18. Commitments and Contingencies

Litigation and Regulatory ~~Matters~~

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 ~~proceeds~~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’s business is also subject to extensive examinations, investigations and reviews by various federal, state and local governmental, regulatory and enforcement agencies. The Company has historically had a number of open investigations with these agencies and that trend continues. The Company is currently the subject of various governmental or regulatory investigations, subpoenas, examinations and inquiries related to its residential loan servicing and origination practices, bankruptcy and collections practices, its financial reporting and other aspects of its businesses. These matters include investigations by the Consumer Financial Protection Bureau (the “CFPB”), the Securities and Exchange Commission, the Executive Office of the United States Trustees, 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, the multi-state committee of mortgage banking regulators and various State Attorneys General. These specific matters and other 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 in additional expenses and collateral costs. Responding to these matters requires the Company to devote substantial resources, resulting in higher costs and lower net cash flows.

For example, the Company continues to progress towards resolution of certain legacy regulatory matters involving examination findings for alleged violations of certain laws related to the Company’s business practices. The Company has been in discussions with the multi-state committee of mortgage banking regulators and various State Attorneys General concerning a potential resolution of their investigations. The Company is continuing to cooperate with all ~~parties. In~~parties and in connection with these discussions, the Company previously recorded an accrual. These discussions may not result in a settlement of the matter; furthermore, any such settlement may exceed the amount accrued as of March 31, ~~2019.~~2020. Moreover, if the discussions do not result in a settlement, the regulators and State Attorneys General may seek to exercise their enforcement authority through litigation or other proceedings and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on the Company’s business, reputation, financial condition and results of operations.

Further, on April 24, 2018, the CFPB notified Nationstar that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (“NORA”) process, the CFPB’s Office of Enforcement is considering whether to recommend that the CFPB take enforcement action against the Company, alleging violations of the Real Estate Settlement Procedures Act, the Consumer Financial Protection Act, and the Homeowners Protection Act, which stems from a 2014 examination. The purpose of a NORA letter is to provide a party being investigated an opportunity to present its position to the CFPB before an enforcement action may be recommended or commenced. The CFPB may seek to exercise its enforcement authority through settlement, administrative proceedings or litigation and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on the Company’s business, reputation, financial condition and results of operations. The Company has not recorded an accrual related to this matter as of March 31, ~~2019~~2020 because it does not believe that the possible loss or range of loss arising from any such action is estimable. The Company is continuing to cooperate with the CFPB.

Similarly, the Company is in discussions with the Executive Office of the United States Trustees concerning certain legacy issues with respect to bankruptcy servicing practices. In connection with these discussions, the Company is undertaking certain voluntary remediation activities with respect to loans at issue in these matters. While the Company and the Executive Office of the United States Trustees are engaged in discussions to potentially resolve these issues, there is no guarantee a resolution will occur. Moreover, if the discussions do not result in a resolution, the Executive Office of the United States Trustees may seek redress through litigation or other proceedings and seek injunctive relief, damages and restitution in addition to the remediation activities, which could have a material adverse effect on the Company’s business, reputation, financial condition and results of operations. However, the Company believes it is premature to predict the potential outcome or to estimate the financial impact to the Company in connection with any potential action or settlement arising from this matter, including the voluntary remediation activities undertaken and to be undertaken by the Company.

In addition, the Company is a defendant in a class action proceeding originally filed in state court in March 2012 and then removed to the United States District Court for the Eastern District of Washington under the caption Laura Zamora Jordan v. Nationstar Mortgage LLC. The suit was filed on behalf of a class of Washington borrowers and challenges property preservation measures the Company took, as loan servicer, after the borrowers defaulted and the Company’s vendors determined that the borrowers had vacated or abandoned their properties. The case raises claims for (i) common law trespass, (ii) statutory trespass, and (iii) violation of Washington’s Consumer Protection Act, and seeks recovery of actual, statutory, and treble damages, as well as attorneys’ fees and litigation costs. On July 25, 2018, the Company entered into a settlement agreement to resolve this matter. The parties are currently seeking approval of the final settlement from the court. The Company is pursuing reimbursement of the settlement payment from the owners of the loans it serviced, but there can be no assurance that the Company would prevail with any claims for reimbursement.

The Company is a defendant in a proceeding filed on January 2, 2018 in the U.S. District Court for the Northern District of California under the caption Collateral Analytics LLC v. Nationstar Mortgage LLC et al. The plaintiff alleges that the Company misappropriated plaintiff’s intellectual property for the purpose of replicating plaintiff’s products. The case raises federal and state law claims for misappropriation of trade secrets and breach of contract and seeks an award of actual damages, unjust enrichment, lost profits and/or a reasonable royalty, exemplary damages and injunctive relief preventing further misuse or disclosure of plaintiff’s intellectual property. The Company believes it has meritorious defenses and will vigorously defend itself in this matter.

The Company is also a defendant in a proceeding filed on October 23, 2015 in the U.S. District Court for the Central District of California under the caption Alfred Zaklit and Jessy Zaklit, individually and on behalf of all others similarly situated v. Nationstar Mortgage LLC et al. The plaintiff alleges that the Company improperly recorded telephone calls without the knowledge or consent of borrowers in violation of the California Penal Code. On July 24, 2017, the court certified a class comprised of California borrowers who, from October 2014 to May 2016, participated in outbound telephone conversations with the Company’s employees who recorded the conversations without first informing the borrowers that the conversations were being recorded. The class seeks statutory damages and attorney’s fees. On September 10, 2018, the Company reached an agreement in principal to settle this matter, and the parties are currently seeking approval of the settlement from the court.

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, ~~and Predecessor,~~ which includes legal settlements and the fees paid to external legal service providers, of ~~$11~~$15 and $4$11 for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, was included in general and administrative expenses on the consolidated statements of operations.

For a number of 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. For those matters for which an estimate is possible, management currently believes the aggregate range of reasonably possible loss is ~~$14~~$17 to ~~$36~~$47 in excess of the accrued liability (if any) related to those matters as of March 31, ~~2019.~~2020. 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 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, ~~2019,~~2020, 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 at this time.~~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 9, Derivative Financial ~~Instrument~~Instruments, for more information.

The Company ~~and the Predecessor~~ had certain reverse MSRs, reverse MSLs and reverse mortgage loans related to approximately ~~$27,014~~$21,590 and ~~$28,415~~$22,725 of UPB in reverse mortgage loans as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company’s maximum unfunded advance obligation to fund borrower draws related to these MSRs and loans was approximately ~~$3,005~~$2,504 and ~~$3,128,~~$2,617, respectively. Upon funding any portion of these draws, the Company ~~and the Predecessor expect~~expects to securitize and sell the advances in transactions that will be accounted for as secured borrowings.

19. Business Segment Reporting

~~Upon consummation of the Merger with Nationstar, the Company has identified four reportable segments: Servicing, Originations, Xome and Corporate and other.~~ 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 based on 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.

The following tables present financial information by ~~segment.~~segment:


	Successor																				Three Months Ended March 31, 2020
	Three Months Ended March 31, 2019
	Servicing			Originations			Xome		Eliminations			Total Operating Segments			Corporate and Other			Consolidated
Financial information by segment																					Servicing			Originations			Xome		Elimination			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	8		$	15		$	96	$	(35	)	$	84		$	—		$	84		$	(180	)	$	20		$	106	$	(1	)	$	(55	)	$	2		$	(53	)
Net gain on mortgage loans held for sale	—			131			—		35			166			—			166			34			297			—		—			331			—			331
Total revenues	8			146			96		—			250			—			250			(146		)	317			106		(1		)	276			2			278
Total Expenses	195			104			99		—			398			45			443
Other income (expenses)
Total expenses																					149			166			96		(1		)	410			34			444
Other income (expenses), net:
Interest income	115			17			—		—			132			2			134			83			34			—		—			117			1			118
Interest expense	(114		)	(18		)	—		—			(132		)	(57		)	(189		)	(113		)	(27		)	—		—			(140		)	(52		)	(192		)
Other	—			4			11		—			15			—			15
Total Other Income (Expenses), Net	1			3			11		—			15			(55		)	(40		)
Other income (expenses), net																					—			—			1		—			1			—			1
Total other income (expenses), net																					(30		)	7			1		—			(22		)	(51		)	(73		)
(Loss) income before income tax (benefit) expense	$	(186	)	$	45		$	8	$	—		$	(133	)	$	(100	)	$	(233	)	$	(325	)	$	158		$	11	$	—		$	(156	)	$	(83	)	$	(239	)
Depreciation and amortization for property and equipment and intangible assets	$	4		$	3		$	4	$	—		$	11		$	10		$	21		$	3		$	3		$	3	$	—		$	9		$	10		$	19
Total assets	$	13,642		$	4,865		$	502	$	(4,100	)	$	14,909		$	2,737		$	17,646		$	10,142		$	9,608		$	534	$	(5,964	)	$	14,320		$	3,293		$	17,613


	Predecessor																				Three Months Ended March 31, 2019
	Three Months Ended March 31, 2018
	Servicing			Originations			Xome		Eliminations			Total Operating Segments			Corporate and Other			Consolidated
Financial information by segment																					Servicing			Originations			Xome		Elimination			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	395		$	15		$	65	$	(11	)	$	464		$	—		$	464		$	(27	)	$	15		$	96	$	—		$	84		$	—		$	84
Net gain on mortgage loans held for sale	—			113			—		11			124			—			124			35			131			—		—			166			—			166
Total revenues	395			128			65		—			588			—			588			8			146			96		—			250			—			250
Total Expenses	182			109			52		—			343			21			364
Other income (expenses)
Total expenses																					195			104			99		—			398			45			443
Other income (expenses), net:
Interest income	126			15			—		—			141			4			145			115			17			—		—			132			2			134
Interest expense	(118		)	(15		)	—		—			(133		)	(38		)	(171		)	(114		)	(18		)	—		—			(132		)	(57		)	(189		)
Other	(1		)	—			9		—			8			—			8
Total Other Income (Expenses), Net	7			—			9		—			16			(34		)	(18		)
Income (loss) before income tax expense (benefit)	$	220		$	19		$	22	$	—		$	261		$	(55	)	$	206
Other income, net																					—			4			11		—			15			—			15
Total other income (expenses), net																					1			3			11		—			15			(55		)	(40		)
(Loss) income before income tax (benefit) expense																					$	(186	)	$	45		$	8	$	—		$	(133	)	$	(100	)	$	(233	)
Depreciation and amortization for property and equipment and intangible assets	$	7		$	3		$	3	$	—		$	13		$	2		$	15		$	4		$	3		$	4	$	—		$	11		$	10		$	21
Total assets	$	15,224		$	4,710		$	413	$	(3,302	)	$	17,045		$	819		$	17,864		$	13,642		$	4,865		$	502	$	(4,100	)	$	14,909		$	2,737		$	17,646



Changes in Financial Position

Successor
Table 31. Assets March 31, 2019 December 31, 2018 $ Change % Change
Cash and cash equivalents $ 181
$ 242
$ (61 ) (25 )%
Mortgage servicing rights 3,488
3,676
(188 ) (5 )%
Advances and other receivables, net 1,147
1,194
(47 ) (4 )%
Reverse mortgage interests, net 7,489
7,934
(445 ) (6 )%
Mortgage loans held for sale at fair value 2,170
1,631
539
33 %
Deferred tax asset, net 1,024
967
57
6 %
Other 2,147
1,329
818
62 %
Total assets $ 17,646
$ 16,973
$ 673
4 %



Table 26. Changes in Assets



	March 31, 2020		December 31, 2019		$ Change			% Change
Cash and cash equivalents	$	579	$	329	$	250		76	%
Mortgage servicing rights	3,115		3,502		(387		)	(11	)%
Advances and other receivables, net	685		988		(303		)	(31	)%
Reverse mortgage interests, net	5,955		6,279		(324		)	(5	)%
Mortgage loans held for sale at fair value	3,922		4,077		(155		)	(4	)%
Deferred tax assets, net	1,411		1,345		66			5	%
Other	1,946		1,785		161			9	%
Total assets	$	17,613	$	18,305	$	(692	)	(4	)%

Total assets as of March 31, ~~2019 increased~~2020 decreased by ~~$673~~$692 or 4% compared with December 31, 2018 primarily due to the increase in mortgage loans held for sale and other, partially offset by decreases in mortgage servicing rights and reverse mortgage interests. Mortgage loans held for sale increased in 2019 primarily due to the ~~Pacific Union acquisition~~decrease in mortgage servicing rights, reverse mortgage interests, net and ~~increased origination volume driven~~advances and other receivables, net, partially offset by ~~lower interest environment. Other increased primarily due to $483 of other assets related to the Pacific Union acquisition, as indicated~~an increase in ~~Note 2, Acquisitions~~,cash and ~~$133 of right of use assets recorded in 2019 as a result of adoption of ASU 2016-02.~~cash equivalents. Mortgage servicing rights decreased in 2019 primarily due to ~~unfavorable~~a negative mark-to-market adjustment of $383 driven by declining interest rates. Reverse mortgage interests, net decreased ~~$445~~$324 primarily due to the collection on participating interests in HMBS. Advances and other receivables decreased primarily due to recoveries on advances through claim proceeds, customer payments and servicing transfers. Cash and cash equivalents was higher as of March 31, 2020 compared with December 31, 2019 primarily due to additional funds drawn on our MSR facilities given the market risk at the end of the quarter in relation to COVID-19 pandemic.

Successor
Table 32. Liabilities and Stockholders’ Equity March 31, 2019 December 31, 2018 $ Change % Change
Unsecured senior notes, net $ 2,461
$ 2,459
$ 2
— %
Advance facilities, net 578
595
(17 ) (3 )%
Warehouse facilities, net 3,050
2,349
701
30 %
MSR related liabilities - nonrecourse at fair value 1,343
1,216
127
10 %
Other nonrecourse debt, net 6,388
6,795
(407 ) (6 )%
Other liabilities 2,065
1,614
451
28 %
Total liabilities 15,885
15,028
857
6 %
Total stockholders’ equity attributable to Nationstar 1,758
1,942
(184 ) (9 )%
Noncontrolling interest 3
3
—
— %
Total liabilities and stockholders’ equity $ 17,646
$ 16,973
$ 673
4 %



Table 27. Changes in Liabilities and Stockholders’ Equity



	March 31, 2020		December 31, 2019		$ Change			% Change
Unsecured senior notes, net	$	2,259	$	2,366	$	(107	)	(5	)%
Advance facilities, net	489		422		67			16	%
Warehouse facilities, net	4,551		4,575		(24		)	(1	)%
MSR related liabilities - nonrecourse at fair value	1,285		1,348		(63		)	(5	)%
Other nonrecourse debt, net	4,945		5,286		(341		)	(6	)%
Other liabilities	2,018		2,077		(59		)	(3	)%
Total liabilities	15,547		16,074		(527		)	(3	)%
Total stockholders’ equity	2,066		2,231		(165		)	(7	)%
Total liabilities and stockholders’ equity	$	17,613	$	18,305	$	(692	)	(4	)%

~~Stockholders’~~Total stockholders’ equity at March 31, ~~2019~~2020 decreased by ~~$184~~$165 or 9%7% compared with the balance as of December 31, ~~2018~~2019 primarily due to net loss of ~~$186~~$171 during the three months ended March 31, ~~2019.~~2020. Total liabilities at March 31, ~~2019 increased~~2020 decreased by ~~$857~~$527 or 6%3% compared with the balance as of December 31, ~~2018~~2019 primarily due to ~~an increase in warehouse facilities, MSR related liabilities and other liabilities, which was partially offset by~~ a decrease in other nonrecourse debt. Warehouse facilities increased by $701 primarily due to the warehouse facilities acquired as part of the Pacific Union acquisition. MSR related liabilities increased by $127 primarily due to increase in excess spread financing related to new excess spread financing deals. The increase in other liabilities was primarily due to $519 of payablesdebt and ~~other liabilities related to the Pacific Union acquisition.~~unsecured senior notes, net. Other nonrecourse debt decreased by ~~$407~~$341 primarily due to repayments of reverse mortgage related nonrecourse debt. Unsecured senior notes, net, decreased by $107 primarily due to the repayment and redemption of the 2021 and 2022 unsecured senior notes, partially offset by the issuance of the 2027 unsecured senior notes.



Liquidity and Capital Resources

~~LIQUIDITY AND CAPITAL RESOURCES~~We measure liquidity by unrestricted cash and availability of borrowings on our MSR facilities. Our cash and cash equivalents on hand increased to $579 as of March 31, 2020 from $329 as of December 31, 2019. As of March 31, 2020, we had $1,216 collateral pledged against the MSR facilities, of which we could borrow an additional $705. During the three months ended March 31, 2020, operating activities used cash totaling $710. As of March 31, 2020, total available borrowing capacity is $9,690, of which $4,648 is unused.

~~Liquidity~~We expect the economic impact of the COVID-19 pandemic to result in a significant increase in servicing advances and liquidity demands related to the utilization of forbearance programs offered by the CARES Act. Based on current modeling of expected forbearance rates within our portfolio, we believe that we are well-positioned to manage a significant increase in advances. In April 2020, we expanded our committed advance facility capacity by $850, including an expansion of capacity for private label advances for $200, which we believe will be adequate for our needs. We plan to finance GNMA advances with existing MSR lines and corporate cash flow, along with GNMA’s Pass-Through Assistance Program as a backup. For non-agency servicing, we are reimbursed for advances relatively quickly, which should limit growth in balances even with higher forbearance rates.

Sources and Uses of Cash

Our primary sources of funds for liquidity include: (i) servicing fees and ancillary revenues; (ii) payments received from sale or securitization of loans; (iii) payments from the liquidation or securitization of our outstanding participating interests in reverse mortgage loans; (iv) advance and warehouse facilities, other secured borrowings and the unsecured senior notes; and (v) payments received in connection with the sale of advance receivables and excess spread.

Our primary uses of funds for liquidity include: (i) funding of servicing ~~advances;~~advances, which are expected to increase in the near future due to COVID-19 pandemic; (ii) originations of loans; (iii) payment of interest expenses; (iv) payment of operating expenses; (v) repayment of borrowings and repurchases or redemptions of outstanding indebtedness; (vi) payments for acquisitions of MSRs; (vii) scheduled and unscheduled draws on our serviced reverse residential mortgage loans; and (viii) payment of our technology expenses.

Our business is subject to extensive regulation, investigations and reviews by various federal, state and local regulatory and enforcement agencies. We are also subject to various legal proceedings in the ordinary course of our business. Addressing these regulations, reviews and legal proceedings and implementing any resulting remedial measures may require us to devote substantial resources to legal and regulatory compliance or to make other changes to our business practices, resulting in higher costs which may adversely affect our cash flows.

We believe that our cash flows from operating activities, as well as capacity through existing facilities, provide adequate resources to fund our anticipated ongoing cash requirements. We rely on these facilities to fund operating activities. As the facilities mature, we anticipate renewal of these facilities will be achieved. Future debt maturities will be funded with cash and cash equivalents, cash flow from operating activities and, if necessary, future access to capital markets. We continue to optimize the use of balance sheet cash to avoid unnecessary interest carrying costs.

~~We service and subservice reverse~~ Reverse mortgage ~~loan portfolios with a UPB of $27,014 as of March 31, 2019, which includes $3,559 of reverse MSR, $15,928 of reverse MSLs and $7,527 of reverse mortgage interests. Reverse mortgages~~loans provide seniors with the ability to monetize the equity in their homes in a lump sum, line of credit or monthly draws. The unpaid principal balance of the loan is accreted for borrower draws and other costs such as mortgage insurance premiums, property taxes and insurance. Recovery of advances and draws related to reverse MSRs is generally recovered over a two to three month period from the investor. However, for reverse assets recorded as a loan, the repayment of loan balances and collection of servicing fees occurs upon the payoff or other liquidation of the loan. We securitize our holdings in reverse mortgage loans in order to finance subsequent borrower draws and loan related costs.

Cash Flows

The table below presents the major sources and uses of cash flow for operating ~~activities.~~activities:

Successor Predecessor
Table 33. Operating Cash Flow Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 $ Change % Change
Originations net sales activities $ 116
$ 366
$ (250 ) (68 )%
Cash provided by operating profits and changes in working capital and other assets 169
571
(402 ) (70 )%
Net cash attributable to operating activities $ 285
$ 937
$ (652 ) (70 )%



Table 28. Operating Cash Flow



	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019			$ Change			% Change
Net loss	$	(171	)	$	(186	)	$	15		(8	)%
Fair value changes in MSRs, MSR related liabilities and mortgage loans held for investment	497			311			186			60	%
Deferred tax benefit	(68		)	(47		)	(21		)	45	%
Other non-cash adjustments to net loss	(332		)	(210		)	(122		)	58	%
Originations net sales activities	430			116			314			271	%
Changes in working capital	354			301			53			18	%
Net cash attributable to operating activities	$	710		$	285		$	425		149	%

~~Cash~~Our operating activities generated ~~from originations net sales activities was $116~~cash of $710 during the three months ended March 31, ~~2019~~2020 compared to ~~$366~~$285 cash generated in the same period in ~~2018.~~2019. The ~~decrease~~increase was primarily due to athe cash generated in originations net sales activities.

Cash generated in originations net sales activities was $430 during the three months ended March 31, 2020 compared to $116 in the same period in 2019. The change was primarily due to an increase in proceeds of $7,527 on the sales of previously originated loans, partially offset by higher funding of ~~$621~~$6,658 for loan origination activities driven by ~~lower~~the declining interest rate environment and an increase in funds used of ~~$113~~$555 to repurchase forward loan assets out of Ginnie Mae securitizations. ~~The increase in funding was partially offset by an increase in proceeds of $484 on the sales of previously originated loans.~~

Cash generated from ~~other operating activities and from~~fair value changes in ~~working capital~~MSRs, MSR related liabilities and ~~other assets~~mortgage loans held for investment during the three months ended March 31, ~~2019 decreased~~2020 increased by ~~$402~~$186 when compared to the same period in ~~2018.~~2019. The ~~decrease~~change was primarily due to a net loss of $186 during the three months ended March 31, 2019 compared to a net income of $160 in the same period in 2018. Changes in advances, other assets and payables and other liabilities increased cash outflow by $608 during the three months ended March 31, 2019. Partially offsetting these changes was an increase in fair value changes and amortization/accretion of mortgage servicing rights/liabilities of ~~$557~~$147, primarily due to the ~~unfavorable~~negative mark-to-market adjustment for the three months ended March 31, ~~2019.~~2020.

Successor Predecessor
Table 34. Investing Cash Flows Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 $ Change % Change
Acquisitions, net $ (85 ) $ —
$ (85 ) (100 )%
Purchase of forward mortgage servicing rights, net of liabilities incurred (130 ) (17 ) (113 ) 665 %
Proceeds on sale of assets —
13
(13 ) (100 )%
Proceeds on sale of forward and reverse mortgage servicing rights 243
—
243
100 %
Other (10 ) (17 ) 7
(41 )%
Net cash attributable to investing activities $ 18
$ (21 ) $ 39
(186 )%

~~Our investing activities generated $18~~Cash used from the other non-cash adjustments to net loss during the three months ended March 31, 2020 increased by $122 when compared to the same period in 2019 primarily due to the $165 increase in net gain on mortgage loans held for sale primarily driven by the higher volumes in a declining interest rate environment and ~~Predecessor’s~~the incremental volumes made available with the February 2019 Pacific Union acquisition and related origination channels.

The table below presents the major sources and uses of cash flow for investing activities:



Table 29. Investing Cash Flows



	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019			$ Change			% Change
Acquisitions, net	$	—		$	(85	)	$	85		(100	)%
Purchase of forward mortgage servicing rights, net of liabilities incurred	(27		)	(130		)	103			(79	)%
Proceeds on sale of forward and reverse mortgage servicing rights	43			243			(200		)	(82	)%
Other	(12		)	(10		)	(2		)	20	%
Net cash attributable to investing activities	$	4		$	18		$	(14	)	(78	)%

Our investing activities ~~used $21 of cash~~generated $4 during the three months ended March 31, 2020 compared to $18 during the same period in ~~2018.~~2019. The ~~change~~decrease in cash generated from investing activities was primarily due to ~~an increase~~a decrease of ~~$113~~$200 in proceeds on sale of forward mortgage servicing rights. Partially offsetting the decrease in cash generated was a $103 decrease in cash used in the purchase of forward mortgage servicing rights, net of liabilities incurred, and ~~net~~an $85 decrease in cash ~~of $85~~ used in connection with the ~~acquisitions of~~ Pacific Union and ~~Seterus. Partially offsetting these uses of cash was an increase in proceeds on sale of forward and reverse mortgage servicing rights of $243.~~Seterus acquisitions, which were acquired during the three months ended March 31, 2019. Although we continue to seek to acquire servicing portfolios at advantageous pricing, the amounts and timing of these opportunities is not of a consistent frequency and can result in cash flow variability between periods.

The table below presents the major sources and uses of cash flow for financing activities:

Successor Predecessor
Table 35. Financing Cash Flow Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 $ Change % Change
Decrease in advance facilities $ (30 ) $ (293 ) $ 263
(90 )%
Increase (decrease) in warehouse facilities 307
(125 ) 432
(346 )%
Repayment of notes payable (294 ) —
(294 ) 100 %
Payment of unsecured senior notes and nonrecourse debt (5 ) (24 ) 19
(79 )%
Issuance of excess spread financing 245
—
245
100 %
Settlements of excess spread financing (50 ) (45 ) (5 ) 11 %
Decrease in participating interest financing in reverse mortgage interests (408 ) (574 ) 166
(29 )%
Changes in HECM securitizations (127 ) 126
(253 ) (201 )%
Other 18
(4 ) 22
(550 )%
Net cash attributable to financing activities $ (344 ) $ (939 ) $ 595
(63 )%



Table 30. Financing Cash Flow



	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019			$ Change			% Change
(Decrease) increase in warehouse facilities	$	(25	)	$	307		$	(332	)	(108	)%
Increase (decrease) in advance facilities	68			(30		)	98			(327	)%
Repayment of notes payable	—			(294		)	294			(100	)%
Redemption and repayment of unsecured senior notes and nonrecourse debt	(698		)	(3		)	(695		)	23,167	%
Issuance of unsecured senior debt	600			—			600			100	%
Issuance of excess spread financing	24			245			(221		)	(90	)%
Settlements and repayments of excess spread financing	(58		)	(50		)	(8		)	16	%
Decrease of participating interest financing	(275		)	(408		)	133			(33	)%
Changes in HECM securitizations	(99		)	(107		)	8			(7	)%
Other	(18		)	(4		)	(14		)	350	%
Net cash attributable to financing activities	$	(481	)	$	(344	)	$	(137	)	40	%

Our financing activities used ~~$344~~$481 cash during the three months ended March 31, ~~2019, a decrease in cash used of $595 when~~2020 compared ~~with $939~~to $344 cash used in the same period in ~~2018. The change~~2019. Contributing to the increase in cash ~~flows from financing activities~~used was the repayment of unsecured senior debt and nonrecourse debt of $698 during the three months ended March 31, 2020 compared to $3 in the same period in 2019. The $695 increase in cash used for the payment of unsecured senior debt and nonrecourse debt is primarily due to ~~an increase~~the repayment and redemption of ~~$307~~the 2021 and 2022 unsecured senior notes in February 2020. Cash used also increased due to a net pay down of $25 in warehouse facilities during the three months ended March 31, ~~2019~~2020 compared to a ~~pay down on warehouse facilities~~net increase of ~~$125 during the same period in 2018. Payment of warehouse facilities decreased in 2019 due to proceeds from HECM securitizations being used to pay down the facilities in 2018, which did not occur~~$307 in the same period in 2019. ~~In addition,~~The cash generated from the ~~cash used for pay down~~issuance of ~~advance facilities~~excess spread financing decreased by ~~$263 when~~$221 due to a decline in excess spread financing deals in the three months ended March 31, 2020 compared to the same period in 2019. ~~The issuance of excess spread financing increased by $245 due to new excess spread financing deals.~~

Offsetting these ~~decreases~~increases in cash used ~~is an increase~~was a decrease in cash used for the repayment of notes ~~payable and HECM securitizations when compared to the same period in 2018.~~payable. During the three months ended March 31, 2019, cash of $294 was used to pay off the notes payable assumed from the Pacific Union acquisition. ~~The cash used in the change in HECM securitizations increased due to no issuance of HECM securitizations during the three months ended March 31, 2019.~~ In ~~the three months ended March 31, 2018,~~addition, there was an increase in cash generated of $600 due to the issuance of ~~HECM securitizations of $443.~~the 2027 unsecured senior notes in January 2020.

Capital Resources

Capital Structure and Debt

We require access to external financing resources from time to time depending on our cash requirements, assessments of current and anticipated market conditions and after-tax cost of capital. If needed, we believe additional capital could be raised through a combination of issuances of equity, corporate indebtedness, asset-backed acquisition financing and/or cash from operations. Our access to capital markets can be impacted by factors outside our control, including economic conditions. In April 2020, we expanded our committed advance capacity by $850.

Financial Covenants

Our ~~borrowing arrangements and~~ credit facilities contain various financial covenants, which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements. These covenants are measured at our operating subsidiary, Nationstar Mortgage LLC. As of March 31, ~~2019,~~2020, we were in compliance with our required financial ~~covenants on our borrowing arrangements and credit facilities.~~covenants.

Seller/Servicer Financial Requirements

~~The~~We are also subject to net worth, capital ratio and liquidity requirements established by the Federal Housing Finance Agency ~~minimum financial requirements~~(“FHFA”) for Fannie Mae and Freddie Mac Seller/Servicers, ~~are set forth below.~~and Ginnie Mae for single family issuers. In both cases, these requirements apply to our operating subsidiary, Nationstar Mortgage LLC. As of March 31, 2020, we were in compliance with our seller/servicer financial requirements for FHFA and Ginnie Mae.

Minimum Net Worth

The minimum net worth requirement for Fannie Mae and Freddie Mac is defined as follows:


▪	Base of $2.5 plus 25 basis points of outstanding UPB for total loans serviced.


▪	Tangible Net Worth comprises of total equity less goodwill, intangible assets, affiliate receivables and certain pledged assets.

~~Minimum Capital Ratio~~The minimum net worth requirement for Ginnie Mae is defined as follows:


▪	The sum of (i) base of $2.5 plus 35 basis points of the issuer’s total single-family effective outstanding obligations, and (ii) base of $5 plus 1% of the total effective HMBS outstanding obligations.


▪	Tangible Net ~~Worth/~~Worth is defined as total equity less goodwill, intangible assets, affiliate receivables and certain pledged assets. Effective for fiscal year 2020, under the Ginnie Mae MBS Guide, the issuers will no longer be permitted to include deferred tax assets when computing the minimum net worth requirement.

Minimum Capital Ratio


▪	In addition to the minimum net worth requirement, we are also required to hold a ratio of Tangible Net Worth to Total Assets (excluding HMBS securitizations) greater than 6%.

Minimum Liquidity

The minimum liquidity requirement for Fannie Mae and Freddie Mac is defined as follows:


▪	3.5 basis points of total Agency ~~servicing (Fannie Mae, Freddie Mac, Ginnie Mae) plus,~~servicing.


▪	Incremental 200 basis points of total nonperforming Agency, measured as 90+ delinquencies, servicing in excess of 6% of the total Agency servicing ~~UPB,~~UPB.


▪	Allowable assets for liquidity may include: cash and cash equivalents (unrestricted), available for sale or held for trading investment grade securities (e.g., Agency MBS, Obligations of GSEs, US Treasury Obligations); and unused/available portion of committed servicing advance lines.

The minimum liquidity requirement for Ginnie Mae is defined as follows:


▪	Maintain liquid assets equal to the greater of $1 or 10 basis points of our outstanding single-family MBS.


▪	Maintain liquid assets equal to at least 20% of our net worth requirement for HECM MBS.

Secured Debt to Gross Tangible Asset Ratio

Under the Ginnie Mae guide, we are also required to maintain a secured debt to gross tangible asset ratios no greater than 60%.

Since we have a Ginnie Mae single-family servicing portfolio that exceeds $75 billion in UPB, we are also required to obtain an external primary servicer rating and issuer credit ratings from two different rating agencies and receive a minimum rating of a B or its equivalent. Effective for fiscal year 2020, we are permitted to satisfy minimum liquidity requirements using a combination of AAA rated government securities that are marked to market in addition to cash and certain cash equivalents.

In addition, Fannie Mae or Freddie Mac may require capital ratios in excess of stated requirements. Refer to ~~Financial Covenants in~~ ~~Note 10, Indebtedness,~~ ~~and~~ Note 17, Capital Requirements, in the notes to consolidated financial statements for additional information. ~~As of March 31, 2019, we were in compliance with our seller/servicer financial requirements.~~

Successor
Table 36. Debt March 31, 2019 December 31, 2018
Advance facilities, net $ 578
$ 595
Warehouse facilities, net 3,050
2,349
Unsecured senior notes, net 2,461
2,459



Table 31. Debt



	March 31, 2020		December 31, 2019
Advance facilities, net	$	489	$	422
Warehouse facilities, net	4,551		4,575
Unsecured senior notes, net	2,259		2,366

Advance Facilities

As part of our normal course of business, we borrow money to fund servicing advances. Our servicing agreements require that we advance our own funds to meet contractual principal and interest payments for certain investors, and to pay taxes, insurance, foreclosure costs and various other items that are required to preserve the assets being serviced. Delinquency rates and prepayment speeds affect the size of servicing advance balances, ~~along with~~and we exercise our ability to stop advancing principal and interest where the pooling and servicing agreements permit, where the advance ~~policies.~~is deemed to be non-recoverable from future proceeds. These servicing requirements affect our liquidity. We rely upon several counterparties to provide us with financing facilities to fund a portion of our servicing advances. ~~Pursuant to the terms of our agreements, New Residential has the obligation to fund future advances on the private-label securitized loans subject to the agreements.~~

Warehouse Facilities

Loan origination activities generally require short-term liquidity in excess of amounts generated by our operations. The loans we originate are financed through several warehouse lines on a short-term basis. We typically hold the loans for approximately 30 days and then sell or place the loans in government securitizations in order to repay the borrowings under the warehouse lines. Our ability to fund current operations depends upon our ability to secure these types of short-term financings on acceptable terms and to renew or replace the financings as they expire.

As a servicer for reverse mortgage loans, among other things, we are required to fund borrower draws on the loans. We typically pool borrower draws for approximately 30 days before including them in a HMBS securitization. AtAs of March 31, ~~2019,~~2020, unsecuritized borrower draws totaled ~~$296,~~$64, and our maximum unfunded advance obligation related to these reverse mortgage loans was ~~$3,005.~~$2,504.

Unsecured Senior Notes

In ~~2013~~2018 and ~~2018,~~2020, we completed offerings of unsecured senior notes, which mature on various dated through ~~July 2026.~~January 2027. We pay interest semi-annually to the holders of these notes at interest rates ranging from ~~6.5%~~6.000% to 9.125%.

~~Table 37. Contractual Maturities - Unsecured Senior Notes~~

As of March 31, ~~2019,~~2020, the expected maturities of our unsecured senior notes based on contractual maturities are presented ~~below.~~below:

Year Ending December 31, Amount
2019 $ —
2020 —
2021 592
2022 206
2023 950
Thereafter 750
Unsecured senior notes 2,498
Unamortized debt issuance costs (37 )
Unsecured senior notes, net of unamortized debt issuance costs $ 2,461



Table 32. Contractual Maturities - Unsecured Senior Notes



Year Ending December 31,	Amount
2020	$	—
2021	—
2022	—
2023	950
2024	—
Thereafter	1,350
Unsecured senior notes principal amount	2,300
Unamortized debt issuance costs, premium and discount	(41		)
Unsecured senior notes, net	$	2,259

~~Contractual Obligations~~

As of March 31, ~~2019,~~2020, no material changes to our outstanding contractual obligations were made from the amounts previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 except for the following, in connection with the issuance of the 2027 notes and redemption of the 2021 and 2022 notes during the three months ended March 31, 2020:



Table 33. Contractual Obligations



	Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total
Unsecured senior notes	$	—	$	—	$	950	$	1,350	$	2,300
Interest payment from unsecured senior notes	182		363		248		175		968
Total	$	182	$	363	$	1,198	$	1,525	$	3,268

~~CRITICAL ACCOUNTING POLICIES~~



Critical Accounting Policies

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified the following policies that, due to the judgment, estimates and assumptions inherent in those policies, are critical to an understanding of our consolidated financial statements. These policies relate to fair value measurements, particularly those determined to be Level 3 as discussed in Note 16, Fair Value Measurements, in notes to consolidated financial statements, business combinations and goodwill, and valuation and ~~reserves for~~realization of deferred tax assets. We believe that the judgment, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of these critical accounting policies on our consolidated financial statements, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. Fair value measurements considered to be Level 3 representing estimated values based on significant unobservable inputs include (i) the valuation of MSRs, (ii) the valuation of excess spread financing and (iii) the valuation of the mortgage servicing rights financing liability. For further information on our critical accounting policies, please refer to the Company’s ~~and Predecessor’s~~ Annual Reports on Form 10-K for the year ended December 31, ~~2018.~~2019. There have been no material changes to our critical accounting policies since December 31, ~~2018.~~2019. During the three months ended March 31, 2020, we updated the policies for reserves related to certain financial assets that are subject to CECL accounting in connection with adoption of ASU 2016-13. The update did not have material impact on the consolidated financial statements. See Note 1, Nature of Business and Basis of Presentation, in the consolidated financial statements which is incorporated herein for details.

Recent Accounting Developments

~~See~~ ~~Note 1, Nature of Business and Basis of Presentation, in the consolidated financial statements which is incorporated herein for details of~~Below lists recently issued accounting pronouncements applicable to us but not yet effective.

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 public companies for fiscal years beginning after December 15, 2020, including interim periods, with early adoption of all amendments in the ~~expected~~same period permitted. The Company is currently assessing the impact of ASU 2019-12, but does not believe it will have a material impact on ~~our~~its consolidated financial statements.

Impact of Inflation and Changing Prices

Our consolidated financial statements and notes thereto presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Further, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

~~Variable Interest Entities~~GLOSSARY OF TERMS

This Glossary of Terms defines some of the terms that are used throughout this report and ~~Off-Balance Sheet Arrangements~~does not represent a complete list of all defined terms used.

Advance Facility. A secured financing facility to fund advance receivables which is backed by a pool of mortgage servicing advance receivables made by a servicer to a certain pool of mortgage loans.

~~See~~Agency. ~~Note 12, Securitizations~~Government entities guaranteeing the mortgage investors that the principal amount of the loan will be repaid; the Federal Housing Administration, the Department of Veterans Affairs, the US Department of Agriculture and ~~Financings~~Ginnie Mae (and collectively, the “~~, in the Consolidated Financial Statements in Item 1,~~ Agencies~~Financial Statements,~~ ~~which is incorporated herein for a summary of our transactions with VIEs and unconsolidated balances details of their impact on our consolidated financial statements.~~”)

~~Derivatives~~Agency Conforming Loan. A mortgage loan that meets all requirements (loan type, maximum amount, LTV ratio and credit quality) for purchase by Fannie Mae, Freddie Mac, or insured by the FHA, USDA or guaranteed by the VA or sold into Ginnie Mae.

~~See~~ ~~Note 9, Derivative Financial Instrument, in the Consolidated Financial Statements in Item 1,~~ ~~Financial Statements,~~Asset-Backed Securities (“ABS”). ~~which~~A financial security whose income payments and value is ~~incorporated herein for~~derived from and collateralized (or “backed”) by a ~~summary~~specified pool of ~~our derivative transactions.~~underlying receivables or other financial assets.

~~Income Taxes~~Bulk acquisitions or purchases. MSR portfolio acquired on non-retained basis through an open market bidding process.

~~See~~ Base Servicing Fee.~~Note 15, Income Taxes~~ The servicing fee retained by the servicer, expressed in basis points, in an excess MSR arrangement in exchange for the provision of servicing functions on a portfolio of mortgage loans, after which the servicer and the co-investment partner share the excess fees on a pro rata basis.

Conventional Mortgage Loans., A mortgage loan that is not guaranteed or insured by the FHA, the VA or any other government agency. Although a conventional loan is not insured or guaranteed by the government, it can still follow the guidelines of GSEs and be sold to the GSEs.

Correspondent lender, lending channel or relationship. A correspondent lender is a lender that funds loans in their own name and then sells them off to larger mortgage lenders. A correspondent lender underwrites the loans to the standards of an investor and provides the funds at close.

Credit-Sensitive Loan. A mortgage loan with certain characteristics such as low borrower credit quality, relaxed original underwriting standards and high LTV, which we believe indicates that the mortgage loan presents an elevated credit risk of borrower default versus payoff.

Delinquent Loan. A mortgage loan that is 30 or more days past due from its contractual due date.

Department of Veterans Affairs (“VA”). The VA is a cabinet-level department of the U.S. federal government, which guarantees certain home loans for qualified borrowers eligible for securitization with GNMA.

Direct-to-consumer originations. A type of mortgage loan origination pursuant to which a lender markets refinancing and purchase money mortgage loans directly to selected consumers through telephone call centers, the Internet or other means.

Excess Servicing Fees. In an excess MSR arrangement, the servicing fee cash flows on a portfolio of mortgage loans after payment of the base servicing fee.

Excess Spread. MSRs with a co-investment partner where the servicer receives a base servicing fee and the servicer and co-investment partner share the excess servicing fees. This co-investment strategy reduces the required upfront capital from the servicer when purchasing or investing in MSRs.

Federal National Mortgage Association (“Fannie Mae” or “FNMA”). FNMA was federally chartered by the U.S. Congress in 1938 to support liquidity, stability, and affordability in the ~~Consolidated Financial Statements~~secondary mortgage market, where existing mortgage-related assets are purchased and sold. Fannie Mae buys mortgage loans from lenders and resells them as mortgage-backed securities in ~~Item 1,~~the secondary mortgage market.

Federal Housing Administration (“FHA”). ~~Financial Statements,~~The FHA is a U.S. federal government agency within the Department of Housing and Urban Development (HUD). It provides mortgage insurance on loans made by FHA-approved lenders in compliance with FHA guidelines throughout the United States.

Federal Housing Finance Agency (“FHFA”). ~~which~~A U.S. federal government agency that is ~~incorporated herein~~the regulator and conservator of Fannie Mae and Freddie Mac and the regulator of the 12 Federal Home Loan Banks.

Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”). Freddie Mac was chartered by Congress in 1970 to stabilize the nation’s residential mortgage markets and expand opportunities for ~~a summary of our income tax considerations.~~homeownership and affordable rental housing. Freddie Mac participates in the secondary mortgage market by purchasing mortgage loans and mortgage-related securities for investment and by issuing guaranteed mortgage-related securities.

Government National Mortgage Association (“Ginnie Mae” or “GNMA”). GNMA is a self-financing, wholly owned U.S. Government corporation within HUD. Ginnie Mae guarantees the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans - mainly loans insured by the FHA or guaranteed by the VA. Ginnie Mae securities are the only MBS to carry the full faith and credit guarantee of the U.S. federal government.

Government-Sponsored Enterprise (“GSE”). Certain entities established by the U.S. Congress to provide liquidity, stability and affordability in residential housing. These agencies are Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks.

Home Equity Conversion Mortgage (“HECM”). Reverse mortgage loans issued by FHA. HECMs provide seniors aged 62 and older with a loan secured by their home which can be taken as a lump sum, line of credit, or scheduled payments. HECM loan balances grow over the loan term through borrower draws of scheduled payments or line of credit draws as well as through the accrual of interest and FHA mortgage insurance premiums. In accordance with FHA guidelines, HECMs are designed to repay through foreclosure and subsequent liquidation of loan collateral after the loan becomes due and payable. Shortfalls experienced by the servicer of the HECM through the foreclosure and liquidation process can be claimed to FHA in accordance with applicable guidelines.

HECM mortgage-backed securities (“HMBS”). A type of asset-backed security that is secured by a group of HECM loans.

Interest Rate Lock Commitments (“IRLC”). Agreements under which the interest rate and the maximum amount of the mortgage loan are set prior to funding the mortgage loan.

Interest-Sensitive Loan. A mortgage loan which is primarily impacted by changes in forecasted interest rates, which in turn impacts voluntary prepayment speed. Interest-sensitive loans typically consist of single-family conforming residential forward mortgage loans serviced for GSEs or other third-party investors.

Loan Modification. Temporary or permanent modifications to loan terms with the borrower, including the interest rate, amortization period and term of the borrower’s original mortgage loan. Loan modifications are usually made to loans that are in default, or in imminent danger of defaulting.

Loan-to-Value Ratio (“LTV”). The unpaid principal balance of a mortgage loan as a percentage of the total appraised or market value of the property that secures the loan. An LTV over 100% indicates that the UPB of the mortgage loan exceeds the value of the property.

Lock period. A set of periods of time that a lender will guarantee a specific rate is set prior to funding the mortgage loan.

Loss Mitigation. The range of servicing activities provided by a servicer in an attempt to minimize the losses suffered by the owner of a defaulted mortgage loan. Loss mitigation techniques include short-sales, deed-in-lieu of foreclosures and loan modifications, among other options.

Mortgage-Backed Securities (“MBS”). A type of asset-backed security that is secured by a group of mortgage loans.

Mortgage Servicing Right (“MSRs”). The right and obligation to service a loan or pool of loans and to receive a servicing fee as well as certain ancillary income. MSRs may be bought and sold, resulting in the transfer of loan servicing obligations. MSRs are designated as such when the benefits of servicing the loans are expected to adequately compensate the servicer for performing the servicing.

MSR Facility. A line of credit backed by mortgage servicing rights that is used for financing purposes. In certain cases, these lines may be a sub-limit of another warehouse facility or alternatively exist on a stand-alone basis. These facilities allow for same or next day draws at the request of the borrower.

Mortgage Servicing Liability (“MSL”).The right and obligation to service a loan or pool of loans and to receive a servicing fee as well as certain ancillary income. MSLs may be bought and sold, resulting in the transfer of loan servicing obligations. MSLs are designated as such when the benefits of servicing the loans are not expected to adequately compensate the servicer for performing the servicing.

Non-Conforming Loan. A mortgage loan that does not meet the standards of eligibility for purchase or securitization by Fannie Mae, Freddie Mac or Ginnie Mae.

Originations. The process through which a lender provides a mortgage loan to a borrower.

Pull through adjusted lock volume. Represents the expected funding from locks taken during the period.

Prepayment Speed. The rate at which voluntary mortgage prepayments occur or are projected to occur. The statistic is calculated on an annualized basis and expressed as a percentage of the outstanding principal balance.

Primary Servicer. The servicer that owns the right to service a mortgage loan or pool of mortgage loans. This differs from a subservicer, which has a contractual agreement with the primary servicer to service a mortgage loan or pool of mortgage loans in exchange for a subservicing fee based upon portfolio volume and characteristics.

Prime Mortgage Loan. Generally, a high-quality mortgage loan that meets the underwriting standards set by Fannie Mae or Freddie Mac and is eligible for purchase or securitization in the secondary mortgage market. Prime Mortgage loans generally have lower default risk and are made to borrowers with excellent credit records and a monthly income at least three to four times greater than their monthly housing expenses (mortgage payments plus taxes and other debt payments) as well as significant other assets. Mortgages not classified as prime mortgage loans are generally called either sub-prime or Alt-A.

Private Label Securitizations. Securitizations that do not meet the criteria set by Fannie Mae, Freddie Mac or Ginnie Mae.

Real Estate Owned (”REO”). Property acquired by the servicer on behalf of the owner of a mortgage loan or pool of mortgage loans, usually through foreclosure or a deed-in-lieu of foreclosure on a defaulted loan. The servicer or a third-party real estate management firm is responsible for selling the REO. Net proceeds of the sale are returned to the owner of the related loan or loans. In most cases, the sale of REO does not generate enough to pay off the balance of the loan underlying the REO, causing a loss to the owner of the related mortgage loan.

Recapture. The refinancing of a loan currently in the portfolio, or the financing of a customer’s new purchase which resulted in the payoff of an existing loan.

Refinancing. The process of working with existing borrowers to refinance their mortgage loans. By refinancing loans for borrowers we currently service, we retain the servicing rights, thereby extending the longevity of the servicing cash flows.

Reverse Mortgage Loan. A reverse mortgage loan, most commonly a Home Equity Conversion Mortgage, enables seniors to borrow against the value of their home, and no payment of principal or interest is required until the death of the borrower or the sale of the home. These loans are designed to go through the foreclosure and claim process to recover loan balance.

Servicing. The performance of contractually specified administrative functions with respect to a mortgage loan or pool of mortgage loans. Duties of a servicer typically include, among other things, collecting monthly payments, maintaining escrow accounts, providing periodic monthly statements to the borrower and monthly reports to the loan owners or their agents, managing insurance, monitoring delinquencies, executing foreclosures (as necessary), and remitting fees to guarantors, trustees and service providers. A servicer is generally compensated with a specific fee outlined in the contract established prior to the commencement of the servicing activities.

Servicing Advances. In the course of servicing loans, servicers are required to make advances that are reimbursable from collections on the related mortgage loan or pool of loans. There are typically three types of servicing advances: P&I advances, T&I Advances and Corporate Advances.

(i) P&I advances cover scheduled payments of principal and interest that have not been timely paid by borrowers. P&I Advances serve to facilitate the cash flows paid to holders of securities issued by the residential MBS trust. The servicer is not the insurer or guarantor of the MBS and thus has the right to cease the advancing of P&I, when the servicer deems the next advance nonrecoverable.

(ii) T&I advances pay specified expenses associated with the preservation of a mortgaged property or the liquidation of defaulted mortgage loans, including but not limited to property taxes, insurance premiums or other property-related expenses that have not been timely paid by borrowers in order for the lien holder to maintain its interest in the property.

(iii) Corporate advances pay costs, fees and expenses incurred in foreclosing upon, preserving defaulted loans and selling REO, including attorneys’ and other professional fees and expenses incurred in connection with foreclosure and liquidation or other legal proceedings arising in the course of servicing the defaulted mortgage loans.

Servicing advances are reimbursed to the servicer if and when the borrower makes a payment on the underlying mortgage loan at the time the loan is modified or upon liquidation of the underlying mortgage loan but are primarily the responsibility of the investor/owner of the loan. The types of servicing advances that a servicer must make are set forth in its servicing agreement with the owner of the mortgage loan or pool of mortgage loans. In some instances, a servicer is allowed to cease Servicing Advances, if those advances will not be recoverable from the property securing the loan.

Subservicing. Subservicing is the process of outsourcing the duties of the primary servicer to a third-party servicer. The third-party servicer performs the servicing responsibilities for a fee and is typically not responsible for making servicing advances, which are subsequently reimbursed by the primary servicer. The primary servicer is contractually liable to the owner of the loans for the activities of the subservicer.

Unpaid Principal Balance (“UPB”). The amount of principal outstanding on a mortgage loan or a pool of mortgage loans. UPB is used together with the servicing fees and ancillary incomes as a means of estimating the future revenue stream for a servicer.

U.S. Department of Agriculture (“USDA”). The USDA is a cabinet-level department of the U.S. federal government, which guarantees certain home loans for qualified borrowers.

Warehouse Facility. A type of line of credit facility used to temporarily finance mortgage loan originations to be sold in the secondary market. Pursuant to a warehouse facility, a loan originator typically agrees to transfer to a counterparty certain mortgage loans against the transfer of funds by the counterpart, with a simultaneous agreement by the counterpart to transfer the loans back to the originator at a date certain, or on demand, against the transfer of funds from the originator.

Wholesale Originations. A type of mortgage loan origination pursuant to which a lender acquires refinancing and purchase money mortgage loans from third party correspondent lenders where the lender funds the loan.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Refer to the discussion included in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. There have been no material changes in the types of market risks faced by us since December 31, ~~2018.~~2019 except for the broad effects of the COVID-19 pandemic. As we cannot predict the duration or scope of the COVID-19 pandemic, the negative financial impact to our results cannot be reasonably estimated at this time.

Sensitivity Analysis

We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on fair values based on hypothetical changes (increases and decreases) in interest rates.

We use a duration-based model in determining the impact of interest rate shifts on our loan portfolio, certain other interest-bearing liabilities measured at fair value and interest rate derivatives portfolios. The primary assumption used in these models is that an increase or decrease in the benchmark interest rate produces a parallel shift in the yield curve across all maturities.

We utilize a discounted cash flow analysis to determine the fair value of MSRs and the impact of parallel interest rate shifts on MSRs. The primary assumptions in this model are prepayment speeds, earnings related to float and market discount rates. However, this analysis ignores the impact of interest rate changes on certain material variables, such as the benefit or detriment on the value of future loan originations, non-parallel shifts in the spread relationships between MBS, swaps and U.S. Treasury rates and changes in primary and secondary mortgage market spreads. For mortgage loans, IRLCs and forward delivery commitments on MBS, we rely on a model in determining the impact of interest rate shifts. In addition, the primary assumption used for IRLCs, is the borrower’s propensity to close their mortgage loans under the ~~commitment is used as a primary assumption.~~commitment.

Our total market risk is influenced by a wide variety of factors including market volatility and the liquidity of the markets. There are certain limitations inherent in the sensitivity analysis presented, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled.

We ~~use~~used March 31, 2020 market rates on our instruments to perform the sensitivity analysis. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in fair value may not be linear. ~~We believe that on~~

The following table summarizes the ~~whole our~~ estimated ~~net changes to~~change in the fair value of our assets and liabilities atsensitive to interest rates as of March 31, ~~2019 are within acceptable ranges based on~~2020 given hypothetical instantaneous parallel shifts in the ~~materiality of our financial statements.~~yield curve. Results could differ materially.



Table 34. Change in Fair Value



	March 31, 2020
	Down 25 bps			Up 25 bps
Increase (decrease) in assets
Mortgage servicing rights at fair value	$	(229	)	$	235
Mortgage loans held for sale at fair value	10			(12		)
Derivative financial instruments:
Interest rate lock commitments	31			(37		)
Total change in assets	(188		)	186
Increase (decrease) in liabilities
Mortgage servicing rights liabilities at fair value	(5		)	4
Excess spread financing at fair value	(46		)	51
Derivative financial instruments:
Forward MBS trades	36			(44		)
Total change in liabilities	(15		)	11
Total, net change	$	(173	)	$	175

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of March 31, ~~2019.~~2020.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, ~~2019,~~2020, our disclosure controls and procedures are effective. Disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the three months ended March 31, ~~2019,~~2020, no changes in our internal control over financial reporting occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are a state licensed, non-bank mortgage lender, servicer and ancillary services provider. From time to time, we and our subsidiaries are involved in a number of legal proceedings, including, but not limited to, judicial, arbitration, regulatory and governmental proceedings relating to matters that arise in connection with the conduct of our business. These legal proceedings are generally based on alleged violations of federal, state and local laws and regulations governing our mortgage servicing and lending activities including, without limitation, consumer protection laws, but may also include alleged violations of securities, employment, contract, tort, common law fraud and other laws. Legal proceedings include open and pending examinations, information gathering requests and investigations by governmental, regulatory and enforcement agencies as well as litigation in judicial forums and arbitration proceedings.

Our business is subject to extensive examinations, investigations and reviews by various federal, state and local governmental, regulatory and enforcement agencies. We have historically had and continue to have a number of open investigations with these agencies. We continue to receive governmental and regulatory requests for information, subpoenas, examinations and other inquiries. We are currently the subject of various governmental or regulatory investigations, subpoenas, examinations and inquiries related to our residential loan servicing and origination practices, bankruptcy and collections practices, financial reporting and other aspects of our businesses. These matters include investigations by the Consumer Financial Protection Bureau (the “CFPB”), the Securities and Exchange Commission, the Executive Office of the United States Trustees, 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, the multi-state coalition of mortgage banking regulators and various State Attorneys General. These specific matters and other 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 our business practices and in additional expenses and collateral costs. We are cooperating fully in these matters.

For example, we continue to progress towards resolution of certain legacy regulatory matters involving examination findings in prior years for alleged violations of certain laws related to our business practices. We have been in discussions with the multi-state committee of mortgage banking regulators and various State Attorneys General concerning a potential resolution of their investigations. We are continuing to cooperate with all parties. In connection with these discussions, we previously recorded an accrual. These discussions may not result in a settlement of the matter; furthermore, any such settlement may exceed the amount accrued as of March 31, ~~2019.~~2020. Moreover, if the discussions do not result in a settlement, the regulators and State Attorneys General may seek to exercise their enforcement authority through litigation or other proceedings and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on our business, reputation, financial condition and results of operations.

Further, on April 24, 2018, the CFPB notified us that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (NORA) process, the CFPB’s Office of Enforcement is considering whether to recommend that the CFPB take enforcement action against us, alleging violations of the Real Estate Settlement Procedures Act, the Consumer Financial Protection Act, and the Homeowners Protection Act, which stems from a 2014 examination. The purpose of a NORA letter is to provide a party being investigated an opportunity to present its position to the CFPB before an enforcement action may be recommended or commenced. The CFPB may seek to exercise its enforcement authority through settlement, administrative proceedings or litigation and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on our business, reputation, financial condition and results of operations. We have not recorded an accrual related to this matter as of March 31, ~~2019~~2020 as we do not believe that the possible loss or range of loss arising from any such action is estimable. We are continuing to cooperate with the CFPB.

Similarly, we are in discussions with the Executive Office of the United States Trustees concerning certain legacy issues with respect to bankruptcy servicing practices. In connection with these discussions, we are undertaking certain voluntary remediation activities with respect to loans at issue in these matters. While we and the Executive Office of the United States Trustees are engaged in discussions to potentially resolve these issues, there is no guarantee a resolution will occur. Moreover, if the discussions do not result in a resolution, the Executive Office of the United States Trustees may seek redress through litigation or other proceedings and seek injunctive relief, damages and restitution in addition to the remediation activities, which could have a material adverse effect on our business, reputation, financial condition and results of operations. However, we believe it is premature to predict the potential outcome or to estimate the financial impact to us in connection with any potential action or settlement arising from this matter, including the voluntary remediation activities undertaken and to be undertaken by us.

In addition, we are a defendant in a class action proceeding originally filed in state court in March 2012, and then removed to the United States District Court for the Eastern District of Washington under the caption Laura Zamora Jordan v. Nationstar Mortgage LLC. The suit was filed on behalf of a class of Washington borrowers and challenges property preservation measures we took, as loan servicer, after the borrowers defaulted and our vendors determined that the borrowers had vacated or abandoned their properties. The case raises claims for (i) common law trespass, (ii) statutory trespass, and (iii) violation of Washington’s Consumer Protection Act, and seeks recovery of actual, statutory, and treble damages, as well as attorneys’ fees and litigation costs. On July 25, 2018, we entered into a settlement agreement to resolve this matter. The parties are currently seeking final approval of the settlement from the court. We are pursuing reimbursement of the settlement payment from the owners of the loans we serviced, but there can be no assurance that we will prevail with any claims for reimbursement.

We are a defendant in a proceeding filed on January 2, 2018 in the U.S. District Court for the Northern District of California under the caption Collateral Analytics LLC v. Nationstar Mortgage LLC et al. The plaintiff alleges that we and certain affiliated entities misappropriated plaintiff’s intellectual property for the purpose of replicating plaintiff’s products. The case raises federal and state law claims for misappropriation of trade secrets and breach of contract and seeks an award of actual damages, unjust enrichment, lost profits and/or a reasonable royalty, exemplary damages and injunctive relief preventing further misuse or disclosure of plaintiff’s intellectual property. We believe we have meritorious defenses and will vigorously defend ourselves in this matter, and the parties are currently seeking approval of the settlement from the court.

We are also a defendant in a proceeding filed on October 23, 2015 in the U.S. District Court for the Central District of California under the caption Alfred Zaklit and Jessy Zaklit, individually and on behalf of all others similarly situated v. Nationstar Mortgage LLC et al. The plaintiff alleges that we improperly recorded telephone calls without the knowledge or consent of borrowers in violation of the California Penal Code. On July 24, 2017, the court certified a class comprised of California borrowers who, from October 2014 to May 2016, participated in outbound telephone conversations with our employees who recorded the conversations without first informing the borrowers that the conversations were being recorded. The class seeks statutory damages and attorney’s fees. On September 10, 2018, we reached an agreement in principal to settle this matter.

Responding to these matters requires us to devote substantial resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase our operating expenses and reduce our revenues, require us to change business practices and limit our ability to grow and otherwise materially and adversely affect our business, reputation, financial condition or results of operation.

Item 1A. Risk Factors

There have been no material changes or additions to the risk factors previously disclosed under “Risk Factors” included in our Annual Report on Form 10-K filed for the year ended December 31, ~~2018.~~2019, except for the following:

The COVID-19 pandemic may adversely impact our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic introduces unprecedented uncertainty in the economy, including the risk of a significant employment shock and recessionary conditions, with implications for the health and safety of our employees, borrower delinquency rates, forbearance take-up rates under the forbearance program included in the CARES Act and the related funding for the P&I and T&I servicing advances, the sources, adequacy and availability of financing to fund advances, origination volumes and our overall profitability and liquidity.

The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not make any repurchases of our shares during the three months ended March 31, ~~2019.~~2020.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



		Incorporated by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed or Furnished Herewith

~~10.1~~10.1**	~~Amendment Number Sixteen, dated January 28, 2019, to the Mortgage Loan Participation Purchase and Sale~~Form of Performance Stock Unit Agreement ~~dated as of March 25, 2011, between Barclays Bank PLC and Nationstar Mortgage LLC~~- Employee					X
~~10.2~~10.2**	~~Amendment Number Seventeen, dated March 29, 2019, to the Mortgage Loan Participation Purchase and Sale~~Form of Performance Stock Unit Agreement ~~dated as of March 25, 2011, between Barclays Bank PLC and Nationstar Mortgage LLC~~- Special Retirement Provisions					X
10.3	Amendment Number ~~Nine, dated as of January 28, 2019~~Thirteen to the Second Amended and Restated Master Repurchase Agreement ~~dated~~Dated as of January 29, 2016 ~~among~~between Barclays Bank PLC, as ~~purchaser and agent,~~Agent and Nationstar Mortgage LLC, as ~~seller~~					X
~~10.4~~	~~Amendment Number Ten,~~Seller, dated ~~as of~~ March ~~29, 2019 to the Second Amended and Restated Master Repurchase Agreement, dated January 29, 2016, among Barclays Bank PLC, as purchaser and agent, and Nationstar Mortgage LLC, as seller~~30, 2020					X
31.1	Certification by Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification by Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

** Management contract, compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		MR. COOPER GROUP INC.

~~May 8, 2019~~April 30, 2020		/s/ Jay Bray
Date		Jay Bray Chief Executive Officer (Principal Executive Officer)

~~May 8, 2019~~April 30, 2020		/s/ Christopher G. Marshall
Date		Christopher G. Marshall Vice Chairman & Chief Financial Officer (Principal Financial and Accounting Officer)

9385



Delaware		91-1653725
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8950 Cypress Waters Blvd, Coppell, TX		75019
(Address of principal executive offices)		(Zip Code)

(469) 549-2000
Registrant’s telephone number, including area code



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	COOP	The Nasdaq Stock Market



Large Accelerated Filer	¨	Accelerated Filer	x
Non-Accelerated Filer	¨	Smaller reporting company	¨
		Emerging growth company	¨


	Successor		Predecessor
	March 31, 2019		March 31, 2018		March 31, 2020		March 31, 2019
Cash and cash equivalents	$	181	$	187	$	579	$	181
Restricted cash	339		365		266		339
Total cash, cash equivalents, and restricted cash	$	520	$	552	$	845	$	520


	Three Months Ended March 31, 2019			Three Months Ended March 31, 2019
Pro forma financial information				(unaudited)
Pro forma total revenues	$	269		$	269

Pro forma net loss	$	(184	)	$	(184	)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of March 31, ~~2019~~2020 (unaudited) and December 31, ~~2018 (Successor)~~2019	3

	Consolidated Statements of Operations (unaudited) for the ~~Successor’s~~Three Months Ended March 31, 2020 and Three Months Ended March 31, 2019 ~~and the Predecessor’s Three Months Ended March 31, 2018~~	4

	Consolidated Statements of Stockholders’ Equity (unaudited) for the ~~Successor’s~~Three Months Ended March 31, 2020 and Three Months Ended March 31, 2019 ~~and the Predecessor’s Three Months Ended March 31, 2018~~	5

	Consolidated Statements of Cash Flows (unaudited) for the ~~Successor’s~~Three Months Ended March 31, 2020 and Three Months Ended March 31, 2019 ~~and the Predecessor’s Three Months Ended March 31, 2018~~	6

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	6043

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	8980

Item 4.	Controls and Procedures	8981



PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	9082

Item 1A.	Risk Factors	9183

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9183

Item 3.	Defaults Upon Senior Securities	9183

Item 4.	Mine Safety Disclosures	9183

Item 5.	Other Information	9183

Item 6.	Exhibits	9284


	Successor
	March 31, 2019		December 31, 2018		March 31, 2020			December 31, 2019
	(unaudited)				(unaudited)
Assets
Cash and cash equivalents	$	181	$	242	$	579		$	329
Restricted cash	339		319		266			283
Mortgage servicing rights, $3,481 and $3,665 at fair value, respectively	3,488		3,676
Advances and other receivables, net of reserves of $71 and $47, respectively	1,147		1,194
Reverse mortgage interests, net of reserves of $8 and $13, respectively	7,489		7,934
Mortgage servicing rights, $3,109 and $3,496 at fair value, respectively					3,115			3,502
Advances and other receivables, net of reserves of $193 and $175, respectively					685			988
Reverse mortgage interests, net of reserves of $3 and $3, respectively					5,955			6,279
Mortgage loans held for sale at fair value	2,170		1,631		3,922			4,077
Mortgage loans held for investment at fair value	118		119
Property and equipment, net of accumulated depreciation of $27 and $16, respectively	112		96
Deferred tax asset, net	1,024		967
Property and equipment, net of accumulated depreciation of $65 and $55, respectively					111			112
Deferred tax assets, net					1,411			1,345
Other assets	1,578		795		1,569			1,390
Total assets	$	17,646	$	16,973	$	17,613		$	18,305

Liabilities and Stockholders’ Equity
Unsecured senior notes, net	$	2,461	$	2,459	$	2,259		$	2,366
Advance facilities, net	578		595		489			422
Warehouse facilities, net	3,050		2,349		4,551			4,575
Payables and other liabilities	1,975		1,543		1,965			2,016
MSR related liabilities - nonrecourse at fair value	1,343		1,216		1,285			1,348
Mortgage servicing liabilities	90		71		53			61
Other nonrecourse debt, net	6,388		6,795		4,945			5,286
Total liabilities	15,885		15,028		15,547			16,074
Commitments and contingencies (Note 18)
Preferred stock at $0.00001 - 10 million shares authorized, 1 million shares issued and outstanding, respectively; aggregate liquidation preference of ten dollars, respectively	—		—		—			—
Common stock at $0.01 par value - 300 million shares authorized, 91.0 million and 90.8 million shares issued, respectively	1		1
Common stock at $0.01 par value - 300 million shares authorized, 92.0 million and 91.1 million shares issued, respectively					1			1
Additional paid-in-capital	1,095		1,093		1,108			1,109
Retained earnings	662		848		961			1,122
Total Mr. Cooper stockholders’ equity	1,758		1,942		2,070			2,232
Non-controlling interests	3		3		(4		)	(1		)
Total stockholders’ equity	1,761		1,945		2,066			2,231
Total liabilities and stockholders’ equity	$	17,646	$	16,973	$	17,613		$	18,305


	Preferred Stock			Common Stock																				Preferred Stock			Common Stock
	Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital			Retained Earnings			Treasury Share Amount			Total Nationstar Stockholders’ Equity and Mr. Cooper Stockholders’ Equity, respectively			Non-controlling Interests		Total Equity			Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital			Retained Earnings			Total Mr. Cooper Stockholders’ Equity			Non-controlling Interests			Total Equity
Predecessor
Balance at January 1, 2018	—	$	—	97,728	$	1	$	1,131		$	731		$	(148	)	$	1,715		$	7	$	1,722
Balance at January 1, 2019																								1,000	$	—	90,821	$	1	$	1,093		$	848		$	1,942		$	3		$	1,945
Shares issued / (surrendered) under incentive compensation plan	—	—		465	—		(4		)	—			—			(4		)	—		(4		)	—	—		221	—		(2		)	—			(2		)	—			(2		)
Share-based compensation	—	—		—	—		4			—			—			4			—		4
Net income	—	—		—	—		—			160			—			160			—		160
Balance at March 31, 2018	—	$	—	98,193	$	1	$	1,131		$	891		$	(148	)	$	1,875		$	7	$	1,882


Successor
Balance at January 1, 2019	1,000	$	—	90,821	$	1	$	1,093		$	848		$	—		$	1,942		$	3	$	1,945
Shares issued under incentive compensation plan	—	—		221	—		(2		)	—			—			(2		)	—		(2		)
Share-based compensation	—	—		—	—		4			—			—			4			—		4			—	—		—	—		4			—			4			—			4
Net loss	—	—		—	—		—			(186		)	—			(186		)	—		(186		)	—	—		—	—		—			(186		)	(186		)	—			(186		)
Balance at March 31, 2019	1,000	$	—	91,042	$	1	$	1,095		$	662		$	—		$	1,758		$	3	$	1,761		1,000	$	—	91,042	$	1	$	1,095		$	662		$	1,758		$	3		$	1,761

Balance at January 1, 2020																								1,000	$	—	91,118	$	1	$	1,109		$	1,122		$	2,232		$	(1	)	$	2,231
Shares issued / (surrendered) under incentive compensation plan																								—	—		852	—		(5		)	—			(5		)	—			(5		)
Share-based compensation																								—	—		—	—		4			—			4			—			4
Cumulative effect adjustments pursuant to the adoption of ASU 2016-13																								—	—		—	—		—			7			7			—			7
Net loss																								—	—		—	—		—			(168		)	(168		)	(3		)	(171		)
Balance at March 31, 2020																								1,000	$	—	91,970	$	1	$	1,108		$	961		$	2,070		$	(4	)	$	2,066


⁽¹⁾	The following table provides a reconciliation of cash, cash equivalents and restricted cash to amount reported within the consolidated balance sheets.


Preliminary Estimated Fair Value of Net Assets Acquired:
Final Estimated Fair Value of Net Assets Acquired:
Cash and cash equivalents	$	37	$	37
Restricted cash	2		2
Mortgage servicing rights	271		271
Advances and other receivables	84		84
Mortgage loans held for sale	536		536
Mortgage loans held for investment	1		1
Property and equipment	10		8
Other assets	483		483
Fair value of assets acquired	1,424		1,422
Notes payable⁽¹⁾	294		294
Advance facilities	13		13
Warehouse facilities	393		393
Payables and other liabilities	519		530
Other nonrecourse debt	129		129
Fair value of liabilities assumed	1,348		1,359
Total fair value of net tangible assets acquired	76		63
Intangible assets:
Customer relationships⁽²⁾	11		13
Preliminary goodwill	29
	$	116
Goodwill			40
Final purchase price			$	116


⁽¹⁾	Notes ~~payables~~payable was subsequently paid off in February 2019 after the consummation of the acquisition.


⁽²⁾	The estimated fair values for customer relationships were measured using the excess earnings method and were determined to have a remaining useful life of 10 years.



Purchase Price:
Converted WMIH common shares (prior to reverse stock split) in millions	394
Price per share, based on price of $1.398 for WMIH stock on July 31, 2018	$	1.398
Purchase price from common stock issued	551
Purchase price from cash payment	1,226
Total purchase price	$	1,777



	Useful Life (Years)	Fair Value
Customer relationships⁽ⁱ⁾	6	$	61
Tradename⁽ⁱⁱ⁾	5	8
Technology⁽ⁱⁱ⁾	3-5	11
Internally developed software⁽ⁱⁱⁱ⁾	2	23
Total		$	103


	Successor								March 31, 2020				December 31, 2019
	March 31, 2019				December 31, 2018
MSRs - Sensitivity Pools	UPB		Fair Value		UPB		Fair Value
Forward MSRs - UPB and fair value breakdown									UPB		Fair Value		UPB		Fair Value
Acquisition Pools
Credit sensitive	$	153,565	$	1,626	$	135,752	$	1,495	$	138,726	$	1,386	$	147,895	$	1,613
Interest sensitive	150,127		1,855		159,729		2,170		151,908		1,723		148,887		1,883
Total	$	303,692	$	3,481	$	295,481	$	3,665	$	290,634	$	3,109	$	296,782	$	3,496

Investors Pools
Agency⁽¹⁾									$	238,956	$	2,618	$	240,688	$	2,944
Non-agency⁽²⁾									51,678		491		56,094		552
Total									$	290,634	$	3,109	$	296,782	$	3,496


Forward MSRs - Key inputs and assumptions					March 31, 2020		December 31, 2019
Total MSR Portfolio
Discount rate					9.7	%	9.7	%
Prepayment speeds					13.4	%	13.1	%
Average life					5.7 years		5.8 years
	Successor
	March 31, 2019		December 31, 2018
Acquisition Pools:
Credit Sensitive
Discount rate	11.3	%	11.3	%	10.2	%	10.4	%
Total prepayment speeds	13.5	%	11.8	%
Expected weighted-average life	6.0 years		6.4 years
Prepayment speeds					13.0	%	12.7	%
Average life					5.9 years		6.0 years

Interest Sensitive
Discount rate	9.4	%	9.3	%	9.1	%	9.1	%
Total prepayment speeds	12.5	%	10.0	%
Expected weighted-average life	6.1 years		7.0 years
Prepayment speeds					13.8	%	13.5	%
Average life					5.5 years		5.7 years

Investor Pools:
Agency
Discount rate					9.0	%	9.0	%
Prepayment speeds					13.2	%	13.0	%
Average life					5.6 years		5.8 years

Non-agency
Discount rate					12.6	%	12.6	%
Prepayment speeds					14.3	%	13.8	%
Average life					6.1 years		6.2 years



	Successor
Excess Spread Financing	Prepayment Speeds	Average Life (Years)	Discount Rate	Recapture Rate
March 31, 2019
Low	6.8%	4.7	8.5%	7.9%
High	18.3%	7.2	13.9%	33.1%
Weighted-average	12.9%	5.9	10.4%	20.4%

December 31, 2018
Low	6.0%	5.0	8.5%	8.5%
High	16.7%	8.1	13.9%	30.5%
Weighted-average	11.0%	6.5	10.4%	18.6%


⁽¹⁾	~~The following intangible assets were acquired in the Nationstar acquisition.~~


⁽ⁱ⁾	~~The estimated fair values for customer relationships were measured using the excess earnings method.~~


⁽ⁱⁱ⁾	The estimated fair values for tradename and technology were measured using the relief-from-royalty method. This method assumes the tradename and technology have value to the extent the owner is relieved of the obligation to pay royalties for the benefits received from these assets.


⁽ⁱⁱⁱ⁾	~~The estimated fair values for internally developed software were measured using the replacement cost method.~~


	Successor
MSRs and Related Liabilities	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Forward MSRs - fair value	$	3,481	$	3,665	$	3,109	$	3,496
Reverse MSRs - amortized cost	7		11		6		6
Mortgage servicing rights	$	3,488	$	3,676	$	3,115	$	3,502

Mortgage servicing liabilities - amortized cost	$	90	$	71	$	53	$	61

Excess spread financing - fair value	$	1,309	$	1,184	$	1,242	$	1,311
Mortgage servicing rights financing - fair value	34		32		43		37
MSR related liabilities - nonrecourse at fair value	$	1,343	$	1,216	$	1,285	$	1,348


	Successor			Predecessor
MSRs - Fair Value	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Forward MSRs - Fair Value							Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Fair value - beginning of period	$	3,665		$	2,937		$	3,496		$	3,665
Additions:
Servicing retained from mortgage loans sold	66			68			123			66
Purchases of servicing rights⁽¹⁾	409			19			24			409
Dispositions:
Sales of servicing assets	(260		)	—			—			(260		)
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model	(332		)	239			(401		)	(332		)
Other changes in fair value	(67		)	(69		)	(133		)	(67		)
Fair value - end of period	$	3,481		$	3,194		$	3,109		$	3,481


⁽¹⁾	Purchases of servicing rights during the three months ended March 31, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 2, Acquisitions, for further discussion.


⁽¹⁾	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”).


⁽²⁾	Non-agency investors consist of investors in private-label securitizations.



	Discount Rate						Total Prepayment Speeds
Forward MSRs - Hypothetical Sensitivities	100 bps Adverse Change			200 bps Adverse Change			10% Adverse Change			20% Adverse Change
March 31, 2020
Mortgage servicing rights	$	(111	)	$	(214	)	$	(158	)	$	(305	)

December 31, 2019
Mortgage servicing rights	$	(127	)	$	(245	)	$	(165	)	$	(317	)



	Three Months Ended March 31,
	2020					2019
Reverse MSRs and Liabilities - Amortized Cost	Assets		Liabilities			Assets			Liabilities
Balance - beginning of period	$	6	$	61		$	11		$	71
Amortization/accretion	—		(8		)	—			(18		)
Adjustments⁽¹⁾	—		—			(4		)	37
Balance - end of the period	$	6	$	53		$	7		$	90
Fair value - end of period	$	6	$	27		$	7		$	75


⁽¹⁾	Reverse MSR and MSL net adjustments recorded by the Company during the three months ended March 31, 2019 primarily relate to the fair value adjustments for reverse MSR and MSL assumed from the Merger resulting from the revised cost to service assumption used in the valuation of reverse MSR and MSL during the measurement period.



Excess Spread Financing Assumptions	March 31, 2020		December 31, 2019
Discount rate	11.6	%	11.6	%
Prepayment speeds	12.8	%	12.6	%
Recapture rate	18.6	%	20.1	%
Average life	5.7 years		5.8 years


	Successor
Mortgage Servicing Rights Financing Assumptions	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Advance financing rates	3.9	%	4.2	%	1.7	%	3.5	%
Annual advance recovery rates	19.3	%	19.0	%	18.4	%	18.8	%



	Successor			Predecessor
Servicing Revenue	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Contractually specified servicing fees⁽¹⁾	$	281		$	250
Other service-related income⁽¹⁾⁽²⁾	50			28
Incentive and modification income⁽¹⁾	7			15
Late fees⁽¹⁾	25			24
Reverse servicing fees	9			19
Mark-to-market adjustments⁽³⁾	(293		)	152
Counterparty revenue share⁽⁴⁾	(48		)	(45		)
Amortization, net of accretion⁽⁵⁾	(23		)	(48		)
Total servicing revenue	$	8		$	395



Total Revenues - Servicing	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Contractually specified servicing fees⁽¹⁾	$	297		$	281
Other service-related income⁽¹⁾	49			50
Incentive and modification income⁽¹⁾	10			7
Late fees⁽¹⁾	27			25
Reverse servicing fees	6			9
Mark-to-market adjustments⁽²⁾	(383		)	(293		)
Counterparty revenue share⁽³⁾	(76		)	(48		)
Amortization, net of accretion⁽⁴⁾	(76		)	(23		)
Total revenues - Servicing	$	(146	)	$	8


⁽¹⁾	The Company recognizes revenue on an earned basis for services performed. Amounts include subservicing related revenues.


⁽²⁾	Amount for the three months ended March 31, 2019 included a gain of $21 from the execution of a clean-up call option on a reverse mortgage loan trust, as the Company was the master servicer and holder of clean-up call rights.


⁽⁴⁾⁽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 ~~MSRs~~MSR financing arrangements.


	Successor			Predecessor
Reserves for Advances and Other Receivables	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Balance - beginning of period	$	47		$	284		$	168		$	47
Provision and other additions⁽¹⁾	30			22			30			30
Write-offs	(6		)	(29		)	(5		)	(6		)
Balance - end of period	$	71		$	277		$	193		$	71