UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20192020
or
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
Commission file number: 001-14667
Mr. Cooper Group Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 91-1653725 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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8950 Cypress Waters Blvd, Coppell, TX | | 75019 |
(Address of principal executive offices) | | (Zip Code) |
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(469) 549-2000 | | |
Registrant’s telephone number, including area code | | |
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Securities registered pursuant to Section 12(b) of the Act:
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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 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.
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Large Accelerated Filer | ¨ | Accelerated Filer | x |
Non-Accelerated Filer | ¨ | Smaller reporting company | ¨☐ |
| | Emerging growth company | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x
Number of shares of common stock, $0.01 par value, outstanding as of October 25, 2019July 24, 2020 was 91,087,252.92,021,981.
MR. COOPER GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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PART I | | |
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PART IItem 1. | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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PART I. Financial Information
Item 1. Financial Statements
MR. COOPER GROUP INC.
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except share data)
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
| (unaudited) | | |
Assets | | | |
Cash and cash equivalents | $ | 1,041 | | | $ | 329 | |
Restricted cash | 260 | | | 283 | |
Mortgage servicing rights, $2,757 and $3,496 at fair value, respectively | 2,763 | | | 3,502 | |
Advances and other receivables, net of reserves of $216 and $175, respectively | 668 | | | 988 | |
Reverse mortgage interests, net of purchase discount of $127 and $114, respectively | 5,709 | | | 6,279 | |
Mortgage loans held for sale at fair value | 3,179 | | | 4,077 | |
Property and equipment, net of accumulated depreciation of $75 and $55, respectively | 115 | | | 112 | |
Deferred tax assets, net | 1,391 | | | 1,345 | |
Other assets | 2,174 | | | 1,390 | |
Total assets | $ | 17,300 | | | $ | 18,305 | |
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Liabilities and Stockholders’ Equity | | | |
Unsecured senior notes, net | $ | 2,261 | | | $ | 2,366 | |
Advance facilities, net | 475 | | | 422 | |
Warehouse facilities, net | 4,031 | | | 4,575 | |
Payables and other liabilities | 2,460 | | | 2,016 | |
MSR related liabilities - nonrecourse at fair value | 1,173 | | | 1,348 | |
Mortgage servicing liabilities | 48 | | | 61 | |
Other nonrecourse debt, net | 4,707 | | | 5,286 | |
Total liabilities | 15,155 | | | 16,074 | |
Commitments and contingencies (Note 16) | | | |
Preferred stock at $0.00001 - 10 million shares authorized, 1 million shares issued and outstanding, respectively; aggregate liquidation preference of 10 dollars, respectively | — | | | — | |
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 | 1,114 | | | 1,109 | |
Retained earnings | 1,034 | | | 1,122 | |
Total Mr. Cooper stockholders’ equity | 2,149 | | | 2,232 | |
Non-controlling interests | (4) | | | (1) | |
Total stockholders’ equity | 2,145 | | | 2,231 | |
Total liabilities and stockholders’ equity | $ | 17,300 | | | $ | 18,305 | |
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| Successor |
| September 30, 2019 | | December 31, 2018 |
| (unaudited) | | |
Assets | | | |
Cash and cash equivalents | $ | 371 |
| | $ | 242 |
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Restricted cash | 271 |
| | 319 |
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Mortgage servicing rights, $3,339 and $3,665 at fair value, respectively | 3,346 |
| | 3,676 |
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Advances and other receivables, net of reserves of $130 and $47, respectively | 967 |
| | 1,194 |
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Reverse mortgage interests, net of reserves of $13 and $13, respectively | 6,662 |
| | 7,934 |
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Mortgage loans held for sale at fair value | 4,267 |
| | 1,631 |
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Mortgage loans held for investment at fair value | — |
| | 119 |
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Property and equipment, net of accumulated depreciation of $45 and $16, respectively | 113 |
| | 96 |
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Deferred tax asset, net | 1,032 |
| | 967 |
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Other assets | 1,449 |
| | 795 |
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Total assets | $ | 18,478 |
| | $ | 16,973 |
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Liabilities and Stockholders’ Equity | | | |
Unsecured senior notes, net | $ | 2,464 |
| | $ | 2,459 |
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Advance facilities, net | 513 |
| | 595 |
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Warehouse facilities, net | 4,802 |
| | 2,349 |
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Payables and other liabilities | 2,002 |
| | 1,543 |
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MSR related liabilities - nonrecourse at fair value | 1,328 |
| | 1,216 |
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Mortgage servicing liabilities | 69 |
| | 71 |
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Other nonrecourse debt, net | 5,533 |
| | 6,795 |
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Total liabilities | 16,711 |
| | 15,028 |
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Commitments and contingencies (Note 18) |
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Preferred stock at $0.00001 - 10 million shares authorized, 1 million shares issued and outstanding, respectively; aggregate liquidation preference of ten dollars, respectively | — |
| | — |
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Common stock at $0.01 par value - 300 million shares authorized, 91.1 million and 90.8 million shares issued, respectively | 1 |
| | 1 |
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Additional paid-in-capital | 1,106 |
| | 1,093 |
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Retained earnings | 659 |
| | 848 |
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Total Mr. Cooper stockholders’ equity | 1,766 |
| | 1,942 |
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Non-controlling interests | 1 |
| | 3 |
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Total stockholders’ equity | 1,767 |
| | 1,945 |
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Total liabilities and stockholders’ equity | $ | 18,478 |
| | $ | 16,973 |
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See accompanying notes to the consolidated financial statements (unaudited).
MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(millions of dollars, except for earnings per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Service related, net | $ | 12 | | | $ | 137 | | | $ | (41) | | | $ | 221 | |
Net gain on mortgage loans held for sale | 618 | | | 262 | | | 949 | | | 428 | |
Total revenues | 630 | | | 399 | | | 908 | | | 649 | |
Expenses: | | | | | | | |
Salaries, wages and benefits | 248 | | | 238 | | | 494 | | | 453 | |
General and administrative | 171 | | | 254 | | | 369 | | | 482 | |
Total expenses | 419 | | | 492 | | | 863 | | | 935 | |
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Interest income | 76 | | | 162 | | | 194 | | | 296 | |
Interest expense | (177) | | | (187) | | | (369) | | | (376) | |
Other income, net | — | | | 1 | | | 1 | | | 16 | |
Total other expenses, net | (101) | | | (24) | | | (174) | | | (64) | |
Income (loss) before income tax expense (benefit) | 110 | | | (117) | | | (129) | | | (350) | |
Less: Income tax expense (benefit) | 37 | | | (29) | | | (31) | | | (76) | |
Net income (loss) | 73 | | | (88) | | | (98) | | | (274) | |
Less: Net loss attributable to non-controlling interests | — | | | (1) | | | (3) | | | (1) | |
Net income (loss) attributable to Mr. Cooper | 73 | | | (87) | | | (95) | | | (273) | |
Less: Undistributed earnings attributable to participating stockholders | 1 | | | — | | | — | | | — | |
Net income (loss) attributable to common stockholders | $ | 72 | | | $ | (87) | | | $ | (95) | | | $ | (273) | |
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Net income (loss) per common share attributable to Mr. Cooper: | | | | | | | |
Basic | $ | 0.78 | | | $ | (0.96) | | | $ | (1.04) | | | $ | (3.00) | |
Diluted | $ | 0.77 | | | $ | (0.96) | | | $ | (1.04) | | | $ | (3.00) | |
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| Successor | | | Predecessor |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Revenues: | | | | | | | | | | |
Service related, net | $ | 258 |
| | $ | 479 |
| | $ | 259 |
| | | $ | 120 |
| | $ | 901 |
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Net gain on mortgage loans held for sale | 360 |
| | 788 |
| | 83 |
| | | 44 |
| | 295 |
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Total revenues | 618 |
| | 1,267 |
| | 342 |
| | | 164 |
| | 1,196 |
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Expenses: | | | | | | | | | | |
Salaries, wages and benefits | 250 |
| | 703 |
| | 139 |
| | | 69 |
| | 426 |
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General and administrative | 228 |
| | 710 |
| | 136 |
| | | 173 |
| | 519 |
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Total expenses | 478 |
| | 1,413 |
| | 275 |
| | | 242 |
| | 945 |
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Other income (expenses): | | | | | | | | | | |
Interest income | 163 |
| | 459 |
| | 90 |
| | | 48 |
| | 333 |
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Interest expense | (196 | ) | | (572 | ) | | (122 | ) | | | (53 | ) | | (388 | ) |
Other income (expenses) | — |
| | 16 |
| | 6 |
| | | — |
| | 6 |
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Total other income (expenses), net | (33 | ) | | (97 | ) | | (26 | ) | | | (5 | ) | | (49 | ) |
Income (loss) before income tax expense (benefit) | 107 |
| | (243 | ) | | 41 |
| | | (83 | ) | | 202 |
|
Less: Income tax expense (benefit) | 24 |
| | (52 | ) | | (979 | ) | | | (19 | ) | | 48 |
|
Net income (loss) | 83 |
| | (191 | ) | | 1,020 |
| | | (64 | ) | | 154 |
|
Less: Net loss attributable to non-controlling interests | (1 | ) | | (2 | ) | | — |
| | | — |
| | — |
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Net income (loss) attributable to Successor/Predecessor | 84 |
| | (189 | ) | | 1,020 |
| | | (64 | ) | | 154 |
|
Less: Undistributed earnings attributable to participating stockholders | 1 |
| | — |
| | 9 |
| | | — |
| | — |
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Net income (loss) attributable to common stockholders | $ | 83 |
| | $ | (189 | ) | | $ | 1,011 |
| | | $ | (64 | ) | | $ | 154 |
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Net income (loss) per common share attributable to Successor/Predecessor: | | | | | | | | | | |
Basic | $ | 0.91 |
| | $ | (2.08 | ) | | $ | 11.13 |
| | | $ | (0.65 | ) | | $ | 1.57 |
|
Diluted | $ | 0.90 |
| | $ | (2.08 | ) | | $ | 10.99 |
| | | $ | (0.65 | ) | | $ | 1.55 |
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See accompanying notes to the consolidated financial statements (unaudited).
MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions of dollars, except share data)
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| | Preferred Stock | | | | Common Stock | | | | | | | | | | | | | | |
| | Shares (in thousands) | | Amount | | Shares (in thousands) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | | | Total Mr. Cooper Stockholders’ Equity | | Non-controlling Interests | | Total Equity |
Balance at March 31, 2019 | | 1,000 | | | $ | — | | | 91,042 | | | $ | 1 | | | $ | 1,095 | | | $ | 662 | | | | | $ | 1,758 | | | $ | 3 | | | $ | 1,761 | |
Shares issued under incentive compensation plan | | — | | | — | | | 19 | | | — | | | — | | | — | | | | | — | | | — | | | — | |
Share-based compensation | | — | | | — | | | — | | | — | | | 5 | | | — | | | | | 5 | | | — | | | 5 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (87) | | | | | (87) | | | (1) | | | (88) | |
Balance at June 30, 2019 | | 1,000 | | | $ | — | | | 91,061 | | | $ | 1 | | | $ | 1,100 | | | $ | 575 | | | | | $ | 1,676 | | | $ | 2 | | | $ | 1,678 | |
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Balance at March 31, 2020 | | 1,000 | | | $ | — | | | 91,970 | | | $ | 1 | | | $ | 1,108 | | | $ | 961 | | | | | $ | 2,070 | | | $ | (4) | | | $ | 2,066 | |
Shares issued under incentive compensation plan | | — | | | — | | | 52 | | | — | | | — | | | — | | | | | — | | | — | | | — | |
Share-based compensation | | — | | | — | | | — | | | — | | | 6 | | | — | | | | | 6 | | | — | | | 6 | |
Net income | | — | | | — | | | — | | | — | | | — | | | 73 | | | | | 73 | | | — | | | 73 | |
Balance at June 30, 2020 | | 1,000 | | | $ | — | | | 92,022 | | | $ | 1 | | | $ | 1,114 | | | $ | 1,034 | | | | | $ | 2,149 | | | $ | (4) | | | $ | 2,145 | |
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| | 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 |
Predecessor | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2018 | | — |
| | $ | — |
| | 97,728 |
| | $ | 1 |
| | $ | 1,131 |
| | $ | 731 |
| | $ | (148 | ) | | $ | 1,715 |
| | $ | 7 |
| | $ | 1,722 |
|
Shares issued / (surrendered) under incentive compensation plan | | — |
| | — |
| | 450 |
| | — |
| | (6 | ) | | — |
| | (3 | ) | | (9 | ) | | — |
| | (9 | ) |
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 17 |
| | — |
| | — |
| | 17 |
| | — |
| | 17 |
|
Dividends to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | 5 |
| | — |
| | — |
| | 5 |
| | (6 | ) | | (1 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 154 |
| | — |
| | 154 |
| | — |
| | 154 |
|
Balance at July 31, 2018 | | — |
| | $ | — |
| | 98,178 |
| | $ | 1 |
| | $ | 1,147 |
| | $ | 885 |
| | $ | (151 | ) | | $ | 1,882 |
| | $ | 1 |
| | $ | 1,883 |
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| | | | | | | | | | | | | | | | | | | | |
Successor | | | | | | | | | | | | | | | | | | | | |
Balance at August 1, 2018 | | 1,000 |
| | $ | — |
| | 90,806 |
| | $ | 1 |
| | $ | 1,091 |
| | $ | (36 | ) | | $ | — |
| | $ | 1,056 |
| | $ | — |
| | $ | 1,056 |
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Shares issued under incentive compensation plan | | — |
| | — |
| | 5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,020 |
| | — |
| | 1,020 |
| | — |
| | 1,020 |
|
Balance at September 30, 2018 | | 1,000 |
| | $ | — |
| | 90,811 |
| | $ | 1 |
| | $ | 1,093 |
| | $ | 984 |
| | $ | — |
| | $ | 2,078 |
| | $ | — |
| | $ | 2,078 |
|
| | | | | | | | | | | | | | | | | | | | |
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 | | — |
| | — |
| | 266 |
| | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | — |
| | 14 |
| | — |
| | 14 |
|
Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (189 | ) | | — |
| | (189 | ) | | (2 | ) | | (191 | ) |
Balance at September 30, 2019 | | 1,000 |
| | $ | — |
| | 91,087 |
| | $ | 1 |
| | $ | 1,106 |
| | $ | 659 |
| | $ | — |
| | $ | 1,766 |
| | $ | 1 |
| | $ | 1,767 |
|
See accompanying notes to the consolidated financial statements (unaudited).
MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions of dollars, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | | | Common Stock | | | | | | | | | | | | | | |
| | Shares (in thousands) | | Amount | | Shares (in thousands) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | | | Total Mr. Cooper Stockholders’ Equity | | Non-controlling Interests | | Total Equity |
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 | | — | | | — | | | 240 | | | — | | | (2) | | | — | | | | | (2) | | | — | | | (2) | |
Share-based compensation | | — | | | — | | | — | | | — | | | 9 | | | — | | | | | 9 | | | — | | | 9 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (273) | | | | | (273) | | | (1) | | | (274) | |
Balance at June 30, 2019 | | 1,000 | | | $ | — | | | 91,061 | | | $ | 1 | | | $ | 1,100 | | | $ | 575 | | | | | $ | 1,676 | | | $ | 2 | | | $ | 1,678 | |
| | | | | | | | | | | | | | | | | | | | |
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 | | — | | | — | | | 904 | | | — | | | (5) | | | — | | | | | (5) | | | — | | | (5) | |
Share-based compensation | | — | | | — | | | — | | | — | | | 10 | | | — | | | | | 10 | | | — | | | 10 | |
Cumulative effect adjustments pursuant to the adoption of ASU 2016-13 | | — | | | — | | | — | | | — | | | — | | | 7 | | | | | 7 | | | — | | | 7 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (95) | | | | | (95) | | | (3) | | | (98) | |
Balance at June 30, 2020 | | 1,000 | | | $ | — | | | 92,022 | | | $ | 1 | | | $ | 1,114 | | | $ | 1,034 | | | | | $ | 2,149 | | | $ | (4) | | | $ | 2,145 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
Predecessor | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2018 | | — |
| | $ | — |
| | 98,163 |
| | $ | 1 |
| | $ | 1,140 |
| | $ | 949 |
| | $ | (150 | ) | | $ | 1,940 |
| | $ | 1 |
| | $ | 1,941 |
|
Shares issued / (surrendered) under incentive compensation plan | | — |
| | — |
| | 15 |
| | — |
| | (2 | ) | | — |
| | (1 | ) | | (3 | ) | | — |
| | (3 | ) |
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 9 |
| | — |
| | — |
| | 9 |
| | — |
| | 9 |
|
Dividends to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (64 | ) | | — |
| | (64 | ) | | — |
| | (64 | ) |
Balance at July 31, 2018 | | — |
| | $ | ��� |
| | 98,178 |
| | $ | 1 |
| | $ | 1,147 |
| | $ | 885 |
| | $ | (151 | ) | | $ | 1,882 |
| | $ | 1 |
| | $ | 1,883 |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Successor | | | | | | | | | | | | | | | | | | | | |
Balance at August 1, 2018 | | 1,000 |
| | $ | — |
| | 90,806 |
| | $ | 1 |
| | $ | 1,091 |
| | $ | (36 | ) | | $ | — |
| | $ | 1,056 |
| | $ | — |
| | $ | 1,056 |
|
Shares issued under incentive compensation plan | | — |
| | — |
| | 5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,020 |
| | — |
| | 1,020 |
| | — |
| | 1,020 |
|
Balance at September 30, 2018 | | 1,000 |
| | $ | — |
| | 90,811 |
| | $ | 1 |
| | $ | 1,093 |
| | $ | 984 |
| | $ | — |
| | $ | 2,078 |
| | $ | — |
| | $ | 2,078 |
|
| | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2019 | | 1,000 |
| | $ | — |
| | 91,061 |
| | $ | 1 |
| | $ | 1,100 |
| | $ | 575 |
| | $ | — |
| | $ | 1,676 |
| | $ | 2 |
| | $ | 1,678 |
|
Shares issued under incentive compensation plan | | — |
| | — |
| | 26 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 5 |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Net income (loss) | | — |
| | — |
| | — |
| | — |
| | — |
| | 84 |
| | — |
| | 84 |
| | (1 | ) | | 83 |
|
Balance at September 30, 2019 | | 1,000 |
| | $ | — |
| | 91,087 |
| | $ | 1 |
| | $ | 1,106 |
| | $ | 659 |
| | $ | — |
| | $ | 1,766 |
| | $ | 1 |
| | $ | 1,767 |
|
See accompanying notes to the consolidated financial statements (unaudited).
MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2020 | | 2019 |
Operating Activities | | | |
Net loss | $ | (98) | | | $ | (274) | |
Adjustments to reconcile net loss to net cash attributable to operating activities: | | | |
Deferred tax benefit | (49) | | | (76) | |
Net gain on mortgage loans held for sale | (949) | | | (428) | |
Interest income on reverse mortgage loans | (117) | | | (167) | |
Provision for servicing and non-servicing reserves | 11 | | | 30 | |
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities | 999 | | | 695 | |
Fair value changes in excess spread financing | (101) | | | (74) | |
Fair value changes in mortgage servicing rights financing liability | 12 | | | 11 | |
Fair value changes in mortgage loans held for investment | — | | | (3) | |
Amortization of premiums, net of discount accretion | 34 | | | (25) | |
Depreciation and amortization for property and equipment and intangible assets | 37 | | | 45 | |
Share-based compensation | 10 | | | 9 | |
Other loss | 8 | | | — | |
Repurchases of forward loan assets out of Ginnie Mae securitizations | (2,092) | | | (715) | |
Mortgage loans originated and purchased for sale, net of fees | (23,110) | | | (15,727) | |
Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment | 26,606 | | | 15,429 | |
Changes in assets and liabilities: | | | |
Advances and other receivables | 313 | | | 249 | |
Reverse mortgage interests | 751 | | | 1,056 | |
Other assets | (616) | | | (118) | |
Payables and other liabilities | 417 | | | 31 | |
Net cash attributable to operating activities | 2,066 | | | (52) | |
| | | |
Investing Activities | | | |
Acquisitions, net of cash acquired | — | | | (85) | |
Property and equipment additions, net of disposals | (26) | | | (27) | |
Purchase of forward mortgage servicing rights, net of liabilities incurred | (31) | | | (409) | |
Proceeds on sale of forward and reverse mortgage servicing rights | 43 | | | 279 | |
Net cash attributable to investing activities | (14) | | | (242) | |
|
| | | | | | | | | | | | |
| Successor | | | Predecessor |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 |
Operating Activities | | | | | | |
Net (loss) income attributable to Successor/Predecessor | $ | (189 | ) | | $ | 1,020 |
| | | $ | 154 |
|
Adjustments to reconcile net (loss) income to net cash attributable to operating activities: | | | | | | |
Deferred tax benefit | (53 | ) | | (931 | ) | | | — |
|
Net loss attributable to non-controlling interests | (2 | ) | | — |
| | | — |
|
Net gain on mortgage loans held for sale | (788 | ) | | (83 | ) | | | (295 | ) |
Interest income on reverse mortgage loans | (241 | ) | | (72 | ) | | | (274 | ) |
Gain on sale of assets | — |
| | — |
| | | (9 | ) |
MSL related increased obligation | — |
| | — |
| | | 59 |
|
Provision for servicing reserves | 53 |
| | 14 |
| | | 70 |
|
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities | 998 |
| | (27 | ) | | | (177 | ) |
Fair value changes in excess spread financing | (190 | ) | | 26 |
| | | 81 |
|
Fair value changes in mortgage servicing rights financing liability | 15 |
| | — |
| | | 16 |
|
Fair value changes in mortgage loans held for investment | (3 | ) | | — |
| | | — |
|
Amortization of premiums, net of discount accretion | (38 | ) | | 3 |
| | | 8 |
|
Depreciation and amortization for property and equipment and intangible assets | 67 |
| | 15 |
| | | 33 |
|
Share-based compensation | 14 |
| | 2 |
| | | 17 |
|
Other loss | 5 |
| | — |
| | | 3 |
|
Repurchases of forward loan assets out of Ginnie Mae securitizations | (1,823 | ) | | (223 | ) | | | (544 | ) |
Mortgage loans originated and purchased for sale, net of fees | (27,673 | ) | | (3,458 | ) | | | (12,328 | ) |
Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment | 27,916 |
| | 3,546 |
| | | 13,392 |
|
Changes in assets and liabilities: | | | | | | |
Advances and other receivables | 265 |
| | 76 |
| | | 377 |
|
Reverse mortgage interests | 1,700 |
| | 442 |
| | | 1,601 |
|
Other assets | 8 |
| | (15 | ) | | | (41 | ) |
Payables and other liabilities | (69 | ) | | (159 | ) | | | 151 |
|
Net cash attributable to operating activities | (28 | ) | | 176 |
| | | 2,294 |
|
| | | | | | |
Investing Activities | | | | | | |
Acquisitions, net of cash acquired | (85 | ) | | (33 | ) | | | — |
|
Property and equipment additions, net of disposals | (38 | ) | | (14 | ) | | | (40 | ) |
Purchase of forward mortgage servicing rights, net of liabilities incurred | (454 | ) | | (63 | ) | | | (134 | ) |
Net payment related to acquisition of HECM related receivables | — |
| | — |
| | | (1 | ) |
Proceeds on sale of forward and reverse mortgage servicing rights | 298 |
| | 60 |
| | | — |
|
Proceeds on sale of assets | — |
| | — |
| | | 13 |
|
Net cash attributable to investing activities | (279 | ) | | (50 | ) | | | (162 | ) |
Continued on following page. See accompanying notes to the consolidated financial statements (unaudited).
MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(millions of dollars)
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2020 | | 2019 |
Financing Activities | | | |
(Decrease) increase in warehouse facilities | (544) | | | 1,173 | |
Increase (decrease) in advance facilities | 58 | | | (40) | |
Repayment of notes payable | — | | | (294) | |
Proceeds from HECM securitizations | — | | | 398 | |
Proceeds from sale of HECM securitizations | — | | | 20 | |
Repayment of HECM securitizations | (168) | | | (434) | |
Proceeds from issuance of participating interest financing in reverse mortgage interests | 99 | | | 156 | |
Repayment of participating interest financing in reverse mortgage interests | (598) | | | (1,004) | |
Proceeds from the issuance of excess spread financing | 24 | | | 437 | |
Settlements and repayments of excess spread financing | (110) | | | (119) | |
Issuance of unsecured senior debt | 600 | | | — | |
Repayment of nonrecourse debt – legacy assets | — | | | (6) | |
Redemption and repayment of unsecured senior notes | (698) | | | — | |
Repayment of finance lease liability | (1) | | | (2) | |
Surrender of shares relating to stock vesting | (5) | | | (2) | |
Debt financing costs | (20) | | | (1) | |
Net cash attributable to financing activities | (1,363) | | | 282 | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 689 | | | (12) | |
Cash, cash equivalents, and restricted cash - beginning of period | 612 | | | 561 | |
Cash, cash equivalents, and restricted cash - end of period(1) | $ | 1,301 | | | $ | 549 | |
| | | |
Supplemental Disclosures of Cash Activities | | | |
Cash paid for interest expense | $ | 89 | | | $ | 74 | |
Net cash paid (refunded) for income taxes | $ | 3 | | | $ | (1) | |
|
| | | | | | | | | | | | |
| Successor | | | Predecessor |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 |
Financing Activities | | | | | | |
Increase (decrease) in warehouse facilities | 1,930 |
| | 186 |
| | | (585 | ) |
(Decrease) increase in advance facilities | (95 | ) | | 46 |
| | | (305 | ) |
Repayment of notes payable | (294 | ) | | — |
| | | — |
|
Proceeds from issuance of HECM securitizations | 398 |
| | — |
| | | 759 |
|
Proceeds from sale of HECM securitizations | 20 |
| | — |
| | | — |
|
Repayment of HECM securitizations | (568 | ) | | (91 | ) | | | (448 | ) |
Proceeds from issuance of participating interest financing in reverse mortgage interests | 220 |
| | 45 |
| | | 208 |
|
Repayment of participating interest financing in reverse mortgage interests | (1,472 | ) | | (403 | ) | | | (1,599 | ) |
Proceeds from the issuance of excess spread financing | 469 |
| | 84 |
| | | 70 |
|
Repayment of excess spread financing | (19 | ) | | (21 | ) | | | (3 | ) |
Settlement of excess spread financing | (163 | ) | | (31 | ) | | | (105 | ) |
Repayment of nonrecourse debt – legacy assets | (29 | ) | | (3 | ) | | | (7 | ) |
Repurchase of unsecured senior notes | — |
| | — |
| | | (62 | ) |
Repayment of finance lease liability | (3 | ) | | — |
| | | — |
|
Redemption and repayment of unsecured senior notes | — |
| | (1,030 | ) | | | — |
|
Surrender of shares relating to stock vesting | (1 | ) | | — |
| | | (9 | ) |
Debt financing costs | (5 | ) | | (1 | ) | | | (24 | ) |
Dividends to non-controlling interests | — |
| | — |
| | | (1 | ) |
Net cash attributable to financing activities | 388 |
| | (1,219 | ) | | | (2,111 | ) |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 81 |
| | (1,093 | ) | | | 21 |
|
Cash, cash equivalents, and restricted cash - beginning of period | 561 |
| | 1,623 |
| | | 575 |
|
Cash, cash equivalents, and restricted cash - end of period(1) | $ | 642 |
| | $ | 530 |
| | | $ | 596 |
|
| | | | | | |
Supplemental Disclosures of Cash Activities | | | | | | |
Cash paid for interest expense | $ | 166 |
| | $ | 135 |
| | | $ | 417 |
|
Net cash (refunded) paid for income taxes | $ | (4 | ) | | $ | — |
| | | $ | 36 |
|
| |
(1)
| The following table provides a reconciliation of cash, cash equivalents and restricted cash to amount reported within the consolidated balance sheets. |
(1)The following table provides a reconciliation of cash, cash equivalents and restricted cash to amount reported within the consolidated balance sheets. | | | Successor | | | Predecessor | | | | | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | June 30, 2020 | | June 30, 2019 |
Cash and cash equivalents | $ | 371 |
| | $ | 198 |
| | | $ | 166 |
| Cash and cash equivalents | $ | 1,041 | | | $ | 245 | |
Restricted cash | 271 |
| | 332 |
| | | 430 |
| Restricted cash | 260 | | | 304 | |
Total cash, cash equivalents, and restricted cash | $ | 642 |
| | $ | 530 |
| | | $ | 596 |
| Total cash, cash equivalents, and restricted cash | $ | 1,301 | | | $ | 549 | |
See accompanying notes to the consolidated financial statements (unaudited).
MR COOPER GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(millions of dollars, unless otherwise stated)
1. Nature of Business and Basis of Presentation
Nature of Business
Mr. Cooper Group Inc., collectively with its consolidated subsidiaries, (“Mr. Cooper”, the “Company”, “we”, “us” or “our”) provides servicing, origination and transaction-based services related to single family residences throughout the United States with operations under its primary brands: Mr. Cooper® and Xome®. Mr. Cooper is one of the largest home loan originators and servicers in the country focused on delivering a variety of servicing and lending products, services and technologies. Xome provides real estate data as well as a range of services including real estate brokerage, title, closing, valuation and field services to lenders, investors and consumers. The Company’s corporate website is located at www.mrcoopergroup.com. The Company has provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, in the MD&A section of this Form 10-Q.
Mr. Cooper, which was previously known as WMIH Corp. (“WMIH”), is a corporation duly organized and existing under the laws of the Statestate of Delaware since May 11, 2015. On July 31, 2018, Wand Merger Corporation (“Merger Sub”), a wholly-owned subsidiary of WMIH merged with and into Nationstar Mortgage Holdings Inc. (“Nationstar”), with Nationstar continuing as a wholly-owned subsidiary of WMIH (the “Merger”). Prior to the Merger, WMIH had limited operations other than its reinsurance business that operated in runoff mode. As a result of the Merger, shares of Nationstar common stock were delisted from the New York Stock Exchange. Following the Merger closing, the combined company traded on NASDAQ under the ticker symbol “WMIH” until October 10, 2018, when WMIH changed its name to “Mr. Cooper Group Inc.” and its ticker symbol to “COOP”.
Basis of Presentation
For the purpose of financial statement presentation, Mr. Cooper was determined to be the accounting acquirer in the Merger, and Nationstar’s assets and liabilities were recorded at estimated fair value as of the acquisition date. Mr. Cooper’s interim consolidated financial statements for periods following the Merger closing are labeled “Successor” and reflect the acquired assets and liabilities from Nationstar.
Under Securities and Exchange Commission (“SEC”) rules, when a registrant succeeds to substantially all of the business of another entity and the registrant’s own operations before the succession appear insignificant relative to the operations assumed or acquired, the registrant is required to present financial information for the acquired entity (the “Predecessor”) for all comparable periods being presented before the acquisition. Due to the acquisition, the Predecessor and Successor financial statements have been prepared on different basis of accounting and are therefore not comparable.
Pursuant to the Merger, Nationstar is considered the predecessor company. Therefore, the Company is providing additional information in the accompanying unaudited consolidated financial statements regarding Nationstar’s business for periods prior to July 31, 2018. The predecessor company financial information in this report is labeled “Predecessor” in these consolidated interim financial statements.
The consolidated interim financial statements of the Company and Predecessor have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the SEC. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2018.2019.
Upon the consummation of the Merger, the Company adopted the significant accounting policies that were implemented by Nationstar and applied to the Predecessor’s financial statements, as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The interim consolidated financial statements are unaudited; however, in the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation of the results of the interim periods have been included. Dollar amounts are reported in millions, except per share data and other key metrics, unless otherwise noted.
The Company evaluated subsequent events through the date these interim consolidated financial statements were issued.
Basis of Consolidation
The basis of consolidation described below was adopted by Nationstar and applied to the Predecessor financial statements for the periods impacted by the adoption. The Successor’s financial statements reflect the adoption of such standards.
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, other entities in which the Company has a controlling financial interest and those variable interest entities (“VIE”) where the Company’s wholly-owned subsidiaries are the primary beneficiaries. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that the Company became the primary beneficiary through the date the Company ceases to be the primary beneficiary. The Company applies the equity method of accounting to investments where it is able to exercise significant influence, but not control, over the policies and procedures of the entity and owns less than 50% of the voting interests. Investments in certain companies over which the Company does not exert significant influence are accounted for as cost method investments. Intercompany balances and transactions on consolidated entities have been eliminated. Business combinations are included in the consolidated financial statements from their respective dates of acquisition.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates due to factors such as adverse changes in the economy, changes in interest rates, secondary market pricing for loans held for sale and derivatives, strength of underwriting and servicing practices, changes in prepayment assumptions, declines in home prices or discrete events adversely affecting specific borrowers, uncertainties in the economy from the COVID-19 pandemic, and such differences could be material.
Certain reclassifications have been made in the 2018 consolidated financial statements to conform to 2019 presentation. Such reclassifications did not affect total revenues or net income.
Recent Accounting Guidance Adopted
Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), No. 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”), and No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), primarily impact lessee accounting by requiring the recognition of a right-of-use asset and a corresponding lease liability on the balance sheet for long-term lease agreements. ASU 2016-02 was effective for the Company on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients. The Company has elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and has not restated comparative periods. The Company elected the package of practical expedients, which, among other items, permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the short-term lease recognition exemption for all leases that qualify. Under this practical expedient, for those leases that qualify, the Company does not recognize right-of-use (“ROU”) assets or lease liabilities, which includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all of our leases. The Company did not elect the use-of-hindsight practical expedient. As a result of implementing ASU 2016-02, the Company recognized an operating lease ROU asset of $114 and an operating lease liability of $124 on January 1, 2019, with no impact on its consolidated statement of operations. The ROU asset and operating lease liability are recorded in other assets, and payables and other liabilities, respectively, in the consolidated balance sheets. See Note 7, Leases for additional information.
Accounting Standards Update No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40 - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" (“ASU 2018-15”) aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 will be effective for the Company on January 1, 2020. Early adoption is permitted, including adoption in any interim period. In the first quarter of 2019, the Company early adopted ASU 2018-15. The standard did not have a material impact to the Company’s consolidated financial statements.
Recent Accounting Guidance Not Yet Adopted
Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326), (“ASU 2016-13”), requires expected credit losses for financial instruments held at the reporting date to be measured based on historical experience, current conditions and reasonable and supportable forecasts.forecasts, which is referred to as the current expected credit loss (“CECL”) methodology. The update eliminates the probable initial recognition thresholdof credit losses on an incurred basis in current GAAP and instead reflects an entity’s current estimate of all expected credit losses over the life of the asset. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new standard will reflect management’s best estimate of all expected credit losses for the Company’s financial assets that are recognized at amortized cost. As part of the evaluation process,The guidance was effective for the Company has performed a scoping analysis, developed a detailed project plan, and is currently in processas of completing documentation. The Company has also formed an internal committee from various internal departments to assist in the implementation of the new standard. The guidance is effective in first quarterJanuary 1, 2020, with a cumulative-effect adjustment to retained earnings as of that date.
Based upon management’s scoping analysis, the beginningCompany determined that reverse mortgage interests, net of reserves, advances and other receivables, net of reserves, and certain financial instruments included in other assets are within the scope of ASU 2016-13. Certain financial instruments within these respective line items have been determined to have limited expected credit-related losses due to the contractual servicing agreements with agencies and loan product guarantees. For advances and other receivables, net, the Company determined that the majority of estimated losses are due to servicing operational errors and credit-related losses are not significant because of the yearcontractual relationships with the agencies. For reverse mortgage interests the Company determined that the guarantee from Federal Housing Administration (“FHA”) on Home Equity Conversion Mortgage (“HECM“) loan products limits credit-related losses to an immaterial amount with substantially all losses related to servicing operational errors. For other assets, primarily trade receivables, the Company determined that these are short-term in nature (less than one year), and the estimated credit-related losses over the life of adoption. Thethese receivables are similar to those resulting from the Company’s existing loss reserve process. For each of the aforementioned financial instruments carried at amortized cost, the Company is currently evaluatingenhanced its processes to consider and include the potential impactrequirements of ASU 2016-13, onas applicable, into the determination of credit-related losses.
On January 1, 2020, the Company adopted ASU 2016-13 using the modified retrospective method for the above-mentioned financial assets. Results for reporting periods after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded transition adjustments aggregating to a net increase of $9, or $7 after tax, to retained earnings and a reduction of $7 to the advances and other receivables reserve and a $2 reduction in the other assets reserves, as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13.
In connection with adoption of ASU 2016-13, the Company updated its consolidatedaccounting policies as follows:
For certain financial statements.instruments included in advances and other receivables, net, and certain trade receivables and accrued revenues included in other assets that within the scope of ASU 2016-13, the reserve methodology was revised to consider CECL losses. The revised CECL methodology considers expected lifetime loss rates calculated from historical data using a weighted average life to determine the current expected credit loss required. Due to the nature of the financial instrument, reverse mortgage interests, net of reserves, and advances and other receivables had limited impact from the adoption of CECL to the reserve methodology. See Note 4, Advances and Other Receivables, Net, Note 5, Reverse Mortgage Interests, Net, and Note 7, Other Assets, for additional information.
Factors that influenced management’s current estimate of expected credit losses for certain advances and other receivables and certain trade receivables and accrued revenues included the following: historical collection and loss rates, passage of time, weighted average life of receivables, and various qualitative factors including current economic conditions.
Factors that influenced management’s current estimate of expected credit related losses for certain reverse mortgage interests included the following: historical collection and loss rates, foreclosure timelines, and values of underlying collateral.
Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820)- Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”) removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 fair value measurement methodologies, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU 2018-13 will be effective for the Company on January 1, 2020. The guidance willdoes not have a material impact to the disclosures currently provided by the Company.
2. Acquisitions
Acquisition of Pacific Union Financial, LLC
On February 1, 2019, the Company completed the acquisition of all the limited liability units of Pacific Union Financial, LLC (“Pacific Union”), a California limited liability company. Pacific Union was a privately-heldprivately held company that was engaged in the origination, as well as servicing of residential mortgage loans, and operated throughout the United States. The acquisition allows the Company to expand its servicing portfolio and increase its mortgage lending volume and capabilities.
The acquisition has been accounted for in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, (“ASC 805”), Business Combinations, using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The determination of fair value estimates requires management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments. The final purchase price was estimated to be $116, as of the closing date and such amount was paid by the Company as required by the Unit Purchase Agreement (“UPA”). In accordance with the terms of the UPA, the seller has formally disputed the estimated purchase price. As a result of the dispute, the final purchase price is subject to adjustment until the end of the measurement period (up to one year from the acquisition date), which would result in an increase to cash consideration paid and goodwill. Solely for this purpose, the Company estimates that it is reasonably possible that the adjustment to the final purchase price would range between $0 and $16. During the second quarter of 2019, the Company finalized its purchase price allocation subject to resolution of the above dispute.cash. Based on the allocation of fair value, goodwill of $40 has beenwas recorded, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily attributable to the assembled workforce and synergies with the Company’s current operations. $28 and $12 of the goodwill is assigned to the OriginationOriginations and Servicing segments, respectively, based on expected cash flows, and is expected to be deductible for tax purposes.
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| | | |
Estimated Fair Value of Net Assets Acquired (1): | |
Cash and cash equivalents | $ | 37 |
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Restricted cash | 2 |
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Mortgage servicing rights | 271 |
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Advances and other receivables | 84 |
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Mortgage loans held for sale | 536 |
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Mortgage loans held for investment | 1 |
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Property and equipment | 8 |
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Other assets | 483 |
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Fair value of assets acquired | 1,422 |
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Notes payable(2) | 294 |
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Advance facilities | 13 |
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Warehouse facilities | 393 |
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Payables and other liabilities | 530 |
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Other nonrecourse debt | 129 |
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Fair value of liabilities assumed | 1,359 |
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Total fair value of net tangible assets acquired | 63 |
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Intangible assets: | |
Customer relationships(3) | 13 |
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Goodwill | 40 |
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Estimated purchase price | $ | 116 |
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| | | | | |
(1)
| Final Estimated Fair Value of Net Assets Acquired is subject to change due to disputeAcquired: | |
Cash and cash equivalents | $ | 37 | |
Restricted cash | 2 | |
Mortgage servicing rights | 271 | |
Advances and other receivables | 84 | |
Mortgage loans held for sale | 536 | |
Mortgage loans held for investment | 1 | |
Property and equipment | 8 | |
Other assets | 483 | |
Fair value of purchase price.assets acquired | 1,422 | |
Notes payable(1) | 294 | |
Advance facilities | 13 | |
Warehouse facilities | 393 | |
Payables and other liabilities | 530 | |
Other nonrecourse debt | 129 | |
Fair value of liabilities assumed | 1,359 | |
Total fair value of net tangible assets acquired | 63 | |
Intangible assets: | |
Customer relationships(2) | Notes payable was subsequently paid off in February 2019 after the consummation of the acquisition. |
13 | |
(3) Goodwill | 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.40 | |
Final purchase price | $ | 116 | |
During
(1)Notes payable was subsequently paid off in February 2019 after the second quarter of 2019, the Company obtained additional information that existed asconsummation of the acquisition dateacquisition.
(2)The estimated fair values for customer relationships were measured using the excess earnings method and updated its estimated accrued liabilities, which resulted in $11 increasewere determined to payables and other liabilities. In addition, the third-party valuation specialists finalized their valuationhave a remaining useful life of intangible assets acquired by the Company, which resulted in $2 increase to the fair value of the intangible assets acquired. 10 years.
The Company also wrote offincurred total acquisition costs of $2 propertyduring the three months ended June 30, 2019, of which $1 is included in salaries, wages and equipment acquired as it finalized its valuation of propertybenefits expense and equipment. Total adjustments to goodwill$1 in general and administrative expense in the second quarterCompany’s consolidated statements of 2019 were $11. Preliminary goodwill totaled $40 after taking into account these measurement period adjustments.
operations. The Company incurred total acquisition costs of $4 during the ninesix months ended SeptemberJune 30, 2019, of which $2 areis included in salaries, wages and benefits expense and $2 in general and administrative expense in the Company’s consolidated statements of operations. The acquisition costs were primarily related to legal, accounting and consulting services. There were no0 acquisition costs incurred by the Company induring the threesix months ended SeptemberJune 30, 2019.2020.
For the three and ninesix months ended SeptemberJune 30, 2019, the operations contributed by this acquisition generated total revenues of $95$79 and $213$118 and income before income tax of $58$36 and $108,$50, respectively, which are reported in the Company’s consolidated statements of operations.
The following unaudited pro forma financial information presents the combined results of operations for the three and ninesix months ended SeptemberJune 30, 2019, as if the acquisition had occurred on January 1, 2019.2019:
| | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
Pro forma financial information | (unaudited) | | (unaudited) |
Pro forma total revenues | $ | 399 | | | $ | 668 | |
| | | |
Pro forma net loss | $ | (87) | | | $ | (271) | |
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| | | | | | | |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
Pro forma total revenues | $ | 618 |
| | $ | 1,286 |
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| | | |
Pro forma net income (loss) | $ | 83 |
| | $ | (188 | ) |
Acquisition of Nationstar Mortgage Holdings Inc.
Upon the Merger with Nationstar on July 31, 2018, each share of Nationstar’s common stock issued and outstanding immediately prior to the Effective Time was converted into the right to receive, at the election of the holder of such share, (i) $18.00 per share in cash, without interest, or (ii) 12.7793 shares (prior to the 1-for-12 reverse stock split) of validly issued, fully paid and nonassessable shares of WMIH common stock (the “Merger Consideration”). The Merger Consideration was subject to automatic proration and adjustment pursuant to the Merger Agreement to ensure that the total amount of cash paid (excluding cash paid in lieu of fractional shares) equaled approximately $1,226.
Pursuant to the Merger Agreement, immediately prior to the Effective Time, subject to certain exceptions, (i) each then-outstanding share of Nationstar restricted stock automatically vested in full and was converted into the right to receive the Merger Consideration, as elected by the holder thereof, and (ii) each then-outstanding Nationstar restricted stock unit, whether vested or unvested, was automatically vested in full, assumed by WMIH and converted into a WMIH restricted stock unit entitling the holder thereof to receive upon settlement the Merger Consideration, as elected by the holder.
Upon closing the Merger, all outstanding WMIH Series B Preferred Stock and all outstanding warrants to purchase shares of WMIH common stock were converted into common stock of WMIH.
Total purchase price was approximately $1,777, consisting of cash paid of $1,226 and transferred stock valued at $551. The purchase price was funded from available cash on hand and borrowings under senior unsecured notes (see discussion below). Prior to the acquisition, Nationstar was a publicly-held company that earned fees through the delivery of servicing, origination and transaction-based services related primarily to single-family residences throughout the United States. This acquisition marks the Company’s initial entry into the mortgage servicing industry that Nationstar operates in and is consistent with the Company’s business strategy.
On July 13, 2018, Merger Sub closed the offering of $950 aggregate principal amount of 8.125% Notes due 2023 (the “2023 Notes”) and $750 aggregate principal amount of 9.125% Notes due 2026 (the “2026 Notes” and, together with the 2023 Notes, the “New Notes”). The proceeds from the New Notes were used, together with the proceeds from the issuance of the Company’s common stock and the Company’s cash and restricted cash on hand, to consummate the Company’s acquisition of Nationstar and the refinancing of certain of Nationstar’s existing debt and to pay related fees and expenses. At the consummation of the acquisition, Merger Sub merged with and into Nationstar, with Nationstar continuing as a wholly-owned subsidiary of the Company. After the Merger, Nationstar assumed all of Merger Sub’s obligations under the New Notes.
The acquisition has been accounted for in accordance with ASC 805, Business Combinations, using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The Company recorded final goodwill of $65, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily attributable to the assembled workforce and synergies from the future growth and strategic advantages in the mortgage industry. The entire goodwill is assigned to the Servicing segment and will not be deductible for tax purposes.
The table below presents the calculation of aggregate purchase price.
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| | | |
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 |
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Purchase price from common stock issued | 551 |
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Purchase price from cash payment | 1,226 |
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Total purchase price | $ | 1,777 |
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The allocation of the fair value of the acquired business was based on final valuations of the estimated net fair value of the assets acquired. The determination of fair value estimates required management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments. The Company’s estimates were subject to change as the Company obtained additional information and finalized its review of estimates during the measurement period (up to one year from the acquisition date). The Company recorded any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments were determined. The Company finalized its allocation of fair value of consideration transferred in the three months ended June 30, 2019.
The final allocation of the purchase price to the acquired assets and liabilities is as follows:
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| | | |
Final Estimated Fair Value of Net Assets Acquired: | |
Cash and cash equivalents | $ | 166 |
|
Restricted cash | 430 |
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Mortgage servicing rights | 3,422 |
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Advances and other receivables | 1,262 |
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Reverse mortgage interests | 9,189 |
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Mortgage loans held for sale | 1,514 |
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Mortgage loans held for investment | 125 |
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Property and equipment | 96 |
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Other assets | 610 |
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Fair value of assets acquired | 16,814 |
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Unsecured senior notes | 1,830 |
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Advance facilities | 551 |
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Warehouse facilities | 2,701 |
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Payables and other liabilities | 1,352 |
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MSR related liabilities—nonrecourse | 1,065 |
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Mortgage servicing liabilities | 123 |
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Other nonrecourse debt | 7,583 |
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Fair value of liabilities assumed | 15,205 |
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Total fair value of net tangible assets acquired | 1,609 |
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Intangible assets(1) | 103 |
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Goodwill | 65 |
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Purchase price | $ | 1,777 |
|
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(1)
| The following intangible assets were acquired in the Nationstar acquisition. |
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| Useful Life (Years) | | Fair Value |
Customer relationships(i) | 6 | | $ | 61 |
|
Tradename(ii) | 5 | | 8 |
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Technology(ii) | 3-5 | | 11 |
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Internally developed software(iii) | 2 | | 23 |
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Total | | | $ | 103 |
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(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. |
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(iii)
| The estimated fair values for internally developed software were measured using the replacement cost method. |
The preliminary allocation of fair value as of December 31, 2018 resulted in goodwill of $10. During the first quarter of 2019, the Company obtained additional information in finalizing its review regarding a market participant view of the cost to service assumption related to the valuation of reverse mortgage assets and liabilities. This additional information was used in finalizing the Company’s review of the fair value of the reverse mortgage assets and liabilities and resulted in a reduction of $24 in reverse mortgage interests, a reduction of $6 in reverse mortgage servicing rights and an increase of $37 in mortgage servicing liabilities. In addition, a reduction of $12 in payables and other liabilities was recorded for the tax impact related to the revised valuation, for a total adjustment to goodwill of $55. As a result of the revised fair value, the Company recorded $7 to service related, net revenue and $1 to interest income, for a total $8 increase to earnings in the consolidated statement of operations for the first quarter of 2019. During the second quarter of 2019, the Company finalized its allocation of purchase price which did not result in any significant additional measurement period adjustments. There was a total goodwill of $65 as of September 30, 2019 after taking into account these measurement period adjustments.
WMIH incurred total acquisition costs of $92 prior to the consummation of the Merger. The acquisition costs were primarily related to legal, accounting and consulting services and were expensed as incurred through July 31, 2018. Included in the total acquisition costs was a transaction fee of $25 to KKR Capital Markets LLC (“KCM”), an affiliate of KKR Wand Investors Corporation, which is WMIH’s largest stockholder, for acting as a non-exclusive financial advisor to WMIH with respect to the Merger and an arrangement fee of $7 to KCM for acting as a placement agent with respect to a bridge financing facility in connection with the Merger that was not executed. In addition, WMIH incurred $38 of costs related to borrowings under the New Notes, which was capitalized in debt costs.
WMIH also paid KCM a deferred fee of $8, which initially reduced the carrying value of the Series B Preferred Stock. This fee was payable in connection with the conversion of Series B Preferred Stock to WMIH common stock upon consummation of the Merger.
Included in the Predecessor’s consolidated statements of operations were $27 of acquisition costs incurred by Nationstar for the seven months ended July 31, 2018.
Included in the Company’s consolidated statements of operations were $7 of acquisition costs related to the compensation arrangements incurred by the Company related to the Merger for the two months ended September 30, 2018.
The following unaudited pro forma financial information presents the combined results of operations for the three and nine months ended September 30, 2018, as if the acquisition had occurred on January 1, 2018.
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| Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 |
Pro forma total revenues | $ | 506 |
| | $ | 1,538 |
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Pro forma net (loss) income | $ | (20 | ) | | $ | 156 |
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Acquisition of Assurant Mortgage Solutions (“AMS”)
On August 1, 2018, Xome Holdings LLC, a wholly-owned subsidiary of the Company, acquired AMS for $38 in cash with additional contingent consideration dependent on the achievement of certain future performance targets, which was estimated at $15 as of December 31, 2018. Total purchase price was estimated at $53. The acquisition expands Xome’s product footprint and grows its third-party client portfolio across its valuation, title and field services businesses. The Company finalized its purchase price allocation and recorded intangible assets of $24 and goodwill of $13 in 2018. The Company expects the entire goodwill balance to be deductible for tax purposes. Under ASC 805, Business Combinations, the contingent consideration was remeasured to fair value of $4 at March 31, 2019 and remained unchanged at June 30, 2019. The contingent consideration was remeasured at September 30, 2019 and was determined to have zero fair value. The changes in the fair value of $4 and $15 were included in other income (expenses) within the consolidated statements of operations for the three and nine months ended September 30, 2019, respectively.
3. Mortgage Servicing Rights and Related Liabilities
The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities. In estimating the fair value of all servicing rights and related liabilities, the impact of the COVID-19 pandemic was considered in the determination of key assumptions.
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MSRs and Related Liabilities | June 30, 2020 | | December 31, 2019 |
Forward MSRs - fair value | $ | 2,757 | | | $ | 3,496 | |
Reverse MSRs - amortized cost | 6 | | | 6 | |
Mortgage servicing rights | $ | 2,763 | | | $ | 3,502 | |
| | | |
Mortgage servicing liabilities - amortized cost | $ | 48 | | | $ | 61 | |
| | | |
Excess spread financing - fair value | $ | 1,124 | | | $ | 1,311 | |
Mortgage servicing rights financing - fair value | 49 | | | 37 | |
MSR related liabilities - nonrecourse at fair value | $ | 1,173 | | | $ | 1,348 | |
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| Successor |
MSRs and Related Liabilities | September 30, 2019 | | December 31, 2018 |
Forward MSRs - fair value | $ | 3,339 |
| | $ | 3,665 |
|
Reverse MSRs - amortized cost | 7 |
| | 11 |
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Mortgage servicing rights | $ | 3,346 |
| | $ | 3,676 |
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| | | |
Mortgage servicing liabilities - amortized cost | $ | 69 |
| | $ | 71 |
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| | | |
Excess spread financing - fair value | $ | 1,281 |
| | $ | 1,184 |
|
Mortgage servicing rights financing - fair value | 47 |
| | 32 |
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MSR related liabilities - nonrecourse at fair value | $ | 1,328 |
| | $ | 1,216 |
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Mortgage Servicing Rights
The Company owns and records at fair value the rights to service traditional residential mortgage (“forward”) loans for others, either as a result of purchase transactions or from the retained servicing associated with the sales and securitizations of loans originated. MSRs are comprised of servicing rights related toof both agency and non-agency loans.
The following table sets forth the activities of forward MSRs.MSRs:
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| Six Months Ended June 30, | | | | | |
Forward MSRs - Fair Value | 2020 | | 2019 | | | |
Fair value - beginning of period | $ | 3,496 | | | $ | 3,665 | | | | |
Additions: | | | | | | |
Servicing retained from mortgage loans sold | 249 | | | 169 | | | | |
Purchases of servicing rights(1) | 24 | | | 689 | | | | |
Dispositions: | | | | | | |
Sales of servicing assets | — | | | (294) | | | | |
Changes in fair value: | | | | | | |
Changes in valuation inputs or assumptions used in the valuation model | (717) | | | (542) | | | | |
Other changes in fair value | (295) | | | (182) | | | | |
Fair value - end of period | $ | 2,757 | | | $ | 3,505 | | | | |
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| | | | | | | | | | | | |
| Successor | | | Predecessor |
MSRs - Fair Value | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 |
Fair value - beginning of period | $ | 3,665 |
| | $ | 3,413 |
| | | $ | 2,937 |
|
Additions: | | | | | | |
Servicing retained from mortgage loans sold | 298 |
| | 43 |
| | | 162 |
|
Purchases of servicing rights(1) | 732 |
| | 72 |
| | | 144 |
|
Dispositions: | | | | | | |
Sales of servicing assets(2) | (317 | ) | | (63 | ) | | | 4 |
|
Changes in fair value: | | | | | | |
Changes in valuation inputs or assumptions used in the valuation model | (716 | ) | | 65 |
| | | 330 |
|
Other changes in fair value | (323 | ) | | (45 | ) | | | (164 | ) |
Fair value - end of period | $ | 3,339 |
| | $ | 3,485 |
| | | $ | 3,413 |
|
(1)Purchases of servicing rights during the six months ended June 30, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 2, Acquisitions, for further discussion. In addition, in January 2019, the Company entered into a subservicing contract for $24 billion in mortgages, which were subsequently purchased in May 2019, resulting in additional $253 servicing rights in the second quarter of 2019.
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(1)
| Purchases of servicing rights during the nine months ended September 30, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 2, Acquisitions for further discussion. In addition, on January 3, 2019, the Company entered into a subservicing contract for $24 billion unpaid principal balance in mortgages. The related servicing rights were subsequently purchased on May 1, 2019, resulting in additional $253 servicing rights during the second quarter of 2019.
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(2)
| Amount for the seven months ended July 31, 2018 is related to the sale of MSRs collateralized by nonperforming loans, which have a negative MSR value. |
From time to time, the Company sells its ownership interest in certain MSRs and is retained as the subservicer for the sold assets. The Company has evaluated the sale accounting requirements related to these transactions, including the Company’s continued involvement as the subservicer, and concluded that these transactions qualify for sale accounting treatment. During the ninesix months ended SeptemberJune 30, 20192020 and two months ended September 30, 2018,2019, the Company sold $25,639$71 and $5,947$22,932 in unpaid principal balance (“UPB”) of forward MSRs, of which $20,560NaN and none$20,560 were retained by the Company as subservicer, respectively. During the seven months ended July 31, 2018, the Predecessor sold $1,203 in UPB of forward MSRs, of which $1 in UPB was retained by the Predecessor as subservicer.
MSRs measured at fair value are primarily segregated between credit sensitive and interest sensitive pools at acquisition of MSRs.(referred to herein as “acquisition pools”). Credit sensitive pools are primarily impacted by borrower performance under specified repayment terms, which most directly impacts involuntary prepayments and delinquency rates. Interest sensitive pools are primarily impacted by changes in forecasted interest rates, which in turn impact voluntary prepayment speeds. The Company assesses whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition, or transfer.and no subsequent changes are made. Numerous factors are considered in making this assessment, including loan-to-value ratios, FICO scores, percentage of portfolio previously modified, portfolio seasoning and similar criteria. The determination between credit sensitive and interest sensitive for a pool is made at the date of acquisition, and no subsequent changes are made.
Credit sensitive portfolios generally consist of higher delinquency, single-family non-conforming residential forward mortgage loans serviced for agency and non-agency investors. Due to the Company’s focus on recapture and modifications, significant amounts of the credit sensitive portfolio have been re-underwritten and, therefore, behave more like the interest sensitive portfolio. Interest sensitive portfolios generally consist of lower delinquency, single-family conforming residential forward mortgage loans for agency investors.
MSRs measured at fair value are also segregated between investor type into agency and non-agency pools (referred to herein as “investor pools”) based upon contractual servicing agreements with investors at the respective balance sheet date to evaluate the MSR portfolio and fair value of the portfolio.
The following table provides a breakdown of credit sensitiveUPB and interest sensitive unpaid principal balance (“UPB”)fair value for the Company’s forward MSRs.MSRs:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | December 31, 2019 | | |
Forward MSRs - UPB and fair value breakdown | UPB | | Fair Value | | UPB | | Fair Value |
Acquisition Pools | | | | | | | |
Credit sensitive | $ | 131,105 | | | $ | 1,307 | | | $ | 147,895 | | | $ | 1,613 | |
Interest sensitive | 146,870 | | | 1,450 | | | 148,887 | | | 1,883 | |
Total | $ | 277,975 | | | $ | 2,757 | | | $ | 296,782 | | | $ | 3,496 | |
| | | | | | | |
Investor Pools | | | | | | | |
Agency(1) | $ | 228,680 | | | $ | 2,308 | | | $ | 240,688 | | | $ | 2,944 | |
Non-agency(2) | 49,295 | | | 449 | | | 56,094 | | | 552 | |
Total | $ | 277,975 | | | $ | 2,757 | | | $ | 296,782 | | | $ | 3,496 | |
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| | | | | | | | | | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
MSRs - Sensitivity Pools | UPB | | Fair Value | | UPB | | Fair Value |
Credit sensitive | $ | 157,898 |
| | $ | 1,661 |
| | $ | 135,752 |
| | $ | 1,495 |
|
Interest sensitive | 148,783 |
| | 1,678 |
| | 159,729 |
| | 2,170 |
|
Total | $ | 306,681 |
| | $ | 3,339 |
| | $ | 295,481 |
| | $ | 3,665 |
|
(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.
The Company used the following key weighted-average inputs and assumptions in estimating the fair value of MSRs.forward MSRs:
| | | | | | | | | | | |
Forward MSRs - Key inputs and assumptions | June 30, 2020 | | December 31, 2019 |
Total MSR Portfolio | | | |
Discount rate | 9.5 | % | | 9.7 | % |
Prepayment speeds | 14.2 | % | | 13.1 | % |
Average life | 5.3 years | | 5.8 years |
| | | |
Acquisition Pools: | | | |
Credit Sensitive | | | |
Discount rate | 9.9 | % | | 10.4 | % |
Prepayment speeds | 12.6 | % | | 12.7 | % |
Average life | 5.6 years | | 6.0 years |
| | | |
Interest Sensitive | | | |
Discount rate | 9.0 | % | | 9.1 | % |
Prepayment speeds | 15.8 | % | | 13.5 | % |
Average life | 4.9 years | | 5.7 years |
| | | |
Investor Pools: | | | |
Agency | | | |
Discount rate | 8.9 | % | | 9.0 | % |
Prepayment speeds | 14.4 | % | | 13.0 | % |
Average life | 5.2 years | | 5.8 years |
| | | |
Non-agency | | | |
Discount rate | 12.0 | % | | 12.6 | % |
Prepayment speeds | 13.4 | % | | 13.8 | % |
Average life | 5.6 years | | 6.2 years |
|
| | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
Credit Sensitive | | | |
Discount rate | 10.4 | % | | 11.3 | % |
Prepayment speeds | 13.2 | % | | 11.8 | % |
Average life | 5.9 years |
| | 6.4 years |
|
| | | |
Interest Sensitive | | | |
Discount rate | 9.0 | % | | 9.3 | % |
Prepayment speeds | 14.6 | % | | 10.0 | % |
Average life | 5.4 years |
| | 7.0 years |
|
| | | |
Total MSR Portfolio | | | |
Discount rate | 9.7 | % | | 10.2 | % |
Prepayment speeds | 13.9 | % | | 10.8 | % |
Average life | 5.6 years |
| | 6.7 years |
|
The following table shows the hypothetical effect on the fair value of the Company’s forward MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated.indicated:
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| Discount Rate | | | | Total Prepayment Speeds | | |
Forward MSRs - Hypothetical Sensitivities | 100 bps Adverse Change | | 200 bps Adverse Change | | 10% Adverse Change | | 20% Adverse Change |
June 30, 2020 | | | | | | | |
Mortgage servicing rights | $ | (104) | | | $ | (201) | | | $ | (175) | | | $ | (335) | |
| | | | | | | |
December 31, 2019 | | | | | | | |
Mortgage servicing rights | $ | (127) | | | $ | (245) | | | $ | (165) | | | $ | (317) | |
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| | | | | | | | | | | | | | | |
| Successor |
| Discount Rate | | Total Prepayment Speeds |
MSRs - Hypothetical Sensitivities | 100 bps Adverse Change | | 200 bps Adverse Change | | 10% Adverse Change | | 20% Adverse Change |
September 30, 2019 | | | | | | | |
Mortgage servicing rights | $ | (117 | ) | | $ | (226 | ) | | $ | (164 | ) | | $ | (316 | ) |
| | | | | | | |
December 31, 2018 | | | | | | | |
Mortgage servicing rights | $ | (137 | ) | | $ | (265 | ) | | $ | (129 | ) | | $ | (250 | ) |
These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
Reverse Mortgage Servicing Rights and Liabilities - Amortized Cost
The Company services certain HECM reverse mortgage loans with an unpaid principal balance of $23,990$20,758 and $28,415$22,725 as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. MortgageThe following table sets forth the activities of reverse MSRs and mortgage servicing liabilities (“MSL”) had an ending balance of $69:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | | | 2019 | | |
Reverse MSRs and Liabilities - Amortized Cost | Assets | | Liabilities | | Assets | | Liabilities |
Balance - beginning of period | $ | 6 | | | $ | 61 | | | $ | 11 | | | $ | 71 | |
Amortization/accretion | — | | | (13) | | | (1) | | | (28) | |
Adjustments(1) | — | | | — | | | (4) | | | 37 | |
Balance - end of the period | $ | 6 | | | $ | 48 | | | $ | 6 | | | $ | 80 | |
Fair value - end of period | $ | 6 | | | $ | 12 | | | $ | 7 | | | $ | 44 | |
(1)Reverse MSR and $71 as of September 30, 2019 and December 31, 2018, respectively. For the nine months ended September 30, 2019 and two months ended September 30, 2018, the Company accreted $39 and $7 of the MSL respectively. In addition, the Company recorded an MSL adjustment of $37 during the nine months ended September 30, 2019. The MSL adjustmentnet adjustments recorded by the Company relatesduring the six months ended June 30, 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. See Note 2, Acquisitions for further information. For the seven months ended July 31, 2018, the Predecessor accreted $11 of the MSL and recorded an impairment of $56 in general and administrative expenses. Accretion recorded by the Predecessor relates to previous portfolio acquisitions.
Reverse MSR had an ending balance of $7 and $11 as of September 30, 2019 and December 31, 2018, respectively. For the nine months ended September 30, 2019, the Company amortized $2 and recorded other MSR adjustments of $6. The MSR adjustment recorded by the Company relates to the fair value adjustments for MSR assumed from the Merger resulting from the revised cost to service assumption used in the valuation of MSR during the measurement period. See Note 2, Acquisitions for further information. For the two months ended September 30, 2018, the Company recorded less than $1 of amortization. For the seven months ended July 31, 2018, the Predecessor recorded an impairment of $4.
The fair value of the reverse MSR was $7 and $11 as of September 30, 2019 and December 31, 2018, respectively. The fair value of the MSL was $41 and $53 as of September 30, 2019 and December 31, 2018, respectively. Management evaluates reverse MSRs and MSLs each reporting period for impairment. Based on management’s assessment at SeptemberJune 30, 2019, no2020, 0 impairment or increased obligation was needed.
Excess Spread Financing - Fair Value
In order to finance the acquisition of certain MSR portfolios,MSRs on various Portfolios, the Company has entered into sale and assignment agreements with third parties and sold to these entities the right to receive a specified percentage of the excess cash flow generated from the portfolios in excess of a fixed base servicing fee per loan. The Company retains all the base servicing fee, along with ancillary income and interest float earnings on principal andalong with interest payments and escrows, and also incurs costs to service the specified pool. The Company is the legal owner and the servicer of the portfolios and provides all servicing and advancing functions.
In connection with the above transactions, the Company entered into refinanced loanrecapture agreement obligations with third parties that require the Company to transfer the new loan or a replacement loan of similar economic characteristics into the respective portfolio if the Company refinancesrecaptures any loan in the portfolio. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above. Accordingly, a recapture assumption is included within excess spread valuation.
The Company used the following weighted-average assumptions in the Company’s valuation of excess spread financing.financing: | | | Successor | |
| September 30, 2019 | | December 31, 2018 | | | | | | | | | | |
Excess Spread Financing Assumptions | | | | Excess Spread Financing Assumptions | June 30, 2020 | | December 31, 2019 |
Discount rate | 11.9 | % | | 10.4 | % | Discount rate | 12.0 | % | | 11.6 | % |
Prepayment speeds | 13.3 | % | | 11.0 | % | Prepayment speeds | 13.4 | % | | 12.6 | % |
Recapture rate | 22.3 | % | | 18.6 | % | Recapture rate | 18.7 | % | | 20.1 | % |
Average life | 5.7 years |
| | 6.5 years |
| Average life | 5.4 years | | 5.8 years |
The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated.indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Discount Rate | | | | Prepayment Speeds | | |
Excess Spread Financing - Hypothetical Sensitivities | 100 bps Adverse Change | | 200 bps Adverse Change | | 10% Adverse Change | | 20% Adverse Change |
June 30, 2020 | | | | | | | |
Excess spread financing | $ | 38 | | | $ | 78 | | | $ | 47 | | | $ | 97 | |
| | | | | | | |
December 31, 2019 | | | | | | | |
Excess spread financing | $ | 46 | | | $ | 95 | | | $ | 46 | | | $ | 96 | |
|
| | | | | | | | | | | | | | | |
| Successor |
| Discount Rate | | Prepayment Speeds |
Excess Spread Financing - Hypothetical Sensitivities | 100 bps Adverse Change | | 200 bps Adverse Change | | 10% Adverse Change | | 20% Adverse Change |
September 30, 2019 | | | | | | | |
Excess spread financing | $ | 42 |
| | $ | 87 |
| | $ | 44 |
| | $ | 93 |
|
| | | | | | | |
December 31, 2018 | | | | | | | |
Excess spread financing | $ | 47 |
| | $ | 99 |
| | $ | 38 |
| | $ | 81 |
|
As the cash flow assumptions utilized in determining the fair value amounts in the excess spread financing are based on the related cash flow assumptions utilized in the financed MSRs, any fair value changes recognized in the financed MSRs attributable to a related cash flow assumption would inherently have an inverse impact on the carrying amount of the related excess spread financing. For example, while an increase in discount rates would negatively impact the value of the Company’s financed MSRs, it would reduce the carrying value of the associated excess spread financing liability.
These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing. Excess spread financing’s cash flow assumptions that are utilized in determining fair value are based on the related cash flow assumptions used in the financed MSRs. Any fair value change recognized in the financed MSRs attributable to related cash flows assumptions would inherently have an inverse impact on the carrying amount of the related excess spread financing.
Mortgage Servicing Rights Financing - Fair Value
From December 2013 through June 2014, the PredecessorCompany entered into agreements to sell a contractually specified base servicing fee component of certain MSRs and servicing advances under specified terms to a joint venture capitalized by New Residential and certain unaffiliated third-party investors. The purpose of this transaction was to facilitate the financing of advances for private label mortgages. The Company continues to be the named servicer, and, for accounting purposes, ownership of the mortgage servicing rights continues to resideMSR resides with the Company. Accordingly, the Company records the MSR and an MSR financing liability associated with this transaction in itsthe consolidated balance sheets. The MSR financing liability reflects the incremental costs of this transaction relative to the market participant assumptions contained in the MSR valuation. The Company had MSR financing liability of $49 and $37 as of June 30, 2020 and December 31, 2019, respectively.
The following table sets forth the weighted averageweighted-average assumptions used in the valuation of the mortgage servicing rights financing liability.liability:
| | | | | | | | | | | |
Mortgage Servicing Rights Financing Assumptions | June 30, 2020 | | December 31, 2019 |
Advance financing rates | 4.3 | % | | 3.5 | % |
Annual advance recovery rates | 18.6 | % | | 18.8 | % |
|
| | | | | |
| Successor |
Mortgage Servicing Rights Financing Assumptions | September 30, 2019 | | December 31, 2018 |
Advance financing rates | 3.7 | % | | 4.2 | % |
Annual advance recovery rates | 18.7 | % | | 19.0 | % |
Mortgage Servicing Rights -Segment Revenues
The following table sets forth the items comprising total revenues for the Servicing segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
Total Revenues - Servicing | 2020 | | 2019 | | 2020 | | 2019 |
Contractually specified servicing fees(1) | $ | 285 | | | $ | 307 | | | $ | 582 | | | $ | 588 | |
Other service-related income(1) | 62 | | | 32 | | | 111 | | | 82 | |
Incentive and modification income(1) | 8 | | | 10 | | | 18 | | | 17 | |
Late fees(1) | 20 | | | 27 | | | 47 | | | 52 | |
Reverse servicing fees | 7 | | | 8 | | | 13 | | | 17 | |
Mark-to-market adjustments(2) | (261) | | | (231) | | | (644) | | | (524) | |
Counterparty revenue share(3) | (88) | | | (70) | | | (164) | | | (118) | |
Amortization, net of accretion(4) | (102) | | | (56) | | | (178) | | | (79) | |
Total revenues - Servicing | $ | (69) | | | $ | 27 | | | $ | (215) | | | $ | 35 | |
(1)The Company recognizes revenue on an earned basis for services performed. Amounts include subservicing related revenues.
(2)Mark-to-market (“MTM”) adjustments include fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $3 and $17 for the three months ended June 30, 2020 and 2019 and $13 and $28 for the six months ended June 30, 2020 and 2019, respectively.
(3)Counterparty revenue share represents the excess servicing loan portfolios.fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSR financing arrangements.
(4)Amortization is net of excess spread accretion of $79 and $59 and MSL accretion of $5 and $11 for the three months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, amortization is net of excess spread accretion of $147 and $95 and MSL accretion of $13 and $29, respectively.
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
Servicing Revenue | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Contractually specified servicing fees(1) | $ | 305 |
| | $ | 893 |
| | $ | 163 |
| | | $ | 79 |
| | $ | 574 |
|
Other service-related income(1)(2) | 51 |
| | 133 |
| | 18 |
| | | 10 |
| | 66 |
|
Incentive and modification income(1) | 12 |
| | 29 |
| | 8 |
| | | 4 |
| | 37 |
|
Late fees(1) | 30 |
| | 82 |
| | 14 |
| | | 7 |
| | 53 |
|
Reverse servicing fees | 7 |
| | 24 |
| | 13 |
| | | 4 |
| | 37 |
|
Mark-to-market adjustments(3) | (83 | ) | | (607 | ) | | 24 |
| | | 25 |
| | 196 |
|
Counterparty revenue share(4) | (86 | ) | | (204 | ) | | (26 | ) | | | (16 | ) | | (111 | ) |
Amortization, net of accretion(5) | (73 | ) | | (152 | ) | | (31 | ) | | | (16 | ) | | (112 | ) |
Total servicing revenue | $ | 163 |
| | $ | 198 |
| | $ | 183 |
| | | $ | 97 |
| | $ | 740 |
|
| |
(1)
| Amounts include subservicing related revenues. |
| |
(2)
| Amount for the nine months ended September 30, 2019 includes 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. |
| |
(3)
| Mark-to-market (“MTM”) adjustments include fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows for the Company was $18, $46, and $13 for the three and nine months ended September 30, 2019 and two months ended September 30, 2018, respectively. The impact of negative modeled cash flows for the Predecessor totaled $4 and $38 for the one and seven months ended July 31, 2018, respectively. |
| |
(4)
| 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 financing arrangements. |
| |
(5)
| Amortization for the Company is net of excess spread accretion of $77 and $172 and MSL accretion of $10 and $39 for the three and nine months ended September 30, 2019, respectively. Amortization for the Company is net of excess spread accretion of $22 for the two months ended September 30, 2018. Amortization of the Predecessor is net of excess spread of $11 and $78 for the one and seven months ended July 31, 2018, respectively. The Predecessor recorded MSL accretion within reverse servicing fees, whereas the Successor has elected to record MSL accretion within amortization, net of accretion. |
4. Advances and Other Receivables, Net
Advances and other receivables, net, consists of the following.following:
| | | | | | | | | | | |
Advances and Other Receivables, Net | June 30, 2020 | | December 31, 2019 |
Servicing advances, net of $117 and $131 purchase discount, respectively | $ | 695 | | | $ | 970 | |
Receivables from agencies, investors and prior servicers, net of $21 and $21 purchase discount, respectively | 189 | | | 193 | |
Reserves | (216) | | | (175) | |
Total advances and other receivables, net | $ | 668 | | | $ | 988 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
Servicing advances, net of $148 and $205 discount, respectively | $ | 865 |
| | $ | 1,000 |
|
Receivables from agencies, investors and prior servicers, net of $48 and $48 discount, respectively | 232 |
| | 241 |
|
Reserves | (130 | ) | | (47 | ) |
Total advances and other receivables, net | $ | 967 |
| | $ | 1,194 |
|
The Company, as loan servicer, is contractually responsible to advance funds on behalf of the borrower and investor primarily for loan principal and interest, property taxes and hazard insurance and foreclosure costs. Advances are primarily recovered through reimbursement from the investor, proceeds from sale of loan collateral, or mortgage insurance claims.claims or the borrower. Reserves for advances and other receivables on loans transferredliquidated or purchased out of the MSR portfolio are established within advances and other receivables.
The Company estimates and records an asset for estimated recoveries to be collected from prior servicers for their respective portion of the losses associated with the underlying loans that were not serviced in accordance with established guidelines. Receivables from prior servicers totaled $101 and $94 for the Company’s forward loan portfolio at September 30, 2019 and December 31, 2018, respectively.
The following table sets forth the activities of the servicing reserves for advances and other receivables.receivables:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | Six Months Ended June 30, | | |
Reserves for Advances and Other Receivables | 2020 | | | 2019 | | 2020 | | 2019 |
Balance - beginning of period | $ | 193 | | | | $ | 71 | | | $ | 168 | | | $ | 47 | |
Provision and other additions(1) | 29 | | | | 37 | | | 59 | | | 67 | |
Write-offs | (6) | | | | (10) | | | (11) | | | (16) | |
Balance - end of period | $ | 216 | | | | $ | 98 | | | $ | 216 | | | $ | 98 | |
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
Reserves for Advances and Other Receivables | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Balance - beginning of period | $ | 98 |
| | $ | 47 |
| | $ | — |
| | | $ | 294 |
| | $ | 284 |
|
Provision and other additions(1) | 35 |
| | 102 |
| | 20 |
| | | 7 |
| | 69 |
|
Write-offs | (3 | ) | | (19 | ) | | — |
| | | (4 | ) | | (56 | ) |
Balance - end of period | $ | 130 |
| | $ | 130 |
| | $ | 20 |
| | | $ | 297 |
| | $ | 297 |
|
(1)The Company recorded a provision of $3 and $17 through the MTM adjustments in revenues - service related, net, in the consolidated statements of operations for the three months ended June 30, 2020 and 2019, respectively, and $13 and $28 for the six months ended June 30, 2020 and 2019, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.
| |
| The Company recorded a provision of $18, $46, and $13 through the MTM adjustments in service related revenues for the three and nine months ended September 30, 2019, and two months ended September 30, 2018, respectively. The Predecessor recorded a provision of $4 and $38 through the MTM adjustments in service related revenues for the one and seven months ended July 31, 2018, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate. |
Purchase Discount for Advances and Other Receivables
In connection with the acquisition of Pacific Union in February 2019, the Company recorded the acquired advances and other receivables at estimated fair value as of the acquisition date, which resulted in a purchase discount of $19. Refer to Note 2, Acquisitions, for discussion of the Pacific Union acquisition. In 2018, the Company recorded the acquired advances and other receivables in connection with the Merger at estimated fair value as of the acquisition date, which resulted in a purchase discount of $302.
As of SeptemberJune 30, 2019,2020, a total of $125$183 purchase discount has been utilized, with $196$138 purchase discount remaining.
The following table setstables set forth the activities of the purchase discounts for advances and other receivables.receivables:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | Three Months Ended June 30, 2019 | | |
Purchase Discount for Advances and Other Receivables | Servicing Advances | | Receivables from Agencies, Investors and Prior Servicers | | Servicing Advances | | Receivables from Agencies, Investors and Prior Servicers |
Balance - beginning of period | $ | 125 | | | $ | 21 | | | $ | 169 | | | $ | 48 | |
Utilization of purchase discounts | (8) | | | — | | | (13) | | | — | |
Balance - end of period | $ | 117 | | | $ | 21 | | | $ | 156 | | | $ | 48 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | Six Months Ended June 30, 2019 | | |
Purchase Discount for Advances and Other Receivables | Servicing Advances | | Receivables from Agencies, Investors and Prior Servicers | | Servicing Advances | | Receivables from Agencies, Investors and Prior Servicers |
Balance - beginning of period | $ | 131 | | | $ | 21 | | | $ | 205 | | | $ | 48 | |
Addition from acquisition | — | | | — | | | 19 | | | — | |
Utilization of purchase discounts | (14) | | | — | | | (68) | | | — | |
Balance - end of period | $ | 117 | | | $ | 21 | | | $ | 156 | | | $ | 48 | |
Credit Loss for Advances and Other Receivables
As described in Note 1, Nature of Business and Basis of Presentation, advances and other receivables are within the scope of ASU 2016-13, and the Company modified its accounting policy regarding its assessment of reserves for credit-related losses in accordance with CECL framework. During the three and six months ended June 30, 2020, the Company increased the CECL reserve by $8 and $14, respectively. As of June 30, 2020, the total CECL reserve was $31, of which $14 and $17 was recorded in reserves and purchase discount for advances and other receivables, respectively.
Based upon the Company’s application of ASU 2016-13, the Company determined that the credit-related risk associated with applicable financial instruments typically increase with the passage of time. The CECL reserve methodology considers these financial instruments collectible to a point in time of 39 months. Any projected remaining balance at the end of the collection period is considered a loss and factors into the overall CECL loss rate required.
|
| | | | | | | | | | | |
| Successor |
Purchase Discounts - Servicing Advances | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 |
Balance - beginning of period | $ | 156 |
| | $ | 205 |
| | $ | 246 |
|
Addition from acquisition | — |
| | 19 |
| | — |
|
Utilization of purchase discounts | (8 | ) | | (76 | ) | | (19 | ) |
Balance - end of period | $ | 148 |
| | $ | 148 |
| | $ | 227 |
|
|
| | | | | | | | | | | |
| Successor |
Purchase Discounts - Receivables from Agencies, Investors and Prior Servicers | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 |
Balance - beginning of period | $ | 48 |
| | $ | 48 |
| | $ | 56 |
|
Addition from acquisition | — |
| | — |
| | — |
|
Utilization of purchase discounts | — |
| | — |
| | — |
|
Balance - end of period | $ | 48 |
| | $ | 48 |
| | $ | 56 |
|
5. Reverse Mortgage Interests, Net
Reverse mortgage interests, net, consists of the following:
| | | | | | | | | | | |
Reverse Mortgage Interests, Net | June 30, 2020 | | December 31, 2019 |
Participating interests in HECM mortgage-backed securities (“HMBS”) | $ | 3,873 | | | $ | 4,282 | |
Other interests securitized | 825 | | | 994 | |
Unsecuritized interests | 1,138 | | | 1,117 | |
Purchase discount, net | (127) | | | (114) | |
Total reverse mortgage interests, net | $ | 5,709 | | | $ | 6,279 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
Participating interests in HECM mortgage-backed securities (“HMBS”), including $14 and $58 purchase premium, respectively | $ | 4,592 |
| | $ | 5,664 |
|
Other interests securitized, net of $63 and $100 purchase discount, respectively | 879 |
| | 1,064 |
|
Unsecuritized interests, net of $75 and $122 purchase discount, respectively | 1,204 |
| | 1,219 |
|
Reserves | (13 | ) | | (13 | ) |
Total reverse mortgage interests, net | $ | 6,662 |
| | $ | 7,934 |
|
Participating Interests in HMBS
Participating interests in HMBS consist of the Company’s reverse mortgage interests in HECM loans which have been transferred to GNMA and subsequently securitized through the issuance of HMBS. The Company does not own these loans, but due to HMBS program buyout requirements, such interests are consolidated in Company’s consolidated balance sheets. The Company does not originate reverse mortgages, but during the ninesix months ended SeptemberJune 30, 20192020 and two months ended September 30, 2018,2019, a total of $211$95 and $44$149 in UPB associated with new draws on existing loans was transferred to GNMA and securitized by the Company, respectively. During the seven months ended July 31, 2018, a total of $198 UPB was transferred to GNMA and securitized by the Predecessor.
In March 2019, the Company entered into an agreement with Fannie Mae for the transfer of reverse mortgage loans. As a result, $61 was transferred from Fannie Mae and securitized into GNMA HMBS during the ninesix months ended SeptemberJune 30, 2019. There was no such activity during the six months ended June 30, 2020.
Other Interests Securitized
Other interests securitized consist of reverse mortgage interests that no longer meet HMBS program eligibility criteria primarily because they have reached 98% of their Max Claim Amount (“MCA”), which is established at origination and in accordance with HMBS program guidelines, requiring a repurchase of loans from the respective HMBS trust. These reverse mortgage interests have subsequently been transferred to private securitization trusts and are accounted for as a secured borrowing. No such securitizations occurred during the six months ended June 30, 2020. During the ninesix months ended SeptemberJune 30, 2019, the Company securitized a total of $398 UPB through Trust 2019-1 and a total of $249 UPB from Trust 2017-2 was called and the related debt was extinguished. See Note 10, Indebtedness for additional information. The Company sold $20 UPB of Trust 2018-3 retained bonds during the ninesix months ended SeptemberJune 30, 2019. No such securitizations occurred during the two months ended September 30, 2018. During the seven months ended July 31, 2018, the Predecessor securitized a total of $760 UPB through Trust 2018-1 and Trust 2018-2 and a total of $284 UPB from Trust 2016-2 and Trust 2016-3 were called and the related debt was extinguished. Refer to Other Nonrecourse Debt in Note 10,9, Indebtedness, for additional information.
Unsecuritized Interests
Unsecuritized interests in reverse mortgages consist of the following:
| | | | | | | | | | | |
Unsecuritized interests | June 30, 2020 | | December 31, 2019 |
Repurchased HECM loans (exceeds 98% MCA) | $ | 804 | | | $ | 789 | |
HECM related receivables(1) | 244 | | | 250 | |
Funded borrower draws not yet securitized | 53 | | | 64 | |
Real estate owned (“REO”) related receivables | 37 | | | 14 | |
Total unsecuritized interests | $ | 1,138 | | | $ | 1,117 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
Repurchased HECM loans (exceeds 98% MCA) | $ | 874 |
| | $ | 949 |
|
HECM related receivables(1) | 289 |
| | 300 |
|
Funded borrower draws not yet securitized | 92 |
| | 76 |
|
REO-related receivables | 24 |
| | 16 |
|
Purchase discount, net | (75 | ) | | (122 | ) |
Total unsecuritized interests | $ | 1,204 |
| | $ | 1,219 |
|
(1)HECM related receivables consist primarily of receivables from FNMA for corporate advances and service fees and claims receivables from the U.S. Department of Housing and Urban Development (“HUD”) on reverse mortgage interests.
| |
(1)
| HECM related receivables consist primarily of FNMA receivables for corporate advances and service fees and claims receivables from the U.S. Department of Housing and Urban Development (“HUD”). |
Unsecuritized interests include repurchased HECM loans for which the Company is required to repurchase from the HMBS pool when the outstanding principal balance of the HECM loan is equal to or greater than 98% of the MCA established at origination and in accordance with HMBS program guidelines. These unsecuritized interests are primarily financed through available warehouse lines. The Company repurchased a total of $2,132$686 and $608$1,457 of HECM loans out of GNMA HMBS securitizations during the ninesix months ended SeptemberJune 30, 20192020 and two months ended September 30, 2018,2019, respectively, of which $561$186 and $138$371 were subsequently assigned to a third party in accordance with applicable servicing agreements, respectively. The Predecessor repurchased a total of $2,439 of HECM loans out of GNMA HMBS securitizations during the seven months ended July 31, 2018, of which $512 was subsequently assigned to a third party in accordance with applicable servicing agreements. To the extent a loan is not subject to applicable servicing agreements and assigned to a third party, the loan is either subject to assignment to HUD, per contractual obligations with GNMA, liquidated via a payoff from the borrower or liquidated via a foreclosure according to the terms of the underlying mortgage. The Company assigned a total of $1,458$461 and $458$983 of HECM loans to HUD during the ninesix months ended SeptemberJune 30, 20192020 and two months ended September 30, 2018, respectively. The Predecessor assigned a total of $1,712 of HECM loans to HUD during the seven months ended July 31, 2018.
As discussed above, the Company estimates and records an asset for probable recoveries from prior servicers for their respective portion of the losses associated with the underlying loans that were not serviced in accordance with established guidelines. Net receivables from prior servicers totaled $8 and $18 for the Company’s reverse loan portfolio at September 30, 2019, and December 31, 2018, respectively.
Reserves for Reverse Mortgage Interests
The Company records reserves related to reverse mortgage interests based on potential unrecoverable costs and loss exposures expected to be realized. Recoverability is determined based on the Company’s ability to meet HUD servicing guidelines and is assessed with respect to both financial and operational exposures.
The following table sets forth the activities of the servicing reserves for reverse mortgage interests.
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
Reserves for reverse mortgage interests | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Balance - beginning of period | $ | 8 |
| | $ | 13 |
| | $ | — |
| | | $ | 117 |
| | $ | 115 |
|
Provision (release), net | 5 |
| | 7 |
| | 1 |
| | | 12 |
| | 32 |
|
Write-offs | — |
| | (7 | ) | | — |
| | | — |
| | (18 | ) |
Balance - end of period | $ | 13 |
| | $ | 13 |
| | $ | 1 |
| | | $ | 129 |
| | $ | 129 |
|
Purchase Discount, net, for Reverse Mortgage Interests
In connection with the Merger, the Company recorded the acquired reverse mortgage interests at estimated fair value as of the acquisition date, which resulted in a purchase premium of $42 for participating interests in HMBS, and anet purchase discount of $298 for Other Interest Securitized and Unsecuritized Interests due to the higher exposure to$256 associated with financial and operational losses ofon reverse mortgage interests associated with servicing the loans through foreclosure and collateral liquidation. The premium and discount are amortized and accreted, respectively, based on the effective yield method, whereby the Company updates its prepayment assumptions for actual prepayments on a quarterly basis. Consistent with the Company’s accounting policy, the Company calculates reserve requirements on the reverse mortgage interest portfolio each reporting period and compares such calculated reserve requirements against the remaining net purchase discount. If the calculated reserve requirements exceed the remaining net purchase discount, the Company will record an additional reserve and associated provision to general and administrative expense. No additional reserves were required to be recorded as of June 30, 2020.
The following table sets forth the activities of the purchase premiums and discounts, net, for reverse mortgage interests.interests:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
Purchase discount, net, for reverse mortgage interests(1) | 2020 | | 2019 | | 2020 | | 2019 |
Balance - beginning of period | $ | (129) | | | $ | (171) | | | $ | (114) | | | $ | (164) | |
Adjustments(2) | — | | | — | | | — | | | (24) | |
Utilization of purchase discounts(3) | 9 | | | 12 | | | 19 | | | 40 | |
Amortization, net of accretion | (7) | | | (4) | | | (32) | | | (15) | |
Balance - end of period | $ | (127) | | | $ | (163) | | | $ | (127) | | | $ | (163) | |
|
| | | | | | | | | | | |
| Successor |
| Three Months Ended September 30, 2019 |
Purchase premiums and discounts for reverse mortgage interests | Net Premium for Participating Interests in HMBS(1) | | Net Discount for Other Interest Securitized(1) | | Net Discount for Unsecuritized Interests(1) |
Balance - beginning of period | $ | 18 |
| | $ | (84 | ) | | $ | (97 | ) |
Utilization of purchase discounts(2) | — |
| | 11 |
| | 29 |
|
(Amortization)/Accretion | (4 | ) | | 9 |
| | (6 | ) |
Transfers(3) | — |
| | 1 |
| | (1 | ) |
Balance - end of period | $ | 14 |
| | $ | (63 | ) | | $ | (75 | ) |
(1)Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans.
|
| | | | | | | | | | | |
| Successor |
| Nine Months Ended September 30, 2019 |
Purchase premiums and discounts for reverse mortgage interests | Net Premium for Participating Interests in HMBS(1) | | Net Discount for Other Interest Securitized(1) | | Net Discount for Unsecuritized Interests(1) |
Balance - beginning of period | $ | 58 |
| | $ | (100 | ) | | $ | (122 | ) |
Adjustments(4) | (16 | ) | | (2 | ) | | (6 | ) |
Utilization of purchase discounts(2) | — |
| | 24 |
| | 56 |
|
(Amortization)/Accretion | (41 | ) | | 22 |
| | 3 |
|
Transfers(3) | 13 |
| | (7 | ) | | (6 | ) |
Balance - end of period | $ | 14 |
| | $ | (63 | ) | | $ | (75 | ) |
|
| | | | | | | | | | | |
| Successor |
| Two Months Ended September 30, 2018 |
Purchase premiums and discounts for reverse mortgage interests | Net Premium for Participating Interests in HMBS(1) | | Net Discount for Other Interest Securitized(1) | | Net Discount for Unsecuritized Interests(1) |
Balance - beginning of period | $ | 58 |
| | $ | (117 | ) | | $ | (161 | ) |
(Amortization)/Accretion | (3 | ) | | — |
| | 10 |
|
Balance - end of period | $ | 55 |
| | $ | (117 | ) | | $ | (151 | ) |
| |
(1)
| Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans. |
| |
(2)
| Utilization of purchase discounts to mitigate loss on liquidated loans, for which the remaining receivable was written-off. |
| |
(3)
| Transfer of premium/(discount) based on the transfer of associated loans between categories consistent with the underlying loan characteristics. |
| |
(4)
| Adjustments to premium/(discount)(2)Adjustments during the six months ended June 30, 2019 due to revised cost to service assumption utilized in the valuation of reverse mortgage assets and liabilities acquired from the Merger. See Note 2, Acquisitions for additional information.
|
In connection with previous reverse mortgage portfolio acquisitions,assets and liabilities acquired from the Predecessor recorded aMerger.
(3)Utilization of purchase discountdiscounts on liquidated loans, for which the remaining receivable was written-off.
Credit Loss for Reverse Mortgage Interests
As described in Note 1, Nature of Business and Basis of Presentation, reverse mortgage interests are within Unsecuritized Interests. The following table sets forth the activitiesscope of ASU 2016-13, requiring an assessment of reserves regarding credit-related losses in accordance with the CECL framework. Upon applying ASU 2016-13, the Company determined that credit-related losses are immaterial given the government insured nature of the purchase discount forHECM loan product. Any expected credit-related losses are contemplated in the Company’s existing reserve methodology due to the nature of this financial instrument. Accordingly, no cumulative effect adjustment was required upon adoption of ASU 2016-13 on January 1, 2020 and no additional CECL reserve was recorded as of June 30, 2020.
The credit-risk characteristics of reverse mortgage interests.interests do not vary with time as the financial instruments have no contractual life or financial profile as the primary counterparty is the government agency insuring the loans.
|
| | | | | | | |
| Predecessor |
Purchase discount for reverse mortgage interests | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Balance - beginning of period | $ | (84 | ) | | $ | (89 | ) |
Additions | — |
| | (7 | ) |
Accretion | 2 |
| | 14 |
|
Balance - end of period | $ | (82 | ) | | $ | (82 | ) |
Reverse Mortgage Interest Income
The Company accrues interest income for its participating interest in reverse mortgages based on the stated rates underlying HECM loans, in accordance with FHA guidelines. Total interest earned on the Company’s reverse mortgage interests was $74, $241$55 and $72$85 for the three and nine months ended SeptemberJune 30, 2020 and 2019, respectively, and two$117 and $167 for the six months ended SeptemberJune 30, 2018, respectively. Total interest earned on the Predecessor’s reverse mortgage interests was $382020 and $274 for one and seven months ended July 31, 2018,2019, respectively.
6. Mortgage Loans Held for Sale and Investment
Mortgage Loans Held for Sale
The Company maintains a strategy of originating and purchasing residential mortgage loan products primarily for the purpose of selling to GSEs or other third-party investors in the secondary market on a servicing-retained basis. The Company purchases closed loans through its correspondent channel and assists customers currently in the Company’s servicing portfolio with refinancing of loans or new home purchases through its Direct to Consumerdirect-to-consumer channel. Generally, all newly originated mortgage loans held for sale are securitized and transferred to GSEs or delivered to third-party purchasers shortly after origination on a servicing-retained basis.
Mortgage loans held for sale are recorded at fair value as set forth below.below:
| | | | | | | | | | | |
Mortgage Loans Held for Sale | June 30, 2020 | | December 31, 2019 |
Mortgage loans held for sale – UPB | $ | 3,033 | | | $ | 3,949 | |
Mark-to-market adjustment(1) | 146 | | | 128 | |
Total mortgage loans held for sale | $ | 3,179 | | | $ | 4,077 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
Mortgage loans held for sale – UPB | $ | 4,110 |
| | $ | 1,568 |
|
Mark-to-market adjustment(1) | 157 |
| | 63 |
|
Total mortgage loans held for sale | $ | 4,267 |
| | $ | 1,631 |
|
| |
(1)
| (1)The mark-to-market adjustment is recorded in net gain on mortgage loans held for sale in the consolidated statements of operations. |
The Company accrues interest income as earned and places loans on non-accrual status after any portion of principal or interest has been delinquent for more than 90 days. Accrued interest is recorded as interest income in the consolidated statements of operations.
The total UPB of mortgage loans held for sale on non-accrual status was as follows:
|
| | | | | | | | | | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
Mortgage Loans Held for Sale - UPB | UPB | | Fair Value | | UPB | | Fair Value |
Non-accrual(1) | $ | 31 |
| | $ | 26 |
| | $ | 45 |
| | $ | 42 |
|
| |
(1)
| Non-accrual includes $26 and $40 of UPB related to Ginnie Mae repurchased loans as of September 30, 2019 and December 31, 2018, respectively. |
The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $21 and $33 as of September 30, 2019 and December 31, 2018, respectively.
The following table sets forth the activities of mortgage loans held for sale.sale:
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
Mortgage Loans Held for Sale | 2020 | | 2019 |
Balance - beginning of period | $ | 4,077 | | | $ | 1,631 | |
Loans sold | (26,149) | | | (15,203) | |
Mortgage loans originated and purchased, net of fees | 23,110 | | | 16,263 | |
Repurchase of loans out of Ginnie Mae securitizations | 2,092 | | | 715 | |
Changes in fair value | 42 | | | 16 | |
Net transfers of mortgage loans held for sale(1) | 7 | | | — | |
Balance - end of period | $ | 3,179 | | | $ | 3,422 | |
|
| | | | | | | | | | | | |
| Successor | | | Predecessor |
Mortgage loans held for sale | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 |
Balance - beginning of period | $ | 1,631 |
| | $ | 1,514 |
| | | $ | 1,891 |
|
Mortgage loans originated and purchased, net of fees(1) | 28,199 |
| | 3,459 |
| | | 12,319 |
|
Loans sold | (27,430 | ) | | (3,508 | ) | | | (13,255 | ) |
Repurchase of loans out of Ginnie Mae securitizations | 1,823 |
| | 223 |
| | | 544 |
|
Net transfers of mortgage loans held for sale to/from REO in other assets and transfer from mortgage loans held for investment(2)(3) | 15 |
| | 4 |
| | | 14 |
|
Changes in fair value | 19 |
| | (8 | ) | | | (1 | ) |
Other purchase-related activities(4) | 10 |
| | (1 | ) | | | 9 |
|
Transfer of mortgage loans held for sale to advances and other receivables, net related to claims(5) | — |
| | (2 | ) | | | (7 | ) |
Balance - end of period | $ | 4,267 |
| | $ | 1,681 |
| | | $ | 1,514 |
|
(1)Amount reflects transfers to other assets for loans transitioning into REO status and transfers to advances and other receivables, net, for claims made on certain government insurance mortgage loans. Transfers out are net of transfers in upon receipt of proceeds from an REO sale or claim filing.
| |
(1)
| Mortgage loans originated and purchased during the nine months ended September 30, 2019 includes $536 of loans held for sale that were acquired from Pacific Union. See Note 2, Acquisitions for further discussion.
|
| |
(2)
| Net amounts are comprised of REO in the sales process, which are transferred to other assets, and certain government insured mortgage REO, which are transferred from other assets upon completion of the sale so that the claims process can begin. |
| |
(3)
| Amount for the nine months ended September 30, 2019 includes $12 transfer from mortgage loans held for investment upon collapse of Trust 2009-A, the Company’s legacy portfolio, and sale of the loans held in the trust. See mortgage loans held for investment discussed in section below for additional information. |
| |
(4)
| Amounts are comprised primarily of non-Ginnie Mae loan purchases and buyouts. |
| |
(5)
| Amounts are comprised of claims made on certain government insured mortgage loans upon completion of the REO sale. |
For the ninesix months ended SeptemberJune 30, 20192020 and two months ended September 30, 2018,2019, the Company received proceeds of $27,778$26,606 and $3,543$15,422, respectively, on the sale of mortgage loans held for sale, resulting in gains of $367$457 and $35,$219, respectively. For the seven months ended July 31, 2018, the Predecessor received proceeds of $13,382 on the sale of mortgage loans held for sale, resulting in gains of $127.
The Company has the right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquenthaving not received borrower payments for greater than 90 days. The majority of Ginnie Mae repurchased loans are repurchased in connection with loan modifications and loan resolution activity, with the intent to re-pool into new Ginnie Mae securitizations upon re-performance of the loan or to otherwise sell to third-party investors. Therefore, these loans are classified as held for sale.
Mortgage Loans HeldThe Company accrues interest income as earned and places loans on non-accrual status after any portion of principal or interest has been delinquent for Investment
In September 2019, the Company collapsed Trust 2009-A, its legacy portfolio, and executed the sale of the loans heldmore than 90 days. Accrued interest is recorded as interest income in the trust for aconsolidated statements of operations.
The total purchase priceUPB and fair value of $130. The Company recognized a gain of $32, which was recorded in the net gain on mortgage loans held for sale in the consolidated statementson non-accrual status was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | December 31, 2019 | | |
Mortgage Loans Held for Sale | UPB | | Fair Value | | UPB | | Fair Value |
Non-accrual(1) | $ | 35 | | | $ | 25 | | | $ | 29 | | | $ | 22 | |
(1)Non-accrual UPB includes $27 and $25 of operations. $21 and $11 of the gain were recorded in the Servicing and Corporate/Other segments, respectively. In connection with this transaction, $94 UPB of the mortgagerelated to Ginnie Mae repurchased loans held for investment was called and the related debt was extinguished. The Company transferred the remaining $12 UPB to mortgage loans held for sale and $5 UPB to real estate owned.
The following table sets forth the activities of mortgage loans held for investment.
|
| | | | | | | |
| Successor |
Mortgage loans held for investment at fair value | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 |
Balance - beginning of period | $ | 119 |
| | $ | 125 |
|
Sale of mortgage loans | (94 | ) | | — |
|
Transfers to mortgage loans held for sale | (12 | ) | | — |
|
Payments received from borrowers | (11 | ) | | (2 | ) |
Transfers to real estate owned | (5 | ) | | — |
|
Changes in fair value(1) | 3 |
| | — |
|
Losses incurred | — |
| | (1 | ) |
Balance - end of period | $ | — |
| | $ | 122 |
|
| |
(1)
| The changes in fair value during the two months ended September 30, 2018, is less than $1. |
The following sets forth the composition of mortgage loans held for investment as of June 30, 2020 and December 31, 2018.2019, respectively.
|
| | | |
| Successor |
| December 31, 2018 |
Mortgage loans held for investment – UPB | $ | 156 |
|
Fair value adjustments | (37 | ) |
Total mortgage loans held for investment at fair value | $ | 119 |
|
The total UPB of mortgage loans held for investment on non-accrual status was as follows.
|
| | | | | | | |
| Successor |
| December 31, 2018 |
Mortgage Loans Held for Investment - UPB | UPB | | Fair Value |
Non-accrual | $ | 27 |
| | $ | 13 |
|
The total UPB of mortgage loans held for investmentsale for which the Company has begun formal foreclosure proceedings was $15$21 and $21 as of June 30, 2020 and December 31, 2018.
7. Leases
Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in other assets and payables and other liabilities, respectively, on its consolidated balance sheets as of September 30, 2019. The Company does not currently have any significant finance leases in which it is the lessee. Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. ROU assets are further adjusted for lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in general and administrative expenses in the consolidated statements of operations. The Company’s leases relate primarily to office space and equipment, with remaining lease terms of generally 1 to 10 years. Certain lease arrangements contain extension options, which typically range from 3 to 5 years, at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. As of September 30, 2019, operating lease ROU assets and liabilities were $126 and $137, respectively.
The table below summarizes the Company’s net lease cost:
|
| | | | | | | |
| Successor |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
Operating lease cost | $ | 10 |
| | $ | 29 |
|
Short-term lease cost(1) | — |
| | 1 |
|
Sublease income | (1 | ) | | (2 | ) |
Net lease cost | $ | 9 |
| | $ | 28 |
|
| |
(1)
| Amount for three months ended September 30, 2019 is less than $1. |
The table below summarizes other information related to the Company’s operating leases:
|
| | | | | | | |
| Successor |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 8 |
| | $ | 21 |
|
Leased assets obtained in exchange for new operating lease liabilities(1) | $ | (5 | ) | | $ | 150 |
|
Weighted average remaining lease term - operating leases, in years | 5.7 |
| | 5.7 |
|
Weighted average discount rate - operating leases | 5.0 | % | | 5.0 | % |
| |
(1)
| The reduction in the three months ended September 30, 2019 is due to a modification of lease agreements. |
Maturities of operating lease liabilities as of September 30, 2019 are as follows:
|
| | | | |
Year Ending December 31, | | Operating Leases |
2019(1) | | $ | 10 |
|
2020 | | 39 |
|
2021 | | 30 |
|
2022 | | 22 |
|
2023 | | 16 |
|
2024 and thereafter | | 45 |
|
Total future minimum lease payments | | 162 |
|
Less: imputed interest | | 25 |
|
Total operating lease liabilities | | $ | 137 |
|
| |
(1)
| Excluding the nine months ended September 30, 2019. |
Finance lease liability was $3 as of September 30, 2019, the majority of which matures within a year.
8.7. Other Assets
Other assets consist of the following:
| | | | | | | | | | | |
Other assets | June 30, 2020 | | December 31, 2019 |
Loans subject to repurchase right from Ginnie Mae | $ | 1,171 | | | $ | 560 | |
Derivative financial instruments | 391 | | | 153 | |
Trade receivables and accrued revenues | 133 | | | 126 | |
Goodwill | 120 | | | 120 | |
Operating lease right-of-use assets | 108 | | | 121 | |
Intangible assets | 54 | | | 74 | |
Other | 197 | | | 236 | |
Total other assets | $ | 2,174 | | | $ | 1,390 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
Loans subject to repurchase from Ginnie Mae | $ | 629 |
| | $ | 266 |
|
Trade receivables and accrued revenues | 142 |
| | 145 |
|
Right-of-use assets | 126 |
| | — |
|
Goodwill | 120 |
| | 23 |
|
Intangible assets | 93 |
| | 117 |
|
Other | 339 |
| | 244 |
|
Total other assets | $ | 1,449 |
| | $ | 795 |
|
Loans Subject to Repurchase Right from Ginnie Mae
Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. The Company, as the issuer of the mortgage backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including payments not being delinquentreceived from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its consolidated balance sheets and establishes a corresponding repurchaserepurchase liability regardless of the Company’s intention to repurchase the loan. The amountLoans subject to repurchase from Ginnie Mae as of SeptemberJune 30, 2019 includes $418 attributable2020 include $818 loans in forbearance related to Pacific Union.the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) whereby no payments have been received from borrowers for greater than 90 days.
Derivative Financial Instruments
See Note 8, Derivative Financial Instruments, for further details on derivative financial instruments.
Trade Receivables and Accrued Revenues
Trade receivables and accrued revenues are primarily comprised of trade receivables and service fees earned but not received based upon the terms of the Company’s servicing and subservicing agreements.
Right As described in Note 1, Nature of Use Assets
RightBusiness and Basis of usePresentation, certain trade receivables and accrued revenues included in other assets are recognized for operating leaseswithin the scope of ASU 2016-13, requiring an assessment of CECL losses. As of June 30, 2020, the total CECL reserve was $4.
The credit-risk characteristics of trade receivables included in other assets and within the scope of ASU 2016-13 do not change with time as a resultthey are primarily short-term in nature. However, the Company does monitor the financial status of adoption of ASC 842. See Note 7, Leases for additional information.
customers to determine if any specific loss considerations are required.
Goodwill and Intangible Assets
The table below presents changes in the carrying amount of goodwill for the nine months ended September 30, 2019.
|
| | | | |
| | Successor |
| | Nine Months Ended September 30, 2019 |
Balance - beginning of period | | $ | 23 |
|
Additions from acquisitions(1) | | 42 |
|
Measurement period adjustment related to Merger(2) | | 55 |
|
Balance - end of period | | $ | 120 |
|
| |
(1)
| As discussed in Note 2, Acquisitions, the Company recorded goodwill of $40 in connection with the acquisition of Pacific Union. In addition, on February 28, 2019, the Company completed the acquisition of the Seterus mortgage servicing platform and assumed certain assets related thereto from IBM (“Seterus acquisition”). In connection with the Seterus acquisition, the Company recorded $2 in goodwill.
|
| |
(2)
| The Company recorded a total measurement period adjustment of $55 to goodwill in 2019 related to the acquisition of Nationstar. See further discussion in Note 2, Acquisitions.
|
In 2018, the Company recorded goodwill of $10 and $13 in connection with the acquisitions of Nationstar and Assurant Mortgage Solutions, respectively. See further discussion in Note 2, Acquisitions.
In 2019, the Company recorded goodwill and intangible assets of $40 and $13, respectively, in connection with the acquisition of Pacific Union. In 2018, the Company recorded intangible assets of $103 and $24 in connection with the acquisitions of Nationstar and Assurant Mortgage Solutions, respectively. See further discussion in Note 2, Acquisitions. The Company recorded a $4 impairment of technology intangible assets within Corporate/Other segment during the six months ended June 30, 2020 in connection with an ancillary business. The impairment charges were included in the general and administrative expenses in the consolidated statements of operations. There was 0 impairment expense for intangible assets during the six months ended June 30, 2019.
Operating Lease Right-of-Use (“ROU”) Assets
Operating lease ROU assets represent the Company’s right to use an underlying leased asset during the lease term.
Other
Other primarily includes derivative financial instruments, prepaid expenses, margin call deposits, real estate owned (REO),REO, tax receivables, receivables related to recent loan transfers and non-advance related accounts receivablevarious receivables due from investors. See Note 9, Derivative Financial Instruments, for further details on derivative financial instruments.
REO includes $8 and $10includes $6 and $11 of REO-related receivables with government insurance at Septemberas of June 30, 20192020 and December 31, 2018,2019, respectively, limiting loss exposure to the Company.
9.
8. Derivative Financial Instruments
Derivative instruments are used as part of the overall strategy to manage exposure to market risks primarily associated with fluctuations in interest rates related to originations. Derivative instruments utilized by the Company primarily include interest rate lock commitments (“IRLCs”), loan purchase commitments (“LPCs”), forward Mortgage Backed Securities (“MBS”) purchase commitments, Eurodollar and Treasury futures and interest rate swap agreements.
Associated with the Company’s derivatives are $0.4$23 and $12$6 in collateral deposits on derivative instruments recorded in other assets on the Company’s consolidated balance sheets as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the consolidated balance sheets.
The following table providestables provide the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses). for the derivative financial instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2020 | | | | | | Six Months Ended June 30, 2020 |
Derivative Financial Instruments | Expiration Dates | | Outstanding Notional | | Fair Value | | | | Recorded Gains/(Losses) |
Assets | | | | | | | | | |
Mortgage loans held for sale | | | | | | | | | |
Loan sale commitments | 2020 | | $ | 1,673 | | | $ | 81 | | | | | $ | 48 | |
Derivative financial instruments | | | | | | | | | |
IRLCs | 2020 | | 9,227 | | | 370 | | | | | 235 | |
LPCs | 2020 | | 1,823 | | | 18 | | | | | 6 | |
Forward MBS trades | 2020 | | 1,239 | | | 3 | | | | | (3) | |
Eurodollar futures | 2020-2021 | | 6 | | | — | | | | | — | |
Total derivative financial instruments - assets | | | $ | 12,295 | | | $ | 391 | | | | | $ | 238 | |
Liabilities | | | | | | | | | |
Derivative financial instruments | | | | | | | | | |
| | | | | | | | | |
LPCs | 2020 | | $ | 55 | | | $ | — | | | | | $ | (2) | |
Forward MBS trades | 2020 | | 10,119 | | | 50 | | | | | 37 | |
Eurodollar futures | 2020-2021 | | 5 | | | — | | | | | — | |
Total derivative financial instruments - liabilities | | | $ | 10,179 | | | $ | 50 | | | | | $ | 35 | |
| | | | | | | | | | | June 30, 2019 | | | Six Months Ended June 30, 2019 |
| | Successor | |
| | September 30, 2019 | | Nine Months Ended September 30, 2019 | |
| Expiration Dates | | Outstanding Notional | | Fair Value | | Recorded Gains/(Losses) | |
Derivative Financial Instruments | | Derivative Financial Instruments | Expiration Dates | | Outstanding Notional | | Fair Value | | Recorded Gains/(Losses) |
Assets | | | | | | | Assets | | | | | | | |
Mortgage loans held for sale | | | | | | | Mortgage loans held for sale | |
Loan sale commitments | 2019 | | $ | 1,508 |
| | $ | 35.3 |
| | $ | 9.4 |
| Loan sale commitments | 2019 | | $ | 1,659 | | | $ | 47 | | | $ | 21 | |
Derivative financial instruments | | | | | | | Derivative financial instruments | |
IRLCs | 2019 | | 4,964 |
| | 143.9 |
| | 84.1 |
| IRLCs | 2019 | | 3,649 | | | 110 | | | 51 | |
LPCs | | LPCs | 2019 | | 1,327 | | | 17 | | | 15 | |
Forward MBS trades | 2019 | | 3,054 |
| | 7.7 |
| | 5.9 |
| Forward MBS trades | 2019 | | 762 | | | 1 | | | (1) | |
LPCs | 2019 | | 1,397 |
| | 18.2 |
| | 16.5 |
| |
Eurodollar futures(1) | 2020-2021 | | 6 |
| | — |
| | — |
| |
Eurodollar futures | | Eurodollar futures | 2019-2021 | | 8 | | | — | | | — | |
Total derivative financial instruments - assets | | Total derivative financial instruments - assets | | $ | 5,746 | | | $ | 128 | | | $ | 65 | |
Liabilities | | | | | | | Liabilities | |
Derivative financial instruments | | | | | | | Derivative financial instruments | |
IRLCs(1) | 2019 | | 15 |
| | — |
| | — |
| |
IRLCs | | IRLCs | 2019 | | $ | 4 | | | $ | — | | | $ | — | |
LPCs | | LPCs | 2019 | | 212 | | | 1 | | | 1 | |
Forward MBS trades | 2019 | | 5,667 |
| | 15.9 |
| | (8.0 | ) | Forward MBS trades | 2019 | | 4,932 | | | 30 | | | 6 | |
LPCs | 2019 | | 547 |
| | 3.1 |
| | 2.7 |
| |
Eurodollar futures(1) | 2019-2021 | | 8 |
| | — |
| | — |
| |
Eurodollar futures | | Eurodollar futures | 2019-2021 | | 12 | | | — | | | — | |
Total derivative financial instruments - liabilities | | Total derivative financial instruments - liabilities | | $ | 5,160 | | | $ | 31 | | | $ | 7 | |
9. Indebtedness
Notes Payable
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | June 30, 2020 | | | | December 31, 2019 | | |
Advance Facilities | | Interest Rate | | Maturity Date | | Collateral | | Capacity Amount | | Outstanding | | Collateral Pledged | | Outstanding | | Collateral pledged |
$875 advance facility(1) | | CP+2.5% to 6.5% | | April 2021 | | Servicing advance receivables | | $ | 875 | | | $ | 193 | | | $ | 220 | | | $ | 37 | | | $ | 88 | |
$425 advance facility(2) | | LIBOR+2.8% to 6.5% | | October 2021 | | Servicing advance receivables | | 425 | | | 211 | | | 273 | | | 224 | | | 285 | |
$250 advance facility(3) | | LIBOR+1.5% to 2.6% | | December 2020 | | Servicing advance receivables | | 250 | | | — | | | — | | | 98 | | | 167 | |
$200 advance facility | | LIBOR+2.5% | | January 2021 | | Servicing advance receivables | | 200 | | | 76 | | | 106 | | | 63 | | | 125 | |
Advance facilities principal amount | | | | | | | | | | 480 | | | $ | 599 | | | 422 | | | $ | 665 | |
Unamortized debt issuance costs | | | | | | | | | | (5) | | | | | — | | | |
Advance facilities, net | | | | | | | | | | $ | 475 | | | | | $ | 422 | | | |
(1)The capacity amount for this advance facility increased from $125 to $875 in April 2020.
(2)The capacity amount for this advance facility increased from $325 to $425 in April 2020.
(3)This advance facility was terminated and transferred to another advance facility in April 2020.
|
| | | | | | | | | | | | | | | | | |
| | | Successor | | Predecessor |
| | | September 30, 2018 | | Two Months Ended September 30, 2018 | | Seven Months Ended July 31, 2018 |
| Expiration Dates | | Outstanding Notional | | Fair Value | | Recorded Gains/(Losses) |
Assets | | | | | | | | | |
Mortgage loans held for sale | | | | | | | | | |
Loan sale commitments | 2018 | | $ | 428 |
| | $ | 6.9 |
| | $ | (3.7 | ) | | $ | 10.5 |
|
Derivative financial instruments | | | | | | | | | |
IRLCs | 2018 | | 1,765 |
| | 57.8 |
| | (1.8 | ) | | 0.4 |
|
Forward MBS trades | 2018 | | 3,040 |
| | 12.2 |
| | 9.0 |
| | 0.9 |
|
LPCs | 2018 | | 228 |
| | 1.7 |
| | 0.5 |
| | 0.3 |
|
Treasury futures | 2018 | | 65 |
| | — |
| | — |
| | (1.8 | ) |
Eurodollar futures(1) | 2018-2021 | | 20 |
| | — |
| | — |
| | — |
|
Liabilities | | | | | | | | | |
Derivative financial instruments | | | | | | | | | |
IRLCs(1) | 2018 | | 3 |
| | — |
| | — |
| | — |
|
Forward MBS trades | 2018 | | 413 |
| | 0.5 |
| | (1.4 | ) | | (1.0 | ) |
LPCs | 2018 | | 320 |
| | 1.5 |
| | 0.9 |
| | 0.1 |
|
Treasury futures(1) | 2018 | | 53 |
| | 0.1 |
| | 0.1 |
| | (1.3 | ) |
Eurodollar futures(1) | 2020-2021 | | 6 |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | June 30, 2020 | | | | December 31, 2019 | | |
Warehouse Facilities | | Interest Rate | | Maturity Date | | Collateral | | Capacity Amount | | Outstanding | | Collateral pledged | | Outstanding | | Collateral pledged |
$1,500 warehouse facility | | LIBOR+1.7% | | June 2021 | | Mortgage loans or MBS | | $ | 1,500 | | | $ | 669 | | | $ | 637 | | | $ | 759 | | | $ | 733 | |
$1,200 warehouse facility | | LIBOR+1.5% to 3.0% | | November 2020 | | Mortgage loans or MBS | | 1,200 | | | 568 | | | 606 | | | 683 | | | 724 | |
$800 warehouse facility(1) | | LIBOR+2.1% to 3.8% | | April 2021 | | Mortgage loans or MBS | | 800 | | | 642 | | | 700 | | | 589 | | | 656 | |
$750 warehouse facility | | LIBOR+1.4% to 2.8% | | September 2020 | | Mortgage loans or MBS | | 750 | | | 572 | | | 583 | | | 411 | | | 425 | |
$700 warehouse facility | | LIBOR+1.3% to 2.2% | | November 2020 | | Mortgage loans or MBS | | 700 | | | 624 | | | 644 | | | 469 | | | 488 | |
$600 warehouse facility | | LIBOR+2.2% | | February 2021 | | Mortgage loans or MBS | | 600 | | | 233 | | | 278 | | | 174 | | | 202 | |
$500 warehouse facility | | LIBOR+2.5% to 4.0% | | May 2021 | | Mortgage loans or MBS | | 500 | | | — | | | 1 | | | 336 | | | 349 | |
$250 warehouse facility(2) | | LIBOR+1.4% to 2.3% | | September 2020 | | Mortgage loans or MBS | | 250 | | | — | | | — | | | 762 | | | 783 | |
$200 warehouse facility | | LIBOR+1.4% | | January 2021 | | Mortgage loans or MBS | | 200 | | | 175 | | | 175 | | | 136 | | | 136 | |
$200 warehouse facility | | LIBOR+2.5% | | May 2021 | | Mortgage loans or MBS | | 200 | | | 50 | | | 74 | | | 54 | | | 78 | |
$200 warehouse facility | | LIBOR+1.8% | | April 2021 | | Mortgage loans or MBS | | 200 | | | 19 | | | 19 | | | 27 | | | 27 | |
$200 warehouse facility | | LIBOR+1.3% | | October 2020 | | Mortgage loans or MBS | | 200 | | | — | | | — | | | — | | | — | |
$50 warehouse facility | | LIBOR+1.8% to 4.8% | | April 2021 | | Mortgage loans or MBS | | 50 | | | 31 | | | 36 | | | 11 | | | 15 | |
$40 warehouse facility | | LIBOR+3.3% | | September 2020 | | Mortgage loans or MBS | | 40 | | | 4 | | | 4 | | | 5 | | | 6 | |
Warehouse facilities principal amount | | | | | | | | | | 3,587 | | | 3,757 | | | 4,416 | | | 4,622 | |
MSR Facility | | | | | | | | | | | | | | | | |
$450 warehouse facility(3) | | LIBOR+5.1% | | May 2021 | | MSR | | 450 | | | 300 | | | 628 | | | 150 | | | 945 | |
$400 warehouse facility | | LIBOR+2.3% | | December 2020 | | MSR | | 400 | | | 75 | | | 176 | | | — | | | 200 | |
$150 warehouse facility(1) | | LIBOR+3.8% | | April 2021 | | MSR | | 150 | | | 40 | | | 117 | | | — | | | 130 | |
$50 warehouse facility | | LIBOR+2.8% | | August 2020 | | MSR | | 50 | | | 30 | | | 87 | | | 10 | | | 84 | |
MSR facilities principal amount | | | | | | | | | | 445 | | | 1,008 | | | 160 | | | 1,359 | |
Warehouse and MSR facilities principal amount | | | | | | | | | | 4,032 | | | $ | 4,765 | | | 4,576 | | | $ | 5,981 | |
Unamortized debt issuance costs | | | | | | | | | | (1) | | | | | (1) | | | |
Warehouse facilities, net | | | | | | | | | | $ | 4,031 | | | | | $ | 4,575 | | | |
| | | | | | | | | | | | | | | | |
Pledged Collateral: | | | | | | | | | | | | | | | | |
Mortgage loans held for sale | | | | | | | | | | $ | 2,963 | | | $ | 3,016 | | | $ | 3,826 | | | $ | 3,931 | |
Reverse mortgage interests | | | | | | | | | | 624 | | | 741 | | | 590 | | | 691 | |
MSR | | | | | | | | | | 445 | | | 1,008 | | | 160 | | | 1,359 | |
| |
(1)
| Fair values or recorded gains/(losses) of derivative instruments are less than $0.1 for the specified dates. |
(1)Total capacity amount for this facility is $800 of which $150 is a sublimit for MSR financing.
10. Indebtedness(2)The capacity amount for this warehouse facility decreased from $1,000 to $250 in May 2020.
(3)The capacity amount for this MSR facility increased from $400 to $450 in May 2020.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Successor |
| | | | | | | | | | September 30, 2019 | | December 31, 2018 |
Advance Facilities | | Interest Rate | | Maturity Date | | Collateral | | Capacity Amount | | Outstanding | | Collateral Pledged | | Outstanding | | Collateral pledged |
$325 advance facility | | LIBOR + 1.5% to 6.5% | | August 2021 | | Servicing advance receivables | | $ | 325 |
| | $ | 233 |
| | $ | 294 |
| | $ | 209 |
| | $ | 284 |
|
$250 advance facility | | LIBOR + 1.5% to 2.6% | | December 2020 | | Servicing advance receivables | | 250 |
| | 142 |
| | 173 |
| | 218 |
| | 255 |
|
$200 advance facility | | LIBOR + 2.5% | | December 2019 | | Servicing advance receivables | | 200 |
| | 64 |
| | 125 |
| | 90 |
| | 149 |
|
$125 advance facility | | LIBOR + 1.5% to 7.4% | | July 2020 | | Servicing advance receivables | | 125 |
| | 74 |
| | 84 |
| | 78 |
| | 89 |
|
Advance facilities principal amount | | | | | | 513 |
| | $ | 676 |
| | 595 |
| | $ | 777 |
|
Unamortized debt issuance costs | | | | | | — |
| | | | — |
| | |
Advance facilities, net | | | | $ | 513 |
|
|
| | $ | 595 |
| |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Successor |
| | | | | | | | | | September 30, 2019 | | December 31, 2018 |
Warehouse Facilities | | Interest Rate | | Maturity Date | | Collateral | | Capacity Amount | | Outstanding | | Collateral pledged | | Outstanding | | Collateral pledged |
$1,500 warehouse facility | | LIBOR + 1.0% | | June 2020 | | Mortgage loans or MBS | | $ | 1,500 |
| | $ | 970 |
| | $ | 938 |
| | $ | — |
| | $ | — |
|
$1,200 warehouse facility | | LIBOR + 1.7% to 3.5% | | November 12, 2019 | | Mortgage loans or MBS | | 1,200 |
| | 734 |
| | 779 |
| | 560 |
| | 622 |
|
$1,000 warehouse facility | | LIBOR + 1.4% to 2.3% | | September 2020 | | Mortgage loans or MBS | | 1,000 |
| | 521 |
| | 536 |
| | 137 |
| | 140 |
|
$800 warehouse facility(1) | | LIBOR + 1.5% to 2.9% | | April 2020 | | Mortgage loans or MBS | | 800 |
| | 586 |
| | 643 |
| | 464 |
| | 514 |
|
$750 warehouse facility | | LIBOR + 1.4% to 2.8% | | September 2020 | | Mortgage loans or MBS | | 750 |
| | 511 |
| | 524 |
| | 119 |
| | 122 |
|
$600 warehouse facility | | LIBOR + 2.3% | | February 2020 | | Mortgage loans or MBS | | 600 |
| | 214 |
| | 251 |
| | 151 |
| | 168 |
|
$500 warehouse facility | | LIBOR + 1.5% to 2.8% | | November 14, 2019 | | Mortgage loans or MBS | | 500 |
| | 405 |
| | 474 |
| | 220 |
| | 248 |
|
$500 warehouse facility | | LIBOR + 1.5% to 3.0% | | April 2020 | | Mortgage loans or MBS | | 500 |
| | 391 |
| | 400 |
| | 187 |
| | 200 |
|
$200 warehouse facility | | LIBOR + 1.5% | | December 2019 | | Mortgage loans or MBS | | 200 |
| | 91 |
| | 92 |
| | — |
| | — |
|
$200 warehouse facility | | LIBOR + 1.2% | | April 2021 | | Mortgage loans or MBS | | 200 |
| | 91 |
| | 94 |
| | 18 |
| | 19 |
|
$200 warehouse facility | | LIBOR + 2.0% | | January 2020 | | Mortgage loans or MBS | | 200 |
| | 67 |
| | 94 |
| | 103 |
| | 132 |
|
$200 warehouse facility | | LIBOR + 1.5% | | October 2020 | | Mortgage loans or MBS | | 200 |
| | 21 |
| | 21 |
| | — |
| | — |
|
$50 warehouse facility | | LIBOR + 2.0% to 6.0% | | April 2020 | | Mortgage loans or MBS | | 50 |
| | 13 |
| | 16 |
| | — |
| | — |
|
$40 warehouse facility | | LIBOR + 3.3% | | September 2020 | | Mortgage loans or MBS | | 40 |
| | 27 |
| | 28 |
| | — |
|
| — |
|
$40 warehouse facility | | LIBOR + 3.0% | | November 29, 2019 | | Mortgage loans or MBS | | 40 |
| | 1 |
| | 2 |
| | 1 |
| | 2 |
|
$500 warehouse facility(2) | | LIBOR + 2.0% to 2.3% | | September 2020 | | Mortgage loans or MBS | | — |
| | — |
| | — |
| | 290 |
| | 299 |
|
Warehouse facilities principal amount | | 4,643 |
| | 4,892 |
| | 2,250 |
| | 2,466 |
|
MSR Facility | | | | | | | | | | | | | | | | |
$400 warehouse facility | | LIBOR + 3.5% to 6.1% | | June 2021 | | MSR | | 400 |
| | 150 |
| | 839 |
| | 100 |
| | 928 |
|
$400 warehouse facility | | LIBOR + 2.3% | | December 2020 | | MSR | | 400 |
| | — |
| | 193 |
| | — |
| | 226 |
|
$150 warehouse facility(1) | | LIBOR + 2.8% | | April 2020 | | MSR | | 150 |
| | — |
| | 121 |
| | — |
| | 430 |
|
$50 warehouse facility | | LIBOR + 2.8% | | August 2020 | | MSR | | 50 |
| | 10 |
| | 84 |
| | — |
| | 102 |
|
| | | | | | | | | | 160 |
| | 1,237 |
| | 100 |
| | 1,686 |
|
Warehouse and MSR facilities principal amount | | 4,803 |
| | $ | 6,129 |
| | 2,350 |
| | $ | 4,152 |
|
| | | | | | | | | | | | | | |
Unamortized debt issuance costs | | | | | | | | (1 | ) | | | | (1 | ) | | |
Warehouse facilities, net | | $ | 4,802 |
| | | | $ | 2,349 |
| | |
| | | | | | | | | | | | | | | | |
Pledged Collateral: | | | | | | | | | | | | | | |
Mortgage loans and mortgage loans held for investment | | | | | | | | $ | 3,980 |
| | $ | 4,119 |
| | $ | 1,528 |
| | $ | 1,628 |
|
Reverse mortgage interests | | | | | | | | 663 |
| | 773 |
| | 722 |
| | 838 |
|
MSR | | | | | | | | 160 |
| | 1,237 |
| | 100 |
| | 1,686 |
|
| |
(1)
| Total capacity amount for this facility is $800 of which $150 is a sublimit for MSR financing. |
| |
(2)
| This facility was terminated during August 2019. |
Unsecured Senior Notes
Unsecured senior notes consist of the following:
| | | | | | | | | | | |
Unsecured senior notes | June 30, 2020 | | December 31, 2019 |
$950 face value, 8.125% interest rate payable semi-annually, due July 2023 | $ | 950 | | | $ | 950 | |
$750 face value, 9.125% interest rate payable semi-annually, due July 2026 | 750 | | | 750 | |
$600 face value, 6.000% interest rate payable semi-annually, due January 2027(1) | 600 | | | — | |
$600 face value, 6.500% interest rate payable semi-annually, due July 2021(2) | — | | | 492 | |
$300 face value, 6.500% interest rate payable semi-annually, due June 2022(2) | — | | | 206 | |
Unsecured senior notes principal amount | 2,300 | | | 2,398 | |
Unamortized debt issuance costs, premium and discount | (39) | | | (32) | |
Unsecured senior notes, net | $ | 2,261 | | | $ | 2,366 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
$950 face value, 8.125% interest rate payable semi-annually, due July 2023 | $ | 950 |
| | $ | 950 |
|
$750 face value, 9.125% interest rate payable semi-annually, due July 2026 | 750 |
| | 750 |
|
$600 face value, 6.500% interest rate payable semi-annually, due July 2021(1) | 592 |
| | 592 |
|
$300 face value, 6.500% interest rate payable semi-annually, due June 2022 | 206 |
| | 206 |
|
Unsecured senior notes principal amount | 2,498 |
| | 2,498 |
|
Unamortized debt issuance costs, premium and discount | (34 | ) | | (39 | ) |
Unsecured senior notes, net | $ | 2,464 |
| | $ | 2,459 |
|
(1)On January 16, 2020, the Company completed an offering of $600 aggregate principal amount of 6.000% Senior Notes due 2027 (the “2027 Notes”).
| |
(1)
| This note was subsequently paid down by $100 in principal balance in October 2019. |
(2)This note was redeemed in full on February 15, 2020 using the net proceeds of the 2027 Notes offering, together with cash on hand.
The ratios included in the indentures for the unsecured senior notes are incurrence-based compared to the customary ratio covenants that are often found in credit agreements that require a company to maintain a certain ratio. The incurrence-based covenants limit the issuer(s) and restricted subsidiaries ability to incur additional indebtedness, pay dividends, make certain investments, create liens, consolidate, merge or sell substantially all of their assets or enter into certain transactions with affiliates. The indentures contain certain events of default, including (subject, in some cases, to customary cure periods and materiality thresholds) defaults based on (i) the failure to make payments under the applicable indenture when due, (ii) breach of covenants, (iii) cross-defaults to certain other indebtedness, (iv) certain bankruptcy or insolvency events, (v) material judgments and (vi) invalidity of material guarantees.
The indentures forprovide that on or before certain fixed dates, the Company may redeem up to 40% of the aggregate principal amount of the unsecured senior notes provide thatwith the Company may redeem all or a portionnet proceeds of the notes prior to certain equity offerings at fixed dates by paying a make-whole premiumredemption prices, plus accrued and unpaid interest, to the redemption dates.dates, subject to compliance with certain conditions. In addition, the Company may redeem all or a portion of the unsecured senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. No notes were repurchased or redeemed during the three months ended June 30, 2020. During the six months ended June 30, 2020, the Company repaid $100 in principal of outstanding notes. Additionally, the Company redeemed $598 in principal of outstanding notes during the six months ended June 30, 2020, resulting in a gain of $1. No notes were repurchased or redeemed during the three and nine six months ended SeptemberJune 30, 2019, and two months ended September 30, 2018. During the two months ended September 30, 2018, the Company redeemed $658 in principal of outstanding notes. Additionally, the Company repaid $364 in principal of outstanding notes which matured during the two months ended September 30, 2018. The Predecessor repurchased $60 in principal of outstanding notes during the seven months ended July 31, 2018 resulting in a loss of $2. No notes were repurchased during the one month ended July 31, 2018.2019.
Additionally, the indentures provide that on or before certain fixed dates, the Company may redeem (x) in the case of the New Notes, up to 40%, or (y) in the case of the other series of unsecured senior notes, up to 35% of the aggregate principal amount of the unsecured senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest, to the redemption dates, subject to compliance with certain conditions.
As of SeptemberJune 30, 2019,2020, the expected maturities of the Company’s unsecured senior notes based on contractual maturities are as follows:
| | | | | | | | |
Year Ending December 31, | | Amount |
2020 | | $ | — | |
2021 | | — | |
2022 | | — | |
2023 | | 950 | |
2024 | | — | |
Thereafter | | 1,350 | |
Total unsecured senior notes principal amount | | $ | 2,300 | |
|
| | | | |
Year Ending December 31, | | Amount |
2019 | | $ | — |
|
2020 | | — |
|
2021(1) | | 592 |
|
2022 | | 206 |
|
2023 | | 950 |
|
Thereafter | | 750 |
|
Total unsecured senior notes principal amount | | $ | 2,498 |
|
| |
(1)
| This note does not include the subsequent pay down of $100 in principal balance in October 2019. |
Other Nonrecourse Debt
Other nonrecourse debt consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | June 30, 2020 | | December 31, 2019 |
Other nonrecourse debt | Issue Date | | Maturity Date | | Class of Note | | Collateral Amount | | Outstanding | | Outstanding |
Participating interest financing(1) | — | | — | | — | | $ | — | | | $ | 3,875 | | | $ | 4,284 | |
Securitization of nonperforming HECM loans | | | | | | | | | | | |
Trust 2019-2 | November 2019 | | November 2029 | | A, M1, M2, M3, M4, M5 | | 287 | | | 274 | | | 333 | |
Trust 2019-1 | June 2019 | | June 2029 | | A, M1, M2, M3, M4, M5 | | 264 | | | 244 | | | 302 | |
Trust 2018-3 | November 2018 | | November 2028 | | A, M1, M2, M3, M4, M5 | | 200 | | | 179 | | | 209 | |
Trust 2018-2 | July 2018 | | July 2028 | | A, M1, M2, M3, M4, M5 | | 149 | | | 127�� | | | 148 | |
Other nonrecourse debt principal amount | | | | | | | | | 4,699 | | | 5,276 | |
Unamortized debt issuance costs, premium and discount | | | | | | | | | 8 | | | 10 | |
Other nonrecourse debt, net | | | | | | | | | $ | 4,707 | | | $ | 5,286 | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Successor |
| | | | | | | | | September 30, 2019 | | December 31, 2018 |
| Issue Date | | Maturity Date | | Class of Note | | Securitized Amount | | Outstanding | | Outstanding |
Participating interest financing(1) | — | | — | | — | | $ | — |
| | $ | 4,581 |
| | $ | 5,607 |
|
Securitization of nonperforming HECM loans | | | | | | | | | | | |
Trust 2017-2(2) | September 2017 | | September 2027 | | A, M1, M2 | | — |
| | — |
| | 231 |
|
Trust 2018-1 | March 2018 | | March 2028 | | A, M1, M2, M3, M4, M5 | | 232 |
| | 201 |
| | 284 |
|
Trust 2018-2 | August 2018 | | August 2028 | | A, M1, M2, M3, M4, M5 | | 179 |
| | 161 |
| | 250 |
|
Trust 2018-3 | November 2018 | | November 2028 | | A, M1, M2, M3, M4, M5 | | 254 |
| | 239 |
| | 326 |
|
Trust 2019-1 | June 2019 | | June 2029 | | A, M1, M2, M3, M4, M5 | | 347 |
| | 339 |
| | — |
|
Nonrecourse Debt - Legacy(3) | November 2009 | | October 2039 | | A | | — |
| | — |
| | 29 |
|
Other nonrecourse debt principal amount | | | | | | | | | 5,521 |
| | 6,727 |
|
Unamortized debt issuance costs, premium and discount | | | | | | | | | 12 |
| | 68 |
|
Other nonrecourse debt, net | | | | | | | | | $ | 5,533 |
| | $ | 6,795 |
|
(1)Amounts represent the Company’s participating interest in GNMA HMBS securitized portfolios.
| |
(1)
| Amounts represent the Company’s participating interest in GNMA HMBS securitized portfolios. |
| |
(2)
| As discussed in Note 5, Reverse Mortgage Interests, Net, Trust 2017-2 was extinguished.
|
| |
(3)
| As discussed in Note 6, Mortgage Loans Held for Sale and Investment, Trust 2009-A, the Company’s legacy portfolio, was collapsed and the related debt was extinguished during September 2019.
|
Participating Interest Financing
Participating interest financing represents the obligation of HMBS pools to third-party security holders. The Company issues HMBS in connection with the securitization of borrower draws and accrues interest on HECM loans. Proceeds are received in exchange for securitized advances on the HECM loan amounts transferred to GNMA, and the Company retains a beneficial interest (referred to as a “participating interest”) in the securitization trust in which the HECM loans and HMBS obligations are held and assume both issuer and servicer responsibilities in accordance with GNMA HMBS program guidelines. Monthly cash flows generated from the HECM loans are used to service the HMBS obligations. The interest rate is based on the underlying HMBS rate with a range of 2.3%0.6% to 5.9%5.6%.
Securitizations of Nonperforming HECM Loans
From time to time, the Company securitizes its interests in non-performing reverse mortgages. The transactions provide investors with the ability to invest in a pool of both non-performing HECM loans secured by one-to-four-family residential properties and a pool of REO properties acquired through foreclosure of a deed in lieu of foreclosure in connection with HECM loans that are covered by FHA insurance. The transactions provide the Company with access to liquidity for the non-performing HECM loan portfolio, ongoing servicing fees, and potential residual returns. The transactions are structured as secured borrowings with the reverse mortgage loans included in the consolidated financial statements as reverse mortgage interests and the related financing included in other nonrecourse debt. Interest is accrued at a rate of 2.7%2.3% to 6.0% on the outstanding securitized notes and recorded as interest expense in consolidated statements of operations. The HECM securitizations are callable with expected weighted average lives of less than one to fourthree years. The Company may re-securitize the previously called loans from earlier HECM securitizations to achieve a lower cost of funds.
Nonrecourse Debt – Legacy Assets
During November 2009, the Predecessor completed the securitization of approximately $222 of Asset-Backed Securities (“ABS”), which was accounted for as a secured borrowing. This structure resulted in the Predecessor and subsequently the Company carrying the securitized mortgage loans in its consolidated balance sheets and recognizing the asset-backed certificates acquired by third parties. The principal and interest on these notes are paid using the cash flows from the underlying mortgage loans, which serve as collateral for the debt. The interest rate paid on the outstanding securities is 7.5%, which is subject to an available funds cap. The trust was called and related debt was extinguished during September 2019. See Note 6, Mortgage Loans Held for Sale and Investment for further information. The total outstanding principal balance on the underlying mortgage loans serving as collateral for the debt was approximately $160 at December 31, 2018. The UPB on the outstanding loans was $29 at December 31, 2018 and the carrying value of the nonrecourse debt was $29.
Financial Covenants
The Company’s credit facilities contain various financial covenants which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements, which are measured at the Company’s operating subsidiary, Nationstar Mortgage LLC. The Company was in compliance with its required financial covenants as of SeptemberJune 30, 2019. The most restrictive tangible net worth covenant required the Company to maintain a minimum tangible net worth of at least $682.2020.
11.
10. Payables and Other Liabilities
Payables and other liabilities consist of the following:
| | | | | | | | | | | |
Payables and other liabilities | June 30, 2020 | | December 31, 2019 |
Loans subject to repurchase right from Ginnie Mae | $ | 1,171 | | | $ | 560 | |
Payables to servicing and subservicing investors | 345 | | | 423 | |
Payable to GSEs and securitized trusts | 129 | | | 182 | |
Operating lease liabilities | 121 | | | 135 | |
Derivative financial instruments | 50 | | | 15 | |
Other liabilities | 644 | | | 701 | |
Total payables and other liabilities | $ | 2,460 | | | $ | 2,016 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
Loans subject to repurchase from Ginnie Mae | $ | 629 |
| | $ | 266 |
|
Payables to servicing and subservicing investors | 523 |
| | 494 |
|
Operating lease liability | 137 |
| | — |
|
Payables to GSEs and securitized trusts | 126 |
| | 105 |
|
MSR purchases payable including advances | 21 |
| | 182 |
|
Other liabilities | 566 |
| | 496 |
|
Total payables and other liabilities | $ | 2,002 |
| | $ | 1,543 |
|
Loans Subject to Repurchase Right from Ginnie Mae
See Note 8,7, Other Assets, for a description of assets and liabilities related to loans subject to repurchase right from Ginnie Mae. The amountLoans subject to repurchase from Ginnie Mae as of SeptemberJune 30, 2019 includes $418 attributable2020 include $818 loans in forbearance related to Pacific Union.the CARES Act whereby no payments have been received from borrowers for greater than 90 days.
Payables to Servicing and Subservicing Investors and Payables to GSEs and Securitized Trusts
Payables to servicing and subservicing investors, GSEs and securitized trusts represent amounts due to investors, GSEs and securitized trusts in connection with loans serviced that are paid from collections of the underlying loans, insurance proceeds or proceeds from property disposal.
Derivative Financial Instruments
See Note 8, Derivative Financial Instruments, for further details on derivative financial instruments.
Operating Lease Liabilities
Operating lease liabilities are recognized as a result of adoption of ASC 842 as of January 1, 2019. See Note 7, Leases for additional information.
MSR Purchases Payable Including Advances
MSR purchases payable including advances represent the amounts owedCompany’s obligation to the seller in connection with the purchase of MSRs.make lease payments arising from a lease, measured on a discount basis.
Other Liabilities
Other liabilities primarily include accrued bonus and payroll, accrued interest, accrued legal expenses, payablepayables to insurance carriers and insurance cancellation reserves, derivative financial instruments, repurchase reserves, accounts payable and other accrued liabilities. Payables to insurance carriers and insurance cancellation reserves consist of insurance premiums received from borrower payments awaiting disbursement to the insurance carrier and/or amounts due to third-party investors on liquidated loans. See Note 9, Derivative Financial Instruments, for further details on derivative financial instruments.
The following table sets forth the activities of the repurchase reserves.reserves:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
Repurchase Reserves | 2020 | | 2019 | | 2020 | | 2019 |
Balance - beginning of period | $ | 29 | | | $ | 16 | | | $ | 25 | | | $ | 8 | |
Provisions | 4 | | | 8 | | | 9 | | | 16 | |
Releases | (4) | | | (1) | | | (5) | | | (1) | |
Balance - end of period | $ | 29 | | | $ | 23 | | | $ | 29 | | | $ | 23 | |
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
Repurchase Reserves | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Balance - beginning of period | $ | 23 |
| | $ | 8 |
| | $ | 9 |
| | | $ | 9 |
| | $ | 9 |
|
Provisions(1) | 5 |
| | 21 |
| | 1 |
| | | — |
| | 3 |
|
Releases | (4 | ) | | (5 | ) | | (1 | ) | | | — |
| | (3 | ) |
Balance - end of period | $ | 24 |
| | $ | 24 |
| | $ | 9 |
| | | $ | 9 |
| | $ | 9 |
|
| |
(1)
| Provision for the three and nine months ended September 30, 2019 is primarily due to repurchase reserve liabilities assumed in connection with the acquisition of Pacific Union. See Note 2, Acquisitions for additional information.
|
The provision for repurchases represents an estimate of losses to be incurred on the repurchase of loans or indemnification of purchaser’s losses related to forward loans. Certain sale contracts and GSE standards require the Predecessor and, subsequently, the Company to repurchase a loan or indemnify the purchaser or insurer for losses if a borrower fails to make initial loan payments or if the accompanying mortgage loan fails to meet certain customary representations and warranties with respect to underwriting standards.
In the event of a breach of the representations and warranties, the Predecessor and subsequently the Company may be required to either repurchase the loan or indemnify the purchaser for losses it sustains on the loan. In addition, an investor may request that the Predecessor and subsequently the Company refund a portion of the premium paid on the sale of mortgage loans if a loan is prepaid within a certain amount of time from the date of sale. The Predecessor and the Company record a reserve for estimated losses associated with loan repurchases, purchaser indemnification and premium refunds. The provision for repurchase losses is charged against net gain on mortgage loans held for sale. A release of repurchase reserves is recorded when the Predecessor and Company’s assessment reveals that previously recorded reserves are no longer needed.
A selling representation and warranty framework was introduced by the GSEs in 2013 and enhanced in 2014 that helps address concerns of loan sellers with respect to loan repurchase risk. Under the framework, a GSE will not exercise its remedies, including the issuance of repurchase requests, for breaches of certain selling representations and warranties if a mortgage meets certain eligibility requirements. For loans sold to GSEs on or after January 1, 2013, repurchase risk for Home Affordable Refinance Program (“HARP”) loans is lowered if the borrower stays current on the loan for 12 months and representation and warranty risks are limited for non-HARP loans that stay current for 36 months.
The Company regularly evaluates the adequacy of repurchase reserves based on trends in repurchase and indemnification requests, actual loss experience, settlement negotiation, estimated future loss exposure and other relevant factors including economic conditions. Current loss rates have significantly declined attributable to stronger underwriting standards and due to the falloff of loans underwritten prior to the mortgage loan crisis period prior to 2008. The Company believes its reserve balance as of SeptemberJune 30, 20192020 is sufficient to cover loss exposure associated with repurchase contingencies.
12.
11. Securitizations and Financings
Variable Interest Entities (VIE)(VIEs)
In the normal course of business, the Company enters into various types of on- and off-balance sheet transactions with special purpose entities (“SPEs”) determined to be VIEs, which primarily consist of securitization trusts established for a limited purpose. Generally, these SPEs are formed for the purpose of securitization transactions in which the Company transfers assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets.
The Company has determined that the SPEs created in connection with the (i) Nationstar Mortgage Advance Receivables Trust (NMART), (ii) Nationstar Agency Advance Financing Trust (NAAFT) and (iii) Nationstar Advance Agency Receivables Trust (NAART) should be consolidated as the Company is the primary beneficiary of each of these entities. Also, the Company consolidated four4 reverse mortgage SPEs as it is the primary beneficiary of each of these entities. These SPEs include the Nationstar HECM Loan Trusts.
A summary of the assets and liabilities of the Company’s transactions with VIEs included in the Company’s consolidated financial statements is presented below.below:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | December 31, 2019 | | |
Consolidated transactions with VIEs | Transfers Accounted for as Secured Borrowings | | Reverse Secured Borrowings | | Transfers Accounted for as Secured Borrowings | | Reverse Secured Borrowings |
Assets | | | | | | | |
Restricted cash | $ | 95 | | | $ | 27 | | | $ | 66 | | | $ | 42 | |
Reverse mortgage interests, net(1) | — | | | 4,639 | | | — | | | 5,230 | |
Advances and other receivables, net | 492 | | | — | | | 540 | | | — | |
Total assets | $ | 587 | | | $ | 4,666 | | | $ | 606 | | | $ | 5,272 | |
| | | | | | | |
Liabilities | | | | | | | |
Advance facilities(2) | $ | 399 | | | $ | — | | | $ | 359 | | | $ | — | |
Payables and other liabilities | 1 | | | 1 | | | 1 | | | 1 | |
Participating interest financing | — | | | 3,875 | | | — | | | 4,284 | |
HECM Securitizations (HMBS) | | | | | | | |
Trust 2019-2 | — | | | 274 | | | — | | | 333 | |
Trust 2019-1 | — | | | 244 | | | — | | | 302 | |
Trust 2018-3 | — | | | 179 | | | — | | | 209 | |
Trust 2018-2 | — | | | 127 | | | — | | | 148 | |
Total liabilities | $ | 400 | | | $ | 4,700 | | | $ | 360 | | | $ | 5,277 | |
|
| | | | | | | | | | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
| Transfers Accounted for as Secured Borrowings | | Reverse Secured Borrowings | | Transfers Accounted for as Secured Borrowings | | Reverse Secured Borrowings |
Assets | | | | | | | |
Restricted cash | $ | 70 |
| | $ | 46 |
| | $ | 70 |
| | $ | 63 |
|
Reverse mortgage interests, net(1) | — |
| | 5,471 |
| | — |
| | 6,728 |
|
Advances and other receivables, net | 552 |
| | — |
| | 628 |
| | — |
|
Mortgage loans held for investment, net(2) | — |
| | — |
| | 118 |
| | — |
|
Total assets | $ | 622 |
| | $ | 5,517 |
| | $ | 816 |
| | $ | 6,791 |
|
| | | | | | | |
Liabilities | | | | | | | |
Advance facilities(3) | $ | 449 |
| | $ | — |
| | $ | 505 |
| | $ | — |
|
Payables and other liabilities | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Participating interest financing | — |
| | 4,581 |
| | — |
| | 5,607 |
|
HECM Securitizations (HMBS) | | | | | | | |
Trust 2017-2 | — |
| | — |
| | — |
| | 231 |
|
Trust 2018-1 | — |
| | 201 |
| | — |
| | 284 |
|
Trust 2018-2 | — |
| | 161 |
| | — |
| | 250 |
|
Trust 2018-3 | — |
| | 239 |
| | — |
| | 326 |
|
Trust 2019-1 | — |
| | 339 |
| | — |
| | — |
|
Nonrecourse debt – legacy assets(2) | — |
| | — |
| | 29 |
| | — |
|
Total liabilities | $ | 450 |
| | $ | 5,522 |
| | $ | 535 |
| | $ | 6,699 |
|
(1)Amounts include net purchase discount of $59 and $46 as of June 30, 2020 and December 31, 2019, respectively.
| |
(1)
| Amounts include net purchase discount of $49 and $42 as of September 30, 2019 and December 31, 2018, respectively. |
| |
(2)
| The Nationstar Home Equity Loan Trust 2009-A was collapsed in September 2019. Refer to Mortgage Loans Held for Investment in Note 6, Mortgage Loans Held for Sale and Investment, for additional information.
|
| |
(3)
| Amounts include the Nationstar agency advance financing facility and notes payable recorded by the Nationstar Mortgage Advance Receivable Trust, and the Nationstar Agency Advance Receivables Trust. Refer to Notes Payable in Note 10, Indebtedness, for additional information.
|
(2)Amounts include the Nationstar agency advance financing facility and notes payable recorded by the Nationstar Mortgage Advance Receivable Trust, and the Nationstar Agency Advance Receivables Trust. Refer to Notes Payable in Note 9, Indebtedness, for additional information.
The following table shows a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by the Company.Company:
| | | | | | | | | | | |
Unconsolidated securitization trusts | June 30, 2020 | | December 31, 2019 |
Total collateral balances - UPB | $ | 1,422 | | | $ | 1,503 | |
Total certificate balances | $ | 1,421 | | | $ | 1,512 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
Total collateral balances - UPB | $ | 1,553 |
| | $ | 1,873 |
|
Total certificate balances | $ | 1,562 |
| | $ | 1,817 |
|
The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of SeptemberJune 30, 20192020 and December 31, 20182019 and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs.
A summary of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 60 days or more past due are presented below.below:
| | | | | | | | | | | |
Principal Amount of Transferred Loans 60 Days or More Past Due | June 30, 2020 | | December 31, 2019 |
Unconsolidated securitization trusts | $ | 239 | | | $ | 193 | |
|
| | | | | | | |
| Successor |
Principal Amount of Loans 60 Days or More Past Due | September 30, 2019 | | December 31, 2018 |
Unconsolidated securitization trusts | $ | 204 |
| | $ | 285 |
|
13. Stockholders' Equity
Upon the consummation of the Merger, the Company assumed and adopted the Nationstar Mortgage Holdings Inc. Second Amended and Restated 2012 Incentive Compensation Plan (“2012 Plan”), as may be amended, that offers equity-based awards to certain key employees of the Company, consultants, and non-employee directors. Additionally, on May 16, 2019, the Company’s stockholders approved the Mr. Cooper Group Inc. 2019 Omnibus Incentive Plan (the “2019 Plan”) which had previously been approved by the Company’s Board of Directors.
The equity-based awards under the 2012 Plan and the 2019 Plan include restricted stock units (“RSUs”) granted to employees of the Company, consultants, and non-employee directors. These awards are valued at the fair market value of the Company’s or the Predecessor’s common stock on the grant date as defined in the 2012 Plan and the 2019 Plan. During the nine months ended September 30, 2019 and two months ended September 30, 2018, certain key employees of the Company, consultants, and non-employee directors of the Company were granted 2,525 thousand and 73 thousand RSUs, respectively. During the seven months ended July 31, 2018, certain employees of the Predecessor were granted 3,297 thousand RSUs. The stock awards for employees generally vest in installments of 33.3%, 33.3% and 33.4% respectively on each of the first three anniversaries of the awards, provided that (i) the participant remains continuously employed with the Company during that time or (ii) the participant’s employment has terminated by reason of retirement. The stock awards for non-employee directors generally vest the earlier of (a) the first anniversary of the grant date or (b) the date of the next annual stockholders meeting following the grant date. In addition, upon death or disability, the unvested shares of an award will vest.
The Company recorded $5 and $14 of expenses related to equity-based awards during the three and nine months ended September 30, 2019, respectively, and recorded $2 during the two months ended September 30, 2018. In addition, the Predecessor recorded $9 and $17 of expenses related to share-based awards during the one and seven months ended July 31, 2018, respectively, including $7 expenses recognized due to a one-time accelerated vesting of equity awards in connection with the Merger.
14.12. Earnings Per Share
The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series A Preferred Stock is considered participating securities because it has dividend rights determined on an as-converted basis in the event of Company’s declaration of a dividend or distribution for common shares.
The following table sets forth the computation of basic and diluted net income (loss) income per common share (amounts in millions, except per share amounts).:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
Computation of earnings per share | 2020 | | 2019 | | 2020 | | 2019 |
Net income (loss) attributable to Mr. Cooper | $ | 73 | | | $ | (87) | | | $ | (95) | | | $ | (273) | |
Less: Undistributed earnings attributable to participating stockholders | 1 | | | — | | | — | | | — | |
Net income (loss) attributable to common stockholders | $ | 72 | | | $ | (87) | | | $ | (95) | | | $ | (273) | |
| | | | | | | |
Net income (loss) per common share attributable to Mr. Cooper: | | | | | | | |
Basic | $ | 0.78 | | | $ | (0.96) | | | $ | (1.04) | | | $ | (3.00) | |
Diluted | $ | 0.77 | | | $ | (0.96) | | | $ | (1.04) | | | $ | (3.00) | |
| | | | | | | |
Weighted average shares of common stock outstanding (in thousands): | | | | | | | |
Basic | 91,997 | | | 91,054 | | | 91,691 | | | 90,978 | |
Dilutive effect of stock awards(1) | 176 | | | — | | | — | | | — | |
Dilutive effect of participating securities(1) | 839 | | | — | | | — | | | — | |
Diluted | 93,012 | | | 91,054 | | | 91,691 | | | 90,978 | |
(1)For periods with net loss, the Company excluded potential common shares from the computation of diluted EPS because inclusion would be antidilutive.
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Net income (loss) attributable to Successor/Predecessor | $ | 84 |
| | $ | (189 | ) | | $ | 1,020 |
| | | $ | (64 | ) | | $ | 154 |
|
Less: Undistributed earnings attributable to participating stockholders | 1 |
| | — | | 9 |
| | | — |
| | — |
|
Net income (loss) attributable to common stockholders | $ | 83 |
| | $ | (189 | ) | | $ | 1,011 |
| | | $ | (64 | ) | | $ | 154 |
|
| | | | | | | | | | |
Net income (loss) per common share attributable to Successor/Predecessor: | | | | | | | | | | |
Basic | $ | 0.91 |
| | $ | (2.08 | ) | | $ | 11.13 |
| | | $ | (0.65 | ) | | $ | 1.57 |
|
Diluted | $ | 0.90 |
| | $ | (2.08 | ) | | $ | 10.99 |
| | | $ | (0.65 | ) | | $ | 1.55 |
|
| | | | | | | | | | |
Weighted average shares of common stock outstanding (in thousands): | | | | | | | | | | |
Basic | 91,080 |
| | 91,012 |
| | 90,808 |
| | | 98,164 |
| | 98,046 |
|
Dilutive effect of stock awards | 117 |
| | — |
| | 345 |
| | | — |
| | 1,091 |
|
Dilutive effect of participating securities | 839 |
| | — |
| | 839 |
| | | — |
| | — |
|
Diluted | 92,036 |
| | 91,012 |
| | 91,992 |
| | | 98,164 |
| | 99,137 |
|
15.13. Income Taxes
The componentsfollowing table sets forth the computation of incomethe effective tax (benefit) expense were as follows:rate:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Income (loss) before income tax expense (benefit) | $ | 110 | | | $ | (117) | | | $ | (129) | | | $ | (350) | |
| | | | | | | |
Income tax expense (benefit) | $ | 37 | | | $ | (29) | | | $ | (31) | | | $ | (76) | |
| | | | | | | |
Effective tax rate(1) | 33.4 | % | | 24.6 | % | | 24.1 | % | | 21.7 | % |
(1)Effective tax rate is calculated using whole numbers.
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Income (loss) before income tax expense (benefit) | $ | 107 |
| | $ | (243 | ) | | $ | 41 |
| | | $ | (83 | ) | | $ | 202 |
|
| | | | | | | | | | |
Income tax expense (benefit) | $ | 24 |
| | $ | (52 | ) | | $ | (979 | ) | | | $ | (19 | ) | | $ | 48 |
|
| | | | | | | | | | |
Effective tax rate(1) | 22.3 | % | | 21.5 | % | | (2,377.1 | )% | | | 23.1 | % | | 23.8 | % |
| |
(1)
| Effective tax rate is calculated using whole numbers. |
For the three and ninesix months ended SeptemberJune 30, 2020, the effective tax rate differed from the statutory federal rate of 21% primarily due to state income taxes, as well as unfavorable permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m). The effective tax rate increased in the three and six months ended June 30, 2020, as compared to the same periods in 2019, primarily attributable to the increased relative unfavorable tax impacts of the permanent differences on the annual effective rate.
For the three and six months ended June 30, 2019, the effective tax rate differed from the statutory federal rate of 21% primarily due to permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m) and nondeductible meals and entertainment expenses, as well as other recurring items such as the state tax benefit.
For the two months ended September 30, 2018, the effective tax rate differed from the statutory federal rate of 21% primarily due to the reversal of the valuation allowance associated with the net operating loss (“NOL”) carryforwards of WMIH, permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m) and nondeductible meals and entertainment expenses.
For the one and seven months ended July 31, 2018 in the predecessor period, the effective tax rate differed slightly from the statutory federal rate of 21% primarily due to state tax provision, adjustments in connection with the remediation of the Predecessor’s uncertain tax position and various permanent differences, including nondeductible transaction costs in connection with the Merger.
16.14. Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).
The following describes the methods and assumptions used by the Company in estimating fair values:
Cash and Cash Equivalents, Restricted Cash (Level 1) – The carrying amount reported in the consolidated balance sheets approximates fair value.
Mortgage Loans Held for Sale (Level 2) – The Company originates mortgage loans in the U.S. that it intends to sell into Fannie Mae, Freddie Mac and Ginnie Mae (collectively, the “Agencies”) MBS. Additionally, the Company holds mortgage loans that it intends to sell into the secondary markets via whole loan sales or securitizations. The Company measures newly originated prime residential mortgage loans held for sale at fair value.
Mortgage loans held for sale are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate and credit quality. Mortgage loans held for sale are valued on a recurring basis using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Company classifies these valuations as Level 2 in the fair value disclosures.
The Company may acquire mortgage loans held for sale from various securitization trusts for which it acts as servicer through the exercise of various clean-up call options as permitted through the respective pooling and servicing agreements. The Company has elected to account for these loans at the lower of cost or market. The Company classifies these valuations as Level 2 in the fair value disclosures.
The Company may also purchase loans out of a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. The Company has elected to carry these loans at fair value. See Note 6, Mortgage Loans Held for Sale and Investment, for more information.
Mortgage Loans Held for Investment (Level 3) – Mortgage loans held for investment primarily consist of nonconforming or subprime mortgage loans that were transferred in 2009 from mortgage loans held for sale at fair value. The Company intends to hold these loans to their maturities. The Company determines the fair value of loans held for investment, on a recurring basis, based on various underlying attributes such as market participants’ views, loan delinquency, recent observable loan pricing and sales for similar loans, individual loan characteristics and internal market evaluation. These internal market evaluations require the use of judgment by the Company and can have a significant impact on the determination of the loan’s fair value. As these fair values are derived from internally developed valuation models, using observable inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 6, Mortgage Loans Held for Sale and Investment, for more information. As of September 30, 2019, the Company has no financial instruments classified as mortgage loans held for investment.
Mortgage Servicing Rights – Fair Value (Level 3) – The Company estimates the fair value of its forward MSRs on a recurring basis using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, discount rates, ancillary revenues, earnings on escrow and discount rates.costs to service. These assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency and coupon dispersion. These assumptions require the use of judgment by the Company and can have a significant impact on the fair value of the MSRs. Quarterly, management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal cash flow model. Because of the nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 3, Mortgage Servicing Rights and Related Liabilities, for more information.
Advances and Other Receivables, Net (Level 3) - Advances and other receivables, net are valued at their net realizable value after taking into consideration the reserves. Advances have no stated maturity. Their net realizable value approximates fair value as the net present value based on discounted cash flow is not materially different from the net realizable value. See Note 4, Advances and Other Receivables, Net for more information.
Reverse Mortgage Interests, Net (Level 3) – The Company’s reverse mortgage interests are primarily comprised of HECM loans that are insured by FHA and guaranteed by Ginnie Mae upon securitization. Quarterly, the Company estimates fair value using discounted cash flows, obtained from a third-party and supplemented with historical loss experience on similar assets, with the discount rate approximating that of similar financial instruments, as observed from recent trades withinwith the HMBS. Key assumptions within the model are based on market participant benchmarks and include discount rates, cost to service, weighted average life of the portfolio, and estimated participating income. Discounted cash flows are applied based on collateral stratifications and include loan rate type, loan status (active vs. inactive), and securitization. Prices are also influenced from both internal models and other observable inputs. The Company determined fair value for all loans based on the applicable tranches established during the Merger valuation. Tranches are segregated based on participation percentages, original loan status as of the Merger date, and interest rate types, and loan status (active vs inactive). Prices are also influenced from both internal models and other observable inputs, including applicable forward interest rate curves. Additionally, historical loss factors are considered within the overall valuation. Because of the unobservable nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 5, Reverse Mortgage Interests, Net for more information.
Derivative Financial Instruments (Level 3 and Level 2) –The Company enters into a variety of derivative financial instruments as part of its hedging strategy and measures these instruments at fair value on a recurring basis in the consolidated balance sheets. TheseDerivative instruments utilized by the Company primarily include IRLCs, LPCs, forward MBS trades, Eurodollar and Treasury futures and interest rate swap agreements.
During the three months ended June 30, 2020, the Company changed the fair value classification of its IRLCs and LPCs derivatives from Level 2 to Level 3. IRLCs and LPCs are carried at fair value primarily based on secondary market prices for underlying mortgage loans, which is observable data, with adjustments made to such observable data for the inherent value of servicing, which is an unobservable input. The fair value is also subject to adjustments for the estimated pull-through rate. The impact of the unobservable input to the overall valuation of IRLCs and LPCs was previously much less significant, resulting in a classification of Level 2 in the fair value hierarchy as of December 31, 2019. During the three months ended June 30,2020, market interest rates continued to decline and fell to record lows, which drove an increase in the volume of the Company’s IRLCs and LPCs and increased the impact of the unobservable input on the overall valuation of IRLCs and LPCs. Such increased impact of the unobservable input on the overall valuation resulted in a classification of Level 3 in the fair value hierarchy as of June 30, 2020.
For other derivatives, they are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 2. In addition, the Company enters into IRLCs and LPCs with prospective borrowers and other loan originators. These commitments are carried at fair value based on the fair value of underlying mortgage loans which are based on observable market data. The Company adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. IRLCs and LPCs are recorded in derivative financial instruments in the consolidated balance sheets. These commitments are classifiedclassifies these contracts as Level 2 in the fair value disclosures, as the valuations are based on market observable inputs. The Company has entered into Eurodollar futures contracts as part of its hedging strategy. The futures contracts are measured at fair value on a recurring basis and classified as Level 2 in the fair value disclosures as the valuation is based on market observable data. disclosure.
Derivative financial instruments are recorded in other assets and payables and other liabilities within the consolidated balance sheets. See Note 9, Derivative Financial Instruments,, for more information.
Advance Facilities and Warehouse Facilities (Level 2) – As the underlying warehouse and advance finance facilities bear interest at a rate that is periodically adjusted based on a market index, the carrying amount reported at amortized cost on the consolidated balance sheets approximates fair value. See Note 10,9, Indebtedness, for more information.
Unsecured Senior Notes (Level 1) – The fair value of unsecured senior notes, which are carried at amortized cost, is based on quoted market prices and is considered Level 1 from the market observable inputs used to determine fair value. See Note 10,9, Indebtedness, for more information.
Nonrecourse Debt – Legacy Assets (Level 3) – The Company estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. These prices are derived from a combination of internally developed valuation models and quoted market prices, and are classified as Level 3. See Note 10, Indebtedness, for more information.
Excess Spread Financing (Level 3) – The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, average life, recapture rates and discount rate. As these prices are derived from a combination of internally developed valuation models and quoted market prices based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. Excess spread financing is recorded in MSR related liabilities within the consolidated balance sheets. See Note 3, Mortgage Servicing Rights and Related Liabilities, for more information.
Mortgage Servicing Rights Financing Liability (Level 3) - The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being advance financing rates and annual advance recovery rates. As these assumptions are derived from internally developed valuation models based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. Mortgage servicing rights financing liability is recorded in MSR related liabilities within the consolidated balance sheets. See Note 3, Mortgage Servicing Rights and Related Liabilities, for more information.
Participating Interest Financing (Level 3) – The Company estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating that of similar financial instruments. As the prices are derived from both internal models and other observable inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. Participating interest financing is recorded in other nonrecourse debt within the consolidated balance sheets. See Note 5, Reverse Mortgage Interests, Net, and Note 10,9, Indebtedness, for more information.
HECM Securitizations (Level 3) – The Company estimates fair value using a market approach by utilizing the fair value of executed HECM securitizations. Since the executed HECM securitizations are private placements, the Company classifies these valuations as Level 3 in the fair value disclosures. HECM securitizations are recorded at amortized cost in other nonrecourse debt within the consolidated balance sheets. See Note 10,9, Indebtedness, for more information.
The following table presentstables present the estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis.basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | |
| | | Recurring Fair Value Measurements | | | | |
Fair value - Recurring basis | Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Mortgage loans held for sale | $ | 3,179 | | | $ | — | | | $ | 3,179 | | | $ | — | |
Forward mortgage servicing rights | 2,757 | | | — | | | — | | | 2,757 | |
Derivative financial instruments | | | | | | | |
IRLCs | 370 | | | — | | | — | | | 370 | |
Forward MBS trades | 3 | | | — | | | 3 | | | — | |
LPCs | 18 | | | — | | | — | | | 18 | |
Total assets | $ | 6,327 | | | $ | — | | | $ | 3,182 | | | $ | 3,145 | |
Liabilities | | | | | | | |
Derivative financial instruments | | | | | | | |
Forward MBS trades | $ | 50 | | | $ | — | | | $ | 50 | | | $ | — | |
| | | | | | | |
Mortgage servicing rights financing | 49 | | | — | | | — | | | 49 | |
Excess spread financing | 1,124 | | | — | | | — | | | 1,124 | |
Total liabilities | $ | 1,223 | | | $ | — | | | $ | 50 | | | $ | 1,173 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | | | | | |
| | | Recurring Fair Value Measurements | | | | |
Fair value - Recurring basis | Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Mortgage loans held for sale | $ | 4,077 | | | $ | — | | | $ | 4,077 | | | $ | — | |
Forward mortgage servicing rights | 3,496 | | | — | | | — | | | 3,496 | |
Derivative financial instruments | | | | | | | |
IRLCs | 135 | | | — | | | 135 | | | — | |
Forward MBS trades | 7 | | | — | | | 7 | | | — | |
LPCs | 12 | | | — | | | 12 | | | — | |
Total assets | $ | 7,727 | | | $ | — | | | $ | 4,231 | | | $ | 3,496 | |
Liabilities | | | | | | | |
Derivative financial instruments | | | | | | | |
Forward MBS trades | $ | 12 | | | $ | — | | | $ | 12 | | | $ | — | |
LPCs | 3 | | | — | | | 3 | | | — | |
Mortgage servicing rights financing | 37 | | | — | | | — | | | 37 | |
Excess spread financing | 1,311 | | | — | | | — | | | 1,311 | |
Total liabilities | $ | 1,363 | | | $ | — | | | $ | 15 | | | $ | 1,348 | |
|
| | | | | | | | | | | | | | | |
| Successor |
| September 30, 2019 |
| | | Recurring Fair Value Measurements |
| Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Mortgage loans held for sale | $ | 4,267.2 |
| | $ | — |
| | $ | 4,267.2 |
| | $ | — |
|
Forward mortgage servicing rights | 3,338.5 |
| | — |
| | — |
| | 3,338.5 |
|
Derivative financial instruments | | | | | | | |
IRLCs | 143.9 |
| | — |
| | 143.9 |
| | — |
|
Forward MBS trades | 7.7 |
| | — |
| | 7.7 |
| | — |
|
LPCs | 18.2 |
| | — |
| | 18.2 |
| | — |
|
Eurodollar futures(1) | — |
| | — |
| | — |
| | — |
|
Total assets | $ | 7,775.5 |
| | $ | — |
| | $ | 4,437.0 |
| | $ | 3,338.5 |
|
Liabilities | | | | | | | |
Derivative financial instruments | | | | | | | |
IRLCs(1) | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Forward MBS trades | 15.9 |
| | — |
| | 15.9 |
| | — |
|
LPCs | 3.1 |
| | — |
| | 3.1 |
| | — |
|
Eurodollar futures(1) | — |
| | — |
| | — |
| | — |
|
Mortgage servicing rights financing | 46.9 |
| | — |
| | — |
| | 46.9 |
|
Excess spread financing | 1,280.8 |
| | — |
| | — |
| | 1,280.8 |
|
Total liabilities | $ | 1,346.7 |
| | $ | — |
| | $ | 19.0 |
| | $ | 1,327.7 |
|
|
| | | | | | | | | | | | | | | |
| Successor |
| December 31, 2018 |
| | | Recurring Fair Value Measurements |
| Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Mortgage loans held for sale | $ | 1,630.8 |
| | $ | — |
| | $ | 1,630.8 |
| | $ | — |
|
Mortgage loans held for investment | 119.1 |
| | — |
| | — |
| | 119.1 |
|
Forward mortgage servicing rights | 3,665.4 |
| | — |
| | — |
| | 3,665.4 |
|
Derivative financial instruments | | | | | | | |
IRLCs | 47.6 |
| | — |
| | 47.6 |
| | — |
|
Forward MBS trades | 0.1 |
| | — |
| | 0.1 |
| | — |
|
LPCs | 1.7 |
| | — |
| | 1.7 |
| | — |
|
Eurodollar futures(1) | — |
| | — |
| | — |
| | — |
|
Total assets | $ | 5,464.7 |
| | $ | — |
| | $ | 1,680.2 |
| | $ | 3,784.5 |
|
Liabilities | | | | | | | |
Derivative financial instruments | | | | | | | |
Forward MBS trades | $ | 19.3 |
| | $ | — |
| | $ | 19.3 |
| | $ | — |
|
LPCs | 0.4 |
| | — |
| | 0.4 |
| | — |
|
Eurodollar futures(1) | — |
| | — |
| | — |
| | — |
|
Mortgage servicing rights financing | 31.7 |
| | — |
| | — |
| | 31.7 |
|
Excess spread financing | 1,184.4 |
| | — |
| | — |
| | 1,184.4 |
|
Total liabilities | $ | 1,235.8 |
| | $ | — |
| | $ | 19.7 |
| | $ | 1,216.1 |
|
| |
(1)
| Fair values of the underlying assets and liabilities are less than $0.1 for the specified dates. |
The tabletables below presentspresent a reconciliation for all of the Company and Predecessor’sCompany’s Level 3 assets and liabilities measured at fair value on a recurring basis.basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | |
| Assets | | | | Liabilities | | |
Fair value - Level 3 assets and liabilities | Forward mortgage servicing rights | | IRLCs | | Excess spread financing | | Mortgage servicing rights financing |
Balance - beginning of period | $ | 3,496 | | | $ | 135 | | | $ | 1,311 | | | $ | 37 | |
Total gains or losses included in earnings | (1,012) | | | 235 | | | (101) | | | 12 | |
| | | | | | | |
Purchases, issuances, sales, repayments and settlements | | | | | | | |
Purchases | 24 | | | — | | | — | | | — | |
Issuances | 249 | | | — | | | 24 | | | — | |
| | | | | | | |
Settlements and repayments | — | | | — | | | (110) | | | — | |
Balance - end of period | $ | 2,757 | | | $ | 370 | | | $ | 1,124 | | | $ | 49 | |
|
| | | | | | | | | | | | | | | |
| Successor |
| Assets | | Liabilities |
Nine Months Ended September 30, 2019 | Mortgage servicing rights | | Mortgage loans held for investment | | Excess spread financing | | Mortgage servicing rights financing |
Balance - beginning of period | $ | 3,665 |
| | $ | 119 |
| | $ | 1,184 |
| | $ | 32 |
|
Total gains or losses included in earnings | (1,039 | ) | | 3 |
| | (190 | ) | | 15 |
|
Payments received from borrowers | — |
| | (11 | ) | | — |
| | — |
|
Purchases, issuances, sales, repayments and settlements | | | | | | | |
Purchases | 732 |
| | — |
| | — |
| | — |
|
Issuances | 298 |
| | — |
| | 469 |
| | — |
|
Sales | (317 | ) | | (94 | ) | | — |
| | — |
|
Repayments | — |
| | — |
| | (19 | ) | | — |
|
Settlements | — |
| | — |
| | (163 | ) | | — |
|
Transfers to mortgage loans held for sale | — |
| | (12 | ) | | — |
| | — |
|
Transfers to real estate owned | — |
| | (5 | ) | | — |
| | — |
|
Balance - end of period | $ | 3,339 |
| | $ | — |
| | $ | 1,281 |
| | $ | 47 |
|
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | |
| Assets | | | | Liabilities | | |
Fair value - Level 3 assets and liabilities | Forward mortgage servicing rights | | | | Excess spread financing | | Mortgage servicing rights financing |
Balance - beginning of period | $ | 3,665 | | | | | $ | 1,184 | | | $ | 32 | |
Total gains or losses included in earnings | (724) | | | | | (74) | | | 11 | |
| | | | | | | |
Purchases, issuances, sales, repayments and settlements | | | | | | | |
Purchases | 689 | | | | | — | | | — | |
Issuances | 169 | | | | | 438 | | | — | |
Sales | (294) | | | | | — | | | — | |
Settlements and repayments | — | | | | | (119) | | | — | |
Balance - end of period | $ | 3,505 | | | | | $ | 1,429 | | | $ | 43 | |
|
| | | | | | | | | | | | | | | |
| Successor |
| Assets | | Liabilities |
Two Months Ended September 30, 2018 | Mortgage servicing rights | | Mortgage loans held for investment | | Excess spread financing | | Mortgage servicing rights financing |
Balance - beginning of period | $ | 3,413 |
| | $ | 125 |
| | $ | 1,039 |
| | $ | 26 |
|
Total gains or losses included in earnings | 20 |
| | (1 | ) | | 26 |
| | — |
|
Payments received from borrowers | — |
| | (2 | ) | | — |
| | — |
|
Purchases, issuances, sales, repayments and settlements | | | | | | | |
Purchases | 72 |
| | — |
| | — |
| | — |
|
Issuances | 43 |
| | — |
| | 84 |
| | — |
|
Sales | (63 | ) | | — |
| | — |
| | — |
|
Repayments | — |
| | — |
| | (21 | ) | | — |
|
Settlements | — |
| | — |
| | (31 | ) | | — |
|
Balance - end of period | $ | 3,485 |
| | $ | 122 |
| | $ | 1,097 |
| | $ | 26 |
|
|
| | | | | | | | | | | |
| Predecessor |
| Assets | | Liabilities |
Seven Months Ended July 31, 2018 | Mortgage servicing rights | | Excess spread financing | | Mortgage servicing rights financing |
Balance - beginning of period | $ | 2,937 |
| | $ | 996 |
| | $ | 10 |
|
Total gains or losses included in earnings | 166 |
| | 81 |
| | 16 |
|
Purchases, issuances, sales, repayments and settlements | | | | | |
Purchases | 144 |
| | — |
| | — |
|
Issuances | 162 |
| | 70 |
| | — |
|
Sales | 4 |
| | — |
| | — |
|
Repayments | — |
| | (3 | ) | | — |
|
Settlements | — |
| | (105 | ) | | — |
|
Balance - end of period | $ | 3,413 |
| | $ | 1,039 |
| | $ | 26 |
|
No transfers were made into Level 3 fair value assetsAs of June 30, 2020 and liabilities forDecember 31, 2019, the Company for the nine months ended September 30, 2019, two months ended September 30, 2018, and the Predecessor for the seven months ended July 31, 2018. During the nine months ended September 30, 2019, $12 was transferred fromhad 0 mortgage loans held for investment a Level 3 fair value asset, toas the related portfolio was sold in September 2019. During the six months ended June 30, 2019, the Company had an immaterial change in mortgage loans held for sale, a Level 2 fair value asset,investment.
As of June 30, 2020 and December 31, 2019, the Company had LPCs assets of $18 and $12, respectively. The Company had less than $1 LPCs liabilities as of June 30, 2020 and LPCs liabilities of $3 as of December 31, 2019. During the six months ended June 30, 2020, the Company had an immaterial change in connection with the collapse of Trust 2009-A, the Company’s legacy portfolio,LPCs assets and sale of the loans held in the trust. Refer to Note 6, Mortgage Loans Held for Sale and Investment for further information. liabilities.
No transfers were made in or out of Level 3 fair value assets and liabilities for the Company for the twosix months ended SeptemberJune 30, 20182020 and 2019, with the Predecessorexception of the change in classification for IRLCs of $370 and LPCs of $18 from Level 2 fair value assets to Level 3 fair value assets during the seventhree months ended July 31, 2018.June 30, 2020.
The tabletables below presentspresent a summary of the estimated carrying amount and fair value of the Company’s financial instruments.instruments:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | |
| Carrying Amount | | Fair Value | | | | |
Financial instruments | | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | |
Cash and cash equivalents | $ | 1,041 | | | $ | 1,041 | | | $ | — | | | $ | — | |
Restricted cash | 260 | | | 260 | | | — | | | — | |
Advances and other receivables, net | 668 | | | — | | | — | | | 668 | |
Reverse mortgage interests, net | 5,709 | | | — | | | — | | | 5,736 | |
Mortgage loans held for sale | 3,179 | | | — | | | 3,179 | | | — | |
Derivative financial instruments | 391 | | | — | | | 3 | | | 388 | |
Financial liabilities | | | | | | | |
Unsecured senior notes(1) | 2,261 | | | 2,307 | | | — | | | — | |
Advance facilities(1) | 475 | | | — | | | 475 | | | — | |
Warehouse facilities(1) | 4,031 | | | — | | | 4,031 | | | — | |
Mortgage servicing rights financing liability | 49 | | | — | | | — | | | 49 | |
Excess spread financing | 1,124 | | | — | | | — | | | 1,124 | |
Derivative financial instruments | 50 | | | — | | | 50 | | | — | |
Participating interest financing(1) | 3,886 | | | — | | | — | | | 3,857 | |
HECM Securitization (HMBS)(1) | | | | | | | |
Trust 2019-2 | 272 | | | — | | | — | | | 272 | |
Trust 2019-1 | 243 | | | — | | | — | | | 243 | |
Trust 2018-3 | 179 | | | — | | | — | | | 179 | |
Trust 2018-2 | 127 | | | — | | | — | | | 127 | |
(1)The amounts are presented net of unamortized debt issuance costs, premium and discount.
| | | | | | | | | | | | December 31, 2019 | |
| Successor | | Carrying Amount | | Fair Value | |
| September 30, 2019 | |
| Carrying Amount | | Fair Value | |
| Level 1 | | Level 2 | | Level 3 | |
Financial instruments | | Financial instruments | Carrying Amount | | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | | Financial assets | | | | | |
Cash and cash equivalents | $ | 371 |
| | $ | 371 |
| | $ | — |
| | $ | — |
| Cash and cash equivalents | $ | 329 | | | $ | 329 | | | $ | — | | | $ | — | |
Restricted cash | 271 |
| | 271 |
| | — |
| | — |
| Restricted cash | 283 | | | 283 | | | — | | | — | |
Advances and other receivables, net | 967 |
| | — |
| | — |
| | 967 |
| Advances and other receivables, net | 988 | | | — | | | — | | | 988 | |
Reverse mortgage interests, net | 6,662 |
| | — |
| | — |
| | 6,726 |
| Reverse mortgage interests, net | 6,279 | | | — | | | — | | | 6,318 | |
Mortgage loans held for sale | 4,267 |
| | — |
| | 4,267 |
| | — |
| Mortgage loans held for sale | 4,077 | | | — | | | 4,077 | | | — | |
| Derivative financial instruments | 170 |
| | — |
| | 170 |
| | — |
| Derivative financial instruments | 153 | | | — | | | 153 | | | — | |
Financial liabilities | | | | | | | | Financial liabilities | |
Unsecured senior notes | 2,464 |
| | 2,592 |
| | — |
| | — |
| |
Advance facilities | 513 |
| | — |
| | 513 |
| | — |
| |
Warehouse facilities | 4,802 |
| | — |
| | 4,802 |
| | — |
| |
Unsecured senior notes(1) | | Unsecured senior notes(1) | 2,366 | | | 2,505 | | | — | | | — | |
Advance facilities(1) | | Advance facilities(1) | 422 | | | — | | | 422 | | | — | |
Warehouse facilities(1) | | Warehouse facilities(1) | 4,575 | | | — | | | 4,575 | | | — | |
Mortgage servicing rights financing liability | 47 |
| | — |
| | — |
| | 47 |
| Mortgage servicing rights financing liability | 37 | | | — | | | — | | | 37 | |
Excess spread financing | 1,281 |
| | — |
| | — |
| | 1,281 |
| Excess spread financing | 1,311 | | | — | | | — | | | 1,311 | |
Derivative financial instruments | 19 |
| | — |
| | 19 |
| | — |
| Derivative financial instruments | 15 | | | — | | | 15 | | | — | |
Participating interest financing | 4,593 |
| | — |
| | — |
| | 4,590 |
| |
HECM Securitization (HMBS) | | | | | | | | |
Trust 2018-1 | 201 |
| | — |
| | — |
| | 201 |
| |
Participating interest financing(1) | | Participating interest financing(1) | 4,299 | | | — | | | — | | | 4,299 | |
HECM Securitization (HMBS)(1) | | HECM Securitization (HMBS)(1) | |
Trust 2019-2 | | Trust 2019-2 | 331 | | | — | | | — | | | 331 | |
Trust 2019-1 | | Trust 2019-1 | 300 | | | — | | | — | | | 300 | |
Trust 2018-3 | | Trust 2018-3 | 208 | | | — | | | — | | | 208 | |
Trust 2018-2 | 161 |
| | — |
| | — |
| | 161 |
| Trust 2018-2 | 148 | | | — | | | — | | | 148 | |
Trust 2018-3 | 239 |
| | — |
| | — |
| | 239 |
| |
Trust 2019-1 | 339 |
| | — |
| | — |
| | 339 |
| |
(1)The amounts are presented net of unamortized debt issuance costs, premium and discount.
|
| | | | | | | | | | | | | | | |
| Successor |
| December 31, 2018 |
| Carrying Amount | | Fair Value |
| Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | |
Cash and cash equivalents | $ | 242 |
| | $ | 242 |
| | $ | — |
| | $ | — |
|
Restricted cash | 319 |
| | 319 |
| | — |
| | — |
|
Advances and other receivables, net | 1,194 |
| | — |
| | — |
| | 1,194 |
|
Reverse mortgage interests, net | 7,934 |
| | — |
| | — |
| | 7,934 |
|
Mortgage loans held for sale | 1,631 |
| | — |
| | 1,631 |
| | — |
|
Mortgage loans held for investment | 119 |
| | — |
| | — |
| | 119 |
|
Derivative financial instruments | 49 |
| | — |
| | 49 |
| | — |
|
Financial liabilities | | | | | | | |
Unsecured senior notes | 2,459 |
| | 2,451 |
| | — |
| | — |
|
Advance facilities | 595 |
| | — |
| | 595 |
| | — |
|
Warehouse facilities | 2,349 |
| | — |
| | 2,349 |
| | — |
|
Mortgage servicing rights financing liability | 32 |
| | — |
| | — |
| | 32 |
|
Excess spread financing | 1,184 |
| | — |
| | — |
| | 1,184 |
|
Derivative financial instruments | 20 |
| | — |
| | 20 |
| | — |
|
Participating interest financing | 5,675 |
| | — |
| | — |
| | 5,672 |
|
HECM Securitization (HMBS) | | | | | | | |
Trust 2017-2 | 231 |
| | — |
| | — |
| | 230 |
|
Trust 2018-1 | 284 |
| | — |
| | — |
| | 284 |
|
Trust 2018-2 | 250 |
| | — |
| | — |
| | 249 |
|
Trust 2018-3 | 326 |
| | — |
| | — |
| | 326 |
|
Nonrecourse debt - legacy assets | 29 |
| | — |
| | — |
| | 28 |
|
17.15. Capital Requirements
Certain of the Company’s secondary market investors require minimum net worth (“capital”) requirements, as specified in the respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated requirements to approve large servicing transfers. To the extent that these requirements are not met, the Company’s secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of the Company’s selling and servicing agreements, which would prohibit the Company from further originating or securitizing these specific types of mortgage loans or being an approved servicer.
Among the The Company’s various capital requirements related to its outstanding selling and servicing agreements which are measured based on the Company’s operating subsidiary, Nationstar Mortgage LLC, the most restrictive of these requires the Company to maintain a minimum adjusted net worth of $823.LLC. As of SeptemberJune 30, 2019,2020, the Company was in compliance with its selling and servicing capital requirements.
18.
16. Commitments and Contingencies
Litigation and Regulatory
The Company and its subsidiaries are routinely and currently involved in a significant number of legal proceedings, including, but not limited to, judicial, arbitration, regulatory and governmental proceedings related to matters that arise in connection with the conduct of the Company’s business. The legal proceedings are at varying stages of adjudication, arbitration or investigation and are generally based on alleged violations of consumer protection, securities, employment, contract, tort, common law fraud and other numerous laws, including, without limitation, the Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, National Housing Act, Homeowners Protection Act, Service Member’s Civil Relief Act, Telephone Consumer Protection Act, Truth in Lending Act, Financial Institutions Reform, Recovery, and Enforcement Act of 1989, unfair, deceptive or abusive acts or practices in violation of the Dodd-Frank Act, the Securities Act of 1933, the Securities Exchange Act of 1934, the Home Mortgage Disclosure Act, Title 11 of the United States Code (aka the “Bankruptcy Code”), False Claims Act and Making Home Affordable loan modification programs.
In addition, along with others in its industry, the Company is subject to repurchase and indemnification claims and may continue to receive claims in the future, regarding alleged breaches of representations and warranties relating to the sale of mortgage loans, the placement of mortgage loans into securitization trusts or the servicing of mortgage loans securitizations. The Company is also subject to legal actions or proceedings related to loss sharing and indemnification provisions of its various acquisitions. Certain of the pending or threatened legal proceedings include claims for substantial compensatory, punitive and/or statutory damages or claims for an indeterminate amount of damages.
The Company’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. The Company is cooperating fully in these matters. Responding to these matters requires the Company to devote substantial resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase the Company’s operating expenses and reduce its revenues, require it to change business practices and limit its ability to grow and otherwise materially and adversely affect its business, reputation, financial condition or results of operation.
For example,In particular, as previously disclosed, the Company continues to progress towards resolution of certain legacy regulatory matters involvingwith (i) the CFPB, (ii) the multi-state committee of mortgage banking regulators and various State Attorneys General and (iii) the Executive Office of the United States Trustee, all of which involve examination findings in prior years for alleged violations of certain laws related to the Company’s business practices. The Company believes that it has beenreached a settlement in discussionsprinciple to resolve these matters with the multi-state committeeeach of mortgage banking regulators and various State Attorneys General concerning a potential resolution of their investigations. The Company is continuing to cooperate with allthese parties. In connection with these discussions,Accordingly, the Company previouslyhas recorded an accrual. These discussions may not result in a settlement ofadditional accrual during the matter; furthermore, any such settlement may exceed the amount accrued as of Septemberthree months ended June 30, 2019. 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 September 30, 2019 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 restitution2020 in addition to the remediation activities, which could have a material adverse effect on the Company’s business, reputation, financial conditionamounts previously accrued and results of operations. However, the Company believes that 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. has fully accrued for these matters.
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. On October 23, 2019, the Company reached an agreement in principle to settle 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 principle to settle this matter, and on August 21, 2019, the court approved the settlement agreement.
The Company seeks to resolve all legal proceedings and other matters in the manner management believes is in the best interest of the Company and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. The Company has entered into agreements with a number of entities and regulatory agencies that toll applicable limitations periods with respect to their claims.
On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal and regulatory and governmental proceedings utilizing the latest information available. Where available information indicates that it is probable, a liability has been incurred, and the Company can reasonably estimate the amount of the loss, an accrued liability is established. The actual costs of resolving these proceedings may be substantially higher or lower than the amounts accrued.
As a legal matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company will establish an accrued liability and record a corresponding amount to legal-related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Legal-related expense for the Company, which includes legal settlements and the fees paid to external legal service providers, of $24$12 and $56$27 for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively and $5$21 and $32 for the twothree and six months ended SeptemberJune 30, 2018, was included in general and administrative expenses on the consolidated statements of operations. Legal-related expense for the Predecessor of $33 and $40 for the one and seven months ended July 31, 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 $20$2 to $57$18 in excess of the accrued liability (if any) related to those matters as of SeptemberJune 30, 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 SeptemberJune 30, 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.
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 9,8, Derivative Financial Instruments, for more information.
The Company had certain reverse MSRs, reverse MSLs and reverse mortgage loans related to approximately $23,990$20,758 and $28,415$22,725 of UPB in reverse mortgage loans as of SeptemberJune 30, 20192020 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 SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company’s maximum unfunded advance obligation to fund borrower draws related to these reverse MSRs and loans was approximately $2,741$2,408 and $3,128,$2,617, respectively. Upon funding any portion of these draws, the Company expects to securitize and sell the advances in transactions that will be accounted for as secured borrowings.
19.17. Business Segment Reporting
Upon consummation of the Merger with Nationstar, the Company has identified four reportable segments: Servicing, Originations, Xome and Corporate/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.
In the second quarter of 2020, the Company updated its presentation of segment assets to be aligned with a change in the reporting package provided to the Chief Operating Decision Maker. The presentation change had no impact on the segments' operations. Assets allocated to the Servicing segment include MSRs; advances and other receivables, except for co-issue MSR holdback; Servicing related mortgage loans held for sale; and other assets including property, plant and equipment, lease-related assets, prepaid assets, and goodwill. Assets allocated to Originations segment include co-issue MSR holdback in advances and other receivables; Originations related mortgage loans held for sale; derivative assets; and other assets including property, plant and equipment, lease-related assets, prepaid assets, and goodwill. Assets allocated to the Xome segment include cash and cash equivalents; tax-related assets; receivables; and other assets including property, plant and equipment, lease-related assets, prepaid assets, goodwill, and other intangible assets. All assets that are not specifically identified or allocated to a reporting segment are reported as part of Corporate/Other segment, and include cash and cash equivalents; tax-related assets; and intangibles assets excluding goodwill and assets allocated to Xome. Eliminations are also included in Corporate/Other segment. Prior year financial information has been adjusted retrospectively to reflect the updated presentation.
The following tables present financial information by segment.segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | | | |
Financial information by segment | Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (114) | | | $ | 21 | | | $ | 106 | | | $ | (1) | | | $ | 12 | |
Net gain on mortgage loans held for sale | 45 | | | 573 | | | — | | | — | | | 618 | |
Total revenues | (69) | | | 594 | | | 106 | | | (1) | | | 630 | |
Total expenses | 122 | | | 167 | | | 95 | | | 35 | | | 419 | |
Interest income | 57 | | | 19 | | | — | | | — | | | 76 | |
Interest expense | (117) | | | (13) | | | — | | | (47) | | | (177) | |
Other income (expenses), net | — | | | — | | | 1 | | | (1) | | | — | |
Total other (expenses) income, net | (60) | | | 6 | | | 1 | | | (48) | | | (101) | |
(Loss) income before income tax (benefit) expense | $ | (251) | | | $ | 433 | | | $ | 12 | | | $ | (84) | | | $ | 110 | |
Depreciation and amortization for property and equipment and intangible assets | $ | 5 | | | $ | 4 | | | $ | 3 | | | $ | 6 | | | $ | 18 | |
Total assets | $ | 10,736 | | | $ | 3,592 | | | $ | 135 | | | $ | 2,837 | | | $ | 17,300 | |
| | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2019 | |
| Successor | |
| Three Months Ended September 30, 2019 | |
| Servicing | | Originations | | Xome | | Elimination/ Reclassification(1) | | Total Operating Segments | | Corporate/Other | | Consolidated | |
Financial information by segment | | Financial information by segment | Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | | | | | | Revenues | | | | | | | | | |
Service related, net | $ | 163 |
| | $ | 22 |
| | $ | 112 |
| | $ | (39 | ) | | $ | 258 |
| | $ | — |
| | $ | 258 |
| Service related, net | $ | 9 | | | $ | 20 | | | $ | 108 | | | $ | — | | | $ | 137 | |
Net gain on mortgage loans held for sale | — |
| | 312 |
| | — |
| | 37 |
| | 349 |
| | 11 |
| | 360 |
| Net gain on mortgage loans held for sale | 18 | | | 244 | | | — | | | — | | | 262 | |
Total revenues | 163 |
| | 334 |
| | 112 |
| | (2 | ) | | 607 |
| | 11 |
| | 618 |
| Total revenues | 27 | | | 264 | | | 108 | | | — | | | 399 | |
Total Expenses | 171 |
| | 155 |
| | 101 |
| | (2 | ) | | 425 |
| | 53 |
| | 478 |
| |
Other income (expenses) |
| |
| |
| |
| | | |
| |
| |
Total expenses | | Total expenses | 189 | | | 145 | | | 101 | | | 57 | | | 492 | |
Interest income | 137 |
| | 24 |
| | — |
| | — |
| | 161 |
| | 2 |
| | 163 |
| Interest income | 136 | | | 23 | | | — | | | 3 | | | 162 | |
Interest expense | (120 | ) | | (24 | ) | | — |
| | — |
| | (144 | ) | | (52 | ) | | (196 | ) | Interest expense | (109) | | | (25) | | | — | | | (53) | | | (187) | |
Other | — |
| | (1 | ) | | 3 |
| | — |
| | 2 |
| | (2 | ) | | — |
| |
Total Other Income (Expenses), Net | 17 |
| | (1 | ) | | 3 |
| | — |
| | 19 |
| | (52 | ) | | (33 | ) | |
Income (loss) before income tax expense (benefit) | $ | 9 |
| | $ | 178 |
| | $ | 14 |
| | $ | — |
| | $ | 201 |
| | $ | (94 | ) | | $ | 107 |
| |
Other income, net | | Other income, net | — | | | 1 | | | — | | | — | | | 1 | |
Total other income (expenses), net | | Total other income (expenses), net | 27 | | | (1) | | | — | | | (50) | | | (24) | |
(Loss) income before income tax (benefit) expense | | (Loss) income before income tax (benefit) expense | $ | (135) | | | $ | 118 | | | $ | 7 | | | $ | (107) | | | $ | (117) | |
Depreciation and amortization for property and equipment and intangible assets | $ | 5 |
| | $ | 4 |
| | $ | 4 |
| | $ | — |
| | $ | 13 |
| | $ | 9 |
| | $ | 22 |
| Depreciation and amortization for property and equipment and intangible assets | $ | 4 | | | $ | 6 | | | $ | 3 | | | $ | 11 | | | $ | 24 | |
Total assets | $ | 12,049 |
| | $ | 8,450 |
| | $ | 515 |
| | $ | (4,650 | ) | | $ | 16,364 |
| | $ | 2,114 |
| | $ | 18,478 |
| Total assets | $ | 12,906 | | | $ | 3,462 | | | $ | 112 | | | $ | 1,925 | | | $ | 18,405 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | | | |
Financial information by segment | Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (294) | | | $ | 41 | | | $ | 212 | | | $ | — | | | $ | (41) | |
Net gain on mortgage loans held for sale | 79 | | | 870 | | | — | | | — | | | 949 | |
Total revenues | (215) | | | 911 | | | 212 | | | — | | | 908 | |
Total expenses | 271 | | | 333 | | | 191 | | | 68 | | | 863 | |
Interest income | 140 | | | 53 | | | — | | | 1 | | | 194 | |
Interest expense | (230) | | | (40) | | | — | | | (99) | | | (369) | |
Other income (expense), net | — | | | — | | | 2 | | | (1) | | | 1 | |
Total other (expenses) income, net | (90) | | | 13 | | | 2 | | | (99) | | | (174) | |
(Loss) income before income tax (benefit) expense | $ | (576) | | | $ | 591 | | | $ | 23 | | | $ | (167) | | | $ | (129) | |
Depreciation and amortization for property and equipment and intangible assets | $ | 8 | | | $ | 7 | | | $ | 6 | | | $ | 16 | | | $ | 37 | |
Total assets | $ | 10,736 | | | $ | 3,592 | | | $ | 135 | | | $ | 2,837 | | | $ | 17,300 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | | | |
Financial information by segment | Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (18) | | | $ | 35 | | | $ | 204 | | | $ | — | | | $ | 221 | |
Net gain on mortgage loans held for sale | 53 | | | 375 | | | — | | | — | | | 428 | |
Total revenues | 35 | | | 410 | | | 204 | | | — | | | 649 | |
Total expenses | 384 | | | 249 | | | 200 | | | 102 | | | 935 | |
Interest income | 251 | | | 40 | | | — | | | 5 | | | 296 | |
Interest expense | (223) | | | (43) | | | — | | | (110) | | | (376) | |
Other income, net | — | | | 5 | | | 11 | | | — | | | 16 | |
Total other income (expenses), net | 28 | | | 2 | | | 11 | | | (105) | | | (64) | |
(Loss) income before income tax (benefit) expense | $ | (321) | | | $ | 163 | | | $ | 15 | | | $ | (207) | | | $ | (350) | |
Depreciation and amortization for property and equipment and intangible assets | $ | 8 | | | $ | 9 | | | $ | 7 | | | $ | 21 | | | $ | 45 | |
Total assets | $ | 12,906 | | | $ | 3,462 | | | $ | 112 | | | $ | 1,925 | | | $ | 18,405 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Two Months Ended September 30, 2018 |
| Servicing | | Originations | | Xome | | Elimination/ Reclassification(1) | | Total Operating Segments | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | | | | | |
Service related, net | $ | 183 |
| | $ | 10 |
| | $ | 73 |
| | $ | (7 | ) | | $ | 259 |
| | $ | — |
| | $ | 259 |
|
Net gain on mortgage loans held for sale | — |
| | 76 |
| | — |
| | 7 |
| | 83 |
| | — |
| | 83 |
|
Total revenues | 183 |
| | 86 |
| | 73 |
| | — |
| | 342 |
| | — |
| | 342 |
|
Total Expenses | 104 |
| | 66 |
| | 71 |
| | — |
| | 241 |
| | 34 |
| | 275 |
|
Other income (expenses) | | | | | | | | | | | | | |
Interest income | 78 |
| | 10 |
| | — |
| | — |
| | 88 |
| | 2 |
| | 90 |
|
Interest expense | (74 | ) | | (10 | ) | | (1 | ) | | — |
| | (85 | ) | | (37 | ) | | (122 | ) |
Other | 5 |
| | 1 |
| | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Total Other Income (Expenses), Net | 9 |
| | 1 |
| | (1 | ) | | — |
| | 9 |
| | (35 | ) | | (26 | ) |
Income (loss) before income tax expense (benefit) | $ | 88 |
| | $ | 21 |
| | $ | 1 |
| | $ | — |
| | $ | 110 |
| | $ | (69 | ) | | $ | 41 |
|
Depreciation and amortization for property and equipment and intangible assets | $ | 4 |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | 8 |
| | $ | 7 |
| | $ | 15 |
|
Total assets | $ | 14,166 |
| | $ | 4,892 |
| | $ | 457 |
| | $ | (3,532 | ) | | $ | 15,983 |
| | $ | 1,745 |
| | $ | 17,728 |
|
CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, core initiatives, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts, including the projected impact of COVID-19 on our business, financial performance and operating results. When used in this discussion, the words “anticipate,” “appears,” “believe,” “foresee,” “intend,” “should,” “expect,” “estimate,” “project,” “plan,” “may,” “could,” “will,” “are likely” and similar expressions are intended to identify forward-looking statements. These statements involve predictions of our future financial condition, performance, plans and strategies and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or incorrect. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances, and we are under no obligation to, and express disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
A number of important factors exist that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to:
•the severity and duration of the COVID-19 pandemic; the pandemic’s impact on the U.S. and global economies; and federal, state and local governmental responses to the pandemic
•our ability to maintain or grow the size of our servicing portfolio;
•our ability to maintain or grow our originations volume and profitability;
•our ability to recapture voluntary prepayments related to our existing servicing portfolio;
•our shift in the mix of our servicing portfolio to subservicing, which is highly concentrated;
•delays in our ability to collect or be reimbursed for servicing advances;
•our ability to obtain sufficient liquidity and capital to operate our business;
•changes in prevailing interest rates;
•our ability to finance and recover costs of our reverse servicing operations;
•our ability to successfully implement our strategic initiatives;
•our ability to realize anticipated benefits of our previous acquisitions;
•our ability to use net operating loss carryforwards and other tax attributes;
•changes in our business relationships or changes in servicing guidelines with Fannie Mae, Freddie Mac and Ginnie Mae;
•Xome’s ability to compete in highly competitive markets;
•our ability to pay down debt;
•our ability to manage legal and regulatory examinations and enforcement investigations and proceedings, compliance requirements and related costs;
•our ability to prevent cyber intrusions and mitigate cyber risks; and
•our ability to maintain our licenses and other regulatory approvals.
All of these factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assess the effect of each such new factor on our business. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and any of these statements included herein may prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Please refer to Risk Factor and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this report and in our Annual Report on Form 10-K for the year ended December 31, 2019 for further information on these and other risk factors affecting us.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor |
| One Month Ended July 31, 2018 |
| Servicing | | Originations | | Xome | | Elimination/ Reclassification(1) | | Total Operating Segments | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | | | | | |
Service related, net | $ | 97 |
| | $ | 4 |
| | $ | 22 |
| | $ | (3 | ) | | $ | 120 |
| | $ | — |
| | $ | 120 |
|
Net gain on mortgage loans held for sale | — |
| | 41 |
| | — |
| | 3 |
| | 44 |
| | — |
| | 44 |
|
Total revenues | 97 |
| | 45 |
| | 22 |
| | — |
| | 164 |
| | — |
| | 164 |
|
Total Expenses | 126 |
| | 34 |
| | 19 |
| | — |
| | 179 |
| | 63 |
| | 242 |
|
Other income (expenses) | | | | | | | | | | | | | |
Interest income | 41 |
| | 6 |
| | — |
| | — |
| | 47 |
| | 1 |
| | 48 |
|
Interest expense | (35 | ) | | (6 | ) | | — |
| | — |
| | (41 | ) | | (12 | ) | | (53 | ) |
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Other Income (Expenses), Net | 6 |
| | — |
| | — |
| | — |
| | 6 |
| | (11 | ) | | (5 | ) |
Income (loss) before income tax expense (benefit) | $ | (23 | ) | | $ | 11 |
| | $ | 3 |
| | $ | — |
| | $ | (9 | ) | | $ | (74 | ) | | $ | (83 | ) |
Depreciation and amortization for property and equipment and intangible assets | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 4 |
|
Total assets | $ | 14,578 |
| | $ | 4,701 |
| | $ | 425 |
| | $ | (3,591 | ) | | $ | 16,113 |
| | $ | 913 |
| | $ | 17,026 |
|
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the accompanying unaudited consolidated financial statements and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019. The following discussion contains, in addition to the historical information, forward-looking statements that include risks, assumptions and uncertainties that could cause actual results to differ materially from those anticipated by such statements.
Dollar amounts are reported in millions, except per share data and other key metrics, unless otherwise noted.
We have provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, at the end of the MD&A section.
We are a leading servicer and originator of residential mortgage loans, and a provider of real estate services through our Xome subsidiary. Our purpose is to keep the dream of homeownership alive, and we do this as a servicer by helping mortgage borrowers manage what is typically their largest financial asset, and by helping our investors maximize the returns from their portfolios of residential mortgages. We have a track record of significant growth, having expanded our servicing portfolio from $10 billion in 2006 to $596 billion as of June 30, 2020. We believe this track record reflects our strong operating capabilities, which include a proprietary low-cost servicing platform, strong loss mitigation skills, a commitment to compliance, a customer-centric culture, a demonstrated ability to retain customers, growing origination capabilities, and significant investment in technology. More information on the Company is available at investors.mrcoopergroup.com. Information contained on our website is not, and should not be deemed to be, a part of this report.
Our strategy is to position the Company for sustainable long-term growth, drive improved efficiency and profitability, and generate a return on tangible equity of 12% or higher. Key strategic priorities include the following:
•Strengthen our balance sheet by reducing leverage, building liquidity, and managing interest rate and credit risk;
•Improve efficiency by driving continuous improvement in unit costs for Servicing, Originations, and Xome, as well as by taking corporate actions to eliminate costs throughout the organizations
•Grow and strengthen our customer base in each of our segments
•Reinvent the customer experience by acting as the customer’s advocate and by harnessing technology to deliver user-friendly digital solutions
•Sustain the talent of our people and the culture of our organization
•Maintain strong relationships with agencies, investors, regulators, and other counterparties and a strong reputation for compliance and customer service.
Impact of the COVID-19 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, servicing advances, origination volumes, the availability of financing, and our overall profitability and liquidity. We have taken aggressive steps to address these risks, including moving in excess of 95% of our staff to work-from-home status as well as implementing other practices for mitigating the risk of the pandemic, including restrictions on non-essential travel and face-to-face meetings and enhanced sanitization of our facilities. We have also implemented the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which makes available forbearance plans for up to one year for borrowers under government and government agency mortgage programs, which we have extended to borrowers in our private label mortgage servicing portfolio. As of July 27, 2020, approximately 197,000 or 5.9% of our customers were on a forbearance plan, down from a peak of 7.1% at the end of June 2020. The numbers are subsequently falling as we have the first tranche of borrowers rolling off of 90-day plans, either because they remained current all the way through, or because they no longer desire to defer payments and elected to come off. We include loans in forbearance related to the CARES Act, whereby no payments have been received from borrowers for greater than 90 days, in loans subject to repurchase right from Ginnie Mae in other assets and payables and other liabilities on a gross basis. The balance was $818 as of June 30, 2020 and is expected to continue to increase during the third quarter.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Nine Months Ended September 30, 2019 |
| Servicing | | Originations | | Xome | | Elimination/ Reclassification(1) | | Total Operating Segments | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | | | | | |
Service related, net | $ | 198 |
| | $ | 57 |
| | $ | 316 |
| | $ | (92 | ) | | $ | 479 |
| | $ | — |
| | $ | 479 |
|
Net gain on mortgage loans held for sale | — |
| | 687 |
| | — |
| | 90 |
| | 777 |
| | 11 |
| | 788 |
|
Total revenues | 198 |
| | 744 |
| | 316 |
| | (2 | ) | | 1,256 |
| | 11 |
| | 1,267 |
|
Total Expenses | 555 |
| | 404 |
| | 301 |
| | (2 | ) | | 1,258 |
| | 155 |
| | 1,413 |
|
Other income (expenses) | | | | | | | | | | | | | |
Interest income | 388 |
| | 64 |
| | — |
| | — |
| | 452 |
| | 7 |
| | 459 |
|
Interest expense | (343 | ) | | (67 | ) | | — |
| | — |
| | (410 | ) | | (162 | ) | | (572 | ) |
Other | — |
| | 4 |
| | 14 |
| | — |
| | 18 |
| | (2 | ) | | 16 |
|
Total Other Income (Expenses), Net | 45 |
| | 1 |
| | 14 |
| | — |
| | 60 |
| | (157 | ) | | (97 | ) |
(Loss) income before income tax (benefit) expense | $ | (312 | ) | | $ | 341 |
| | $ | 29 |
| | $ | — |
| | $ | 58 |
| | $ | (301 | ) | | $ | (243 | ) |
Depreciation and amortization for property and equipment and intangible assets | $ | 13 |
| | $ | 13 |
| | $ | 11 |
| | $ | — |
| | $ | 37 |
| | $ | 30 |
| | $ | 67 |
|
Total assets | $ | 12,049 |
| | $ | 8,450 |
| | $ | 515 |
| | $ | (4,650 | ) | | $ | 16,364 |
| | $ | 2,114 |
| | $ | 18,478 |
|
Depending on how long the pandemic continues to disrupt the economy and employment, our Servicing segment could experience a cost-to-service increase as we deal with higher delinquencies and foreclosures. We expect servicing costs to be moderately elevated for loans on forbearance, however investor incentives should more than offset the elevated costs. As the pandemic began to impact the mortgage capital markets, our Originations segment took several steps to rapidly de-risk the pipeline and slowed correspondent production. Our Originations segment has experienced volume growth and higher margins as a result of the lower interest rate environment, which more than offset the decline in our Servicing segment. As the foreclosure process is currently on hold, with moratoriums in place at the national level and in some local markets, Xome’s revenue from the Exchange division has been, and is expected to continue to be, negatively impacted. However, Xome’s revenue from the Services division has benefited from the lower interest rate environment and increase in Originations volume and has helped balance out the decrease in Exchange’s revenues. Once the moratoriums are lifted, we expect Xome to contribute meaningfully to our consolidated results. See liquidity discussion related to the COVID-19 pandemic in Liquidity and Capital Resources section in MD&A.
Results of Operations
| | |
Table 1. Consolidated Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues - operational(1) | $ | 891 | | | $ | 630 | | | $ | 261 | | | 41 | % |
Revenues - Mark-to-market | (261) | | | (231) | | | (30) | | | 13 | % |
Total revenues | 630 | | | 399 | | | 231 | | | 58 | % |
Total expenses | 419 | | | 492 | | | (73) | | | (15) | % |
Total other expenses, net | (101) | | | (24) | | | (77) | | | 321 | % |
Income (loss) before income tax expense (benefit) | 110 | | | (117) | | | 227 | | | (194) | % |
Less: Income tax expense (benefit) | 37 | | | (29) | | | 66 | | | (228) | % |
Net income (loss) | 73 | | | (88) | | | 161 | | | (183) | % |
Less: Net loss attributable to non-controlling interests | — | | | (1) | | | 1 | | | (100) | % |
Net income (loss) attributable to Mr. Cooper | $ | 73 | | | $ | (87) | | | $ | 160 | | | (184) | % |
(1)Revenues - operational consists of total revenues, excluding mark-to-market.
We recorded net income of $73 during the three months ended June 30, 2020 compared to a net loss of $88 during the same period in 2019. The net income in 2020 was primarily due to an increase in total revenues and a decrease in total expenses, partially offset by an increase in total other expenses, net. Consolidated operational revenues increased primarily due to increased revenue in our Originations segment, driven by higher originations volume predominately in the direct-to-consumer (”DTC”) channel, partially offset by an increase in negative mark-to-market (“MTM”) adjustments for the three months ended June 30, 2020 compared to the same period in 2019. Refer to Table 10. Servicing - Revenues and Table 21. Originations - Revenues for further discussion.
Total expenses for the three months ended June 30, 2020 decreased compared to the same period in 2019 primarily due to lower foreclosure and other liquidation related expenses and recoveries in our Servicing segment, primarily driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines. The decrease in total expenses was partially offset by higher total expense in our Originations segment, primarily attributable to higher originations volume in the lower interest rate environment.
Total other expenses, net, increased for the three months ended June 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest income in our Servicing segment, partially offset by a decrease in interest expense. Refer to Table 12. Servicing - Other (Expenses) Income, Net for further discussion.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor |
| Seven Months Ended July 31, 2018 |
| Servicing | | Originations | | Xome | | Elimination/ Reclassification(1) | | Total Operating Segments | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | | | | | |
Service related, net | $ | 740 |
| | $ | 36 |
| | $ | 149 |
| | $ | (25 | ) | | $ | 900 |
| | $ | 1 |
| | $ | 901 |
|
Net gain on mortgage loans held for sale | — |
| | 270 |
| | — |
| | 25 |
| | 295 |
| | — |
| | 295 |
|
Total revenues | 740 |
| | 306 |
| | 149 |
| | — |
| | 1,195 |
| | 1 |
| | 1,196 |
|
Total Expenses | 474 |
| | 245 |
| | 123 |
| | — |
| | 842 |
| | 103 |
| | 945 |
|
Other income (expenses) | | | | | | | | | | | | | |
Interest income | 288 |
| | 38 |
| | — |
| | — |
| | 326 |
| | 7 |
| | 333 |
|
Interest expense | (268 | ) | | (37 | ) | | — |
| | — |
| | (305 | ) | | (83 | ) | | (388 | ) |
Other | (1 | ) | | — |
| | 9 |
| | — |
| | 8 |
| | (2 | ) | | 6 |
|
Total Other Income (Expenses), Net | 19 |
| | 1 |
| | 9 |
| | — |
| | 29 |
| | (78 | ) | | (49 | ) |
Income (loss) before income tax expense (benefit) | $ | 285 |
| | $ | 62 |
| | $ | 35 |
| | $ | — |
| | $ | 382 |
| | $ | (180 | ) | | $ | 202 |
|
Depreciation and amortization for property and equipment and intangible assets | $ | 15 |
| | $ | 7 |
| | $ | 7 |
| | $ | — |
| | $ | 29 |
| | $ | 4 |
| | $ | 33 |
|
Total assets | $ | 14,578 |
| | $ | 4,701 |
| | $ | 425 |
| | $ | (3,591 | ) | | $ | 16,113 |
| | $ | 913 |
| | $ | 17,026 |
|
| | |
Table 1.1 Consolidated Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues - operational(1) | $ | 1,552 | | | $ | 1,173 | | | $ | 379 | | | 32 | % |
Revenues - Mark-to-market | (644) | | | (524) | | | (120) | | | 23 | % |
Total revenues | 908 | | | 649 | | | 259 | | | 40 | % |
Total expenses | 863 | | | 935 | | | (72) | | | (8) | % |
Total other expenses, net | (174) | | | (64) | | | (110) | | | 172 | % |
Loss before income tax benefit | (129) | | | (350) | | | 221 | | | (63) | % |
Less: Income tax benefit | (31) | | | (76) | | | 45 | | | (59) | % |
Net loss | (98) | | | (274) | | | 176 | | | (64) | % |
Less: Net loss attributable to non-controlling interests | (3) | | | (1) | | | (2) | | | 200 | % |
Net loss attributable to Mr. Cooper | $ | (95) | | | $ | (273) | | | $ | 178 | | | (65) | % |
(1)Revenues - operational consists of total revenues, excluding mark-to-market.
We recorded a net loss of $98 during the six months ended June 30, 2020 compared to a net loss of $274 during the same period in 2019. The net loss in 2020 was lower primarily due to an increase in total revenues and decrease in total expenses. Consolidated operational revenues increased primarily due to increased revenue in our Originations segment, driven by higher originations volume predominately in the DTC channel, partially offset by an increase in negative MTM adjustments for the six months ended June 30, 2020 compared to the same period in 2019. Refer to Table 10.1 Servicing - Revenues and Table 21.1 Originations - Revenues for further discussion.
Total expenses for the six months ended June 30, 2020 decreased compared with the same period in 2019 primarily due to lower foreclosure and other liquidation related expenses in our Servicing segment primarily driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines. In addition, total expenses in our Corporate/Other segment were higher in the six months ended June 30, 2019 due to acquisition and integration expenses related to the Pacific Union acquisition and the acquisition of the Seterus mortgage servicing platform and assumption of assets related thereto from IBM (“Seterus acquisition”) in February 2019. Partially offsetting the decrease in total expenses in our Servicing segment and Corporate/Other segment was an increase in total expenses in our Originations segment primarily driven by higher originations volume in a declining interest rate environment.
Total other expenses, net, increased for the six months ended June 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest income and other income, net, partially offset by a decrease in interest expense. Interest income decreased primarily due to a decrease in other interest income in our Servicing segment due to lower income earned on custodial balances driven by lower LIBOR rates and a decrease in income earned on reverse mortgage interest, as a result of the decline in the reverse mortgage interests balance. Other income, net, was lower in the six months ended June 30, 2020 primarily due to income related to the change in fair value of the contingent consideration recorded in 2019 for the acquisition of Assurant Mortgage Solutions (“AMS”).
| | | | | | | | | | | | | | |
Table 2. Provision for Income Taxes | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Income tax expense (benefit) | $ | 37 | | | $ | (29) | | | $ | 66 | | | (228) | % |
| | | | | | | |
Effective tax rate(1) | 33.4 | % | | 24.6 | % | | | | |
(1)Effective tax rate is calculated using whole numbers.
For the three months ended June 30, 2020, we had an income tax expense compared to an income tax benefit for the same period ended in 2019. The effective tax rate for the three months ended June 30, 2020 was 33.4% as compared to the effective tax rate of 24.6% for the three months ended June 30, 2019. The change in effective tax rate is primarily attributable to the increased relative unfavorable tax impacts of permanent differences such as nondeductible executive compensation and nondeductible meals and entertainment expenses on the annual effective rate, and discrete tax items in the three months ended June 30, 2020 as compared to the three months ended June 30, 2019.
| | | | | | | | | | | | | | |
Table 2.1. Provision for Income Taxes | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Income tax benefit | $ | (31) | | | $ | (76) | | | $ | 45 | | | (59) | % |
| | | | | | | |
Effective tax rate(1) | 24.1 | % | | 21.7 | % | | | | |
(1)Effective tax rate is calculated using whole numbers.
For the six months ended June 30, 2020 and 2019, we had an income tax benefit. The effective tax rate for the six months ended June 30, 2020 was 24.1% as compared to the effective tax rate of 21.7% for the six months ended June 30, 2019. The change in effective tax rate is primarily attributable to the increased relative unfavorable tax impacts of permanent differences such as nondeductible executive compensation and nondeductible meals and entertainment expenses on the annual effective rate, and discrete tax items in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019.
Our operations are conducted through four segments: Servicing, Originations, Xome, and Corporate/Other.
•The Servicing segment performs operational activities on behalf of investors or owners of the underlying mortgages, including collecting and disbursing borrower payments, investor reporting, customer service, modifying loans where appropriate to help borrowers stay current, and when necessary performing collections, foreclosures, and the sale of REO.
•The Originations segment originates residential mortgage loans through our direct-to-consumer channel, which provides refinance options for our existing customers, and through our correspondent channel which purchases or originates loans from mortgage bankers. Our wholesale channel was shut down during the three months ended June 30, 2020 and subsequently ceased originating loans and funded out the remaining pipeline.
•The Xome segment provides a variety of real estate services to mortgage originators, mortgage and real estate investors, and mortgage servicers, including valuation, title, and field services, and operates an exchange which facilitates the sale of foreclosed properties.
•The Corporate/Other segment represents unallocated overhead expenses, including the costs of executive management and other corporate functions that are not directly attributable to our operating segments, interest expense on our senior unsecured notes, and the results of a legacy mortgage investment portfolio, which consists of non-prime and non-conforming residential mortgage loans that were transferred to a securitization trust (“Trust 2009-A”) in 2009. We collapsed Trust 2009-A and executed the sale of the loans held in the trust in September 2019. The Corporate/Other segment also includes inter-segment eliminations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (114) | | | $ | 21 | | | $ | 106 | | | $ | (1) | | | $ | 12 | |
Net gain on mortgage loans held for sale | 45 | | | 573 | | | — | | | — | | | 618 | |
Total revenues | (69) | | | 594 | | | 106 | | | (1) | | | 630 | |
Total expenses | 122 | | | 167 | | | 95 | | | 35 | | | 419 | |
Interest income | 57 | | | 19 | | | — | | | — | | | 76 | |
Interest expense | (117) | | | (13) | | | — | | | (47) | | | (177) | |
Other income (expenses), net | — | | | — | | | 1 | | | (1) | | | — | |
Total other (expenses) income, net | (60) | | | 6 | | | 1 | | | (48) | | | (101) | |
(Loss) income before income tax (benefit) expense | $ | (251) | | | $ | 433 | | | $ | 12 | | | $ | (84) | | | $ | 110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | 9 | | | $ | 20 | | | $ | 108 | | | $ | — | | | $ | 137 | |
Net gain on mortgage loans held for sale | 18 | | | 244 | | | — | | | — | | | 262 | |
Total revenues | 27 | | | 264 | | | 108 | | | — | | | 399 | |
Total expenses | 189 | | | 145 | | | 101 | | | 57 | | | 492 | |
Interest income | 136 | | | 23 | | | — | | | 3 | | | 162 | |
Interest expense | (109) | | | (25) | | | — | | | (53) | | | (187) | |
Other income, net | — | | | 1 | | | — | | | — | | | 1 | |
Total other income (expenses), net | 27 | | | (1) | | | — | | | (50) | | | (24) | |
(Loss) income before income tax (benefit) expense | $ | (135) | | | $ | 118 | | | $ | 7 | | | $ | (107) | | | $ | (117) | |
| | |
Table 3.1 Segment Results |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (294) | | | $ | 41 | | | $ | 212 | | | $ | — | | | $ | (41) | |
Net gain on mortgage loans held for sale | 79 | | | 870 | | | — | | | — | | | 949 | |
Total revenues | (215) | | | 911 | | | 212 | | | — | | | 908 | |
Total expenses | 271 | | | 333 | | | 191 | | | 68 | | | 863 | |
Interest income | 140 | | | 53 | | | — | | | 1 | | | 194 | |
Interest expense | (230) | | | (40) | | | — | | | (99) | | | (369) | |
Other income (expenses), net | — | | | — | | | 2 | | | (1) | | | 1 | |
Total other (expenses) income, net | (90) | | | 13 | | | 2 | | | (99) | | | (174) | |
(Loss) income before income tax (benefit) expense | $ | (576) | | | $ | 591 | | | $ | 23 | | | $ | (167) | | | $ | (129) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (18) | | | $ | 35 | | | $ | 204 | | | $ | — | | | $ | 221 | |
Net gain on mortgage loans held for sale | 53 | | | 375 | | | — | | | — | | | 428 | |
Total revenues | 35 | | | 410 | | | 204 | | | — | | | 649 | |
Total expenses | 384 | | | 249 | | | 200 | | | 102 | | | 935 | |
Interest income | 251 | | | 40 | | | — | | | 5 | | | 296 | |
Interest expense | (223) | | | (43) | | | — | | | (110) | | | (376) | |
Other income, net | — | | | 5 | | | 11 | | | — | | | 16 | |
Total other income (expenses), net | 28 | | | 2 | | | 11 | | | (105) | | | (64) | |
(Loss) income before income tax (benefit) expense | $ | (321) | | | $ | 163 | | | $ | 15 | | | $ | (207) | | | $ | (350) | |
The Servicing segment’s strategy is to generate income by growing the portfolio and maximizing the servicing margin. We believe several competitive strengths have been critical to our long-term growth as a servicer, including our low-cost platform, our skill in mitigating losses for investors, our commitment to strong customer service and regulatory compliance, our history of successfully boarding new loans, and the ability to retain existing customers by offering attractive refinance options. We believe that our operational capabilities are reflected in strong servicer ratings.
| | | | | | | | | | | | | | |
Table 4. Servicer Ratings | | | | |
| | | | | | | | | | | | | | | | | |
| Fitch(1) | | Moody’s(2) | | S&P(3) |
Rating date | January 2020 | | May 2019 | | May 2019 |
| | | | | |
Residential | RPS2- | | Not Rated | | Above Average |
Master Servicer | RMS2+ | | SQ2 | | Above Average |
Special Servicer | RSS2- | | Not Rated | | Above Average |
Subprime Servicer | RPS2- | | Not Rated | | Above Average |
(1)Fitch Rating Scale of 1 (Highest Performance) to 5 (Low/No Proficiency)
(2)Moody’s Rating Scale of SQ1 (Strong Ability/Stability) to SQ5 (Weak Ability/Stability)
(3)S&P Rating Scale of Strong to Weak
Servicing Portfolio Composition
As of June 30, 2020, the unpaid principal balance in our servicing portfolio consisted of approximately $278.0 billion in forward loans, $296.8 billion in subservicing and other, and $20.8 billion in reverse mortgage loans.
•The term “forward” refers to loans we service which are not “reverse mortgages,” as discussed below.
•Our subservicing portfolio consists of loans where we perform the servicing responsibilities for a contractual fee, but do not own the servicing rights and therefore do not record an MSR on our balance sheet.
•Reverse mortgage loans, most commonly HECMs, provide seniors 62 and older with a loan upon which draws can be made periodically. The draws are secured by the equity in the borrower’s home. We have acquired our reverse mortgages in prior years through several transactions and the portfolio is now in run-off mode. For a significant portion of our reverse mortgages, we record MSRs on our balance sheet, similar to the accounting for forward mortgages, except in cases where the costs of servicing are expected to exceed revenues, in which case a Mortgage Servicing Liability (“MSL”) is created. Additionally, due to program requirements, we consolidate certain reverse mortgages on our balance sheet and accrue interest income and expense.
The charts below set forth the portfolio mix between forward MSR, subserviced and other, and reverse mortgage loans, and the composition of our servicing portfolio ending UPB by investor group ($ in Millions) as of June 30, 2020 and 2019:
The following tables set forth the results of operations for the Servicing segment:
| | | | | | | | | | | | | | |
Table 5. Servicing Segment Results of Operations | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues | | | | | | | |
Operational | $ | 294 | | | $ | 314 | | | $ | (20) | | | (6) | % |
Amortization, net of accretion | (102) | | | (56) | | | (46) | | | 82 | % |
Mark-to-market | (261) | | | (231) | | | (30) | | | 13 | % |
Total revenues | (69) | | | 27 | | | (96) | | | (356) | % |
Total expenses | 122 | | | 189 | | | (67) | | | (35) | % |
Total other (expenses) income, net | (60) | | | 27 | | | (87) | | | (322) | % |
Loss before income tax benefit | $ | (251) | | | $ | (135) | | | $ | (116) | | | 86 | % |
For the three months ended June 30, 2020, we incurred a loss before income tax benefit of $251 compared to $135 for the same period in 2019. The change in loss before income tax benefit was primarily due to a decrease in total revenues, partially offset by a decrease in total expenses. Total revenues decreased during three months ended June 30, 2020 compared to the same period in 2019, primarily due to an increase in amortization of forward MSRs as a result of elevated prepayments driven by the declining interest rate environment. Additionally, negative mark-to-market revenues increased during the three months ended June 30, 2020 compared to the same period in 2019 due to the lower interest rate environment. Total expenses for the three months ended June 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in foreclosure and other liquidation expenses and a decrease in salaries, wages and benefits. The decrease in foreclosure and other liquidation expenses was mainly driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to improved performance of $15 on loss recoveries related to settlement with a prior servicer. The decrease in salaries, wages and benefits was primarily due to improved operational efficiencies, , which included consolidation of one of our servicing centers.
Total other (expenses) income, net, for the three months ended June 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in interest income. The decrease in interest income was primarily due to lower income earned on custodial balances driven by lower LIBOR rates and a decrease in income earned on reverse mortgage interest, primarily driven by the decline in the reverse mortgage interests balance. Refer to Table 10. Servicing - Revenues, Table 11. Servicing - Expenses and Table 12. Servicing - Other (Expenses) Income, Net, for further discussions on the changes in total revenues, total expenses and total other (expenses) income, net, respectively.
| | |
Table 5.1 Servicing Segment Results of Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues | | | | | | | |
Operational | $ | 607 | | | $ | 638 | | | $ | (31) | | | (5) | % |
Amortization, net of accretion | (178) | | | (79) | | | (99) | | | 125 | % |
Mark-to-market | (644) | | | (524) | | | (120) | | | 23 | % |
Total revenues | (215) | | | 35 | | | (250) | | | (714) | % |
Total expenses | 271 | | | 384 | | | (113) | | | (29) | % |
Total other (expenses) income, net | (90) | | | 28 | | | (118) | | | (421) | % |
Loss before income tax benefit | $ | (576) | | | $ | (321) | | | $ | (255) | | | 79 | % |
For the six months ended June 30, 2020, we incurred a loss before income tax benefit of $576 compared to $321 for the same period in 2019. The change in loss before income tax benefit was primarily due to a decrease in total revenues, partially offset by a decrease in total expenses. Total revenues decreased primarily as a result of elevated negative mark-to-market revenues during the six months ended June 30, 2020 compared to the same period in 2019. Amortization, net of accretion, for the six months ended June 30, 2020 increased compared to the same period in 2019, primarily due to an increase in amortization of forward MSRs as a result of elevated prepayments driven by the declining interest rate environment. Total expenses for the six months ended June 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in foreclosure and other liquidation expenses and a decrease in salaries, wages and benefits. The decrease in foreclosure and other liquidation expenses was primarily driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to improved performance of $15 on loss recoveries related to settlement with a prior servicer. The decrease in salaries, wages and benefits was primarily due to improved operational efficiencies, which included consolidation of one of our servicing centers.
Total other (expenses) income, net, for the six months ended June 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in interest income. The decrease in interest income was primarily due to a decrease in other interest income due to lower interest income earned on custodial balances driven by lower LIBOR rates and a decrease in income earned on reverse mortgage interest, primarily driven by the decline in the reverse mortgage interests balance. Refer to Table 10.1 Servicing - Revenues, Table 11.1 Servicing - Expenses and Table 12.1 Servicing - Other (Expenses) Income, Net, for further discussions on the changes in total revenues, total expenses and total other (expenses) income, net, respectively.
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Table 6. Servicing Portfolio - Unpaid Principal Balances | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Average UPB | | | | | | | |
Forward MSRs | $ | 289,707 | | | $ | 315,333 | | | $ | 296,446 | | | $ | 312,158 | |
Subservicing and other(1) | 301,680 | | | 297,924 | | | 306,121 | | | 268,696 | |
Reverse loans | 21,058 | | | 26,028 | | | 21,559 | | | 26,750 | |
Total average UPB | $ | 612,445 | | | $ | 639,285 | | | $ | 624,126 | | | $ | 607,604 | |
| | | | | | | |
| | | | | June 30, 2020 | | June 30, 2019 |
Ending UPB | | | | | | | |
Forward MSRs | | | | | | | |
Agency | | | | | $ | 228,680 | | | $ | 254,543 | |
Non-agency | | | | | 49,295 | | | 61,469 | |
Total forward MSRs | | | | | 277,975 | | | 316,012 | |
| | | | | | | |
Subservicing and other(1) | | | | | | | |
Agency | | | | | 286,710 | | | 253,846 | |
Non-agency | | | | | 10,082 | | | 48,262 | |
Total subservicing and other | | | | | 296,792 | | | 302,108 | |
| | | | | | | |
Reverse loans | | | | | | | |
MSR | | | | | 2,190 | | | 3,127 | |
MSL | | | | | 12,891 | | | 15,374 | |
Securitized loans | | | | | 5,677 | | | 7,068 | |
Total reverse portfolio serviced | | | | | 20,758 | | | 25,569 | |
Total ending UPB | | | | | $ | 595,525 | | | $ | 643,689 | |
(1)Subservicing and other includes (i) loans we service for others, (ii) residential mortgage loans originated but have yet to be sold, and (iii) agency REO balances for which we own the mortgage servicing rights.
The following tables provide a rollforward of our forward MSR and subservicing and other portfolio UPB:
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Table 7. Forward Servicing and Subservicing and Other Portfolio UPB Rollforward |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | Three Months Ended June 30, 2019 | | | | |
| Forward MSR | | Subservicing and Other | | Total | | Forward MSR | | Subservicing and Other | | Total |
Balance - beginning of period | $ | 290,634 | | | $ | 316,933 | | | $ | 607,567 | | | $ | 303,692 | | | $ | 301,191 | | | $ | 604,883 | |
Additions: | | | | | | | | | | | |
Originations | 9,478 | | | 1,024 | | | 10,502 | | | 9,521 | | | 399 | | | 9,920 | |
Acquisitions / Increase in subservicing(1) | (1,634) | | | 16,908 | | | 15,274 | | | 20,073 | | | 12,715 | | | 32,788 | |
Deductions: | | | | | | | | | | | |
Dispositions | (31) | | | (9,751) | | | (9,782) | | | (2,239) | | | (675) | | | (2,914) | |
Principal reductions and other | (2,678) | | | (2,168) | | | (4,846) | | | (3,031) | | | (2,669) | | | (5,700) | |
Voluntary reductions(2) | (17,435) | | | (26,113) | | | (43,548) | | | (11,113) | | | (8,665) | | | (19,778) | |
Involuntary reductions(3) | (251) | | | (41) | | | (292) | | | (807) | | | (188) | | | (995) | |
Net changes in loans serviced by others | (108) | | | — | | | (108) | | | (84) | | | — | | | (84) | |
Balance - end of period | $ | 277,975 | | | $ | 296,792 | | | $ | 574,767 | | | $ | 316,012 | | | $ | 302,108 | | | $ | 618,120 | |
(1)Includes transfers to/from Subservicing and Other.
(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.
During the three months ended June 30, 2020, our forward MSR UPB decreased primarily due to increased voluntary reductions driven by the low interest rate environment. During the three months ended June 30, 2020, our subservicing and other portfolio ending UPB decreased primarily driven by increased voluntary reductions in the low interest rate environment and increased dispositions due to various MSR sales, partially offset by portfolio growth from our subservicing clients.
| | |
Table 7.1 Forward Servicing and Subservicing and Other Portfolio UPB Rollforward |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | Six Months Ended June 30, 2019 | | | | |
| Forward MSR | | Subservicing and Other | | Total | | Forward MSR | | Subservicing and Other | | Total |
Balance - beginning of period | $ | 296,782 | | | $ | 323,983 | | | $ | 620,765 | | | $ | 295,481 | | | $ | 223,886 | | | $ | 519,367 | |
Additions: | | | | | | | | | | | |
Originations | 21,113 | | | 1,686 | | | 22,799 | | | 14,412 | | | 803 | | | 15,215 | |
Acquisitions / Increase in subservicing(1) | (2,307) | | | 40,260 | | | 37,953 | | | 33,477 | | | 97,121 | | | 130,598 | |
Deductions: | | | | | | | | | | | |
Dispositions | (71) | | | (20,110) | | | (20,181) | | | (2,372) | | | (1,793) | | | (4,165) | |
Principal reductions and other | (5,426) | | | (5,133) | | | (10,559) | | | (5,858) | | | (4,986) | | | (10,844) | |
Voluntary reductions(2) | (31,299) | | | (43,785) | | | (75,084) | | | (17,410) | | | (12,640) | | | (30,050) | |
Involuntary reductions(3) | (638) | | | (109) | | | (747) | | | (1,569) | | | (283) | | | (1,852) | |
Net changes in loans serviced by others | (179) | | | — | | | (179) | | | (149) | | | — | | | (149) | |
Balance - end of period | $ | 277,975 | | | $ | 296,792 | | | $ | 574,767 | | | $ | 316,012 | | | $ | 302,108 | | | $ | 618,120 | |
(1)Includes transfers to/from Subservicing and Other.
(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.
During the six months ended June 30, 2020, our forward MSR UPB decreased primarily due to increased voluntary reductions in the low interest rate environment, partially offset by increased origination volumes. During the six months ended June 30, 2020, our subservicing and other portfolio ending UPB decreased primarily driven by increased voluntary reductions in the low interest rate environment and increased dispositions due to various MSR sales, partially offset by portfolio growth from our subservicing clients.
The table below summarizes the overall performance of the forward servicing and subservicing portfolio:
| | |
Table 8. Key Performance Metrics - Forward Servicing and Subservicing Portfolio(1) | For Servicing segment results purposes, all revenue is attributable to servicing portfolio. Therefore, $37, $7, $3, $90, and $25 of net gain on mortgage loans is moved to service related, net during the three months ended September 30, 2019, two months ended September 30, 2018, one month ended July 31, 2018, nine months ended September 30, 2019, and seven months ended July 31, 2018, respectively. For consolidated results purposes, these amounts were reclassed back to net gain on mortgage loans held for sale. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | June 30, 2020 | | June 30, 2019 |
Loan count(2) | | | | | | 3,360,826 | | | 3,637,538 | |
Average loan amount(3) | | | | | | $ | 171,022 | | | $ | 169,935 | |
Average coupon - credit sensitive(4) | | | | | | 4.7 | % | | 4.8 | % |
Average coupon - interest sensitive(4) | | | | | | 4.2 | % | | 4.4 | % |
Average coupon - agency(4) | | | | | | 4.4 | % | | 4.5 | % |
Average coupon - non-agency(4) | | | | | | 4.7 | % | | 4.8 | % |
60+ delinquent (% of loans)(5) | | | | | | 4.7 | % | | 2.3 | % |
90+ delinquent (% of loans)(5) | | | | | | 2.2 | % | | 2.0 | % |
120+ delinquent (% of loans)(5) | | | | | | 1.6 | % | | 1.8 | % |
| | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
Total prepayment speed (12-month constant prepayment rate) | | 26.0 | % | | 13.0 | % | | 22.6 | % | | 10.8 | % |
20. Guarantor Financial Statement Information(1)Characteristics and key performance metrics of our servicing portfolio exclude UPB and loan counts acquired but not yet boarded and currently serviced by others.
(2)As of SeptemberJune 30, 2019, Nationstar Mortgage LLC and Nationstar Capital Corporation(1) (collectively,2020, loan count includes 195,423 loans in forbearance related to the “Issuer”), both wholly-owned subsidiariesCARES Act, whereby the borrowers have failed to make at least one payment.
(3)Average loan amount is presented in whole dollar amounts.
(4)The weighted average coupon amounts presented in the table above are only reflective of our owned forward MSR portfolio that is reported at fair value.
(5)Loan delinquency is based on the current contractual due date of the Company, have issuedloan. In the case of a 6.500% unsecured senior notescompleted loan modification, delinquency is based on the modified due July 2021 with an outstanding aggregate principal amount of $592 and a 6.500% unsecured senior notes due June 2022 with an outstanding aggregate principal amount of $206 (collectively, the “unsecured senior notes”). The unsecured senior notes are unconditionally guaranteed, jointly and severally, by all of Nationstar Mortgage LLC’s existing and future domestic subsidiaries other than its securitization and certain finance subsidiaries, certain other restricted subsidiaries, excluded restricted subsidiaries and subsidiaries that in the future Nationstar Mortgage LLC designates as unrestricted subsidiaries. All guarantor subsidiaries are 100% owned by Nationstar Mortgage LLC. The Company and its three wholly-owned subsidiaries are guarantorsdate of the unsecured senior notes as well. Presented below areloan. Loan delinquency includes loans in forbearance.
Delinquency is a significant assumption in determining the condensed consolidating financial statementsmark-to-market adjustment and is a key indicator of MSR portfolio performance. Delinquent loans contribute to lower MSR values due to higher costs to service and increased carrying costs of advances. Due to the COVID-19 pandemic and the implementation of the Company, Nationstar Mortgage LLC andCARES Act, loans greater than 60 days delinquent have increased as of June 30, 2020 compared to the guarantor subsidiaries for the periods indicated.same period in 2019.
In the condensed consolidating financial statements presented below, the Company allocates income tax expense to Nationstar Mortgage LLC as if it were a separate tax payer entity pursuant to ASC 740, Income Taxes.
| | |
(1)
| Nationstar Capital Corporation has no assets, operations or liabilities other than being a co-obligor of the unsecured senior notes.Table 9. Forward Loan Modifications and Workout Units |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | Amount Change | | % Change |
Modifications | 4,329 | | | 5,632 | | | (1,303) | | | (23) | % |
Workouts | 34,355 | | | 6,476 | | | 27,879 | | | 430 | % |
Total modifications and workout units | 38,684 | | | 12,108 | | | 26,576 | | | 219 | % |
Total modifications and workouts during the three months ended June 30, 2020 increased compared to the same period in 2019 primarily due to an increase in workouts related to loans impacted by the COVID-19 pandemic which successfully exited their forbearance plans.
MR. COOPER GROUP INC. CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2019 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Mr. Cooper | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Assets | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 331 |
| | $ | 1 |
| | $ | 39 |
| | $ | — |
| | $ | 371 |
|
Restricted cash | — |
| | 155 |
| | — |
| | 116 |
| | — |
| | 271 |
|
Mortgage servicing rights | — |
| | 3,322 |
| | — |
| | 24 |
| | — |
| | 3,346 |
|
Advances and other receivables, net | — |
| | 966 |
| | — |
| | 1 |
| | — |
| | 967 |
|
Reverse mortgage interests, net | — |
| | 5,733 |
| | — |
| | 929 |
| | — |
| | 6,662 |
|
Mortgage loans held for sale at fair value | — |
| | 4,267 |
| | — |
| | — |
| | — |
| | 4,267 |
|
Property and equipment, net | — |
| | 94 |
| | — |
| | 19 |
| | — |
| | 113 |
|
Deferred tax asset, net | 984 |
| | 46 |
| | — |
| | 2 |
| | — |
| | 1,032 |
|
Other assets | — |
| | 1,317 |
| | 213 |
| | 814 |
| | (895 | ) | | 1,449 |
|
Investment in subsidiaries | 2,612 |
| | 682 |
| | — |
| | — |
| | (3,294 | ) | | — |
|
Total assets | $ | 3,596 |
| | $ | 16,913 |
| | $ | 214 |
| | $ | 1,944 |
| | $ | (4,189 | ) | | $ | 18,478 |
|
| | | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | |
Unsecured senior notes, net | $ | 1,665 |
| | $ | 799 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,464 |
|
Advance facilities, net | — |
| | 64 |
| | — |
| | 449 |
| | — |
| | 513 |
|
Warehouse facilities, net | — |
| | 4,802 |
| | — |
| | — |
| | — |
| | 4,802 |
|
Payables and other liabilities | 23 |
| | 1,905 |
| | 2 |
| | 72 |
| | — |
| | 2,002 |
|
MSR related liabilities - nonrecourse at fair value | — |
| | 1,313 |
| | — |
| | 15 |
| | — |
| | 1,328 |
|
Mortgage servicing liabilities | — |
| | 69 |
| | — |
| | — |
| | — |
| | 69 |
|
Other nonrecourse debt, net | — |
| | 4,596 |
| | — |
| | 937 |
| | — |
| | 5,533 |
|
Payables to affiliates | 141 |
| | 753 |
| | — |
| | 1 |
| | (895 | ) | | — |
|
Total liabilities | 1,829 |
| | 14,301 |
| | 2 |
| | 1,474 |
| | (895 | ) | | 16,711 |
|
Total stockholders’ equity | 1,767 |
| | 2,612 |
| | 212 |
| | 470 |
| | (3,294 | ) | | 1,767 |
|
Total liabilities and stockholders’ equity | $ | 3,596 |
| | $ | 16,913 |
| | $ | 214 |
| | $ | 1,944 |
| | $ | (4,189 | ) | | $ | 18,478 |
|
| | |
(1)
| Issuer balances exclude the balances of its guarantorTable 9.1 Forward Loan Modifications and non-guarantor subsidiaries, as previously described.Workout Units |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | |
| 2020 | | 2019 | | Amount Change | | % Change |
Modifications | 9,044 | | | 10,821 | | | (1,777) | | | (16) | % |
Workouts | 38,349 | | | 10,877 | | | 27,472 | | | 253 | % |
Total modifications and workout units | 47,393 | | | 21,698 | | | 25,695 | | | 118 | % |
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2019 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Mr. Cooper | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | |
Service related, net | $ | — |
| | $ | 137 |
| | $ | 5 |
| | $ | 116 |
| | $ | — |
| | $ | 258 |
|
Net gain on mortgage loans held for sale | — |
| | 349 |
| | — |
| | 11 |
| | — |
| | 360 |
|
Total revenues | — |
| | 486 |
| | 5 |
| | 127 |
| | — |
| | 618 |
|
Expenses: | | | | | | | | | | | |
Salaries, wages benefits | — |
| | 209 |
| | 1 |
| | 40 |
| | — |
| | 250 |
|
General and administrative | — |
| | 185 |
| | — |
| | 43 |
| | — |
| | 228 |
|
Total expenses | — |
| | 394 |
| | 1 |
| | 83 |
| | — |
| | 478 |
|
Other income (expenses): | | | | | | | | | | | |
Interest income | — |
| | 127 |
| | — |
| | 36 |
| | — |
| | 163 |
|
Interest expense | (37 | ) | | (143 | ) | | — |
| | (16 | ) | | — |
| | (196 | ) |
Other income (expenses) | — |
| | (3 | ) | | — |
| | 3 |
| | — |
| | — |
|
Gain (loss) from subsidiaries | 121 |
| | 71 |
| | — |
| | — |
| | (192 | ) | | — |
|
Total other income (expenses), net | 84 |
| | 52 |
| | — |
| | 23 |
| | (192 | ) | | (33 | ) |
Income (loss) before income tax benefit | 84 |
| | 144 |
| | 4 |
| | 67 |
| | (192 | ) | | 107 |
|
Less: Income tax expense | — |
| | 24 |
| | — |
| | — |
| | — |
| | 24 |
|
Net income (loss) | 84 |
| | 120 |
| | 4 |
| | 67 |
| | (192 | ) | | 83 |
|
Less: Net loss attributable to non-controlling interests | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Net income (loss) attributable to Mr. Cooper | $ | 84 |
| | $ | 121 |
| | $ | 4 |
| | $ | 67 |
| | $ | (192 | ) | | $ | 84 |
|
Total modifications and workouts during the six months ended June 30, 2020 increased compared to the same period in 2019 primarily due to an increase in workouts related to loans impacted by the COVID-19 pandemic which successfully exited their forbearance plans.
The following tables provide the composition of revenues for the Servicing segment:
| | |
(1)
| Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.Table 10. Servicing - Revenues |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | $ Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Forward MSR Operational Revenue | | | | | | | | | | | | | | | |
Base servicing fees | $ | 239 | | | 16 | | $ | 257 | | | 16 | | $ | (18) | | | — | | (7) | % | | — | % |
Modification fees(2) | 2 | | | — | | 6 | | | — | | (4) | | | — | | (67) | % | | — | % |
Incentive fees(2) | 5 | | | — | | 1 | | | — | | 4 | | | — | | 400 | % | | — | % |
Late payment fees(2) | 16 | | | 1 | | 20 | | | 2 | | (4) | | | (1) | | (20) | % | | (50) | % |
Other ancillary revenues(2) | 44 | | | 3 | | 30 | | | 2 | | 14 | | | 1 | | 47 | % | | 50 | % |
Total forward MSR operational revenue | 306 | | | 20 | | 314 | | | 20 | | (8) | | | — | | (3) | % | | — | % |
Base subservicing fees and other subservicing revenue(3) | 69 | | | 5 | | 62 | | | 4 | | 7 | | | 1 | | 11 | % | | 25 | % |
Reverse servicing fees | 7 | | | — | | 8 | | | — | | (1) | | | — | | (13) | % | | — | % |
Total servicing fee revenue | 382 | | | 25 | | 384 | | | 24 | | (2) | | | 1 | | (1) | % | | 4 | % |
MSR financing liability costs | (9) | | | (1) | | (11) | | | (1) | | 2 | | | — | | (18) | % | | — | % |
Excess spread costs - principal | (79) | | | (5) | | (59) | | | (3) | | (20) | | | (2) | | 34 | % | | 67 | % |
Total operational revenue | 294 | | | 19 | | 314 | | | 20 | | (20) | | | (1) | | (6) | % | | (5) | % |
Amortization, net of accretion | | | | | | | | | | | | | | | |
Forward MSR amortization | (186) | | | (12) | | (125) | | | (8) | | (61) | | | (4) | | 49 | % | | 50 | % |
Excess spread accretion | 79 | | | 5 | | 59 | | | 3 | | 20 | | | 2 | | 34 | % | | 67 | % |
Reverse MSL accretion | 5 | | | — | | 11 | | | 1 | | (6) | | | (1) | | (55) | % | | (100) | % |
Reverse MSR amortization | — | | | — | | (1) | | | — | | 1 | | | — | | 100 | % | | — | % |
Total amortization, net of accretion | (102) | | | (7) | | (56) | | | (4) | | (46) | | | (3) | | 82 | % | | 75 | % |
Mark-to-Market Adjustments | | | | | | | | | | | | | | | |
MSR MTM(3) | (321) | | | (21) | | (227) | | | (14) | | (94) | | | (7) | | 41 | % | | 50 | % |
Excess spread / financing MTM | 60 | | | 4 | | (4) | | | — | | 64 | | | 4 | | (1,600) | % | | 100 | % |
Total MTM adjustments | (261) | | | (17) | | (231) | | | (14) | | (30) | | | (3) | | 13 | % | | 21 | % |
Total revenues - Servicing | $ | (69) | | | (5) | | $ | 27 | | | 2 | | $ | (96) | | | (7) | | (356) | % | | (350) | % |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
(3)The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $3 and $17 for the three months ended June 30, 2020 and 2019, respectively.
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2019 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Mr. Cooper | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | |
Service related, net | $ | — |
| | $ | 139 |
| | $ | 16 |
| | $ | 324 |
| | $ | — |
| | $ | 479 |
|
Net gain on mortgage loans held for sale | — |
| | 777 |
| | — |
| | 11 |
| | — |
| | 788 |
|
Total revenues | — |
| | 916 |
| | 16 |
| | 335 |
| | — |
| | 1,267 |
|
Expenses: | | | | | | | | | | | |
Salaries, wages benefits | — |
| | 581 |
| | 3 |
| | 119 |
| | — |
| | 703 |
|
General and administrative | — |
| | 529 |
| | 2 |
| | 179 |
| | — |
| | 710 |
|
Total expenses | — |
| | 1,110 |
| | 5 |
| | 298 |
| | — |
| | 1,413 |
|
Other income (expenses): | | | | | | | | | | | |
Interest income | — |
| | 392 |
| | — |
| | 67 |
| | — |
| | 459 |
|
Interest expense | (114 | ) | | (411 | ) | | — |
| | (47 | ) | | — |
| | (572 | ) |
Other income (expenses) | — |
| | 2 |
| | — |
| | 14 |
| | — |
| | 16 |
|
(Loss) gain from subsidiaries | (75 | ) | | 82 |
| | — |
| | — |
| | (7 | ) | | — |
|
Total other income (expenses), net | (189 | ) | | 65 |
| | — |
| | 34 |
| | (7 | ) | | (97 | ) |
(Loss) income before income tax benefit | (189 | ) | | (129 | ) | | 11 |
| | 71 |
| | (7 | ) | | (243 | ) |
Less: Income tax benefit | — |
| | (52 | ) | | — |
| | — |
| | — |
| | (52 | ) |
Net (loss) income | (189 | ) | | (77 | ) | | 11 |
| | 71 |
| | (7 | ) | | (191 | ) |
Less: Net loss attributable to non-controlling interests | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) |
Net (loss) income attributable to Mr. Cooper | $ | (189 | ) | | $ | (75 | ) | | $ | 11 |
| | $ | 71 |
| | $ | (7 | ) | | $ | (189 | ) |
Forward - Due to the decrease of the forward MSR portfolio’s UPB, base servicing fee revenue decreased for the three months ended June 30, 2020 as compared to the same period in 2019. Other ancillary revenues increased primarily due to higher sales lead incentives due to increased portfolio recapture activity. Incentive fee revenue increased primarily due to higher investor incentives driven by better overall performance.
Forward MSR amortization increased for the three months ended June 30, 2020 as compared to the same period in 2019, primarily due to higher prepayments driven by the lower interest rate environment.
Total negative MTM adjustments increased for the three months ended June 30, 2020 as compared to the same period in 2019 primarily due to the declining interest rate environment during 2020.
Subservicing - Subservicing fees increased for the three months ended June 30, 2020 as compared to the same period in 2019, primarily due to higher average subservicing portfolio UPB.
Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios for the three months ended June 30, 2020 decreased as compared to the same period in 2019, primarily due to the decline in the reverse mortgage portfolio.
| | |
(1)
| Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.Table 10.1 Servicing - Revenues |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | $ Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Forward MSR Operational Revenue | | | | | | | | | | | | | | | |
Base servicing fees | $ | 489 | | | 16 | | $ | 497 | | | 17 | | $ | (8) | | | (1) | | (2) | % | | (6) | % |
Modification fees(2) | 5 | | | — | | 9 | | | — | | (4) | | | — | | (44) | % | | — | % |
Incentive fees(2) | 9 | | | — | | 2 | | | — | | 7 | | | — | | 350 | % | | — | % |
Late payment fees(2) | 39 | | | 1 | | 39 | | | 1 | | — | | | — | | — | % | | — | % |
Other ancillary revenues(2) | 82 | | | 3 | | 78 | | | 3 | | 4 | | | — | | 5 | % | | — | % |
Total forward MSR operational revenue | 624 | | | 20 | | 625 | | | 21 | | (1) | | | (1) | | — | % | | (5) | % |
Base subservicing fees and other subservicing revenue(3) | 134 | | | 5 | | 114 | | | 4 | | 20 | | | 1 | | 18 | % | | 25 | % |
Reverse servicing fees | 13 | | | — | | 17 | | | — | | (4) | | | — | | (24) | % | | — | % |
Total servicing fee revenue | 771 | | | 25 | | 756 | | | 25 | | 15 | | | — | | 2 | % | | — | % |
MSR financing liability costs | (17) | | | (1) | | (23) | | | (1) | | 6 | | | — | | (26) | % | | — | % |
Excess spread costs - principal | (147) | | | (5) | | (95) | | | (3) | | (52) | | | (2) | | 55 | % | | 67 | % |
Total operational revenue | 607 | | | 19 | | 638 | | | 21 | | (31) | | | (2) | | (5) | % | | (10) | % |
Amortization, net of accretion | | | | | | | | | | | | | | | |
Forward MSR amortization | (338) | | | (11) | | (204) | | | (7) | | (134) | | | (4) | | 66 | % | | 57 | % |
Excess spread accretion | 147 | | | 5 | | 95 | | | 3 | | 52 | | | 2 | | 55 | % | | 67 | % |
Reverse MSL accretion | 13 | | | — | | 29 | | | 1 | | (16) | | | (1) | | (55) | % | | (100) | % |
Reverse MSR amortization | — | | | — | | 1 | | | — | | (1) | | | — | | (100) | % | | — | % |
Total amortization, net of accretion | (178) | | | (6) | | (79) | | | (3) | | (99) | | | (3) | | 125 | % | | 100 | % |
Mark-to-Market Adjustments | | | | | | | | | | | | | | | |
MSR MTM(3) | (733) | | | (23) | | (587) | | | (19) | | (146) | | | (4) | | 25 | % | | 21 | % |
Excess spread / financing MTM | 89 | | | 3 | | 63 | | | 2 | | 26 | | | 1 | | 41 | % | | 50 | % |
Total MTM adjustments | (644) | | | (20) | | (524) | | | (17) | | (120) | | | (3) | | 23 | % | | 18 | % |
Total revenues - Servicing | $ | (215) | | | (7) | | $ | 35 | | | 1 | | $ | (250) | | | (8) | | (714) | % | | (800) | % |
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2019 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Mr. Cooper | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Operating Activities | | | | | | | | | | | |
Net (loss) income attributable to Mr. Cooper | $ | (189 | ) | | $ | (75 | ) | | $ | 11 |
| | $ | 71 |
| | $ | (7 | ) | | $ | (189 | ) |
Adjustments to reconcile net (loss) income to net cash attributable to operating activities: | | | | | | | | | | | |
Deferred tax benefit | — |
| | (53 | ) | | — |
| | — |
| | — |
| | (53 | ) |
Net loss attributable to non-controlling interests | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) |
Loss (gain) from subsidiaries | 75 |
| | (82 | ) | | — |
| | — |
| | 7 |
| | — |
|
Net gain on mortgage loans held for sale | — |
| | (777 | ) | | — |
| | (11 | ) | | — |
| | (788 | ) |
Interest income on reverse mortgage loans | — |
| | (208 | ) | | — |
| | (33 | ) | | — |
| | (241 | ) |
Provision for servicing reserves | — |
| | 53 |
| | — |
| | — |
| | — |
| | 53 |
|
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities | — |
| | 990 |
| | — |
| | 8 |
| | — |
| | 998 |
|
Fair value changes in excess spread financing | — |
| | (186 | ) | | — |
| | (4 | ) | | — |
| | (190 | ) |
Fair value changes in mortgage servicing rights financing liability | — |
| | 15 |
| | — |
| | — |
| | — |
| | 15 |
|
Fair value changes in mortgage loans held for investment | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
Amortization of premiums, net of discount accretion | 5 |
| | (21 | ) | | — |
| | (22 | ) | | — |
| | (38 | ) |
Depreciation and amortization for property and equipment and intangible assets | — |
| | 55 |
| | — |
| | 12 |
| | — |
| | 67 |
|
Share-based compensation | — |
| | 11 |
| | — |
| | 3 |
| | — |
| | 14 |
|
Other loss | — |
| | 5 |
| | — |
| | — |
| | — |
| | 5 |
|
Repurchases of forward loans assets out of Ginnie Mae securitizations | — |
| | (1,823 | ) | | — |
| | — |
| | — |
| | (1,823 | ) |
Mortgage loans originated and purchased for sale, net of fees | — |
| | (27,685 | ) | | — |
| | 12 |
| | — |
| | (27,673 | ) |
Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment | — |
| | 27,777 |
| | — |
| | 139 |
| | — |
| | 27,916 |
|
Changes in assets and liabilities: | | | | | | | | | | | |
Advances and other receivables | — |
| | 266 |
| | — |
| | (1 | ) | | — |
| | 265 |
|
Reverse mortgage interests | — |
| | 1,515 |
| | — |
| | 185 |
| | — |
| | 1,700 |
|
Other assets | — |
| | 141 |
| | (12 | ) | | (121 | ) | | — |
| | 8 |
|
Payables and other liabilities | 109 |
| | (164 | ) | | 1 |
| | (15 | ) | | — |
| | (69 | ) |
Net cash attributable to operating activities | — |
| | (248 | ) | | — |
| | 220 |
| | — |
| | (28 | ) |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
(3)The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $13 and $28 for the six months ended June 30, 2020 and 2019, respectively.
Forward - Due to the decrease of the forward MSR portfolio’s UPB, base servicing fee revenue decreased for the six months ended June 30, 2020 as compared to the same period in 2019. Incentive fee revenue increased primarily due to higher investor incentives driven by better overall performance.
Forward MSR amortization increased for the six months ended June 30, 2020 as compared to the same period in 2019, primarily due to higher prepayments driven by the lower interest rate environment.
Total negative MTM adjustments increased for the six months ended June 30, 2020 as compared to the same period in 2019 primarily due to the declining interest rate environment during 2020.
Subservicing - Subservicing fees increased for the six months ended June 30, 2020 as compared to the same period in 2019 primarily due to a higher average subservicing portfolio UPB.
Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios for the six months ended June 30, 2020 decreased as compared to the same period in 2019, primarily due to the decline in the reverse mortgage portfolio. Reverse MSL accretion was further impacted by $6 pertaining to accumulated accretion recorded during the six months ended June 30, 2019 related to fair value adjustments for MSL assumed from the Merger. The fair value adjustment resulted from the revised cost to service assumption used in the valuation of MSL during the measurement period.
The tables below summarize expenses for the Servicing segment:
| | | | | | | | | | | | | | |
(1) Table 11. Servicing - Expenses | Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described. | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Salaries, wages and benefits | $ | 75 | | | 5 | | $ | 90 | | | 6 | | $ | (15) | | | (1) | | (17) | % | | (17) | % |
General and administrative | | | | | | | | | | | | | | | |
Servicing support fees | 27 | | | 2 | | 24 | | | 2 | | 3 | | | — | | 13 | % | | — | % |
Corporate and other general and administrative expenses | 32 | | | 2 | | 39 | | | 2 | | (7) | | | — | | (18) | % | | — | % |
Foreclosure and other liquidation related expenses (recoveries), net | (17) | | | (1) | | 32 | | | 2 | | (49) | | | (3) | | (153) | % | | (150) | % |
Depreciation and amortization | 5 | | | — | | 4 | | | — | | 1 | | | — | | 25 | % | | — | % |
Total general and administrative expenses | 47 | | | 3 | | 99 | | | 6 | | (52) | | | (3) | | (53) | % | | (50) | % |
Total expenses - Servicing | $ | 122 | | | 8 | | $ | 189 | | | 12 | | $ | (67) | | | (4) | | (35) | % | | (33) | % |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
Total expenses decreased during the three months ended June 30, 2020 compared to the same period in 2019, primarily driven by a decrease in foreclosure and other liquidation expenses (recoveries), net. Foreclosure and other liquidation related expenses (recoveries), net, decreased primarily due to operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to improved performance of $15 on loss recoveries related to settlement with a prior servicer. Salaries, wages and benefits decreased in 2020 compared to the same period in 2019 primarily due to operational efficiencies which included consolidation of one of our servicing centers.
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2019 (Continued) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Mr. Cooper | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Investing Activities | | | | | | | | | | | |
Acquisition, net of cash acquired | — |
| | (85 | ) | | — |
| | — |
| | — |
| | (85 | ) |
Property and equipment additions, net of disposals | — |
| | (27 | ) | | — |
| | (11 | ) | | — |
| | (38 | ) |
Purchase of forward mortgage servicing rights, net of liabilities incurred | — |
| | (454 | ) | | — |
| | — |
| | — |
| | (454 | ) |
Proceeds on sale of forward and reverse mortgage servicing rights | — |
| | 298 |
| | — |
| | — |
| | — |
| | 298 |
|
Net cash attributable to investing activities | — |
| | (268 | ) | | — |
| | (11 | ) | | — |
| | (279 | ) |
Financing Activities | | | | | | | | | | | |
Increase in warehouse facilities | — |
| | 1,930 |
| | — |
| | — |
| | — |
| | 1,930 |
|
Decrease in advance facilities | — |
| | (39 | ) | | — |
| | (56 | ) | | — |
| | (95 | ) |
Repayment of notes payable | — |
| | (294 | ) | | — |
| | — |
| | — |
| | (294 | ) |
Proceeds from issuance of HECM securitizations | — |
| | — |
| | — |
| | 398 |
| | — |
| | 398 |
|
Proceeds from sale of HECM securitizations | — |
| | — |
| | — |
| | 20 |
| | — |
| | 20 |
|
Repayment of HECM securitizations | — |
| | — |
| | — |
| | (568 | ) | | — |
| | (568 | ) |
Proceeds from issuance of participating interest financing in reverse mortgage interests | — |
| | 220 |
| | — |
| | — |
| | — |
| | 220 |
|
Repayment of participating interest financing in reverse mortgage interests | — |
| | (1,472 | ) | | — |
| | — |
| | — |
| | (1,472 | ) |
Proceeds from issuance of excess spread financing | — |
| | 469 |
| | — |
| | — |
| | — |
| | 469 |
|
Repayment of excess spread financing | — |
| | (19 | ) | | — |
| | — |
| | — |
| | (19 | ) |
Settlement of excess spread financing | — |
| | (163 | ) | | — |
| | — |
| | — |
| | (163 | ) |
Repayment of nonrecourse debt - legacy assets | — |
| | — |
| | — |
| | (29 | ) | | — |
| | (29 | ) |
Repayment of finance lease liability | — |
| | (3 | ) | | — |
| | — |
| | — |
| | (3 | ) |
Surrender of shares relating to stock vesting | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Debt financing costs | — |
| | (5 | ) | | — |
| | — |
| | — |
| | (5 | ) |
Net cash attributable to financing activities | — |
| | 623 |
| | — |
| | (235 | ) | | — |
| | 388 |
|
Net increase (decrease) in cash, cash equivalents, and restricted cash | — |
| | 107 |
| | — |
| | (26 | ) | | — |
| | 81 |
|
Cash, cash equivalents, and restricted cash - beginning of period | — |
| | 379 |
| | 1 |
| | 181 |
| | — |
| | 561 |
|
Cash, cash equivalents, and restricted cash - end of period | $ | — |
| | $ | 486 |
| | $ | 1 |
| | $ | 155 |
| | $ | — |
| | $ | 642 |
|
| | |
(1)
| Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.Table 11.1 Servicing - Expenses |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Salaries, wages and benefits | $ | 161 | | | 5 | | $ | 176 | | | 6 | | $ | (15) | | | (1) | | (9) | % | | (17) | % |
General and administrative | | | | | | | | | | | | | | | |
Servicing support fees | 52 | | | 2 | | 63 | | | 2 | | (11) | | | — | | (17) | % | | — | % |
Corporate and other general and administrative expenses | 67 | | | 2 | | 78 | | | 3 | | (11) | | | (1) | | (14) | % | | (33) | % |
Foreclosure and other liquidation related expenses (recoveries), net | (17) | | | — | | 59 | | | 2 | | (76) | | | (2) | | (129) | % | | (100) | % |
Depreciation and amortization | 8 | | | — | | 8 | | | — | | — | | | — | | — | % | | — | % |
Total general and administrative expenses | 110 | | | 4 | | 208 | | | 7 | | (98) | | | (3) | | (47) | % | | (43) | % |
Total expenses - Servicing | $ | 271 | | | 9 | | $ | 384 | | | 13 | | $ | (113) | | | (4) | | (29) | % | | (31) | % |
MR. COOPER GROUP INC. CONSOLIDATING BALANCE SHEET DECEMBER 31, 2018 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Mr. Cooper | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Assets | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 193 |
| | $ | 1 |
| | $ | 48 |
| | $ | — |
| | $ | 242 |
|
Restricted cash | — |
| | 186 |
| | — |
| | 133 |
| | — |
| | 319 |
|
Mortgage servicing rights | — |
| | 3,644 |
| | — |
| | 32 |
| | — |
| | 3,676 |
|
Advances and other receivables, net | — |
| | 1,194 |
| | — |
| | — |
| | — |
| | 1,194 |
|
Reverse mortgage interests, net | — |
| | 6,770 |
| | — |
| | 1,164 |
| | — |
| | 7,934 |
|
Mortgage loans held for sale at fair value | — |
| | 1,631 |
| | — |
| | — |
| | — |
| | 1,631 |
|
Mortgage loans held for investment at fair value | — |
| | 1 |
| | — |
| | 118 |
| | — |
| | 119 |
|
Property and equipment, net | — |
| | 84 |
| | — |
| | 12 |
| | — |
| | 96 |
|
Deferred tax asset, net | 973 |
| | — |
| | — |
| | (6 | ) | | — |
| | 967 |
|
Other assets | — |
| | 660 |
| | 202 |
| | 621 |
| | (688 | ) | | 795 |
|
Investment in subsidiaries | 2,820 |
| | 601 |
| | — |
| | — |
| | (3,421 | ) | | — |
|
Total assets | $ | 3,793 |
| | $ | 14,964 |
| | $ | 203 |
| | $ | 2,122 |
| | $ | (4,109 | ) | | $ | 16,973 |
|
| | | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | |
Unsecured senior notes, net | $ | 1,660 |
| | $ | 799 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,459 |
|
Advance facilities, net | — |
| | 90 |
| | — |
| | 505 |
| | — |
| | 595 |
|
Warehouse facilities, net | — |
| | 2,349 |
| | — |
| | — |
| | — |
| | 2,349 |
|
Payables and other liabilities | 49 |
| | 1,413 |
| | 1 |
| | 80 |
| | — |
| | 1,543 |
|
MSR related liabilities - nonrecourse at fair value | — |
| | 1,197 |
| | — |
| | 19 |
| | — |
| | 1,216 |
|
Mortgage servicing liabilities | — |
| | 71 |
| | — |
| | — |
| | — |
| | 71 |
|
Other nonrecourse debt, net | — |
| | 5,676 |
| | — |
| | 1,119 |
| | — |
| | 6,795 |
|
Payables to affiliates | 139 |
| | 549 |
| | — |
| | — |
| | (688 | ) | | — |
|
Total liabilities | 1,848 |
| | 12,144 |
| | 1 |
| | 1,723 |
| | (688 | ) | | 15,028 |
|
Total stockholders’ equity | 1,945 |
| | 2,820 |
| | 202 |
| | 399 |
| | (3,421 | ) | | 1,945 |
|
Total liabilities and stockholders’ equity | $ | 3,793 |
| | $ | 14,964 |
| | $ | 203 |
| | $ | 2,122 |
| | $ | (4,109 | ) | | $ | 16,973 |
|
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
Total expenses decreased during the six months ended June 30, 2020 compared to the same period in 2019, primarily driven by a decrease in foreclosure and other liquidation expenses (recoveries), net. Foreclosure and other liquidation related expenses (recoveries), net decreased primarily due to operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to improved performance of $15 on loss recoveries related to a settlement with a prior servicer during the six months ended June 30, 2020. Servicing support fees decreased in 2020 compared to the same period in 2019 primarily due to lower legal and tax service expenses. The decrease in Corporate and other general and administrative expenses in 2020 compared to the same period in 2019 was primarily driven by lower occupancy expenses. Salaries, wages and benefits decreased in 2020 compared to the same period in 2019 primarily due to improved operational efficiencies which included consolidation of one of our servicing centers.
| | | | | | | | | | | | | | |
(1) Table 12. Servicing - Other (Expenses) Income, Net | Issuer balances exclude the balances of its guarantor and non-guarantor subsidiaries, as previously described. | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Income earned on Reverse mortgage interest | $ | 54 | | | 4 | | $ | 86 | | | 6 | | $ | (32) | | | (2) | | (37) | % | | (33) | % |
Other interest income | 3 | | | — | | 50 | | | 3 | | (47) | | | (3) | | (94) | % | | (100) | % |
Interest income | 57 | | | 4 | | 136 | | | 9 | | (79) | | | (5) | | (58) | % | | (56) | % |
| | | | | | | | | | | | | | | |
Reverse mortgage interest expense | (51) | | | (3) | | (46) | | | (3) | | (5) | | | — | | 11 | % | | — | % |
Advance interest expense | (8) | | | (1) | | (8) | | | (1) | | — | | | — | | — | % | | — | % |
Other interest expense | (58) | | | (4) | | (55) | | | (3) | | (3) | | | (1) | | 5 | % | | 33 | % |
Interest expense | (117) | | | (8) | | (109) | | | (7) | | (8) | | | (1) | | 7 | % | | 14 | % |
| | | | | | | | | | | | | | | |
Total other (expenses) income, net - Servicing | $ | (60) | | | (4) | | $ | 27 | | | 2 | | $ | (87) | | | (6) | | (322) | % | | (300) | % |
| | | | | | | | | | | | | | | |
Weighted average cost - advance facilities | 2.9 | % | | | | 5.5 | % | | | | (2.6) | % | | | | (47) | % | | |
Weighted average cost - excess spread financing | 9.0 | % | | | | 8.9 | % | | | | 0.1 | % | | | | 1 | % | | |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF OPERATIONS TWO MONTHS ENDED SEPTEMBER 30, 2018 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Nationstar | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | |
Service related, net | $ | — |
| | $ | 183 |
| | $ | 4 |
| | $ | 72 |
| | $ | — |
| | $ | 259 |
|
Net gain on mortgage loans held for sale | — |
| | 83 |
| | — |
| | — |
| | — |
| | 83 |
|
Total revenues | — |
| | 266 |
| | 4 |
| | 72 |
| | — |
| | 342 |
|
Expenses: | | | | | | | | | | | |
Salaries, wages and benefits | — |
| | 107 |
| | 1 |
| | 31 |
| | — |
| | 139 |
|
General and administrative | 1 |
| | 91 |
| | 1 |
| | 43 |
| | — |
| | 136 |
|
Total expenses | 1 |
| | 198 |
| | 2 |
| | 74 |
| | — |
| | 275 |
|
Other income (expenses): | | | | | | | | | | | |
Interest income | — |
| | 80 |
| | — |
| | 10 |
| | — |
| | 90 |
|
Interest expense | (26 | ) | | (87 | ) | | — |
| | (9 | ) | | — |
| | (122 | ) |
Other income | 1 |
| | 5 |
| | — |
| | — |
| | — |
| | 6 |
|
Gain (loss) from subsidiaries | 56 |
| | 1 |
| | — |
| | — |
| | (57 | ) | | — |
|
Total other income (expenses), net | 31 |
| | (1 | ) | | — |
| | 1 |
| | (57 | ) | | (26 | ) |
Income (loss) before income tax expense (benefit) | 30 |
| | 67 |
| | 2 |
| | (1 | ) | | (57 | ) | | 41 |
|
Less: Income tax (benefit) expense | (990 | ) | | 11 |
| | — |
| | — |
| | — |
| | (979 | ) |
Net income (loss) | 1,020 |
| | 56 |
| | 2 |
| | (1 | ) | | (57 | ) | | 1,020 |
|
Less: Net income (loss) attributable to non-controlling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net income (loss) attributable to Nationstar | $ | 1,020 |
| | $ | 56 |
| | $ | 2 |
| | $ | (1 | ) | | $ | (57 | ) | | $ | 1,020 |
|
For the three months ended June 30, 2020, we had total other expenses, net, of $60 compared to total other income, net, of $27 for the same period in 2019. The change was primarily due to a decrease in interest income, mainly driven by lower interest income earned on custodial balances driven by lower LIBOR rates. Income earned on reverse mortgage interest decreased due to the decline in the reverse mortgage interests balance and the amortization of a net asset premium into income. Interest expense increased for the three months ended June 30, 2020 as compared to the same period in 2019, primarily due to an increase in other interest expense and reverse mortgage interest expense. Other interest expense increased due to higher bank fees and higher compensating interest expense. The increase in reverse mortgage interest expense was primarily driven by lower bond premium amortization, partially offset by the decline in the reverse mortgage interest portfolio.
| | |
(1)
| Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.Table 12.1 Servicing - Other (Expenses) Income, Net |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Income earned on Reverse mortgage interest | $ | 97 | | | 3 | | $ | 168 | | | 5 | | $ | (71) | | | (2) | | (42) | % | | (40) | % |
Other interest income | 43 | | | 1 | | 83 | | | 3 | | (40) | | | (2) | | (48) | % | | (67) | % |
Interest income | 140 | | | 4 | | 251 | | | 8 | | (111) | | | (4) | | (44) | % | | (50) | % |
| | | | | | | | | | | | | | | |
Reverse mortgage interest expense | (103) | | | (3) | | (117) | | | (4) | | 14 | | | 1 | | (12) | % | | (25) | % |
Advance interest expense | (13) | | | — | | (17) | | | — | | 4 | | | — | | (24) | % | | — | % |
Other interest expense | (114) | | | (4) | | (89) | | | (3) | | (25) | | | (1) | | 28 | % | | 33 | % |
Interest expense | (230) | | | (7) | | (223) | | | (7) | | (7) | | | — | | 3 | % | | — | % |
| | | | | | | | | | | | | | | |
Total other (expenses) income, net - Servicing | $ | (90) | | | (3) | | $ | 28 | | | 1 | | $ | (118) | | | (4) | | (421) | % | | (400) | % |
| | | | | | | | | | | | | | | |
Weighted average cost - advance facilities | 3.0 | % | | | | 5.1 | % | | | | (2.1) | % | | | | (41) | % | | |
Weighted average cost - excess spread financing | 9.0 | % | | | | 8.9 | % | | | | 0.1 | % | | | | 1 | % | | |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
For the six months ended June 30, 2020, we had total other expenses, net, of $90 compared to total other income, net, of $28 for the same period in 2019. The change was primarily due to a decrease in interest income, mainly driven by lower interest income earned on custodial balances driven by lower LIBOR rates. Income earned on reverse mortgage interest decreased due to the decline in the reverse mortgage interests balance and the amortization of a net asset premium into income. Interest expense remained relatively flat for the six months ended June 30, 2020 as compared to the same period in 2019.
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF OPERATIONS ONE MONTH ENDED JULY 31, 2018 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor |
| Nationstar | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | |
Service related, net | $ | — |
| | $ | 95 |
| | $ | 3 |
| | $ | 22 |
| | $ | — |
| | $ | 120 |
|
Net gain on mortgage loans held for sale | — |
| | 44 |
| | — |
| | — |
| | — |
| | 44 |
|
Total revenues | — |
| | 139 |
| | 3 |
| | 22 |
| | — |
| | 164 |
|
Expenses: | | | | | | | | | | | |
Salaries, wages and benefits | — |
| | 59 |
| | — |
| | 10 |
| | — |
| | 69 |
|
General and administrative | 27 |
| | 136 |
| | — |
| | 10 |
| | — |
| | 173 |
|
Total expenses | 27 |
| | 195 |
| | — |
| | 20 |
| | — |
| | 242 |
|
Other income (expenses): | | | | | | | | | | | |
Interest income | — |
| | 41 |
| | — |
| | 7 |
| | — |
| | 48 |
|
Interest expense | — |
| | (49 | ) | | — |
| | (4 | ) | | — |
| | (53 | ) |
Other income (expense) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
(Loss) gain from subsidiaries | (37 | ) | | 7 |
| | — |
| | — |
| | 30 |
| | — |
|
Total other income (expenses), net | (37 | ) | | (1 | ) | | — |
| | 3 |
| | 30 |
| | (5 | ) |
(Loss) income before income tax (benefit) expense | (64 | ) | | (57 | ) | | 3 |
| | 5 |
| | 30 |
| | (83 | ) |
Less: Income tax (benefit) expense | — |
| | (20 | ) | | — |
| | 1 |
| | — |
| | (19 | ) |
Net loss) income | (64 | ) | | (37 | ) | | 3 |
| | 4 |
| | 30 |
| | (64 | ) |
Less: Net income (loss) attributable to non-controlling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net (loss) income attributable to Nationstar | $ | (64 | ) | | $ | (37 | ) | | $ | 3 |
| | $ | 4 |
| | $ | 30 |
| | $ | (64 | ) |
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF OPERATIONS SEVEN MONTHS ENDED JULY 31, 2018 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor |
| Nationstar | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | |
Service related, net | $ | — |
| | $ | 732 |
| | $ | 16 |
| | $ | 153 |
| | $ | — |
| | $ | 901 |
|
Net gain on mortgage loans held for sale | — |
| | 295 |
| | — |
| | — |
| | — |
| | 295 |
|
Total revenues | — |
| | 1,027 |
| | 16 |
| | 153 |
| | — |
| | 1,196 |
|
Expenses: | | | | | | | | | | | |
Salaries, wages and benefits | — |
| | 359 |
| | 3 |
| | 64 |
| | — |
| | 426 |
|
General and administrative | 27 |
| | 427 |
| | 1 |
| | 64 |
| | — |
| | 519 |
|
Total expenses | 27 |
| | 786 |
| | 4 |
| | 128 |
| | — |
| | 945 |
|
Other income (expenses): | | | | | | | | | | | |
Interest income | — |
| | 299 |
| | — |
| | 34 |
| | — |
| | 333 |
|
Interest expense | — |
| | (364 | ) | | — |
| | (24 | ) | | — |
| | (388 | ) |
Other income (expense) | — |
| | (3 | ) | | — |
| | 9 |
| | — |
| | 6 |
|
Gain (loss) from subsidiaries | 181 |
| | 56 |
| | — |
| | — |
| | (237 | ) | | — |
|
Total other income (expenses), net | 181 |
| | (12 | ) | | — |
| | 19 |
| | (237 | ) | | (49 | ) |
Income (loss) before income tax expense | 154 |
| | 229 |
| | 12 |
| | 44 |
| | (237 | ) | | 202 |
|
Less: Income tax expense | — |
| | 48 |
| | — |
| | — |
| | — |
| | 48 |
|
Net income (loss) | 154 |
| | 181 |
| | 12 |
| | 44 |
| | (237 | ) | | 154 |
|
Less: Net income (loss) attributable to non-controlling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net income (loss) attributable to Nationstar | $ | 154 |
| | $ | 181 |
| | $ | 12 |
| | $ | 44 |
| | $ | (237 | ) | | $ | 154 |
|
Servicing Portfolio and Related Liabilities
The table below summarizes the servicing portfolio and related liabilities in the Servicing segment:
| | | | | | | | | | | | | | |
(1) Table 13. Servicing Portfolios and Related Liabilities | Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described. | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | December 31, 2019 | | | | |
| UPB | | Carrying Amount | | bps | | UPB | | Carrying Amount | | bps |
Forward MSRs - acquisition pool: | | | | | | | | | | | |
Credit sensitive | $ | 131,105 | | | $ | 1,307 | | | 100 | | $ | 147,895 | | | $ | 1,613 | | | 109 |
Interest sensitive | 146,870 | | | 1,450 | | | 99 | | 148,887 | | | 1,883 | | | 126 |
Total forward MSRs - fair value | $ | 277,975 | | | $ | 2,757 | | | 99 | | $ | 296,782 | | | $ | 3,496 | | | 118 |
| | | | | | | | | | | |
Forward MSRs - investor pool: | | | | | | | | | | | |
Agency | $ | 228,680 | | | $ | 2,308 | | | 101 | | $ | 240,688 | | | $ | 2,944 | | | 122 |
Non-agency | 49,295 | | | 449 | | | 91 | | 56,094 | | | 552 | | | 98 |
Total forward MSRs - fair value | $ | 277,975 | | | $ | 2,757 | | | 99 | | $ | 296,782 | | | $ | 3,496 | | | 118 |
| | | | | | | | | | | |
Total forward MSRs | $ | 277,975 | | | $ | 2,757 | | | | | $ | 296,782 | | | $ | 3,496 | | | |
| | | | | | | | | | | |
Subservicing and other(1) | | | | | | | | | | | |
Agency | 286,710 | | | N/A | | | | 308,532 | | | N/A | | |
Non-agency | 10,082 | | | N/A | | | | 15,451 | | | N/A | | |
Total subservicing and other | 296,792 | | | N/A | | | | 323,983 | | | N/A | | |
| | | | | | | | | | | |
Reverse portfolio - amortized cost | | | | | | | | | | | |
MSR | 2,190 | | | 6 | | | | | 2,508 | | | 6 | | | |
MSL | 12,891 | | | (48) | | | | | 13,994 | | | (61) | | | |
Securitized loans | 5,677 | | | 5,709 | | | | | 6,223 | | | 6,279 | | | |
Total reverse portfolio serviced | 20,758 | | | 5,667 | | | | | 22,725 | | | 6,224 | | | |
Total servicing portfolio unpaid principal balance | $ | 595,525 | | | $ | 8,424 | | | | | $ | 643,490 | | | $ | 9,720 | | | |
(1)Subservicing and other amounts include loans we service for others, residential mortgage loans originated but have yet to be sold and agency REO balances for which we own the mortgage servicing rights.
As of June 30, 2020, when measuring the fair value of the portfolio as a basis point of the unpaid principal balance, our credit sensitive pool decreased in value by 9 bps and interest sensitive pool decreased in value by 27 bps, compared to December 31, 2019 primarily due to higher forecasted prepayment speeds as a result of the declining interest rate environment in 2020.
We assess whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition. We consider numerous factors in making this assessment, with the primary factors consisting of the overall portfolio delinquency characteristics, portfolio seasoning and residential mortgage loan composition. Interest rate sensitive portfolios typically consist of single-family conforming residential forward mortgage loans serviced for GSEs or other third-party investors. Credit sensitive portfolios primarily consist of higher delinquency single-family non-conforming residential forward mortgage loans in private-label securitizations.
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS TWO MONTHS ENDED SEPTEMBER 30, 2018 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Nationstar | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Operating Activities | | | | | | | | | | | |
Net income (loss) attributable to Mr. Cooper | $ | 1,020 |
| | $ | 56 |
| | $ | 2 |
| | $ | (1 | ) | | $ | (57 | ) | | $ | 1,020 |
|
Adjustments to reconcile net income (loss) to net cash attributable to operating activities: | | | | | | | | | | | |
Deferred income tax (benefit) expense | (990 | ) | | 52 |
| | — |
| | 7 |
| | — |
| | (931 | ) |
Net income attributable to non-controlling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
(Gain) loss from subsidiaries | (56 | ) | | (1 | ) | | — |
| | — |
| | 57 |
| | — |
|
Net gain on mortgage loans held for sale | — |
| | (83 | ) | | — |
| | — |
| | — |
| | (83 | ) |
Interest income on reverse mortgage loans | — |
| | (72 | ) | | — |
| | — |
| | — |
| | (72 | ) |
Provision for servicing reserves | — |
| | 14 |
| | — |
| | — |
| | — |
| | 14 |
|
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities | — |
| | (27 | ) | | — |
| | — |
| | — |
| | (27 | ) |
Fair value changes in excess spread financing | — |
| | 26 |
| | — |
| | — |
| | — |
| | 26 |
|
Amortization of premiums, net of discount accretion | 1 |
| | 2 |
| | — |
| | — |
| | — |
| | 3 |
|
Depreciation and amortization for property and equipment and intangible assets | — |
| | 13 |
| | — |
| | 2 |
| | — |
| | 15 |
|
Share-based compensation | — |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Repurchases of forward loans assets out of Ginnie Mae securitizations | — |
| | (223 | ) | | — |
| | — |
| | — |
| | (223 | ) |
Mortgage loans originated and purchased for sale, net of fees | — |
| | (3,458 | ) | | — |
| | — |
| | — |
| | (3,458 | ) |
Sale proceeds and loan payment proceeds for mortgage loans held for sale and held for investment | — |
| | 3,537 |
| | — |
| | 9 |
| | — |
| | 3,546 |
|
Changes in assets and liabilities: | | | | | | | | | | |
|
|
Advances and other receivables | — |
| | 76 |
| | — |
| | — |
| | — |
| | 76 |
|
Reverse mortgage interests | — |
| | 425 |
| | — |
| | 17 |
| | — |
| | 442 |
|
Other assets | — |
| | 25 |
| | (3 | ) | | (37 | ) | | — |
| | (15 | ) |
Payables and other liabilities | 19 |
| | (179 | ) | | 1 |
| | — |
| | — |
| | (159 | ) |
Net cash attributable to operating activities | (6 | ) | | 185 |
| | — |
| | (3 | ) | | — |
| | 176 |
|
The following table sets forth the activities of forward MSRs:
| | | | | | | | | | | | | | |
(1) Table 14. Forward MSRs - Fair Value, Rollforward | Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described. | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Fair value - beginning of period | $ | 3,109 | | | $ | 3,481 | | | $ | 3,496 | | | $ | 3,665 | |
Additions: | | | | | | | |
Servicing retained from mortgage loans sold | 126 | | | 103 | | | 249 | | | 169 | |
Purchases of servicing rights | — | | | 280 | | | 24 | | | 689 | |
Dispositions: | | | | | | | |
Sales and cancellation of servicing assets | — | | | (34) | | | — | | | (294) | |
Changes in fair value: | | | | | | | |
Due to changes in valuation inputs or assumptions used in the valuation model: | | | | | | | |
Credit sensitive | (40) | | | (35) | | | (221) | | | (156) | |
Interest sensitive | (276) | | | (175) | | | (496) | | | (386) | |
Other changes in fair value: | | | | | | | |
Scheduled principal payments | (24) | | | (23) | | | (47) | | | (45) | |
Disposition of negative MSRs and other(1) | 25 | | | 11 | | | 45 | | | 23 | |
Prepayments | | | | | | | |
Voluntary prepayments | | | | | | | |
Credit sensitive | (26) | | | (26) | | | (50) | | | (45) | |
Interest sensitive | (135) | | | (70) | | | (237) | | | (102) | |
Involuntary prepayments | | | | | | | |
Credit sensitive | — | | | (2) | | | (1) | | | (4) | |
Interest sensitive | (2) | | | (5) | | | (5) | | | (9) | |
Fair value - end of period | $ | 2,757 | | | $ | 3,505 | | | $ | 2,757 | | | $ | 3,505 | |
(1)Amounts primarily represent negative fair values reclassified from the MSR asset to reserves as underlying loans are removed from the MSR and other reclassification adjustments.
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS TWO MONTHS ENDED SEPTEMBER 30, 2018 (Continued) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Nationstar | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Investing Activities | | | | | | | | | | | |
Acquisition, net of cash acquired | — |
| | — |
| | — |
| | (33 | ) | | — |
| | (33 | ) |
Property and equipment additions, net of disposals | — |
| | (20 | ) | | — |
| | 6 |
| | — |
| | (14 | ) |
Purchase of forward mortgage servicing rights, net of liabilities incurred | — |
| | (63 | ) | | — |
| | — |
| | — |
| | (63 | ) |
Proceeds on sale of forward and reverse mortgage servicing rights | — |
| | 60 |
| | — |
| | — |
| | — |
| | 60 |
|
Net cash attributable to investing activities | — |
| | (23 | ) | | — |
| | (27 | ) | | — |
| | (50 | ) |
Financing Activities | | | | | | | | | | | |
Increase in warehouse facilities | — |
| | 186 |
| | — |
| | — |
| | — |
| | 186 |
|
(Decrease) increase in advance facilities | — |
| | (17 | ) | | — |
| | 63 |
| | — |
| | 46 |
|
Repayment of HECM securitizations | — |
| | — |
| | — |
| | (91 | ) | | — |
| | (91 | ) |
Proceeds from issuance of participating interest financing in reverse mortgage interests | — |
| | 45 |
| | — |
| | — |
| | — |
| | 45 |
|
Repayment of participating interest financing in reverse mortgage interests | — |
| | (403 | ) | | — |
| | — |
| | — |
| | (403 | ) |
Proceeds from issuance of excess spread financing | — |
| | 84 |
| | — |
| | — |
| | — |
| | 84 |
|
Repayment of excess spread financing | — |
| | (21 | ) | | — |
| | — |
| | — |
| | (21 | ) |
Settlement of excess spread financing | — |
| | (31 | ) | | — |
| | — |
| | — |
| | (31 | ) |
Repayment of nonrecourse debt - legacy assets | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
Redemption and repayment of unsecured senior notes | — |
| | (1,030 | ) | | — |
| | — |
| | — |
| | (1,030 | ) |
Debt financing costs | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Net cash attributable to financing activities | — |
| | (1,188 | ) | | — |
| | (31 | ) | | — |
| | (1,219 | ) |
Net decrease in cash, cash equivalents, and restricted cash | (6 | ) | | (1,026 | ) | | — |
| | (61 | ) | | — |
| | (1,093 | ) |
Cash, cash equivalents, and restricted cash - beginning of period | 11 |
| | 1,358 |
| | 1 |
| | 253 |
| | — |
| | 1,623 |
|
Cash, cash equivalents, and restricted cash - end of period | $ | 5 |
| | $ | 332 |
| | $ | 1 |
| | $ | 192 |
| | $ | — |
| | $ | 530 |
|
The following table sets forth the weighted-average key assumptions in estimating the fair value of forward MSRs:
| | | | | | | | | | | | | | |
(1) Table 15. MSRs - Fair Value | Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described. | | | |
| | | | | | | | | | | |
| June 30, 2020 | | June 30, 2019 |
Total MSRs Portfolio | | | |
Discount rate | 9.5 | % | | 9.7 | % |
Prepayment speeds | 14.2 | % | | 13.7 | % |
Average life | 5.3 years | | 5.8 years |
| | | |
Acquisition Pools: | | | |
Credit Sensitive | | | |
Discount rate | 9.9 | % | | 10.6 | % |
Prepayment speeds | 12.6 | % | | 13.5 | % |
Average life | 5.6 years | | 5.9 years |
| | | |
Interest Sensitive | | | |
Discount rate | 9.0 | % | | 8.9 | % |
Prepayment speeds | 15.8 | % | | 13.9 | % |
Average life | 4.9 years | | 5.6 years |
| | | |
Investor Pools: | | | |
Agency | | | |
Discount rate | 8.9 | % | | 9.0 | % |
Prepayment speeds | 14.4 | % | | 13.5 | % |
Average life | 5.2 years | | 5.7 years |
| | | |
Non-Agency | | | |
Discount rate | 12.0 | % | | 12.6 | % |
Prepayment speeds | 13.4 | % | | 14.5 | % |
Average life | 5.6 years | | 6.0 years |
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS SEVEN MONTHS ENDED JULY 31, 2018 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor |
| Nationstar | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Operating Activities | | | | | | | | | | | |
Net income (loss) attributable to Nationstar | $ | 154 |
| | $ | 181 |
| | $ | 12 |
| | $ | 44 |
| | $ | (237 | ) | | $ | 154 |
|
Adjustments to reconcile net income (loss) to net cash attributable to operating activities: | | | | | | | | | | | |
(Gain) loss from subsidiaries | (181 | ) | | (56 | ) | | — |
| | — |
| | 237 |
| | — |
|
Net gain on mortgage loans held for sale | — |
| | (295 | ) | | — |
| | — |
| | — |
| | (295 | ) |
Interest income on reverse mortgage loans | — |
| | (274 | ) | | — |
| | — |
| | — |
| | (274 | ) |
Gain on sale of assets | — |
| | — |
| | — |
| | (9 | ) | | — |
| | (9 | ) |
MSL related increased obligations | — |
| | 59 |
| | — |
| | — |
| | — |
| | 59 |
|
Provision for servicing reserves | — |
| | 70 |
| | — |
| | — |
| | — |
| | 70 |
|
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities | — |
| | (178 | ) | | — |
| | 1 |
| | — |
| | (177 | ) |
Fair value changes in excess spread financing | — |
| | 81 |
| | — |
| | — |
| | — |
| | 81 |
|
Fair value changes in mortgage servicing rights financing liability | — |
| | 16 |
| | — |
| | — |
| | — |
| | 16 |
|
Amortization of premiums, net of discount accretion | — |
| | 11 |
| | — |
| | (3 | ) | | — |
| | 8 |
|
Depreciation and amortization for property and equipment and intangible assets | — |
| | 26 |
| | — |
| | 7 |
| | — |
| | 33 |
|
Share-based compensation | — |
| | 16 |
| | — |
| | 1 |
| | — |
| | 17 |
|
Other loss | — |
| | 3 |
| | — |
| | — |
| | — |
| | 3 |
|
Repurchases of forward loans assets out of Ginnie Mae securitizations | — |
| | (544 | ) | | — |
| | — |
| | — |
| | (544 | ) |
Mortgage loans originated and purchased for sale, net of fees | — |
| | (12,328 | ) | | — |
| | — |
| | — |
| | (12,328 | ) |
Sale proceeds and loan payment proceeds for mortgage loans held for sale and held for investment | — |
| | 13,381 |
| | — |
| | 11 |
| | — |
| | 13,392 |
|
Changes in assets and liabilities: | | | | | | | | | | | |
Advances and other receivables | — |
| | 377 |
| | — |
| | — |
| | — |
| | 377 |
|
Reverse mortgage interests | — |
| | 1,866 |
| | — |
| | (265 | ) | | — |
| | 1,601 |
|
Other assets | 9 |
| | (293 | ) | | (12 | ) | | 255 |
| | — |
| | (41 | ) |
Payables and other liabilities | 27 |
| | 128 |
| | — |
| | (4 | ) | | — |
| | 151 |
|
Net cash attributable to operating activities | 9 |
| | 2,247 |
| | — |
| | 38 |
| | — |
| | 2,294 |
|
MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS SEVEN MONTHS ENDED JULY 31, 2018 (Continued) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor |
| Nationstar | | Issuer(1) | | Guarantor (Subsidiaries of Issuer) | | Non-Guarantor (Subsidiaries of Issuer) | | Eliminations | | Consolidated |
Investing Activities | | | | | | | | | | | |
Property and equipment additions, net of disposals | — |
| | (35 | ) | | — |
| | (5 | ) | | — |
| | (40 | ) |
Purchase of forward mortgage servicing rights, net of liabilities incurred | — |
| | (127 | ) | | — |
| | (7 | ) | | — |
| | (134 | ) |
Net payment related to acquisition of HECM related receivables | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Proceeds on sale of assets | — |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
Net cash attributable to investing activities | — |
| | (163 | ) | | — |
| | 1 |
| | — |
| | (162 | ) |
Financing Activities | | | | | | | | | | | |
Decrease in warehouse facilities | — |
| | (585 | ) | | — |
| | — |
| | — |
| | (585 | ) |
Decrease in advance facilities | — |
| | (55 | ) | | — |
| | (250 | ) | | — |
| | (305 | ) |
Proceeds from issuance of HECM securitizations | — |
| | — |
| | — |
| | 759 |
| | — |
| | 759 |
|
Repayment of HECM securitizations | — |
| | — |
| | — |
| | (448 | ) | | — |
| | (448 | ) |
Proceeds from issuance of participating interest financing in reverse mortgage interests | — |
| | 208 |
| | — |
| | — |
| | — |
| | 208 |
|
Repayment of participating interest financing in reverse mortgage interests | — |
| | (1,599 | ) | | — |
| | — |
| | — |
| | (1,599 | ) |
Proceeds from issuance of excess spread financing | — |
| | 70 |
| | — |
| | — |
| | — |
| | 70 |
|
Repayment of excess spread financing | — |
| | (3 | ) | | — |
| | — |
| | — |
| | (3 | ) |
Settlement of excess spread financing | — |
| | (105 | ) | | — |
| | — |
| | — |
| | (105 | ) |
Repayment of nonrecourse debt - legacy assets | — |
| | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
Repurchase of unsecured senior notes | — |
| | (62 | ) | | — |
| | — |
| | — |
| | (62 | ) |
Surrender of shares relating to stock vesting | (9 | ) | | — |
| | — |
| | — |
| | — |
| | (9 | ) |
Debt financing costs | — |
| | (24 | ) | | — |
| | — |
| | — |
| | (24 | ) |
Dividends to non-controlling interests | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Net cash attributable to financing activities | (9 | ) | | (2,156 | ) | | — |
| | 54 |
| | — |
| | (2,111 | ) |
Net (decrease) increase in cash, cash equivalents, and restricted cash | — |
| | (72 | ) | | — |
| | 93 |
| | — |
| | 21 |
|
Cash, cash equivalents, and restricted cash - beginning of period | — |
| | 423 |
| | 1 |
| | 151 |
| | — |
| | 575 |
|
Cash, cash equivalents, and restricted cash - end of period | $ | — |
| | $ | 351 |
| | $ | 1 |
| | $ | 244 |
| | $ | — |
| | $ | 596 |
|
21. Transactions with Affiliates
Nationstar previously entered into arrangements with Fortress Investment Group (“Fortress”), its subsidiaries managed funds, or affiliatesThe weighted-average discount rate for purposestotal MSRs portfolio decreased as of financing the Company’s MSR acquisitions and performing services as a subservicer. PriorJune 30, 2020 compared to the Merger with Nationstar on July 31, 2018, an affiliate of Fortress held a majority of the outstanding common shares of the Predecessor. Subsequentsame period in 2019 due to the Merger, Fortress is no longer an affiliate of the Company. Refer to Note 2, Acquisitions,declining interest rate environment in 2020. Weighted-average life for additional information. The following summarizes the Predecessor’s transactions with affiliates of Fortress priortotal MSRs portfolio decreased due to the Mergerincrease in prepayment speeds, which was attributable to the interest rate decline period over period.
The discount rate, which is used to determine the present value of estimated future net servicing income, is based on July, 31 2018.the required rate of return market investors would expect for an asset with similar risk characteristics. The discount rate is determined through review of recent market transactions as well as comparing the discount rate to those utilized by third-party valuation specialists.
New ResidentialTotal prepayment speeds represent the annual rate at which borrowers are forecasted to repay their mortgage loan principal, which includes estimates for both voluntary and involuntary borrower liquidations. The expected weighted-average life represents the total years we expect to service the MSR.
The key assumptions were separately applied to the servicing of loans in forbearance to account for differences in the underlying estimate of future servicing revenues related to those loans.
Excess Spread FinancingResults of Operations
| | |
Table 1. Consolidated Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues - operational(1) | $ | 891 | | | $ | 630 | | | $ | 261 | | | 41 | % |
Revenues - Mark-to-market | (261) | | | (231) | | | (30) | | | 13 | % |
Total revenues | 630 | | | 399 | | | 231 | | | 58 | % |
Total expenses | 419 | | | 492 | | | (73) | | | (15) | % |
Total other expenses, net | (101) | | | (24) | | | (77) | | | 321 | % |
Income (loss) before income tax expense (benefit) | 110 | | | (117) | | | 227 | | | (194) | % |
Less: Income tax expense (benefit) | 37 | | | (29) | | | 66 | | | (228) | % |
Net income (loss) | 73 | | | (88) | | | 161 | | | (183) | % |
Less: Net loss attributable to non-controlling interests | — | | | (1) | | | 1 | | | (100) | % |
Net income (loss) attributable to Mr. Cooper | $ | 73 | | | $ | (87) | | | $ | 160 | | | (184) | % |
(1)Revenues - operational consists of total revenues, excluding mark-to-market.
We recorded net income of $73 during the three months ended June 30, 2020 compared to a net loss of $88 during the same period in 2019. The Predecessor has entered into several agreements with certain entities managednet income in 2020 was primarily due to an increase in total revenues and a decrease in total expenses, partially offset by New Residential,an increase in which New Residential and/or certain funds managedtotal other expenses, net. Consolidated operational revenues increased primarily due to increased revenue in our Originations segment, driven by Fortress ownhigher originations volume predominately in the direct-to-consumer (”DTC”) channel, partially offset by an interest (each a “New Residential Entity”increase in negative mark-to-market (“MTM”). The Predecessor sold adjustments for the three months ended June 30, 2020 compared to the same period in 2019. Refer to Table 10. Servicing - Revenues and Table 21. Originations - Revenues for further discussion.
Total expenses for the three months ended June 30, 2020 decreased compared to the same period in 2019 primarily due to lower foreclosure and other liquidation related New Residential Entity the right to receive a portionexpenses and recoveries in our Servicing segment, primarily driven by operational improvements of the excess cash flow generated from certain acquired MSRs afterreverse portfolio with respect to assignments and adherence to HUD curtailment guidelines. The decrease in total expenses was partially offset by higher total expense in our Originations segment, primarily attributable to higher originations volume in the lower interest rate environment.
Total other expenses, net, increased for the three months ended June 30, 2020 compared to the same period in 2019 primarily due to a receiptdecrease in interest income in our Servicing segment, partially offset by a decrease in interest expense. Refer to Table 12. Servicing - Other (Expenses) Income, Net for further discussion.
| | |
Table 1.1 Consolidated Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues - operational(1) | $ | 1,552 | | | $ | 1,173 | | | $ | 379 | | | 32 | % |
Revenues - Mark-to-market | (644) | | | (524) | | | (120) | | | 23 | % |
Total revenues | 908 | | | 649 | | | 259 | | | 40 | % |
Total expenses | 863 | | | 935 | | | (72) | | | (8) | % |
Total other expenses, net | (174) | | | (64) | | | (110) | | | 172 | % |
Loss before income tax benefit | (129) | | | (350) | | | 221 | | | (63) | % |
Less: Income tax benefit | (31) | | | (76) | | | 45 | | | (59) | % |
Net loss | (98) | | | (274) | | | 176 | | | (64) | % |
Less: Net loss attributable to non-controlling interests | (3) | | | (1) | | | (2) | | | 200 | % |
Net loss attributable to Mr. Cooper | $ | (95) | | | $ | (273) | | | $ | 178 | | | (65) | % |
(1)Revenues - operational consists of total revenues, excluding mark-to-market.
We recorded a fixed base servicing fee per loan.net loss of $98 during the six months ended June 30, 2020 compared to a net loss of $274 during the same period in 2019. The Predecessor, asnet loss in 2020 was lower primarily due to an increase in total revenues and decrease in total expenses. Consolidated operational revenues increased primarily due to increased revenue in our Originations segment, driven by higher originations volume predominately in the servicerDTC channel, partially offset by an increase in negative MTM adjustments for the six months ended June 30, 2020 compared to the same period in 2019. Refer to Table 10.1 Servicing - Revenues and Table 21.1 Originations - Revenues for further discussion.
Total expenses for the six months ended June 30, 2020 decreased compared with the same period in 2019 primarily due to lower foreclosure and other liquidation related expenses in our Servicing segment primarily driven by operational improvements of the loans, retains all ancillary revenuesreverse portfolio with respect to assignments and adherence to HUD curtailment guidelines. In addition, total expenses in our Corporate/Other segment were higher in the six months ended June 30, 2019 due to acquisition and integration expenses related to the Pacific Union acquisition and the remaining portionacquisition of the excess cash flow after paymentSeterus mortgage servicing platform and assumption of assets related thereto from IBM (“Seterus acquisition”) in February 2019. Partially offsetting the fixed base servicing feedecrease in total expenses in our Servicing segment and also provides all advancing functionsCorporate/Other segment was an increase in total expenses in our Originations segment primarily driven by higher originations volume in a declining interest rate environment.
Total other expenses, net, increased for the portfolio. The related New Residential Entity does not have prior or ongoing obligations associated with these MSR portfolios. Should the Company refinance any loan in such portfolios, subjectsix months ended June 30, 2020 compared to certain limitations, the Company will be required to transfer the new loan or a replacement loan of similar economic characteristics into the portfolios. The new or replacement loan will be governed by the same terms set forthperiod in the agreements described above.
The fees paid to New Residential Entity by the Predecessor totaled $17 and $122 during the one and seven months ended July 31, 2018, respectively, which were recorded as a reduction to servicing fee revenue, net.
Mortgage Servicing Rights Financing
From December 2013 through June 2014, the Predecessor entered into agreements to sell a contractually specified base fee component of certain MSRs and servicing advances under specified terms2019 primarily due to a joint venture capitalized by New Residential and certain unaffiliated third-parties. The Company continues to be the named servicer, and, for accounting purposes, ownership of the mortgage servicing rights continues to reside with the Company. Accordingly, the Company accounts for the MSRs and the related MSRs financing liability on its consolidated balance sheets. The Company will continue to sell future servicing advances to New Residential.
The Predecessor did not enter into any additional supplemental agreements with these affiliatesdecrease in 2018.
Subservicing and Servicing
In January 2017, the Predecessor entered into a subservicing agreement with a subsidiary of New Residential. The Predecessor earned $6 and $43 of subservicing feesinterest income and other subservicing revenues during the oneincome, net, partially offset by a decrease in interest expense. Interest income decreased primarily due to a decrease in other interest income in our Servicing segment due to lower income earned on custodial balances driven by lower LIBOR rates and seven months ended July 31, 2018, respectively.
In May 2014, the Predecessor entered into a servicing arrangement with New Residential whereby the Predecessor services residentialdecrease in income earned on reverse mortgage loans acquired by New Residential and/or its various affiliates and trust entities. For the one and seven months ended July 31, 2018, the Predecessor recognized approximately $1 and $3 related to these service arrangements, respectively.
CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, core initiatives, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. When used in this discussion, the words “anticipate,” “appears,” “believe,” “foresee,” “intend,” “should,” “expect,” “estimate,” “project,” “plan,” “may,” “could,” “will,” “are likely” and similar expressions are intended to identify forward-looking statements. These statements involve predictions of our future financial condition, performance, plans and strategies and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or incorrect. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances, and we are under no obligation to, and express disclaim any obligation, to update or alter our forward-looking statements, whetherinterest, as a result of new information, future eventsthe decline in the reverse mortgage interests balance. Other income, net, was lower in the six months ended June 30, 2020 primarily due to income related to the change in fair value of the contingent consideration recorded in 2019 for the acquisition of Assurant Mortgage Solutions (“AMS”).
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Table 2. Provision for Income Taxes | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Income tax expense (benefit) | $ | 37 | | | $ | (29) | | | $ | 66 | | | (228) | % |
| | | | | | | |
Effective tax rate(1) | 33.4 | % | | 24.6 | % | | | | |
(1)Effective tax rate is calculated using whole numbers.
For the three months ended June 30, 2020, we had an income tax expense compared to an income tax benefit for the same period ended in 2019. The effective tax rate for the three months ended June 30, 2020 was 33.4% as compared to the effective tax rate of 24.6% for the three months ended June 30, 2019. The change in effective tax rate is primarily attributable to the increased relative unfavorable tax impacts of permanent differences such as nondeductible executive compensation and nondeductible meals and entertainment expenses on the annual effective rate, and discrete tax items in the three months ended June 30, 2020 as compared to the three months ended June 30, 2019.
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Table 2.1. Provision for Income Taxes | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Income tax benefit | $ | (31) | | | $ | (76) | | | $ | 45 | | | (59) | % |
| | | | | | | |
Effective tax rate(1) | 24.1 | % | | 21.7 | % | | | | |
(1)Effective tax rate is calculated using whole numbers.
For the six months ended June 30, 2020 and 2019, we had an income tax benefit. The effective tax rate for the six months ended June 30, 2020 was 24.1% as compared to the effective tax rate of 21.7% for the six months ended June 30, 2019. The change in effective tax rate is primarily attributable to the increased relative unfavorable tax impacts of permanent differences such as nondeductible executive compensation and nondeductible meals and entertainment expenses on the annual effective rate, and discrete tax items in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019.
Our operations are conducted through four segments: Servicing, Originations, Xome, and Corporate/Other.
•The Servicing segment performs operational activities on behalf of investors or otherwise.owners of the underlying mortgages, including collecting and disbursing borrower payments, investor reporting, customer service, modifying loans where appropriate to help borrowers stay current, and when necessary performing collections, foreclosures, and the sale of REO.
•The Originations segment originates residential mortgage loans through our direct-to-consumer channel, which provides refinance options for our existing customers, and through our correspondent channel which purchases or originates loans from mortgage bankers. Our wholesale channel was shut down during the three months ended June 30, 2020 and subsequently ceased originating loans and funded out the remaining pipeline.
A number•The Xome segment provides a variety of important factors existreal estate services to mortgage originators, mortgage and real estate investors, and mortgage servicers, including valuation, title, and field services, and operates an exchange which facilitates the sale of foreclosed properties.
•The Corporate/Other segment represents unallocated overhead expenses, including the costs of executive management and other corporate functions that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to:directly attributable to our operating segments, interest expense on our senior unsecured notes, and the results of a legacy mortgage investment portfolio, which consists of non-prime and non-conforming residential mortgage loans that were transferred to a securitization trust (“Trust 2009-A”) in 2009. We collapsed Trust 2009-A and executed the sale of the loans held in the trust in September 2019. The Corporate/Other segment also includes inter-segment eliminations.
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| Three Months Ended June 30, 2020 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (114) | | | $ | 21 | | | $ | 106 | | | $ | (1) | | | $ | 12 | |
Net gain on mortgage loans held for sale | 45 | | | 573 | | | — | | | — | | | 618 | |
Total revenues | (69) | | | 594 | | | 106 | | | (1) | | | 630 | |
Total expenses | 122 | | | 167 | | | 95 | | | 35 | | | 419 | |
Interest income | 57 | | | 19 | | | — | | | — | | | 76 | |
Interest expense | (117) | | | (13) | | | — | | | (47) | | | (177) | |
Other income (expenses), net | — | | | — | | | 1 | | | (1) | | | — | |
Total other (expenses) income, net | (60) | | | 6 | | | 1 | | | (48) | | | (101) | |
(Loss) income before income tax (benefit) expense | $ | (251) | | | $ | 433 | | | $ | 12 | | | $ | (84) | | | $ | 110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | 9 | | | $ | 20 | | | $ | 108 | | | $ | — | | | $ | 137 | |
Net gain on mortgage loans held for sale | 18 | | | 244 | | | — | | | — | | | 262 | |
Total revenues | 27 | | | 264 | | | 108 | | | — | | | 399 | |
Total expenses | 189 | | | 145 | | | 101 | | | 57 | | | 492 | |
Interest income | 136 | | | 23 | | | — | | | 3 | | | 162 | |
Interest expense | (109) | | | (25) | | | — | | | (53) | | | (187) | |
Other income, net | — | | | 1 | | | — | | | — | | | 1 | |
Total other income (expenses), net | 27 | | | (1) | | | — | | | (50) | | | (24) | |
(Loss) income before income tax (benefit) expense | $ | (135) | | | $ | 118 | | | $ | 7 | | | $ | (107) | | | $ | (117) | |
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Table 3.1 Segment Results |
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| Six Months Ended June 30, 2020 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (294) | | | $ | 41 | | | $ | 212 | | | $ | — | | | $ | (41) | |
Net gain on mortgage loans held for sale | 79 | | | 870 | | | — | | | — | | | 949 | |
Total revenues | (215) | | | 911 | | | 212 | | | — | | | 908 | |
Total expenses | 271 | | | 333 | | | 191 | | | 68 | | | 863 | |
Interest income | 140 | | | 53 | | | — | | | 1 | | | 194 | |
Interest expense | (230) | | | (40) | | | — | | | (99) | | | (369) | |
Other income (expenses), net | — | | | — | | | 2 | | | (1) | | | 1 | |
Total other (expenses) income, net | (90) | | | 13 | | | 2 | | | (99) | | | (174) | |
(Loss) income before income tax (benefit) expense | $ | (576) | | | $ | 591 | | | $ | 23 | | | $ | (167) | | | $ | (129) | |
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| Six Months Ended June 30, 2019 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (18) | | | $ | 35 | | | $ | 204 | | | $ | — | | | $ | 221 | |
Net gain on mortgage loans held for sale | 53 | | | 375 | | | — | | | — | | | 428 | |
Total revenues | 35 | | | 410 | | | 204 | | | — | | | 649 | |
Total expenses | 384 | | | 249 | | | 200 | | | 102 | | | 935 | |
Interest income | 251 | | | 40 | | | — | | | 5 | | | 296 | |
Interest expense | (223) | | | (43) | | | — | | | (110) | | | (376) | |
Other income, net | — | | | 5 | | | 11 | | | — | | | 16 | |
Total other income (expenses), net | 28 | | | 2 | | | 11 | | | (105) | | | (64) | |
(Loss) income before income tax (benefit) expense | $ | (321) | | | $ | 163 | | | $ | 15 | | | $ | (207) | | | $ | (350) | |
The Servicing segment’s strategy is to generate income by growing the portfolio and maximizing the servicing margin. We believe several competitive strengths have been critical to our long-term growth as a servicer, including our low-cost platform, our skill in mitigating losses for investors, our commitment to strong customer service and regulatory compliance, our history of successfully boarding new loans, and the ability to maintain or growretain existing customers by offering attractive refinance options. We believe that our operational capabilities are reflected in strong servicer ratings.
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Table 4. Servicer Ratings | | | | |
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| Fitch(1) | | Moody’s(2) | | S&P(3) |
Rating date | January 2020 | | May 2019 | | May 2019 |
| | | | | |
Residential | RPS2- | | Not Rated | | Above Average |
Master Servicer | RMS2+ | | SQ2 | | Above Average |
Special Servicer | RSS2- | | Not Rated | | Above Average |
Subprime Servicer | RPS2- | | Not Rated | | Above Average |
(1)Fitch Rating Scale of 1 (Highest Performance) to 5 (Low/No Proficiency)
(2)Moody’s Rating Scale of SQ1 (Strong Ability/Stability) to SQ5 (Weak Ability/Stability)
(3)S&P Rating Scale of Strong to Weak
Servicing Portfolio Composition
As of June 30, 2020, the sizeunpaid principal balance in our servicing portfolio consisted of approximately $278.0 billion in forward loans, $296.8 billion in subservicing and other, and $20.8 billion in reverse mortgage loans.
•The term “forward” refers to loans we service which are not “reverse mortgages,” as discussed below.
•Our subservicing portfolio consists of loans where we perform the servicing responsibilities for a contractual fee, but do not own the servicing rights and therefore do not record an MSR on our balance sheet.
•Reverse mortgage loans, most commonly HECMs, provide seniors 62 and older with a loan upon which draws can be made periodically. The draws are secured by the equity in the borrower’s home. We have acquired our reverse mortgages in prior years through several transactions and the portfolio is now in run-off mode. For a significant portion of our reverse mortgages, we record MSRs on our balance sheet, similar to the accounting for forward mortgages, except in cases where the costs of servicing portfolio;are expected to exceed revenues, in which case a Mortgage Servicing Liability (“MSL”) is created. Additionally, due to program requirements, we consolidate certain reverse mortgages on our balance sheet and accrue interest income and expense.
our ability to maintain or grow our originations volume
The charts below set forth the portfolio mix between forward MSR, subserviced and profitability;
our ability to recapture voluntary prepayments related to our existing servicing portfolio;
our shift inother, and reverse mortgage loans, and the mixcomposition of our servicing portfolio to subservicing, which is highly concentrated;ending UPB by investor group ($ in Millions) as of June 30, 2020 and 2019:
delays in our ability to collect or be reimbursed for servicing advances;
our ability to obtain sufficient liquidity and capital to operate our business;changes in prevailing interest rates;
our ability to finance and recover costs of our reverse servicing operations;our ability to successfully implement our strategic initiatives;
our ability to realize anticipated benefits of our acquisitions, including Pacific Union, AMS, and Seterus;
our ability to use net operating loss carryforwards and other tax attributes;
changes in our business relationships or changes in servicing guidelines with Fannie Mae, Freddie Mac and Ginnie Mae;
Xome’s ability to compete in highly competitive markets;
our ability to pay down debt;
our ability to manage legal and regulatory examinations and enforcement investigations and proceedings, compliance requirements and related costs;
our ability to prevent cyber intrusions and mitigate cyber risks; and
our ability to maintain our licenses and other regulatory approvals.
All of these factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assessThe following tables set forth the effect of each such new factor on our business. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and any of these statements included herein may prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Please refer to Item 1A, Risk Factors, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this report and in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information on these and other risk factors affecting us.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the accompanying unaudited consolidated financial statements and in conjunction with our Annual Report on Form 10-K for the yearServicing segment:
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Table 5. Servicing Segment Results of Operations | | | | |
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| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues | | | | | | | |
Operational | $ | 294 | | | $ | 314 | | | $ | (20) | | | (6) | % |
Amortization, net of accretion | (102) | | | (56) | | | (46) | | | 82 | % |
Mark-to-market | (261) | | | (231) | | | (30) | | | 13 | % |
Total revenues | (69) | | | 27 | | | (96) | | | (356) | % |
Total expenses | 122 | | | 189 | | | (67) | | | (35) | % |
Total other (expenses) income, net | (60) | | | 27 | | | (87) | | | (322) | % |
Loss before income tax benefit | $ | (251) | | | $ | (135) | | | $ | (116) | | | 86 | % |
For the three months ended December 31, 2018.June 30, 2020, we incurred a loss before income tax benefit of $251 compared to $135 for the same period in 2019. The following discussion contains,change in loss before income tax benefit was primarily due to a decrease in total revenues, partially offset by a decrease in total expenses. Total revenues decreased during three months ended June 30, 2020 compared to the same period in 2019, primarily due to an increase in amortization of forward MSRs as a result of elevated prepayments driven by the declining interest rate environment. Additionally, negative mark-to-market revenues increased during the three months ended June 30, 2020 compared to the same period in 2019 due to the lower interest rate environment. Total expenses for the three months ended June 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in foreclosure and other liquidation expenses and a decrease in salaries, wages and benefits. The decrease in foreclosure and other liquidation expenses was mainly driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to the historical information, forward-looking statements that include risks, assumptionsimproved performance of $15 on loss recoveries related to settlement with a prior servicer. The decrease in salaries, wages and uncertainties that could cause actual resultsbenefits was primarily due to differ materially from those anticipated by such statements.improved operational efficiencies, , which included consolidation of one of our servicing centers.
Basis of Presentation
“Predecessor” financial information in the MD&A relates to Nationstar, and “Successor” relates to Mr. Cooper.
The below presentation discusses the results of the CompanyTotal other (expenses) income, net, for the three and nine months ended SeptemberJune 30, 20192020 decreased compared to the threesame period in 2019 primarily due to a decrease in interest income. The decrease in interest income was primarily due to lower income earned on custodial balances driven by lower LIBOR rates and ninea decrease in income earned on reverse mortgage interest, primarily driven by the decline in the reverse mortgage interests balance. Refer to Table 10. Servicing - Revenues, Table 11. Servicing - Expenses and Table 12. Servicing - Other (Expenses) Income, Net, for further discussions on the changes in total revenues, total expenses and total other (expenses) income, net, respectively.
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Table 5.1 Servicing Segment Results of Operations |
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| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues | | | | | | | |
Operational | $ | 607 | | | $ | 638 | | | $ | (31) | | | (5) | % |
Amortization, net of accretion | (178) | | | (79) | | | (99) | | | 125 | % |
Mark-to-market | (644) | | | (524) | | | (120) | | | 23 | % |
Total revenues | (215) | | | 35 | | | (250) | | | (714) | % |
Total expenses | 271 | | | 384 | | | (113) | | | (29) | % |
Total other (expenses) income, net | (90) | | | 28 | | | (118) | | | (421) | % |
Loss before income tax benefit | $ | (576) | | | $ | (321) | | | $ | (255) | | | 79 | % |
For the six months ended SeptemberJune 30, 2018.2020, we incurred a loss before income tax benefit of $576 compared to $321 for the same period in 2019. The financial resultschange in loss before income tax benefit was primarily due to a decrease in total revenues, partially offset by a decrease in total expenses. Total revenues decreased primarily as a result of elevated negative mark-to-market revenues during the six months ended June 30, 2020 compared to the same period in 2019. Amortization, net of accretion, for the six months ended June 30, 2020 increased compared to the same period in 2019, primarily due to an increase in amortization of forward MSRs as a result of elevated prepayments driven by the declining interest rate environment. Total expenses for the six months ended June 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in foreclosure and other liquidation expenses and a decrease in salaries, wages and benefits. The decrease in foreclosure and other liquidation expenses was primarily driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to improved performance of $15 on loss recoveries related to settlement with a prior servicer. The decrease in salaries, wages and benefits was primarily due to improved operational efficiencies, which included consolidation of one of our servicing centers.
Total other (expenses) income, net, for the six months ended June 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in interest income. The decrease in interest income was primarily due to a decrease in other interest income due to lower interest income earned on custodial balances driven by lower LIBOR rates and a decrease in income earned on reverse mortgage interest, primarily driven by the decline in the reverse mortgage interests balance. Refer to Table 10.1 Servicing - Revenues, Table 11.1 Servicing - Expenses and Table 12.1 Servicing - Other (Expenses) Income, Net, for further discussions on the changes in total revenues, total expenses and total other (expenses) income, net, respectively.
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Table 6. Servicing Portfolio - Unpaid Principal Balances | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Average UPB | | | | | | | |
Forward MSRs | $ | 289,707 | | | $ | 315,333 | | | $ | 296,446 | | | $ | 312,158 | |
Subservicing and other(1) | 301,680 | | | 297,924 | | | 306,121 | | | 268,696 | |
Reverse loans | 21,058 | | | 26,028 | | | 21,559 | | | 26,750 | |
Total average UPB | $ | 612,445 | | | $ | 639,285 | | | $ | 624,126 | | | $ | 607,604 | |
| | | | | | | |
| | | | | June 30, 2020 | | June 30, 2019 |
Ending UPB | | | | | | | |
Forward MSRs | | | | | | | |
Agency | | | | | $ | 228,680 | | | $ | 254,543 | |
Non-agency | | | | | 49,295 | | | 61,469 | |
Total forward MSRs | | | | | 277,975 | | | 316,012 | |
| | | | | | | |
Subservicing and other(1) | | | | | | | |
Agency | | | | | 286,710 | | | 253,846 | |
Non-agency | | | | | 10,082 | | | 48,262 | |
Total subservicing and other | | | | | 296,792 | | | 302,108 | |
| | | | | | | |
Reverse loans | | | | | | | |
MSR | | | | | 2,190 | | | 3,127 | |
MSL | | | | | 12,891 | | | 15,374 | |
Securitized loans | | | | | 5,677 | | | 7,068 | |
Total reverse portfolio serviced | | | | | 20,758 | | | 25,569 | |
Total ending UPB | | | | | $ | 595,525 | | | $ | 643,689 | |
(1)Subservicing and other includes (i) loans we service for others, (ii) residential mortgage loans originated but have yet to be sold, and (iii) agency REO balances for which we own the mortgage servicing rights.
The following tables provide a rollforward of our forward MSR and subservicing and other portfolio UPB:
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Table 7. Forward Servicing and Subservicing and Other Portfolio UPB Rollforward |
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| Three Months Ended June 30, 2020 | | | | | | Three Months Ended June 30, 2019 | | | | |
| Forward MSR | | Subservicing and Other | | Total | | Forward MSR | | Subservicing and Other | | Total |
Balance - beginning of period | $ | 290,634 | | | $ | 316,933 | | | $ | 607,567 | | | $ | 303,692 | | | $ | 301,191 | | | $ | 604,883 | |
Additions: | | | | | | | | | | | |
Originations | 9,478 | | | 1,024 | | | 10,502 | | | 9,521 | | | 399 | | | 9,920 | |
Acquisitions / Increase in subservicing(1) | (1,634) | | | 16,908 | | | 15,274 | | | 20,073 | | | 12,715 | | | 32,788 | |
Deductions: | | | | | | | | | | | |
Dispositions | (31) | | | (9,751) | | | (9,782) | | | (2,239) | | | (675) | | | (2,914) | |
Principal reductions and other | (2,678) | | | (2,168) | | | (4,846) | | | (3,031) | | | (2,669) | | | (5,700) | |
Voluntary reductions(2) | (17,435) | | | (26,113) | | | (43,548) | | | (11,113) | | | (8,665) | | | (19,778) | |
Involuntary reductions(3) | (251) | | | (41) | | | (292) | | | (807) | | | (188) | | | (995) | |
Net changes in loans serviced by others | (108) | | | — | | | (108) | | | (84) | | | — | | | (84) | |
Balance - end of period | $ | 277,975 | | | $ | 296,792 | | | $ | 574,767 | | | $ | 316,012 | | | $ | 302,108 | | | $ | 618,120 | |
(1)Includes transfers to/from Subservicing and Other.
(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.
During the three months ended June 30, 2020, our forward MSR UPB decreased primarily due to increased voluntary reductions driven by the low interest rate environment. During the three months ended June 30, 2020, our subservicing and other portfolio ending UPB decreased primarily driven by increased voluntary reductions in the low interest rate environment and increased dispositions due to various MSR sales, partially offset by portfolio growth from our subservicing clients.
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Table 7.1 Forward Servicing and Subservicing and Other Portfolio UPB Rollforward |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | Six Months Ended June 30, 2019 | | | | |
| Forward MSR | | Subservicing and Other | | Total | | Forward MSR | | Subservicing and Other | | Total |
Balance - beginning of period | $ | 296,782 | | | $ | 323,983 | | | $ | 620,765 | | | $ | 295,481 | | | $ | 223,886 | | | $ | 519,367 | |
Additions: | | | | | | | | | | | |
Originations | 21,113 | | | 1,686 | | | 22,799 | | | 14,412 | | | 803 | | | 15,215 | |
Acquisitions / Increase in subservicing(1) | (2,307) | | | 40,260 | | | 37,953 | | | 33,477 | | | 97,121 | | | 130,598 | |
Deductions: | | | | | | | | | | | |
Dispositions | (71) | | | (20,110) | | | (20,181) | | | (2,372) | | | (1,793) | | | (4,165) | |
Principal reductions and other | (5,426) | | | (5,133) | | | (10,559) | | | (5,858) | | | (4,986) | | | (10,844) | |
Voluntary reductions(2) | (31,299) | | | (43,785) | | | (75,084) | | | (17,410) | | | (12,640) | | | (30,050) | |
Involuntary reductions(3) | (638) | | | (109) | | | (747) | | | (1,569) | | | (283) | | | (1,852) | |
Net changes in loans serviced by others | (179) | | | — | | | (179) | | | (149) | | | — | | | (149) | |
Balance - end of period | $ | 277,975 | | | $ | 296,792 | | | $ | 574,767 | | | $ | 316,012 | | | $ | 302,108 | | | $ | 618,120 | |
(1)Includes transfers to/from Subservicing and Other.
(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.
During the six months ended June 30, 2020, our forward MSR UPB decreased primarily due to increased voluntary reductions in the low interest rate environment, partially offset by increased origination volumes. During the six months ended June 30, 2020, our subservicing and other portfolio ending UPB decreased primarily driven by increased voluntary reductions in the low interest rate environment and increased dispositions due to various MSR sales, partially offset by portfolio growth from our subservicing clients.
The table below summarizes the overall performance of the forward servicing and subservicing portfolio:
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Table 8. Key Performance Metrics - Forward Servicing and Subservicing Portfolio(1) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | June 30, 2020 | | June 30, 2019 |
Loan count(2) | | | | | | 3,360,826 | | | 3,637,538 | |
Average loan amount(3) | | | | | | $ | 171,022 | | | $ | 169,935 | |
Average coupon - credit sensitive(4) | | | | | | 4.7 | % | | 4.8 | % |
Average coupon - interest sensitive(4) | | | | | | 4.2 | % | | 4.4 | % |
Average coupon - agency(4) | | | | | | 4.4 | % | | 4.5 | % |
Average coupon - non-agency(4) | | | | | | 4.7 | % | | 4.8 | % |
60+ delinquent (% of loans)(5) | | | | | | 4.7 | % | | 2.3 | % |
90+ delinquent (% of loans)(5) | | | | | | 2.2 | % | | 2.0 | % |
120+ delinquent (% of loans)(5) | | | | | | 1.6 | % | | 1.8 | % |
| | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
Total prepayment speed (12-month constant prepayment rate) | | 26.0 | % | | 13.0 | % | | 22.6 | % | | 10.8 | % |
(1)Characteristics and key performance metrics of our servicing portfolio exclude UPB and loan counts acquired but not yet boarded and currently serviced by others.
(2)As of June 30, 2020, loan count includes 195,423 loans in forbearance related to the CARES Act, whereby the borrowers have failed to make at least one payment.
(3)Average loan amount is presented in whole dollar amounts.
(4)The weighted average coupon amounts presented in the table above are only reflective of our owned forward MSR portfolio that is reported at fair value.
(5)Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan. Loan delinquency includes loans in forbearance.
Delinquency is a significant assumption in determining the mark-to-market adjustment and is a key indicator of MSR portfolio performance. Delinquent loans contribute to lower MSR values due to higher costs to service and increased carrying costs of advances. Due to the COVID-19 pandemic and the implementation of the CARES Act, loans greater than 60 days delinquent have increased as of June 30, 2020 compared to the same period in 2019.
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Table 9. Forward Loan Modifications and Workout Units |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | Amount Change | | % Change |
Modifications | 4,329 | | | 5,632 | | | (1,303) | | | (23) | % |
Workouts | 34,355 | | | 6,476 | | | 27,879 | | | 430 | % |
Total modifications and workout units | 38,684 | | | 12,108 | | | 26,576 | | | 219 | % |
Total modifications and workouts during the three months ended June 30, 2020 increased compared to the same period in 2019 primarily due to an increase in workouts related to loans impacted by the COVID-19 pandemic which successfully exited their forbearance plans.
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Table 9.1 Forward Loan Modifications and Workout Units |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | |
| 2020 | | 2019 | | Amount Change | | % Change |
Modifications | 9,044 | | | 10,821 | | | (1,777) | | | (16) | % |
Workouts | 38,349 | | | 10,877 | | | 27,472 | | | 253 | % |
Total modifications and workout units | 47,393 | | | 21,698 | | | 25,695 | | | 118 | % |
Total modifications and workouts during the six months ended June 30, 2020 increased compared to the same period in 2019 primarily due to an increase in workouts related to loans impacted by the COVID-19 pandemic which successfully exited their forbearance plans.
The following tables provide the composition of revenues for the Servicing segment:
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Table 10. Servicing - Revenues |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | $ Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Forward MSR Operational Revenue | | | | | | | | | | | | | | | |
Base servicing fees | $ | 239 | | | 16 | | $ | 257 | | | 16 | | $ | (18) | | | — | | (7) | % | | — | % |
Modification fees(2) | 2 | | | — | | 6 | | | — | | (4) | | | — | | (67) | % | | — | % |
Incentive fees(2) | 5 | | | — | | 1 | | | — | | 4 | | | — | | 400 | % | | — | % |
Late payment fees(2) | 16 | | | 1 | | 20 | | | 2 | | (4) | | | (1) | | (20) | % | | (50) | % |
Other ancillary revenues(2) | 44 | | | 3 | | 30 | | | 2 | | 14 | | | 1 | | 47 | % | | 50 | % |
Total forward MSR operational revenue | 306 | | | 20 | | 314 | | | 20 | | (8) | | | — | | (3) | % | | — | % |
Base subservicing fees and other subservicing revenue(3) | 69 | | | 5 | | 62 | | | 4 | | 7 | | | 1 | | 11 | % | | 25 | % |
Reverse servicing fees | 7 | | | — | | 8 | | | — | | (1) | | | — | | (13) | % | | — | % |
Total servicing fee revenue | 382 | | | 25 | | 384 | | | 24 | | (2) | | | 1 | | (1) | % | | 4 | % |
MSR financing liability costs | (9) | | | (1) | | (11) | | | (1) | | 2 | | | — | | (18) | % | | — | % |
Excess spread costs - principal | (79) | | | (5) | | (59) | | | (3) | | (20) | | | (2) | | 34 | % | | 67 | % |
Total operational revenue | 294 | | | 19 | | 314 | | | 20 | | (20) | | | (1) | | (6) | % | | (5) | % |
Amortization, net of accretion | | | | | | | | | | | | | | | |
Forward MSR amortization | (186) | | | (12) | | (125) | | | (8) | | (61) | | | (4) | | 49 | % | | 50 | % |
Excess spread accretion | 79 | | | 5 | | 59 | | | 3 | | 20 | | | 2 | | 34 | % | | 67 | % |
Reverse MSL accretion | 5 | | | — | | 11 | | | 1 | | (6) | | | (1) | | (55) | % | | (100) | % |
Reverse MSR amortization | — | | | — | | (1) | | | — | | 1 | | | — | | 100 | % | | — | % |
Total amortization, net of accretion | (102) | | | (7) | | (56) | | | (4) | | (46) | | | (3) | | 82 | % | | 75 | % |
Mark-to-Market Adjustments | | | | | | | | | | | | | | | |
MSR MTM(3) | (321) | | | (21) | | (227) | | | (14) | | (94) | | | (7) | | 41 | % | | 50 | % |
Excess spread / financing MTM | 60 | | | 4 | | (4) | | | — | | 64 | | | 4 | | (1,600) | % | | 100 | % |
Total MTM adjustments | (261) | | | (17) | | (231) | | | (14) | | (30) | | | (3) | | 13 | % | | 21 | % |
Total revenues - Servicing | $ | (69) | | | (5) | | $ | 27 | | | 2 | | $ | (96) | | | (7) | | (356) | % | | (350) | % |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
(3)The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $3 and $17 for the three and nine months ended SeptemberJune 30, 2020 and 2019, reflectrespectively.
Forward - Due to the resultsdecrease of the Successor. With respect toforward MSR portfolio’s UPB, base servicing fee revenue decreased for the three and nine months ended SeptemberJune 30, 2018, the Company has separately provided the financial results of the Predecessor for the one month ended July 31, 2018, and the seven months ended July 31, 2018, and the financial results of the Successor for the two months ended September 30, 2018, which, in each case, are presented under GAAP.
The below presentation also includes a “Combined” column that combines the Predecessor and Successor results referenced above with respect to the three and nine months ended September 30, 2018. Although the separate financial results of the Predecessor and Successor for the one month and seven months ended July 31, 2018 and the two months ended September 31, 2018 are presented under GAAP, the results reported in the “Combined” column reflect non-GAAP financial measures, as a different basis of accounting was used with respect to the financial results for the Predecessor2020 as compared to the financial resultssame period in 2019. Other ancillary revenues increased primarily due to higher sales lead incentives due to increased portfolio recapture activity. Incentive fee revenue increased primarily due to higher investor incentives driven by better overall performance.
Forward MSR amortization increased for the three months ended June 30, 2020 as compared to the same period in 2019, primarily due to higher prepayments driven by the lower interest rate environment.
Total negative MTM adjustments increased for the three months ended June 30, 2020 as compared to the same period in 2019 primarily due to the declining interest rate environment during 2020.
Subservicing - Subservicing fees increased for the three months ended June 30, 2020 as compared to the same period in 2019, primarily due to higher average subservicing portfolio UPB.
Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios for the three months ended June 30, 2020 decreased as compared to the same period in 2019, primarily due to the decline in the reverse mortgage portfolio.
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Table 10.1 Servicing - Revenues |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | $ Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Forward MSR Operational Revenue | | | | | | | | | | | | | | | |
Base servicing fees | $ | 489 | | | 16 | | $ | 497 | | | 17 | | $ | (8) | | | (1) | | (2) | % | | (6) | % |
Modification fees(2) | 5 | | | — | | 9 | | | — | | (4) | | | — | | (44) | % | | — | % |
Incentive fees(2) | 9 | | | — | | 2 | | | — | | 7 | | | — | | 350 | % | | — | % |
Late payment fees(2) | 39 | | | 1 | | 39 | | | 1 | | — | | | — | | — | % | | — | % |
Other ancillary revenues(2) | 82 | | | 3 | | 78 | | | 3 | | 4 | | | — | | 5 | % | | — | % |
Total forward MSR operational revenue | 624 | | | 20 | | 625 | | | 21 | | (1) | | | (1) | | — | % | | (5) | % |
Base subservicing fees and other subservicing revenue(3) | 134 | | | 5 | | 114 | | | 4 | | 20 | | | 1 | | 18 | % | | 25 | % |
Reverse servicing fees | 13 | | | — | | 17 | | | — | | (4) | | | — | | (24) | % | | — | % |
Total servicing fee revenue | 771 | | | 25 | | 756 | | | 25 | | 15 | | | — | | 2 | % | | — | % |
MSR financing liability costs | (17) | | | (1) | | (23) | | | (1) | | 6 | | | — | | (26) | % | | — | % |
Excess spread costs - principal | (147) | | | (5) | | (95) | | | (3) | | (52) | | | (2) | | 55 | % | | 67 | % |
Total operational revenue | 607 | | | 19 | | 638 | | | 21 | | (31) | | | (2) | | (5) | % | | (10) | % |
Amortization, net of accretion | | | | | | | | | | | | | | | |
Forward MSR amortization | (338) | | | (11) | | (204) | | | (7) | | (134) | | | (4) | | 66 | % | | 57 | % |
Excess spread accretion | 147 | | | 5 | | 95 | | | 3 | | 52 | | | 2 | | 55 | % | | 67 | % |
Reverse MSL accretion | 13 | | | — | | 29 | | | 1 | | (16) | | | (1) | | (55) | % | | (100) | % |
Reverse MSR amortization | — | | | — | | 1 | | | — | | (1) | | | — | | (100) | % | | — | % |
Total amortization, net of accretion | (178) | | | (6) | | (79) | | | (3) | | (99) | | | (3) | | 125 | % | | 100 | % |
Mark-to-Market Adjustments | | | | | | | | | | | | | | | |
MSR MTM(3) | (733) | | | (23) | | (587) | | | (19) | | (146) | | | (4) | | 25 | % | | 21 | % |
Excess spread / financing MTM | 89 | | | 3 | | 63 | | | 2 | | 26 | | | 1 | | 41 | % | | 50 | % |
Total MTM adjustments | (644) | | | (20) | | (524) | | | (17) | | (120) | | | (3) | | 23 | % | | 18 | % |
Total revenues - Servicing | $ | (215) | | | (7) | | $ | 35 | | | 1 | | $ | (250) | | | (8) | | (714) | % | | (800) | % |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
(3)The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the Successor.MSR portfolio. The Company has not provided a reconciliationimpact of negative modeled cash flows was $13 and $28 for the six months ended June 30, 2020 and 2019, respectively.
Forward - Due to the decrease of the financial metrics reflected underforward MSR portfolio’s UPB, base servicing fee revenue decreased for the “Combined” columnsix months ended June 30, 2020 as such reconciliation cannotcompared to the same period in 2019. Incentive fee revenue increased primarily due to higher investor incentives driven by better overall performance.
Forward MSR amortization increased for the six months ended June 30, 2020 as compared to the same period in 2019, primarily due to higher prepayments driven by the lower interest rate environment.
Total negative MTM adjustments increased for the six months ended June 30, 2020 as compared to the same period in 2019 primarily due to the declining interest rate environment during 2020.
Subservicing - Subservicing fees increased for the six months ended June 30, 2020 as compared to the same period in 2019 primarily due to a higher average subservicing portfolio UPB.
Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios for the six months ended June 30, 2020 decreased as compared to the same period in 2019, primarily due to the decline in the reverse mortgage portfolio. Reverse MSL accretion was further impacted by $6 pertaining to accumulated accretion recorded during the six months ended June 30, 2019 related to fair value adjustments for MSL assumed from the Merger. The fair value adjustment resulted from the revised cost to service assumption used in the valuation of MSL during the measurement period.
The tables below summarize expenses for the Servicing segment:
| | | | | | | | | | | | | | |
Table 11. Servicing - Expenses | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Salaries, wages and benefits | $ | 75 | | | 5 | | $ | 90 | | | 6 | | $ | (15) | | | (1) | | (17) | % | | (17) | % |
General and administrative | | | | | | | | | | | | | | | |
Servicing support fees | 27 | | | 2 | | 24 | | | 2 | | 3 | | | — | | 13 | % | | — | % |
Corporate and other general and administrative expenses | 32 | | | 2 | | 39 | | | 2 | | (7) | | | — | | (18) | % | | — | % |
Foreclosure and other liquidation related expenses (recoveries), net | (17) | | | (1) | | 32 | | | 2 | | (49) | | | (3) | | (153) | % | | (150) | % |
Depreciation and amortization | 5 | | | — | | 4 | | | — | | 1 | | | — | | 25 | % | | — | % |
Total general and administrative expenses | 47 | | | 3 | | 99 | | | 6 | | (52) | | | (3) | | (53) | % | | (50) | % |
Total expenses - Servicing | $ | 122 | | | 8 | | $ | 189 | | | 12 | | $ | (67) | | | (4) | | (35) | % | | (33) | % |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
Total expenses decreased during the three months ended June 30, 2020 compared to the same period in 2019, primarily driven by a decrease in foreclosure and other liquidation expenses (recoveries), net. Foreclosure and other liquidation related expenses (recoveries), net, decreased primarily due to operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to improved performance of $15 on loss recoveries related to settlement with a prior servicer. Salaries, wages and benefits decreased in 2020 compared to the same period in 2019 primarily due to operational efficiencies which included consolidation of one of our servicing centers.
| | |
Table 11.1 Servicing - Expenses |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Salaries, wages and benefits | $ | 161 | | | 5 | | $ | 176 | | | 6 | | $ | (15) | | | (1) | | (9) | % | | (17) | % |
General and administrative | | | | | | | | | | | | | | | |
Servicing support fees | 52 | | | 2 | | 63 | | | 2 | | (11) | | | — | | (17) | % | | — | % |
Corporate and other general and administrative expenses | 67 | | | 2 | | 78 | | | 3 | | (11) | | | (1) | | (14) | % | | (33) | % |
Foreclosure and other liquidation related expenses (recoveries), net | (17) | | | — | | 59 | | | 2 | | (76) | | | (2) | | (129) | % | | (100) | % |
Depreciation and amortization | 8 | | | — | | 8 | | | — | | — | | | — | | — | % | | — | % |
Total general and administrative expenses | 110 | | | 4 | | 208 | | | 7 | | (98) | | | (3) | | (47) | % | | (43) | % |
Total expenses - Servicing | $ | 271 | | | 9 | | $ | 384 | | | 13 | | $ | (113) | | | (4) | | (29) | % | | (31) | % |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
Total expenses decreased during the six months ended June 30, 2020 compared to the same period in 2019, primarily driven by a decrease in foreclosure and other liquidation expenses (recoveries), net. Foreclosure and other liquidation related expenses (recoveries), net decreased primarily due to operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to improved performance of $15 on loss recoveries related to a settlement with a prior servicer during the six months ended June 30, 2020. Servicing support fees decreased in 2020 compared to the same period in 2019 primarily due to lower legal and tax service expenses. The decrease in Corporate and other general and administrative expenses in 2020 compared to the same period in 2019 was primarily driven by lower occupancy expenses. Salaries, wages and benefits decreased in 2020 compared to the same period in 2019 primarily due to improved operational efficiencies which included consolidation of one of our servicing centers.
| | | | | | | | | | | | | | |
Table 12. Servicing - Other (Expenses) Income, Net | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Income earned on Reverse mortgage interest | $ | 54 | | | 4 | | $ | 86 | | | 6 | | $ | (32) | | | (2) | | (37) | % | | (33) | % |
Other interest income | 3 | | | — | | 50 | | | 3 | | (47) | | | (3) | | (94) | % | | (100) | % |
Interest income | 57 | | | 4 | | 136 | | | 9 | | (79) | | | (5) | | (58) | % | | (56) | % |
| | | | | | | | | | | | | | | |
Reverse mortgage interest expense | (51) | | | (3) | | (46) | | | (3) | | (5) | | | — | | 11 | % | | — | % |
Advance interest expense | (8) | | | (1) | | (8) | | | (1) | | — | | | — | | — | % | | — | % |
Other interest expense | (58) | | | (4) | | (55) | | | (3) | | (3) | | | (1) | | 5 | % | | 33 | % |
Interest expense | (117) | | | (8) | | (109) | | | (7) | | (8) | | | (1) | | 7 | % | | 14 | % |
| | | | | | | | | | | | | | | |
Total other (expenses) income, net - Servicing | $ | (60) | | | (4) | | $ | 27 | | | 2 | | $ | (87) | | | (6) | | (322) | % | | (300) | % |
| | | | | | | | | | | | | | | |
Weighted average cost - advance facilities | 2.9 | % | | | | 5.5 | % | | | | (2.6) | % | | | | (47) | % | | |
Weighted average cost - excess spread financing | 9.0 | % | | | | 8.9 | % | | | | 0.1 | % | | | | 1 | % | | |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
For the three months ended June 30, 2020, we had total other expenses, net, of $60 compared to total other income, net, of $27 for the same period in 2019. The change was primarily due to a decrease in interest income, mainly driven by lower interest income earned on custodial balances driven by lower LIBOR rates. Income earned on reverse mortgage interest decreased due to the decline in the reverse mortgage interests balance and the amortization of a net asset premium into income. Interest expense increased for the three months ended June 30, 2020 as compared to the same period in 2019, primarily due to an increase in other interest expense and reverse mortgage interest expense. Other interest expense increased due to higher bank fees and higher compensating interest expense. The increase in reverse mortgage interest expense was primarily driven by lower bond premium amortization, partially offset by the decline in the reverse mortgage interest portfolio.
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Table 12.1 Servicing - Other (Expenses) Income, Net |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Income earned on Reverse mortgage interest | $ | 97 | | | 3 | | $ | 168 | | | 5 | | $ | (71) | | | (2) | | (42) | % | | (40) | % |
Other interest income | 43 | | | 1 | | 83 | | | 3 | | (40) | | | (2) | | (48) | % | | (67) | % |
Interest income | 140 | | | 4 | | 251 | | | 8 | | (111) | | | (4) | | (44) | % | | (50) | % |
| | | | | | | | | | | | | | | |
Reverse mortgage interest expense | (103) | | | (3) | | (117) | | | (4) | | 14 | | | 1 | | (12) | % | | (25) | % |
Advance interest expense | (13) | | | — | | (17) | | | — | | 4 | | | — | | (24) | % | | — | % |
Other interest expense | (114) | | | (4) | | (89) | | | (3) | | (25) | | | (1) | | 28 | % | | 33 | % |
Interest expense | (230) | | | (7) | | (223) | | | (7) | | (7) | | | — | | 3 | % | | — | % |
| | | | | | | | | | | | | | | |
Total other (expenses) income, net - Servicing | $ | (90) | | | (3) | | $ | 28 | | | 1 | | $ | (118) | | | (4) | | (421) | % | | (400) | % |
| | | | | | | | | | | | | | | |
Weighted average cost - advance facilities | 3.0 | % | | | | 5.1 | % | | | | (2.1) | % | | | | (41) | % | | |
Weighted average cost - excess spread financing | 9.0 | % | | | | 8.9 | % | | | | 0.1 | % | | | | 1 | % | | |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
For the six months ended June 30, 2020, we had total other expenses, net, of $90 compared to total other income, net, of $28 for the same period in 2019. The change was primarily due to a decrease in interest income, mainly driven by lower interest income earned on custodial balances driven by lower LIBOR rates. Income earned on reverse mortgage interest decreased due to the decline in the reverse mortgage interests balance and the amortization of a net asset premium into income. Interest expense remained relatively flat for the six months ended June 30, 2020 as compared to the same period in 2019.
Servicing Portfolio and Related Liabilities
The table below summarizes the servicing portfolio and related liabilities in the Servicing segment:
| | | | | | | | | | | | | | |
Table 13. Servicing Portfolios and Related Liabilities | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | December 31, 2019 | | | | |
| UPB | | Carrying Amount | | bps | | UPB | | Carrying Amount | | bps |
Forward MSRs - acquisition pool: | | | | | | | | | | | |
Credit sensitive | $ | 131,105 | | | $ | 1,307 | | | 100 | | $ | 147,895 | | | $ | 1,613 | | | 109 |
Interest sensitive | 146,870 | | | 1,450 | | | 99 | | 148,887 | | | 1,883 | | | 126 |
Total forward MSRs - fair value | $ | 277,975 | | | $ | 2,757 | | | 99 | | $ | 296,782 | | | $ | 3,496 | | | 118 |
| | | | | | | | | | | |
Forward MSRs - investor pool: | | | | | | | | | | | |
Agency | $ | 228,680 | | | $ | 2,308 | | | 101 | | $ | 240,688 | | | $ | 2,944 | | | 122 |
Non-agency | 49,295 | | | 449 | | | 91 | | 56,094 | | | 552 | | | 98 |
Total forward MSRs - fair value | $ | 277,975 | | | $ | 2,757 | | | 99 | | $ | 296,782 | | | $ | 3,496 | | | 118 |
| | | | | | | | | | | |
Total forward MSRs | $ | 277,975 | | | $ | 2,757 | | | | | $ | 296,782 | | | $ | 3,496 | | | |
| | | | | | | | | | | |
Subservicing and other(1) | | | | | | | | | | | |
Agency | 286,710 | | | N/A | | | | 308,532 | | | N/A | | |
Non-agency | 10,082 | | | N/A | | | | 15,451 | | | N/A | | |
Total subservicing and other | 296,792 | | | N/A | | | | 323,983 | | | N/A | | |
| | | | | | | | | | | |
Reverse portfolio - amortized cost | | | | | | | | | | | |
MSR | 2,190 | | | 6 | | | | | 2,508 | | | 6 | | | |
MSL | 12,891 | | | (48) | | | | | 13,994 | | | (61) | | | |
Securitized loans | 5,677 | | | 5,709 | | | | | 6,223 | | | 6,279 | | | |
Total reverse portfolio serviced | 20,758 | | | 5,667 | | | | | 22,725 | | | 6,224 | | | |
Total servicing portfolio unpaid principal balance | $ | 595,525 | | | $ | 8,424 | | | | | $ | 643,490 | | | $ | 9,720 | | | |
(1)Subservicing and other amounts include loans we service for others, residential mortgage loans originated but have yet to be provided without unreasonable effortsold and agency REO balances for which we own the mortgage servicing rights.
As of June 30, 2020, when measuring the fair value of the portfolio as a basis point of the unpaid principal balance, our credit sensitive pool decreased in value by 9 bps and interest sensitive pool decreased in value by 27 bps, compared to December 31, 2019 primarily due to higher forecasted prepayment speeds as a result of the declining interest rate environment in 2020.
We assess whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition. We consider numerous factors in making this accounting variance.assessment, with the primary factors consisting of the overall portfolio delinquency characteristics, portfolio seasoning and residential mortgage loan composition. Interest rate sensitive portfolios typically consist of single-family conforming residential forward mortgage loans serviced for GSEs or other third-party investors. Credit sensitive portfolios primarily consist of higher delinquency single-family non-conforming residential forward mortgage loans in private-label securitizations.
The Company believes that non-GAAP financial measures should be considered in addition to, and not a substitute for, financial information prepared in accordance with GAAP. The Company presents non-GAAP financial measures in reporting its financial results to provide additional and supplemental disclosure to evaluate operating results. In particular,following table sets forth the Company believes that providing this “Combined” information is useful as a supplement to its standard GAAP financial presentation as it significantly enhances the period-over-period comparabilityactivities of the Company’s financial results. In addition, management of the Company uses this “Combined�� presentation to evaluate the Company’s ongoing operations and for internal planning and forecasting purposes.
Dollar amounts are reported in millions, except per share data and other key metrics, unless otherwise noted.
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| | | | | | | | | | | | | |
OverviewTable 14. Forward MSRs - Fair Value, Rollforward | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Fair value - beginning of period | $ | 3,109 | | | $ | 3,481 | | | $ | 3,496 | | | $ | 3,665 | |
Additions: | | | | | | | |
Servicing retained from mortgage loans sold | 126 | | | 103 | | | 249 | | | 169 | |
Purchases of servicing rights | — | | | 280 | | | 24 | | | 689 | |
Dispositions: | | | | | | | |
Sales and cancellation of servicing assets | — | | | (34) | | | — | | | (294) | |
Changes in fair value: | | | | | | | |
Due to changes in valuation inputs or assumptions used in the valuation model: | | | | | | | |
Credit sensitive | (40) | | | (35) | | | (221) | | | (156) | |
Interest sensitive | (276) | | | (175) | | | (496) | | | (386) | |
Other changes in fair value: | | | | | | | |
Scheduled principal payments | (24) | | | (23) | | | (47) | | | (45) | |
Disposition of negative MSRs and other(1) | 25 | | | 11 | | | 45 | | | 23 | |
Prepayments | | | | | | | |
Voluntary prepayments | | | | | | | |
Credit sensitive | (26) | | | (26) | | | (50) | | | (45) | |
Interest sensitive | (135) | | | (70) | | | (237) | | | (102) | |
Involuntary prepayments | | | | | | | |
Credit sensitive | — | | | (2) | | | (1) | | | (4) | |
Interest sensitive | (2) | | | (5) | | | (5) | | | (9) | |
Fair value - end of period | $ | 2,757 | | | $ | 3,505 | | | $ | 2,757 | | | $ | 3,505 | |
We
(1)Amounts primarily represent negative fair values reclassified from the MSR asset to reserves as underlying loans are a leading servicerremoved from the MSR and originatorother reclassification adjustments.
The following table sets forth the weighted-average key assumptions in estimating the fair value of residential mortgage loans, and a provider of real estate services through our Xome subsidiary. Our purpose is to keep the dream of homeownership alive, and we do this as a servicer by helping mortgage borrowers manage what is typically their largest financial asset, and by helping our investors maximize the returns from their portfolios of residential mortgages. We have a track record of significant growth, having expanded our servicingforward MSRs:
| | | | | | | | | | | | | | |
Table 15. MSRs - Fair Value | | | | |
| | | | | | | | | | | |
| June 30, 2020 | | June 30, 2019 |
Total MSRs Portfolio | | | |
Discount rate | 9.5 | % | | 9.7 | % |
Prepayment speeds | 14.2 | % | | 13.7 | % |
Average life | 5.3 years | | 5.8 years |
| | | |
Acquisition Pools: | | | |
Credit Sensitive | | | |
Discount rate | 9.9 | % | | 10.6 | % |
Prepayment speeds | 12.6 | % | | 13.5 | % |
Average life | 5.6 years | | 5.9 years |
| | | |
Interest Sensitive | | | |
Discount rate | 9.0 | % | | 8.9 | % |
Prepayment speeds | 15.8 | % | | 13.9 | % |
Average life | 4.9 years | | 5.6 years |
| | | |
Investor Pools: | | | |
Agency | | | |
Discount rate | 8.9 | % | | 9.0 | % |
Prepayment speeds | 14.4 | % | | 13.5 | % |
Average life | 5.2 years | | 5.7 years |
| | | |
Non-Agency | | | |
Discount rate | 12.0 | % | | 12.6 | % |
Prepayment speeds | 13.4 | % | | 14.5 | % |
Average life | 5.6 years | | 6.0 years |
The weighted-average discount rate for total MSRs portfolio from $10 billion in 2009 to $641 billiondecreased as of SeptemberJune 30, 2019. We believe this track record reflects our strong operating capabilities,2020 compared to the same period in 2019 due to the declining interest rate environment in 2020. Weighted-average life for total MSRs portfolio decreased due to the increase in prepayment speeds, which include a proprietary low-cost servicing platform, strong loss mitigation skills, a commitmentwas attributable to compliance, a customer-centric culture, a demonstrated ability to retain customers, growing origination capabilities, and significant investment in technology. More information on the Company is available at investors.mrcoopergroup.com. Information contained on our websites is not, and should not be deemed to be, a part of this report.
Our strategy to position the Company for continued, sustainable long-term growth includes initiatives to improve profitability and strengthen the balance sheet. Key strategic initiatives include the following:
Complete Project Titan, our servicing transformation initiative, which consists of a series of interrelated technology initiatives designed to streamline processes, improve customer and team member experiences, and drive efficiency;
Identify additional opportunities throughout the organization to drive greater efficiency;
Strengthen our balance sheet and reduce leverage;
Manage the interest rate decline period over period.
The discount rate, which is used to determine the present value of estimated future net servicing income, is based on the required rate of return market investors would expect for an asset with similar risk associated with holding MSRs on balance sheet by providing existing customers with attractive refinance options, growingcharacteristics. The discount rate is determined through review of recent market transactions as well as comparing the size and improving the profitability of our Originations segment (whose results are typically counter-cyclicaldiscount rate to those utilized by third-party valuation specialists.
Total prepayment speeds represent the annual rate at which borrowers are forecasted to repay their mortgage loan principal, which includes estimates for both voluntary and involuntary borrower liquidations. The expected weighted-average life represents the total years we expect to service the MSR.
The key assumptions were separately applied to the servicing of loans in forbearance to account for differences in the Servicing segment), expanding the sizeunderlying estimate of our subservicing portfolio through value-added partnerships with MSR owners, and by utilizing excess spread facilitiesfuture servicing revenues related to pass through a portion of the interest rate risk to capital partners; andthose loans.
Maintain strong relationships with agencies, investors, regulators, and other counterparties and a strong reputation for compliance and customer service.
Results of Operations
| | |
|
Table 1. Consolidated Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues - operational(1) | $ | 891 | | | $ | 630 | | | $ | 261 | | | 41 | % |
Revenues - Mark-to-market | (261) | | | (231) | | | (30) | | | 13 | % |
Total revenues | 630 | | | 399 | | | 231 | | | 58 | % |
Total expenses | 419 | | | 492 | | | (73) | | | (15) | % |
Total other expenses, net | (101) | | | (24) | | | (77) | | | 321 | % |
Income (loss) before income tax expense (benefit) | 110 | | | (117) | | | 227 | | | (194) | % |
Less: Income tax expense (benefit) | 37 | | | (29) | | | 66 | | | (228) | % |
Net income (loss) | 73 | | | (88) | | | 161 | | | (183) | % |
Less: Net loss attributable to non-controlling interests | — | | | (1) | | | 1 | | | (100) | % |
Net income (loss) attributable to Mr. Cooper | $ | 73 | | | $ | (87) | | | $ | 160 | | | (184) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Revenues - operational | $ | 701 |
| | $ | 318 |
| | | $ | 139 |
| | $ | 457 |
| | $ | 244 |
| | 53 | % |
Revenues - Mark-to-market | (83 | ) | | 24 |
| | | 25 |
| | 49 |
| | (132 | ) | | (269 | )% |
Total revenues | 618 |
| | 342 |
| | | 164 |
| | 506 |
| | 112 |
| | 22 | % |
Expenses | 478 |
| | 275 |
| | | 242 |
| | 517 |
| | (39 | ) | | (8 | )% |
Other income (expenses), net | (33 | ) | | (26 | ) | | | (5 | ) | | (31 | ) | | (2 | ) | | 6 | % |
Income (loss) before income tax expense (benefit) | 107 |
| | 41 |
| | | (83 | ) | | (42 | ) | | 149 |
| | (355 | )% |
Less: Income tax expense (benefit) | 24 |
| | (979 | ) | | | (19 | ) | | (998 | ) | | 1,022 |
| | (102 | )% |
Net income (loss) | 83 |
| | 1,020 |
| | | (64 | ) | | 956 |
| | (873 | ) | | (91 | )% |
Less: Net loss attributable to non-controlling interests | (1 | ) | | — |
| | | — |
| | — |
| | (1 | ) | | (100 | )% |
Net income (loss) attributable to Successor/Predecessor | $ | 84 |
| | $ | 1,020 |
| | | $ | (64 | ) | | $ | 956 |
| | $ | (872 | ) | | (91 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
(1)Revenues - operational consists of total revenues, excluding mark-to-market.
We recorded net income of $83$73 during the three months ended SeptemberJune 30, 20192020 compared to a net incomeloss of $956$88 during the same period in 2018, on a combined basis.2019. The net income in 20182020 was higher primarily due to the income tax benefit.an increase in total revenues and a decrease in total expenses, partially offset by an increase in total other expenses, net. Consolidated operational revenues increased primarily due to increased revenue in our Originations segment, driven by higher originations volume predominately in a declining interest rate environment and incremental volumes associated with the acquisition of Pacific Union in February 2019. Partially offsetting thedirect-to-consumer (”DTC”) channel, partially offset by an increase in operational revenues was negative mark-to-market (“MTM”) adjustments for the three months ended SeptemberJune 30, 2019 compared to positive MTM adjustments for the same period in 2018, on a combined basis. Expenses were higher in 2018, on a combined basis, primarily due to the Nationstar acquisition.
|
|
Table 1.1 Consolidated Operations |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Revenues - operational | $ | 1,874 |
| | $ | 318 |
| | | $ | 1,000 |
| | $ | 1,318 |
| | $ | 556 |
| | 42 | % |
Revenues - Mark-to-market | (607 | ) | | 24 |
| | | 196 |
| | 220 |
| | (827 | ) | | (376 | )% |
Total revenues | 1,267 |
| | 342 |
| | | 1,196 |
| | 1,538 |
| | (271 | ) | | (18 | )% |
Expenses | 1,413 |
| | 275 |
| | | 945 |
| | 1,220 |
| | 193 |
| | 16 | % |
Other income (expenses), net | (97 | ) | | (26 | ) | | | (49 | ) | | (75 | ) | | (22 | ) | | 29 | % |
(Loss) income before income tax (benefit) expense | (243 | ) | | 41 |
| | | 202 |
| | 243 |
| | (486 | ) | | (200 | )% |
Less: Income tax (benefit) expense | (52 | ) | | (979 | ) | | | 48 |
| | (931 | ) | | 879 |
| | (94 | )% |
Net (loss) income | (191 | ) | | 1,020 |
| | | 154 |
| | 1,174 |
| | (1,365 | ) | | (116 | )% |
Less: Net (loss) income attributable to non-controlling interests | (2 | ) | | — |
| | | — |
| | — |
| | (2 | ) | | (100 | )% |
Net (loss) income attributable to Successor/Predecessor | $ | (189 | ) | | $ | 1,020 |
| | | $ | 154 |
| | $ | 1,174 |
| | $ | (1,363 | ) | | (116 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
We incurred a net loss of $191 for the nine months ended September 30, 2019 compared to net income of $1,174 during the same period in 2018, on a combined basis. The net loss in 2019 was primarily due to a negative MTM of $607 driven by declining interest rates when compared with a positive MTM of $220 in 2018, on a combined basis. The net income in 2018 was primarily driven by the income tax benefit. Consolidated operational revenue and expenses increased for the nine months ended September 30, 20192020 compared to the same period in 2018, on a combined basis, largely driven by the acquisitions of Pacific Union 2019. Refer to Table 10. Servicing - Revenues and Seterus in February 2019, as well as Xome’s acquisition of AMS in August 2018.Table 21. Originations - Revenues for further discussion.
Total other income (expenses), net, declinedexpenses for the ninethree months ended SeptemberJune 30, 20192020 decreased compared to the same period in 2018, on2019 primarily due to lower foreclosure and other liquidation related expenses and recoveries in our Servicing segment, primarily driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines. The decrease in total expenses was partially offset by higher total expense in our Originations segment, primarily attributable to higher originations volume in the lower interest rate environment.
Total other expenses, net, increased for the three months ended June 30, 2020 compared to the same period in 2019 primarily due to a combined basis.decrease in interest income in our Servicing segment, partially offset by a decrease in interest expense. Refer to Table 12. Servicing - Other (Expenses) Income, Net for further discussion.
| | |
Table 1.1 Consolidated Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues - operational(1) | $ | 1,552 | | | $ | 1,173 | | | $ | 379 | | | 32 | % |
Revenues - Mark-to-market | (644) | | | (524) | | | (120) | | | 23 | % |
Total revenues | 908 | | | 649 | | | 259 | | | 40 | % |
Total expenses | 863 | | | 935 | | | (72) | | | (8) | % |
Total other expenses, net | (174) | | | (64) | | | (110) | | | 172 | % |
Loss before income tax benefit | (129) | | | (350) | | | 221 | | | (63) | % |
Less: Income tax benefit | (31) | | | (76) | | | 45 | | | (59) | % |
Net loss | (98) | | | (274) | | | 176 | | | (64) | % |
Less: Net loss attributable to non-controlling interests | (3) | | | (1) | | | (2) | | | 200 | % |
Net loss attributable to Mr. Cooper | $ | (95) | | | $ | (273) | | | $ | 178 | | | (65) | % |
(1)Revenues - operational consists of total revenues, excluding mark-to-market.
We recorded a net loss of $98 during the six months ended June 30, 2020 compared to a net loss of $274 during the same period in 2019. The declinenet loss in 2020 was lower primarily due to an increase in interest expensetotal revenues and decrease in total expenses. Consolidated operational revenues increased primarily due to increased revenue in our CorporateOriginations segment, driven by higher originations volume predominately in the DTC channel, partially offset by an increase in negative MTM adjustments for the six months ended June 30, 2020 compared to the same period in 2019. Refer to Table 10.1 Servicing - Revenues and Table 21.1 Originations - Revenues for further discussion.
Total expenses for the six months ended June 30, 2020 decreased compared with the same period in 2019 primarily due to lower foreclosure and other liquidation related expenses in our Servicing segment primarily driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines. In addition, total expenses in our Corporate/Other segment were higher in the six months ended June 30, 2019 due to acquisition and integration expenses related to the Pacific Union acquisition and the acquisition of the Seterus mortgage servicing platform and assumption of assets related thereto from IBM (“Seterus acquisition”) in February 2019. Partially offsetting the decrease in total expenses in our Servicing segment and Corporate/Other segment was an increase in total expenses in our Originations segment primarily driven by higher originations volume in a declining interest rate environment.
Total other expenses, net, increased for the six months ended June 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest income and other income, net, partially offset by a decrease in interest expense. Interest income decreased primarily due to a decrease in other interest income in our Servicing segment due to lower income earned on custodial balances driven by lower LIBOR rates and a decrease in income earned on reverse mortgage interest, as a result of a higher debt balance and higher interest rates under the new unsecured senior notes that were executeddecline in July 2018the reverse mortgage interests balance. Other income, net, was lower in the six months ended June 30, 2020 primarily due to fundincome related to the Merger with Nationstar.change in fair value of the contingent consideration recorded in 2019 for the acquisition of Assurant Mortgage Solutions (“AMS”).
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Table 2. Provision for Income Taxes | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Income tax expense (benefit) | $ | 37 | | | $ | (29) | | | $ | 66 | | | (228) | % |
| | | | | | | |
Effective tax rate(1) | 33.4 | % | | 24.6 | % | | | | |
(1)Effective tax rate is calculated using whole numbers.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Income tax expense (benefit) | $ | 24 |
| | $ | (979 | ) | | | $ | (19 | ) | | $ | (998 | ) | | $ | 1,022 |
| | (102 | )% |
| | | | | | | | | | | | |
Effective tax rate(2) | 22.3 | % | | (2,377.1 | )% | | | 23.1 | % | | | | | | |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
| |
(2)
| Effective tax rate is calculated using whole numbers. |
For the three months ended SeptemberJune 30, 2019,2020, we had an income tax expense. Forexpense compared to an income tax benefit for the same period ended in 2018, we had an income tax benefit on a combined basis.2019. The effective tax rate for the three months ended SeptemberJune 30, 20192020 was 22.3%33.4% as compared to the effective tax rate of 23.1% and (2,377.1)%24.6% for the one month ended July 31, 2018 and the twothree months ended SeptemberJune 30, 2018, respectively.2019. The change in effective tax rate is primarily attributable to the increased relative unfavorable tax effectimpacts of permanent differences such as nondeductible executive compensation and nondeductible meals and entertainment expenses on the annual effective rate, and discrete tax items in the three months ended SeptemberJune 30, 20192020 as compared to the one month ended July 31, 2018 as well as the reversal of the valuation allowance associated with the pre-merger net operating loss (“NOL”) carryforwards in the twothree months ended SeptemberJune 30, 2018.2019.
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Table 2.1. Provision for Income Taxes | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Income tax benefit | $ | (31) | | | $ | (76) | | | $ | 45 | | | (59) | % |
| | | | | | | |
Effective tax rate(1) | 24.1 | % | | 21.7 | % | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Income tax (benefit) expense | $ | (52 | ) | | $ | (979 | ) | | | $ | 48 |
| | $ | (931 | ) | | $ | 879 |
| | (94 | )% |
| | | | | | | | | | | | |
Effective tax rate(2) | 21.5 | % | | (2,377.1 | )% | | | 23.8 | % | | | | | | |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
| |
(2)
| Effective tax rate is calculated using whole numbers. |
(1)Effective tax rate is calculated using whole numbers.
The
For the six months ended June 30, 2020 and 2019, we had an income tax benefit for the nine months ended September 30, 2019 decreased when compared with the same period in 2018, on a combined basis.benefit. The effective tax rate for the ninesix months ended SeptemberJune 30, 20192020 was 21.5%24.1% as compared to the effective tax rate of 23.8% and (2,377.1)%21.7% for the sevensix months ended July 31, 2018 and the two months ended SeptemberJune 30, 2018, respectively.2019. The change in effective tax rate is primarily attributable to the increased relative unfavorable tax effectimpacts of permanent differences such as nondeductible executive compensation and nondeductible meals and entertainment expenses on the annual effective rate, and discrete tax items in the ninesix months ended SeptemberJune 30, 20192020 as compared to the sevensix months ended July 31, 2018 as well as the reversal of the valuation allowance associated with the pre-merger net operating loss (“NOL”) carryforwards in the two months ended SeptemberJune 30, 2018.2019.
Our operations are conducted through four segments: Servicing, Originations, Xome, and Corporate/Other.
•The Servicing segment performs operational activities on behalf of investors or owners of the underlying mortgages, including collecting and disbursing borrower payments, investor reporting, customer service, modifying loans where appropriate to help borrowers stay current, and when necessary performing collections, foreclosures, and the sale of REO.
•The Originations segment originates residential mortgage loans through our direct-to-consumer channel, which provides refinance options for our existing customers, and through our correspondent and wholesale channelschannel which purchasepurchases or originateoriginates loans from mortgage bankersbankers. Our wholesale channel was shut down during the three months ended June 30, 2020 and brokers.subsequently ceased originating loans and funded out the remaining pipeline.
•The Xome segment provides a variety of real estate services to mortgage originators, mortgage and real estate investors, and mortgage servicers, including valuation, title, and field services, and operates an exchange which facilitates the sale of foreclosed properties, and contains a subsidiary which sells data and technology solutions.properties.
•The Corporate/Other segment represents unallocated overhead expenses, including the costs of executive management and other corporate functions that are not directly attributable to our operating segments, interest expense on our senior unsecured notes, and the results of a legacy mortgage investment portfolio.portfolio, which consists of non-prime and non-conforming residential mortgage loans that were transferred to a securitization trust (“Trust 2009-A”) in 2009. We collapsed Trust 2009-A and executed the sale of the loans held in the trust in September 2019. The Corporate/Other segment also includes inter-segment eliminations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (114) | | | $ | 21 | | | $ | 106 | | | $ | (1) | | | $ | 12 | |
Net gain on mortgage loans held for sale | 45 | | | 573 | | | — | | | — | | | 618 | |
Total revenues | (69) | | | 594 | | | 106 | | | (1) | | | 630 | |
Total expenses | 122 | | | 167 | | | 95 | | | 35 | | | 419 | |
Interest income | 57 | | | 19 | | | — | | | — | | | 76 | |
Interest expense | (117) | | | (13) | | | — | | | (47) | | | (177) | |
Other income (expenses), net | — | | | — | | | 1 | | | (1) | | | — | |
Total other (expenses) income, net | (60) | | | 6 | | | 1 | | | (48) | | | (101) | |
(Loss) income before income tax (benefit) expense | $ | (251) | | | $ | 433 | | | $ | 12 | | | $ | (84) | | | $ | 110 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Three Months Ended September 30, 2019 |
| Servicing | | Originations | | Xome | | Elimination/ Reclassification(1) | | Total Operating Segments | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | | | | | |
Service related, net | $ | 163 |
| | $ | 22 |
| | $ | 112 |
| | $ | (39 | ) | | $ | 258 |
| | $ | — |
| | $ | 258 |
|
Net gain on mortgage loans held for sale | — |
| | 312 |
| | — |
| | 37 |
| | 349 |
| | 11 |
| | 360 |
|
Total revenues | 163 |
| | 334 |
| | 112 |
| | (2 | ) | | 607 |
| | 11 |
| | 618 |
|
Total Expenses | 171 |
| | 155 |
| | 101 |
| | (2 | ) | | 425 |
| | 53 |
| | 478 |
|
Other income (expenses) | | | | | | | | | | | | | |
Interest income | 137 |
| | 24 |
| | — |
| | — |
| | 161 |
| | 2 |
| | 163 |
|
Interest expense | (120 | ) | | (24 | ) | | — |
| | — |
| | (144 | ) | | (52 | ) | | (196 | ) |
Other | — |
| | (1 | ) | | 3 |
| | — |
| | 2 |
| | (2 | ) | | — |
|
Total Other Income (Expenses), Net | 17 |
| | (1 | ) | | 3 |
| | — |
| | 19 |
| | (52 | ) | | (33 | ) |
Income (loss) before income tax expense (benefit) | $ | 9 |
| | $ | 178 |
| | $ | 14 |
| | $ | — |
| | $ | 201 |
| | $ | (94 | ) | | $ | 107 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | 9 | | | $ | 20 | | | $ | 108 | | | $ | — | | | $ | 137 | |
Net gain on mortgage loans held for sale | 18 | | | 244 | | | — | | | — | | | 262 | |
Total revenues | 27 | | | 264 | | | 108 | | | — | | | 399 | |
Total expenses | 189 | | | 145 | | | 101 | | | 57 | | | 492 | |
Interest income | 136 | | | 23 | | | — | | | 3 | | | 162 | |
Interest expense | (109) | | | (25) | | | — | | | (53) | | | (187) | |
Other income, net | — | | | 1 | | | — | | | — | | | 1 | |
Total other income (expenses), net | 27 | | | (1) | | | — | | | (50) | | | (24) | |
(Loss) income before income tax (benefit) expense | $ | (135) | | | $ | 118 | | | $ | 7 | | | $ | (107) | | | $ | (117) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Two Months Ended September 30, 2018 |
| Servicing | | Originations | | Xome | | Elimination/ Reclassification(1) | | Total Operating Segments | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | | | | | |
Service related, net | $ | 183 |
| | $ | 10 |
| | $ | 73 |
| | $ | (7 | ) | | $ | 259 |
| | $ | — |
| | $ | 259 |
|
Net gain on mortgage loans held for sale | — |
| | 76 |
| | — |
| | 7 |
| | 83 |
| | — |
| | 83 |
|
Total revenues | 183 |
| | 86 |
| | 73 |
| | — |
| | 342 |
| | — |
| | 342 |
|
Total Expenses | 104 |
| | 66 |
| | 71 |
| | — |
| | 241 |
| | 34 |
| | 275 |
|
Other income (expenses) | | | | | | | | | | | | | |
Interest income | 78 |
| | 10 |
| | — |
| | — |
| | 88 |
| | 2 |
| | 90 |
|
Interest expense | (74 | ) | | (10 | ) | | (1 | ) | | — |
| | (85 | ) | | (37 | ) | | (122 | ) |
Other | 5 |
| | 1 |
| | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Total Other Income (Expenses), Net | 9 |
| | 1 |
| | (1 | ) | | — |
| | 9 |
| | (35 | ) | | (26 | ) |
Income (loss) before income tax expense (benefit) | $ | 88 |
| | $ | 21 |
| | $ | 1 |
| | $ | — |
| | $ | 110 |
| | $ | (69 | ) | | $ | 41 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor |
| One Month Ended July 31, 2018 |
| Servicing | | Originations | | Xome | | Elimination/ Reclassification(1) | | Total Operating Segments | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | | | | | |
Service related, net | $ | 97 |
| | $ | 4 |
| | $ | 22 |
| | $ | (3 | ) | | $ | 120 |
| | $ | — |
| | $ | 120 |
|
Net gain on mortgage loans held for sale | — |
| | 41 |
| | — |
| | 3 |
| | 44 |
| | — |
| | 44 |
|
Total revenues | 97 |
| | 45 |
| | 22 |
| | — |
| | 164 |
| | — |
| | 164 |
|
Total Expenses | 126 |
| | 34 |
| | 19 |
| | — |
| | 179 |
| | 63 |
| | 242 |
|
Other income (expenses) | | | | | | | | | | | | | |
Interest income | 41 |
| | 6 |
| | — |
| | — |
| | 47 |
| | 1 |
| | 48 |
|
Interest expense | (35 | ) | | (6 | ) | | — |
| | — |
| | (41 | ) | | (12 | ) | | (53 | ) |
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Other Income (Expenses), Net | 6 |
| | — |
| | — |
| | — |
| | 6 |
| | (11 | ) | | (5 | ) |
Income (loss) before income tax expense (benefit) | $ | (23 | ) | | $ | 11 |
| | $ | 3 |
| | $ | — |
| | $ | (9 | ) | | $ | (74 | ) | | $ | (83 | ) |
|
| |
Table 3.1 Segment Results |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (294) | | | $ | 41 | | | $ | 212 | | | $ | — | | | $ | (41) | |
Net gain on mortgage loans held for sale | 79 | | | 870 | | | — | | | — | | | 949 | |
Total revenues | (215) | | | 911 | | | 212 | | | — | | | 908 | |
Total expenses | 271 | | | 333 | | | 191 | | | 68 | | | 863 | |
Interest income | 140 | | | 53 | | | — | | | 1 | | | 194 | |
Interest expense | (230) | | | (40) | | | — | | | (99) | | | (369) | |
Other income (expenses), net | — | | | — | | | 2 | | | (1) | | | 1 | |
Total other (expenses) income, net | (90) | | | 13 | | | 2 | | | (99) | | | (174) | |
(Loss) income before income tax (benefit) expense | $ | (576) | | | $ | 591 | | | $ | 23 | | | $ | (167) | | | $ | (129) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | | | |
| Servicing | | Originations | | Xome | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | |
Service related, net | $ | (18) | | | $ | 35 | | | $ | 204 | | | $ | — | | | $ | 221 | |
Net gain on mortgage loans held for sale | 53 | | | 375 | | | — | | | — | | | 428 | |
Total revenues | 35 | | | 410 | | | 204 | | | — | | | 649 | |
Total expenses | 384 | | | 249 | | | 200 | | | 102 | | | 935 | |
Interest income | 251 | | | 40 | | | — | | | 5 | | | 296 | |
Interest expense | (223) | | | (43) | | | — | | | (110) | | | (376) | |
Other income, net | — | | | 5 | | | 11 | | | — | | | 16 | |
Total other income (expenses), net | 28 | | | 2 | | | 11 | | | (105) | | | (64) | |
(Loss) income before income tax (benefit) expense | $ | (321) | | | $ | 163 | | | $ | 15 | | | $ | (207) | | | $ | (350) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Nine Months Ended September 30, 2019 |
| Servicing | | Originations | | Xome | | Elimination/ Reclassification(1) | | Total Operating Segments | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | | | | | |
Service related, net | $ | 198 |
| | $ | 57 |
| | $ | 316 |
| | $ | (92 | ) | | $ | 479 |
| | $ | — |
| | $ | 479 |
|
Net gain on mortgage loans held for sale | — |
| | 687 |
| | — |
| | 90 |
| | 777 |
| | 11 |
| | 788 |
|
Total revenues | 198 |
| | 744 |
| | 316 |
| | (2 | ) | | 1,256 |
| | 11 |
| | 1,267 |
|
Total Expenses | 555 |
| | 404 |
| | 301 |
| | (2 | ) | | 1,258 |
| | 155 |
| | 1,413 |
|
Other income (expenses) | | | | | | | | | | | | | |
Interest income | 388 |
| | 64 |
| | — |
| | — |
| | 452 |
| | 7 |
| | 459 |
|
Interest expense | (343 | ) | | (67 | ) | | — |
| | — |
| | (410 | ) | | (162 | ) | | (572 | ) |
Other | — |
| | 4 |
| | 14 |
| | — |
| | 18 |
| | (2 | ) | | 16 |
|
Total Other Income (Expenses), Net | 45 |
| | 1 |
| | 14 |
| | — |
| | 60 |
| | (157 | ) | | (97 | ) |
(Loss) income before income tax (benefit) expense | $ | (312 | ) | | $ | 341 |
| | $ | 29 |
| | $ | — |
| | $ | 58 |
| | $ | (301 | ) | | $ | (243 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor |
| Seven Months Ended July 31, 2018 |
| Servicing | | Originations | | Xome | | Elimination/ Reclassification(1) | | Total Operating Segments | | Corporate/Other | | Consolidated |
Revenues | | | | | | | | | | | | | |
Service related, net | $ | 740 |
| | $ | 36 |
| | $ | 149 |
| | $ | (25 | ) | | $ | 900 |
| | $ | 1 |
| | $ | 901 |
|
Net gain on mortgage loans held for sale | — |
| | 270 |
| | — |
| | 25 |
| | 295 |
| | — |
| | 295 |
|
Total revenues | 740 |
| | 306 |
| | 149 |
| | — |
| | 1,195 |
| | 1 |
| | 1,196 |
|
Total Expenses | 474 |
| | 245 |
| | 123 |
| | — |
| | 842 |
| | 103 |
| | 945 |
|
Other income (expenses) | | | | | | | | | | | | | |
Interest income | 288 |
| | 38 |
| | — |
| | — |
| | 326 |
| | 7 |
| | 333 |
|
Interest expense | (268 | ) | | (37 | ) | | — |
| | — |
| | (305 | ) | | (83 | ) | | (388 | ) |
Other | (1 | ) | | — |
| | 9 |
| | — |
| | 8 |
| | (2 | ) | | 6 |
|
Total Other Income (Expenses), Net | 19 |
| | 1 |
| | 9 |
| | — |
| | 29 |
| | (78 | ) | | (49 | ) |
Income (loss) before income tax expense (benefit) | $ | 285 |
| | $ | 62 |
| | $ | 35 |
| | $ | — |
| | $ | 382 |
| | $ | (180 | ) | | $ | 202 |
|
| |
(1)
| For Servicing segment results purposes, all revenue is attributable to servicing the portfolio. Therefore, $37, $7, $3, $90, and $25 of net gain on mortgage loans is moved to service related, net during the three months ended September 30, 2019, two months ended September 30, 2018, one month ended July 31, 2018, nine months ended September 30, 2019, and seven months ended July 31, 2018, respectively. For consolidated results purposes, these amounts were reclassed to net gain on mortgage loans held for sale. |
The Servicing segment’s strategy is to generate income by growing the portfolio and maximizing the servicing margin. We believe several competitive strengths have been critical to our long-term growth as a servicer, including our low-cost platform, our skill in mitigating losses for investors, our commitment to strong customer service and regulatory compliance, our history of successfully boarding new loans, and the ability to retain existing customers by offering attractive refinance options. We believe that our operational capabilities are reflected in strong servicer ratings.
|
| | | | | | | | | | | | | |
Table 4. Servicer Ratings | | | | |
| | | | | | | | | | | | | | | | | |
| Fitch(1) | | Moody’s(2) | | S&P(3) |
Rating date | January 2020 | | May 2019 | | May 2019 |
| | | | | |
Residential | SuccessorRPS2- | | Not Rated | | Above Average |
Master Servicer | Fitch(1) RMS2+ | | Moody’s(2) SQ2 | | S&P(3) Above Average |
Rating dateSpecial Servicer | November 2018RSS2- | | May 2019Not Rated | | May 2019Above Average |
Subprime Servicer | RPS2- | | | | |
Residential | RPS2- | | Not Rated | | Above Average |
Master Servicer | RMS2+ | | SQ2 | | Above Average |
Special Servicer | RSS2- | | Not Rated | | Above Average |
Subprime Servicer | RPS2- | | Not Rated | | Above Average |
| |
(1)
| Fitch Rating Scale of 1 (Highest Performance) to 5 (Low/No Proficiency) |
| |
(2)
| Moody’s Rating Scale of SQ1 (Strong Ability/Stability) to SQ5 (Weak Ability/Stability) |
| |
(3)
| S&P’s Rating Scale of Strong to Weak |
(1)Fitch Rating Scale of 1 (Highest Performance) to 5 (Low/No Proficiency)
(2)Moody’s Rating Scale of SQ1 (Strong Ability/Stability) to SQ5 (Weak Ability/Stability)
(3)S&P Rating Scale of Strong to Weak
Servicing Portfolio Composition
As of SeptemberJune 30, 2019,2020, the unpaid principal balance in our servicing portfolio consisted of approximately $617$278.0 billion in forward loans, of which $311$296.8 billion wasin subservicing and $24other, and $20.8 billion in reverse mortgage loans.
•The term “forward” refers to loans we service which are not “reverse mortgages,” as discussed below.
•Our subservicing portfolio consists of loans where we perform the servicing responsibilities for a contractual fee, but do not own the servicing rights and therefore do not holdrecord an MSR on our balance sheet.
•Reverse mortgage loans, known asmost commonly HECMs, provide seniors 62 and older with a loan upon which draws can be made periodically. The draws are secured by the equity in the borrower’s home. We have acquired portfolios ofour reverse mortgages in prior years through several transactions and ourthe portfolio of reverse mortgages is now in run-off mode. For a significant portion of our reverse mortgages, we holdrecord MSRs on our balance sheet, similar to the accounting for forward mortgages, except in cases where the costs of servicing are expected to exceed revenues, in which case a Mortgage Servicing Liability (“MSL”) is created. Additionally, due to program requirements, we consolidate certain reverse mortgages on our balance sheet and accrue interest income and expense.
The charts below set forth the portfolio mix between serviced,forward MSR, subserviced and other, and reverse mortgage loans, and the composition of our servicing portfolio ending UPB by investor group ($ in Millions) as of SeptemberJune 30, 20192020 and 2018.2019:
The following tables set forth the results of operations for the Servicing segment.
|
| | | | | | | | | | | | | |
Table 5. Servicing Segment Results of Operations | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues | | | | | | | |
Operational | $ | 294 | | | $ | 314 | | | $ | (20) | | | (6) | % |
Amortization, net of accretion | (102) | | | (56) | | | (46) | | | 82 | % |
Mark-to-market | (261) | | | (231) | | | (30) | | | 13 | % |
Total revenues | (69) | | | 27 | | | (96) | | | (356) | % |
Total expenses | 122 | | | 189 | | | (67) | | | (35) | % |
Total other (expenses) income, net | (60) | | | 27 | | | (87) | | | (322) | % |
Loss before income tax benefit | $ | (251) | | | $ | (135) | | | $ | (116) | | | 86 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Revenues | | | | | | | | | | | | |
Operational | $ | 319 |
| | $ | 190 |
| | | $ | 88 |
| | $ | 278 |
| | $ | 41 |
| | 15 | % |
Amortization, net of accretion | (73 | ) | | (31 | ) | | | (16 | ) | | (47 | ) | | (26 | ) | | 55 | % |
Mark-to-market | (83 | ) | | 24 |
| | | 25 |
| | 49 |
| | (132 | ) | | (269 | )% |
Total revenues | 163 |
| | 183 |
| | | 97 |
| | 280 |
| | (117 | ) | | (42 | )% |
Expenses | 171 |
| | 104 |
| | | 126 |
| | 230 |
| | (59 | ) | | (26 | )% |
Total other income (expenses), net | 17 |
| | 9 |
| | | 6 |
| | 15 |
| | 2 |
| | 13 | % |
Income (loss) before income tax expense (benefit) | $ | 9 |
| | $ | 88 |
| | | $ | (23 | ) | | $ | 65 |
| | $ | (56 | ) | | (86 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
For the three months ended SeptemberJune 30, 2019,2020, we incurred a loss before income tax benefit of $251 compared to $135 for the same period in 2019. The change in loss before income tax benefit was primarily due to a decrease in total revenues, partially offset by a decrease in total expenses. Total revenues decreased during three months ended June 30, 2020 compared to the same period in 2018, on a combined basis, primarily due to negative mark-to-market revenues, partially offset by an increase in operational revenues. The change in the mark-to-market revenue was primarily due to the declining interest rate environment in 2019. The increase in the operational revenues was primarily due to an increase in base servicing and subservicing fees attributable to the increase in the forward and subservicing portfolios, which were largely driven by the acquisitions of Pacific Union and Seterus and the continued growth in subservicing clients’ portfolios. The increase in servicing and subservicing fees was partially offset by an increase in excess spread principal payments and a decrease in reverse servicing fees revenues. Amortization, net of accretion for the three months ended September 30, 2019, increased compared to the same period in 2018, on a combined basis, primarily due to an increase in amortization of forward MSRMSRs as a result of growth in the forward MSR portfolio and elevated prepayments driven by the declining interest rate environment. Partially offsettingAdditionally, negative mark-to-market revenues increased during the increasethree months ended June 30, 2020 compared to the same period in amortization of2019 due to the forward MSR was the accretion of excess spread, as well as the accretion of our reverse MSL that was recorded in 2018 in connection with the Merger.
Expenseslower interest rate environment. Total expenses for the three months ended SeptemberJune 30, 20192020 decreased compared to the same period in 2018, on a combined basis,2019 primarily due to a decrease in foreclosure and other liquidation related expenses partially offset by an increaseand a decrease in salaries, wages and benefits. ForeclosureThe decrease in foreclosure and other liquidation related expenses was highermainly driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in 2018,addition to improved performance of $15 on a combined basis, as a result of a refined modeling method, which led to increased reservesloss recoveries related to the reverse mortgage portfolio.settlement with a prior servicer. The increasedecrease in salaries, wages and benefits expense was primarily due to improved operational efficiencies, , which included consolidation of one of our servicing centers.
Total other (expenses) income, net, for the three months ended June 30, 2020 decreased compared to the same period in 2019 primarily due to a result of an increasedecrease in headcountinterest income. The decrease in interest income was primarily due to service the growthlower income earned on custodial balances driven by lower LIBOR rates and a decrease in the servicing portfolioincome earned on reverse mortgage interest, primarily driven by the Pacific Uniondecline in the reverse mortgage interests balance. Refer to Table 10. Servicing - Revenues, Table 11. Servicing - Expenses and Seterus acquisitions.Table 12. Servicing - Other (Expenses) Income, Net, for further discussions on the changes in total revenues, total expenses and total other (expenses) income, (expense), net, respectively.
| | |
Table 5.1 Servicing Segment Results of Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenues | | | | | | | |
Operational | $ | 607 | | | $ | 638 | | | $ | (31) | | | (5) | % |
Amortization, net of accretion | (178) | | | (79) | | | (99) | | | 125 | % |
Mark-to-market | (644) | | | (524) | | | (120) | | | 23 | % |
Total revenues | (215) | | | 35 | | | (250) | | | (714) | % |
Total expenses | 271 | | | 384 | | | (113) | | | (29) | % |
Total other (expenses) income, net | (90) | | | 28 | | | (118) | | | (421) | % |
Loss before income tax benefit | $ | (576) | | | $ | (321) | | | $ | (255) | | | 79 | % |
For the six months ended June 30, 2020, we incurred a loss before income tax benefit of $576 compared to $321 for the same period in 2019. The change in loss before income tax benefit was primarily due to a decrease in total revenues, partially offset by a decrease in total expenses. Total revenues decreased primarily as a result of elevated negative mark-to-market revenues during the six months ended June 30, 2020 compared to the same period in 2019. Amortization, net of accretion, for the six months ended June 30, 2020 increased compared to the same period in 2018, on a combined basis, primarily due to an increase in interest income driven by rising short-term banking interest rates, coupled with portfolio growth, and a decrease in interest expense due to lower reverse mortgage interest expense.
|
| | | | |
Table 5.1. Servicing Segment Results of Operations |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Revenues | | | | | | | | | | | | |
Operational | $ | 957 |
| | $ | 190 |
| | | $ | 656 |
| | $ | 846 |
| | $ | 111 |
| | 13 | % |
Amortization, net of accretion | (152 | ) | | (31 | ) | | | (112 | ) | | (143 | ) | | (9 | ) | | 6 | % |
Mark-to-market | (607 | ) | | 24 |
| | | 196 |
| | 220 |
| | (827 | ) | | (376 | )% |
Total revenues | 198 |
| | 183 |
| | | 740 |
| | 923 |
| | (725 | ) | | (79 | )% |
Expenses | 555 |
| | 104 |
| | | 474 |
| | 578 |
| | (23 | ) | | (4 | )% |
Total other income (expenses), net | 45 |
| | 9 |
| | | 19 |
| | 28 |
| | 17 |
| | 61 | % |
(Loss) income before income tax (benefit) expense | $ | (312 | ) | | $ | 88 |
| | | $ | 285 |
| | $ | 373 |
| | $ | (685 | ) | | (184 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
For the nine months ended September 30, 2019, total revenues decreased compared to the same period in 2018, on a combined basis, primarily due to negative mark-to-market revenues. The change in the mark-to-market revenue was primarily due to the declining interest rate environment in 2019. Partially offsetting the change in mark-to-market revenue was an increase in operational revenue. The increase in the operational revenues was primarily due to an increase in base servicing and subservicing fees and other ancillary revenues. The increase in base servicing and subservicing fees were primarily attributable to the increase in the forward and subservicing portfolios, which were largely driven by the acquisitions of Pacific Union and Seterus and the continued growth in subservicing clients’ portfolios. The increase in other ancillary revenues on a combined basis was primarily due to a gain from the execution of a clean-up call option on a reverse mortgage loan trust during the first quarter of 2019. Partially offsetting the increase in servicing and subservicing fees and other ancillary revenues was a decrease in incentive fees, modification fees and reverse servicing fees revenues, as well as an increase in excess spread principal payments. Amortization, net of accretion for the nine months ended September 30, 2019 increased compared to the same period in 2018, on a combined basis, primarily due to an increase in amortization of forward MSRMSRs as a result of growth in the forward MSR portfolio and elevated prepayments driven by the declining interest rate environment. Partially offsetting the increase in amortization of the forward MSR was the accretion of excess spread, as well as the accretion of our reverse MSL that was recorded in 2018 connection with the Merger.
ExpensesTotal expenses for the ninesix months ended SeptemberJune 30, 20192020 decreased compared to the same period in 2018, on a combined basis,2019 primarily due to a decrease in foreclosure and other liquidation related expenses partially offset an increaseand a decrease in salaries, wages and benefits. ForeclosureThe decrease in foreclosure and other liquidation related expenses were higherwas primarily driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in 2018,addition to improved performance of $15 on a combined basis, as a result of a refined modeling method, which led to increased reservesloss recoveries related to the reverse mortgage portfolio.settlement with a prior servicer. The increasedecrease in salaries, wages and benefits expense was a resultprimarily due to improved operational efficiencies, which included consolidation of an increaseone of our servicing centers.
Total other (expenses) income, net, for the six months ended June 30, 2020 decreased compared to the same period in headcount to service the growth in the servicing portfolio primarily driven by the Pacific Union and Seterus acquisitions. Other income (expense), net, on a combined basis increased2019 primarily due to a decrease in interest expense as a result of the accretion of the HMBS bond premium, as well asincome. The decrease in interest income was primarily due to a decrease in other interest expenseincome due to lower interest income earned on financing vehicles.custodial balances driven by lower LIBOR rates and a decrease in income earned on reverse mortgage interest, primarily driven by the decline in the reverse mortgage interests balance. Refer to Table 10.1 Servicing - Revenues, Table 11.1 Servicing - Expenses and Table 12.1 Servicing - Other (Expenses) Income, Net, for further discussions on the changes in total revenues, total expenses and total other (expenses) income, net, respectively.
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| | | | | | | | | | | | | |
Table 6. Servicing Portfolio - Unpaid Principal Balances | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Average UPB | | | | | | | |
Forward MSRs | $ | 289,707 | | | $ | 315,333 | | | $ | 296,446 | | | $ | 312,158 | |
Subservicing and other(1) | 301,680 | | | 297,924 | | | 306,121 | | | 268,696 | |
Reverse loans | 21,058 | | | 26,028 | | | 21,559 | | | 26,750 | |
Total average UPB | $ | 612,445 | | | $ | 639,285 | | | $ | 624,126 | | | $ | 607,604 | |
| | | | | | | |
| | | | | June 30, 2020 | | June 30, 2019 |
Ending UPB | | | | | | | |
Forward MSRs | | | | | | | |
Agency | | | | | $ | 228,680 | | | $ | 254,543 | |
Non-agency | | | | | 49,295 | | | 61,469 | |
Total forward MSRs | | | | | 277,975 | | | 316,012 | |
| | | | | | | |
Subservicing and other(1) | | | | | | | |
Agency | | | | | 286,710 | | | 253,846 | |
Non-agency | | | | | 10,082 | | | 48,262 | |
Total subservicing and other | | | | | 296,792 | | | 302,108 | |
| | | | | | | |
Reverse loans | | | | | | | |
MSR | | | | | 2,190 | | | 3,127 | |
MSL | | | | | 12,891 | | | 15,374 | |
Securitized loans | | | | | 5,677 | | | 7,068 | |
Total reverse portfolio serviced | | | | | 20,758 | | | 25,569 | |
Total ending UPB | | | | | $ | 595,525 | | | $ | 643,689 | |
(1)Subservicing and other includes (i) loans we service for others, (ii) residential mortgage loans originated but have yet to be sold, and (iii) agency REO balances for which we own the mortgage servicing rights.
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Average UPB: | | | | | | | | | | |
Forward MSRs | $ | 315,897 |
| | $ | 313,405 |
| | $ | 278,362 |
| | | $ | 279,605 |
| | $ | 279,520 |
|
Subservicing and other(1) | 297,081 |
| | 278,158 |
| | 192,163 |
| | | 185,871 |
| | 187,407 |
|
Reverse portfolio | 24,301 |
| | 25,933 |
| | 30,888 |
| | | 31,753 |
| | 33,380 |
|
Total average UPB | $ | 637,279 |
| | $ | 617,496 |
| | $ | 501,413 |
| | | $ | 497,229 |
| | $ | 500,307 |
|
| | | | | | | | | | |
| | | | | | | | Successor |
| | | | | | | | September 30, 2019 | | September 30, 2018 |
Ending UPB: | | | | | | | | | | |
Forward MSRs | | | | | | | | | | |
Agency | | | | | | | | $ | 247,821 |
| | $ | 205,201 |
|
Non-agency | | | | | | | | 58,860 |
| | 69,285 |
|
Total Forward MSRs | | | | | | | | 306,681 |
| | 274,486 |
|
| | | | | | | | | | |
Subservicing and other(1) | | | | | | | | | | |
Agency | | | | | | | | 294,783 |
| | 195,489 |
|
Non-agency | | | | | | | | 15,748 |
| | 13,617 |
|
Total subservicing and other | | | | | | | | 310,531 |
| | 209,106 |
|
| | | | | | | | | | |
Reverse loans | | | | | | | | | | |
MSR | | | | | | | | 2,761 |
| | 75 |
|
MSL | | | | | | | | 14,641 |
| | 21,703 |
|
Securitized loans | | | | | | | | 6,588 |
| | 8,882 |
|
Total reverse portfolio serviced | | | | | | | | 23,990 |
| | 30,660 |
|
Total ending UPB | | | | | | | | $ | 641,202 |
| | $ | 514,252 |
|
| |
(1)
| Subservicing and other includes (i) loans we service for others, (ii) residential mortgage loans originated but have yet to be sold and (iii) agency REO balances for which we own the mortgage servicing rights. |
The following table providestables provide a rollforward of our forward servicingMSR and subservicing and other portfolio UPB, including loans subserviced for others.
|
| | | | |
Table 7. Forward Servicing and Subservicing and Other Portfolio UPB Rollforward |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | Three Months Ended June 30, 2019 | | | | |
| Forward MSR | | Subservicing and Other | | Total | | Forward MSR | | Subservicing and Other | | Total |
Balance - beginning of period | $ | 290,634 | | | $ | 316,933 | | | $ | 607,567 | | | $ | 303,692 | | | $ | 301,191 | | | $ | 604,883 | |
Additions: | | | | | | | | | | | |
Originations | 9,478 | | | 1,024 | | | 10,502 | | | 9,521 | | | 399 | | | 9,920 | |
Acquisitions / Increase in subservicing(1) | (1,634) | | | 16,908 | | | 15,274 | | | 20,073 | | | 12,715 | | | 32,788 | |
Deductions: | | | | | | | | | | | |
Dispositions | (31) | | | (9,751) | | | (9,782) | | | (2,239) | | | (675) | | | (2,914) | |
Principal reductions and other | (2,678) | | | (2,168) | | | (4,846) | | | (3,031) | | | (2,669) | | | (5,700) | |
Voluntary reductions(2) | (17,435) | | | (26,113) | | | (43,548) | | | (11,113) | | | (8,665) | | | (19,778) | |
Involuntary reductions(3) | (251) | | | (41) | | | (292) | | | (807) | | | (188) | | | (995) | |
Net changes in loans serviced by others | (108) | | | — | | | (108) | | | (84) | | | — | | | (84) | |
Balance - end of period | $ | 277,975 | | | $ | 296,792 | | | $ | 574,767 | | | $ | 316,012 | | | $ | 302,108 | | | $ | 618,120 | |
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Balance - beginning of period | $ | 618,120 |
| | $ | 519,367 |
| | $ | 465,819 |
| | | $ | 465,398 |
| | $ | 473,256 |
|
Additions: | | | | | | | | | | |
Originations | 11,808 |
| | 27,023 |
| | 3,448 |
| | | 1,694 |
| | 12,327 |
|
Acquisitions | 33,606 |
| | 164,204 |
| | 26,734 |
| | | 5,183 |
| | 25,987 |
|
Deductions: | | | | | | | | | | |
Dispositions | (12,106 | ) | | (16,271 | ) | | (574 | ) | | | (84 | ) | | (1,877 | ) |
Principal reductions and other | (5,626 | ) | | (16,471 | ) | | (3,137 | ) | | | (1,581 | ) | | (11,240 | ) |
Voluntary reductions(1) | (27,545 | ) | | (57,595 | ) | | (7,869 | ) | | | (4,343 | ) | | (29,172 | ) |
Involuntary reductions(2) | (975 | ) | | (2,826 | ) | | (769 | ) | | | (418 | ) | | (3,241 | ) |
Net changes in loans serviced by others | (70 | ) | | (219 | ) | | (60 | ) | | | (30 | ) | | (221 | ) |
Balance - end of period | $ | 617,212 |
| | $ | 617,212 |
| | $ | 483,592 |
| | | $ | 465,819 |
| | $ | 465,819 |
|
(1)Includes transfers to/from Subservicing and Other.
| |
(1)
| Voluntary reductions are related to loan payoffs by customers. |
| |
(2)
| Involuntary reductions refer to loans liquidated through default. |
(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.
During the three and nine months ended SeptemberJune 30, 2019,2020, our forward servicing and subservicing portfolioMSR UPB increased when compared to 2018,decreased primarily due to increased boarding of loans generated fromvoluntary reductions driven by the acquisitions of Pacific Unionlow interest rate environment. During the three months ended June 30, 2020, our subservicing and Seterus,other portfolio ending UPB decreased primarily driven by increased voluntary reductions in the low interest rate environment and theincreased dispositions due to various MSR sales, partially offset by portfolio growth from our subservicing clients. The increase
| | |
Table 7.1 Forward Servicing and Subservicing and Other Portfolio UPB Rollforward |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | Six Months Ended June 30, 2019 | | | | |
| Forward MSR | | Subservicing and Other | | Total | | Forward MSR | | Subservicing and Other | | Total |
Balance - beginning of period | $ | 296,782 | | | $ | 323,983 | | | $ | 620,765 | | | $ | 295,481 | | | $ | 223,886 | | | $ | 519,367 | |
Additions: | | | | | | | | | | | |
Originations | 21,113 | | | 1,686 | | | 22,799 | | | 14,412 | | | 803 | | | 15,215 | |
Acquisitions / Increase in subservicing(1) | (2,307) | | | 40,260 | | | 37,953 | | | 33,477 | | | 97,121 | | | 130,598 | |
Deductions: | | | | | | | | | | | |
Dispositions | (71) | | | (20,110) | | | (20,181) | | | (2,372) | | | (1,793) | | | (4,165) | |
Principal reductions and other | (5,426) | | | (5,133) | | | (10,559) | | | (5,858) | | | (4,986) | | | (10,844) | |
Voluntary reductions(2) | (31,299) | | | (43,785) | | | (75,084) | | | (17,410) | | | (12,640) | | | (30,050) | |
Involuntary reductions(3) | (638) | | | (109) | | | (747) | | | (1,569) | | | (283) | | | (1,852) | |
Net changes in loans serviced by others | (179) | | | — | | | (179) | | | (149) | | | — | | | (149) | |
Balance - end of period | $ | 277,975 | | | $ | 296,792 | | | $ | 574,767 | | | $ | 316,012 | | | $ | 302,108 | | | $ | 618,120 | |
(1)Includes transfers to/from Subservicing and Other.
(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.
During the six months ended June 30, 2020, our forward MSR UPB decreased primarily due to increased voluntary reductions in dispositions was a result of an increase inthe low interest rate environment, partially offset by increased origination volumes. During the six months ended June 30, 2020, our loan salessubservicing and other portfolio ending UPB decreased primarily driven by increased voluntary reductions in the low interest rate environment and increased dispositions due to various MSR sales, volume inpartially offset by portfolio growth from our origination channel.subservicing clients.
The table below summarizes the overall performance of the forward servicing and subservicing portfolio.
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| | | | |
Table 8. Key Performance Metrics - Forward Servicing and Subservicing Portfolio(1) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | June 30, 2020 | | June 30, 2019 |
Loan count(2) | | | | | | 3,360,826 | | | 3,637,538 | |
Average loan amount(3) | | | | | | $ | 171,022 | | | $ | 169,935 | |
Average coupon - credit sensitive(4) | | | | | | 4.7 | % | | 4.8 | % |
Average coupon - interest sensitive(4) | | | | | | 4.2 | % | | 4.4 | % |
Average coupon - agency(4) | | | | | | 4.4 | % | | 4.5 | % |
Average coupon - non-agency(4) | | | | | | 4.7 | % | | 4.8 | % |
60+ delinquent (% of loans)(5) | | | | | | 4.7 | % | | 2.3 | % |
90+ delinquent (% of loans)(5) | | | | | | 2.2 | % | | 2.0 | % |
120+ delinquent (% of loans)(5) | | | | | | 1.6 | % | | 1.8 | % |
| | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
Total prepayment speed (12-month constant prepayment rate) | | 26.0 | % | | 13.0 | % | | 22.6 | % | | 10.8 | % |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | September 30, 2018 |
Loan count | 3,601,322 |
| | 3,009,439 |
|
Average loan amount(2) | $ | 171,389 |
| | $ | 159,768 |
|
Average coupon - credit sensitive(3) | 4.8 | % | | 4.8 | % |
Average coupon - interest sensitive(3) | 4.2 | % | | 4.2 | % |
60+ delinquent (% of loans)(4) | 2.2 | % | | 2.5 | % |
90+ delinquent (% of loans)(4) | 1.9 | % | | 2.1 | % |
120+ delinquent (% of loans)(4) | 1.6 | % | | 1.9 | % |
Total prepayment speed (12-month constant prepayment rate) | 17.5 | % | | 11.1 | % |
| |
(1)
| Characteristics and key performance metrics of our servicing portfolio exclude UPB and loan counts acquired but not yet boarded and currently serviced by others. |
| |
(2)
| Average loan amount is presented in whole dollar amounts. |
| |
(3)
| The weighted average coupon amounts for our credit and interest sensitive pools presented in the table above are only reflective of our owned forward MSR portfolio that is reported at fair value. |
| |
(4)
| Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan. |
(1)Characteristics and key performance metrics of our servicing portfolio exclude UPB and loan counts acquired but not yet boarded and currently serviced by others.
(2)As of June 30, 2020, loan count includes 195,423 loans in forbearance related to the CARES Act, whereby the borrowers have failed to make at least one payment.
(3)Average loan amount is presented in whole dollar amounts.
(4)The weighted average coupon amounts presented in the table above are only reflective of our owned forward MSR portfolio that is reported at fair value.
(5)Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan. Loan delinquency includes loans in forbearance.
Delinquency is a significant assumption in determining the mark-to-market adjustment and is a key indicator of MSR portfolio performance. Delinquent loans contribute to lower MSR values due to higher costs to service and increased carrying costs of advances. We continueDue to experience low delinquency rates during the nine months ended SeptemberCOVID-19 pandemic and the implementation of the CARES Act, loans greater than 60 days delinquent have increased as of June 30, 2019, which preserves2020 compared to the value of our MSRs.same period in 2019.
The tables below present the number of modifications and workout units with our serviced portfolios.
|
| | | | |
Table 9. Forward Loan Modifications and Workout Units |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | Amount Change | | % Change |
Modifications | 4,329 | | | 5,632 | | | (1,303) | | | (23) | % |
Workouts | 34,355 | | | 6,476 | | | 27,879 | | | 430 | % |
Total modifications and workout units | 38,684 | | | 12,108 | | | 26,576 | | | 219 | % |
|
| | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | Amount Change | | % Change |
HAMP modifications | 1 |
| | 3 |
| | | 7 |
| | 10 |
| | (9 | ) | | (90 | )% |
Non-HAMP modifications | 5,060 |
| | 6,730 |
| | | 3,446 |
| | 10,176 |
| | (5,116 | ) | | (50 | )% |
Workouts | 3,731 |
| | 2,813 |
| | | 1,449 |
| | 4,262 |
| | (531 | ) | | (12 | )% |
Total modification and workout units | 8,792 |
| | 9,546 |
| | | 4,902 |
| | 14,448 |
| | (5,656 | ) | | (39 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Total modifications and workouts during the three months ended SeptemberJune 30, 2019 decreased2020 increased compared to the same period in 2018, on a combined basis,2019 primarily due to lower delinquency rates.
an increase in workouts related to loans impacted by the COVID-19 pandemic which successfully exited their forbearance plans.
|
| | | | |
Table 9.1 Forward Loan Modifications and Workout Units |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | |
| 2020 | | 2019 | | Amount Change | | % Change |
Modifications | 9,044 | | | 10,821 | | | (1,777) | | | (16) | % |
Workouts | 38,349 | | | 10,877 | | | 27,472 | | | 253 | % |
Total modifications and workout units | 47,393 | | | 21,698 | | | 25,695 | | | 118 | % |
|
| | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | Amount Change | | % Change |
HAMP modifications | 10 |
| | 3 |
| | | 38 |
| | 41 |
| | (31 | ) | | (76 | )% |
Non-HAMP modifications | 15,872 |
| | 6,730 |
| | | 16,828 |
| | 23,558 |
| | (7,686 | ) | | (33 | )% |
Workouts | 15,132 |
| | 2,813 |
| | | 22,700 |
| | 25,513 |
| | (10,381 | ) | | (41 | )% |
Total modification and workout units | 31,014 |
| | 9,546 |
| | | 39,566 |
| | 49,112 |
| | (18,098 | ) | | (37 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Total modifications and workouts during the ninesix months ended SeptemberJune 30, 2019 decreased2020 increased compared to the same period in 2018, on a combined basis,2019 primarily due to lower delinquency rates and lower disaster-related (hurricanes and wildfires) loss mitigation activity.an increase in workouts related to loans impacted by the COVID-19 pandemic which successfully exited their forbearance plans.
The following tables provide the composition of revenues for the Servicing segment.
|
| | | | |
Table 10. Servicing - Revenues |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | $ Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Forward MSR Operational Revenue | | | | | | | | | | | | | | | |
Base servicing fees | $ | 239 | | | 16 | | $ | 257 | | | 16 | | $ | (18) | | | — | | (7) | % | | — | % |
Modification fees(2) | 2 | | | — | | 6 | | | — | | (4) | | | — | | (67) | % | | — | % |
Incentive fees(2) | 5 | | | — | | 1 | | | — | | 4 | | | — | | 400 | % | | — | % |
Late payment fees(2) | 16 | | | 1 | | 20 | | | 2 | | (4) | | | (1) | | (20) | % | | (50) | % |
Other ancillary revenues(2) | 44 | | | 3 | | 30 | | | 2 | | 14 | | | 1 | | 47 | % | | 50 | % |
Total forward MSR operational revenue | 306 | | | 20 | | 314 | | | 20 | | (8) | | | — | | (3) | % | | — | % |
Base subservicing fees and other subservicing revenue(3) | 69 | | | 5 | | 62 | | | 4 | | 7 | | | 1 | | 11 | % | | 25 | % |
Reverse servicing fees | 7 | | | — | | 8 | | | — | | (1) | | | — | | (13) | % | | — | % |
Total servicing fee revenue | 382 | | | 25 | | 384 | | | 24 | | (2) | | | 1 | | (1) | % | | 4 | % |
MSR financing liability costs | (9) | | | (1) | | (11) | | | (1) | | 2 | | | — | | (18) | % | | — | % |
Excess spread costs - principal | (79) | | | (5) | | (59) | | | (3) | | (20) | | | (2) | | 34 | % | | 67 | % |
Total operational revenue | 294 | | | 19 | | 314 | | | 20 | | (20) | | | (1) | | (6) | % | | (5) | % |
Amortization, net of accretion | | | | | | | | | | | | | | | |
Forward MSR amortization | (186) | | | (12) | | (125) | | | (8) | | (61) | | | (4) | | 49 | % | | 50 | % |
Excess spread accretion | 79 | | | 5 | | 59 | | | 3 | | 20 | | | 2 | | 34 | % | | 67 | % |
Reverse MSL accretion | 5 | | | — | | 11 | | | 1 | | (6) | | | (1) | | (55) | % | | (100) | % |
Reverse MSR amortization | — | | | — | | (1) | | | — | | 1 | | | — | | 100 | % | | — | % |
Total amortization, net of accretion | (102) | | | (7) | | (56) | | | (4) | | (46) | | | (3) | | 82 | % | | 75 | % |
Mark-to-Market Adjustments | | | | | | | | | | | | | | | |
MSR MTM(3) | (321) | | | (21) | | (227) | | | (14) | | (94) | | | (7) | | 41 | % | | 50 | % |
Excess spread / financing MTM | 60 | | | 4 | | (4) | | | — | | 64 | | | 4 | | (1,600) | % | | 100 | % |
Total MTM adjustments | (261) | | | (17) | | (231) | | | (14) | | (30) | | | (3) | | 13 | % | | 21 | % |
Total revenues - Servicing | $ | (69) | | | (5) | | $ | 27 | | | 2 | | $ | (96) | | | (7) | | (356) | % | | (350) | % |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
(3)The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $3 and $17 for the three months ended June 30, 2020 and 2019, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
| Amt | | bps(2) | | Amt | | bps(2) | | | Amt | | bps(2) | | Amt | | bps(2) | | Amt | | bps(2) | | Amt | | bps(2) |
Forward MSR Operational Revenue | | | | | | | | | | | | | | | | | | | | | | | | |
Base servicing fees | $ | 252 |
| | 16 |
| | $ | 142 |
| | 17 |
| | | $ | 68 |
| | 16 |
| | $ | 210 |
| | 17 |
| | $ | 42 |
| | (1 | ) | | 20 | % | | (6 | )% |
Modification fees(3) | 4 |
| | — |
| | 5 |
| | 1 |
| | | 1 |
| | — |
| | 6 |
| | 1 |
| | (2 | ) | | (1 | ) | | (33 | )% | | (100 | )% |
Incentive fees(3) | 6 |
| | — |
| | 2 |
| | — |
| | | 2 |
| | 1 |
| | 4 |
| | — |
| | 2 |
| | — |
| | 50 | % | | — | % |
Late payment fees(3) | 23 |
| | 2 |
| | 11 |
| | 1 |
| | | 6 |
| | 2 |
| | 17 |
| | 1 |
| | 6 |
| | 1 |
| | 35 | % | | 100 | % |
Other ancillary revenues(3) | 48 |
| | 3 |
| | 16 |
| | 2 |
| | | 10 |
| | 2 |
| | 26 |
| | 2 |
| | 22 |
| | 1 |
| | 85 | % | | 50 | % |
Total forward MSR operational revenue | 333 |
| | 21 |
| | 176 |
| | 21 |
| | | 87 |
| | 21 |
| | 263 |
| | 21 |
| | 70 |
| | — |
| | 27 | % | | — | % |
Base subservicing fees and other subservicing revenue(3) | 65 |
| | 4 |
| | 27 |
| | 4 |
| | | 13 |
| | 3 |
| | 40 |
| | 3 |
| | 25 |
| | 1 |
| | 63 | % | | 33 | % |
Reverse servicing fees | 7 |
| | — |
| | 13 |
| | 2 |
| | | 4 |
| | 1 |
| | 17 |
| | 1 |
| | (10 | ) | | (1 | ) | | (59 | )% | | (100 | )% |
Total servicing fee revenue | 405 |
| | 25 |
| | 216 |
| | 27 |
| | | 104 |
| | 25 |
| | 320 |
| | 25 |
| | 85 |
| | — |
| | 27 | % | | — | % |
MSR financing liability costs | (9 | ) | | — |
| | (8 | ) | | (1 | ) | | | (4 | ) | | (1 | ) | | (12 | ) | | (1 | ) | | 3 |
| | 1 |
| | (25 | )% | | 100 | % |
Excess spread costs - principal | (77 | ) | | (5 | ) | | (18 | ) | | (2 | ) | | | (12 | ) | | (3 | ) | | (30 | ) | | (2 | ) | | (47 | ) | | (3 | ) | | 157 | % | | 150 | % |
Total operational revenue | 319 |
| | 20 |
| | 190 |
| | 24 |
| | | 88 |
| | 21 |
| | 278 |
| | 22 |
| | 41 |
| | (2 | ) | | 15 | % | | (9 | )% |
Amortization, net of accretion | | | | | | | | | | | | | | | | | | | | | | | | |
Forward MSR amortization | (162 | ) | | (10 | ) | | (53 | ) | | (6 | ) | | | (27 | ) | | (6 | ) | | (80 | ) | | (7 | ) | | (82 | ) | | (3 | ) | | 103 | % | | 43 | % |
Excess spread accretion | 77 |
| | 5 |
| | 22 |
| | 2 |
| | | 11 |
| | 3 |
| | 33 |
| | 3 |
| | 44 |
| | 2 |
| | 133 | % | | 67 | % |
Reverse MSL accretion | 10 |
| | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | 10 |
| | — |
| | 100 | % | | — | % |
Reverse MSR amortization | 2 |
| | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 100 | % | | — | % |
Total amortization, net of accretion | (73 | ) | | (5 | ) | | (31 | ) | | (4 | ) | | | (16 | ) | | (3 | ) | | (47 | ) | | (4 | ) | | (26 | ) | | (1 | ) | | 55 | % | | 25 | % |
Mark-to-Market Adjustments | | | | | | | | | | | | | | | | | | | | | | | | |
MSR MTM(4) | (195 | ) | | (12 | ) | | 49 |
| | 6 |
| | | 44 |
| | 11 |
| | 93 |
| | 8 |
| | (288 | ) | | (20 | ) | | (310 | )% | | (250 | )% |
Excess spread / financing MTM | 112 |
| | 7 |
| | (25 | ) | | (3 | ) | | | (19 | ) | | (5 | ) | | (44 | ) | | (4 | ) | | 156 |
| | 11 |
| | (355 | )% | | (275 | )% |
Total MTM adjustments | (83 | ) | | (5 | ) | | 24 |
| | 3 |
| | | 25 |
| | 6 |
| | 49 |
| | 4 |
| | (132 | ) | | (9 | ) | | (269 | )% | | (225 | )% |
Total revenues - Servicing | $ | 163 |
| | 10 |
| | $ | 183 |
| | 23 |
| | | $ | 97 |
| | 24 |
| | $ | 280 |
| | 22 |
| | $ | (117 | ) | | (12 | ) | | (42 | )% | | (55 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
| |
(2)
| Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000. |
| |
(3)
| Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues. |
| |
(4)
| The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $18 for the three months ended September 30, 2019. The impact of negative modeled cash flows, on a combined basis, for the Predecessor was $17 for the three months ended September 30, 2018. |
Forward - Due to the increasedecrease of the forward MSR portfolio’s UPB, base servicing fee revenue increaseddecreased for the three months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis.2019. Other ancillary revenues increased primarily due to $16 recorded in connection with the collapse of Trust 2009-A.higher sales lead incentives due to increased portfolio recapture activity. Incentive fee revenue increased primarily due to higher investor incentives driven by better overall performance.
Forward MSR prepayment and scheduled amortization increased for the three months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019, primarily due to the increase in the average forward MSR UPB in 2019 compared to 2018, and higher prepayments driven by the lower interest rate environment.
Total negative MTM adjustments were negativeincreased for the three months ended SeptemberJune 30, 20192020 as compared to positive MTM adjustments for the same period in 2018, on a combined basis,2019 primarily due to the declining interest rate environment during 2019.2020.
Subservicing - Subservicing fees increased for the three months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019, primarily due to continued growth in thehigher average subservicing portfolio UPB.
Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios for the three months ended SeptemberJune 30, 20192020 decreased as compared to the same period in 2018, on a combined basis,2019, primarily due to the decline in the reverse mortgage portfolio.
|
| | | | |
Table 10.1.10.1 Servicing - Revenues |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | $ Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Forward MSR Operational Revenue | | | | | | | | | | | | | | | |
Base servicing fees | $ | 489 | | | 16 | | $ | 497 | | | 17 | | $ | (8) | | | (1) | | (2) | % | | (6) | % |
Modification fees(2) | 5 | | | — | | 9 | | | — | | (4) | | | — | | (44) | % | | — | % |
Incentive fees(2) | 9 | | | — | | 2 | | | — | | 7 | | | — | | 350 | % | | — | % |
Late payment fees(2) | 39 | | | 1 | | 39 | | | 1 | | — | | | — | | — | % | | — | % |
Other ancillary revenues(2) | 82 | | | 3 | | 78 | | | 3 | | 4 | | | — | | 5 | % | | — | % |
Total forward MSR operational revenue | 624 | | | 20 | | 625 | | | 21 | | (1) | | | (1) | | — | % | | (5) | % |
Base subservicing fees and other subservicing revenue(3) | 134 | | | 5 | | 114 | | | 4 | | 20 | | | 1 | | 18 | % | | 25 | % |
Reverse servicing fees | 13 | | | — | | 17 | | | — | | (4) | | | — | | (24) | % | | — | % |
Total servicing fee revenue | 771 | | | 25 | | 756 | | | 25 | | 15 | | | — | | 2 | % | | — | % |
MSR financing liability costs | (17) | | | (1) | | (23) | | | (1) | | 6 | | | — | | (26) | % | | — | % |
Excess spread costs - principal | (147) | | | (5) | | (95) | | | (3) | | (52) | | | (2) | | 55 | % | | 67 | % |
Total operational revenue | 607 | | | 19 | | 638 | | | 21 | | (31) | | | (2) | | (5) | % | | (10) | % |
Amortization, net of accretion | | | | | | | | | | | | | | | |
Forward MSR amortization | (338) | | | (11) | | (204) | | | (7) | | (134) | | | (4) | | 66 | % | | 57 | % |
Excess spread accretion | 147 | | | 5 | | 95 | | | 3 | | 52 | | | 2 | | 55 | % | | 67 | % |
Reverse MSL accretion | 13 | | | — | | 29 | | | 1 | | (16) | | | (1) | | (55) | % | | (100) | % |
Reverse MSR amortization | — | | | — | | 1 | | | — | | (1) | | | — | | (100) | % | | — | % |
Total amortization, net of accretion | (178) | | | (6) | | (79) | | | (3) | | (99) | | | (3) | | 125 | % | | 100 | % |
Mark-to-Market Adjustments | | | | | | | | | | | | | | | |
MSR MTM(3) | (733) | | | (23) | | (587) | | | (19) | | (146) | | | (4) | | 25 | % | | 21 | % |
Excess spread / financing MTM | 89 | | | 3 | | 63 | | | 2 | | 26 | | | 1 | | 41 | % | | 50 | % |
Total MTM adjustments | (644) | | | (20) | | (524) | | | (17) | | (120) | | | (3) | | 23 | % | | 18 | % |
Total revenues - Servicing | $ | (215) | | | (7) | | $ | 35 | | | 1 | | $ | (250) | | | (8) | | (714) | % | | (800) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
| Amt | | bps(2) | | Amt | | bps(2) | | | Amt | | bps(2) | | Amt | | bps(2) | | Amt | | bps(2) | | Amt | | bps(2) |
Forward MSR Operational Revenue | | | | | | | | | | | | | | | | | | | | | | | | |
Base servicing fees | $ | 749 |
| | 16 |
| | $ | 142 |
| | 17 |
| | | $ | 501 |
| | 17 |
| | $ | 643 |
| | 17 |
| | $ | 106 |
| | (1 | ) | | 16 | % | | (6 | )% |
Modification fees(3) | 13 |
| | — |
| | 5 |
| | 1 |
| | | 21 |
| | 1 |
| | 26 |
| | 1 |
| | (13 | ) | | (1 | ) | | (50 | )% | | (100 | )% |
Incentive fees(3) | 8 |
| | — |
| | 2 |
| | — |
| | | 13 |
| | — |
| | 15 |
| | — |
| | (7 | ) | | — |
| | (47 | )% | | — | % |
Late payment fees(3) | 62 |
| | 2 |
| | 11 |
| | 1 |
| | | 45 |
| | 2 |
| | 56 |
| | 2 |
| | 6 |
| | — |
| | 11 | % | | — | % |
Other ancillary revenues(3) | 126 |
| | 3 |
| | 16 |
| | 2 |
| | | 63 |
| | 2 |
| | 79 |
| | 2 |
| | 47 |
| | 1 |
| | 59 | % | | 50 | % |
Total forward MSR operational revenue | 958 |
| | 21 |
| | 176 |
| | 21 |
| | | 643 |
| | 22 |
| | 819 |
| | 22 |
| | 139 |
| | (1 | ) | | 17 | % | | (5 | )% |
Base subservicing fees and other subservicing revenue(3) | 179 |
| | 4 |
| | 27 |
| | 4 |
| | | 87 |
| | 2 |
| | 114 |
| | 3 |
| | 65 |
| | 1 |
| | 57 | % | | 33 | % |
Reverse servicing fees | 24 |
| | — |
| | 13 |
| | 2 |
| | | 37 |
| | 1 |
| | 50 |
| | 1 |
| | (26 | ) | | (1 | ) | | (52 | )% | | (100 | )% |
Total servicing fee revenue | 1,161 |
| | 25 |
| | 216 |
| | 27 |
| | | 767 |
| | 25 |
| | 983 |
| | 26 |
| | 178 |
| | (1 | ) | | 18 | % | | (4 | )% |
MSR financing liability costs | (32 | ) | | (1 | ) | | (8 | ) | | (1 | ) | | | (33 | ) | | (1 | ) | | (41 | ) | | (1 | ) | | 9 |
| | — |
| | (22 | )% | | — | % |
Excess spread costs - principal | (172 | ) | | (4 | ) | | (18 | ) | | (2 | ) | | | (78 | ) | | (3 | ) | | (96 | ) | | (2 | ) | | (76 | ) | | (2 | ) | | 79 | % | | 100 | % |
Total operational revenue | 957 |
| | 20 |
| | 190 |
| | 24 |
| | | 656 |
| | 21 |
| | 846 |
| | 23 |
| | 111 |
| | (3 | ) | | 13 | % | | (13 | )% |
Amortization, net of accretion | | | | | | | | | | | | | | | | | | | | | | | | |
Forward MSR amortization | (366 | ) | | (8 | ) | | (53 | ) | | (6 | ) | | | (190 | ) | | (7 | ) | | (243 | ) | | (7 | ) | | (123 | ) | | (1 | ) | | 51 | % | | 14 | % |
Excess spread accretion | 172 |
| | 4 |
| | 22 |
| | 2 |
| | | 78 |
| | 3 |
| | 100 |
| | 3 |
| | 72 |
| | 1 |
| | 72 | % | | 33 | % |
Reverse MSL accretion | 39 |
| | 1 |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | 39 |
| | 1 |
| | 100 | % | | 100 | % |
Reverse MSR amortization | 3 |
| | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | 100 | % | | — | % |
Total amortization, net of accretion | (152 | ) | | (3 | ) | | (31 | ) | | (4 | ) | | | (112 | ) | | (4 | ) | | (143 | ) | | (4 | ) | | (9 | ) | | 1 |
| | 6 | % | | (25 | )% |
Mark-to-Market Adjustments | | | | | | | | | | | | | | | | | | | | | | | | |
MSR MTM(4) | (782 | ) | | (17 | ) | | 49 |
| | 6 |
| | | 295 |
| | 10 |
| | 344 |
| | 9 |
| | (1,126 | ) | | (26 | ) | | (327 | )% | | (289 | )% |
Excess spread / financing MTM | 175 |
| | 4 |
| | (25 | ) | | (3 | ) | | | (99 | ) | | (3 | ) | | (124 | ) | | (3 | ) | | 299 |
| | 7 |
| | (241 | )% | | (233 | )% |
Total MTM adjustments | (607 | ) | | (13 | ) | | 24 |
| | 3 |
| | | 196 |
| | 7 |
| | 220 |
| | 6 |
| | (827 | ) | | (19 | ) | | (376 | )% | | (317 | )% |
Total revenues - Servicing | $ | 198 |
| | 4 |
| | $ | 183 |
| | 23 |
| | | $ | 740 |
| | 24 |
| | $ | 923 |
| | 25 |
| | $ | (725 | ) | | (21 | ) | | (79 | )% | | (84 | )% |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
| |
(2)
| Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000. |
| |
(3)
| Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues. |
| |
(4)
| The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $46 for the nine months ended September 30, 2019. The impact of negative modeled cash flows, on a combined basis, for the Predecessor was $51 for the nine months ended September 30, 2018. |
(3)The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $13 and $28 for the six months ended June 30, 2020 and 2019, respectively.
Forward - Due to the increasedecrease of the forward MSR portfolio’s UPB, base servicing fee revenue increaseddecreased for the ninesix months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis. The improvement in delinquency rates as of September 30, 2019 contributed to the decrease in modification fees. Other ancillary revenues2019. Incentive fee revenue increased primarily due to the gain on sale from the securitization of reperforming GNMA loans and the collapse of Trust 2009-A.higher investor incentives driven by better overall performance.
Forward MSR prepayment and scheduled amortization increased for the ninesix months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019, primarily due to the increase in the average forward MSR UPB and higher prepayments driven by the lower interest rate environment.
Total negative MTM adjustments were negative inincreased for the ninesix months ended SeptemberJune 30, 20192020 as compared to positive MTM adjustments in the same period in 2018, on a combined basis,2019 primarily due to the declining interest rate environment during 2019.2020.
Subservicing - Subservicing fees increased for the ninesix months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019 primarily due to significant growth in thea higher average subservicing portfolio UPB.
Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios for the ninesix months ended SeptemberJune 30, 20192020 decreased as compared to the same period in 2018, on a combined basis,2019, primarily due to the decline in the reverse mortgage portfolio. Reverse MSL accretion was further impacted by $6 pertaining to accumulated accretion recorded during the six months ended June 30, 2019 related to fair value adjustments for MSL assumed from the Merger. The fair value adjustment resulted from the revised cost to service assumption used in the valuation of MSL during the measurement period.
Servicing Expenses
The tables below summarize expenses infor the Servicing segment.
|
| | | | | | | | | | | | | |
Table 11. Servicing - Expenses | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Salaries, wages and benefits | $ | 75 | | | 5 | | $ | 90 | | | 6 | | $ | (15) | | | (1) | | (17) | % | | (17) | % |
General and administrative | | | | | | | | | | | | | | | |
Servicing support fees | 27 | | | 2 | | 24 | | | 2 | | 3 | | | — | | 13 | % | | — | % |
Corporate and other general and administrative expenses | 32 | | | 2 | | 39 | | | 2 | | (7) | | | — | | (18) | % | | — | % |
Foreclosure and other liquidation related expenses (recoveries), net | (17) | | | (1) | | 32 | | | 2 | | (49) | | | (3) | | (153) | % | | (150) | % |
Depreciation and amortization | 5 | | | — | | 4 | | | — | | 1 | | | — | | 25 | % | | — | % |
Total general and administrative expenses | 47 | | | 3 | | 99 | | | 6 | | (52) | | | (3) | | (53) | % | | (50) | % |
Total expenses - Servicing | $ | 122 | | | 8 | | $ | 189 | | | 12 | | $ | (67) | | | (4) | | (35) | % | | (33) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | Change | | % Change |
Amt | | bps | | Amt | | bps | | | Amt | | bps | | Amt | | bps | | Amt | | bps | | Amt | | bps |
Salaries, wages and benefits | $ | 85 |
| | 5 | | $ | 52 |
| | 6 | | | $ | 25 |
| | 6 | | $ | 77 |
| | 6 | | $ | 8 |
| | (1) | | 10 | % | | (17 | )% |
General and administrative | | | | | | | | | | | | | | | | | | | | | | | | |
Servicing support fees | 30 |
| | 2 | | 25 |
| | 3 | | | 9 |
| | 2 | | 34 |
| | 3 | | (4 | ) | | (1) | | (12 | )% | | (33 | )% |
Corporate and other general and administrative expenses | 40 |
| | 3 | | 21 |
| | 2 | | | 17 |
| | 4 | | 38 |
| | 3 | | 2 |
| | — | | 5 | % | | — | % |
Foreclosure and other liquidation related expenses | 11 |
| | 1 | | 2 |
| | — | | | 73 |
| | 18 | | 75 |
| | 6 | | (64 | ) | | (5) | | (85 | )% | | (83 | )% |
Depreciation and amortization | 5 |
| | — | | 4 |
| | — | | | 2 |
| | 1 | | 6 |
| | — | | (1 | ) | | — | | (17 | )% | | — | % |
Total general and administrative expenses | 86 |
| | 6 | | 52 |
| | 5 | | | 101 |
| | 25 | | 153 |
| | 12 | | (67 | ) | | (6) | | (44 | )% | | (50 | )% |
Total expenses - Servicing | $ | 171 |
| | 11 | | $ | 104 |
| | 11 | | | $ | 126 |
| | 31 | | $ | 230 |
| | 18 | | $ | (59 | ) | | (7) | | (26 | )% | | (39 | )% |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Total expenses decreased during the three months ended SeptemberJune 30, 20192020 compared to the same period in 2018, on a combined basis,2019, primarily driven by a decrease in foreclosure and other liquidation expenses partially offset by increased salaries, wages and benefits.(recoveries), net. Foreclosure and other liquidation related expenses were higher(recoveries), net, decreased primarily due to operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in 2018,addition to improved performance of $15 on a combined basis, as a result of a refined modeling method, which led to increased reservesloss recoveries related to the reverse mortgage portfolio.settlement with a prior servicer. Salaries, wages and benefits increased as a result of the expansion of the servicing portfolio and an increase in headcount largely driven by the Pacific Union and Seterus acquisitions. Servicing support fees decreased in 20192020 compared to the same period in 2018,2019 primarily due to operational efficiencies which included consolidation of one of our servicing centers.
| | |
Table 11.1 Servicing - Expenses |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Salaries, wages and benefits | $ | 161 | | | 5 | | $ | 176 | | | 6 | | $ | (15) | | | (1) | | (9) | % | | (17) | % |
General and administrative | | | | | | | | | | | | | | | |
Servicing support fees | 52 | | | 2 | | 63 | | | 2 | | (11) | | | — | | (17) | % | | — | % |
Corporate and other general and administrative expenses | 67 | | | 2 | | 78 | | | 3 | | (11) | | | (1) | | (14) | % | | (33) | % |
Foreclosure and other liquidation related expenses (recoveries), net | (17) | | | — | | 59 | | | 2 | | (76) | | | (2) | | (129) | % | | (100) | % |
Depreciation and amortization | 8 | | | — | | 8 | | | — | | — | | | — | | — | % | | — | % |
Total general and administrative expenses | 110 | | | 4 | | 208 | | | 7 | | (98) | | | (3) | | (47) | % | | (43) | % |
Total expenses - Servicing | $ | 271 | | | 9 | | $ | 384 | | | 13 | | $ | (113) | | | (4) | | (29) | % | | (31) | % |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
Total expenses decreased during the six months ended June 30, 2020 compared to the same period in 2019, primarily driven by a decrease in foreclosure and other liquidation expenses (recoveries), net. Foreclosure and other liquidation related expenses (recoveries), net decreased primarily due to operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to improved performance of $15 on loss recoveries related to a combined basis,settlement with a prior servicer during the six months ended June 30, 2020. Servicing support fees decreased in 2020 compared to the same period in 2019 primarily due to lower legal and tax service expenses. The decrease in Corporate and other general and administrative expenses in 2020 compared to the same period in 2019 was primarily driven by lower occupancy expenses. Salaries, wages and benefits decreased in 2020 compared to the same period in 2019 primarily due to improved operational efficiencies which included consolidation of one of our servicing centers.
|
| | | | | | | | | | | | | |
Table 11.1.12. Servicing - ExpensesOther (Expenses) Income, Net | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Income earned on Reverse mortgage interest | $ | 54 | | | 4 | | $ | 86 | | | 6 | | $ | (32) | | | (2) | | (37) | % | | (33) | % |
Other interest income | 3 | | | — | | 50 | | | 3 | | (47) | | | (3) | | (94) | % | | (100) | % |
Interest income | 57 | | | 4 | | 136 | | | 9 | | (79) | | | (5) | | (58) | % | | (56) | % |
| | | | | | | | | | | | | | | |
Reverse mortgage interest expense | (51) | | | (3) | | (46) | | | (3) | | (5) | | | — | | 11 | % | | — | % |
Advance interest expense | (8) | | | (1) | | (8) | | | (1) | | — | | | — | | — | % | | — | % |
Other interest expense | (58) | | | (4) | | (55) | | | (3) | | (3) | | | (1) | | 5 | % | | 33 | % |
Interest expense | (117) | | | (8) | | (109) | | | (7) | | (8) | | | (1) | | 7 | % | | 14 | % |
| | | | | | | | | | | | | | | |
Total other (expenses) income, net - Servicing | $ | (60) | | | (4) | | $ | 27 | | | 2 | | $ | (87) | | | (6) | | (322) | % | | (300) | % |
| | | | | | | | | | | | | | | |
Weighted average cost - advance facilities | 2.9 | % | | | | 5.5 | % | | | | (2.6) | % | | | | (47) | % | | |
Weighted average cost - excess spread financing | 9.0 | % | | | | 8.9 | % | | | | 0.1 | % | | | | 1 | % | | |
(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | Change | | % Change |
Amt | | bps | | Amt | | bps | | | Amt | | bps | | Amt | | bps | | Amt | | bps | | Amt | | bps |
Salaries, wages and benefits | $ | 261 |
| | 6 | | $ | 52 |
| | 6 | | | $ | 175 |
| | 6 | | $ | 227 |
| | 6 | | $ | 34 |
| | — | | 15 | % | | — | % |
General and administrative | | | | | | | | | | | | | | | | | | | | | | | | |
Servicing support fees | 93 |
| | 2 | | 25 |
| | 3 | | | 71 |
| | 2 | | 96 |
| | 2 | | (3 | ) | | — | | (3 | )% | | — | % |
Corporate and other general and administrative expenses | 118 |
| | 3 | | 21 |
| | 2 | | | 80 |
| | 3 | | 101 |
| | 3 | | 17 |
| | — | | 17 | % | | — | % |
Foreclosure and other liquidation related expenses | 70 |
| | 1 | | 2 |
| | — | | | 133 |
| | 4 | | 135 |
| | 4 | | (65 | ) | | (3) | | (48 | )% | | (75 | )% |
Depreciation and amortization | 13 |
| | — | | 4 |
| | — | | | 15 |
| | — | | 19 |
| | — | | (6 | ) | | — | | (32 | )% | | — | % |
Total general and administrative expenses | 294 |
| | 6 | | 52 |
| | 5 | | | 299 |
| | 9 | | 351 |
| | 9 | | (57 | ) | | (3) | | (16 | )% | | (33 | )% |
Total expenses - Servicing | $ | 555 |
| | 12 | | $ | 104 |
| | 11 | | | $ | 474 |
| | 15 | | $ | 578 |
| | 15 | | $ | (23 | ) | | (3) | | (4 | )% | | (20 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Total expenses decreased duringFor the ninethree months ended SeptemberJune 30, 20192020, we had total other expenses, net, of $60 compared to total other income, net, of $27 for the same period in 2018, on a combined basis,2019. The change was primarily due to a decrease in foreclosure and other liquidation related expenses, partially offset by increased salaries, wages and benefits expense and corporate and other general and administrative expenses. Foreclosure and other liquidation related expenses were higher in 2018, on a combined basis, as a result of a refined modeling method, which led to increased reserves related to the reverse mortgage portfolio. The increase in salaries, wages and benefits is primarily due to the expansion of the servicing portfolio and an increase in headcount largelyinterest income, mainly driven by the Pacific Union and Seterus acquisitions. The increase in corporate and other general and administrative expenses was primarily a result of higher expenses related to our initiatives to increase operational efficiencies and enhance overall customer experience.
|
| | | | |
Table 12. Servicing - Other Income (Expenses), Net |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | Change | | % Change |
Amt | | bps | | Amt | | bps | | | Amt | | bps | | Amt | | bps | | Amt | | bps | | Amt | | bps |
Income earned on Reverse mortgage interest | $ | 81 |
| | 5 |
| | $ | 72 |
| | 8 |
| | | $ | 38 |
| | 9 |
| | $ | 110 |
| | 9 |
| | $ | (29 | ) | | (4 | ) | | (26 | )% | | (44 | )% |
Other interest income | 56 |
| | 4 |
| | 6 |
| | 1 |
| | | 3 |
| | 1 |
| | 9 |
| | 1 |
| | 47 |
| | 3 |
| | 522 | % | | 300 | % |
Interest income | 137 |
| | 9 |
| | 78 |
| | 9 |
| | | 41 |
| | 10 |
| | 119 |
| | 10 |
| | 18 |
| | (1 | ) | | 15 | % | | (10 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | |
Reverse mortgage interest expense | (58 | ) | | (4 | ) | | (63 | ) | | (7 | ) | | | (30 | ) | | (7 | ) | | (93 | ) | | (7 | ) | | 35 |
| | 3 |
| | (38 | )% | | (43 | )% |
Advance interest expense | (6 | ) | | — |
| | (5 | ) | | (1 | ) | | | (2 | ) | | (1 | ) | | (7 | ) | | (1 | ) | | 1 |
| | 1 |
| | (14 | )% | | (100 | )% |
Other interest expense | (56 | ) | | (4 | ) | | (6 | ) | | (1 | ) | | | (3 | ) | | (1 | ) | | (9 | ) | | (1 | ) | | (47 | ) | | (3 | ) | | 522 | % | | 300 | % |
Interest expense | (120 | ) | | (8 | ) | | (74 | ) | | (9 | ) | | | (35 | ) | | (9 | ) | | (109 | ) | | (9 | ) | | (11 | ) | | 1 |
| | 10 | % | | (11 | )% |
Other income (expense) | — |
| | — |
| | 5 |
| | 1 |
| | | — |
| | — |
| | 5 |
| | — |
| | (5 | ) | | — |
| | (100 | )% | | — | % |
Total other income (expenses), net - Servicing | $ | 17 |
| | 1 |
| | $ | 9 |
| | 1 |
| | | $ | 6 |
| | 1 |
| | $ | 15 |
| | 1 |
| | $ | 2 |
| | — |
| | 13 | % | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average cost - advance facilities | 3.8 | % | | | | 4.0 | % | | | | | 4.1 | % | | | | 4.0 | % | | | | (0.2 | )% | |
|
| | (5 | )% | |
|
|
Weighted average cost - excess spread financing | 8.9 | % | | | | 8.9 | % | | | | | 8.8 | % | | | | 8.9 | % | | | | — | % | |
|
| | — | % | |
|
|
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Total other income (expenses), net increased during the three months ended September 30, 2019 as compared to the same period in 2018, on a combined basis, primarily due to an increase inlower interest income partially offset by an increase in interest expense. Other interest income increased due to $28 of earnings credits and bank fee credits the Predecessor previously classified as interest expense, coupled with higher interest income due to higher yieldsearned on custodial balances combined with higher balances driven by portfolio growth. In addition,lower LIBOR rates. Income earned on reverse mortgage interest income decreased due to the decline in the reverse mortgage interests balance.balance and the amortization of a net asset premium into income. Interest expense increased duringfor the three months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019, primarily due to an increase in other interest expense partially offset by lowerand reverse mortgage interest expense. Other interest expense increased due to higher bank fees and higher compensating interest expense. The increase in reverse mortgage interest expense was primarily driven by lower bond premium amortization, partially offset by the decline in the reverse mortgage interest portfolio balance,portfolio.
| | |
Table 12.1 Servicing - Other (Expenses) Income, Net |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | Change | | | | % Change | | |
| Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) | | Amt | | bps(1) |
Income earned on Reverse mortgage interest | $ | 97 | | | 3 | | $ | 168 | | | 5 | | $ | (71) | | | (2) | | (42) | % | | (40) | % |
Other interest income | 43 | | | 1 | | 83 | | | 3 | | (40) | | | (2) | | (48) | % | | (67) | % |
Interest income | 140 | | | 4 | | 251 | | | 8 | | (111) | | | (4) | | (44) | % | | (50) | % |
| | | | | | | | | | | | | | | |
Reverse mortgage interest expense | (103) | | | (3) | | (117) | | | (4) | | 14 | | | 1 | | (12) | % | | (25) | % |
Advance interest expense | (13) | | | — | | (17) | | | — | | 4 | | | — | | (24) | % | | — | % |
Other interest expense | (114) | | | (4) | | (89) | | | (3) | | (25) | | | (1) | | 28 | % | | 33 | % |
Interest expense | (230) | | | (7) | | (223) | | | (7) | | (7) | | | — | | 3 | % | | — | % |
| | | | | | | | | | | | | | | |
Total other (expenses) income, net - Servicing | $ | (90) | | | (3) | | $ | 28 | | | 1 | | $ | (118) | | | (4) | | (421) | % | | (400) | % |
| | | | | | | | | | | | | | | |
Weighted average cost - advance facilities | 3.0 | % | | | | 5.1 | % | | | | (2.1) | % | | | | (41) | % | | |
Weighted average cost - excess spread financing | 9.0 | % | | | | 8.9 | % | | | | 0.1 | % | | | | 1 | % | | |
(1)Calculated basis points (“bps”) are as well asfollows: Annualized dollar amount/Total average UPB X 10000.
For the accretionsix months ended June 30, 2020, we had total other expenses, net, of $90 compared to total other income, net, of $28 for the HMBS bond premium.same period in 2019. The increase in other interest expensechange was primarily due to an increase of $12a decrease in excess spread costs and $28 of earnings credits and bank fee credits the Predecessor previously classified as interest expense and $6 of compensating interest expenseincome, mainly driven by higher payoff volume.
|
| | | | |
Table 12.1. Servicing - Other Income (Expenses), Net |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | Change | | % Change |
Amt | | bps | | Amt | | bps | | | Amt | | bps | | Amt | | bps | | Amt | | bps | | Amt | | bps |
Income earned on Reverse mortgage interest | $ | 249 |
| | 5 |
| | $ | 72 |
| | 8 |
| | | $ | 274 |
| | 9 |
| | $ | 346 |
| | 9 |
| | $ | (97 | ) | | (4 | ) | | (28 | )% | | (44 | )% |
Other interest income | 139 |
| | 3 |
| | 6 |
| | 1 |
| | | 14 |
| | 1 |
| | 20 |
| | 1 |
| | 119 |
| | 2 |
| | 595 | % | | 200 | % |
Interest income | 388 |
| | 8 |
| | 78 |
| | 9 |
| | | 288 |
| | 10 |
| | 366 |
| | 10 |
| | 22 |
| | (2 | ) | | 6 | % | | (20 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | |
Reverse mortgage interest expense | (175 | ) | | (4 | ) | | (63 | ) | | (7 | ) | | | (221 | ) | | (7 | ) | | (284 | ) | | (7 | ) | | 109 |
| | 3 |
| | (38 | )% | | (43 | )% |
Advance interest expense | (23 | ) | | — |
| | (5 | ) | | (1 | ) | | | (19 | ) | | (1 | ) | | (24 | ) | | (1 | ) | | 1 |
| | 1 |
| | (4 | )% | | (100 | )% |
Other interest expense | (145 | ) | | (3 | ) | | (6 | ) | | (1 | ) | | | (28 | ) | | (1 | ) | | (34 | ) | | (1 | ) | | (111 | ) | | (2 | ) | | 326 | % | | 200 | % |
Interest expense | (343 | ) | | (7 | ) | | (74 | ) | | (9 | ) | | | (268 | ) | | (9 | ) | | (342 | ) | | (9 | ) | | (1 | ) | | 2 |
| | — | % | | (22 | )% |
Other income (expense) | — |
| | — |
| | 5 |
| | 1 |
| | | (1 | ) | | — |
| | 4 |
| | — |
| | (4 | ) | | — |
| | (100 | )% | | — | % |
Total other income (expenses), net - Servicing | $ | 45 |
| | 1 |
| | $ | 9 |
| | 1 |
| | | $ | 19 |
| | 1 |
| | $ | 28 |
| | 1 |
| | $ | 17 |
| | — |
| | 61 | % | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average cost - advance facilities | 4.0 | % | | | | 4.0 | % | | | | | 3.9 | % | | | | 3.9 | % | | | | 0.1 | % | | | | 3 | % | | |
Weighted average cost - excess spread financing | 8.9 | % | | | | 8.9 | % | | | | �� | 8.8 | % | | | | 8.9 | % | | | | — | % | | | | — | % | |
|
|
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Total other income (expenses), net increased during the nine months ended September 30, 2019 as compared to the same period in 2018, on a combined basis, primarily due to an increase in interest income. Interest income increased primarily due to an increase in otherlower interest income as a result of $62 of earnings credits and bank fee credits the Predecessor previously classified as interest expense, coupled with higher interest income due to higher yieldsearned on custodial balances combined with higher balances driven by portfolio growth. Offsetting the increase in other interest income was a decrease inlower LIBOR rates. Income earned on reverse mortgage interest income, which was relateddecreased due to the decline in the reverse mortgage interests balance.balance and the amortization of a net asset premium into income. Interest expense as a total remained consistent duringrelatively flat for the ninesix months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis. Reverse mortgage interest expense decreased due the decline in the reverse mortgage interest portfolio balance, as well as the accretion of the HMBS bond premium, and was offset by an increase in other interest expense. Other interest expense increased primarily due to an increase of $35 in excess spread costs and $62 of earnings credits and bank fee credits the Predecessor previously classified as interest expense and $11 of compensating interest expense driven by higher payoff volume.2019.
Serviced
Servicing Portfolio and Related Liabilities
The tablestable below summarizesummarizes the servicedservicing portfolio and related liabilities in the Servicing segment.
|
| | | | | | | | | | | | | |
Table 13. ServicedServicing Portfolios and Related Liabilities | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | December 31, 2019 | | | | |
| UPB | | Carrying Amount | | bps | | UPB | | Carrying Amount | | bps |
Forward MSRs - acquisition pool: | | | | | | | | | | | |
Credit sensitive | $ | 131,105 | | | $ | 1,307 | | | 100 | | $ | 147,895 | | | $ | 1,613 | | | 109 |
Interest sensitive | 146,870 | | | 1,450 | | | 99 | | 148,887 | | | 1,883 | | | 126 |
Total forward MSRs - fair value | $ | 277,975 | | | $ | 2,757 | | | 99 | | $ | 296,782 | | | $ | 3,496 | | | 118 |
| | | | | | | | | | | |
Forward MSRs - investor pool: | | | | | | | | | | | |
Agency | $ | 228,680 | | | $ | 2,308 | | | 101 | | $ | 240,688 | | | $ | 2,944 | | | 122 |
Non-agency | 49,295 | | | 449 | | | 91 | | 56,094 | | | 552 | | | 98 |
Total forward MSRs - fair value | $ | 277,975 | | | $ | 2,757 | | | 99 | | $ | 296,782 | | | $ | 3,496 | | | 118 |
| | | | | | | | | | | |
Total forward MSRs | $ | 277,975 | | | $ | 2,757 | | | | | $ | 296,782 | | | $ | 3,496 | | | |
| | | | | | | | | | | |
Subservicing and other(1) | | | | | | | | | | | |
Agency | 286,710 | | | N/A | | | | 308,532 | | | N/A | | |
Non-agency | 10,082 | | | N/A | | | | 15,451 | | | N/A | | |
Total subservicing and other | 296,792 | | | N/A | | | | 323,983 | | | N/A | | |
| | | | | | | | | | | |
Reverse portfolio - amortized cost | | | | | | | | | | | |
MSR | 2,190 | | | 6 | | | | | 2,508 | | | 6 | | | |
MSL | 12,891 | | | (48) | | | | | 13,994 | | | (61) | | | |
Securitized loans | 5,677 | | | 5,709 | | | | | 6,223 | | | 6,279 | | | |
Total reverse portfolio serviced | 20,758 | | | 5,667 | | | | | 22,725 | | | 6,224 | | | |
Total servicing portfolio unpaid principal balance | $ | 595,525 | | | $ | 8,424 | | | | | $ | 643,490 | | | $ | 9,720 | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
UPB | | Carrying Amount | | Weighted Avg. Coupon | | UPB | | Carrying Amount | | Weighted Avg. Coupon |
Forward MSRs - fair value | | | | | | | | | | | |
Agency | $ | 247,821 |
| | $ | 2,764 |
| | 4.5 | % | | $ | 229,108 |
| | $ | 3,027 |
| | 4.5 | % |
Non-agency | 58,860 |
| | 575 |
| | 4.8 | % | | 66,373 |
| | 638 |
| | 4.8 | % |
Total Forward MSRs - fair value | 306,681 |
| | 3,339 |
| | 4.6 | % | | 295,481 |
| | 3,665 |
| | 4.5 | % |
| | | | | | | | | | | |
Subservicing and other(1) | | | | | | | | | | | |
Agency | 294,783 |
| | N/A |
| | N/A |
| | 208,607 |
| | N/A |
| | N/A |
|
Non-agency | 15,748 |
| | N/A |
| | N/A |
| | 15,279 |
| | N/A |
| | N/A |
|
Total subservicing and other | 310,531 |
| | N/A |
| | N/A |
| | 223,886 |
| | N/A |
| | N/A |
|
| | | | | | | | | | | |
Reverse portfolio - amortized cost | | | | | | | | | | | |
MSR | 2,761 |
| | 7 |
| | N/A |
| | 3,940 |
| | 11 |
| | N/A |
|
MSL | 14,641 |
| | (69 | ) | | N/A |
| | 16,538 |
| | (71 | ) | | N/A |
|
Securitized loans | 6,588 |
| | 6,662 |
| | N/A |
| | 7,937 |
| | 7,934 |
| | N/A |
|
Total reverse portfolio serviced | 23,990 |
| | 6,600 |
| | N/A |
| | 28,415 |
| | 7,874 |
| | N/A |
|
Total servicing portfolio unpaid principal balance | $ | 641,202 |
| | $ | 9,939 |
| | N/A |
| | $ | 547,782 |
| | $ | 11,539 |
| | N/A |
|
(1)Subservicing and other amounts include loans we service for others, residential mortgage loans originated but have yet to be sold and agency REO balances for which we own the mortgage servicing rights.
| |
(1)
| Subservicing and other amounts include loans we service for others, residential mortgage loans originated but have yet to be sold and agency REO balances for which we own the mortgage servicing rights. |
As of June 30, 2020, when measuring the fair value of the portfolio as a basis point of the unpaid principal balance, our credit sensitive pool decreased in value by 9 bps and interest sensitive pool decreased in value by 27 bps, compared to December 31, 2019 primarily due to higher forecasted prepayment speeds as a result of the declining interest rate environment in 2020.
We assess whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of the acquisition. We consider numerous factors in making this assessment, with the primary factors consisting of the overall portfolio delinquency characteristics, portfolio seasoning and residential mortgage loan composition. Interest rate sensitive portfolios typically consist of single-family conforming residential forward mortgage loans serviced for GSEs or other third-party investors. Credit sensitive portfolioportfolios primarily consistsconsist of higher delinquency single-family non-conforming residential forward mortgage loans in private-label securitizations.
|
| | | | |
Table 14. Fair Value MSR Valuation |
|
| | | | | | | | | | | | | | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
UPB | | Carrying Amount | | bps | | UPB | | Carrying Amount | | bps |
MSRs - fair value | | | | | | | | | | | |
Credit sensitive | $ | 157,898 |
| | $ | 1,661 |
| | 105 | | $ | 135,752 |
| | $ | 1,495 |
| | 110 |
Interest sensitive | 148,783 |
| | 1,678 |
| | 113 | | 159,729 |
| | 2,170 |
| | 136 |
Total MSRs - fair value | $ | 306,681 |
| | $ | 3,339 |
| | 109 | | $ | 295,481 |
| | $ | 3,665 |
| | 124 |
As of September 30, 2019, when measuring the fair value of the portfolio as a basis point of the unpaid principal balance, our credit sensitive pool decreased in value by 5 bps and interest sensitive pool decreased in value 23 bps, compared to December 31, 2018 due to higher forecasted prepayment speeds as a result of the declining interest rate environment in 2019.
The following table provides information on the fair value of our owned forward MSR portfolio.
|
| | | | |
Table 15. MSRs - Fair Value, Roll Forward |
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Fair value - beginning of period | $ | 3,505 |
| | $ | 3,665 |
| | $ | 3,413 |
| | | $ | 3,356 |
| | $ | 2,937 |
|
Additions: | | | | | | | | | | |
Servicing retained from mortgage loans sold | 129 |
| | 298 |
| | 43 |
| | | 22 |
| | 162 |
|
Purchases of servicing rights | 43 |
| | 732 |
| | 72 |
| | | 12 |
| | 144 |
|
Dispositions: | | | | | | | | | | |
Sales of servicing rights | (24 | ) | | (317 | ) | | (63 | ) | | | — |
| | 4 |
|
Changes in fair value: | | | | | | | | | | |
Due to changes in valuation inputs or assumptions used in the valuation model: | | | | | | | | | | |
Credit sensitive | (72 | ) | | (228 | ) | | 14 |
| | | 11 |
| | 203 |
|
Interest sensitive | (102 | ) | | (488 | ) | | 51 |
| | | 35 |
| | 127 |
|
Other changes in fair value: | | | | | | | | | | |
Scheduled principal payments | (24 | ) | | (69 | ) | | (20 | ) | | | (6 | ) | | (45 | ) |
Disposition of negative MSRs and other(1) | 20 |
| | 43 |
| | 7 |
| | | 3 |
| | 27 |
|
Prepayments | | | | | | | | | | |
Voluntary prepayments | | | | | | | | | | |
Credit sensitive | (27 | ) | | (72 | ) | | (14 | ) | | | (10 | ) | | (71 | ) |
Interest sensitive | (103 | ) | | (205 | ) | | (11 | ) | | | (8 | ) | | (54 | ) |
Involuntary prepayments | | | | | | | | | | |
Credit sensitive | (1 | ) | | (6 | ) | | (3 | ) | | | (1 | ) | | (12 | ) |
Interest sensitive | (5 | ) | | (14 | ) | | (4 | ) | | | (1 | ) | | (9 | ) |
Fair value - end of period | $ | 3,339 |
| | $ | 3,339 |
| | $ | 3,485 |
| | | $ | 3,413 |
| | $ | 3,413 |
|
| |
(1)
| Amounts primarily represent negative fair values reclassified from the MSR asset to reserves of advances and other receivables as underlying loans are removed from the MSR and other reclassification adjustments. |
The following table sets forth the weighted averageactivities of forward MSRs:
| | | | | | | | | | | | | | |
Table 14. Forward MSRs - Fair Value, Rollforward | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Fair value - beginning of period | $ | 3,109 | | | $ | 3,481 | | | $ | 3,496 | | | $ | 3,665 | |
Additions: | | | | | | | |
Servicing retained from mortgage loans sold | 126 | | | 103 | | | 249 | | | 169 | |
Purchases of servicing rights | — | | | 280 | | | 24 | | | 689 | |
Dispositions: | | | | | | | |
Sales and cancellation of servicing assets | — | | | (34) | | | — | | | (294) | |
Changes in fair value: | | | | | | | |
Due to changes in valuation inputs or assumptions used in the valuation model: | | | | | | | |
Credit sensitive | (40) | | | (35) | | | (221) | | | (156) | |
Interest sensitive | (276) | | | (175) | | | (496) | | | (386) | |
Other changes in fair value: | | | | | | | |
Scheduled principal payments | (24) | | | (23) | | | (47) | | | (45) | |
Disposition of negative MSRs and other(1) | 25 | | | 11 | | | 45 | | | 23 | |
Prepayments | | | | | | | |
Voluntary prepayments | | | | | | | |
Credit sensitive | (26) | | | (26) | | | (50) | | | (45) | |
Interest sensitive | (135) | | | (70) | | | (237) | | | (102) | |
Involuntary prepayments | | | | | | | |
Credit sensitive | — | | | (2) | | | (1) | | | (4) | |
Interest sensitive | (2) | | | (5) | | | (5) | | | (9) | |
Fair value - end of period | $ | 2,757 | | | $ | 3,505 | | | $ | 2,757 | | | $ | 3,505 | |
(1)Amounts primarily represent negative fair values reclassified from the MSR asset to reserves as underlying loans are removed from the MSR and other reclassification adjustments.
The following table sets forth the weighted-average key assumptions in estimating the fair value of MSRs.
|
| | | | | | | | | | | | | |
Table 16.15. MSRs - Fair Value | | | | |
| | | | | | | | | | | |
| June 30, 2020 | | June 30, 2019 |
Total MSRs Portfolio | | | |
Discount rate | 9.5 | % | | 9.7 | % |
Prepayment speeds | 14.2 | % | | 13.7 | % |
Average life | 5.3 years | | 5.8 years |
| | | |
Acquisition Pools: | | | |
Credit Sensitive | | | |
Discount rate | 9.9 | % | | 10.6 | % |
Prepayment speeds | 12.6 | % | | 13.5 | % |
Average life | 5.6 years | | 5.9 years |
| | | |
Interest Sensitive | | | |
Discount rate | 9.0 | % | | 8.9 | % |
Prepayment speeds | 15.8 | % | | 13.9 | % |
Average life | 4.9 years | | 5.6 years |
| | | |
Investor Pools: | | | |
Agency | | | |
Discount rate | 8.9 | % | | 9.0 | % |
Prepayment speeds | 14.4 | % | | 13.5 | % |
Average life | 5.2 years | | 5.7 years |
| | | |
Non-Agency | | | |
Discount rate | 12.0 | % | | 12.6 | % |
Prepayment speeds | 13.4 | % | | 14.5 | % |
Average life | 5.6 years | | 6.0 years |
|
| | | | | |
| Successor |
| September 30, 2019 | | September 30, 2018 |
Credit Sensitive MSRs | | | |
Discount rate | 10.4 | % | | 11.2 | % |
Weighted average prepayment speeds | 13.2 | % | | 11.2 | % |
Weighted average life of loans | 5.9 years |
| | 6.7 years |
|
| | | |
Interest Sensitive MSRs | | | |
Discount rate | 9.0 | % | | 9.2 | % |
Weighted average prepayment speeds | 14.6 | % | | 8.9 | % |
Weighted average life of loans | 5.4 years |
| | 7.4 years |
|
| | | |
Total MSRs Portfolio | | | |
Discount rate | 9.7 | % | | 10.4 | % |
Weighted average prepayment speeds | 13.9 | % | | 10.3 | % |
Weighted average life of loans | 5.6 years |
| | 7.0 years |
|
The weighted-average discount rate for credit sensitive and interest sensitivetotal MSRs portfolio decreased as of SeptemberJune 30, 20192020 compared to the same period in 20182019 due to the declining interest rate environment in 2019. Weighted average lives2020. Weighted-average life for total MSRs portfolio decreased for both credit sensitive and interest sensitive MSRs due to the increase in prepayment speeds, which was attributable to the interest rate decline period over period.
The discount rate, which is used to determine the present value of estimated future net servicing income, is based on the required rate of return market investors would expect for an asset with similar risk characteristics. The discount rate is determined through review of recent market transactions as well as comparing the discount rate to those utilized by third-party valuation specialists and market surveys.specialists.
Total prepayment speeds represent the annual rate at which borrowers are forecasted to repay their mortgage loan principal, which includes estimates for both voluntary and involuntary borrower liquidations. The expected weighted averageweighted-average life represents the total years we expect to service the MSR.
The key assumptions were separately applied to the servicing of loans in forbearance to account for differences in the underlying estimate of future servicing revenues related to those loans.
Excess Spread Financing
As further disclosed in Note 3, Mortgage Servicing Rights and Related Liabilities,we have entered into sale and assignment agreements treated as financing arrangements whereby the acquirer has the right to receive a specified percentage of the excess cash flow generated from an MSR.
The servicing fees associated with an MSR can be segregated into (i) a base servicing fee and (ii) an excess servicing fee. The base servicing fee, along with ancillary income and other revenues, is designed to cover costs incurred to service the specified pool plus a reasonable margin. The remaining servicing fee is considered excess. We sell a percentage of the excess fee as a method for efficiently financing acquired MSRs. Excess spread financings are presently applicable only to acquired MSRs and originated poolsthe purchase of loans; however, they can be entered into at any time for both acquired and originated MSRs.loans.
Excess spread financings are recorded at fair value, and the impact of fair value adjustments on future revenues and capital resources varies primarily due to changes in (i) prepayment speeds and (ii) our ability to recapture mortgage loan payoffsprepayments through the origination platform. In See Note 3, Mortgage Servicing Rights and Related Liabilities, we discussfor additional information regarding the range of assumptions and sensitivities related to the measurement of the excess spread financing liability as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
The following table sets forth the change in the excess spread financing liability and the related key weighted average assumptions.
weighted-average assumptions: |
| | | | | | | | | | | | | |
Table 17.16. Excess Spread Financing | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Fair value - beginning of period | $ | 1,242 | | | $ | 1,309 | | | $ | 1,311 | | | $ | 1,184 | |
Additions: | | | | | | | |
New financings | — | | | 193 | | | 24 | | | 438 | |
Deductions: | | | | | | | |
Settlements and repayments | (52) | | | (68) | | | (110) | | | (119) | |
Changes in fair value: | | | | | | | |
Credit Sensitive | (22) | | | 17 | | | (24) | | | (15) | |
Interest Sensitive | (44) | | | (22) | | | (77) | | | (59) | |
Fair value - end of period | $ | 1,124 | | | $ | 1,429 | | | $ | 1,124 | | | $ | 1,429 | |
| | | | | | | |
Key Weighted-Average Assumptions: | | | | | June 30, 2020 | | June 30, 2019 |
Total Excess Spread Portfolio | | | | | | | |
Discount rate | | | | | 12.0 | % | | 9.6 | % |
Prepayment speeds | | | | | 13.4 | % | | 13.1 | % |
Recapture rate | | | | | 18.7 | % | | 20.2 | % |
Average life | | | | | 5.4 years | | 5.7 years |
| | | | | | | |
Credit Sensitive | | | | | | | |
Discount rate | | | | | 12.7 | % | | 10.3 | % |
Prepayment speeds | | | | | 12.7 | % | | 13.1 | % |
Recapture rate | | | | | 20.3 | % | | 22.3 | % |
Average life | | | | | 5.6 years | | 5.8 years |
| | | | | | | |
Interest Sensitive | | | | | | | |
Discount rate | | | | | 10.7 | % | | 8.4 | % |
Prepayment speeds | | | | | 14.6 | % | | 12.9 | % |
Recapture rate | | | | | 15.8 | % | | 17.4 | % |
Average life | | | | | 5.1 years | | 5.4 years |
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Fair value - beginning of period | $ | 1,429 |
| | $ | 1,184 |
| | $ | 1,039 |
| | | $ | 1,047 |
| | $ | 996 |
|
Additions: | | | | | | | | | | |
New financings | 31 |
| | 469 |
| | 84 |
| | | — |
| | 70 |
|
Deductions: | | | | | | | | | | |
Repayments of debt | (7 | ) | | (19 | ) | | (21 | ) | | | (1 | ) | | (3 | ) |
Settlements of principal balances | (56 | ) | | (163 | ) | | (31 | ) | | | (14 | ) | | (105 | ) |
Fair value changes: | | | | | | | | | | |
Credit Sensitive | (59 | ) | | (74 | ) | | 23 |
| | | 7 |
| | 73 |
|
Interest Sensitive | (57 | ) | | (116 | ) | | 3 |
| | | — |
| | 8 |
|
Fair value - end of period | $ | 1,281 |
| | $ | 1,281 |
| | $ | 1,097 |
| | | $ | 1,039 |
| | $ | 1,039 |
|
| | | | | | | | | | |
| | | | | | | | Successor |
Total Key Weighted Average Assumptions: | | | | | | | September 30, 2019 | | September 30, 2018 |
Credit Sensitive | | | | | | | | | | |
Discount rate | | | | | | | | 12.5 | % | | 11.1 | % |
Prepayment speeds | | | | | | | | 12.9 | % | | 11.0 | % |
Recapture rate | | | | | | | | 23.6 | % | | 18.0 | % |
Average life | | | | | | | | 5.8 years |
| | 6.6 years |
|
| | | | | | | | | | |
Interest Sensitive | | | | | | | | | | |
Discount rate | | | | | | | | 10.9 | % | | 9.1 | % |
Prepayment speeds | | | | | | | | 13.9 | % | | 9.3 | % |
Recapture rate | | | | | | | | 20.0 | % | | 14.7 | % |
Average life | | | | | | | | 5.5 years |
| | 7.1 years |
|
| | | | | | | | | | |
Total Excess Spread Financing Portfolio | | | | | | | | | |
Discount rate | | | | | | | | 11.9 | % | | 10.6 | % |
Prepayment speeds | | | | | | | | 13.3 | % | | 10.6 | % |
Recapture rate | | | | | | | | 22.3 | % | | 17.7 | % |
Average life | | | | | | | | 5.7 years |
| | 6.7 years |
|
DuringThe following table sets forth the three months ended September 30, 2019, we updatedchange in the discount rate utilized for valuation of excess spreadMSRs financing liabilities due to market driven events occurring withinliability and the quarter to accurately reflect the fair value of excess spread financing liabilities.
related weighted-average assumptions: |
| | | | | | | | | | | | | |
Table 18.17. MSRs Financing Liability - Rollforward | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Fair value - beginning of period | $ | 43 | | | $ | 34 | | | $ | 37 | | | $ | 32 | |
Changes in fair value: | | | | | | | |
Changes in valuation inputs or assumptions used in the valuation model | 9 | | | 13 | | | 18 | | | 19 | |
Other changes in fair value | (3) | | | (4) | | | (6) | | | (8) | |
Fair value - end of period | $ | 49 | | | $ | 43 | | | $ | 49 | | | $ | 43 | |
| | | | | | | |
| | | | | June 30, 2020 | | June 30, 2019 |
Weighted-Average Assumptions | | | | | | | |
Advance financing rates | | | | | 4.3 | % | | 3.7 | % |
Annual advance recovery rates | | | | | 18.6 | % | | 19.3 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Seven Months Ended July 31, 2018 |
Fair value - beginning of period | $ | 43 |
| | $ | 32 |
| | $ | 26 |
| | | $ | 16 |
| | $ | 10 |
|
Changes in fair value(1): | | | | | | | | | | |
Changes in valuation inputs or assumptions used in the valuation model | 9 |
| | 28 |
| | 3 |
| | | 11 |
| | 22 |
|
Other changes in fair value | (5 | ) | | (13 | ) | | (3 | ) | | | (1 | ) | | (6 | ) |
Fair value - end of period | $ | 47 |
| | $ | 47 |
| | $ | 26 |
| | | $ | 26 |
| | $ | 26 |
|
| | | | | | | | | | |
| | | | | | | | Successor |
| | | | | | | | September 30, 2019 | | September 30, 2018 |
Weighted Average Assumptions | | | | | | | | | | |
Advance financing rates | | | | | | | | 3.7 | % | | 4.9 | % |
Annual advance recovery rates | | | | | | | | 18.7 | % | | 18.2 | % |
| |
(1)
| The changes in fair value related to our MSRs financing liability primarily relate to both scheduled and unscheduled principal payments reflected in the underlying MSRs and changes in the fair value model assumptions. |
We entered into several sale agreements whereby we sold the right to receive repayment of servicing advances on private-label servicing advances and the right to receive a portion of the base fee component on the related MSRs, and also transferred the obligations to make future advances. These transactions are treatedrecorded as aan MSR Financing Liability. Thefinancing liability in our consolidated balance sheet entry for these financings representssheets and represent the component of fair value that reflects the excess cost of these transactionsincremental costs relative to the cost of financing advances assumedmarket participant assumptions contained in the MSR valuation. Changes in the value of the corresponding MSR and the change in fair value isfinancing liability are recorded against servicing revenue and interest imputed on the outstanding liability is recorded as interest expense.
We estimate fair value of the MSR financing liability based on the present value of future expected discounted cash flows with the discount rate approximating current market valuerate for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being advance financing rates and annual advance recovery rates.
The following table provides an overview of our forward servicing portfolio and amounts that have been transferred toinvolve excess spread financing with our co-investco-investment partners for the periods indicated.
|
| | | | | | | | | | | | | |
Table 19.18. Leveraged Portfolio Characteristics | | | | |
| | | | | | | | | | | |
| June 30, 2020 | | June 30, 2019 |
Owned forward servicing portfolio - unencumbered | $ | 83,683 | | | $ | 87,007 | |
Owned forward servicing portfolio - encumbered | 194,292 | | | 229,005 | |
Subserviced forward servicing portfolio and other | 296,792 | | | 302,108 | |
Total unpaid principal balance | $ | 574,767 | | | $ | 618,120 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | September 30, 2018 |
Owned forward servicing portfolio - unencumbered | $ | 89,308 |
| | $ | 90,504 |
|
Owned forward servicing portfolio - encumbered | 217,373 |
| | 183,982 |
|
Subserviced forward servicing portfolio and other | 310,531 |
| | 209,106 |
|
Total unpaid principal balance | $ | 617,212 |
| | $ | 483,592 |
|
The encumbered forward servicing portfolio consists of residential mortgage loans included within our excess spread financing transactions and MSR financing liability. Subserviced and other amounts include (1) loans serviced for others, (2) residential mortgage loans originated but not yet sold and (3) agency REO balances for which we own the mortgage servicing rights.
Reverse -MSRs, MSLs and Participating Interests in Reverse Mortgages - Amortized Cost
The table below provides detail of the characteristics and key performance metrics of the reverse servicing portfolio, which is included in reverse MSRs, MSLs and participating interests in reverse mortgages. Such assets are recorded at amortized cost.
|
| | | | | | | | | | | | | |
Table 20. Reserve -19. Reverse Mortgage Portfolio Characteristics | | | | |
| | | | | | | | | | | |
| June 30, 2020 | | June 30, 2019 |
Loan count | 154,313 | | | 180,899 | |
Ending unpaid principal balance | $ | 20,758 | | | $ | 25,569 | |
Average loan amount(1) | $ | 134,516 | | | $ | 141,342 | |
Average coupon | 2.2 | % | | 4.3 | % |
Average borrower age | 81 | | | 80 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | September 30, 2018 |
Loan count | 170,903 |
| | 200,904 |
|
Ending unpaid principal balance | $ | 23,990 |
| | $ | 30,660 |
|
Average loan amount(1) | $ | 140,374 |
| | $ | 152,608 |
|
Average coupon | 3.8 | % | | 4.3 | % |
Average borrower age | 80 |
| | 79 |
|
(1)Average loan amount is presented in whole dollar amounts.
| |
(1)
| Average loan amount is presented in whole dollar amounts. |
Historically, the Predecessorwe acquired servicing rights and participating interests in reverse mortgage portfolios. Reverse mortgage loans, known asmost commonly HECMs, provide seniors 62 and older with a loan upon which draws can be made periodically. The draws are secured by the equity in the borrower’s home. For acquired servicing rights, on reverse mortgages, an MSR or MSL is established on the acquisition date at fair value, as applicable, based on the expected discounted cash flow from servicing the reverse portfolio.
Each quarter, we accrete the MSL to revenues - service related, revenue, net of the respective portfoliosportfolios’ run-off. The MSL is assessed for increased obligation based on its fair value, using a variety of assumptions, with the key assumptions being discount rates, prepayment speeds and borrower life expectancy. The MSLs are stratified based on predominant risk characteristics of the underlying serviced loans. Impairment, if any, represents the excess of amortized cost of an individual stratum over its estimated fair value and is recognized through an increase in the valuation allowance.
Based on our assessment, no impairment or increased obligation was required to be recorded for reverse MSRs and MSLs as of SeptemberJune 30, 2019.2020.
The strategy of our Originations segment is to originate or acquire new loans for the servicing portfolio at a more attractive cost than purchasing MSRs in bulk transactions and to retain our existing customers by providing them with attractive refinance options. The Originations segment plays a strategically important role because its profitability is typically counter-cyclicalcounter cyclical to that of the Servicing segment. Furthermore, by originating or acquiring loans at a more attractive cost than would be the case in bulk MSR acquisitions, the Originations segment improves our overall profitability and cash flow. Growing the Originations segment has been a strategic focus for us for several years.
The Originations segment includes three channels:
•Our direct-to-consumer lending channel relies on our call centers, our website, and mobile apps to interact with customers. Our primary focus is to assist our customers with a refinance or home purchase by providing them with a needs-based approach to understanding their current mortgage options.
•Our correspondent lending channel acquires newly originated residential mortgage loans that have been underwritten to investor guidelines. This includes both conventional and government-insured loans that qualify for inclusion in securitizations that are guaranteed by the GSEs. Our correspondent lending channel enables us to replenish servicing portfolio run-off typically at a better rate of return than traditional bulk or flow acquisitions.
•Our wholesale lending channel works with mortgage brokers to source loans which are underwritten and funded by us and also in our name. Counterparty risk is mitigated through quality and compliance monitoring and all brokers are subject to our eligibility requirements coupled with an annual recertification process. We shut down our wholesale lending operations during the three months ended June 30, 2020 and subsequently ceased originating loans and funded out the remaining pipeline.
The charts below set forth the pull through adjusted lock volume and funded volume by channel and channel mix.mix ($ in Billions):
The following tables set forth the results of operations for the Originations segment.
|
| | | | |
Table 21.20. Originations Segment Results of Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Total revenues | $ | 594 | | | $ | 264 | | | $ | 330 | | | 125 | % |
Total expenses | 167 | | | 145 | | | 22 | | | 15 | % |
Total other income (expenses), net | 6 | | | (1) | | | 7 | | | (700) | % |
Income before income tax expense | $ | 433 | | | $ | 118 | | | $ | 315 | | | 267 | % |
| | | | | | | |
Originations Margin | | | | | | | |
Revenue | $ | 594 | | | $ | 264 | | | $ | 330 | | | 125 | % |
Pull through adjusted lock volume | $ | 12,394 | | | $ | 11,197 | | | $ | 1,197 | | | 11 | % |
Revenue as a percentage of pull through adjusted lock volume(1) | 4.79 | % | | 2.36 | % | | 2.43 | % | | 103 | % |
| | | | | | | |
Expenses | $ | 167 | | | $ | 145 | | | $ | 22 | | | 15 | % |
Funded volume | $ | 10,729 | | | $ | 9,996 | | | $ | 733 | | | 7 | % |
Expenses as a percentage of funded volume(2) | 1.56 | % | | 1.45 | % | | 0.11 | % | | 8 | % |
| | | | | | | |
Originations Margin | 3.23 | % | | 0.91 | % | | 2.32 | % | | 255 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Revenues | $ | 334 |
| | $ | 86 |
| | | $ | 45 |
| | $ | 131 |
| | $ | 203 |
| | 155 | % |
Expenses | 155 |
| | 66 |
| | | 34 |
| | 100 |
| | 55 |
| | 55 | % |
Other income (expenses), net | (1 | ) | | 1 |
| | | — |
| | 1 |
| | (2 | ) | | (200 | )% |
Income before income tax expense | $ | 178 |
| | $ | 21 |
| | | $ | 11 |
| | $ | 32 |
| | $ | 146 |
| | 456 | % |
| | | | | | | | | | | | |
Originations Margin | | | | | | | | | | | | |
Revenue | $ | 334 |
| | $ | 86 |
| | | $ | 45 |
| | $ | 131 |
| | $ | 203 |
| | 155 | % |
Pull through adjusted lock volume | $ | 12,699 |
| | $ | 3,421 |
| | | $ | 1,606 |
| | $ | 5,027 |
| | $ | 7,672 |
| | 153 | % |
Revenue as a percentage of pull through adjusted lock volume(2) | 2.63 | % | | 2.51 | % | | | 2.80 | % | | 2.61 | % | | 0.02 | % | | 1 | % |
| | | | | | | | | | | | |
Expenses | $ | 155 |
| | $ | 66 |
| | | $ | 34 |
| | $ | 100 |
| | $ | 55 |
| | 55 | % |
Funded volume | $ | 11,911 |
| | $ | 3,459 |
| | | $ | 1,688 |
| | $ | 5,147 |
| | $ | 6,764 |
| | 131 | % |
Expenses as a percentage of funded volume(3) | 1.30 | % | | 1.91 | % | | | 2.01 | % | | 1.94 | % | | (0.64 | )% | | (33 | )% |
| | | | | | | | | | | | |
Originations Margin | 1.33 | % | | 0.60 | % | | | 0.79 | % | | 0.67 | % | | 0.66 | % | | 99 | % |
(1)Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
| |
(2)
| Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock. |
| |
(3)
| Calculated on funded volume as expenses are incurred based on closing of the loan. |
(2)Calculated on funded volume as expenses are incurred based on closing of the loan.
Income before income tax expense increased for the three months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019 primarily due to an increase in revenues driven by origination volume growth.growth, predominately in the DTC channel. In response to the COVID-19 pandemic, we slowed operations in the correspondent channel in order to prioritize cash build and de-risk the pipeline. The growth in origination volume was primarily due to declining interest rates and incremental volumes associated with the acquisition of Pacific Union.rates. The Originations Margin for the three months ended SeptemberJune 30, 20192020 increased as compared to the same period in 2018, on a combined basis,2019 primarily due to lower expenseshigher revenue as a percentage of funded volume.pull through adjusted lock volume driven by an increase in volume from the DTC channel.
|
| | | | |
Table 21.120.1 Originations Segment Results of Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Total revenues | $ | 911 | | | $ | 410 | | | $ | 501 | | | 122 | % |
Total expenses | 333 | | | 249 | | | 84 | | | 34 | % |
Total other income, net | 13 | | | 2 | | | 11 | | | 550 | % |
Income before income tax expense | $ | 591 | | | $ | 163 | | | $ | 428 | | | 263 | % |
| | | | | | | |
Originations Margin | | | | | | | |
Revenue | $ | 911 | | | $ | 410 | | | $ | 501 | | | 122 | % |
Pull through adjusted lock volume | $ | 25,071 | | | $ | 17,157 | | | $ | 7,914 | | | 46 | % |
Revenue as a percentage of pull through adjusted lock volume(1) | 3.63 | % | | 2.39 | % | | 1.24 | % | | 52 | % |
| | | | | | | |
Expenses | $ | 333 | | | $ | 249 | | | $ | 84 | | | 34 | % |
Funded volume | $ | 23,088 | | | $ | 15,712 | | | $ | 7,376 | | | 47 | % |
Expenses as a percentage of funded volume(2) | 1.44 | % | | 1.58 | % | | (0.14) | % | | (9) | % |
| | | | | | | |
Originations Margin | 2.19 | % | | 0.81 | % | | 1.38 | % | | 170 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Revenues | $ | 744 |
| | $ | 86 |
| | | $ | 306 |
| | $ | 392 |
| | $ | 352 |
| | 90 | % |
Expenses | 404 |
| | 66 |
| | | 245 |
| | 311 |
| | 93 |
| | 30 | % |
Other income (expenses), net | 1 |
| | 1 |
| | | 1 |
| | 2 |
| | (1 | ) | | (50 | )% |
Income before income tax expense | $ | 341 |
| | $ | 21 |
| | | $ | 62 |
| | $ | 83 |
| | $ | 258 |
| | 311 | % |
| | | | | | | | | | | | |
Originations Margin | | | | | | | | | | | | |
Revenue | $ | 744 |
| | $ | 86 |
| | | $ | 306 |
| | $ | 392 |
| | $ | 352 |
| | 90 | % |
Pull through adjusted lock volume | $ | 29,856 |
| | $ | 3,421 |
| | | $ | 11,907 |
| | $ | 15,328 |
| | $ | 14,528 |
| | 95 | % |
Revenue as a percentage of pull through adjusted lock volume(2) | 2.49 | % | | 2.51 | % | | | 2.57 | % | | 2.56 | % | | (0.07 | )% | | (3 | )% |
| | | | | | | | | | | | |
Expenses | $ | 404 |
| | $ | 66 |
| | | $ | 245 |
| | $ | 311 |
| | $ | 93 |
| | 30 | % |
Funded volume | $ | 27,623 |
| | $ | 3,459 |
| | | $ | 12,317 |
| | $ | 15,776 |
| | $ | 11,847 |
| | 75 | % |
Expenses as a percentage of funded volume points(3) | 1.46 | % | | 1.91 | % | | | 1.99 | % | | 1.97 | % | | (0.51 | )% | | (26 | )% |
| | | | | | | | | | | | |
Originations Margin | 1.03 | % | | 0.60 | % | | | 0.58 | % | | 0.59 | % | | 0.44 | % | | 75 | % |
(1)Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
| |
(2)
| Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock. |
| |
(3)
| Calculated on funded volume as expenses are incurred based on closing of the loan. |
(2)Calculated on funded volume as expenses are incurred based on closing of the loan.
Income before income tax expense increased for the ninesix months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019 primarily due to an increase in revenues driven by origination volume growth.growth predominately in the DTC channel. In response to the COVID-19 pandemic, we slowed operations in the correspondent channel in order to prioritize cash build and de-risk the pipeline. The growth in originationsorigination volume growth was driven byprimarily due to declining interest rates and incremental volumes associated with the acquisition of Pacific Union.rates. The Originations Margin for the ninesix months ended SeptemberJune 30, 20192020 increased as compared to the same period in 2018, on a combined basis, primarily2019 due to lower expenseshigher revenue as a percentage of funded volume.pull through adjusted lock volume driven by an increase in volume from the DTC channel.
Originations Segment Revenues
Service related fee, net - Originations refers to fees collected from customers for direct-to-consumeroriginated loans and from wholesale customersother lenders for loans purchased through the correspondent channel, and includes loan application, underwriting, and other similar fees.
GainNet gain on loans originated and sold represents the cash proceedsgains and losses from sellingthe origination, purchase, and sale of loans netand related derivative instruments. Gains from the origination and sale of the cost to fund them. Gain on loans originated and sold isare affected by the volume margin and channel mixmargin of our originations activity and is impacted by fluctuationsfluctuation in interest rates.
Fair value adjustment on loans held for sale represents mark-to-market changes in the value of loans which have been funded and are being held on balance sheet prior to sale or securitization. We enter into derivative transactions to hedge the value of these loans, and changes in the value of derivatives are reported in the line of “mark-to-market on derivatives/hedges.”
Mark-to-market on locks and commitments represents the recognition of the total estimated revenue from originating and selling a loan, at the time that a direct-to-consumer channel customer elects to “lock” the loan at an agreed-upon interest rate, or when we commit to purchase or fund a loan from a correspondent or wholesale customer. In calculating this revenue estimate, we estimate the percentage of loans that will fall out of pipeline prior to funding, and the total estimated volume is referred to as “Pull-through Adjusted Lock Volume”. The magnitude of this line is a function of the profitability, mix, and trend in locks and commitments during the period relative to funded volumes. For loans funded during the period, the estimated revenue is reported in the line of “fair value adjustment on loans held for sale”. At the time of lock or commitment, we enter into derivative transactions designed to hedge the pipeline of locks and commitments against changes in interest rates. Changes in the value of these derivatives are reported in the line of “mark-to-market on derivatives/hedges.”
Capitalized servicing rights represents the fair value attributed to mortgage servicing rights thatat the time in which they are retained in connection with the sale of loans during the period.
Revenues, including net gain on mortgage loans heldTotal revenues for sale, for ourthe Originations segment are set forth in the tables below.
|
| | | | |
Table 22.21. Originations - Revenues |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Service related, net - Originations | $ | 21 | | | $ | 20 | | | $ | 1 | | | 5 | % |
Net gain on mortgage loans held for sale | | | | | | | |
Net gain on loans originated and sold | 453 | | | 152 | | | 301 | | | 198 | % |
Capitalized servicing rights | 123 | | | 100 | | | 23 | | | 23 | % |
Provision for repurchase reserves, net of release | (3) | | | (8) | | | 5 | | | (63) | % |
Total net gain on mortgage loans held for sale | 573 | | | 244 | | | 329 | | | 135 | % |
Total revenues - Originations | $ | 594 | | | $ | 264 | | | $ | 330 | | | 125 | % |
| | | | | | | |
Key Metrics | | | | | | | |
Consumer direct lock pull through adjusted volume(1) | $ | 9,595 | | | $ | 4,390 | | | $ | 5,205 | | | 119 | % |
Other locked pull through adjusted volume(1) | 2,799 | | | 6,807 | | | (4,008) | | | (59) | % |
Total pull through adjusted volume | $ | 12,394 | | | $ | 11,197 | | | $ | 1,197 | | | 11 | % |
Funded volume | $ | 10,729 | | | $ | 9,996 | | | $ | 733 | | | 7 | % |
Volume of loans sold | $ | 11,172 | | | $ | 9,089 | | | $ | 2,083 | | | 23 | % |
Recapture percentage(2) | 26.1 | % | | 23.1 | % | | 3.0 | % | | 13 | % |
Refinance recapture percentage(3) | 30.9 | % | | 43.7 | % | | (12.8) | % | | (29) | % |
Purchase as a percentage of funded volume | 10.3 | % | | 52.8 | % | | (42.5) | % | | (80) | % |
Value of capitalized servicing on retained settlements | 133 | bps | | 149 | bps | | (16) | bps | | (11) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | �� | Combined(1) | | $ Change | | % Change |
Service related, net - Originations | $ | 22 |
| | $ | 10 |
| | | $ | 4 |
| | $ | 14 |
| | $ | 8 |
| | 57 | % |
Net gain on mortgage loans held for sale | | | | | | | | | | | | |
Gain on loans originated and sold | 156 |
| | 36 |
| | | 12 |
| | 48 |
| | 108 |
| | 225 | % |
Fair value adjustment on loans held for sale | 3 |
| | (8 | ) | | | (1 | ) | | (9 | ) | | 12 |
| | (133 | )% |
Mark-to-market on locks and commitments(2) | 34 |
| | (2 | ) | | | (1 | ) | | (3 | ) | | 37 |
| | (1,233 | )% |
Mark-to-market on derivative/hedges | (2 | ) | | 10 |
| | | 9 |
| | 19 |
| | (21 | ) | | (111 | )% |
Capitalized servicing rights | 126 |
| | 41 |
| | | 22 |
| | 63 |
| | 63 |
| | 100 | % |
Provision for repurchase reserves, net of release | (5 | ) | | (1 | ) | | | — |
| | (1 | ) | | (4 | ) | | 400 | % |
Total net gain on mortgage loans held for sale | 312 |
| | 76 |
| | | 41 |
| | 117 |
| | 195 |
| | 167 | % |
Total revenues - Originations | $ | 334 |
| | $ | 86 |
| | | $ | 45 |
| | $ | 131 |
| | $ | 203 |
| | 155 | % |
| | | | | | | | | | | | |
Key Metrics | | | | | | | | | | | | |
Consumer direct lock pull through adjusted volume(3) | $ | 5,488 |
| | $ | 1,524 |
| | | $ | 828 |
| | $ | 2,352 |
| | $ | 3,136 |
| | 133 | % |
Other locked pull through adjusted volume(3) | 7,211 |
| | 1,897 |
| | | 778 |
| | 2,675 |
| | 4,536 |
| | 170 | % |
Total pull through adjusted volume | $ | 12,699 |
| | $ | 3,421 |
| | | $ | 1,606 |
| | $ | 5,027 |
| | $ | 7,672 |
| | 153 | % |
Funded volume | $ | 11,911 |
| | $ | 3,459 |
| | | $ | 1,688 |
| | $ | 5,147 |
| | $ | 6,764 |
| | 131 | % |
Volume of loans sold | $ | 12,150 |
| | $ | 3,454 |
| | | $ | 1,805 |
| | $ | 5,259 |
| | $ | 6,891 |
| | 131 | % |
Recapture percentage | 24.6 | % | | 22.8 | % | | | 20.4 | % | | 22.0 | % | | 2.6 | % | | 12 | % |
Purchase as a percentage of funded volume | 39.1 | % | | 52.8 | % | | | 52.2 | % | | 52.6 | % | | (13.5 | )% | | (26 | )% |
Value of capitalized servicing on retained settlements | 154 bps |
| | 140 bps |
| | | 135 bps |
| | 138 bps |
| | 16 bps |
| | 12 | % |
(1)Pull through adjusted volume represents the expected funding from locks taken during the period.
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
| |
(2)
| Mark-to-market on locks and commitments includes our fair value mark-to-market adjustments on IRLCs. |
| |
(3)
| Pull through adjusted volume represents the expected funding from locks taken during the period. |
(2)Recapture percentage includes both purchase and refinance origination and payoff activity.
(3)Refinance recapture percentage excludes purchase originations and purchase payoff activity.
Total revenues increased for the three months ended SeptemberJune 30, 20192020 compared to the same period in 2018, on a combined basis,2019 primarily driven by the higher origination volumes in a declining interest rate environment and higher volumes from the incremental volumes associated with the Pacific Union acquisition, which occurred in February 2019.DTC channel. Total revenue increased 155%$330 or $203125% period over period as consumer direct lock pull through adjusted volume increased 119% during the same period.
| | |
Table 21.1 Originations - Revenues |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Service related, net - Originations | $ | 41 | | | $ | 35 | | | $ | 6 | | | 17 | % |
Net gain on mortgage loans held for sale | | | | | | | |
Net gain on loans originated and sold | 636 | | | 224 | | | 412 | | | 184 | % |
Capitalized servicing rights | 242 | | | 161 | | | 81 | | | 50 | % |
Provision for repurchase reserves, net of release | (8) | | | (10) | | | 2 | | | (20) | % |
Total net gain on mortgage loans held for sale | 870 | | | 375 | | | 495 | | | 132 | % |
Total revenues - Originations | $ | 911 | | | $ | 410 | | | $ | 501 | | | 122 | % |
| | | | | | | |
Key Metrics | | | | | | | |
Consumer direct lock pull through adjusted volume(1) | $ | 17,018 | | | $ | 6,723 | | | $ | 10,295 | | | 153 | % |
Other locked pull through adjusted volume(1) | 8,053 | | | 10,434 | | | (2,381) | | | (23) | % |
Total pull through adjusted volume | $ | 25,071 | | | $ | 17,157 | | | $ | 7,914 | | | 46 | % |
Funded volume | $ | 23,088 | | | $ | 15,712 | | | $ | 7,376 | | | 47 | % |
Volume of loans sold | $ | 24,427 | | | $ | 15,324 | | | $ | 9,103 | | | 59 | % |
Recapture percentage(2) | 27.5 | % | | 24.9 | % | | 2.6 | % | | 10 | % |
Refinance recapture percentage(3) | 33.4 | % | | 46.9 | % | | (13.5) | % | | (29) | % |
Purchase as a percentage of funded volume | 18.7 | % | | 52.4 | % | | (33.7) | % | | (64) | % |
Value of capitalized servicing on retained settlements | 135 | bps | | 146 | bps | | (11) | bps | | (8) | % |
(1)Pull through adjusted volume represents the expected funding from locks taken during the period.
(2)Recapture percentage includes both purchase and refinance origination and payoff activity.
(3)Refinance recapture percentage excludes purchase originations and purchase payoff activity.
Total revenues increased for the six months ended June 30, 2020 compared to the same period in 2019 primarily driven by the higher origination volumes in a declining interest rate environment and higher volumes from the DTC channel. Total revenue increased $501 or 122% period over period as consumer direct lock pull through adjusted volume increased 153% during the same period.
The tables below summarize expenses for the Originations segment: |
| | | | |
Table 22.1.22. Originations - RevenuesExpenses |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Salaries, wages and benefits | $ | 120 | | | $ | 88 | | | $ | 32 | | | 36 | % |
General and administrative | | | | | | | |
Loan origination expenses | 16 | | | 17 | | | (1) | | | (6) | % |
Corporate and other general and administrative expenses | 16 | | | 13 | | | 3 | | | 23 | % |
Marketing and professional service fees | 11 | | | 21 | | | (10) | | | (48) | % |
Depreciation and amortization | 4 | | | 6 | | | (2) | | | (33) | % |
| | | | | | | |
Total general and administrative | 47 | | | 57 | | | (10) | | | (18) | % |
Total expenses - Originations | $ | 167 | | | $ | 145 | | | $ | 22 | | | 15 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Service related, net - Originations | $ | 57 |
| | $ | 10 |
| | | $ | 36 |
| | $ | 46 |
| | $ | 11 |
| | 24 | % |
Net gain on mortgage loans held for sale | | | | | | | | | | | | |
Gain on loans originated and sold | 286 |
| | 36 |
| | | 113 |
| | 149 |
| | 137 |
| | 92 | % |
Fair value adjustment on loans held for sale | 19 |
| | (8 | ) | | | — |
| | (8 | ) | | 27 |
| | (338 | )% |
Mark-to-market on locks and commitments(2) | 105 |
| | (2 | ) | | | 1 |
| | (1 | ) | | 106 |
| | (10,600 | )% |
Mark-to-market on derivative/hedges | 5 |
| | 10 |
| | | 1 |
| | 11 |
| | (6 | ) | | (55 | )% |
Capitalized servicing rights | 287 |
| | 41 |
| | | 156 |
| | 197 |
| | 90 |
| | 46 | % |
Provision for repurchase reserves, net of release | (15 | ) | | (1 | ) | | | (1 | ) | | (2 | ) | | (13 | ) | | 650 | % |
Total net gain on mortgage loans held for sale | 687 |
| | 76 |
| | | 270 |
| | 346 |
| | 341 |
| | 99 | % |
Total revenues - Originations | $ | 744 |
| | $ | 86 |
| | | $ | 306 |
| | $ | 392 |
| | $ | 352 |
| | 90 | % |
| | | | | | | | | | | | |
Key Metrics | | | | | | | | | | | | |
Consumer direct lock pull through adjusted volume(3) | $ | 12,211 |
| | $ | 1,524 |
| | | $ | 6,100 |
| | $ | 7,624 |
| | $ | 4,587 |
| | 60 | % |
Other locked pull through adjusted volume(3) | 17,645 |
| | 1,897 |
| | | 5,807 |
| | 7,704 |
| | 9,941 |
| | 129 | % |
Total pull through adjusted volume | $ | 29,856 |
| | $ | 3,421 |
| | | $ | 11,907 |
| | $ | 15,328 |
| | $ | 14,528 |
| | 95 | % |
Funded volume | $ | 27,623 |
| | $ | 3,459 |
| | | $ | 12,317 |
| | $ | 15,776 |
| | $ | 11,847 |
| | 75 | % |
Volume of loans sold | $ | 27,474 |
| | $ | 3,454 |
| | | $ | 12,915 |
| | $ | 16,369 |
| | $ | 11,105 |
| | 68 | % |
Recapture percentage | 24.8 | % | | 22.8 | % | | | 23.8 | % | | 23.6 | % | | 1.2 | % | | 5 | % |
Purchase as a percentage of funded volume | 46.7 | % | | 52.8 | % | | | 46.7 | % | | 48.0 | % | | (1.3 | )% | | (3 | )% |
Value of capitalized servicing on retained settlements | 149 bps |
| | 140 bps |
| | | 141 bps |
| | 140 bps |
| | 9 bps |
| | 6 | % |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
| |
(2)
| Mark-to-market on locks and commitments includes our fair value mark-to-market adjustments on IRLCs. |
| |
(3)
| Pull through adjusted volume represents the expected funding from locks taken during the period. |
Total revenues increased for the nine months ended September 30, 2019 compared to the same period in 2018, on a combined basis, driven by the higher volumes in a declining interest rate environment and the incremental volumes associated with the Pacific Union acquisition, which occurred in February 2019. Total revenue increased 90% or $352 period over period as pull through adjusted lock volume increased 95% during the same period.
|
| | | | |
Table 23. Originations - Expenses |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Salaries, wages and benefits | $ | 104 |
| | $ | 39 |
| | | $ | 21 |
| | $ | 60 |
| | $ | 44 |
| | 73 | % |
General and administrative | | | | | | | | | | | | |
Loan origination expenses | 16 |
| | 9 |
| | | 5 |
| | 14 |
| | 2 |
| | 14 | % |
Corporate and other general and administrative expenses | 16 |
| | 7 |
| | | 3 |
| | 10 |
| | 6 |
| | 60 | % |
Marketing and professional service fees | 12 |
| | 9 |
| | | 4 |
| | 13 |
| | (1 | ) | | (8 | )% |
Depreciation and amortization | 4 |
| | 2 |
| | | 1 |
| | 3 |
| | 1 |
| | 33 | % |
Loss on impairment of assets | 3 |
| | — |
| | | — |
| | — |
| | 3 |
| | 100 | % |
Total general and administrative | 51 |
| | 27 |
| | | 13 |
| | 40 |
| | 11 |
| | 28 | % |
Total expenses - Originations | $ | 155 |
| | $ | 66 |
| | | $ | 34 |
| | $ | 100 |
| | $ | 55 |
| | 55 | % |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Total expenses for the three months ended SeptemberJune 30, 20192020 increased when compared to the same period in 2018, on a combined basis,2019 primarily due to growth in originationsorigination volumes, which was driven by the low interest rate environmentenvironment. The origination volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs. The increase in salaries, wages and benefits was partially offset by a decrease in marketing and professional service fee expenses which were higher in 2019 due to a $10 legal reserve.
| | |
Table 22.1 Originations - Expenses |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Salaries, wages and benefits | $ | 237 | | | $ | 157 | | | $ | 80 | | | 51 | % |
General and administrative | | | | | | | |
Loan origination expenses | 32 | | | 27 | | | 5 | | | 19 | % |
Corporate and other general and administrative expenses | 34 | | | 27 | | | 7 | | | 26 | % |
Marketing and professional service fees | 23 | | | 29 | | | (6) | | | (21) | % |
Depreciation and amortization | 7 | | | 9 | | | (2) | | | (22) | % |
| | | | | | | |
Total general and administrative | 96 | | | 92 | | | 4 | | | 4 | % |
Total expenses - Originations | $ | 333 | | | $ | 249 | | | $ | 84 | | | 34 | % |
Total expenses for the incrementalsix months ended June 30, 2020 increased when compared to the same period in 2019 primarily due to growth in origination volumes, associated withwhich was driven by the Pacific Union acquisition.low interest rate environment. The originationsorigination volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs, and loan origination expenses. In addition, corporate and other general and administrative expenses which is volume driven.increased during the six months ended June 30, 2020 primarily driven by higher outsourcing costs, partially offset by a decrease in marketing and professional service fee expenses. Marketing and professional service fee expenses were higher in 2019 primarily due to a $10 legal reserve.
The tables below summarize other income (expenses), net, for the Originations segment: |
| | | | |
Table 23.1. Originations - Expenses |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Salaries, wages and benefits | $ | 261 |
| | $ | 39 |
| | | $ | 148 |
| | $ | 187 |
| | $ | 74 |
| | 40 | % |
General and administrative | | | | | | | | | | | | |
Loan origination expenses | 43 |
| | 9 |
| | | 32 |
| | 41 |
| | 2 |
| | 5 | % |
Corporate and other general and administrative expenses | 43 |
| | 7 |
| | | 26 |
| | 33 |
| | 10 |
| | 30 | % |
Marketing and professional service fees | 41 |
| | 9 |
| | | 32 |
| | 41 |
| | — |
| | — | % |
Depreciation and amortization | 13 |
| | 2 |
| | | 7 |
| | 9 |
| | 4 |
| | 44 | % |
Loss on impairment of assets | 3 |
| | — |
| | | — |
| | — |
| | 3 |
| | 100 | % |
Total general and administrative | 143 |
| | 27 |
| | | 97 |
| | 124 |
| | 19 |
| | 15 | % |
Total expenses - Originations | $ | 404 |
| | $ | 66 |
| | | $ | 245 |
| | $ | 311 |
| | $ | 93 |
| | 30 | % |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Total expenses for the nine months ended September 30, 2019 increased when compared to the same period in 2018, on a combined basis, primarily due to growth in volumes, which was driven by the low interest rate environment and the incremental volumes associated with the Pacific Union acquisition. The volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs, and loan origination expenses, which is volume driven. In addition, loan origination expenses were relatively flat period over period as the costs attributable to higher volume were offset by expense reduction initiatives. Corporate expenses increased period over period primarily driven by the Pacific Union acquisition.
|
| | | | |
Table 24.23. Originations - Other Income (Expenses), Net |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Interest income | $ | 19 | | | $ | 23 | | | $ | (4) | | | (17) | % |
Interest expense | (13) | | | (25) | | | 12 | | | (48) | % |
Other income, net | — | | | 1 | | | (1) | | | (100) | % |
Total other income (expenses), net - Originations | $ | 6 | | | $ | (1) | | | $ | 7 | | | (700) | % |
| | | | | | | |
Weighted average note rate - mortgage loans held for sale | 3.3 | % | | 4.4 | % | | (1.1) | % | | (25) | % |
Weighted average cost of funds (excluding facility fees) | 2.6 | % | | 4.3 | % | | (1.7) | % | | (40) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Interest income | $ | 24 |
| | $ | 10 |
| | | $ | 6 |
| | $ | 16 |
| | $ | 8 |
| | 50 | % |
Interest expense | (24 | ) | | (10 | ) | | | (6 | ) | | (16 | ) | | (8 | ) | | 50 | % |
Other income | (1 | ) | | 1 |
| | | — |
| | 1 |
| | (2 | ) | | (200 | )% |
Total other income, net - Originations | $ | (1 | ) | | $ | 1 |
| | | $ | — |
| | $ | 1 |
| | $ | (2 | ) | | (200 | )% |
| | | | | | | | | | | | |
Weighted average note rate - mortgage loans held for sale | 4.1 | % | | 4.8 | % | | | 4.8 | % | | 4.8 | % | | (0.7 | )% | | (15 | )% |
Weighted average cost of funds (excluding facility fees) | 3.8 | % | | 4.5 | % | | | 4.2 | % | | 4.4 | % | | (0.6 | )% | | (14 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Interest income relates primarily to mortgage loans held for sale. Interest expense is associated with the warehouse facilities utilized to finance newly originated loans.
Interest income for the three months ended SeptemberJune 30, 2020 decreased when compared to the same period in 2019 primarily driven by a lower average note rate on mortgage loans held for sale, partially offset by higher funded volume. The decrease in interest income was offset by a decrease in interest expense due to a lower cost of funds.
| | |
Table 23.1 Originations - Other Income, Net |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Interest income | $ | 53 | | | $ | 40 | | | $ | 13 | | | 33 | % |
Interest expense | (40) | | | (43) | | | 3 | | | (7) | % |
Other income, net | — | | | 5 | | | (5) | | | (100) | % |
Total other income, net - Originations | $ | 13 | | | $ | 2 | | | $ | 11 | | | 550 | % |
| | | | | | | |
Weighted average note rate - mortgage loans held for sale | 3.5 | % | | 4.6 | % | | (1.1) | % | | (24) | % |
Weighted average cost of funds (excluding facility fees) | 2.9 | % | | 4.5 | % | | (1.6) | % | | (36) | % |
Interest income for the six months ended June 30, 2020 increased when compared to the same period in 2018, on a combined basis,2019 primarily driven by higher funded volume.volume, partially offset by lower average note rate on mortgage loans held for sale. The increase in interest income was partially offset by an increasea decrease in interest expense due to higher cost of funds from an increase in originations volume.
|
| | | | |
Table 24.1. Originations - Other Income (Expenses), Net |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Interest income | $ | 64 |
| | $ | 10 |
| | | $ | 38 |
| | $ | 48 |
| | $ | 16 |
| | 33 | % |
Interest expense | (67 | ) | | (10 | ) | | | (37 | ) | | (47 | ) | | (20 | ) | | 43 | % |
Other income | 4 |
| | 1 |
| | | — |
| | 1 |
| | 3 |
| | 300 | % |
Total other income, net - Originations | $ | 1 |
| | $ | 1 |
| | | $ | 1 |
| | $ | 2 |
| | $ | (1 | ) | | (50 | )% |
| | | | | | | | | | | | |
Weighted average note rate - mortgage loans held for sale | 4.4 | % | | 4.8 | % | | | 4.5 | % | | 4.6 | % | | (0.2 | )% | | (4 | )% |
Weighted average cost of funds (excluding facility fees) | 4.3 | % | | 4.5 | % | | | 4.2 | % | | 4.3 | % | | — | % | | — | % |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Interestother income, for the nine months ended September 30, 2019 increased when compared to the same period in 2018, on a combined basis, primarily driven by higher funded volume. The increase in interest income was offset by an increase in interest expense due to higher cost of funds from an increase in originations volume.net. Other income, increasednet, was higher in the nine months ended September 30, 2019 when compared to the same period in 2018, on a combined basis, due to the recognition of incentives we received related to our financing of certain loans satisfying certain consumercustomer relief characteristics. In September 2018, we entered into a master repurchase agreement that provided us with incentives to finance mortgage loans satisfying certain consumer relief characteristics as provided in the agreement. In the nine months ended September 30, 2019, weWe recorded $4$5 in other income, net, related to such incentives.incentives for the six months ended June 30, 2019. The master purchaserepurchase agreement expired during the third quarter of 2019.
Xome is a real estate data and services company that provides services for mortgage originators and servicers, including Mr. Cooper, as well as mortgage and real estate investors. Xome is strategically important because it generates fee income that complements our servicing and origination businesses without requiring a significant amount of capital or exposing us to the same level of interest rate or credit risk.
Xome is organized into three divisions: Exchange, Services and Data/Technology.
•The Exchange division consists of the Xome.com auction platform which utilizes proprietary technology designed to provide efficient execution for sales of foreclosed properties.
•The Services division includes title, escrow, collateral valuation and field services related to real estate investments or transactions including purchases, sales, refinances and defaults. Services includes the business of AMS, which we acquired in August 2018.
•The Data/Technology division sells data or softwarecontains a diversified set of businesses that provide technology solutions to real estate service providers, MLS organizations, data aggregators, real estate or mortgage investors and mortgage lenders or servicers. Data/Technology contains Affinity Solutions, which providesa variety of investors. This includes providing aggregation, standardization and licensing for one of the nation’s largest set of MLS, organizations, public records and neighborhood demographic data, Quantarium, which provides artificial intelligence-powered valuation and other real estate data and analytics, and Xome Signings, which provides technology-enabled notary services.data.
The charts below set forth the Xome’s revenue portfolio, units oftotal revenues ($ in Millions), Exchange property listingproperties sold, and units of Services completed orders.orders:
The following tables set forth the results of operations for the Xome segment.
|
| | | | |
Table 25.24. Xome Segment Results of Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Xome - Operations | | | | | | | |
Total revenues | $ | 106 | | | $ | 108 | | | $ | (2) | | | (2) | % |
Total expenses | 95 | | | 101 | | | (6) | | | (6) | % |
Total other income, net | 1 | | | — | | | 1 | | | 100 | % |
Income before income tax expense | $ | 12 | | | $ | 7 | | | $ | 5 | | | 71 | % |
Pre-tax margin | 11.3 | % | | 6.5 | % | | 4.8 | % | | 74 | % |
| | | | | | | |
Xome - Revenues | | | | | | | |
Exchange | $ | 9 | | | $ | 20 | | | $ | (11) | | | (55) | % |
Services | 94 | | | 82 | | | 12 | | | 15 | % |
Data/Technology | 3 | | | 6 | | | (3) | | | (50) | % |
Total revenues - Xome | $ | 106 | | | $ | 108 | | | $ | (2) | | | (2) | % |
| | | | | | | |
Key Metrics | | | | | | | |
Exchange properties sold | 1,191 | | | 2,645 | | | (1,454) | | | (55) | % |
Average Exchange properties under management | 17,438 | | | 6,693 | | | 10,745 | | | 161 | % |
Services completed orders | 423,974 | | | 417,510 | | | 6,464 | | | 2 | % |
Percentage of revenue earned from third-party customers | 53.3 | % | | 52.9 | % | | 0.4 | % | | 1 | % |
| | | | | | | |
Xome - Expenses | | | | | | | |
Salaries, wages and benefits | $ | 33 | | | $ | 36 | | | $ | (3) | | | (8) | % |
General and administrative | | | | | | | |
Operational expenses | 59 | | | 62 | | | (3) | | | (5) | % |
Depreciation and amortization | 3 | | | 3 | | | — | | | — | % |
Total general and administrative | 62 | | | 65 | | | (3) | | | (5) | % |
Total expenses - Xome | $ | 95 | | | $ | 101 | | | $ | (6) | | | (6) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Xome - Operations | | | | | | | | | | | | |
Revenues | $ | 112 |
| | $ | 73 |
| | | $ | 22 |
| | $ | 95 |
| | $ | 17 |
| | 18 | % |
Expenses | 101 |
| | 71 |
| | | 19 |
| | 90 |
| | 11 |
| | 12 | % |
Other income (expenses), net | 3 |
| | (1 | ) | | | — |
| | (1 | ) | | 4 |
| | 400 | % |
Income before income tax expense | $ | 14 |
| | $ | 1 |
| | | $ | 3 |
| | $ | 4 |
| | $ | 10 |
| | 250 | % |
Income before taxes margin - Xome | 12.5 | % | | 1.4 | % | | | 13.6 | % | | 4.2 | % | | 8.3 | % | | 198 | % |
| | | | | | | | | | | | |
Xome - Revenues | | | | | | | | | | | | |
Exchange | $ | 19 |
| | $ | 15 |
| | | $ | 9 |
| | $ | 24 |
| | $ | (5 | ) | | (21 | )% |
Services | 87 |
| | 54 |
| | | 11 |
| | 65 |
| | 22 |
| | 34 | % |
Data/Technology | 6 |
| | 4 |
| | | 2 |
| | 6 |
| | — |
| | — | % |
Total revenues - Xome | $ | 112 |
| | $ | 73 |
| | | $ | 22 |
| | $ | 95 |
| | $ | 17 |
| | 18 | % |
| | | | | | | | | | | | |
Key Metrics | | | | | | | | | | | | |
Exchange property listings sold | 2,453 |
| | 1,730 |
| | | 928 |
| | 2,658 |
| | (205 | ) | | (8 | )% |
Average Exchange property listings | 6,688 |
| | 5,520 |
| | | 5,691 |
| | 5,577 |
| | 1,111 |
| | 20 | % |
Services completed orders | 429,128 |
| | 276,937 |
| | | 35,599 |
| | 312,536 |
| | 116,592 |
| | 37 | % |
Percentage of revenue earned from third-party customers | 53.4 | % | | 56.4 | % | | | 26.0 | % | | 49.3 | % | | 4.1 | % | | 8 | % |
| | | | | | | | | | | | |
Xome - Expenses | | | | | | | | | | | | |
Salaries, wages and benefits | $ | 37 |
| | $ | 29 |
| | | $ | 9 |
| | $ | 38 |
| | $ | (1 | ) | | (3 | )% |
General and administrative | | | | | | | | | | | | |
Operational expenses | 60 |
| | 40 |
| | | 9 |
| | 49 |
| | 11 |
| | 22 | % |
Depreciation and amortization | 4 |
| | 2 |
| | | 1 |
| | 3 |
| | 1 |
| | 33 | % |
Total general and administrative | 64 |
| | 42 |
| | | 10 |
| | 52 |
| | 12 |
| | 23 | % |
Total expenses - Xome | $ | 101 |
| | $ | 71 |
| | | $ | 19 |
| | $ | 90 |
| | $ | 11 |
| | 12 | % |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Income before income tax expense increased for the three months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on2019 primarily due to a combined basis,decrease in total expenses. The decrease in total expenses was due to a decrease in both salaries, wages and benefits and operational expenses primarily driven by operational efficiencies. Total revenues remained relatively flat during the three months ended June 30, 2020 as compared to the same period in 2019 primarily due to a decrease in Exchange revenues attributable to a decrease in defaults and foreclosures nationwide, offset by an increase in Services revenues from higher volume of units for title and close, and field services.
| | |
Table 24.1 Xome Segment Results of Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Xome - Operations | | | | | | | |
Total revenues | $ | 212 | | | $ | 204 | | | $ | 8 | | | 4 | % |
Total expenses | 191 | | | 200 | | | (9) | | | (5) | % |
Total other income, net | 2 | | | 11 | | | (9) | | | (82) | % |
Income before income tax expense | $ | 23 | | | $ | 15 | | | $ | 8 | | | 53 | % |
Pre-tax margin | 10.8 | % | | 7.4 | % | | 3.4 | % | | 46 | % |
| | | | | | | |
Xome - Revenues | | | | | | | |
Exchange | $ | 25 | | | $ | 40 | | | $ | (15) | | | (38) | % |
Services | 179 | | | 153 | | | 26 | | | 17 | % |
Data/Technology | 8 | | | 11 | | | (3) | | | (27) | % |
Total revenues - Xome | $ | 212 | | | $ | 204 | | | $ | 8 | | | 4 | % |
| | | | | | | |
Key Metrics | | | | | | | |
Exchange properties sold | 3,305 | | | 5,066 | | | (1,761) | | | (35) | % |
Average Exchange properties under management | 17,608 | | | 6,484 | | | 11,124 | | | 172 | % |
Services completed orders | 832,708 | | | 797,095 | | | 35,613 | | | 4 | % |
Percentage of revenue earned from third-party customers | 54.0 | % | | 53.0 | % | | 1.0 | % | | 2 | % |
| | | | | | | |
Xome - Expenses | | | | | | | |
Salaries, wages and benefits | $ | 68 | | | $ | 74 | | | $ | (6) | | | (8) | % |
General and administrative | | | | | | | |
Operational expenses | 117 | | | 119 | | | (2) | | | (2) | % |
Depreciation and amortization | 6 | | | 7 | | | (1) | | | (14) | % |
Total general and administrative | 123 | | | 126 | | | (3) | | | (2) | % |
Total expenses - Xome | $ | 191 | | | $ | 200 | | | $ | (9) | | | (5) | % |
Income before income tax expense increased for the six months ended June 30, 2020 as compared to the same period in 2019 due to an increase in revenues.total revenues and decrease in total expenses, partially offset by a decrease in total other income, net. The increase in total revenues was driven by an increase in Services revenues related to the AMS acquisition completed in August 2018, which contributed tofrom higher volumes of units for valuationtitle and close, and field services. In addition, other income increased primarily due to the $4 changeservices, partially offset by a decrease in fair value of the contingent consideration for the acquisition of AMS. Partially offsetting the increase in revenues and other income was an increase in expenses driven by operational expenses related to AMS, which was acquired in August 2018.
Exchange revenues for the three months ended September 30, 2019 decreased as compared to the same period in 2018, on a combined basis, primarily due to the decrease in defaults and foreclosures nationwide. Despite the declineThe decrease in total property listings sold, revenues from third-party customers for the three months ended September 30, 2019 increased significantlyexpenses was primarily due to 26% from 15%a decrease in 2018 for the Exchange division.
Services revenues increased for the three months ended September 30, 2019 as comparedsalaries, wages and benefits driven by operational efficiencies. The decrease in total other income, net, was due to the same periodchange in 2018, on a combined basis, primarily due tofair value of the contingent consideration of $11 recorded in 2019 in connection with the acquisition of AMS.
Operational expenses increased for the three months ended September 30, 2019 as compared to the same period in2018, on a combined basis, primarily driven by the acquisition of AMS.
|
| | | | | | | | | | | | | |
Table 25.1. XomeCorporate/Other Segment Results of Operations |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Xome - Operations | | | | | | | | | | | | |
Revenues | $ | 316 |
| | $ | 73 |
| | | $ | 149 |
| | $ | 222 |
| | $ | 94 |
| | 42 | % |
Expenses | 301 |
| | 71 |
| | | 123 |
| | 194 |
| | 107 |
| | 55 | % |
Other income (expenses), net | 14 |
| | (1 | ) | | | 9 |
| | 8 |
| | 6 |
| | 75 | % |
Income before income tax expense | $ | 29 |
| | $ | 1 |
| | | $ | 35 |
| | $ | 36 |
| | $ | (7 | ) | | (19 | )% |
Income before taxes margin - Xome | 9.2 | % | | 1.4 | % | | | 23.5 | % | | 16.2 | % | | (7.0 | )% | | (43 | )% |
| | | | | | | | | | | | |
Xome - Revenue | | | | | | | | | | | | |
Exchange | $ | 59 |
| | $ | 15 |
| | | $ | 62 |
| | $ | 77 |
| | $ | (18 | ) | | (23 | )% |
Services | 240 |
| | 54 |
| | | 74 |
| | 128 |
| | 112 |
| | 88 | % |
Data/Technology | 17 |
| | 4 |
| | | 13 |
| | 17 |
| | — |
| | — | % |
Total revenues - Xome | $ | 316 |
| | $ | 73 |
| | | $ | 149 |
| | $ | 222 |
| | $ | 94 |
| | 42 | % |
| | | | | | | | | | | | |
Key Metrics | | | | | | | | | | | | |
Exchange property listings sold | 7,519 |
| | 1,730 |
| | | 6,920 |
| | 8,650 |
| | (1,131 | ) | | (13 | )% |
Average Exchange property listings | 6,552 |
| | 5,520 |
| | | 6,567 |
| | 6,335 |
| | 217 |
| | 3 | % |
Services completed orders | 1,226,223 |
| | 276,937 |
| | | 264,031 |
| | 540,968 |
| | 685,255 |
| | 127 | % |
Percentage of revenue earned from third-party customers | 53.1 | % | | 56.4 | % | | | 27.8 | % | | 37.2 | % | | 15.9 | % | | 43 | % |
| | | | | | | | | | | | |
Xome - Expenses | | | | | | | | | | | | |
Salaries, wages and benefits | $ | 111 |
| | $ | 29 |
| | | $ | 58 |
| | $ | 87 |
| | $ | 24 |
| | 28 | % |
General and administrative | | | | | | | | | | | | |
Operational expenses | 179 |
| | 40 |
| | | 58 |
| | 98 |
| | 81 |
| | 83 | % |
Depreciation and amortization | 11 |
| | 2 |
| | | 7 |
| | 9 |
| | 2 |
| | 22 | % |
Total general and administrative | 190 |
| | 42 |
| | | 65 |
| | 107 |
| | 83 |
| | 78 | % |
Total expenses - Xome | $ | 301 |
| | $ | 71 |
| | | $ | 123 |
| | $ | 194 |
| | $ | 107 |
| | 55 | % |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Income before income tax expense decreased for the nine months ended September 30, 2019 as compared to the same period in 2018, on a combined basis, primarily driven by an increase in expenses, partially offset by an increase in revenues and other income (expenses), net. The increase in expenses is primarily related to AMS, which was acquired in August 2018. The increase in revenues is primarily due to the AMS acquisition, which added to higher volumes of units for valuation and field services. Other income (expenses), net increased primarily due to the $15 change in the contingent consideration for the acquisition of AMS for the nine months ended September 30, 2019.
Exchange revenues for the nine months ended September 30, 2019 decreased as compared to the same period in 2018, on a combined basis, primarily as a result of lower foreclosure sales and inventories across the industry and nation. Although total property listings sold declined in 2019, revenues from third-party customers for the nine months ended September 30, 2019 increased significantly to 24% from 15% in 2018 for the Exchange division.
Services revenues increased for the nine months ended September 30, 2019 as compared to the same period in 2018, on a combined basis, primarily as a result of the August 2018 acquisition of AMS.
Our Corporate/Other segment records corporate expenses that are not directly attributable to our operating segments, interest expense on our unsecured senior notes, and income or loss from our legacy portfolio of non-prime and non-conforming residential mortgage loans that were transferred to a securitization trust (Trust 2009-A) in 2009. We collapsed Trust 2009-A and executed the sale of the loans held in the trust in September 2019.
The following tables set forth the results of operations for the Corporate/Other segment.
|
| | | | |
Table 26.25. Corporate/Other Segment Results of Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Corporate/Other - Operations | | | | | | | |
Total revenues | $ | (1) | | | $ | — | | | $ | (1) | | | (100) | % |
Total expenses | 35 | | | 57 | | | (22) | | | (39) | % |
Total other expenses, net | (48) | | | (50) | | | 2 | | | (4) | % |
Loss before income tax benefit - Corporate/Other | $ | (84) | | | $ | (107) | | | $ | 23 | | | (21) | % |
| | | | | | | |
Corporate/Other - Expenses | | | | | | | |
Salaries, wages and benefits | $ | 20 | | | $ | 24 | | | $ | (4) | | | (17) | % |
General and administrative | | | | | | | |
Operational expenses | 9 | | | 22 | | | (13) | | | (59) | % |
Depreciation and amortization | 6 | | | 11 | | | (5) | | | (45) | % |
| | | | | | | |
Total general and administrative | 15 | | | 33 | | | (18) | | | (55) | % |
Total expenses - Corporate/Other | $ | 35 | | | $ | 57 | | | $ | (22) | | | (39) | % |
| | | | | | | |
Corporate/Other - Other Expenses, Net | | | | | | | |
Total interest income | $ | — | | | $ | 3 | | | $ | (3) | | | (100) | % |
Interest expense | | | | | | | |
Interest expense on unsecured senior notes | (47) | | | (51) | | | 4 | | | (8) | % |
Other interest expense | — | | | (2) | | | 2 | | | 100 | % |
Total interest expense | (47) | | | (53) | | | 6 | | | (11) | % |
Other expenses, net | (1) | | | — | | | (1) | | | (100) | % |
Total other expenses, net - Corporate/Other | $ | (48) | | | $ | (50) | | | $ | 2 | | | (4) | % |
| | | | | | | |
Weighted average cost - unsecured senior notes | 7.9 | % | | 7.9 | % | | — | % | | — | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Three Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | One Month Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Corporate/Other - Operations | | | | | | | | | | | | |
Revenues | $ | 11 |
| | $ | — |
| | | $ | — |
| | $ | — |
| | $ | 11 |
| | 100 | % |
Expenses | 53 |
| | 34 |
| | | 63 |
| | 97 |
| | (44 | ) | | (45 | )% |
Other income (expenses), net | (52 | ) | | (35 | ) | | | (11 | ) | | (46 | ) | | (6 | ) | | 13 | % |
Loss before income tax benefit | $ | (94 | ) | | $ | (69 | ) | | | $ | (74 | ) | | $ | (143 | ) | | $ | 49 |
| | (34 | )% |
| | | | | | | | | | | | |
Corporate/Other - Expenses | | | | | | | | | | | | |
Salaries, wages and benefits | $ | 24 |
| | $ | 19 |
| | | $ | 14 |
| | $ | 33 |
| | $ | (9 | ) | | (27 | )% |
General and administrative | | | | | | | | | | | | |
Operational expenses | 20 |
| | 8 |
| | | 49 |
| | 57 |
| | (37 | ) | | (65 | )% |
Depreciation and amortization | 9 |
| | 7 |
| | | — |
| | 7 |
| | 2 |
| | 29 | % |
Total general and administrative | 29 |
| | 15 |
| | | 49 |
| | 64 |
| | (35 | ) | | (55 | )% |
Total expenses - Corporate/Other | $ | 53 |
| | $ | 34 |
| | | $ | 63 |
| | $ | 97 |
| | $ | (44 | ) | | (45 | )% |
| | | | | | | | | | | | |
Corporate/Other - Other Income (Expenses), Net | | | | | | | | | | | | |
Interest income, legacy portfolio | $ | 1 |
| | $ | 2 |
| | | $ | 1 |
| | $ | 3 |
| | $ | (2 | ) | | (67 | )% |
Other interest income | 1 |
| | — |
| | | — |
| | — |
| | 1 |
| | 100 | % |
Total interest income | 2 |
| | 2 |
| | | 1 |
| | 3 |
| | (1 | ) | | (33 | )% |
| | | | | | | | | | | | |
Interest expense, legacy portfolio | — |
| | — |
| | | (1 | ) | | (1 | ) | | 1 |
| | 100 | % |
Interest expense on unsecured senior notes | (51 | ) | | (36 | ) | | | (11 | ) | | (47 | ) | | (4 | ) | | 9 | % |
Other interest expense | (1 | ) | | (1 | ) | | | — |
| | (1 | ) | | — |
| | — | % |
Total interest expense | (52 | ) | | (37 | ) | | | (12 | ) | | (49 | ) | | (3 | ) | | 6 | % |
Other income (expense) | (2 | ) | | — |
| | | — |
| | — |
| | (2 | ) | | (100 | )% |
Other income (expenses), net - Corporate/Other | $ | (52 | ) | | $ | (35 | ) | | | $ | (11 | ) | | $ | (46 | ) | | $ | (6 | ) | | 13 | % |
| | | | | | | | | | | | |
Weighted average cost - unsecured senior notes | 7.9 | % | | 7.9 | % | | | 7.9 | % | | 7.9 | % | | — | % | | — | % |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Loss before income tax benefit decreased in the three months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019 primarily due to a decrease in total expenses. ExpensesTotal expenses were higher in 2018, on a combined basis, primarily due to the Nationstar acquisition. Partially offsetting the decrease in expenses, was higher legal reserves recorded in 2019. In addition, revenues increased in the three months ended SeptemberJune 30, 2019 due to acquisition and integration expenses related to the Pacific Union acquisition and the Seterus acquisition in February 2019. Depreciation and amortization decreased in the three months ended June 30, 2020 as compared to the same period in 2018, on a combined basis,2019 primarily due to the gain recognized on the collapsea decrease in amortization of Trust 2009-A, our legacy portfolio, and sale of the loans held in the trust.intangible assets.
Other income (expenses),expenses, net for the Corporate/Other segment consists of interest expense on our unsecured senior notes, the interest income and expense from our legacy portfolio, and other interest related to a revolving facility used for general corporate purposes.
TotalThe change in total other income (expenses),expenses, net, declined in the three months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019 was primarily due to an increasea decrease in interest expense on unsecured senior notes as a result of a higher debt balancethe repayment and higher borrowing rates underredemption of the new2021 and 2022 unsecured senior notes, that were executedpartially offset by the issuance of the 2027 unsecured senior notes which was completed in July 2018 to fund the Merger with Nationstar.
January 2020.
|
| | | | |
Table 26.1.25.1 Corporate/Other Segment Results of Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Corporate/Other - Operations | | | | | | | |
Total revenues | $ | — | | | $ | — | | | $ | — | | | — | % |
Total expenses | 68 | | | 102 | | | (34) | | | (33) | % |
Total other expenses, net | (99) | | | (105) | | | 6 | | | (6) | % |
Loss before income tax benefit - Corporate/Other | $ | (167) | | | $ | (207) | | | $ | 40 | | | (19) | % |
| | | | | | | |
Corporate/Other - Expenses | | | | | | | |
Salaries, wages and benefits | $ | 28 | | | $ | 46 | | | $ | (18) | | | (39) | % |
General and administrative | | | | | | | |
Operational expenses | 16 | | | 35 | | | (19) | | | (54) | % |
Depreciation and amortization | 16 | | | 21 | | | (5) | | | (24) | % |
Loss on impairment of assets | 8 | | | — | | | 8 | | | 100 | % |
Total general and administrative | 40 | | | 56 | | | (16) | | | (29) | % |
Total expenses - Corporate/Other | $ | 68 | | | $ | 102 | | | $ | (34) | | | (33) | % |
| | | | | | | |
Corporate/Other - Other Expenses, Net | | | | | | | |
Total interest income | $ | 1 | | | $ | 5 | | | $ | (4) | | | (80) | % |
Interest expense | | | | | | | |
Interest expense on unsecured senior notes | (98) | | | (102) | | | 4 | | | (4) | % |
Other interest expense | (1) | | | (8) | | | 7 | | | (88) | % |
Total interest expense | (99) | | | (110) | | | 11 | | | (10) | % |
Other expenses, net | (1) | | | — | | | (1) | | | (100) | % |
Total other expenses, net - Corporate/Other | $ | (99) | | | $ | (105) | | | $ | 6 | | | (6) | % |
| | | | | | | |
Weighted average cost - unsecured senior notes | 7.9 | % | | 7.9 | % | | — | % | | — | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Corporate/Other - Operations | | | | | | | | | | | | |
Revenues | $ | 11 |
| | $ | — |
| | | $ | 1 |
| | $ | 1 |
| | $ | 10 |
| | 1,000 | % |
Expenses | 155 |
| | 34 |
| | | 103 |
| | 137 |
| | 18 |
| | 13 | % |
Other income (expenses), net | (157 | ) | | (35 | ) | | | (78 | ) | | (113 | ) | | (44 | ) | | 39 | % |
Loss before income tax benefit | $ | (301 | ) | | $ | (69 | ) | | | $ | (180 | ) | | $ | (249 | ) | | $ | (52 | ) | | 21 | % |
| | | | | | | | | | | | |
Corporate/Other - Expenses | | | | | | | | | | | | |
Salaries, wages and benefits | $ | 70 |
| | $ | 19 |
| | | $ | 45 |
| | $ | 64 |
| | $ | 6 |
| | 9 | % |
General and administrative | | | | | | | | | | | | |
Operational expenses | 55 |
| | 8 |
| | | 54 |
| | 62 |
| | (7 | ) | | (11 | )% |
Depreciation and amortization | 30 |
| | 7 |
| | | 4 |
| | 11 |
| | 19 |
| | 173 | % |
Total general and administrative | 85 |
| | 15 |
| | | 58 |
| | 73 |
| | 12 |
| | 16 | % |
Total expenses - Corporate/Other | $ | 155 |
| | $ | 34 |
| | | $ | 103 |
| | $ | 137 |
| | $ | 18 |
| | 13 | % |
| | | | | | | | | | | | |
Corporate/Other - Other Income (Expenses), Net | | | | | | | | | | | | |
Interest income, legacy portfolio | $ | 6 |
| | $ | 2 |
| | | $ | 7 |
| | $ | 9 |
| | $ | (3 | ) | | (33 | )% |
Other interest income | 1 |
| | — |
| | | — |
| | — |
| | 1 |
| | 100 | % |
Total interest income | 7 |
| | 2 |
| | | 7 |
| | 9 |
| | (2 | ) | | (22 | )% |
| | | | | | | | | | | | |
Interest expense, legacy portfolio | (1 | ) | | — |
| | | (3 | ) | | (3 | ) | | 2 |
| | (67 | )% |
Interest expense on unsecured senior notes | (153 | ) | | (36 | ) | | | (77 | ) | | (113 | ) | | (40 | ) | | 35 | % |
Other interest expense | (8 | ) | | (1 | ) | | | (3 | ) | | (4 | ) | | (4 | ) | | 100 | % |
Total interest expense | (162 | ) | | (37 | ) | | | (83 | ) | | (120 | ) | | (42 | ) | | 35 | % |
Other income (expense) | (2 | ) | | — |
| | | (2 | ) | | (2 | ) | | — |
| | — | % |
Other income (expenses), net - Corporate/Other | $ | (157 | ) | | $ | (35 | ) | | | $ | (78 | ) | | $ | (113 | ) | | $ | (44 | ) | | 39 | % |
| | | | | | | | | | | | |
Weighted average cost - unsecured senior notes | 7.9 | % | | 7.9 | % | | | 7.4 | % | | 7.5 | % | | 0.4 | % | | 5 | % |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Loss before income tax benefit increased fordecreased in the ninesix months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019 primarily due to a declinedecrease in other income (expense), net.total expenses. Total other income (expenses), net declined primarilyexpenses were higher in the six months ended June 30, 2019 due to acquisition and integration expenses related to the Pacific Union acquisition and the Seterus acquisition in February 2019. The decrease in salaries, wage and benefits and operational expenses was partially offset by an increase$8 loss on impairment of assets in interest expense on unsecured senior notes, as a result of a higher debt balance and higher borrowing rates underconnection with an ancillary business in 2020.
The change in total other expenses, net, in the new unsecured senior notes that were executed in July 2018 to fund the Merger with Nationstar.
In addition, expenses increased during the ninesix months ended SeptemberJune 30, 20192020 as compared to the same period in 2018, on a combined basis,2019 was primarily due to increased expenses relateda decrease in other interest expense as a result of lower commitment and facility fees, which were higher in 2019 due to the Pacific Union and Seterus acquisitions and amortization of intangible assets related to the Merger with Nationstar.
Partially offsetting the decline in other income (expense), net and increase in expenses was an increase in revenues related to the gain recognized on the collapse of Trust 2009-A, our legacy portfolio, and sale of the loans held in the trust.
acquisition.
|
| | | | | | | | | | | | | |
Table 27. Legacy Portfolio CompositionChanges in Financial Position | | | | |
|
| | | |
| Successor |
| December 31, 2018 |
Performing - UPB | $ | 145 |
|
Nonperforming (90+ delinquency) - UPB | 27 |
|
REO - estimated fair value | 4 |
|
Total legacy portfolio | $ | 176 |
|
The following table sets forth the change in assets for the periods presented: |
| | | | | | | | | | | | | |
Table 26. Changes in Financial Position |
|
Assets | | | | |
Table 28. Changes in Assets |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 | | $ Change | | % Change |
Cash and cash equivalents | $ | 1,041 | | | $ | 329 | | | $ | 712 | | | 216 | % |
Mortgage servicing rights | 2,763 | | | 3,502 | | | (739) | | | (21) | % |
Advances and other receivables, net | 668 | | | 988 | | | (320) | | | (32) | % |
Reverse mortgage interests, net | 5,709 | | | 6,279 | | | (570) | | | (9) | % |
Mortgage loans held for sale at fair value | 3,179 | | | 4,077 | | | (898) | | | (22) | % |
Deferred tax assets, net | 1,391 | | | 1,345 | | | 46 | | | 3 | % |
Other | 2,549 | | | 1,785 | | | 764 | | | 43 | % |
Total assets | $ | 17,300 | | | $ | 18,305 | | | $ | (1,005) | | | (5) | % |
|
| | | | | | | | | | | | | | |
| Successor | | | | |
| September 30, 2019 | | December 31, 2018 | | $ Change | | % Change |
Cash and cash equivalents | $ | 371 |
| | $ | 242 |
| | $ | 129 |
| | 53 | % |
Mortgage servicing rights | 3,346 |
| | 3,676 |
| | (330 | ) | | (9 | )% |
Advances and other receivables, net | 967 |
| | 1,194 |
| | (227 | ) | | (19 | )% |
Reverse mortgage interests, net | 6,662 |
| | 7,934 |
| | (1,272 | ) | | (16 | )% |
Mortgage loans held for sale at fair value | 4,267 |
| | 1,631 |
| | 2,636 |
| | 162 | % |
Deferred tax asset, net | 1,032 |
| | 967 |
| | 65 |
| | 7 | % |
Other | 1,833 |
| | 1,329 |
| | 504 |
| | 38 | % |
Total assets | $ | 18,478 |
| | $ | 16,973 |
| | $ | 1,505 |
| | 9 | % |
Total assets as of SeptemberJune 30, 2019 increased by $1,5052020 decreased $1,005 or 9%5% compared with December 31, 20182019 primarily due to the increasedecrease in mortgage loans held for sale, and other, partially offset by decreases inmortgage servicing rights, reverse mortgage interests, mortgage servicing rights,net, and advances and other receivables.receivables, net. Mortgage loans held for sale increased in 2019 primarily attributable to the higher volumes in a declining interest rate environment and the incremental volumes associated with the Pacific Union acquisition,which occurred in February 2019. Other increaseddecreased $898 primarily due to $483a larger quantity of other assets relatedloans sold in 2020. Mortgage servicing rights decreased primarily due to the Pacific Union acquisition, as indicated in Note 2, Acquisitions, and $126a negative mark-to-market adjustment of right of use assets recorded in 2019 as a result of adoption of ASU 2016-02.$644 driven by declining interest rates. Reverse mortgage interests, net, decreased $1,272$570 primarily due to the collection on participating interests in HMBS. Mortgage servicing rights decreased in 2019 primarily due to a negative mark-to-market adjustment driven by declining interest rates. Advances and other receivables, net, decreased primarily due to recoveries on advances.advances through claim proceeds, customer payments and servicing transfers. The decrease in assets was partially offset by an increase in cash and cash equivalents, and other. Cash and cash equivalents was higher as of June 30, 2020 compared with December 31, 2019 primarily due to strong operating cash flow and additional funds drawn on our MSR facilities given the market risk at the end of the quarter in relation to the COVID-19 pandemic. Other increased primarily due to an increase in loans subject to repurchase by Ginnie Mae, which include loans in forbearance plans due to the impact of the COVID-19 pandemic and implementation of the CARES Act, and an increase in derivative financials instruments due to the low interest rate environment.
The following table sets forth the change in liabilities and stockholders’ equity for the periods presented: |
| | | | | | | | | | | | | |
Table 29.27. Changes in Liabilities and Stockholder’sStockholders’ Equity | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 | | $ Change | | % Change |
Unsecured senior notes, net | $ | 2,261 | | | $ | 2,366 | | | $ | (105) | | | (4) | % |
Advance facilities, net | 475 | | | 422 | | | 53 | | | 13 | % |
Warehouse facilities, net | 4,031 | | | 4,575 | | | (544) | | | (12) | % |
MSR related liabilities - nonrecourse at fair value | 1,173 | | | 1,348 | | | (175) | | | (13) | % |
Other nonrecourse debt, net | 4,707 | | | 5,286 | | | (579) | | | (11) | % |
Other | 2,508 | | | 2,077 | | | 431 | | | 21 | % |
Total liabilities | 15,155 | | | 16,074 | | | (919) | | | (6) | % |
Total stockholders’ equity | 2,145 | | | 2,231 | | | (86) | | | (4) | % |
Total liabilities and stockholders’ equity | $ | 17,300 | | | $ | 18,305 | | | $ | (1,005) | | | (5) | % |
|
| | | | | | | | | | | | | | |
| Successor | | | | |
| September 30, 2019 | | December 31, 2018 | | $ Change | | % Change |
Unsecured senior notes, net | $ | 2,464 |
| | $ | 2,459 |
| | $ | 5 |
| | — | % |
Advance facilities, net | 513 |
| | 595 |
| | (82 | ) | | (14 | )% |
Warehouse facilities, net | 4,802 |
| | 2,349 |
| | 2,453 |
| | 104 | % |
MSR related liabilities - nonrecourse at fair value | 1,328 |
| | 1,216 |
| | 112 |
| | 9 | % |
Other nonrecourse debt, net | 5,533 |
| | 6,795 |
| | (1,262 | ) | | (19 | )% |
Other liabilities | 2,071 |
| | 1,614 |
| | 457 |
| | 28 | % |
Total liabilities | 16,711 |
| | 15,028 |
| | 1,683 |
| | 11 | % |
Total stockholders’ equity | 1,767 |
| | 1,945 |
| | (178 | ) | | (9 | )% |
Total liabilities and stockholders’ equity | $ | 18,478 |
| | $ | 16,973 |
| | $ | 1,505 |
| | 9 | % |
Total stockholders’ equity at SeptemberJune 30, 20192020 decreased by $178$86 or 9%4% compared with the balance as of December 31, 20182019 primarily due to net loss of $191$98 during the ninesix months ended SeptemberJune 30, 2019.2020. Total liabilities at SeptemberJune 30, 2019 increased by $1,6832020 decreased $919 or 11%6% compared with the balance as of December 31, 20182019 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 $2,453 primarily due to thedebt, net, and warehouse facilities, acquired as part of the Pacific Union acquisition and higher origination volumes. MSR related liabilities increasednet, partially offset by $112 primarily due toan increase in excess spread financing related to new excess spread financing deals. The increase in other liabilities was primarily due to $530 of payables and other liabilities related to the Pacific Union acquisition.other. Other nonrecourse debt, net, decreased by $1,262$579 primarily due to repayments of reverse mortgage related nonrecourse debt,debt. Warehouse facilities, net, decreased $544 primarily due to lower Originations funded volume as of June 30, 2020 compared to December 31, 2019. Other increased primarily due to an increase in loans subject to repurchase by Ginnie Mae, which was partially offset by proceeds from issuanceinclude loans in forbearance plans due to the impact of HECM securitizations.
the COVID-19 pandemic and implementation of the CARES Act, and an increase in derivative financials instruments due to the low interest rate environment.
|
| | | | | | | | | | | | | |
Liquidity and Capital Resources | | | | |
We measure liquidity by unrestricted cash and availability of borrowings on our MSR facilities. We recordedOur cash and cash equivalents on hand of $371 and total stockholders’ equity of $1,767increased to $1,041 as of SeptemberJune 30, 2020 from $329 as of December 31, 2019. We benefited from strong operating cash flow and drew down cash from our MSR facilities to ensure we were prepared to deal with a severe economic scenario resulting from the COVID-19 pandemic.
As of SeptemberJune 30, 2019,2020, we had $1,237$1,008 collateral pledged against the MSR facilities, of which we could borrow up to $840. an additional $555. During the ninesix months ended SeptemberJune 30, 2019,2020, operating activities usedgenerated cash totaling $28.
Our operating cash flow is primarily impacted by the receipt of servicing fees, changes in our servicing advance balances, the level of new loan production, the timing of sales and securitizations of forward and reverse mortgage loans, and revenues from our Xome segment.
We have sufficient borrowing capacity to support our operations.$2,066. As of SeptemberJune 30, 2019,2020, total available borrowing capacity is $9,530,was $9,590, of which $4,214 is$5,078 was unused.
The economic impact of the COVID-19 pandemic could result in an increase in servicing advances and liquidity demands related to the utilization of forbearance programs offered by the CARES Act. We did see an increase in forbearance plans over the second quarter of 2020, but the forbearance rate has subsequently declined. Based on current modeling of expected forbearance rates within our portfolio, we believe that we are well-positioned to manage an 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. For non-agency servicing, we are reimbursed for advances relatively quickly, which should limit growth in balances with even 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 continue to increase due to the 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 reverse mortgage loan portfolios with a UPB of $23,990 as of September 30, 2019, which includes $2,761 of reverse MSR, $14,641 of reverse MSLs and $6,588 of reverse mortgage interests. Reverse mortgages 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, as wells as applicable servicing fees earned and the interest applicable to the underlying principal. Recovery of advances and draws related to reverse MSLs 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.
|
| | | | | | | | | | | | | |
Table 30.28. Operating Cash Flow | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Net loss | $ | (98) | | | $ | (274) | | | $ | 176 | | | (64) | % |
Deferred tax benefit | (49) | | | (76) | | | 27 | | | (36) | % |
Other non-cash adjustments to net loss | (966) | | | (536) | | | (430) | | | 80 | % |
Fair value changes in MSRs, MSR related liabilities and mortgage loans held for investment | 910 | | | 629 | | | 281 | | | 45 | % |
Originations net sales activities | 1,404 | | | (1,013) | | | 2,417 | | | (239) | % |
Changes in working capital | 865 | | | 1,218 | | | (353) | | | (29) | % |
Net cash attributable to operating activities | $ | 2,066 | | | $ | (52) | | | $ | 2,118 | | | (4,073) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Net (loss) income attributable to Successor/Predecessor | $ | (189 | ) | | $ | 1,020 |
| | | $ | 154 |
| | $ | 1,174 |
| | $ | (1,363 | ) | | (116 | )% |
Fair value changes in MSRs, MSR related liabilities and mortgage loans held for investment | 820 |
| | (1 | ) | | | (80 | ) | | (81 | ) | | 901 |
| | (1,112 | )% |
Deferred tax benefit | (53 | ) | | (931 | ) | | | — |
| | (931 | ) | | 878 |
| | (94 | )% |
Other non-cash adjustments to net loss | (930 | ) | | (121 | ) | | | (388 | ) | | (509 | ) | | (421 | ) | | 83 | % |
Originations net sales activities | (1,580 | ) | | (135 | ) | | | 520 |
| | 385 |
| | (1,965 | ) | | (510 | )% |
Changes in working capital | 1,904 |
| | 344 |
| | | 2,088 |
| | 2,432 |
| | (528 | ) | | (22 | )% |
Net cash attributable to operating activities | $ | (28 | ) | | $ | 176 |
| | | $ | 2,294 |
| | $ | 2,470 |
| | $ | (2,498 | ) | | (101 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Our operating activities usedgenerated cash of $28$2,066 during the ninesix months ended SeptemberJune 30, 20192020 compared to $2,470 cash generatedused of $52 in the same period in 2018, on a combined basis. This is primarily due to the cash used in originations net sales activities and net loss reported in 2019.
Cash used in originations net sales activities was $1,580 during the nine months ended September 30, 2019 compared to $385 cash generated in the same period in 2018, on a combined basis. The change was primarily due to athe cash generated from originations net sales activities.
Cash generated from originations net sales activities was $1,404 during the six months ended June 30, 2020 compared to $1,013 cash used in the same period in 2019. The change was primarily due to an increase in proceeds of $11,177 on the sales of previously originated loans, partially offset by higher funding of $11,887$7,383 for loan origination activities driven by the declining interest rate environment and an increase in funds used of $1,056$1,377 to repurchase forward loan assets out of Ginnie Mae securitizations.
The increasechange in funding was partially offset by an increase in proceeds of $10,978 on the sales of previously originated loans and the sale of loans relatedcash attributable to the collapse of Trust 2009-A, our legacy portfolio.
Cash generated fromoperating activities due to fair value changes in MSRs, MSR related liabilities and mortgage loans held for investment during the ninesix months ended SeptemberJune 30, 20192020 increased by $901$281 when compared to the same period in 2018, on a combined basis.2019. The change was primarily due to an increase in fair value changes and amortization/accretion of mortgage servicing rights/liabilities of $1,202,$304, primarily due to the negative mark-to-market adjustment for the ninesix months ended SeptemberJune 30, 2019.2020.
Cash used from the deferred tax benefitThe change in cash attributable to operating activities due to other non-cash adjustments to net loss during the ninesix months ended SeptemberJune 30, 2019 decreased by $8782020 increased $430 when compared to the same period in 2018, on a combined basis,2019 primarily due to the reversal$521 increase in net gain on mortgage loans held for sale primarily driven by the higher origination volumes in a declining interest rate environment.
The table below presents the major sources and uses of the valuation allowance associated with the NOL carryforwards of WMIH in the two months ended September 30, 2018.
cash flow for investing activities: |
| | | | | | | | | | | | | |
Table 31.29. Investing Cash Flows | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Acquisitions, net | $ | — | | | $ | (85) | | | $ | 85 | | | (100) | % |
Purchase of forward mortgage servicing rights, net of liabilities incurred | (31) | | | (409) | | | 378 | | | (92) | % |
Proceeds on sale of forward and reverse mortgage servicing rights | 43 | | | 279 | | | (236) | | | (85) | % |
Other | (26) | | | (27) | | | 1 | | | (4) | % |
Net cash attributable to investing activities | $ | (14) | | | $ | (242) | | | $ | 228 | | | (94) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
Acquisitions, net | $ | (85 | ) | | $ | (33 | ) | | | $ | — |
| | $ | (33 | ) | | $ | (52 | ) | | 158 | % |
Purchase of forward mortgage servicing rights, net of liabilities incurred | (454 | ) | | (63 | ) | | | (134 | ) | | (197 | ) | | (257 | ) | | 130 | % |
Proceeds on sale of assets | — |
| | — |
| | | 13 |
| | 13 |
| | (13 | ) | | (100 | )% |
Proceeds on sale of forward and reverse mortgage servicing rights | 298 |
| | 60 |
| | | — |
| | 60 |
| | 238 |
| | 397 | % |
Other | (38 | ) | | (14 | ) | | | (41 | ) | | (55 | ) | | 17 |
| | (31 | )% |
Net cash attributable to investing activities | $ | (279 | ) | | $ | (50 | ) | | | $ | (162 | ) | | $ | (212 | ) | | $ | (67 | ) | | 32 | % |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Our investing activities used $279cash of $14 during the ninesix months ended SeptemberJune 30, 2019, which increased from $212 of cash used in2020 compared to $242 during the same period in 2018, on a combined basis.2019. The changedecrease in cash used in investing activities was primarily due to an increasea decrease of $257$378 in cash used for the purchase of forward mortgage servicing rights, net of liabilities incurred, and netincurred. In addition, during the six months ended June 30, 2019, we used $85 cash of $85 used in connection with the acquisitions of Pacific Union and Seterus. Partially offsetting these usesSeterus acquisitions. The decrease in cash used was partially offset by a decrease in cash generated of cash was an increase in$236 from proceeds on sale of forward mortgage servicing rightsrights.
The table below presents the major sources and uses of $238. 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.
for financing activities: |
| | | | | | | | | | | | | |
Table 32.30. Financing Cash Flow | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
(Decrease) increase in warehouse facilities | $ | (544) | | | $ | 1,173 | | | $ | (1,717) | | | (146) | % |
Increase (decrease) in advance facilities | 58 | | | (40) | | | 98 | | | (245) | % |
Repayment of notes payable | — | | | (294) | | | 294 | | | (100) | % |
Redemption and repayment of unsecured senior notes and nonrecourse debt | (698) | | | (6) | | | (692) | | | 11,533 | % |
Issuance of unsecured senior debt | 600 | | | — | | | 600 | | | 100 | % |
Issuance of excess spread financing | 24 | | | 437 | | | (413) | | | (95) | % |
Settlements and repayments of excess spread financing | (110) | | | (119) | | | 9 | | | (8) | % |
Decrease of participating interest financing | (499) | | | (848) | | | 349 | | | (41) | % |
Changes in HECM securitizations | (168) | | | (16) | | | (152) | | | 950 | % |
Other | (26) | | | (5) | | | (21) | | | 420 | % |
Net cash attributable to financing activities | $ | (1,363) | | | $ | 282 | | | $ | (1,645) | | | (583) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | | | | | |
| Nine Months Ended September 30, 2019 | | Two Months Ended September 30, 2018 | | | Seven Months Ended July 31, 2018 | | Combined(1) | | $ Change | | % Change |
(Decrease) increase in advance facilities | $ | (95 | ) | | $ | 46 |
| | | $ | (305 | ) | | $ | (259 | ) | | $ | 164 |
| | (63 | )% |
Increase (decrease) in warehouse facilities | 1,930 |
| | 186 |
| | | (585 | ) | | (399 | ) | | 2,329 |
| | (584 | )% |
Repayment of notes payable | (294 | ) | | — |
| | | — |
| | — |
| | (294 | ) | | 100 | % |
Payment of unsecured senior notes and nonrecourse debt | (37 | ) | | (1,034 | ) | | | (93 | ) | | (1,127 | ) | | 1,090 |
| | (97 | )% |
Issuance of excess spread financing | 469 |
| | 84 |
| | | 70 |
| | 154 |
| | 315 |
| | 205 | % |
Repayment of excess spread financing | (19 | ) | | (21 | ) | | | (3 | ) | | (24 | ) | | 5 |
| | (21 | )% |
Settlements of excess spread financing | (163 | ) | | (31 | ) | | | (105 | ) | | (136 | ) | | (27 | ) | | 20 | % |
Decrease in participating interest financing in reverse mortgage interests | (1,252 | ) | | (358 | ) | | | (1,391 | ) | | (1,749 | ) | | 497 |
| | (28 | )% |
Changes in HECM securitizations | (170 | ) | | (91 | ) | | | 311 |
| | 220 |
| | (390 | ) | | (177 | )% |
Other | 19 |
| | (182 | ) | | | (10 | ) | | (192 | ) | | 211 |
| | (110 | )% |
Net cash attributable to financing activities | $ | 388 |
| | $ | (1,219 | ) | | | $ | (2,111 | ) | | $ | (3,330 | ) | | $ | 3,900 |
| | (117 | )% |
| |
(1)
| Refer to Basis of Presentation section for discussion on presentation of combined results.
|
Our financing activities generated $388 cash during the nine months ended September 30, 2019, whereas the financing activities used cash of $3,330 in the same period in 2018, on a combined basis. The change in cash flows from financing activities was primarily due to an increase of $1,930 in warehouse facilities$1,363 during the ninesix months ended SeptemberJune 30, 20192020 compared to a pay down on warehouse facilitiescash generated of $399 during the same period in 2018, on a combined basis. Payment of warehouse facilities was higher in 2018 due to proceeds from HECM securitizations being used to pay down the facilities, which did not occur$282 in the same period in 2019. In addition,Contributing to the change in cash used forwas the $1,717 change in warehouse facilities due to a net pay down of advance$544 in warehouse facilities during the ninesix months ended SeptemberJune 30, 2019 decreased by $164 when2020 compared to a net increase of $1,173 in the same period in 2019. Additionally, cash used in the redemption and repayment of unsecured senior debt and nonrecourse debt during the six months ended June 30, 2020 increased $692 compared to the same period in 2018, on a combined basis.2019 due to the repayment and redemption of the 2021 and 2022 unsecured senior notes in February 2020. The cash generated from the issuance of excess spread financing increased by $315decreased $413 due to newa decline in excess spread financing deals. Offsetting these decreasesdeals in cash used is an increase in cash used for repayment of notes payable and HECM securitizations whenthe six months ended June 30, 2020 compared to the same period in 2018, on2019.
The change in cash used was partially offset by an increase in cash generated of $600 due to the issuance of the 2027 unsecured senior notes in January 2020. In addition, cash used in participating interest financing decreased in 2020 primarily due to a combined basis. Duringlower repayment of participating interest financing in 2020 compared to the ninesame period in 2019. Further, during the six months ended SeptemberJune 30, 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 during the nine months ended September 30, 2019 increased due to scheduled pay downs and amounts incurred to settle the collapsed trusts exceeding proceeds from the securitization, resulting in a net cash outflow of $170. In addition, during the nine months ended September 30, 2018, on a combined basis, proceeds from securitizations exceeded scheduled pay downs and amounts incurred to settle the collapsed trusts, resulting in a net cash inflow of $220.
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.
Financial Covenants
Our credit facilities contain various financial covenants, which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements, whichrequirements. These covenants are measured at our operating subsidiary, Nationstar Mortgage LLC. WeAs of June 30, 2020, we were in compliance with itsour required financial covenants as of September 30, 2019. The most restrictive tangible net worth covenant required us to maintain a minimum tangible net worth of at least $682.covenants.
Seller/Servicer Financial Requirements
Seller/Servicer financialWe are also subject to net worth, capital ratio and liquidity requirements for our operating subsidiary, Nationstar Mortgage LLC, as definedestablished 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 June 30, 2020, we were in compliance with our seller/servicer financial requirements for FHFA and Ginnie Mae.
Minimum Net Worth
| |
▪ | Base of $2.5 plus 25 basis points of UPB for total loans serviced. |
| |
▪ | Tangible Net Worth comprises total equity less goodwill, intangible assets, affiliate receivables and certain pledged assets. |
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.
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 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
| |
▪ | Tangible Net Worth/Total Assets greater than 6%. |
▪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
| |
▪ | 3.5 basis points of total Agency servicing (Fannie Mae, Freddie Mac, Ginnie Mae) plus, |
| |
▪ | Incremental 200 basis points of total nonperforming Agency, measured as 90+ delinquencies, servicing in excess of 6% of the total Agency servicing UPB, |
| |
▪ |
The minimum liquidity requirement for Fannie Mae and Freddie Mac is defined as follows:
▪3.5 basis points of total Agency Mortgage Servicing, plus ▪Incremental 200 basis points times the sum of the following: •The total UPB of nonperforming (90 or more days delinquent) Agency Mortgage Servicing that is not in forbearance, plus •The total UPB of nonperforming (90 or more days delinquent) Agency Mortgage Servicing that is in forbearance and which were delinquent at the time it entered forbearance, plus •30% of the UPB of nonperforming (90 or more days delinquent) Agency Mortgage Servicing that is in forbearance and which were current at the time it entered forbearance ▪This liquidity must only be maintained to the extend this sum exceeds 6% of the total Agency Mortgage Servicing 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 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. |
Effective September 1, 2019, Ginnie Mae amended its MBS Guideis defined as follows:
▪Maintain liquid assets equal to prescribe that issuers withthe 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%, as described in the MBS Guide, may, at Ginnie Mae’s sole discretion, be subject to additional financial and operational requirements prior to receiving approval for various transactions within the MBS Program, including, but not limited to, requests for commitment authority and approval of Transfers of Issuer Responsibility. We were in compliance with this requirement as of September 30, 2019. In addition, issuers with.
Since we have a Ginnie Mae single-family servicing portfolio that exceeds $75 billion in UPB, will bewe 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. However, the issuers will no longer be permitted to include deferred tax assets when computing the minimum net worth requirement.
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 17,15, Capital Requirements,, for additional information. As of September 30, 2019, we were in compliance with our seller/servicer financial requirements.
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Advance facilities, net | $ | 475 | | | $ | 422 | |
Warehouse facilities, net | 4,031 | | | 4,575 | |
Unsecured senior notes, net | 2,261 | | | 2,366 | |
|
| | | | | | | |
| Successor |
| September 30, 2019 | | December 31, 2018 |
Advance facilities, net | $ | 513 |
| | $ | 595 |
|
Warehouse facilities, net | 4,802 |
| | 2,349 |
|
Unsecured senior notes, net | 2,464 |
| | 2,459 |
|
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 withand 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. At SeptemberAs of June 30, 2019,2020, unsecuritized borrower draws totaled $265,$53, and our maximum unfunded advance obligation related to these reverse mortgage loans was $2,741.$2,408.
Unsecured Senior Notes
In 20132018 and 2018,2020, we completed offerings of unsecured senior notes, which maturemature on various dateddates through July 2026.January 2027. We pay interest semi-annually to the holders of these notes at interest rates ranging from 6.500%6.000% to 9.125%. Refer to Note 10, Payables and Other Liabilities, for the contractual maturities of unsecured senior notes.
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| | | | |
Table 34. Contractual Maturities - Unsecured Senior Notes |
|
| | | | |
Year Ending December 31, | | Amount |
2019 | | $ | — |
|
2020 | | — |
|
2021(1) | | 592 |
|
2022 | | 206 |
|
2023 | | 950 |
|
Thereafter | | 750 |
|
Unsecured senior notes principal amount | | 2,498 |
|
Unamortized debt issuance costs, premium and discount | | (34 | ) |
Unsecured senior notes, net | | $ | 2,464 |
|
| |
(1)
| This note does not include the subsequent pay down of $100 in principal balance in October 2019. |
Contractual Obligations
As of SeptemberJune 30, 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 six months ended June 30, 2020:
|
| | | | | | | | | | | | | |
Table 32. 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 | | | | |
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 16,14, Fair Value Measurements, in notes to consolidated financial statements, business combinations and goodwill, and valuation and reserves forrealization 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.liability and (iv) the valuation of IRLCs and LPCs. 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 ofBelow 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 expectedsame period permitted. We are currently assessing the impact of ASU 2019-12, but does not believe it will have a material impact on our consolidated financial statements.
Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contract modifications, hedge accounting and other transactions affected by the transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. If LIBOR ceases to exist or if the methods of calculating LIBOR change from current methods for any reasons, interest rates on our floating rate loans, obligation derivatives, and other financial instruments tied to LIBOR rates, may be affected and need renegotiation with its lenders. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. We are currently assessing the impact of ASU 2020-04 on our 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 and Off-Balance Sheet Arrangements
See Note 12, Securitizations and Financings, in the consolidated financial statements in Item 1, 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
See Note 9, Derivative Financial Instruments, in the consolidated financial statements in Item 1, Financial Statements, which is incorporated herein for a summary of our derivative transactions.
Income Taxes
See Note 15, Income Taxes, in the consolidated financial statements in Item 1, Financial Statements, which is incorporated herein for a summary of our income tax considerations.
GLOSSARY OF TERMS
This Glossary of Terms defines some of the terms that are used throughout this report and 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.
AgencyAgency. 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 GovernmentGinnie Mae (and collectively, the “Agencies”)
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.VA or sold into Ginnie Mae.
Asset-Backed Securities (ABS)(“ABS”). A financial security whose income payments and value is derived from and collateralized (or “backed”) by a specified pool of underlying receivables or other financial assets.
Bulk acquisitions or purchases. MSR portfolio acquired on non-retained basis through an open market bidding process.
Base Servicing Fee. 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.
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.
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 Originations.lender, lending channel or relationship. A typecorrespondent 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 mortgage loan origination pursuant to which a company purchases closed mortgage loans from correspondent lenders, such as community banks, credit unions, mortgage brokersan investor and independent mortgage bankers.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)(“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 (“DTC”). 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(“Fannie Mae” or FNMA)“FNMA”). FNMA was federally chartered by the U.S. Congress in 1938 to support liquidity, stability, and affordability in the 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 the secondary mortgage market.
Federal Housing Administration (FHA)(“FHA”). 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)(“FHFA”). A U.S. federal government agency that is 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(“Freddie Mac” or FHLMC)“FHLMC”). Freddie Mac was chartered by Congress in 1970 to stabilize the nation’s residential mortgage markets and expand opportunities for 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(“Ginnie Mae” or GNMA)“GNMA”). GNMA is a self financing, wholly-ownedself-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)(“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 Affordable Modification Program (HAMP). A U.S. federal government program designed to help eligible homeowners avoid foreclosure through mortgage loan modifications. Participating servicers may be entitled to receive financial incentives in connection with loan modifications they enter into with eligible borrowers and subsequent success fees to the extent that a borrower remains current in any agreed upon loan modification.
Home Affordable Refinance Program (HARP). A U.S. federal government program designed to help eligible homeowners refinance their existing mortgage loans. The mortgage must be owned or guaranteed by a GSE, originated during a defined time period, and applicants must be up-to-date on their mortgage payments but unable to obtain refinancing because the value of their homes has declined.
Home Equity Conversion Mortgage (HECM)(“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 reverse mortgage loan insuredasset-backed security that is secured by the FHA.a group of HECM loans.
Interest Rate Lock Commitments (IRLC)(“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)(“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)(“MBS”).A type of asset-backed security that is secured by a group of mortgage loans.
Mortgage Servicing Right (MSR)(“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 type of 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-daynext day draws at the request of the borrower.
Mortgage Servicing Liability (MSL)(“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 and involuntary 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)(”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 partythird-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 re-originaterefinance 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. 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 partythird-party servicer. The third partythird-party servicer performs the servicing responsibilities for a fee and makesis typically not responsible for making servicing advances, which are subsequently reimbursed by the primary servicer. The Servicerprimary servicer is contractually liable to the owner of the loans for the activities of the subservicer.
Unpaid Principal Balance (UPB)(“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 counterparty,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.
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 used SeptemberJune 30, 20192020 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.
The following table summarizes the estimated change in the fair value of our assets and liabilities sensitive to interest rates as of SeptemberJune 30, 20192020 given hypothetical instantaneous parallel shifts in the yield curve. Results could differ materially.
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Table 35.33. Change in Fair Value | | | | |
| | | | | | | | | | | |
| June 30, 2020 | | |
| Down 25 bps | | Up 25 bps |
Increase (decrease) in assets | | | |
Mortgage servicing rights at fair value | $ | (114) | | | $ | 127 | |
Mortgage loans held for sale at fair value | 11 | | | (14) | |
Derivative financial instruments: | | | |
Interest rate lock commitments | 42 | | | (54) | |
Forward MBS trades | (3) | | | 4 | |
Total change in assets | (64) | | | 63 | |
Increase (decrease) in liabilities | | | |
Mortgage servicing rights financing at fair value | (4) | | | 4 | |
Excess spread financing at fair value | (17) | | | 20 | |
Derivative financial instruments: | | | |
Forward MBS trades | 43 | | | (55) | |
Total change in liabilities | 22 | | | (31) | |
Total, net change | $ | (86) | | | $ | 94 | |
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| | | | | | | |
| September 30, 2019 |
Down 25 bps | | Up 25 bps |
Increase (decrease) in assets | | | |
Mortgage servicing rights at fair value | $ | (242 | ) | | $ | 245 |
|
Mortgage loans held for sale at fair value | 14 |
| | (17 | ) |
Derivative financial instruments: | | | |
Interest rate lock commitments | 21 |
| | (28 | ) |
Forward MBS trades | (14 | ) | | 17 |
|
Total change in assets | (221 | ) | | 217 |
|
Increase (decrease) in liabilities | | | |
Mortgage servicing rights liabilities at fair value | (5 | ) | | 5 |
|
Excess spread financing at fair value | (49 | ) | | 51 |
|
Derivative financial instruments: | | | |
Interest rate lock commitments | (4 | ) | | 5 |
|
Forward MBS trades | 21 |
| | (27 | ) |
Total change in liabilities | (37 | ) | | 34 |
|
Total, net change | $ | (184 | ) | | $ | 183 |
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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 SeptemberJune 30, 2019.2020.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of SeptemberJune 30, 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 SeptemberJune 30, 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 September 30, 2019. 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 September 30, 2019 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.
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. On October 23, 2019, we reached an agreement in principle to settle this matter.
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 principle to settle this matter and on August 21, 2019, the court approved the settlement agreement.
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.
In particular, as previously disclosed, we continue to progress towards resolution of certain legacy regulatory matters with (i) the CFPB, (ii) the multi-state committee of mortgage banking regulators and various State Attorneys General and (iii) the Executive Office of the United States Trustee, all of which involve examination findings in prior years for alleged violations of certain laws related to our business practices. We believe that we have reached a settlement in principle to resolve these matters with each of these parties. Accordingly, we recorded an additional accrual during the three months ended June 30, 2020 in addition to amounts previously accrued and believe that we have fully accrued for these matters.
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, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
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 SeptemberJune 30, 2019.2020.
Item 3. Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.
Item 6.Exhibits
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Exhibit Number | Description | Form | File No. | Exhibit | Filing Date | Filed or Furnished Herewith |
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Exhibit Number | Description | Form | File No. | Exhibit | Filing Date | Filed or Furnished Herewith |
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4.131.1 | | | | | | X |
31.1 | |
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31.2 | | | | | | X |
32.1 | |
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| X |
32.2 | | | | | | X |
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | Inline XBRL Taxonomy Extension Schema Document | | | | | X |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | X |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | X |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101.) | | | | | 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.
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| | MR. COOPER GROUP INC. |
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July 30, 2020 | | MR. COOPER GROUP INC. |
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November 1, 2019 | | /s/ Jay Bray |
Date | | Jay Bray
Chief Executive Officer
(Principal Executive Officer) |
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November 1, 2019July 30, 2020 | | /s/ Christopher G. Marshall |
Date | | Christopher G. Marshall Vice Chairman & Chief Financial Officer
(Principal Financial and Accounting Officer)
|