
|
|
Collateral Pledged
|
|
Outstanding
|
|
Collateral Pledged
|
$1,200 warehouse facility
|
|
LIBOR+1.8% to 3.0%
|
|
November 2021
|
|
Mortgage loans or MBS
|
|
1,200
|
|
|
497
|
|
|
543
|
|
|
787
|
|
|
839
|
|
$750 warehouse facility
|
|
LIBOR+1.8% to 2.3%
|
|
August 2021
|
|
Mortgage loans or MBS
|
|
750
|
|
|
612
|
|
|
631
|
|
|
477
|
|
|
492
|
|
$750 warehouse facility
|
|
LIBOR+1.7% to 2.8%
|
|
October 2021
|
|
Mortgage loans or MBS
|
|
750
|
|
|
535
|
|
|
549
|
|
|
562
|
|
|
574
|
|
$600 warehouse facility
|
|
LIBOR+2.5%
|
|
February 2022
|
|
Mortgage loans or MBS
|
|
600
|
|
|
332
|
|
|
374
|
|
|
187
|
|
|
222
|
|
$500 warehouse facility
|
|
LIBOR+2.5% to 4.0%
|
|
May 2021
|
|
Mortgage loans or MBS
|
|
500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$300 warehouse facility
|
|
LIBOR+1.4%
|
|
January 2022
|
|
Mortgage loans or MBS
|
|
300
|
|
|
129
|
|
|
130
|
|
|
163
|
|
|
164
|
|
$250 warehouse facility
|
|
LIBOR+1.4% to 2.3%
|
|
May 2021
|
|
Mortgage loans or MBS
|
|
250
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
$200 warehouse facility
|
|
LIBOR+1.8%
|
|
July 2021
|
|
Mortgage loans or MBS
|
|
200
|
|
|
169
|
|
|
173
|
|
|
131
|
|
|
134
|
|
$50 warehouse facility
|
|
LIBOR+1.8% to 4.8%
|
|
June 2021
|
|
Mortgage loans or MBS
|
|
50
|
|
|
36
|
|
|
43
|
|
|
37
|
|
|
42
|
|
$30 warehouse facility(4)
|
|
LIBOR+3.3%
|
|
January 2022
|
|
Mortgage loans or MBS
|
|
30
|
|
|
2
|
|
|
2
|
|
|
1
|
|
|
1
|
|
Warehouse facilities principal amount
|
|
6,480
|
|
|
6,824
|
|
|
5,835
|
|
|
6,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$260 warehouse facility(1)
|
|
LIBOR+3.9%
|
|
August 2022
|
|
MSR
|
|
260
|
|
260
|
|
838
|
|
260
|
|
668
|
$200 warehouse facility
|
|
LIBOR+3.5%
|
|
August 2021
|
|
MSR
|
|
200
|
|
—
|
|
471
|
|
—
|
|
247
|
$150 warehouse facility(3)
|
|
LIBOR+3.8%
|
|
September 2022
|
|
MSR
|
|
150
|
|
—
|
|
438
|
|
—
|
|
228
|
$50 warehouse facility
|
|
LIBOR+3.3%
|
|
November 2022
|
|
MSR
|
|
50
|
|
10
|
|
80
|
|
10
|
|
74
|
MSR facilities principal amount
|
|
270
|
|
1,827
|
|
270
|
|
1,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance, warehouse and MSR facilities principal amount
|
|
7,388
|
|
|
$
|
9,457
|
|
6,774
|
|
|
$
|
8,114
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
|
|
(9)
|
|
|
|
(11)
|
|
|
|
Advance and warehouse facilities, net
|
|
$
|
7,379
|
|
|
|
$
|
6,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged Collateral for warehouse and MSR facilities:
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
$
|
5,970
|
|
|
$
|
6,210
|
|
|
$
|
5,330
|
|
|
$
|
5,447
|
|
Reverse mortgage interests
|
|
|
|
|
|
|
|
510
|
|
|
614
|
|
|
505
|
|
|
606
|
|
MSR
|
|
|
|
|
|
|
|
270
|
|
|
1,827
|
|
|
270
|
|
|
1,217
|
|
(1)Total capacity for this facility is $900, of which $640 is internally allocated for advance financing and $260 is internally allocated for MSR financing; capacity is fully fungible and is not restricted by these allocations.
(2)The capacity amount for this warehouse facility increased from $1,500 to $2,500 in 2021.
(3)Total capacity amount for this facility is $1,500, of which $150 is a sublimit for MSR financing.
(4)The capacity amount for this warehouse facility decreased from $40 to $30 in 2021.
Unsecured Senior Notes
Unsecured senior notes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Senior Notes
|
March 31, 2021
|
|
December 31, 2020
|
$850 face value, 5.500% interest rate payable semi-annually, due August 2028
|
$
|
850
|
|
|
$
|
850
|
|
$650 face value, 5.125% interest rate payable semi-annually, due December 2030
|
650
|
|
|
650
|
|
$600 face value, 6.000% interest rate payable semi-annually, due January 2027
|
600
|
|
|
600
|
|
Unsecured senior notes principal amount
|
2,100
|
|
|
2,100
|
|
Unamortized debt issuance costs
|
(26)
|
|
|
(26)
|
|
Unsecured senior notes, net
|
$
|
2,074
|
|
|
$
|
2,074
|
|
The indentures provide that on or before certain fixed dates, the Company may redeem up to 40% of the aggregate principal amount of the unsecured senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest, to the redemption dates, subject to compliance with certain conditions. In addition, the Company may redeem all or a portion of the unsecured senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. No notes were repurchased or redeemed during the three months ended March 31, 2021. During the three months ended March 31, 2020, the Company repaid $100 in principal of outstanding notes. Additionally, the Company redeemed $598 in principal of outstanding notes during the three months ended March 31, 2020, resulting in a gain of $1.
As of March 31, 2021, the expected maturities of the Company’s unsecured senior notes based on contractual maturities are as follows:
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2021 through 2025
|
|
$
|
—
|
|
Thereafter
|
|
2,100
|
|
Total unsecured senior notes principal amount
|
|
$
|
2,100
|
|
Other Nonrecourse Debt
Other nonrecourse debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Other Nonrecourse Debt
|
Issue Date
|
|
Maturity Date
|
|
Interest Rate
|
|
Class of Note
|
|
Collateral Amount
|
|
Outstanding
|
|
Outstanding
|
Participating interest financing(1)
|
—
|
|
—
|
|
0.3%-5.6%
|
|
—
|
|
$
|
—
|
|
|
$
|
3,306
|
|
|
$
|
3,473
|
|
Securitization of nonperforming HECM loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust 2020-1
|
September 2020
|
|
September 2030
|
|
1.3%-7.5%
|
|
A, M1, M2, M3, M4, M5
|
|
489
|
|
|
471
|
|
|
490
|
|
Trust 2019-2
|
November 2019
|
|
November 2029
|
|
2.3%-6.0%
|
|
A, M1, M2, M3, M4, M5
|
|
254
|
|
|
232
|
|
|
241
|
|
Trust 2019-1
|
June 2019
|
|
June 2029
|
|
2.7%-6.0%
|
|
A, M1, M2, M3, M4, M5
|
|
231
|
|
|
203
|
|
|
212
|
|
Other nonrecourse debt principal amount
|
|
|
|
|
|
|
|
|
|
|
4,212
|
|
|
4,416
|
|
Unamortized premium, net of debt issuance costs and discount
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
8
|
|
Other nonrecourse debt, net
|
|
|
|
|
|
|
|
|
|
|
$
|
4,221
|
|
|
$
|
4,424
|
|
(1)Amounts represent the Company’s participating interest in GNMA HMBS securitized portfolios.
Financial Covenants
The Company’s credit facilities contain various financial covenants which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements, which are measured at the Company’s operating subsidiary, Nationstar Mortgage LLC. The Company was in compliance with its required financial covenants as of March 31, 2021.
10. Securitizations and Financings
Variable Interest Entities
In the normal course of business, the Company enters into various types of on- and off-balance sheet transactions with special purpose entities (“SPEs”) determined to be VIEs, which primarily consist of securitization trusts established for a limited purpose. Generally, these SPEs are formed for the purpose of securitization transactions in which the Company transfers assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets.
The Company has determined that the SPEs created in connection with certain advance facilities trusts should be consolidated as the Company is the primary beneficiary of each of these entities. Also, the Company consolidated certain reverse mortgage SPEs as it is the primary beneficiary of each of these entities. These SPEs include the Nationstar HECM Loan Trusts.
A summary of the assets and liabilities of the Company’s transactions with VIEs included in the Company’s condensed consolidated balance sheets is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Consolidated Transactions with VIEs
|
Transfers
Accounted for as
Secured
Borrowings
|
|
Reverse Secured Borrowings
|
|
Transfers
Accounted for as
Secured
Borrowings
|
|
Reverse Secured Borrowings
|
Assets
|
|
|
|
|
|
|
|
Restricted cash
|
$
|
80
|
|
|
$
|
27
|
|
|
$
|
47
|
|
|
$
|
23
|
|
Advances and other receivables, net
|
415
|
|
|
—
|
|
|
441
|
|
|
—
|
|
Reverse mortgage interests, net(1)
|
—
|
|
|
4,159
|
|
|
—
|
|
|
4,356
|
|
Total assets
|
$
|
495
|
|
|
$
|
4,186
|
|
|
$
|
488
|
|
|
$
|
4,379
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Advance facilities(2)
|
$
|
337
|
|
|
$
|
—
|
|
|
$
|
358
|
|
|
$
|
—
|
|
Payables and other liabilities
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Participating interest financing
|
—
|
|
|
3,306
|
|
|
—
|
|
|
3,473
|
|
HECM Securitizations (HMBS)
|
|
|
|
|
|
|
|
Trust 2020-1
|
—
|
|
|
471
|
|
|
—
|
|
|
490
|
|
Trust 2019-2
|
—
|
|
|
232
|
|
|
—
|
|
|
241
|
|
Trust 2019-1
|
—
|
|
|
203
|
|
|
—
|
|
|
212
|
|
Total liabilities
|
$
|
337
|
|
|
$
|
4,212
|
|
|
$
|
359
|
|
|
$
|
4,416
|
|
(1)Amounts include net purchase discount of $53 and $61 as of March 31, 2021 and December 31, 2020, respectively.
(2)Refer to advance facilities in Note 9, Indebtedness, for additional information.
The following table shows a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated Securitization Trusts
|
March 31, 2021
|
|
December 31, 2020
|
Total collateral balances - UPB
|
$
|
1,283
|
|
|
$
|
1,326
|
|
Total certificate balances
|
$
|
1,281
|
|
|
$
|
1,329
|
|
The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of March 31, 2021 and December 31, 2020 and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs.
A summary of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 60 days or more past due are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of Transferred Loans 60 Days or More Past Due
|
March 31, 2021
|
|
December 31, 2020
|
Unconsolidated securitization trusts
|
$
|
147
|
|
|
$
|
154
|
|
11. Earnings Per Share
The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series A Preferred Stock is considered participating securities because it has dividend rights determined on an as-converted basis in the event of Company’s declaration of a dividend or distribution for common shares. On March 26, 2021, the Company repurchased 3,700 thousand shares of its common stock from affiliates of Kohlberg Kravis Roberts & Co. L.P., a related party of the Company, for a total cost of $119 or $32.25 per share.
The following table sets forth the computation of basic and diluted net income (loss) per common share (amounts in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Computation of Earnings Per Share
|
2021
|
|
2020
|
|
|
|
|
Net income (loss) attributable to Mr. Cooper
|
$
|
561
|
|
|
$
|
(168)
|
|
|
|
|
|
Less: Undistributed earnings attributable to participating stockholders
|
5
|
|
|
—
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
556
|
|
|
$
|
(168)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share attributable to Mr. Cooper:
|
|
|
|
|
|
|
|
Basic
|
$
|
6.22
|
|
|
$
|
(1.84)
|
|
|
|
|
|
Diluted
|
$
|
5.92
|
|
|
$
|
(1.84)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding (in thousands):
|
|
|
|
|
|
|
|
Basic
|
89,458
|
|
|
91,385
|
|
|
|
|
|
Dilutive effect of stock awards(1)
|
3,590
|
|
|
—
|
|
|
|
|
|
Dilutive effect of participating securities(1)
|
839
|
|
|
—
|
|
|
|
|
|
Diluted
|
93,887
|
|
|
91,385
|
|
|
|
|
|
(1)For periods with net loss, the Company excluded potential common shares from the computation of diluted EPS because inclusion would be antidilutive.
12. Income Taxes
For the three months ended March 31, 2021, the effective tax rate, based on whole numbers, was 22.9% which differed from the statutory federal rate of 21% primarily due to state income taxes, as well as unfavorable permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m). The effective tax rate decreased during the three months ended March 31, 2021 compared to the same period in 2020, primarily due to quarterly discrete tax items related to the excess tax benefit from stock-based compensation and the recognition of a deferred tax asset for the investment in subsidiaries as it relates to the Title Transaction.
For the three months ended March 31, 2020, the effective tax rate, based on whole numbers, was 28.4% which differed from the statutory federal rate of 21% primarily due to permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m) and nondeductible meals and entertainment expenses, as well as other recurring items such as the state tax benefit.
13. Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).
There have been no significant changes to the valuation techniques and inputs used by the Company in estimating fair values of Level 2 and Level 3 assets and liabilities as disclosed in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2020.
The following tables present the estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
Recurring Fair Value Measurements
|
Fair Value - Recurring Basis
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
$
|
6,351
|
|
|
$
|
—
|
|
|
$
|
6,351
|
|
|
$
|
—
|
|
Forward mortgage servicing rights
|
3,354
|
|
|
—
|
|
|
—
|
|
|
3,354
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
232
|
|
|
—
|
|
|
—
|
|
|
232
|
|
Forward MBS trades
|
286
|
|
|
—
|
|
|
286
|
|
|
—
|
|
LPCs
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Forward MBS trades
|
76
|
|
|
—
|
|
|
76
|
|
|
—
|
|
LPCs
|
38
|
|
|
—
|
|
|
—
|
|
|
38
|
|
Swap futures
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Mortgage servicing rights financing
|
23
|
|
|
—
|
|
|
—
|
|
|
23
|
|
Excess spread financing
|
934
|
|
|
—
|
|
|
—
|
|
|
934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Recurring Fair Value Measurements
|
Fair Value - Recurring Basis
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
$
|
5,720
|
|
|
$
|
—
|
|
|
$
|
5,720
|
|
|
$
|
—
|
|
Forward mortgage servicing rights
|
2,703
|
|
|
—
|
|
|
—
|
|
|
2,703
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
414
|
|
|
—
|
|
|
—
|
|
|
414
|
|
Forward MBS trades
|
37
|
|
|
—
|
|
|
37
|
|
|
—
|
|
LPCs
|
38
|
|
|
—
|
|
|
—
|
|
|
38
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
Forward MBS trades
|
156
|
|
|
—
|
|
|
156
|
|
|
—
|
|
LPCs
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Mortgage servicing rights financing
|
33
|
|
|
—
|
|
|
—
|
|
|
33
|
|
Excess spread financing
|
934
|
|
|
—
|
|
|
—
|
|
|
934
|
|
The tables below present a reconciliation for all of the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
Assets
|
|
Liabilities
|
Fair Value - Level 3 Assets and Liabilities
|
Forward mortgage servicing rights
|
|
IRLCs
|
|
LPCs
|
|
Excess spread financing
|
|
Mortgage servicing rights financing
|
|
LPCs
|
Balance - beginning of period
|
$
|
2,703
|
|
|
$
|
414
|
|
|
$
|
38
|
|
|
$
|
934
|
|
|
$
|
33
|
|
|
$
|
1
|
|
Total gains or losses included in earnings
|
298
|
|
|
(182)
|
|
|
(30)
|
|
|
41
|
|
|
(10)
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, issuances, sales, repayments and settlements
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
67
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuances
|
288
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Sales
|
(2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlements and repayments
|
—
|
|
|
—
|
|
|
—
|
|
|
(41)
|
|
|
—
|
|
|
—
|
|
Balance - end of period
|
$
|
3,354
|
|
|
$
|
232
|
|
|
$
|
8
|
|
|
$
|
934
|
|
|
$
|
23
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Assets
|
|
Liabilities
|
Fair Value - Level 3 Assets and Liabilities
|
Forward mortgage servicing rights
|
|
Excess spread financing
|
|
Mortgage servicing rights financing
|
Balance - beginning of period
|
$
|
3,496
|
|
|
$
|
1,311
|
|
|
$
|
37
|
|
Total gains or losses included in earnings
|
(534)
|
|
|
(35)
|
|
|
6
|
|
Purchases, issuances, sales, repayments and settlements
|
|
|
|
|
|
Purchases
|
24
|
|
|
—
|
|
|
—
|
|
Issuances
|
123
|
|
|
24
|
|
|
—
|
|
Settlements and repayments
|
—
|
|
|
(58)
|
|
|
—
|
|
Balance - end of period
|
$
|
3,109
|
|
|
$
|
1,242
|
|
|
$
|
43
|
|
No transfers were made in or out of Level 3 fair value assets and liabilities for the Company during the three months ended March 31, 2021 and 2020.
The tables below present the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Range
|
|
Weighted Average
|
|
Range
|
|
Weighted Average
|
Level 3 Inputs
|
Min
|
|
Max
|
|
|
Min
|
|
Max
|
|
Forward MSR
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
8.2
|
%
|
|
12.0
|
%
|
|
9.3
|
%
|
|
8.2
|
%
|
|
12.0
|
%
|
|
9.4
|
%
|
Prepayment speed
|
10.5
|
%
|
|
17.7
|
%
|
|
12.4
|
%
|
|
14.2
|
%
|
|
21.3
|
%
|
|
15.4
|
%
|
Cost to service per loan(1)
|
$
|
64
|
|
|
$
|
226
|
|
|
$
|
92
|
|
|
$
|
66
|
|
|
$
|
257
|
|
|
$
|
98
|
|
Average life(2)
|
|
|
|
|
5.9 years
|
|
|
|
|
|
5.0 years
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs
|
|
|
|
|
|
|
|
|
|
|
|
Value of servicing (basis points per loan)
|
(1.3)
|
|
|
2.2
|
|
|
1.2
|
|
|
(1.0)
|
|
|
2.2
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess spread financing
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
9.6
|
%
|
|
15.7
|
%
|
|
11.9
|
%
|
|
9.9
|
%
|
|
15.7
|
%
|
|
12.2
|
%
|
Prepayment speed
|
11.3
|
%
|
|
14.6
|
%
|
|
12.5
|
%
|
|
13.9
|
%
|
|
15.0
|
%
|
|
14.4
|
%
|
Recapture rate
|
17.1
|
%
|
|
23.1
|
%
|
|
19.0
|
%
|
|
17.7
|
%
|
|
24.2
|
%
|
|
19.5
|
%
|
Average life(2)
|
|
|
|
|
5.7 years
|
|
|
|
|
|
5.1 years
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights financing
|
|
|
|
|
|
|
|
|
|
|
|
Advance financing and counterparty fee rates
|
4.1
|
%
|
|
8.4
|
%
|
|
7.4
|
%
|
|
4.6
|
%
|
|
8.5
|
%
|
|
7.5
|
%
|
Annual advance recovery rates
|
18.1
|
%
|
|
22.0
|
%
|
|
19.9
|
%
|
|
18.3
|
%
|
|
22.0
|
%
|
|
19.9
|
%
|
(1)Presented in whole dollar amounts.
(2)Average life is included for informational purposes.
The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial instruments not carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
Carrying
Amount
|
|
Fair Value
|
Financial Instruments
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
674
|
|
|
$
|
674
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
261
|
|
|
261
|
|
|
—
|
|
|
—
|
|
Advances and other receivables, net
|
838
|
|
|
—
|
|
|
—
|
|
|
838
|
|
Reverse mortgage interests, net
|
5,091
|
|
|
—
|
|
|
—
|
|
|
5,166
|
|
Loans subject to repurchase from Ginnie Mae
|
5,816
|
|
|
—
|
|
|
5,816
|
|
|
—
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Unsecured senior notes, net
|
2,074
|
|
|
2,120
|
|
|
—
|
|
|
—
|
|
Advance and warehouse facilities, net
|
7,379
|
|
|
—
|
|
|
7,388
|
|
|
—
|
|
Liability for loans subject to repurchase from Ginnie Mae
|
5,816
|
|
|
—
|
|
|
5,816
|
|
|
—
|
|
Participating interest financing, net
|
3,318
|
|
|
—
|
|
|
—
|
|
|
3,319
|
|
HECM Securitization (HMBS), net
|
|
|
|
|
|
|
|
Trust 2020-1
|
469
|
|
|
—
|
|
|
—
|
|
|
471
|
|
Trust 2019-2
|
231
|
|
|
—
|
|
|
—
|
|
|
231
|
|
Trust 2019-1
|
203
|
|
|
—
|
|
|
—
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Carrying
Amount
|
|
Fair Value
|
Financial Instruments
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
695
|
|
|
$
|
695
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
218
|
|
|
218
|
|
|
—
|
|
|
—
|
|
Advances and other receivables, net
|
940
|
|
|
—
|
|
|
—
|
|
|
940
|
|
Reverse mortgage interests, net
|
5,253
|
|
|
—
|
|
|
—
|
|
|
5,383
|
|
Loans subject to repurchase from Ginnie Mae
|
6,159
|
|
|
—
|
|
|
6,159
|
|
|
—
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Unsecured senior notes, net
|
2,074
|
|
|
2,208
|
|
|
—
|
|
|
—
|
|
Advance and warehouse facilities, net
|
6,763
|
|
|
—
|
|
|
6,774
|
|
|
—
|
|
Liability for loans subject to repurchase from Ginnie Mae
|
6,159
|
|
|
—
|
|
|
6,159
|
|
|
—
|
|
Participating interest financing, net
|
3,485
|
|
|
—
|
|
|
—
|
|
|
3,496
|
|
HECM Securitization (HMBS), net
|
|
|
|
|
|
|
|
Trust 2020-1
|
488
|
|
|
—
|
|
|
—
|
|
|
490
|
|
Trust 2019-2
|
240
|
|
|
—
|
|
|
—
|
|
|
241
|
|
Trust 2019-1
|
211
|
|
|
—
|
|
|
—
|
|
|
212
|
|
14. Capital Requirements
Certain of the Company’s secondary market investors require minimum net worth (“capital”) requirements, as specified in the respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated requirements to approve large servicing transfers. To the extent that these requirements are not met, the Company’s secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of the Company’s selling and servicing agreements, which would prohibit the Company from further originating or securitizing these specific types of mortgage loans or being an approved servicer. The Company’s various capital requirements related to its outstanding selling and servicing agreements are measured based on the Company’s operating subsidiary, Nationstar Mortgage LLC. As of March 31, 2021, the Company was in compliance with its selling and servicing capital requirements.
15. Commitments and Contingencies
Litigation and Regulatory
The Company and its subsidiaries are routinely and currently involved in a significant number of legal proceedings, including, but not limited to, judicial, arbitration, regulatory and governmental proceedings related to matters that arise in connection with the conduct of the Company’s business. The legal proceedings are at varying stages of adjudication, arbitration or investigation and are generally based on alleged violations of consumer protection, securities, employment, contract, tort, common law fraud and other numerous laws, including, without limitation, the Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, National Housing Act, Homeowners Protection Act, Service Member’s Civil Relief Act, Telephone Consumer Protection Act, Truth in Lending Act, Financial Institutions Reform, Recovery, and Enforcement Act of 1989, unfair, deceptive or abusive acts or practices in violation of the Dodd-Frank Act, the Securities Act of 1933, the Securities Exchange Act of 1934, the Home Mortgage Disclosure Act, Title 11 of the United States Code (aka the “Bankruptcy Code”), False Claims Act and Making Home Affordable loan modification programs.
In addition, along with others in its industry, the Company is subject to repurchase and indemnification claims and may continue to receive claims in the future, regarding alleged breaches of representations and warranties relating to the sale of mortgage loans, the placement of mortgage loans into securitization trusts or the servicing of mortgage loans securitizations. The Company is also subject to legal actions or proceedings related to loss sharing and indemnification provisions of its various acquisitions. Certain of the pending or threatened legal proceedings include claims for substantial compensatory, punitive and/ or statutory damages or claims for an indeterminate amount of damages.
The Company operates within highly regulated industries on a federal, state and local level. In the normal and ordinary course of its business, the Company is routinely subject to extensive examinations, investigations, subpoenas, inquiries and reviews by various federal, state and local governmental, regulatory and enforcement agencies, including the Consumer Financial Protection Bureau, the Securities and Exchange Commission, the Department of Justice, the Office of the Special Inspector General for the Troubled Asset Relief Program, the U.S. Department of Housing and Urban Development, various State mortgage banking regulators and various State Attorneys General, related to the Company’s residential loan servicing and origination practices, its financial reporting and other aspects of its businesses. Any pending or potential future investigations, subpoenas, examinations or inquiries may lead to administrative, civil or criminal proceedings or settlements, and possibly result in remedies including fines, penalties, restitution, or alterations in the Company’s business practices, and additional expenses and collateral costs. The Company is cooperating fully in these matters. Responding to these matters requires the Company to devote substantial resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase the Company’s operating expenses and reduce its revenues, require it to change business practices and limit its ability to grow and otherwise materially and adversely affect its business, reputation, financial condition and results of operation.
The Company seeks to resolve all legal proceedings and other matters in the manner management believes is in the best interest of the Company and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. The Company has entered into agreements with a number of entities and regulatory agencies that toll applicable limitations periods with respect to their claims.
On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal and regulatory and governmental proceedings utilizing the latest information available. Where available information indicates that it is probable, a liability has been incurred, and the Company can reasonably estimate the amount of the loss, an accrued liability is established. The actual costs of resolving these proceedings may be substantially higher or lower than the amounts accrued.
As a legal matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company will establish an accrued liability and record a corresponding amount to legal-related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Legal-related expense for the Company, which includes legal settlements and the fees paid to external legal service providers, of $13 and $15 for three months ended March 31, 2021 and 2020, respectively, and was included in general and administrative expenses on the unaudited condensed consolidated statements of operations.
For matters for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material legal matters on an ongoing basis, in conjunction with any outside counsel handling the matter. Management currently believes the aggregate range of reasonably possible loss is $2 to $18 in excess of the accrued liability (if any) related to those matters as of March 31, 2021. This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within the estimated range. Therefore, this estimated range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure and the Company cannot provide assurance that its litigations reserves will not need to be adjusted in the future. Thus, the Company’s exposure and ultimate losses may be higher, possibly significantly so, than the amounts accrued or this aggregate amount.
In the Company’s experience, legal proceedings are inherently unpredictable. One or more of the following factors frequently contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis or, if permitted to proceed as a class action, how the class will be defined; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental investigations and inquiries, the possibility of fines and penalties); the matter presents meaningful legal uncertainties, including novel issues of law; the Company has not engaged in meaningful settlement discussions; discovery has not started or is not complete; there are significant facts in dispute; predicting possible outcomes depends on making assumptions about future decisions of courts or governmental or regulatory bodies or the behavior of other parties; and there are a large number of parties named as defendants (including where it is uncertain how damages or liability, if any, will be shared among multiple defendants). Generally, the less progress that has been made in the proceedings or the broader the range of potential results, the harder it is for the Company to estimate losses or ranges of losses that is reasonably possible the Company could incur.
Based on current knowledge, and after consultation with counsel, management believes that the current legal accrued liability within payables and accrued liabilities, is appropriate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such proceedings could be material to the Company’s operating results and cash flows for a particular period depending, on among other things, the level of the Company’s revenues or income for such period. However, in the event of significant developments on existing cases, it is possible that the ultimate resolution, if unfavorable, may be material to the Company’s condensed consolidated financial statements.
Other Loss Contingencies
As part of the Company’s ongoing operations, it acquires servicing rights of forward and reverse mortgage loan portfolios that are subject to indemnification based on the representations and warranties of the seller. From time to time, the Company will seek recovery under these representations and warranties for incurred costs. The Company believes all balances sought from sellers recorded in advances and other receivables and reverse mortgage interests represent valid claims. However, the Company acknowledges that the claims process can be prolonged due to the required time to perfect claims at the loan level. Because of the required time to perfect or remediate these claims, management relies on the sufficiency of documentation supporting the claim, current negotiations with the counterparty and other evidence to evaluate whether a reserve is required for non-recoverable balances. In the absence of successful negotiations with the seller, all amounts claimed may not be recovered. Balances may be written-off and charged against earnings when management identifies amounts where recoverability from the seller is not likely. As of March 31, 2021, the Company believes all recorded balances for which recovery is sought from the seller are valid claims, and no evidence suggests additional reserves are warranted.
Loan and Other Commitments
The Company enters into IRLCs with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rates to the borrower. The Company also enters into LPCs with prospective sellers. These loan commitments are treated as derivatives and are carried at fair value. See Note 8, Derivative Financial Instruments, for more information.
The Company had certain reverse MSRs, reverse MSLs and reverse mortgage loans related to approximately $17,269 and $18,091 of UPB in reverse mortgage loans as of March 31, 2021 and December 31, 2020, respectively. As a servicer for these reverse mortgage loans, among other things, the Company is obligated to fund borrowers’ draws to the loan customers as required in accordance with the loan agreement. As of March 31, 2021 and December 31, 2020, the Company’s maximum unfunded advance obligation to fund borrower draws related to these reverse MSRs and loans was approximately $2,113 and $2,202, respectively. Upon funding any portion of these draws, the Company expects to securitize and sell the advances in transactions that will be accounted for as secured borrowings.
16. Segment Information
The Company’s segments are based upon the Company’s organizational structure, which focuses primarily on the services offered. Corporate functional expenses are allocated to individual segments based on the actual cost of services performed, direct resource utilization, estimate of percentage use for shared services or headcount percentage for certain functions. Facility costs are allocated to individual segments based on cost per headcount for specific facilities utilized. Group insurance costs are allocated to individual segments based on global cost per headcount. Non-allocated corporate expenses include the administrative costs of executive management and other corporate functions that are not directly attributable to Company’s operating segments. Revenues generated on inter-segment services performed are valued based on similar services provided to external parties.
In the second quarter of 2020, the Company updated its presentation of segment assets to be aligned with a change in the reporting package provided to the Chief Operating Decision Maker. The presentation change had no impact on the segments' operations. Assets allocated to the Servicing segment include MSRs; advances and other receivables, except for co-issue MSR holdback; Servicing related mortgage loans held for sale; and other assets including property, plant and equipment, lease-related assets, prepaid assets, and goodwill. Assets allocated to Originations segment include co-issue MSR holdback in advances and other receivables; Originations related mortgage loans held for sale; derivative assets; and other assets including property, plant and equipment, lease-related assets, prepaid assets, and goodwill. Assets allocated to the Xome segment include cash and cash equivalents; tax-related assets; receivables; and other assets including property, plant and equipment, lease-related assets, prepaid assets, goodwill, and other intangible assets. All assets that are not specifically identified or allocated to a reporting segment are reported as part of Corporate/Other and include cash and cash equivalents; tax-related assets; and intangibles assets excluding goodwill and assets allocated to Xome. Eliminations are also included in Corporate/Other. Prior year financial information has been adjusted retrospectively to reflect the updated presentation.
The following tables present financial information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
Financial Information by Segment
|
Servicing
|
|
Originations
|
|
Xome
|
|
Corporate/Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Service related, net
|
$
|
449
|
|
|
$
|
43
|
|
|
$
|
96
|
|
|
$
|
—
|
|
|
$
|
588
|
|
Net gain on mortgage loans held for sale
|
127
|
|
|
552
|
|
|
—
|
|
|
—
|
|
|
679
|
|
Total revenues
|
576
|
|
|
595
|
|
|
96
|
|
|
—
|
|
|
1,267
|
|
Total expenses
|
125
|
|
|
231
|
|
|
87
|
|
|
26
|
|
|
469
|
|
Interest income
|
66
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
89
|
|
Interest expense
|
(104)
|
|
|
(25)
|
|
|
—
|
|
|
(30)
|
|
|
(159)
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
(38)
|
|
|
(2)
|
|
|
—
|
|
|
(30)
|
|
|
(70)
|
|
Income (loss) before income tax expense (benefit)
|
$
|
413
|
|
|
$
|
362
|
|
|
$
|
9
|
|
|
$
|
(56)
|
|
|
$
|
728
|
|
Depreciation and amortization for property and equipment and intangible assets
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
16
|
|
Total assets
|
$
|
16,696
|
|
|
$
|
5,559
|
|
|
$
|
120
|
|
|
$
|
2,338
|
|
|
$
|
24,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
Financial Information by Segment
|
Servicing
|
|
Originations
|
|
Xome
|
|
Corporate/Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Service related, net
|
$
|
(180)
|
|
|
$
|
20
|
|
|
$
|
106
|
|
|
$
|
1
|
|
|
$
|
(53)
|
|
Net gain on mortgage loans held for sale
|
34
|
|
|
297
|
|
|
—
|
|
|
—
|
|
|
331
|
|
Total revenues
|
(146)
|
|
|
317
|
|
|
106
|
|
|
1
|
|
|
278
|
|
Total expenses
|
149
|
|
|
166
|
|
|
96
|
|
|
33
|
|
|
444
|
|
Interest income
|
83
|
|
|
34
|
|
|
—
|
|
|
1
|
|
|
118
|
|
Interest expense
|
(113)
|
|
|
(27)
|
|
|
—
|
|
|
(52)
|
|
|
(192)
|
|
Other income, net
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Total other (expenses) income, net
|
(30)
|
|
|
7
|
|
|
1
|
|
|
(51)
|
|
|
(73)
|
|
(Loss) income before income tax (benefit) expense
|
$
|
(325)
|
|
|
$
|
158
|
|
|
$
|
11
|
|
|
$
|
(83)
|
|
|
$
|
(239)
|
|
Depreciation and amortization for property and equipment and intangible assets
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
10
|
|
|
$
|
19
|
|
Total assets
|
$
|
10,619
|
|
|
$
|
4,459
|
|
|
$
|
135
|
|
|
$
|
2,400
|
|
|
$
|
17,613
|
|
CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, core initiatives, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts, including the projected impact of COVID-19 on our business, financial performance and operating results. When used in this discussion, the words “anticipate,” “appears,” “believe,” “foresee,” “intend,” “should,” “expect,” “estimate,” “project,” “plan,” “may,” “could,” “will,” “are likely” and similar expressions are intended to identify forward-looking statements. These statements involve predictions of our future financial condition, performance, plans and strategies and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or incorrect. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances, and we are under no obligation to, and express disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
A number of important factors exist that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to:
•economic, financial and public health disruptions caused by the COVID-19 pandemic and federal, state and local governmental responses to the pandemic;
•our ability to maintain or grow the size of our servicing portfolio;
•our ability to maintain or grow our originations volume and profitability;
•our ability to recapture voluntary prepayments related to our existing servicing portfolio;
•our shift in the mix of our servicing portfolio to subservicing, which is highly concentrated;
•delays in our ability to collect or be reimbursed for servicing advances;
•our ability to obtain sufficient liquidity and capital to operate our business;
•changes in prevailing interest rates;
•our ability to finance and recover costs of our reverse servicing operations;
•our ability to successfully implement our strategic initiatives;
•our ability to realize anticipated benefits of our previous acquisitions;
•our ability to use net operating loss carryforwards and other tax attributes;
•changes in our business relationships or changes in servicing guidelines with Fannie Mae, Freddie Mac and Ginnie Mae;
•Xome’s ability to compete in highly competitive markets;
•our ability to pay down debt;
•our ability to manage legal and regulatory examinations and enforcement investigations and proceedings, compliance requirements and related costs;
•our ability to prevent cyber intrusions and mitigate cyber risks; and
•our ability to maintain our licenses and other regulatory approvals.
All of these factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assess the effect of each such new factor on our business. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and any of these statements included herein may prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Please refer to Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this report and in our Annual Report on Form 10-K for the year ended December 31, 2020 for further information on these and other risk factors affecting us.