UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~June~~September 30, 2020


☐			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)

Delaware

91-1653725

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

8950 Cypress Waters Blvd, Coppell, TX

75019

(Address of principal executive offices)

(Zip Code)

(469) 549-2000

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


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”,~~filer,” “accelerated ~~filer”,~~filer,” “smaller reporting ~~company”,~~company,” and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.


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 ~~July 24,~~October 23, 2020 was ~~92,021,981.~~ 90,853,569.

MR. COOPER GROUP INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets as of ~~June~~September 30, 2020 (unaudited) and December 31, 2019

Consolidated Statements of Operations (unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2020 and 2019

Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2020 and 2019

Consolidated Statements of Cash Flows (unaudited) for the ~~Six~~Nine Months Ended ~~June~~September 30, 2020 and 2019

Notes to Consolidated Financial Statements (unaudited)

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

4336

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

8978

Item 4.

Controls and Procedures

PART II

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

9181

Item 3.

Defaults Upon Senior Securities

9181

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

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			September 30, 2020		December 31, 2019
		(unaudited)					(unaudited)
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,041	$	329	Cash and cash equivalents	$	946	$	329
Restricted cash	Restricted cash	260		283		Restricted cash	229		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 servicing rights, $2,663 and $3,496 at fair value, respectively						Mortgage servicing rights, $2,663 and $3,496 at fair value, respectively	2,669		3,502
Advances and other receivables, net of reserves of $191 and $175, respectively						Advances and other receivables, net of reserves of $191 and $175, respectively	745		988
Reverse mortgage interests, net of purchase discount of $125 and $114, respectively						Reverse mortgage interests, net of purchase discount of $125 and $114, respectively	5,460		6,279
Mortgage loans held for sale at fair value	Mortgage loans held for sale at fair value	3,179		4,077		Mortgage loans held for sale at fair value	3,817		4,077
Property and equipment, net of accumulated depreciation of $75 and $55, respectively		115		112
Property and equipment, net of accumulated depreciation of $84 and $55, respectively						Property and equipment, net of accumulated depreciation of $84 and $55, respectively	114		112
Deferred tax assets, net	Deferred tax assets, net	1,391		1,345		Deferred tax assets, net	1,344		1,345
Other assets	Other assets	2,174		1,390		Other assets	6,431		1,390
Total assets	Total assets	$	17,300	$	18,305	Total assets	$	21,755	$	18,305

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Unsecured senior notes, net	Unsecured senior notes, net	$	2,261	$	2,366	Unsecured senior notes, net	$	2,167	$	2,366
Advance facilities, net		475		422
Warehouse facilities, net		4,031		4,575
Advance and warehouse facilities, net						Advance and warehouse facilities, net	4,851		4,997
Payables and other liabilities	Payables and other liabilities	2,460		2,016		Payables and other liabilities	6,590		2,016
MSR related liabilities - nonrecourse at fair value	MSR related liabilities - nonrecourse at fair value	1,173		1,348		MSR related liabilities - nonrecourse at fair value	1,091		1,348
Mortgage servicing liabilities	Mortgage servicing liabilities	48		61		Mortgage servicing liabilities	44		61
Other nonrecourse debt, net	Other nonrecourse debt, net	4,707		5,286		Other nonrecourse debt, net	4,671		5,286
Total liabilities	Total liabilities	15,155		16,074		Total liabilities	19,414		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		—		—
Commitments and contingencies (Note 15)						Commitments and contingencies (Note 15)
Preferred stock at $0.00001 - 10 million shares authorized, 1.0 million shares issued and outstanding, respectively; aggregate liquidation preference of 10 dollars, respectively						Preferred stock at $0.00001 - 10 million shares authorized, 1.0 million shares issued and outstanding, respectively; aggregate liquidation preference of 10 dollars, respectively	0		0
Common stock at $0.01 par value - 300 million shares authorized, 92.0 million and 91.1 million shares issued, respectively	Common stock at $0.01 par value - 300 million shares authorized, 92.0 million and 91.1 million shares issued, respectively	1		1		Common stock at $0.01 par value - 300 million shares authorized, 92.0 million and 91.1 million shares issued, respectively	1		1
Additional paid-in-capital	Additional paid-in-capital	1,114		1,109		Additional paid-in-capital	1,120		1,109
Retained earnings	Retained earnings	1,034		1,122		Retained earnings	1,243		1,122
Treasury shares at cost - 1.2 million and 0 shares, respectively						Treasury shares at cost - 1.2 million and 0 shares, respectively	(24)		0
Total Mr. Cooper stockholders’ equity	Total Mr. Cooper stockholders’ equity	2,149		2,232		Total Mr. Cooper stockholders’ equity	2,340		2,232
Non-controlling interests	Non-controlling interests	(4)		(1)		Non-controlling interests	1		(1)
Total stockholders’ equity	Total stockholders’ equity	2,145		2,231		Total stockholders’ equity	2,341		2,231
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	17,300	$	18,305	Total liabilities and stockholders’ equity	$	21,755	$	18,305

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,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Revenues:	Revenues:									Revenues:
Service related, net	Service related, net	$	12	$	137	$	(41)	$	221	Service related, net	$	227	$	258	$	186	$	479
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale	618		262		949		428		Net gain on mortgage loans held for sale	645		360		1,594		788
Total revenues	Total revenues	630		399		908		649		Total revenues	872		618		1,780		1,267
Expenses:	Expenses:									Expenses:
Salaries, wages and benefits	Salaries, wages and benefits	248		238		494		453		Salaries, wages and benefits	275		250		769		703
General and administrative	General and administrative	171		254		369		482		General and administrative	156		228		525		710
Total expenses	Total expenses	419		492		863		935		Total expenses	431		478		1,294		1,413

Interest income	Interest income	76		162		194		296		Interest income	56		163		250		459
Interest expense	Interest expense	(177)		(187)		(369)		(376)		Interest expense	(165)		(196)		(534)		(572)
Other income, net		—		1		1		16
Other income (expense), net										Other income (expense), net	(51)		0		(50)		16
Total other expenses, net	Total other expenses, net	(101)		(24)		(174)		(64)		Total other expenses, net	(160)		(33)		(334)		(97)
Income (loss) before income tax expense (benefit)	Income (loss) before income tax expense (benefit)	110		(117)		(129)		(350)		Income (loss) before income tax expense (benefit)	281		107		152		(243)
Less: Income tax expense (benefit)	Less: Income tax expense (benefit)	37		(29)		(31)		(76)		Less: Income tax expense (benefit)	67		24		36		(52)
Net income (loss)	Net income (loss)	73		(88)		(98)		(274)		Net income (loss)	214		83		116		(191)
Less: Net loss attributable to non-controlling interests		—		(1)		(3)		(1)
Less: Net income (loss) attributable to non-controlling interests										Less: Net income (loss) attributable to non-controlling interests	5		(1)		2		(2)
Net income (loss) attributable to Mr. Cooper	Net income (loss) attributable to Mr. Cooper	73		(87)		(95)		(273)		Net income (loss) attributable to Mr. Cooper	209		84		114		(189)
Less: Undistributed earnings attributable to participating stockholders	Less: Undistributed earnings attributable to participating stockholders	1		—		—		—		Less: Undistributed earnings attributable to participating stockholders	2		1		1		0
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders	$	72	$	(87)	$	(95)	$	(273)	Net income (loss) attributable to common stockholders	$	207	$	83	$	113	$	(189)

Net income (loss) per common share attributable to Mr. Cooper:	Net income (loss) per common share attributable to Mr. Cooper:									Net income (loss) per common share attributable to Mr. Cooper:
Basic	Basic	$	0.78	$	(0.96)	$	(1.04)	$	(3.00)	Basic	$	2.26	$	0.91	$	1.23	$	(2.08)
Diluted	Diluted	$	0.77	$	(0.96)	$	(1.04)	$	(3.00)	Diluted	$	2.18	$	0.90	$	1.20	$	(2.08)

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																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			Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
Balance at March 31, 2019		1,000	$	—	91,042	$	1	$	1,095	$	662	$	1,758	$	3	$	1,761
Balance at June 30, 2019																		Balance at June 30, 2019	1,000	$	0	91,061	$	1	$	1,100	$	575	$	0	$	1,676	$	2	$	1,678
Shares issued under incentive compensation plan	Shares issued under incentive compensation plan	—	—		19	—		—		—		—		—		—		Shares issued under incentive compensation plan	—	—		26	—		1		—		—		1		—		1
Share-based compensation	Share-based compensation	—	—		—	—		5		—		5		—		5		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
Net income (loss)																		Net income (loss)	—	—		—	—		—		84		—		84		(1)		83
Balance at September 30, 2019																		Balance at September 30, 2019	1,000	$	0	91,087	$	1	$	1,106	$	659	$	0	$	1,766	$	1	$	1,767

Balance at March 31, 2020		1,000	$	—	91,970	$	1	$	1,108	$	961	$	2,070	$	(4)	$	2,066
Balance at June 30, 2020																		Balance at June 30, 2020	1,000	$	0	92,022	$	1	$	1,114	$	1,034	$	0	$	2,149	$	(4)	$	2,145
Shares issued under incentive compensation plan	Shares issued under incentive compensation plan	—	—		52	—		—		—		—		—		—		Shares issued under incentive compensation plan	—	—		19	—		—		—		—		—		—		—
Share-based compensation	Share-based compensation	—	—		—	—		6		—		6		—		6		Share-based compensation	—	—		—	—		6		—		—		6		—		6
Repurchase of common stock																		Repurchase of common stock	—	—		(1,187)	—		—		—		(24)		(24)		—		(24)
Net income	Net income	—	—		—	—		—		73		73		—		73		Net income	—	—		—	—		—		209		—		209		5		214
Balance at June 30, 2020		1,000	$	—	92,022	$	1	$	1,114	$	1,034	$	2,149	$	(4)	$	2,145
Balance at September 30, 2020																		Balance at September 30, 2020	1,000	$	0	90,854	$	1	$	1,120	$	1,243	$	(24)	$	2,340	$	1	$	2,341

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																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			Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
Balance at January 1, 2019	Balance at January 1, 2019	1,000	$	—	90,821	$	1	$	1,093	$	848	$	1,942	$	3	$	1,945	Balance at January 1, 2019	1,000	$	0	90,821	$	1	$	1,093	$	848	$	0	$	1,942	$	3	$	1,945
Shares issued / (surrendered) under incentive compensation plan	Shares issued / (surrendered) under incentive compensation plan	—	—		240	—		(2)		—		(2)		—		(2)		Shares issued / (surrendered) under incentive compensation plan	—	—		266	—		(1)		—		—		(1)		—		(1)
Share-based compensation	Share-based compensation	—	—		—	—		9		—		9		—		9		Share-based compensation	—	—		—	—		14		—		—		14		—		14
Net loss	Net loss	—	—		—	—		—		(273)		(273)		(1)		(274)		Net loss	—	—		—	—		—		(189)		—		(189)		(2)		(191)
Balance at June 30, 2019		1,000	$	—	91,061	$	1	$	1,100	$	575	$	1,676	$	2	$	1,678
Balance at September 30, 2019																		Balance at September 30, 2019	1,000	$	0	91,087	$	1	$	1,106	$	659	$	0	$	1,766	$	1	$	1,767

Balance at January 1, 2020	Balance at January 1, 2020	1,000	$	—	91,118	$	1	$	1,109	$	1,122	$	2,232	$	(1)	$	2,231	Balance at January 1, 2020	1,000	$	0	91,118	$	1	$	1,109	$	1,122	$	0	$	2,232	$	(1)	$	2,231
Shares issued / (surrendered) under incentive compensation plan	Shares issued / (surrendered) under incentive compensation plan	—	—		904	—		(5)		—		(5)		—		(5)		Shares issued / (surrendered) under incentive compensation plan	—	—		923	—		(5)		—		—		(5)		—		(5)
Share-based compensation	Share-based compensation	—	—		—	—		10		—		10		—		10		Share-based compensation	—	—		—	—		16		—		—		16		—		16
Cumulative effect adjustments pursuant to the adoption of ASU 2016-13	Cumulative effect adjustments pursuant to the adoption of ASU 2016-13	—	—		—	—		—		7		7		—		7		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
Repurchase of common stock																		Repurchase of common stock	—	—		(1,187)	—		—		—		(24)		(24)		—		(24)
Net income																		Net income	—	—		—	—		—		114		—		114		2		116
Balance at September 30, 2020																		Balance at September 30, 2020	1,000	$	0	90,854	$	1	$	1,120	$	1,243	$	(24)	$	2,340	$	1	$	2,341

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,							Nine Months Ended September 30,
		2020		2019			2020		2019
Operating Activities	Operating Activities					Operating Activities
Net loss		$	(98)	$	(274)
Adjustments to reconcile net loss to net cash attributable to operating activities:
Net income (loss)						Net income (loss)	$	116	$	(191)
Adjustments to reconcile net income (loss) to net cash attributable to operating activities:						Adjustments to reconcile net income (loss) to net cash attributable to operating activities:
Deferred tax benefit	Deferred tax benefit	(49)		(76)		Deferred tax benefit	(1)		(53)
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale	(949)		(428)		Net gain on mortgage loans held for sale	(1,594)		(788)
Interest income on reverse mortgage loans	Interest income on reverse mortgage loans	(117)		(167)		Interest income on reverse mortgage loans	(158)		(241)
Provision for servicing and non-servicing reserves	Provision for servicing and non-servicing reserves	11		30		Provision for servicing and non-servicing reserves	18		53
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities	Fair value changes and amortization/accretion of mortgage servicing rights/liabilities	999		695		Fair value changes and amortization/accretion of mortgage servicing rights/liabilities	1,258		998
Fair value changes in excess spread financing	Fair value changes in excess spread financing	(101)		(74)		Fair value changes in excess spread financing	(132)		(190)
Fair value changes in mortgage servicing rights financing liability	Fair value changes in mortgage servicing rights financing liability	12		11		Fair value changes in mortgage servicing rights financing liability	10		15
Fair value changes in mortgage loans held for investment	Fair value changes in mortgage loans held for investment	—		(3)		Fair value changes in mortgage loans held for investment	0		(3)
Amortization of premiums, net of discount accretion	Amortization of premiums, net of discount accretion	34		(25)		Amortization of premiums, net of discount accretion	45		(38)
Depreciation and amortization for property and equipment and intangible assets	Depreciation and amortization for property and equipment and intangible assets	37		45		Depreciation and amortization for property and equipment and intangible assets	56		67
Share-based compensation	Share-based compensation	10		9		Share-based compensation	16		14
Loss on redemption of unsecured senior notes						Loss on redemption of unsecured senior notes	52		0
Other loss	Other loss	8		—		Other loss	17		5
Repurchases of forward loan assets out of Ginnie Mae securitizations	Repurchases of forward loan assets out of Ginnie Mae securitizations	(2,092)		(715)		Repurchases of forward loan assets out of Ginnie Mae securitizations	(3,173)		(1,823)
Mortgage loans originated and purchased for sale, net of fees	Mortgage loans originated and purchased for sale, net of fees	(23,110)		(15,727)		Mortgage loans originated and purchased for sale, net of fees	(38,709)		(27,673)
Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment	Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment	26,606		15,429		Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment	43,040		27,916
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Advances and other receivables	Advances and other receivables	313		249		Advances and other receivables	228		264
Reverse mortgage interests	Reverse mortgage interests	751		1,056		Reverse mortgage interests	1,031		1,700
Other assets	Other assets	(616)		(118)		Other assets	(4,797)		9
Payables and other liabilities	Payables and other liabilities	417		31		Payables and other liabilities	4,555		(69)
Net cash attributable to operating activities	Net cash attributable to operating activities	2,066		(52)		Net cash attributable to operating activities	1,878		(28)

Investing Activities	Investing Activities					Investing Activities
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	—		(85)		Acquisitions, net of cash acquired	0		(85)
Property and equipment additions, net of disposals	Property and equipment additions, net of disposals	(26)		(27)		Property and equipment additions, net of disposals	(43)		(38)
Purchase of forward mortgage servicing rights, net of liabilities incurred	Purchase of forward mortgage servicing rights, net of liabilities incurred	(31)		(409)		Purchase of forward mortgage servicing rights, net of liabilities incurred	(39)		(454)
Proceeds on sale of forward and reverse mortgage servicing rights	Proceeds on sale of forward and reverse mortgage servicing rights	43		279		Proceeds on sale of forward and reverse mortgage servicing rights	44		298
Net cash attributable to investing activities	Net cash attributable to investing activities	(14)		(242)		Net cash attributable to investing activities	(38)		(279)

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,							Nine Months Ended September 30,
		2020		2019			2020		2019
Financing Activities	Financing Activities					Financing Activities
(Decrease) increase in warehouse facilities		(544)		1,173
Increase (decrease) in advance facilities		58		(40)
(Decrease) increase in advance and warehouse facilities						(Decrease) increase in advance and warehouse facilities	(135)		1,835
Repayment of notes payable	Repayment of notes payable	—		(294)		Repayment of notes payable	0		(294)
Proceeds from HECM securitizations	Proceeds from HECM securitizations	—		398		Proceeds from HECM securitizations	516		398
Proceeds from sale of HECM securitizations	Proceeds from sale of HECM securitizations	—		20		Proceeds from sale of HECM securitizations	0		20
Repayment of HECM securitizations	Repayment of HECM securitizations	(168)		(434)		Repayment of HECM securitizations	(508)		(568)
Proceeds from issuance of participating interest financing in reverse mortgage interests	Proceeds from issuance of participating interest financing in reverse mortgage interests	99		156		Proceeds from issuance of participating interest financing in reverse mortgage interests	139		220
Repayment of participating interest financing in reverse mortgage interests	Repayment of participating interest financing in reverse mortgage interests	(598)		(1,004)		Repayment of participating interest financing in reverse mortgage interests	(845)		(1,472)
Proceeds from the issuance of excess spread financing	Proceeds from the issuance of excess spread financing	24		437		Proceeds from the issuance of excess spread financing	24		469
Settlements and repayments of excess spread financing	Settlements and repayments of excess spread financing	(110)		(119)		Settlements and repayments of excess spread financing	(159)		(182)
Issuance of unsecured senior debt	Issuance of unsecured senior debt	600		—		Issuance of unsecured senior debt	1,450		0
Repayment of nonrecourse debt – legacy assets	Repayment of nonrecourse debt – legacy assets	—		(6)		Repayment of nonrecourse debt – legacy assets	0		(29)
Redemption and repayment of unsecured senior notes	Redemption and repayment of unsecured senior notes	(698)		—		Redemption and repayment of unsecured senior notes	(1,686)		0
Repayment of finance lease liability	Repayment of finance lease liability	(1)		(2)		Repayment of finance lease liability	(1)		(3)
Surrender of shares relating to stock vesting	Surrender of shares relating to stock vesting	(5)		(2)		Surrender of shares relating to stock vesting	(5)		(1)
Repurchase of common stock						Repurchase of common stock	(24)		0
Debt financing costs	Debt financing costs	(20)		(1)		Debt financing costs	(43)		(5)
Net cash attributable to financing activities	Net cash attributable to financing activities	(1,363)		282		Net cash attributable to financing activities	(1,277)		388
Net increase (decrease) in cash, cash equivalents, and restricted cash		689		(12)
Net increase in cash, cash equivalents, and restricted cash						Net increase in cash, cash equivalents, and restricted cash	563		81
Cash, cash equivalents, and restricted cash - beginning of period	Cash, cash equivalents, and restricted cash - beginning of period	612		561		Cash, cash equivalents, and restricted cash - beginning of period	612		561
Cash, cash equivalents, and restricted cash - end of period⁽¹⁾	Cash, cash equivalents, and restricted cash - end of period⁽¹⁾	$	1,301	$	549	Cash, cash equivalents, and restricted cash - end of period(1)	$	1,175	$	642

Supplemental Disclosures of Cash Activities	Supplemental Disclosures of Cash Activities					Supplemental Disclosures of Cash Activities
Cash paid for interest expense	Cash paid for interest expense	$	89	$	74	Cash paid for interest expense	$	180	$	166
Net cash paid (refunded) for income taxes	Net cash paid (refunded) for income taxes	$	3	$	(1)	Net cash paid (refunded) for income taxes	$	40	$	(4)

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


		June 30, 2020		June 30, 2019			September 30, 2020		September 30, 2019
Cash and cash equivalents	Cash and cash equivalents	$	1,041	$	245	Cash and cash equivalents	$	946	$	371
Restricted cash	Restricted cash	260		304		Restricted cash	229		271
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	$	1,301	$	549	Total cash, cash equivalents, and restricted cash	$	1,175	$	642

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”,~~Cooper,” the ~~“Company”, “we”,~~“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 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.~~On February 1, 2019, the Company completed the acquisition of all the limited liability units of Pacific Union Financial, LLC (“~~WMIH”), is a corporation duly organized and existing under the laws of the state of Delaware since May 11, 2015. On July 31, 2018, Wand Merger Corporation (“Merger Sub”~~Pacific Union”), a ~~wholly-owned subsidiary~~California limited liability company. The final purchase price was $116, paid in cash, and the purchase price allocation was finalized as of ~~WMIH merged with~~December 31, 2019. Pacific Union was a privately held company that was engaged in the origination, as well as servicing of residential mortgage loans, and ~~into Nationstar Mortgage Holdings Inc. (“Nationstar”), with Nationstar continuing as a wholly-owned subsidiary of WMIH (the “Merger”). Prior~~operated throughout the United States. The acquisition allows the Company to ~~the Merger, WMIH had limited operations other than~~expand 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 changedservicing portfolio and increase its ~~name to “Mr. Cooper Group Inc.”~~mortgage lending volume and ~~its ticker symbol to “COOP”.~~capabilities.

Basis of Presentation

The consolidated interim financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the 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, 2019.

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 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.

Recent Accounting Guidance 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, which is referred to as the current expected credit loss (“CECL”) methodology. The update eliminates the initial recognition of 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. The guidance was effective for the Company as of January 1, 2020, with a cumulative-effect adjustment to retained earnings as of that date.

Based upon management’s scoping analysis, the Company 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 contractual 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“~~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 these 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 enhanced its processes to consider and include the requirements of ASU 2016-13, as 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 accounting policies as follows:

For certain financial instruments included in advances and other receivables, net, and certain trade receivables and accrued revenues included in other assets that are 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 4,3, Advances and Other Receivables, Net, and Note 5,4, 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 on January 1, 2020. The guidance does 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 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 Accounting Standards Codification 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 $116, paid in cash. Based on the allocation of fair value, goodwill of $40 was 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 Originations and Servicing segments, respectively, based on expected cash flows, and is expected to be deductible for tax purposes.


~~Final Estimated Fair Value of Net Assets Acquired:~~
~~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 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⁾	13
~~Goodwill~~	40
~~Final purchase price~~	$	~~116~~

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

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

The Company incurred total acquisition costs of $2 during the three months ended June 30, 2019, of which $1 is included in salaries, wages and benefits expense and $1 in general and administrative expense in the Company’s consolidated statements of operations. The Company incurred total acquisition costs of $4 during the six months ended June 30, 2019, of which $2 is 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 0 acquisition costs incurred by the Company during the six months ended June 30, 2020.

For the three and six months ended June 30, 2019, the operations contributed by this acquisition generated total revenues of $79 and $118 and income before income tax of $36 and $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 six months ended June 30, 2019, as if the acquisition had occurred on January 1, 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)

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.


MSRs and Related Liabilities	MSRs and Related Liabilities	June 30, 2020		December 31, 2019		MSRs and Related Liabilities	September 30, 2020		December 31, 2019
Forward MSRs - fair value	Forward MSRs - fair value	$	2,757	$	3,496	Forward MSRs - fair value	$	2,663	$	3,496
Reverse MSRs - amortized cost	Reverse MSRs - amortized cost	6		6		Reverse MSRs - amortized cost	6		6
Mortgage servicing rights	Mortgage servicing rights	$	2,763	$	3,502	Mortgage servicing rights	$	2,669	$	3,502

Mortgage servicing liabilities - amortized cost	Mortgage servicing liabilities - amortized cost	$	48	$	61	Mortgage servicing liabilities - amortized cost	$	44	$	61

Excess spread financing - fair value	Excess spread financing - fair value	$	1,124	$	1,311	Excess spread financing - fair value	$	1,044	$	1,311
Mortgage servicing rights financing - fair value	Mortgage servicing rights financing - fair value	49		37		Mortgage servicing rights financing - fair value	47		37
MSR related liabilities - nonrecourse at fair value	MSR related liabilities - nonrecourse at fair value	$	1,173	$	1,348	MSR related liabilities - nonrecourse at fair value	$	1,091	$	1,348

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 of both agency and non-agency loans.

The following table sets forth the activities of forward MSRs:


		Six Months Ended June 30,							Nine Months Ended September 30,
Forward MSRs - Fair Value	Forward MSRs - Fair Value	2020		2019		Forward MSRs - Fair Value	2020		2019
Fair value - beginning of period	Fair value - beginning of period	$	3,496	$	3,665	Fair value - beginning of period	$	3,496	$	3,665
Additions:	Additions:					Additions:
Servicing retained from mortgage loans sold	Servicing retained from mortgage loans sold	249		169		Servicing retained from mortgage loans sold	412		298
Purchases of servicing rights⁽¹⁾	Purchases of servicing rights⁽¹⁾	24		689		Purchases of servicing rights(1)	30		732
Dispositions:	Dispositions:					Dispositions:
Sales of servicing assets	Sales of servicing assets	—		(294)		Sales of servicing assets	0		(317)
Changes in fair value:	Changes in fair value:					Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model	Changes in valuation inputs or assumptions used in the valuation model	(717)		(542)		Changes in valuation inputs or assumptions used in the valuation model	(782)		(716)
Other changes in fair value	Other changes in fair value	(295)		(182)		Other changes in fair value	(493)		(323)
Fair value - end of period	Fair value - end of period	$	2,757	$	3,505	Fair value - end of period	$	2,663	$	3,339

⁽¹⁾Purchases of servicing rights during the ~~six~~nine months ended ~~June~~September 30, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note ~~2, Acquisitions~~1, Nature of Business and Basis of Presentation, 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.

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 ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, the Company sold ~~$71~~$94 and ~~$22,932~~$25,639 in unpaid principal balance (“UPB”) of forward MSRs, of which NaN and $20,560 were retained by the Company as subservicer, respectively.

MSRs measured at fair value are primarily segregated between credit sensitive and interest sensitive pools (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, 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.

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.

1311

The following table provides a breakdown of UPB and fair value for the Company’s forward MSRs:


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
Forward MSRs - UPB and fair value breakdown	Forward MSRs - UPB and fair value breakdown	UPB		Fair Value		UPB		Fair Value		Forward MSRs - UPB and fair value breakdown	UPB		Fair Value		UPB		Fair Value
Acquisition Pools	Acquisition Pools									Acquisition Pools
Credit sensitive	Credit sensitive	$	131,105	$	1,307	$	147,895	$	1,613	Credit sensitive	$	122,422	$	1,206	$	147,895	$	1,613
Interest sensitive	Interest sensitive	146,870		1,450		148,887		1,883		Interest sensitive	144,245		1,457		148,887		1,883
Total	Total	$	277,975	$	2,757	$	296,782	$	3,496	Total	$	266,667	$	2,663	$	296,782	$	3,496

Investor Pools	Investor Pools									Investor Pools
Agency⁽¹⁾	Agency⁽¹⁾	$	228,680	$	2,308	$	240,688	$	2,944	Agency(1)	$	220,139	$	2,234	$	240,688	$	2,944
Non-agency⁽²⁾	Non-agency⁽²⁾	49,295		449		56,094		552		Non-agency(2)	46,528		429		56,094		552
Total	Total	$	277,975	$	2,757	$	296,782	$	3,496	Total	$	266,667	$	2,663	$	296,782	$	3,496

⁽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 forward MSRs:


Forward MSRs - Key inputs and assumptions	Forward MSRs - Key inputs and assumptions	June 30, 2020		December 31, 2019		Forward MSRs - Key inputs and assumptions	September 30, 2020		December 31, 2019
Total MSR Portfolio	Total MSR Portfolio					Total MSR Portfolio
Discount rate	Discount rate	9.5	%	9.7	%	Discount rate	9.5	%	9.7	%
Prepayment speeds	Prepayment speeds	14.2	%	13.1	%	Prepayment speeds	14.4	%	13.1	%
Average life	Average life	5.3 years		5.8 years		Average life	5.2 years		5.8 years

Acquisition Pools:
Acquisition Pools						Acquisition Pools
Credit Sensitive	Credit Sensitive					Credit Sensitive
Discount rate	Discount rate	9.9	%	10.4	%	Discount rate	10.0	%	10.4	%
Prepayment speeds	Prepayment speeds	12.6	%	12.7	%	Prepayment speeds	12.6	%	12.7	%
Average life	Average life	5.6 years		6.0 years		Average life	5.6 years		6.0 years

Interest Sensitive	Interest Sensitive					Interest Sensitive
Discount rate	Discount rate	9.0	%	9.1	%	Discount rate	9.0	%	9.1	%
Prepayment speeds	Prepayment speeds	15.8	%	13.5	%	Prepayment speeds	15.9	%	13.5	%
Average life	Average life	4.9 years		5.7 years		Average life	4.9 years		5.7 years

Investor Pools:
Investor Pools						Investor Pools
Agency	Agency					Agency
Discount rate	Discount rate	8.9	%	9.0	%	Discount rate	8.9	%	9.0	%
Prepayment speeds	Prepayment speeds	14.4	%	13.0	%	Prepayment speeds	14.5	%	13.0	%
Average life	Average life	5.2 years		5.8 years		Average life	5.1 years		5.8 years

Non-agency	Non-agency					Non-agency
Discount rate	Discount rate	12.0	%	12.6	%	Discount rate	12.0	%	12.6	%
Prepayment speeds	Prepayment speeds	13.4	%	13.8	%	Prepayment speeds	13.9	%	13.8	%
Average life	Average life	5.6 years		6.2 years		Average life	5.5 years		6.2 years

1412

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:


		Discount Rate						Total Prepayment Speeds							Discount Rate				Total Prepayment Speeds
Forward MSRs - Hypothetical Sensitivities	Forward MSRs - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change		Forward MSRs - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change
June 30, 2020
September 30, 2020										September 30, 2020
Mortgage servicing rights	Mortgage servicing rights	$	(104)	$	(201)	$	(175)	$	(335)	Mortgage servicing rights	$	(87)	$	(179)	$	(157)	$	(321)

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

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 ~~$20,758~~$20,006 and $22,725 as of ~~June~~September 30, 2020 and December 31, 2019, respectively. The following table sets forth the activities of reverse MSRs and mortgage servicing liabilities (“MSL”):


		Six Months Ended June 30,															Nine Months Ended September 30,
		2020						2019							2020				2019
Reverse MSRs and Liabilities - Amortized Cost	Reverse MSRs and Liabilities - Amortized Cost	Assets		Liabilities		Assets		Liabilities		Reverse MSRs and Liabilities - Amortized Cost	Assets		Liabilities		Assets		Liabilities
Balance - beginning of period	Balance - beginning of period	$	6	$	61	$	11	$	71	Balance - beginning of period	$	6	$	61	$	11	$	71
Amortization/accretion	Amortization/accretion	—		(13)		(1)		(28)		Amortization/accretion	0		(17)		2		(39)
Adjustments⁽¹⁾	Adjustments⁽¹⁾	—		—		(4)		37		Adjustments(1)	0		0		(6)		37
Balance - end of the period	Balance - end of the period	$	6	$	48	$	6	$	80	Balance - end of the period	$	6	$	44	$	7	$	69
Fair value - end of period	Fair value - end of period	$	6	$	12	$	7	$	44	Fair value - end of period	$	6	$	7	$	7	$	41

⁽¹⁾Reverse MSR and MSL net adjustments recorded by the Company during the ~~six~~nine months ended ~~June~~September 30, 2019 primarily relate to the finalization of the preliminary fair value ~~adjustments for reverse MSR and MSL assumed from~~estimates recorded in connection with the ~~Merger resulting from the revised cost to service assumption used in the valuation~~merger of ~~reverse MSR and MSL during the measurement period.~~Nationstar Mortgage Holdings, Inc. (the “Merger”).

Management evaluates reverse MSRs and MSLs each reporting period for impairment. Based on management’s assessment at ~~June~~September 30, 2020, 0 impairment or increased obligation was needed.

Excess Spread Financing - Fair Value

In order to finance the acquisition of certain 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, ancillary income~~had excess spread financing liability of $1,044 and ~~interest float earnings on principal along with interest payments~~$1,311 as of September 30, 2020 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.~~December 31, 2019, respectively.

In connection with the above transactions, the Company entered into recapture 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 recaptures 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 key weighted-average assumptions in the Company’s valuation of excess spread financing:


Excess Spread Financing Assumptions		June 30, 2020		December 31, 2019
Excess Spread Financing Key Assumptions						Excess Spread Financing Key Assumptions	September 30, 2020		December 31, 2019
Discount rate	Discount rate	12.0	%	11.6	%	Discount rate	11.9	%	11.6	%
Prepayment speeds	Prepayment speeds	13.4	%	12.6	%	Prepayment speeds	13.6	%	12.6	%
Recapture rate	Recapture rate	18.7	%	20.1	%	Recapture rate	19.1	%	20.1	%
Average life	Average life	5.4 years		5.8 years		Average life	5.3 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:


		Discount Rate						Prepayment Speeds							Discount Rate				Prepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities	Excess Spread Financing - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change		Excess Spread Financing - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change
June 30, 2020
September 30, 2020										September 30, 2020
Excess spread financing	Excess spread financing	$	38	$	78	$	47	$	97	Excess spread financing	$	35	$	72	$	44	$	92

December 31, 2019	December 31, 2019									December 31, 2019
Excess spread financing	Excess spread financing	$	46	$	95	$	46	$	96	Excess spread financing	$	46	$	95	$	46	$	96

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 Company 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 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 MSR resides with the Company. Accordingly, the Company records the MSR and an MSR financing liability associated with this transaction in the 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~~$47 and $37 as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

The following table sets forth the key weighted-average assumptions used in the valuation of the ~~mortgage servicing rights~~MSR financing 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 %


Mortgage Servicing Rights Financing Key Assumptions	September 30, 2020		December 31, 2019
Advance financing and counterparty fee rates	8.2	%	8.9	%
Annual advance recovery rates	20.2	%	18.8	%

1614

Servicing 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,							Three Months Ended September 30,				Nine Months Ended September 30,
Total Revenues - Servicing	Total Revenues - Servicing	2020		2019		2020		2019		Total Revenues - Servicing	2020		2019		2020		2019
Contractually specified servicing fees⁽¹⁾	Contractually specified servicing fees⁽¹⁾	$	285	$	307	$	582	$	588	Contractually specified servicing fees(1)	$	282	$	305	$	864	$	893
Other service-related income⁽¹⁾	Other service-related income⁽¹⁾	62		32		111		82		Other service-related income(1)	59		51		170		133
Incentive and modification income⁽¹⁾	Incentive and modification income⁽¹⁾	8		10		18		17		Incentive and modification income(1)	12		12		30		29
Late fees⁽¹⁾	Late fees⁽¹⁾	20		27		47		52		Late fees(1)	18		30		65		82
Reverse servicing fees	Reverse servicing fees	7		8		13		17		Reverse servicing fees	6		7		19		24
Mark-to-market adjustments⁽²⁾	Mark-to-market adjustments⁽²⁾	(261)		(231)		(644)		(524)		Mark-to-market adjustments(2)	(29)		(83)		(673)		(607)
Counterparty revenue share⁽³⁾	Counterparty revenue share⁽³⁾	(88)		(70)		(164)		(118)		Counterparty revenue share(3)	(104)		(86)		(268)		(204)
Amortization, net of accretion⁽⁴⁾	Amortization, net of accretion⁽⁴⁾	(102)		(56)		(178)		(79)		Amortization, net of accretion(4)	(112)		(73)		(290)		(152)
Total revenues - Servicing	Total revenues - Servicing	$	(69)	$	27	$	(215)	$	35	Total revenues - Servicing	$	132	$	163	$	(83)	$	198

⁽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$7 and ~~$17 for~~$18 during the three months ended ~~June~~September 30, 2020 and 2019, and ~~$13~~$20 and ~~$28 for~~$46 during the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

⁽³⁾Counterparty revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSR financing arrangements.

⁽⁴⁾Amortization is net of excess spread accretion of ~~$79~~$96 and ~~$59~~$77 and MSL accretion of $5$4 and ~~$11 for~~$10 during the three months ended ~~June~~September 30, 2020 and 2019, respectively. ~~For~~During the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, amortization is net of excess spread accretion of ~~$147~~$243 and ~~$95~~$172 and MSL accretion of ~~$13~~$17 and ~~$29,~~$39, respectively.

4.3. Advances and Other Receivables, Net

Advances and other receivables, net, consists of the following:


Advances and Other Receivables, Net	Advances and Other Receivables, Net	June 30, 2020		December 31, 2019		Advances and Other Receivables, Net	September 30, 2020		December 31, 2019
Servicing advances, net of $117 and $131 purchase discount, respectively		$	695	$	970
Servicing advances, net of $92 and $131 purchase discount, respectively						Servicing advances, net of $92 and $131 purchase discount, respectively	$	746	$	970
Receivables from agencies, investors and prior servicers, net of $21 and $21 purchase discount, respectively	Receivables from agencies, investors and prior servicers, net of $21 and $21 purchase discount, respectively	189		193		Receivables from agencies, investors and prior servicers, net of $21 and $21 purchase discount, respectively	190		193
Reserves	Reserves	(216)		(175)		Reserves	(191)		(175)
Total advances and other receivables, net	Total advances and other receivables, net	$	668	$	988	Total advances and other receivables, net	$	745	$	988

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, mortgage insurance claims or the borrower. Reserves for advances and other receivables on loans liquidated or purchased out of the MSR portfolio are established within advances and other receivables.

The following table sets forth the activities of the servicing reserves for advances and other receivables:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,					Nine Months Ended September 30,
Reserves for Advances and Other Receivables	Reserves for Advances and Other Receivables	2020		2019		2020		2019		Reserves for Advances and Other Receivables	2020		2019			2020		2019
Balance - beginning of period	Balance - beginning of period	$	193	$	71	$	168	$	47	Balance - beginning of period	$	216	$	98		$	168	$	47
Provision and other additions⁽¹⁾	Provision and other additions⁽¹⁾	29		37		59		67		Provision and other additions(1)	13		35			72		102
Write-offs	Write-offs	(6)		(10)		(11)		(16)		Write-offs	(38)		(3)			(49)		(19)
Balance - end of period	Balance - end of period	$	216	$	98	$	216	$	98	Balance - end of period	$	191	$	130		$	191	$	130

⁽¹⁾The Company recorded a provision of $3$7 and ~~$17~~$18 through the MTM adjustments in revenues - service related, net, in the consolidated statements of operations ~~for~~during the three months ended ~~June~~September 30, 2020 and 2019, respectively, and ~~$13~~$20 and ~~$28 for~~$46 during the ~~six~~nine months ended ~~June~~September 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.

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 June 30, 2020, a total of $183 purchase discount has been utilized, with $138 purchase discount remaining.~~

The following tables set forth the activities of the purchase discounts for advances and other receivables:


		Three Months Ended June 30, 2020						Three Months Ended June 30, 2019							Three Months Ended September 30, 2020				Three Months Ended September 30, 2019
Purchase Discount for Advances and Other Receivables	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		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	Balance - beginning of period	$	125	$	21	$	169	$	48	Balance - beginning of period	$	117	$	21	$	156	$	48
Utilization of purchase discounts	Utilization of purchase discounts	(8)		—		(13)		—		Utilization of purchase discounts	(25)		0		(8)		0
Balance - end of period	Balance - end of period	$	117	$	21	$	156	$	48	Balance - end of period	$	92	$	21	$	148	$	48


		Six Months Ended June 30, 2020						Six Months Ended June 30, 2019							Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
Purchase Discount for Advances and Other Receivables	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		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	Balance - beginning of period	$	131	$	21	$	205	$	48	Balance - beginning of period	$	131	$	21	$	205	$	48
Addition from acquisition	Addition from acquisition	—		—		19		—		Addition from acquisition	0		0		19		0
Utilization of purchase discounts	Utilization of purchase discounts	(14)		—		(68)		—		Utilization of purchase discounts	(39)		0		(76)		0
Balance - end of period	Balance - end of period	$	117	$	21	$	156	$	48	Balance - end of period	$	92	$	21	$	148	$	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~~CECL framework. During the three and ~~six~~ nine months ended ~~June~~September 30, 2020, the Company increased the CECL reserve by $8$13 and ~~$14,~~$27, respectively. As of ~~June~~September 30, 2020, the total CECL reserve was ~~$31,~~$44, of which ~~$14~~$27 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.

5.4. Reverse Mortgage Interests, Net

Reverse mortgage interests, net, consists of the following:


Reverse Mortgage Interests, Net	Reverse Mortgage Interests, Net	June 30, 2020		December 31, 2019		Reverse Mortgage Interests, Net	September 30, 2020		December 31, 2019
Participating interests in HECM mortgage-backed securities (“HMBS”)	Participating interests in HECM mortgage-backed securities (“HMBS”)	$	3,873	$	4,282	Participating interests in HECM mortgage-backed securities (“HMBS”)	$	3,663	$	4,282
Other interests securitized	Other interests securitized	825		994		Other interests securitized	1,002		994
Unsecuritized interests	Unsecuritized interests	1,138		1,117		Unsecuritized interests	920		1,117
Purchase discount, net	Purchase discount, net	(127)		(114)		Purchase discount, net	(125)		(114)
Total reverse mortgage interests, net	Total reverse mortgage interests, net	$	5,709	$	6,279	Total reverse mortgage interests, net	$	5,460	$	6,279

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 ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, a total of ~~$95~~ $134 and ~~$149~~$211 in UPB associated with new draws on existing loans was transferred to GNMA and securitized by the Company, respectively.

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 ~~six~~nine months ended ~~June~~September 30, 2019. There was no0 such activity during the ~~six~~nine months ended ~~June~~September 30, 2020.

Other Interests Securitized

~~Other~~The reverse mortgage interests under other interest 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~~During the ~~six~~nine months ended ~~June~~September 30, ~~2020.~~2020, the Company securitized a total of $516 UPB through Trust 2020-1 and a total of $337 UPB from Trust 2018-2 and Trust 2018-3 was called and the related debt was extinguished. During the ~~six~~nine months ended ~~June~~September 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. The Company sold $20 UPB of Trust 2018-3 during the ~~six~~nine months ended ~~June~~September 30, 2019. Refer to Other Nonrecourse Debt in Note 9, Indebtedness for additional information.

Unsecuritized Interests

Unsecuritized interests in reverse mortgages consist of the following:


Unsecuritized interests	Unsecuritized interests	June 30, 2020		December 31, 2019		Unsecuritized interests	September 30, 2020		December 31, 2019
Repurchased HECM loans (exceeds 98% MCA)		$	804	$	789
Repurchased HECM loans (exceeds 98% of their Max Claim Amount (“MCA”))						Repurchased HECM loans (exceeds 98% of their Max Claim Amount (“MCA”))	$	634	$	789
HECM related receivables⁽¹⁾	HECM related receivables⁽¹⁾	244		250		HECM related receivables(1)	213		250
Funded borrower draws not yet securitized	Funded borrower draws not yet securitized	53		64		Funded borrower draws not yet securitized	56		64
Real estate owned (“REO”) related receivables	Real estate owned (“REO”) related receivables	37		14		Real estate owned (“REO”) related receivables	17		14
Total unsecuritized interests	Total unsecuritized interests	$	1,138	$	1,117	Total unsecuritized interests	$	920	$	1,117

⁽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.

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 ~~$686~~$912 and ~~$1,457~~$2,132 of HECM loans out of GNMA HMBS securitizations during the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively, of which ~~$186~~$244 and ~~$371~~$561 were subsequently assigned to a third party in accordance with applicable servicing agreements, respectively. To the extent a loan is not subject to applicable servicing agreements and assigned to a third party, the loan is either subject to assignment to HUD, per contractual obligations with GNMA, liquidated via a payoff from the borrower or liquidated via a foreclosure according to the terms of the underlying mortgage. The Company assigned a total of ~~$461~~$630 and ~~$983~~$1,458 of HECM loans to HUD during the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

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 net purchase discount of $256 associated with financial and operational losses on 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 discounts, net, for reverse mortgage interests:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
Purchase discount, net, for reverse mortgage interests⁽¹⁾	Purchase discount, net, for reverse mortgage interests⁽¹⁾	2020		2019		2020		2019		Purchase discount, net, for reverse mortgage interests(1)	2020		2019		2020		2019
Balance - beginning of period	Balance - beginning of period	$	(129)	$	(171)	$	(114)	$	(164)	Balance - beginning of period	$	(127)	$	(163)	$	(114)	$	(164)
Adjustments⁽²⁾	Adjustments⁽²⁾	—		—		—		(24)		Adjustments(2)	0		0		0		(24)
Utilization of purchase discounts⁽³⁾	Utilization of purchase discounts⁽³⁾	9		12		19		40		Utilization of purchase discounts(3)	8		40		27		80
Amortization, net of accretion	Amortization, net of accretion	(7)		(4)		(32)		(15)		Amortization, net of accretion	(6)		(1)		(38)		(16)
Balance - end of period	Balance - end of period	$	(127)	$	(163)	$	(127)	$	(163)	Balance - end of period	$	(125)	$	(124)	$	(125)	$	(124)

⁽¹⁾Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans.

⁽²⁾Adjustments during the ~~six~~nine months ended ~~June~~September 30, 2019 due to revised cost to service assumption utilized in the valuation of reverse mortgage assets and liabilities acquired from the Merger.

⁽³⁾Utilization of purchase discounts on liquidated loans, for which the remaining receivable was ~~written-off.~~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 the scope 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 HECM loan product. Any expected credit-related losses are contemplated in the Company’s existing reserve methodology due to the nature of this financial instrument. Accordingly, no cumulative effect adjustment was required upon adoption of ASU 2016-13 on January 1, 2020 ~~and~~and no additional CECL reserve was recorded as of ~~June~~September 30, 2020.

The credit-risk characteristics of reverse mortgage interests do not vary with time as the financial instruments have no contractual life or financial profile as the primary counterparty is the government agency insuring the loans.

Reverse Mortgage Interest Income

~~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 $55 and $85 for~~was $41 and $74 during the three months ended ~~June~~September 30, 2020 and 2019, respectively, and ~~$117~~ $158 and ~~$167 for~~$241 during the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

6.5. 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-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:


Mortgage Loans Held for Sale	Mortgage Loans Held for Sale	June 30, 2020		December 31, 2019		Mortgage Loans Held for Sale	September 30, 2020		December 31, 2019
Mortgage loans held for sale – UPB	Mortgage loans held for sale – UPB	$	3,033	$	3,949	Mortgage loans held for sale – UPB	$	3,642	$	3,949
Mark-to-market adjustment⁽¹⁾	Mark-to-market adjustment⁽¹⁾	146		128		Mark-to-market adjustment(1)	175		128
Total mortgage loans held for sale	Total mortgage loans held for sale	$	3,179	$	4,077	Total mortgage loans held for sale	$	3,817	$	4,077

⁽¹⁾The mark-to-market adjustment includes net change in unrealized gain/loss, premium on correspondent loans and fees on direct-to-consumer loans. The mark-to-market adjustment is recorded in net gain on mortgage loans held for sale in the consolidated statements of operations.

The following table sets forth the activities of mortgage loans held for sale:


		Six Months Ended June 30,							Nine Months Ended September 30,
Mortgage Loans Held for Sale	Mortgage Loans Held for Sale	2020		2019		Mortgage Loans Held for Sale	2020		2019
Balance - beginning of period	Balance - beginning of period	$	4,077	$	1,631	Balance - beginning of period	$	4,077	$	1,631
Loans sold	Loans sold	(26,149)		(15,203)		Loans sold	(42,185)		(27,413)
Mortgage loans originated and purchased, net of fees	Mortgage loans originated and purchased, net of fees	23,110		16,263		Mortgage loans originated and purchased, net of fees	38,709		28,209
Repurchase of loans out of Ginnie Mae securitizations	Repurchase of loans out of Ginnie Mae securitizations	2,092		715		Repurchase of loans out of Ginnie Mae securitizations	3,173		1,823
Changes in fair value		42		16
Net change in unrealized gain (loss) of loans held for sale						Net change in unrealized gain (loss) of loans held for sale	36		2
Net transfers of mortgage loans held for sale⁽¹⁾	Net transfers of mortgage loans held for sale⁽¹⁾	7		—		Net transfers of mortgage loans held for sale(1)	7		15
Balance - end of period	Balance - end of period	$	3,179	$	3,422	Balance - end of period	$	3,817	$	4,267

⁽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.

~~For~~During the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, the Company received proceeds of ~~$26,606~~$43,040 and ~~$15,422,~~$27,778, respectively, on the sale of mortgage loans held for sale, resulting in gains of ~~$457~~$855 and ~~$219,~~$365, respectively.

The Company has the right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including having 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.

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 and fair value of mortgage loans held for sale on non-accrual status was as follows:


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
Mortgage Loans Held for Sale	Mortgage Loans Held for Sale	UPB		Fair Value		UPB		Fair Value		Mortgage Loans Held for Sale	UPB		Fair Value		UPB		Fair Value
Non-accrual⁽¹⁾	Non-accrual⁽¹⁾	$	35	$	25	$	29	$	22	Non-accrual(1)	$	49	$	39	$	29	$	22

⁽¹⁾Non-accrual UPB includes ~~$27~~$37 and $25 of UPB related to Ginnie Mae repurchased loans as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was ~~$21~~$20 and $21 as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

2118

~~7. Other Assets~~6. Loans Subject to Repurchase from Ginnie Mae

~~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

~~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 received from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its consolidated balance sheets and establishes a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The Company had loans subject to repurchase from Ginnie Mae of $5,395 and $560 as of September 30, 2020 and December 31, 2019, respectively, which are included in both other assets and payables and other liabilities in the consolidated balance sheets.Loans subject to repurchase from Ginnie Mae as of ~~June~~September 30, 2020 include ~~$818~~ $5,095 loans in forbearance related to 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~~ 7. Goodwill and Intangible Assets~~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~~The Company had goodwill of ~~trade receivables and service fees earned but not received based upon the terms~~$120 as of ~~the Company’s servicing and subservicing agreements. As described in~~ ~~Note 1, Nature of Business and Basis of Presentation, certain trade receivables and accrued revenues included in other assets are within the scope of ASU 2016-13, requiring an assessment of CECL losses.~~ ~~As of June~~September 30, 2020 ~~the total CECL reserve was $4.~~

and December 31, 2019. 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 they are primarily short-term in nature. However, the~~ Company ~~does monitor the financial status of customers to determine if any specific loss considerations are required.~~

~~Goodwill and Intangible Assets~~

~~In 2019, the Company recorded goodwill and~~had intangible assets of ~~$40~~$45 and ~~$13, respectively, in connection with the acquisition of Pacific Union. 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 prepaid expenses, margin call deposits, REO, tax receivables, receivables related to recent loan transfers and various receivables due from investors. REO includes $6 and $11 of REO-related receivables with government insurance~~$74 as of ~~June~~September 30, 2020 and December 31, 2019, ~~respectively, limiting loss exposure to~~respectively. Goodwill and intangible assets are included in other assets within the ~~Company.~~consolidated balance sheets.

8. Derivative Financial Instruments

Derivative instruments are used as part of the overall strategy to manage exposure to market risks primarily associated with fluctuations in interest rates related to originations. Derivative instruments utilized by the Company primarily include interest rate lock commitments (“IRLCs”), loan purchase commitments (“LPCs”), forward Mortgage Backed Securities (“MBS”) purchase commitments, Eurodollar and Treasury futures and interest rate swap agreements.

The following tables provide the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses) for the derivative financial instruments:


		September 30, 2020				Nine Months Ended September 30, 2020
Derivative Financial Instruments	Expiration Dates	Outstanding Notional		Fair Value		Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments	2020	$	1,908	$	75	$	43
Derivative financial instruments
IRLCs	2020-2021	10,967		414		279
LPCs	2020	5,217		38		26
Forward MBS trades	2020-2021	11,452		23		17
Total derivative financial instruments - assets		$	27,636	$	475	$	322
Liabilities
Derivative financial instruments
IRLCs	2020	$	2	$	0	$	0
LPCs	2020	598		2		(1)
Forward MBS trades	2020-2021	15,974		42		30
Total derivative financial instruments - liabilities		$	16,574	$	44	$	29


		September 30, 2019				Nine Months Ended September 30, 2019
Derivative Financial Instruments	Expiration Dates	Outstanding Notional		Fair Value		Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments	2019	$	1,508	$	35	$	9
Derivative financial instruments
IRLCs	2019	4,964		144		84
LPCs	2019	1,397		18		17
Forward MBS trades	2019	3,054		8		6
Eurodollar futures	2019-2021	6		0		0
Total derivative financial instruments - assets		$	9,421	$	170	$	107
Liabilities
Derivative financial instruments
IRLCs	2019	$	15	$	0	$	0
LPCs	2019	547		3		3
Forward MBS trades	2019	5,667		16		(8)
Eurodollar futures	2019-2021	8		0		0
Total derivative financial instruments - liabilities		$	6,237	$	19	$	(5)

Associated with the Company’s derivatives are ~~$23~~$14 and $6 in collateral deposits on derivative instruments recorded in other assets onin the Company’s consolidated balance sheets as of ~~June~~September 30, 2020 and December 31, 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 tables 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
Derivative Financial Instruments Expiration
Dates Outstanding
Notional Fair
Value Recorded Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments 2019 $ 1,659 $ 47 $ 21
Derivative financial instruments
IRLCs 2019 3,649 110 51
LPCs 2019 1,327 17 15
Forward MBS trades 2019 762 1 (1)
Eurodollar futures 2019-2021 8 — —
Total derivative financial instruments - assets $ 5,746 $ 128 $ 65
Liabilities
Derivative financial instruments
IRLCs 2019 $ 4 $ — $ —
LPCs 2019 212 1 1
Forward MBS trades 2019 4,932 30 6
Eurodollar futures 2019-2021 12 — —
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


						September 30, 2020				December 31, 2019
	Interest Rate	Maturity Date	Collateral	Capacity Amount		Outstanding		Collateral Pledged		Outstanding		Collateral Pledged
Advance Facilities
$875 advance facility(1)	CP+2.5% to 6.5%	April 2021	Servicing advance receivables	$	875	$	144	$	169	$	37	$	88
$640 advance facility(2)	LIBOR+3.9%	August 2022	Servicing advance receivables	640		144		196		0		0
$425 advance facility(3)	LIBOR+2.8% to 6.5%	October 2021	Servicing advance receivables	425		206		261		224		285
$250 advance facility(4)	LIBOR+1.5% to 2.6%	December 2020	Servicing advance receivables	250		0		0		98		167
$100 advance facility	LIBOR+2.5%	January 2021	Servicing advance receivables	100		75		102		63		125
Advance facilities principal amount						569		728		422		665

Warehouse Facilities
$1,500 warehouse facility	LIBOR+1.7%	June 2021	Mortgage loans or MBS	1,500		666		634		759		733
$1,200 warehouse facility	LIBOR+1.5% to 3.0%	November 2020	Mortgage loans or MBS	1,200		564		610		683		724
$1,050 warehouse facility(5)	LIBOR+1.8% to 3.9%	September 2022	Mortgage loans or MBS	1,050		627		679		589		656


					September 30, 2020				December 31, 2019
	Interest Rate	Maturity Date	Collateral	Capacity Amount	Outstanding		Collateral Pledged		Outstanding		Collateral Pledged
$750 warehouse facility	LIBOR+1.8%	August 2021	Mortgage loans or MBS	750	574		591		0		0
$750 warehouse facility	LIBOR+1.7% to 2.8%	October 2021	Mortgage loans or MBS	750	472		481		411		425
$750 warehouse facility(6)	LIBOR+2.3%	September 2022	Mortgage loans or MBS	750	105		135		54		78
$700 warehouse facility(7)	LIBOR+1.3% to 2.2%	November 2020	Mortgage loans or MBS	700	488		505		469		488
$600 warehouse facility	LIBOR+2.2%	February 2021	Mortgage loans or MBS	600	156		185		174		202
$500 warehouse facility	LIBOR+2.5% to 4.0%	May 2021	Mortgage loans or MBS	500	0		0		336		349
$300 warehouse facility	LIBOR+1.4%	January 2021	Mortgage loans or MBS	300	258		258		136		136
$250 warehouse facility(8)	LIBOR+1.4% to 2.3%	December 2020	Mortgage loans or MBS	250	0		0		762		783
$200 warehouse facility	LIBOR+1.8%	April 2021	Mortgage loans or MBS	200	72		74		27		27
$200 warehouse facility	LIBOR+1.3%	November 2020	Mortgage loans or MBS	200	0		0		0		0
$50 warehouse facility	LIBOR+1.8% to 4.8%	April 2021	Mortgage loans or MBS	50	43		45		11		15
$40 warehouse facility	LIBOR+3.3%	January 2021	Mortgage loans or MBS	40	3		4		5		6
Warehouse facilities principal amount					4,028		4,201		4,416		4,622

MSR Facilities
$450 warehouse facility(9)	LIBOR+5.1%	May 2021	MSR	450	0		0		150		945
$260 warehouse facility(2)	LIBOR+3.9%	August 2022	MSR	260	256		659		0		0
$200 warehouse facility(10)	LIBOR+3.5%	August 2021	MSR	200	0		187		0		200
$150 warehouse facility(5)	LIBOR+3.8%	September 2022	MSR	150	0		149		0		130
$50 warehouse facility	LIBOR+2.8%	November 2020	MSR	50	10		80		10		84
MSR facilities principal amount					266		1,075		160		1,359

Advance, warehouse and MSR facilities principal amount					4,863		$	6,004	4,998		$	6,646
Unamortized debt issuance costs					(12)				(1)
Advance and warehouse facilities, net					$	4,851			$	4,997

Pledged Collateral for warehouse and MSR facilities:
Mortgage loans held for sale					$	3,560	$	3,637	$	3,826	$	3,931
Reverse mortgage interests					468		564		590		691
MSR					266		1,075		160		1,359

⁽¹⁾The capacity amount for this advance facility increased from $125 to $875 in April 2020.

⁽²⁾Total capacity for this facility is $900, of which $640 is internally allocated for Advance financing and $260 is internally allocated for MSR financing; capacity is fully fungible and is not restricted by these allocations.

(3)The capacity amount for this advance facility increased from $325 to $425 in April 2020.

⁽³⁾(4)This advance facility was terminated and transferred to another advance facility in April 2020.

(5)

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⁾Total capacity amount for this facility is ~~$800~~$1,200, of which ~~$150~~$150 is a sublimit for MSR financing. The capacity amount increased from $800 to $1,200 in September 2020.

⁽²⁾(6)The capacity amount for this warehouse facility increased from $200 to $750 in September 2020.

(7)The capacity amount for this warehouse facility was subsequently increased to $1,500 in October 2020 with a maturity date of October 2021.

(8)The capacity amount for this warehouse facility decreased from $1,000 to $250 in May 2020.

⁽³⁾(9)This MSR facility was terminated in August 2020.

(10)The capacity amount for this MSR facility ~~increased~~decreased from $400 to ~~$450~~$200 in ~~May~~August 2020.

2521

Unsecured Senior Notes

Unsecured senior notes consist of the following:


Unsecured senior notes	Unsecured senior notes	June 30, 2020		December 31, 2019		Unsecured senior notes	September 30, 2020		December 31, 2019
$950 face value, 8.125% interest rate payable semi-annually, due July 2023		$	950	$	950
$850 face value, 5.500% interest rate payable semi-annually, due August 2028(1)						$850 face value, 5.500% interest rate payable semi-annually, due August 2028(1)	$	850	$	0
$750 face value, 9.125% interest rate payable semi-annually, due July 2026	$750 face value, 9.125% interest rate payable semi-annually, due July 2026	750		750		$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⁾⁽²⁾	$600 face value, 6.000% interest rate payable semi-annually, due January 2027⁽¹⁾⁽²⁾	600		—		$600 face value, 6.000% interest rate payable semi-annually, due January 2027⁽¹⁾⁽²⁾	600		0
$600 face value, 6.500% interest rate payable semi-annually, due July 2021⁽²⁾⁽³⁾	$600 face value, 6.500% interest rate payable semi-annually, due July 2021⁽²⁾⁽³⁾	—		492		$600 face value, 6.500% interest rate payable semi-annually, due July 2021⁽²⁾⁽³⁾	0		492
$300 face value, 6.500% interest rate payable semi-annually, due June 2022⁽²⁾⁽³⁾	$300 face value, 6.500% interest rate payable semi-annually, due June 2022⁽²⁾⁽³⁾	—		206		$300 face value, 6.500% interest rate payable semi-annually, due June 2022⁽²⁾⁽³⁾	0		206
$950 face value, 8.125% interest rate payable semi-annually, due July 2023(4)						$950 face value, 8.125% interest rate payable semi-annually, due July 2023(4)	0		950
Unsecured senior notes principal amount	Unsecured senior notes principal amount	2,300		2,398		Unsecured senior notes principal amount	2,200		2,398
Unamortized debt issuance costs, premium and discount	Unamortized debt issuance costs, premium and discount	(39)		(32)		Unamortized debt issuance costs, premium and discount	(33)		(32)
Unsecured senior notes, net	Unsecured senior notes, net	$	2,261	$	2,366	Unsecured senior notes, net	$	2,167	$	2,366

⁽¹⁾On August 6, 2020, the Company completed an offering of $850 aggregate principal amount of 5.500% Senior Notes due 2028 (the “2028 Notes”)

(2)On January 16, 2020, the Company completed an offering of $600 aggregate principal amount of 6.000% Senior Notes due 2027 (the “2027 Notes”).

⁽²⁾(3)This note was redeemed in full on February 15, 2020 using the net proceeds of the 2027 Notes offering, together with cash on hand.

(4)

~~The ratios included~~This note was redeemed in full on August 13, 2020 using the ~~indentures for~~net proceeds of 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 transactions2028 Notes offering, together with ~~affiliates. The indentures contain certain events of default, including (subject, in some cases, to customary cure periods and materiality thresholds) defaults based~~cash 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.hand.

The indentures provide that on or before certain fixed dates, the Company may redeem up to 40% of the aggregate principal amount of the unsecured senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest, to the redemption dates, subject to compliance with certain conditions. In addition, the Company may redeem all or a portion of the unsecured senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. ~~No notes were repurchased or redeemed during~~During the ~~three~~nine months ended ~~June 30, 2020. During the six months ended June~~September 30, 2020, the Company repaid $100 in principal of outstanding notes. Additionally, the Company redeemed ~~$598~~$950 and $1,548 in principal of outstanding notes during the ~~six~~three and nine months ended ~~June~~September 30, 2020, resulting in a ~~gain~~net loss of ~~$1. No~~$53 and $52, respectively. No notes were repurchased or redeemed during the three and ~~six~~ nine months ended ~~June~~September 30, 2019.

As of ~~June~~September 30, 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
2020 through 2024	$	0
Thereafter	2,200
Total unsecured senior notes principal amount	$	2,200

2622

Other Nonrecourse Debt

Other nonrecourse debt consists of the following:


							June 30, 2020		December 31, 2019									September 30, 2020		December 31, 2019
Other nonrecourse debt	Other nonrecourse debt	Issue Date	Maturity Date	Class of Note	Collateral Amount		Outstanding		Outstanding		Other nonrecourse debt	Issue Date	Maturity Date	Interest Rate	Class of Note	Collateral Amount		Outstanding		Outstanding
Participating interest financing⁽¹⁾	Participating interest financing⁽¹⁾	—	—	—	$	—	$	3,875	$	4,284	Participating interest financing(1)	—	—	0.3%-5.6%	—	$	0	$	3,664	$	4,284
Securitization of nonperforming HECM loans	Securitization of nonperforming HECM loans										Securitization of nonperforming HECM loans
Trust 2020-1											Trust 2020-1	September 2020	September 2030	1.3%-7.5%	A, M1, M2, M3, M4, M5	519		516		0
Trust 2019-2	Trust 2019-2	November 2019	November 2029	A, M1, M2, M3, M4, M5	287		274		333		Trust 2019-2	November 2019	November 2029	2.3%-6.0%	A, M1, M2, M3, M4, M5	275		259		333
Trust 2019-1	Trust 2019-1	June 2019	June 2029	A, M1, M2, M3, M4, M5	264		244		302		Trust 2019-1	June 2019	June 2029	2.7%-6.0%	A, M1, M2, M3, M4, M5	248		226		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
Trust 2018-3(2)											Trust 2018-3(2)	November 2018	November 2028	3.6%-6.0%	A, M1, M2, M3, M4, M5	0		0		209
Trust 2018-2(2)											Trust 2018-2(2)	July 2018	July 2028	3.2%-6.0%	A, M1, M2, M3, M4, M5	0		0		148
Other nonrecourse debt principal amount	Other nonrecourse debt principal amount						4,699		5,276		Other nonrecourse debt principal amount							4,665		5,276
Unamortized debt issuance costs, premium and discount	Unamortized debt issuance costs, premium and discount						8		10		Unamortized debt issuance costs, premium and discount							6		10
Other nonrecourse debt, net	Other nonrecourse debt, net						$	4,707	$	5,286	Other nonrecourse debt, net							$	4,671	$	5,286

⁽¹⁾Amounts represent the Company’s participating interest in GNMA HMBS securitized portfolios.

(2)

~~Participating Interest Financing~~

~~Participating interest financing represents the obligation of HMBS pools to third-party security holders. The Company issues HMBS~~As discussed in ~~connection with the securitization of borrower draws~~Note 4, Reverse Mortgage Interests, Net, Trust 2018-3 and ~~accrues interest on HECM loans. Proceeds are received in exchange for securitized advances on the HECM loan amounts transferred to GNMA,~~Trust 2018-2 were collapsed and the ~~Company retains a beneficial interest (referred to as a “participating interest”) in~~related debt was extinguished during 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 0.6% to 5.6%.~~nine months ended September 30, 2020.

~~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 2.3% 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 three years. The Company may re-securitize the previously called loans from earlier HECM securitizations to achieve a lower cost of funds.~~

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 ~~June~~September 30, 2020.

2723

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

~~Loans Subject to Repurchase Right from Ginnie Mae~~

~~See~~ ~~Note 7, Other Assets, for a description of assets and liabilities related to loans subject to repurchase right from Ginnie Mae. Loans subject to repurchase from Ginnie Mae as of June 30, 2020 include $818~~ ~~loans in forbearance related to~~ ~~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 represent the Company’s obligation to 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, payables to insurance carriers and insurance cancellation reserves, 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.

~~The following table sets forth the activities of the repurchase 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

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 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.

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 June 30, 2020 is sufficient to cover loss exposure associated with repurchase contingencies.

~~11.~~ Securitizations and Financings

Variable Interest Entities ~~(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)~~certain advance facilities trusts should be consolidated as the Company is the primary beneficiary of each of these entities. Also, the Company consolidated 4certain 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:


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
Consolidated transactions with VIEs	Consolidated transactions with VIEs	Transfers Accounted for as Secured Borrowings		Reverse Secured Borrowings		Transfers Accounted for as Secured Borrowings		Reverse Secured Borrowings		Consolidated transactions with VIEs	Transfers Accounted for as Secured Borrowings		Reverse Secured Borrowings		Transfers Accounted for as Secured Borrowings		Reverse Secured Borrowings
Assets	Assets									Assets
Restricted cash	Restricted cash	$	95	$	27	$	66	$	42	Restricted cash	$	44	$	25	$	66	$	42
Reverse mortgage interests, net⁽¹⁾	Reverse mortgage interests, net⁽¹⁾	—		4,639		—		5,230		Reverse mortgage interests, net(1)	0		4,603		0		5,230
Advances and other receivables, net	Advances and other receivables, net	492		—		540		—		Advances and other receivables, net	430		0		540		0
Total assets	Total assets	$	587	$	4,666	$	606	$	5,272	Total assets	$	474	$	4,628	$	606	$	5,272

Liabilities	Liabilities									Liabilities
Advance facilities⁽²⁾	Advance facilities⁽²⁾	$	399	$	—	$	359	$	—	Advance facilities(2)	$	347	$	0	$	359	$	0
Payables and other liabilities	Payables and other liabilities	1		1		1		1		Payables and other liabilities	0		0		1		1
Participating interest financing	Participating interest financing	—		3,875		—		4,284		Participating interest financing	0		3,664		0		4,284
HECM Securitizations (HMBS)	HECM Securitizations (HMBS)									HECM Securitizations (HMBS)
Trust 2020-1										Trust 2020-1	0		516		0		0
Trust 2019-2	Trust 2019-2	—		274		—		333		Trust 2019-2	0		259		0		333
Trust 2019-1	Trust 2019-1	—		244		—		302		Trust 2019-1	0		226		0		302
Trust 2018-3	Trust 2018-3	—		179		—		209		Trust 2018-3	0		0		0		209
Trust 2018-2	Trust 2018-2	—		127		—		148		Trust 2018-2	0		0		0		148
Total liabilities	Total liabilities	$	400	$	4,700	$	360	$	5,277	Total liabilities	$	347	$	4,665	$	360	$	5,277

⁽¹⁾Amounts include net purchase discount of ~~$59 and~~ $62 and $46 as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

⁽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~~advance facilities in Note 9, Indebtedness, for additional information.

The following table shows a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by the Company:


Unconsolidated securitization trusts	Unconsolidated securitization trusts	June 30, 2020		December 31, 2019		Unconsolidated securitization trusts	September 30, 2020		December 31, 2019
Total collateral balances - UPB	Total collateral balances - UPB	$	1,422	$	1,503	Total collateral balances - UPB	$	1,378	$	1,503
Total certificate balances	Total certificate balances	$	1,421	$	1,512	Total certificate balances	$	1,378	$	1,512

The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of ~~June~~September 30, 2020 and December 31, 2019 and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs.

2924

A summary of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 60 days or more past due are presented below:


Principal Amount of Transferred Loans 60 Days or More Past Due	Principal Amount of Transferred Loans 60 Days or More Past Due	June 30, 2020		December 31, 2019		Principal Amount of Transferred Loans 60 Days or More Past Due	September 30, 2020		December 31, 2019
Unconsolidated securitization trusts	Unconsolidated securitization trusts	$	239	$	193	Unconsolidated securitization trusts	$	179	$	193

~~12.~~11. Earnings Per Share

The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series A Preferred Stock is considered participating securities because it has dividend rights determined on an as-converted basis in the event of Company’s declaration of a dividend or distribution for common shares.

The following table sets forth the computation of basic and diluted net income (loss) per common share (amounts in millions, except per share amounts):


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
Computation of earnings per share	Computation of earnings per share	2020		2019		2020		2019		Computation of earnings per share	2020		2019		2020		2019
Net income (loss) attributable to Mr. Cooper	Net income (loss) attributable to Mr. Cooper	$	73	$	(87)	$	(95)	$	(273)	Net income (loss) attributable to Mr. Cooper	$	209	$	84	$	114	$	(189)
Less: Undistributed earnings attributable to participating stockholders	Less: Undistributed earnings attributable to participating stockholders	1		—		—		—		Less: Undistributed earnings attributable to participating stockholders	2		1		1		0
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders	$	72	$	(87)	$	(95)	$	(273)	Net income (loss) attributable to common stockholders	$	207	$	83	$	113	$	(189)

Net income (loss) per common share attributable to Mr. Cooper:	Net income (loss) per common share attributable to Mr. Cooper:									Net income (loss) per common share attributable to Mr. Cooper:
Basic	Basic	$	0.78	$	(0.96)	$	(1.04)	$	(3.00)	Basic	$	2.26	$	0.91	$	1.23	$	(2.08)
Diluted	Diluted	$	0.77	$	(0.96)	$	(1.04)	$	(3.00)	Diluted	$	2.18	$	0.90	$	1.20	$	(2.08)

Weighted average shares of common stock outstanding (in thousands):	Weighted average shares of common stock outstanding (in thousands):									Weighted average shares of common stock outstanding (in thousands):
Basic	Basic	91,997		91,054		91,691		90,978		Basic	91,682		91,080		91,688		91,012
Dilutive effect of stock awards⁽¹⁾	Dilutive effect of stock awards⁽¹⁾	176		—		—		—		Dilutive effect of stock awards(1)	2,563		117		1,529		0
Dilutive effect of participating securities⁽¹⁾	Dilutive effect of participating securities⁽¹⁾	839		—		—		—		Dilutive effect of participating securities(1)	839		839		839		0
Diluted	Diluted	93,012		91,054		91,691		90,978		Diluted	95,084		92,036		94,056		91,012

⁽¹⁾For periods with net loss, the Company excluded potential common shares from the computation of diluted EPS because inclusion would be antidilutive.

~~13.~~12. Income Taxes

~~The following table sets forth the computation of the effective tax 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.~~

For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the effective tax rate was 24.0% and 23.9%, respectively, which differed from the statutory federal rate of 21% primarily due to state income taxes, as well as unfavorable permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m). The effective tax rate increased induring the three and ~~six~~nine months ended ~~June~~September 30, 2020 as compared to the same periods in 2019, primarily ~~attributable~~due to the ~~increased~~ relative unfavorable tax impacts of the permanent differences on the annual effective rate.

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the effective tax rate was 22.3% and 21.5%, respectively, which differed from the statutory federal rate of 21% primarily due to permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m) and nondeductible meals and entertainment expenses, as well as other recurring items such as the state tax benefit.

~~14.~~13. Fair Value Measurements

Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).

~~The following describes~~There have been no significant changes to the ~~methods~~valuation techniques and ~~assumptions~~inputs used by the Company in estimating fair ~~values:~~

~~Cash~~values of Level 2 and ~~Cash Equivalents, Restricted Cash (Level 1) –~~ ~~The carrying amount reported~~Level 3 assets and liabilities as disclosed in the ~~consolidated balance sheets approximates fair value.~~

~~Mortgage Loans Held~~Company’s Annual Reports on Form 10-K 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 MBS. Additionally,~~year ended December 31, 2019, with 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~~exception 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, (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, for more information.~~

~~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 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 with 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.~~following:

Derivative Financial Instruments (Level 32 and Level 2)3) – 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. Derivative 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, the Company classifies these contracts as Level 2 in the fair value disclosure.

Derivative financial instruments are recorded in other assets and payables and other liabilities within the consolidated balance sheets. See Note 9,8, 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 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 9, 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 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 9, Indebtedness,~~ ~~for more information.~~

3326

The following tables present the estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis:


		June 30, 2020															September 30, 2020
				Recurring Fair Value Measurements													Recurring Fair Value Measurements
Fair value - Recurring basis	Fair value - Recurring basis	Total Fair Value		Level 1		Level 2		Level 3		Fair value - Recurring basis	Total Fair Value		Level 1		Level 2		Level 3
Assets	Assets									Assets
Mortgage loans held for sale	Mortgage loans held for sale	$	3,179	$	—	$	3,179	$	—	Mortgage loans held for sale	$	3,817	$	0	$	3,817	$	0
Forward mortgage servicing rights	Forward mortgage servicing rights	2,757		—		—		2,757		Forward mortgage servicing rights	2,663		0		0		2,663
Derivative financial instruments	Derivative financial instruments									Derivative financial instruments
IRLCs	IRLCs	370		—		—		370		IRLCs	414		0		0		414
Forward MBS trades	Forward MBS trades	3		—		3		—		Forward MBS trades	23		0		23		0
LPCs	LPCs	18		—		—		18		LPCs	38		0		0		38
Total assets		$	6,327	$	—	$	3,182	$	3,145

Liabilities	Liabilities									Liabilities
Derivative financial instruments	Derivative financial instruments									Derivative financial instruments
Forward MBS trades	Forward MBS trades	$	50	$	—	$	50	$	—	Forward MBS trades	$	42	$	0	$	42	$	0

LPCs										LPCs	2		0		0		2
Mortgage servicing rights financing	Mortgage servicing rights financing	49		—		—		49		Mortgage servicing rights financing	47		0		0		47
Excess spread financing	Excess spread financing	1,124		—		—		1,124		Excess spread financing	1,044		0		0		1,044
Total liabilities		$	1,223	$	—	$	50	$	1,173


		December 31, 2019															December 31, 2019
				Recurring Fair Value Measurements													Recurring Fair Value Measurements
Fair value - Recurring basis	Fair value - Recurring basis	Total Fair Value		Level 1		Level 2		Level 3		Fair value - Recurring basis	Total Fair Value		Level 1		Level 2		Level 3
Assets	Assets									Assets
Mortgage loans held for sale	Mortgage loans held for sale	$	4,077	$	—	$	4,077	$	—	Mortgage loans held for sale	$	4,077	$	0	$	4,077	$	0
Forward mortgage servicing rights	Forward mortgage servicing rights	3,496		—		—		3,496		Forward mortgage servicing rights	3,496		0		0		3,496
Derivative financial instruments	Derivative financial instruments									Derivative financial instruments
IRLCs	IRLCs	135		—		135		—		IRLCs	135		0		135		0
Forward MBS trades	Forward MBS trades	7		—		7		—		Forward MBS trades	7		0		7		0
LPCs	LPCs	12		—		12		—		LPCs	12		0		12		0
Total assets		$	7,727	$	—	$	4,231	$	3,496

Liabilities	Liabilities									Liabilities
Derivative financial instruments	Derivative financial instruments									Derivative financial instruments
Forward MBS trades	Forward MBS trades	$	12	$	—	$	12	$	—	Forward MBS trades	$	12	$	0	$	12	$	0
LPCs	LPCs	3		—		3		—		LPCs	3		0		3		0
Mortgage servicing rights financing	Mortgage servicing rights financing	37		—		—		37		Mortgage servicing rights financing	37		0		0		37
Excess spread financing	Excess spread financing	1,311		—		—		1,311		Excess spread financing	1,311		0		0		1,311
Total liabilities		$	1,363	$	—	$	15	$	1,348

3427

The tables below present a reconciliation for all of the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis:


		Six Months Ended June 30, 2020															Nine Months Ended September 30, 2020
		Assets						Liabilities							Assets						Liabilities
Fair value - Level 3 assets and liabilities	Fair value - Level 3 assets and liabilities	Forward mortgage servicing rights		IRLCs		Excess spread financing		Mortgage servicing rights financing		Fair value - Level 3 assets and liabilities	Forward mortgage servicing rights		IRLCs		LPCs		Excess spread financing		Mortgage servicing rights financing
Balance - beginning of period	Balance - beginning of period	$	3,496	$	135	$	1,311	$	37	Balance - beginning of period	$	3,496	$	135	$	12	$	1,311	$	37
Total gains or losses included in earnings	Total gains or losses included in earnings	(1,012)		235		(101)		12		Total gains or losses included in earnings	(1,275)		279		26		(132)		10

Purchases, issuances, sales, repayments and settlements	Purchases, issuances, sales, repayments and settlements									Purchases, issuances, sales, repayments and settlements
Purchases	Purchases	24		—		—		—		Purchases	30		0		0		0		0
Issuances	Issuances	249		—		24		—		Issuances	412		0		0		24		0

Settlements and repayments	Settlements and repayments	—		—		(110)		—		Settlements and repayments	0		0		0		(159)		0
Balance - end of period	Balance - end of period	$	2,757	$	370	$	1,124	$	49	Balance - end of period	$	2,663	$	414	$	38	$	1,044	$	47


		Six Months Ended June 30, 2019											Nine Months Ended September 30, 2019
		Assets		Liabilities							Assets				Liabilities
Fair value - Level 3 assets and liabilities	Fair value - Level 3 assets and liabilities	Forward mortgage servicing rights		Excess spread financing		Mortgage servicing rights financing		Fair value - Level 3 assets and liabilities	Forward mortgage servicing rights		Mortgage loans held for investment		Excess spread financing		Mortgage servicing rights financing
Balance - beginning of period	Balance - beginning of period	$	3,665	$	1,184	$	32	Balance - beginning of period	$	3,665	$	119	$	1,184	$	32
Total gains or losses included in earnings	Total gains or losses included in earnings	(724)		(74)		11		Total gains or losses included in earnings	(1,039)		3		(190)		15

Payments received from borrowers								Payments received from borrowers	0		(11)		0		0
Purchases, issuances, sales, repayments and settlements	Purchases, issuances, sales, repayments and settlements							Purchases, issuances, sales, repayments and settlements
Purchases	Purchases	689		—		—		Purchases	732		0		469		0
Issuances	Issuances	169		438		—		Issuances	298		0		0		0
Sales	Sales	(294)		—		—		Sales	(317)		(94)		0		0
Settlements and repayments	Settlements and repayments	—		(119)		—		Settlements and repayments	0		0		(182)		0
Transfers to mortgage loans held for sale								Transfers to mortgage loans held for sale	0		(12)		0		0
Transfers to real estate owned								Transfers to real estate owned	0		(5)		0		0
Balance - end of period	Balance - end of period	$	3,505	$	1,429	$	43	Balance - end of period	$	3,339	$	0	$	1,281	$	47

AsThe Company had LPCs liabilities of ~~June~~$2 and $3 as of September 30, 2020 and December 31, 2019, ~~the Company had 0 mortgage loans held for investment as the related portfolio was sold in September 2019.~~respectively. During the ~~six~~nine months ended ~~June 30, 2019, the Company had an immaterial change in mortgage loans held for 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 JuneSeptember 30, 2020, the Company had an immaterial change in LPCs ~~assets and~~ liabilities.

No transfers were made in or out of Level 3 fair value assets and liabilities for the Company ~~for~~during the ~~six~~nine months ended ~~June~~September 30, 2020, ~~and 2019,~~ with the exception 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 as discussed above. No transfers were made into Level 3 fair value assets and liabilities for the Company during the ~~three~~nine months ended ~~June~~September 30, ~~2020.~~2019. During the nine months ended September 30, 2019, $12 was transferred from mortgage loans held for investment, a Level 3 fair value asset, to mortgage loans held for sale, a Level 2 fair value asset, in connection with the collapse of Trust 2009-A, the Company’s legacy portfolio, and sale of the loans held in the trust.

3528

The tables below present the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities:


	September 30, 2020
	Range						Weighted Average
Level 3 inputs	Min			Max
Forward MSR
Discount rate	8.3		%	12.0		%	9.5		%
Prepayment speed	12.6		%	19.2		%	14.4		%
Cost to service per loan(1)	$	68		$	295		$	105

IRLCs
Value of servicing (basis points per loan)	(0.4)			2.1			1.2

Excess spread financing
Discount rate	9.8		%	15.5		%	11.9		%
Prepayment speed	13.4		%	14.0		%	13.6		%
Recapture rate	17.1		%	23.5		%	19.1		%
Average life	5.2 years			5.5 years			5.3 years

Mortgage servicing rights financing
Advance financing and counterparty fee rates	6.4		%	9.4		%	8.2		%
Annual advance recovery rates	18.6		%	22.6		%	20.2		%

(1)Presented in whole dollar amounts.

The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial ~~instruments:~~instruments not carried at fair value:


		June 30, 2020																September 30, 2020
		Carrying Amount		Fair Value												Carrying Amount		Fair Value
Financial instruments	Financial instruments					Level 1		Level 2				Level 3	Financial instruments	Carrying Amount				Level 2		Level 3
Financial assets	Financial assets									Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	1,041	$	1,041	$	—	$	—	Cash and cash equivalents	$	946		$	946	$	0	$	0
Restricted cash	Restricted cash	260		260		—		—		Restricted cash	229			229		0		0
Advances and other receivables, net	Advances and other receivables, net	668		—		—		668		Advances and other receivables, net	745			0		0		745
Reverse mortgage interests, net	Reverse mortgage interests, net	5,709		—		—		5,736		Reverse mortgage interests, net	5,460			0		0		5,574
Mortgage loans held for sale		3,179		—		3,179		—
Derivative financial instruments		391		—		3		388
Financial liabilities	Financial liabilities									Financial liabilities
Unsecured senior notes⁽¹⁾	Unsecured senior notes⁽¹⁾	2,261		2,307		—		—		Unsecured senior notes(1)	2,167			2,237		0		0
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		—
Advance and warehouse facilities(1)										Advance and warehouse facilities(1)	4,851			0		4,851		0
Participating interest financing⁽¹⁾	Participating interest financing⁽¹⁾	3,886		—		—		3,857		Participating interest financing(1)	3,676			0		0		3,679
HECM Securitization (HMBS)⁽¹⁾	HECM Securitization (HMBS)⁽¹⁾									HECM Securitization (HMBS)(1)
Trust 2020-1										Trust 2020-1	513			0		0		513
Trust 2019-2	Trust 2019-2	272		—		—		272		Trust 2019-2	257			0		0		257
Trust 2019-1	Trust 2019-1	243		—		—		243		Trust 2019-1	225			0		0		225
Trust 2018-3		179		—		—		179
Trust 2018-2		127		—		—		127

⁽¹⁾The amounts are presented net of unamortized debt issuance costs, premium and discount.

3629


		December 31, 2019																December 31, 2019
		Carrying Amount		Fair Value												Carrying Amount		Fair Value
Financial instruments	Financial instruments					Level 1		Level 2				Level 3	Financial instruments	Carrying Amount				Level 2		Level 3
Financial assets	Financial assets									Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	329	$	329	$	—	$	—	Cash and cash equivalents	$	329		$	329	$	0	$	0
Restricted cash	Restricted cash	283		283		—		—		Restricted cash	283			283		0		0
Advances and other receivables, net	Advances and other receivables, net	988		—		—		988		Advances and other receivables, net	988			0		0		988
Reverse mortgage interests, net	Reverse mortgage interests, net	6,279		—		—		6,318		Reverse mortgage interests, net	6,279			0		0		6,318
Mortgage loans held for sale		4,077		—		4,077		—

Derivative financial instruments		153		—		153		—
Financial liabilities	Financial liabilities									Financial liabilities
Unsecured senior notes⁽¹⁾	Unsecured senior notes⁽¹⁾	2,366		2,505		—		—		Unsecured senior notes(1)	2,366			2,505		0		0
Advance facilities⁽¹⁾		422		—		422		—
Warehouse facilities⁽¹⁾		4,575		—		4,575		—
Mortgage servicing rights financing liability		37		—		—		37
Excess spread financing		1,311		—		—		1,311
Derivative financial instruments		15		—		15		—
Advance and warehouse facilities(1)										Advance and warehouse facilities(1)	4,997			0		4,997		0
Participating interest financing⁽¹⁾	Participating interest financing⁽¹⁾	4,299		—		—		4,299		Participating interest financing(1)	4,299			0		0		4,299
HECM Securitization (HMBS)⁽¹⁾	HECM Securitization (HMBS)⁽¹⁾									HECM Securitization (HMBS)(1)
Trust 2019-2	Trust 2019-2	331		—		—		331		Trust 2019-2	331			0		0		331
Trust 2019-1	Trust 2019-1	300		—		—		300		Trust 2019-1	300			0		0		300
Trust 2018-3	Trust 2018-3	208		—		—		208		Trust 2018-3	208			0		0		208
Trust 2018-2	Trust 2018-2	148		—		—		148		Trust 2018-2	148			0		0		148

⁽¹⁾The amounts are presented net of unamortized debt issuance costs, premium and discount.

~~15.~~14. Capital Requirements

Certain of the Company’s secondary market investors require minimum net worth (“capital”) requirements, as specified in the respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated requirements to approve large servicing transfers. To the extent that these requirements are not met, the Company’s secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of the Company’s selling and servicing agreements, which would prohibit the Company from further originating or securitizing these specific types of mortgage loans or being an approved servicer. The Company’s various capital requirements related to its outstanding selling and servicing agreements are measured based on the Company’s operating subsidiary, Nationstar Mortgage LLC. As of ~~June~~September 30, 2020, the Company was in compliance with its selling and servicing capital requirements.

~~16.~~15. Commitments and Contingencies

Litigation and Regulatory

The Company and its subsidiaries are routinely and currently involved in a significant number of legal proceedings, including, but not limited to, judicial, arbitration, regulatory and governmental proceedings related to matters that arise in connection with the conduct of the Company’s business. The legal proceedings are at varying stages of adjudication, arbitration or investigation and are generally based on alleged violations of consumer protection, securities, employment, contract, tort, common law fraud and other numerous laws, including, without limitation, the Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, National Housing Act, Homeowners Protection Act, Service Member’s Civil Relief Act, Telephone Consumer Protection Act, Truth in Lending Act, Financial Institutions Reform, Recovery, and Enforcement Act of 1989, unfair, deceptive or abusive acts or practices in violation of the Dodd-Frank Act, the Securities Act of 1933, the Securities Exchange Act of 1934, the Home Mortgage Disclosure Act, Title 11 of the United States Code (aka the “Bankruptcy Code”), False Claims Act and Making Home Affordable loan modification programs.

In addition, along with others in its industry, the Company is subject to repurchase and indemnification claims and may continue to receive claims in the future, regarding alleged breaches of representations and warranties relating to the sale of mortgage loans, the placement of mortgage loans into securitization trusts or the servicing of mortgage loans securitizations. The Company is also subject to legal actions or proceedings related to loss sharing and indemnification provisions of its various acquisitions. Certain of the pending or threatened legal proceedings include claims for substantial compensatory, punitive and/or statutory damages or claims for an indeterminate amount of damages.

The Company’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 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.

In particular, ~~as previously disclosed,~~ the Company continues 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 the Company’s business practices. The Company believes that it has reached a settlement in principle to resolve these matters with each of these parties. Accordingly, the Company ~~has recorded an additional accrual during the three months ended June 30, 2020 in addition to amounts previously accrued and~~ believes that it has fully accrued for these ~~matters.~~matters as of September 30, 2020.

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 ~~$12~~$9 and ~~$27~~$36 for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively and ~~$21~~$24 and ~~$32~~$56 for the three and ~~six~~nine months ended ~~June~~September 30, 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 $2$3 to ~~$18~~$20 in excess of the accrued liability (if any) related to those matters as of ~~June~~September 30, 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 ~~June~~September 30, 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 8, Derivative Financial Instruments, for more information.

The Company had certain reverse MSRs, reverse MSLs and reverse mortgage loans related to approximately ~~$20,758~~$20,006 and $22,725 of UPB in reverse mortgage loans as of ~~June~~September 30, 2020 and December 31, 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 ~~June~~September 30, 2020 and December 31, 2019, the Company’s maximum unfunded advance obligation to fund borrower draws related to these reverse MSRs and loans was approximately ~~$2,408~~$2,304 and $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.

~~17.~~16. Business Segment Reporting

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.~~Other. Prior year financial information has been adjusted retrospectively to reflect the updated presentation.

The following tables present financial information by segment:


		Three Months Ended June 30, 2020																			Three Months Ended September 30, 2020
Financial information by segment	Financial information by segment	Servicing		Originations		Xome		Corporate/Other		Consolidated		Financial information by segment	Servicing		Originations		Xome		Corporate/Other		Consolidated
Revenues	Revenues											Revenues
Service related, net(1)	Service related, net(1)	$	(114)	$	21	$	106	$	(1)	$	12	Service related, net(1)	$	92	$	27	$	108	$	0	$	227
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale	45		573		—		—		618		Net gain on mortgage loans held for sale	40		605		0		0		645
Total revenues	Total revenues	(69)		594		106		(1)		630		Total revenues	132		632		108		0		872
Total expenses	Total expenses	122		167		95		35		419		Total expenses	99		195		94		43		431
Interest income	Interest income	57		19		—		—		76		Interest income	40		16		0		0		56
Interest expense	Interest expense	(117)		(13)		—		(47)		(177)		Interest expense	(105)		(15)		0		(45)		(165)
Other income (expenses), net	Other income (expenses), net	—		—		1		(1)		—		Other income (expenses), net	0		0		1		(52)		(51)
Total other (expenses) income, net	Total other (expenses) income, net	(60)		6		1		(48)		(101)		Total other (expenses) income, net	(65)		1		1		(97)		(160)
(Loss) income before income tax (benefit) expense	(Loss) income before income tax (benefit) expense	$	(251)	$	433	$	12	$	(84)	$	110	(Loss) income before income tax (benefit) expense	$	(32)	$	438	$	15	$	(140)	$	281
Depreciation and amortization for property and equipment and intangible assets	Depreciation and amortization for property and equipment and intangible assets	$	5	$	4	$	3	$	6	$	18	Depreciation and amortization for property and equipment and intangible assets	$	6	$	5	$	5	$	3	$	19
Total assets	Total assets	$	10,736	$	3,592	$	135	$	2,837	$	17,300	Total assets	$	14,707	$	4,250	$	135	$	2,663	$	21,755


	Three Months Ended September 30, 2019
Financial information by segment	Servicing		Originations		Xome		Corporate/Other		Consolidated
Revenues
Service related, net(1)	$	126	$	22	$	112	$	(2)	$	258
Net gain on mortgage loans held for sale	37		312		0		11		360
Total revenues	163		334		112		9		618
Total expenses	171		155		101		51		478
Interest income	137		24		0		2		163
Interest expense	(120)		(24)		0		(52)		(196)
Other (expense) income, net	0		(1)		3		(2)		0
Total other income (expenses), net	17		(1)		3		(52)		(33)
Income (loss) before income tax expense (benefit)	$	9	$	178	$	14	$	(94)	$	107
Depreciation and amortization for property and equipment and intangible assets	$	5	$	4	$	4	$	9	$	22
Total assets	$	12,065	$	4,386	$	172	$	1,855	$	18,478

4033


		Three Months Ended June 30, 2019																			Nine Months Ended September 30, 2020
Financial information by segment	Financial information by segment	Servicing		Originations		Xome		Corporate/Other		Consolidated		Financial information by segment	Servicing		Originations		Xome		Corporate/Other		Consolidated
Revenues	Revenues											Revenues
Service related, net(1)	Service related, net(1)	$	9	$	20	$	108	$	—	$	137	Service related, net(1)	$	(202)	$	68	$	320	$	0	$	186
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale	18		244		—		—		262		Net gain on mortgage loans held for sale	119		1,475		0		0		1,594
Total revenues	Total revenues	27		264		108		—		399		Total revenues	(83)		1,543		320		0		1,780
Total expenses	Total expenses	189		145		101		57		492		Total expenses	370		528		285		111		1,294
Interest income	Interest income	136		23		—		3		162		Interest income	180		69		0		1		250
Interest expense	Interest expense	(109)		(25)		—		(53)		(187)		Interest expense	(335)		(55)		0		(144)		(534)
Other income, net		—		1		—		—		1
Total other income (expenses), net		27		(1)		—		(50)		(24)
Other income (expense), net												Other income (expense), net	0		0		3		(53)		(50)
Total other (expenses) income, net												Total other (expenses) income, net	(155)		14		3		(196)		(334)
(Loss) income before income tax (benefit) expense	(Loss) income before income tax (benefit) expense	$	(135)	$	118	$	7	$	(107)	$	(117)	(Loss) income before income tax (benefit) expense	$	(608)	$	1,029	$	38	$	(307)	$	152
Depreciation and amortization for property and equipment and intangible assets	Depreciation and amortization for property and equipment and intangible assets	$	4	$	6	$	3	$	11	$	24	Depreciation and amortization for property and equipment and intangible assets	$	14	$	12	$	11	$	19	$	56
Total assets	Total assets	$	12,906	$	3,462	$	112	$	1,925	$	18,405	Total assets	$	14,707	$	4,250	$	135	$	2,663	$	21,755


		Six Months Ended June 30, 2020																			Nine Months Ended September 30, 2019
Financial information by segment	Financial information by segment	Servicing		Originations		Xome		Corporate/Other		Consolidated		Financial information by segment	Servicing		Originations		Xome		Corporate/Other		Consolidated
Revenues	Revenues											Revenues
Service related, net(1)	Service related, net(1)	$	(294)	$	41	$	212	$	—	$	(41)	Service related, net(1)	$	108	$	57	$	316	$	(2)	$	479
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale	79		870		—		—		949		Net gain on mortgage loans held for sale	90		687		0		11		788
Total revenues	Total revenues	(215)		911		212		—		908		Total revenues	198		744		316		9		1,267
Total expenses	Total expenses	271		333		191		68		863		Total expenses	555		404		301		153		1,413
Interest income	Interest income	140		53		—		1		194		Interest income	388		64		0		7		459
Interest expense	Interest expense	(230)		(40)		—		(99)		(369)		Interest expense	(343)		(67)		0		(162)		(572)
Other income (expense), net	Other income (expense), net	—		—		2		(1)		1		Other income (expense), net	0		4		14		(2)		16
Total other (expenses) income, net		(90)		13		2		(99)		(174)
Total other income (expenses), net												Total other income (expenses), net	45		1		14		(157)		(97)
(Loss) income before income tax (benefit) expense	(Loss) income before income tax (benefit) expense	$	(576)	$	591	$	23	$	(167)	$	(129)	(Loss) income before income tax (benefit) expense	$	(312)	$	341	$	29	$	(301)	$	(243)
Depreciation and amortization for property and equipment and intangible assets	Depreciation and amortization for property and equipment and intangible assets	$	8	$	7	$	6	$	16	$	37	Depreciation and amortization for property and equipment and intangible assets	$	13	$	13	$	11	$	30	$	67
Total assets	Total assets	$	10,736	$	3,592	$	135	$	2,837	$	17,300	Total assets	$	12,065	$	4,386	$	172	$	1,855	$	18,478

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

(1)Service related, net revenues for Corporate/Other include intersegment eliminations.

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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.

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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.


Overview

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~~$588 billion as of ~~June~~September 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~~organization;

•Grow and strengthen our customer base in each of our ~~segments~~segments;

•Reinvent the customer experience by acting as the customer’s advocate and by harnessing technology to deliver user-friendly digital ~~solutions~~solutions;

•Sustain the talent of our people and the culture of our ~~organization~~organization; and

•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,~~October 25, 2020, approximately ~~197,000 or 5.9%~~6.1% of our customers were on a forbearance plan, down from a peak of ~~7.1% at the end of June 2020. The numbers~~7.2%. More customers 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.now exiting forbearance than are entering. 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~~ $5,095 as of ~~June~~September 30, 2020 and ~~is expected to continue to~~may increase during the ~~third~~fourth quarter. See liquidity discussion related to the COVID-19 pandemic in Liquidity and Capital Resources section in MD&A.

4336

Anticipated Trends

~~Depending on how long the pandemic continues to disrupt the economy and employment, our~~

Our Servicing segment ~~could~~continued to experience portfolio run-off from elevated prepayment speeds in the low interest rate environment, most of which was replenished by strong correspondent volume. We expect to see servicing portfolio growth in the fourth quarter of 2020, primarily from correspondent and flow originations as well as UPB growth from a ~~cost-to-service increase~~major new subservicing relationship. During the third quarter of 2020, the servicing margin benefited from a $46 loss recovery related to settlement with a government agency. We don’t expect any additional settlements in the fourth quarter. Looking ahead into 2021, we would expect prepayment speeds to decline from current level and also expect to see some contribution from incentive fees and early-buyout gains 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. help customers exit forbearance.

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 pandemic began to impact the mortgage capital markets, our Originations segment took several steps to rapidly de-risk the pipeline. During the second quarter of 2020, we slowed down correspondent productions as we evaluated the environment. However, since then, we ramped up our correspondent production and had record correspondent volumes during the third quarter of 2020. We expect to continue growing the correspondent channel.

Our Xome segment’s revenue from the Exchange division has been, and is expected to continue to be, negatively impacted, 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.~~markets. However, Xome’s revenue from the Services division has benefited from the lower interest rate environment and increase in ~~Originations~~origination volume and has helped balance out the decrease in Exchange’s revenues. Once the moratoriums are lifted, we expect a surge in activity and 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,											Three Months Ended September 30,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change
Revenues - operational⁽¹⁾	Revenues - operational⁽¹⁾	$	891	$	630	$	261	41	%	Revenues - operational(1)	$	901	$	701	$	200	29	%
Revenues - Mark-to-market	Revenues - Mark-to-market	(261)		(231)		(30)		13	%	Revenues - Mark-to-market	(29)		(83)		54		(65)	%
Total revenues	Total revenues	630		399		231		58	%	Total revenues	872		618		254		41	%
Total expenses	Total expenses	419		492		(73)		(15)	%	Total expenses	431		478		(47)		(10)	%
Total other expenses, net	Total other expenses, net	(101)		(24)		(77)		321	%	Total other expenses, net	(160)		(33)		(127)		385	%
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)	%
Income before income tax expense										Income before income tax expense	281		107		174		163	%
Less: Income tax expense										Less: Income tax expense	67		24		43		179	%
Net income										Net income	214		83		131		158	%
Less: Net income (loss) attributable to non-controlling interests										Less: Net income (loss) attributable to non-controlling interests	5		(1)		6		(600)	%
Net income attributable to Mr. Cooper										Net income attributable to Mr. Cooper	$	209	$	84	$	125	149	%

⁽¹⁾Revenues - operational consists of total revenues, excluding mark-to-market.

~~We recorded net~~Net income ~~of $73~~increased during the three months ended ~~June~~September 30, 2020 to $214 compared to a net ~~loss~~income of ~~$88~~$83 during the same period in 2019. The net income in 2020 was higher 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~~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~~a decrease in negative mark-to-market (“MTM”) adjustments ~~for~~during the three months ended ~~June~~September 30, 2020 compared to the same period in 2019. Refer to Table ~~10.~~8. Servicing - Revenues and Table ~~21.~~19. Originations - Revenues for further discussion.

Total expenses ~~for~~during the three months ended ~~June~~September 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 loss recoveries from settlement with a government agency and 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. Refer to Table 9. Servicing - Expenses and Table 20. Originations - Expenses for further discussion.

Total other expenses, net, increased ~~for~~during the three months ended ~~June~~September 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest income and increase in ~~our Servicing segment,~~other expenses, 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 expenses, net increased primarily due to an increase in other expense, net in our Corporate/Other segment primarily driven by a loss on redemption of the 2023 unsecured senior notes. Refer to Table ~~12.~~10. Servicing - Other (Expenses) Income, Net and Table 23. Corporate/Other Selected Financial Results for further discussion.

44During the three months ended September 30, 2020 and 2019, we had an income tax expense. The effective tax rate during the three months ended September 30, 2020 was 24.0% as compared to the effective tax rate of 22.3% during the three months ended September 30, 2019. The change in effective tax rate is primarily attributable to the 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 during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.


Table 1.1 Consolidated Operations


		Six Months Ended June 30,											Nine Months Ended September 30,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change
Revenues - operational⁽¹⁾	Revenues - operational⁽¹⁾	$	1,552	$	1,173	$	379	32	%	Revenues - operational(1)	$	2,453	$	1,874	$	579	31	%
Revenues - Mark-to-market	Revenues - Mark-to-market	(644)		(524)		(120)		23	%	Revenues - Mark-to-market	(673)		(607)		(66)		11	%
Total revenues	Total revenues	908		649		259		40	%	Total revenues	1,780		1,267		513		40	%
Total expenses	Total expenses	863		935		(72)		(8)	%	Total expenses	1,294		1,413		(119)		(8)	%
Total other expenses, net	Total other expenses, net	(174)		(64)		(110)		172	%	Total other expenses, net	(334)		(97)		(237)		244	%
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)	%
Income (loss) before income tax expense (benefit)										Income (loss) before income tax expense (benefit)	152		(243)		395		(163)	%
Less: Income tax expense (benefit)										Less: Income tax expense (benefit)	36		(52)		88		(169)	%
Net income (loss)										Net income (loss)	116		(191)		307		(161)	%
Less: Net income (loss) attributable to non-controlling interests										Less: Net income (loss) attributable to non-controlling interests	2		(2)		4		(200)	%
Net income (loss) attributable to Mr. Cooper										Net income (loss) attributable to Mr. Cooper	$	114	$	(189)	$	303	(160)	%

⁽¹⁾Revenues - operational consists of total revenues, excluding mark-to-market.

We recorded a net ~~loss~~income of ~~$98~~$116 during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to a net loss of ~~$274~~$191 during the same period in 2019. The net ~~loss~~income in 2020 was ~~lower~~ primarily due to an increase in total revenues and decrease in total expenses. ~~Consolidated operational~~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~~during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the same period in 2019. Refer to Table ~~10.1~~8.1 Servicing - Revenues and Table ~~21.1~~19.1 Originations - Revenues for further discussion.

Total expenses ~~for~~during the ~~six~~nine months ended ~~June~~September 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 loss recoveries from settlement with a government agency and 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~~nine months ended ~~June~~September 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. Refer to Table 9.1 Servicing - Expenses, Table 23.1 Corporate/Other Selected Financial Results and Table 20.1 Originations - Expenses for further discussion.

Total other expenses, net, increased ~~for~~during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest income and an increase in other ~~income,~~expenses, 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,~~expenses, net, was ~~lower~~higher in the ~~six~~nine months ended ~~June~~September 30, 2020 primarily due to a loss on redemption of the 2023 unsecured senior notes in our Corporate/Other segment and 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”).

in our Xome segment. Refer to
Table 10.1 Servicing - Other (Expenses) Income, Net

~~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.~~Table 22.1 Xome Segment Results of Operations and Table 23.1 Corporate/Other Selected Financial Results for further discussion

~~For~~During the ~~three~~nine months ended ~~June~~September 30, 2020 and 2019, we had an income tax expense ~~compared to an income tax~~and benefit, ~~for the same period ended in 2019.~~respectively. The effective tax rate ~~for~~during the ~~three~~nine months ended ~~June~~September 30, 2020 was ~~33.4%~~23.9% as compared to the effective tax rate of ~~24.6% for~~21.5% during the ~~three~~nine months ended ~~June~~September 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~~nine months ended ~~June~~September 30, 2020 as compared to the ~~three~~nine 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 JuneSeptember 30, 2019.

Segment Results

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.

Refer to


~~Table 3. Segment Results~~Note 16, Business Segment Reporting, for a summary of segment results.

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)

4839

Servicing Segment

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 4.2. Servicer Ratings

Fitch⁽¹⁾

Moody’s⁽²⁾

S&P⁽³⁾

Rating date

January 2020

~~May 2019~~September 2020

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~~September 30, 2020, the unpaid principal balance in our servicing portfolio consisted of approximately ~~$278.0~~$266.7 billion in forward loans, ~~$296.8~~$300.9 billion in subservicing and other, and ~~$20.8~~$20.0 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.

4940

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~~September 30, 2020 and 2019:

5041

The following tables set forth the results of operations for the Servicing segment:

Table 5.3. Servicing Segment Results of Operations


		Three Months Ended June 30,											Three Months Ended September 30,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change
Revenues	Revenues									Revenues
Operational	Operational	$	294	$	314	$	(20)	(6)	%	Operational	$	273	$	319	$	(46)	(14)	%
Amortization, net of accretion	Amortization, net of accretion	(102)		(56)		(46)		82	%	Amortization, net of accretion	(112)		(73)		(39)		53	%
Mark-to-market	Mark-to-market	(261)		(231)		(30)		13	%	Mark-to-market	(29)		(83)		54		(65)	%
Total revenues	Total revenues	(69)		27		(96)		(356)	%	Total revenues	132		163		(31)		(19)	%
Total expenses	Total expenses	122		189		(67)		(35)	%	Total expenses	99		171		(72)		(42)	%
Total other (expenses) income, net	Total other (expenses) income, net	(60)		27		(87)		(322)	%	Total other (expenses) income, net	(65)		17		(82)		(482)	%
Loss before income tax benefit		$	(251)	$	(135)	$	(116)	86	%
(Loss) income before income tax (benefit) expense										(Loss) income before income tax (benefit) expense	$	(32)	$	9	$	(41)	(456)	%

~~For~~During the three months ended ~~June~~September 30, 2020, we incurred a loss before income tax benefit of ~~$251~~$32 compared to ~~$135~~income before income tax expense of $9 for the same period in 2019. The change ~~in loss before income tax benefit~~ was primarily due to a change in total other (expenses) income, net and 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 increasedother (expenses) income, net, 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~~September 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.

Total revenues decreased during the three months ended September 30, 2020 compared to the same period in 2019, primarily due to a decrease in operational revenues driven by lower base servicing fees on lower portfolio UPB. Additionally, amortization, net of accretion increased primarily due to an increase in amortization of forward MSRs as a result of elevated prepayments driven by the declining interest rate environment. The decrease in total revenues was partially offset by lower negative mark-to-market revenues during the three months ended September 30, 2020 compared to the same period in 2019 due to decreased impact from changes in interest rates and $46 favorable impact from additional modification fee income for loans exiting forbearance program related to the CARES Act. Total expenses decreased during the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a decrease in foreclosure and other liquidation (recoveries) expenses, net and a decrease in salaries, wages and benefits. The decrease in foreclosure and other liquidation (recoveries) expenses, net was mainly driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to $46 on loss recoveries related to a settlement with a government agency. The decrease in salaries, wages and benefits was primarily due to improved operational efficiencies.

Refer to Table ~~10.~~8. Servicing - Revenues, Table ~~11.~~9. Servicing - Expenses and Table ~~12.~~10. 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~~3.1 Servicing Segment Results of Operations


		Six Months Ended June 30,											Nine Months Ended September 30,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change
Revenues	Revenues									Revenues
Operational	Operational	$	607	$	638	$	(31)	(5)	%	Operational	$	880	$	957	$	(77)	(8)	%
Amortization, net of accretion	Amortization, net of accretion	(178)		(79)		(99)		125	%	Amortization, net of accretion	(290)		(152)		(138)		91	%
Mark-to-market	Mark-to-market	(644)		(524)		(120)		23	%	Mark-to-market	(673)		(607)		(66)		11	%
Total revenues	Total revenues	(215)		35		(250)		(714)	%	Total revenues	(83)		198		(281)		(142)	%
Total expenses	Total expenses	271		384		(113)		(29)	%	Total expenses	370		555		(185)		(33)	%
Total other (expenses) income, net	Total other (expenses) income, net	(90)		28		(118)		(421)	%	Total other (expenses) income, net	(155)		45		(200)		(444)	%
Loss before income tax benefit	Loss before income tax benefit	$	(576)	$	(321)	$	(255)	79	%	Loss before income tax benefit	$	(608)	$	(312)	$	(296)	95	%

5142

~~For~~During the ~~six~~nine months ended ~~June~~September 30, 2020, we incurred a loss before income tax benefit of ~~$576~~$608 compared to ~~$321~~$312 for the same period in 2019. The change in loss before income tax benefit was primarily due to a decrease in total revenues and a change in total other (expenses) income, net, 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~~due to ~~the same period in 2019. Amortization,~~higher amortization, net of accretion, ~~for~~during the ~~six~~nine months ended ~~June~~September 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. Additionally, operational revenues decreased driven by lower base servicing fees on lower portfolio UPB. Further, mark-to-market increased primarily as a result of elevated negative mark-to-market revenues during the nine months ended September 30, 2020 compared to the same period in 2019. Total expenses ~~for~~during the ~~six~~nine months ended ~~June~~September 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in foreclosure and other liquidation (recoveries) expenses, net and a decrease in salaries, wages and benefits. The decrease in foreclosure and other liquidation (recoveries) expenses, net was primarily driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to $46 on loss recoveries related to a settlement with a government agency and 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~~during the ~~six~~nine months ended ~~June~~September 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~~8.1 Servicing - Revenues, Table ~~11.1~~9.1 Servicing - Expenses and Table ~~12.1~~10.1 Servicing - Other (Expenses) Income, Net, for further discussions on the changes in total revenues, total expenses and total other (expenses) income, net, respectively.

Table 6.4. Servicing Portfolio - Unpaid Principal Balances


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Average UPB	Average UPB									Average UPB
Forward MSRs	Forward MSRs	$	289,707	$	315,333	$	296,446	$	312,158	Forward MSRs	$	277,707	$	315,897	$	290,199	$	313,405
Subservicing and other⁽¹⁾	Subservicing and other⁽¹⁾	301,680		297,924		306,121		268,696		Subservicing and other(1)	293,014		297,081		301,752		278,158
Reverse loans	Reverse loans	21,058		26,028		21,559		26,750		Reverse loans	20,260		24,301		21,126		25,933
Total average UPB	Total average UPB	$	612,445	$	639,285	$	624,126	$	607,604	Total average UPB	$	590,981	$	637,279	$	613,077	$	617,496

						June 30, 2020		June 30, 2019							September 30, 2020		September 30, 2019
Ending UPB	Ending UPB									Ending UPB
Forward MSRs	Forward MSRs									Forward MSRs
Agency	Agency					$	228,680	$	254,543	Agency					$	220,139	$	247,821
Non-agency	Non-agency					49,295		61,469		Non-agency					46,528		58,860
Total forward MSRs	Total forward MSRs					277,975		316,012		Total forward MSRs					266,667		306,681

Subservicing and other⁽¹⁾	Subservicing and other⁽¹⁾									Subservicing and other(1)
Agency	Agency					286,710		253,846		Agency					285,704		294,783
Non-agency	Non-agency					10,082		48,262		Non-agency					15,151		15,748
Total subservicing and other	Total subservicing and other					296,792		302,108		Total subservicing and other					300,855		310,531

Reverse loans	Reverse loans									Reverse loans
MSR	MSR					2,190		3,127		MSR					2,079		2,761
MSL	MSL					12,891		15,374		MSL					12,485		14,641
Securitized loans	Securitized loans					5,677		7,068		Securitized loans					5,442		6,588
Total reverse portfolio serviced	Total reverse portfolio serviced					20,758		25,569		Total reverse portfolio serviced					20,006		23,990
Total ending UPB	Total ending UPB					$	595,525	$	643,689	Total ending UPB					$	587,528	$	641,202

⁽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.

5244

The following tables provide a rollforward of our forward MSR and subservicing and other portfolio UPB:


Table 7.5. Forward Servicing and Subservicing and Other Portfolio UPB Rollforward


		Three Months Ended June 30, 2020										Three Months Ended June 30, 2019											Three Months Ended September 30, 2020				Three Months Ended September 30, 2019
		Forward MSR		Subservicing and Other		Total		Forward MSR		Subservicing and Other		Total			Forward MSR		Subservicing and Other		Total		Forward MSR		Subservicing and Other		Total
Balance - beginning of period	Balance - beginning of period	$	290,634	$	316,933	$	607,567	$	303,692	$	301,191	$	604,883	Balance - beginning of period	$	277,975	$	296,792	$	574,767	$	316,012	$	302,108	$	618,120
Additions:	Additions:													Additions:
Originations	Originations	9,478		1,024		10,502		9,521		399		9,920		Originations	14,517		1,232		15,749		11,397		410		11,807
Acquisitions / Increase in subservicing⁽¹⁾	Acquisitions / Increase in subservicing⁽¹⁾	(1,634)		16,908		15,274		20,073		12,715		32,788		Acquisitions / Increase in subservicing(1)	(2,660)		38,082		35,422		333		33,273		33,606
Deductions:	Deductions:													Deductions:
Dispositions	Dispositions	(31)		(9,751)		(9,782)		(2,239)		(675)		(2,914)		Dispositions	(23)		(3,046)		(3,069)		(2,707)		(9,399)		(12,106)
Principal reductions and other	Principal reductions and other	(2,678)		(2,168)		(4,846)		(3,031)		(2,669)		(5,700)		Principal reductions and other	(2,683)		(2,659)		(5,342)		(3,029)		(2,597)		(5,626)
Voluntary reductions⁽²⁾	Voluntary reductions⁽²⁾	(17,435)		(26,113)		(43,548)		(11,113)		(8,665)		(19,778)		Voluntary reductions(2)	(20,215)		(29,506)		(49,721)		(14,515)		(13,030)		(27,545)
Involuntary reductions⁽³⁾	Involuntary reductions⁽³⁾	(251)		(41)		(292)		(807)		(188)		(995)		Involuntary reductions(3)	(177)		(40)		(217)		(740)		(234)		(974)
Net changes in loans serviced by others	Net changes in loans serviced by others	(108)		—		(108)		(84)		—		(84)		Net changes in loans serviced by others	(67)		—		(67)		(70)		—		(70)
Balance - end of period	Balance - end of period	$	277,975	$	296,792	$	574,767	$	316,012	$	302,108	$	618,120	Balance - end of period	$	266,667	$	300,855	$	567,522	$	306,681	$	310,531	$	617,212

⁽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~~September 30, 2020, our ending forward MSR UPB decreased primarily due to increased voluntary reductions driven by the low interest rate ~~environment.~~environment, partially offset by increased origination volumes. During the three months ended ~~June~~September 30, 2020, our subservicing and other portfolio ending UPB increased primarily due to portfolio growth from our subservicing clients, partially offset by increased voluntary reductions in the low interest rate environment.


Table 5.1 Forward Servicing and Subservicing and Other Portfolio UPB Rollforward


	Nine Months Ended September 30, 2020						Nine Months Ended September 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	35,630		2,918		38,548		25,809		1,213		27,022
Acquisitions / Increase in subservicing(1)	(4,967)		78,342		73,375		33,810		130,394		164,204
Deductions:
Dispositions	(94)		(23,156)		(23,250)		(5,079)		(11,192)		(16,271)
Principal reductions and other	(8,109)		(7,792)		(15,901)		(8,887)		(7,583)		(16,470)
Voluntary reductions(2)	(51,514)		(73,291)		(124,805)		(31,925)		(25,670)		(57,595)
Involuntary reductions(3)	(815)		(149)		(964)		(2,309)		(517)		(2,826)
Net changes in loans serviced by others	(246)		—		(246)		(219)		—		(219)
Balance - end of period	$	266,667	$	300,855	$	567,522	$	306,681	$	310,531	$	617,212

(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 nine months ended September 30, 2020, our ending forward MSR UPB decreased primarily due to increased voluntary reductions in the low interest rate environment, partially offset by increased origination volumes. During the nine months ended September 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 from our subservicing clients, 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.growth.

The table below summarizes the overall performance of the forward servicing and subservicing portfolio:


Table 8.6. Key Performance Metrics - Forward Servicing and Subservicing Portfolio⁽¹⁾


						June 30, 2020			June 30, 2019								September 30, 2020			September 30, 2019
Loan count⁽²⁾	Loan count⁽²⁾					3,360,826			3,637,538			Loan count(2)					3,283,769			3,601,322
Average loan amount⁽³⁾	Average loan amount⁽³⁾					$	171,022		$	169,935		Average loan amount(3)					$	172,828		$	171,389
Average coupon - credit sensitive⁽⁴⁾	Average coupon - credit sensitive⁽⁴⁾					4.7		%	4.8		%	Average coupon - credit sensitive(4)					4.6		%	4.8		%
Average coupon - interest sensitive⁽⁴⁾	Average coupon - interest sensitive⁽⁴⁾					4.2		%	4.4		%	Average coupon - interest sensitive(4)					4.1		%	4.2		%
Average coupon - agency⁽⁴⁾	Average coupon - agency⁽⁴⁾					4.4		%	4.5		%	Average coupon - agency(4)					4.3		%	4.5		%
Average coupon - non-agency⁽⁴⁾	Average coupon - non-agency⁽⁴⁾					4.7		%	4.8		%	Average coupon - non-agency(4)					4.6		%	4.8		%
60+ delinquent (% of loans)⁽⁵⁾	60+ delinquent (% of loans)⁽⁵⁾					4.7		%	2.3		%	60+ delinquent (% of loans)(5)					5.9		%	2.2		%
90+ delinquent (% of loans)⁽⁵⁾	90+ delinquent (% of loans)⁽⁵⁾					2.2		%	2.0		%	90+ delinquent (% of loans)(5)					5.1		%	1.9		%
120+ delinquent (% of loans)⁽⁵⁾	120+ delinquent (% of loans)⁽⁵⁾					1.6		%	1.8		%	120+ delinquent (% of loans)(5)					4.3		%	1.6		%

		Three Months Ended June 30,							Six Months Ended June 30,								Three Months Ended September 30,						Nine Months Ended September 30,
		2020		2019		2020			2019				2020		2019		2020			2019
Total prepayment speed (12-month constant prepayment rate)	Total prepayment speed (12-month constant prepayment rate)	26.0	%	13.0	%	22.6		%	10.8		%	Total prepayment speed (12-month constant prepayment rate)	30.1	%	17.5	%	25.0		%	13.2		%

⁽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~~September 30, 2020, loan count includes ~~195,423~~199,118 loans in forbearance related to the CARES ~~Act, whereby the borrowers have failed to make at least one payment.~~Act.

⁽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, 90 days and 120 days delinquent have increased as of ~~June~~September 30, 2020 compared to the same period in 2019.


Table 9.7. Forward Loan Modifications and Workout Units


		Three Months Ended June 30,							Three Months Ended September 30,
		2020	2019	Amount Change	% Change			2020	2019	Amount Change	% Change
Modifications	Modifications	4,329	5,632	(1,303)	(23)	%	Modifications	3,242	5,061	(1,819)	(36)	%
Workouts(1)	Workouts(1)	34,355	6,476	27,879	430	%	Workouts(1)	20,483	3,731	16,752	449	%
Total modifications and workout units	Total modifications and workout units	38,684	12,108	26,576	219	%	Total modifications and workout units	23,725	8,792	14,933	170	%

(1)During the three months ended September 30, 2020, workouts exclude loans which did not miss a contractual payment during forbearance related to the CARES Act.

Total modifications and workouts during the three months ended ~~June~~September 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.


Table ~~9.1~~7.1 Forward Loan Modifications and Workout Units


		Six Months Ended June 30, 2020							Nine Months Ended September 30, 2020
		2020	2019	Amount Change	% Change			2020	2019	Amount Change	% Change
Modifications	Modifications	9,044	10,821	(1,777)	(16)	%	Modifications	12,286	15,882	(3,596)	(23)	%
Workouts(1)	Workouts(1)	38,349	10,877	27,472	253	%	Workouts(1)	25,849	15,132	10,717	71	%
Total modifications and workout units	Total modifications and workout units	47,393	21,698	25,695	118	%	Total modifications and workout units	38,135	31,014	7,121	23	%

(1)During the nine months ended September 30, 2020, workouts exclude loans which did not miss a contractual payment during forbearance related to the CARES Act.

Total modifications and workouts during the ~~six~~nine months ended ~~June~~September 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:


Table ~~10.~~8. Servicing - Revenues


		Three Months Ended June 30,																				Three Months Ended September 30,
		2020					2019				$ Change								% Change				2020			2019				$ Change	% Change
		Amt		bps⁽¹⁾	Amt		bps⁽¹⁾	Amt		bps⁽¹⁾	Amt		bps⁽¹⁾			Amt		bps(1)		Amt		bps(1)	Amt		bps(1)	Amt		bps(1)
Forward MSR Operational Revenue	Forward MSR Operational Revenue														Forward MSR Operational Revenue
Base servicing fees	Base servicing fees	$	239	16	$	257	16	$	(18)	—	(7)	%	—	%	Base servicing fees	$	231	16		$	252	16	$	(21)	—	(8)	%	—	%
Modification fees⁽²⁾	Modification fees⁽²⁾	2		—	6		—	(4)		—	(67)	%	—	%	Modification fees(2)	3		—		4		—	(1)		—	(25)	%	—	%
Incentive fees⁽²⁾	Incentive fees⁽²⁾	5		—	1		—	4		—	400	%	—	%	Incentive fees(2)	—		—		6		—	(6)		—	(100)	%	—	%
Late payment fees⁽²⁾	Late payment fees⁽²⁾	16		1	20		2	(4)		(1)	(20)	%	(50)	%	Late payment fees(2)	15		1		23		2	(8)		(1)	(35)	%	(50)	%
Other ancillary revenues⁽²⁾	Other ancillary revenues⁽²⁾	44		3	30		2	14		1	47	%	50	%	Other ancillary revenues(2)	51		3		48		3	3		—	6	%	—	%
Total forward MSR operational revenue	Total forward MSR operational revenue	306		20	314		20	(8)		—	(3)	%	—	%	Total forward MSR operational revenue	300		20		333		21	(33)		(1)	(10)	%	(5)	%
Base subservicing fees and other subservicing revenue⁽³⁾⁽²⁾	Base subservicing fees and other subservicing revenue⁽³⁾⁽²⁾	69		5	62		4	7		1	11	%	25	%	Base subservicing fees and other subservicing revenue⁽³⁾⁽²⁾	71		5		65		4	6		1	9	%	25	%
Reverse servicing fees	Reverse servicing fees	7		—	8		—	(1)		—	(13)	%	—	%	Reverse servicing fees	6		1		7		—	(1)		1	(14)	%	100	%
Total servicing fee revenue	Total servicing fee revenue	382		25	384		24	(2)		1	(1)	%	4	%	Total servicing fee revenue	377		26		405		25	(28)		1	(7)	%	4	%
MSR financing liability costs	MSR financing liability costs	(9)		(1)	(11)		(1)	2		—	(18)	%	—	%	MSR financing liability costs	(8)		(1)		(9)		—	1		(1)	(11)	%	(100)	%
Excess spread costs - principal	Excess spread costs - principal	(79)		(5)	(59)		(3)	(20)		(2)	34	%	67	%	Excess spread costs - principal	(96)		(6)		(77)		(5)	(19)		(1)	25	%	20	%
Total operational revenue	Total operational revenue	294		19	314		20	(20)		(1)	(6)	%	(5)	%	Total operational revenue	273		19		319		20	(46)		(1)	(14)	%	(5)	%
Amortization, net of accretion	Amortization, net of accretion														Amortization, net of accretion
Forward MSR amortization	Forward MSR amortization	(186)		(12)	(125)		(8)	(61)		(4)	49	%	50	%	Forward MSR amortization	(212)		(14)		(162)		(10)	(50)		(4)	31	%	40	%
Excess spread accretion	Excess spread accretion	79		5	59		3	20		2	34	%	67	%	Excess spread accretion	96		6		77		5	19		1	25	%	20	%
Reverse MSL accretion	Reverse MSL accretion	5		—	11		1	(6)		(1)	(55)	%	(100)	%	Reverse MSL accretion	4		—		10		—	(6)		—	(60)	%	—	%
Reverse MSR amortization	Reverse MSR amortization	—		—	(1)		—	1		—	100	%	—	%	Reverse MSR amortization	—		—		2		—	(2)		—	(100)	%	—	%
Total amortization, net of accretion	Total amortization, net of accretion	(102)		(7)	(56)		(4)	(46)		(3)	82	%	75	%	Total amortization, net of accretion	(112)		(8)		(73)		(5)	(39)		(3)	53	%	60	%
Mark-to-Market Adjustments	Mark-to-Market Adjustments														Mark-to-Market Adjustments
MSR MTM⁽³⁾	MSR MTM⁽³⁾	(321)		(21)	(227)		(14)	(94)		(7)	41	%	50	%	MSR MTM(3)	(63)		(4)		(195)		(12)	132		8	(68)	%	(67)	%
Excess spread / financing MTM	Excess spread / financing MTM	60		4	(4)		—	64		4	(1,600)	%	100	%	Excess spread / financing MTM	34		2		112		7	(78)		(5)	(70)	%	(71)	%
Total MTM adjustments	Total MTM adjustments	(261)		(17)	(231)		(14)	(30)		(3)	13	%	21	%	Total MTM adjustments	(29)		(2)		(83)		(5)	54		3	(65)	%	(60)	%
Total revenues - Servicing	Total revenues - Servicing	$	(69)	(5)	$	27	2	$	(96)	(7)	(356)	%	(350)	%	Total revenues - Servicing	$	132	9		$	163	10	$	(31)	(1)	(19)	%	(10)	%

⁽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$7 and ~~$17 for~~$18 during the three months ended ~~June~~September 30, 2020 and 2019, respectively.

Forward - Due to the decrease of the forward MSR portfolio’s UPB, base servicing fee revenue decreased ~~for~~during the three months ended ~~June~~September 30, 2020 as compared to the same period in 2019. ~~Other ancillary revenues increased primarily~~Late payment fees and incentive fees decreased due to ~~higher sales lead incentives due~~loan forbearance related to ~~increased portfolio recapture activity. Incentive fee revenue increased primarily due to higher investor incentives driven by better overall performance.~~the CARES Act.

Forward MSR amortization increased ~~for~~during the three months ended ~~June~~September 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~~decreased during the three months ended ~~June~~September 30, 2020 as compared to the same period in 2019 primarily due to decreased impact from changes in interest rates and favorable impact from additional modification fee income for loans exiting forbearance program related to the ~~declining interest rate environment during 2020.~~CARES Act.

Subservicing - Subservicing fees increased ~~for~~during the three months ended ~~June~~September 30, 2020 as compared to the same period in 2019, primarily due to higher fees earned on delinquent loans, partially offset by lower average subservicing portfolio UPB.

Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios ~~for~~during the three months ended ~~June~~September 30, 2020 decreased as compared to the same period in 2019, primarily due to the decline in the reverse mortgage portfolio.


Table ~~10.1~~8.1 Servicing - Revenues


		Six Months Ended June 30,																				Nine Months Ended September 30,
		2020					2019				$ Change								% Change				2020			2019				$ Change	% Change
		Amt		bps⁽¹⁾	Amt		bps⁽¹⁾	Amt		bps⁽¹⁾	Amt		bps⁽¹⁾			Amt		bps(1)		Amt		bps(1)	Amt		bps(1)	Amt		bps(1)
Forward MSR Operational Revenue	Forward MSR Operational Revenue														Forward MSR Operational Revenue
Base servicing fees	Base servicing fees	$	489	16	$	497	17	$	(8)	(1)	(2)	%	(6)	%	Base servicing fees	$	720	16		$	749	16	$	(29)	—	(4)	%	—	%
Modification fees⁽²⁾	Modification fees⁽²⁾	5		—	9		—	(4)		—	(44)	%	—	%	Modification fees(2)	8		—		13		—	(5)		—	(38)	%	—	%
Incentive fees⁽²⁾	Incentive fees⁽²⁾	9		—	2		—	7		—	350	%	—	%	Incentive fees(2)	9		—		8		—	1		—	13	%	—	%
Late payment fees⁽²⁾	Late payment fees⁽²⁾	39		1	39		1	—		—	—	%	—	%	Late payment fees(2)	54		1		62		2	(8)		(1)	(13)	%	(50)	%
Other ancillary revenues⁽²⁾	Other ancillary revenues⁽²⁾	82		3	78		3	4		—	5	%	—	%	Other ancillary revenues(2)	133		3		126		3	7		—	6	%	—	%
Total forward MSR operational revenue	Total forward MSR operational revenue	624		20	625		21	(1)		(1)	—	%	(5)	%	Total forward MSR operational revenue	924		20		958		21	(34)		(1)	(4)	%	(5)	%
Base subservicing fees and other subservicing revenue⁽³⁾⁽²⁾	Base subservicing fees and other subservicing revenue⁽³⁾⁽²⁾	134		5	114		4	20		1	18	%	25	%	Base subservicing fees and other subservicing revenue⁽³⁾⁽²⁾	205		5		179		4	26		1	15	%	25	%
Reverse servicing fees	Reverse servicing fees	13		—	17		—	(4)		—	(24)	%	—	%	Reverse servicing fees	19		—		24		—	(5)		—	(21)	%	—	%
Total servicing fee revenue	Total servicing fee revenue	771		25	756		25	15		—	2	%	—	%	Total servicing fee revenue	1,148		25		1,161		25	(13)		—	(1)	%	—	%
MSR financing liability costs	MSR financing liability costs	(17)		(1)	(23)		(1)	6		—	(26)	%	—	%	MSR financing liability costs	(25)		(1)		(32)		(1)	7		—	(22)	%	—	%
Excess spread costs - principal	Excess spread costs - principal	(147)		(5)	(95)		(3)	(52)		(2)	55	%	67	%	Excess spread costs - principal	(243)		(5)		(172)		(4)	(71)		(1)	41	%	25	%
Total operational revenue	Total operational revenue	607		19	638		21	(31)		(2)	(5)	%	(10)	%	Total operational revenue	880		19		957		20	(77)		(1)	(8)	%	(5)	%
Amortization, net of accretion	Amortization, net of accretion														Amortization, net of accretion
Forward MSR amortization	Forward MSR amortization	(338)		(11)	(204)		(7)	(134)		(4)	66	%	57	%	Forward MSR amortization	(550)		(12)		(366)		(8)	(184)		(4)	50	%	50	%
Excess spread accretion	Excess spread accretion	147		5	95		3	52		2	55	%	67	%	Excess spread accretion	243		5		172		4	71		1	41	%	25	%
Reverse MSL accretion	Reverse MSL accretion	13		—	29		1	(16)		(1)	(55)	%	(100)	%	Reverse MSL accretion	17		1		39		1	(22)		—	(56)	%	—	%
Reverse MSR amortization	Reverse MSR amortization	—		—	1		—	(1)		—	(100)	%	—	%	Reverse MSR amortization	—		—		3		—	(3)		—	(100)	%	—	%
Total amortization, net of accretion	Total amortization, net of accretion	(178)		(6)	(79)		(3)	(99)		(3)	125	%	100	%	Total amortization, net of accretion	(290)		(6)		(152)		(3)	(138)		(3)	91	%	100	%
Mark-to-Market Adjustments	Mark-to-Market Adjustments														Mark-to-Market Adjustments
MSR MTM⁽³⁾	MSR MTM⁽³⁾	(733)		(23)	(587)		(19)	(146)		(4)	25	%	21	%	MSR MTM(3)	(796)		(17)		(782)		(17)	(14)		—	2	%	—	%
Excess spread / financing MTM	Excess spread / financing MTM	89		3	63		2	26		1	41	%	50	%	Excess spread / financing MTM	123		2		175		4	(52)		(2)	(30)	%	(50)	%
Total MTM adjustments	Total MTM adjustments	(644)		(20)	(524)		(17)	(120)		(3)	23	%	18	%	Total MTM adjustments	(673)		(15)		(607)		(13)	(66)		(2)	11	%	15	%
Total revenues - Servicing	Total revenues - Servicing	$	(215)	(7)	$	35	1	$	(250)	(8)	(714)	%	(800)	%	Total revenues - Servicing	$	(83)	(2)		$	198	4	$	(281)	(6)	(142)	%	(150)	%

5648

⁽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~~$20 and ~~$28 for~~$46 during the ~~six~~nine months ended ~~June~~September 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~~nine months ended ~~June~~September 30, 2020 as compared to the same period in 2019. ~~Incentive fee revenue~~Modification fees decreased primarily due to lower modification volume. Late payment fees decreased primarily driven by loan forbearance related to the CARES Act. Other ancillary revenues increased primarily due to higher ~~investor~~sales lead incentives ~~driven by better overall performance.~~due to increased portfolio recapture activity.

Forward MSR amortization increased ~~for~~during the ~~six~~nine months ended ~~June~~September 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~~during the ~~six~~nine months ended ~~June~~September 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~~during the ~~six~~nine months ended ~~June~~September 30, 2020 as compared to the same period in 2019 primarily due to a higher average subservicing portfolio ~~UPB.~~UPB and higher fees earned on delinquent loans.

Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios ~~for~~during the ~~six~~nine months ended ~~June~~September 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.~~9. Servicing - Expenses


		Three Months Ended June 30,																				Three Months Ended September 30,
		2020					2019				Change								% Change				2020			2019				Change	% Change
		Amt		bps⁽¹⁾	Amt		bps⁽¹⁾	Amt		bps⁽¹⁾	Amt		bps⁽¹⁾			Amt		bps(1)		Amt		bps(1)	Amt		bps(1)	Amt		bps(1)
Salaries, wages and benefits	Salaries, wages and benefits	$	75	5	$	90	6	$	(15)	(1)	(17)	%	(17)	%	Salaries, wages and benefits	$	77	5		$	85	5	$	(8)	—	(9)	%	—	%
General and administrative	General and administrative														General and administrative
Servicing support fees	Servicing support fees	27		2	24		2	3		—	13	%	—	%	Servicing support fees	28		2		30		2	(2)		—	(7)	%	—	%
Corporate and other general and administrative expenses	Corporate and other general and administrative expenses	32		2	39		2	(7)		—	(18)	%	—	%	Corporate and other general and administrative expenses	33		2		40		3	(7)		(1)	(18)	%	(33)	%
Foreclosure and other liquidation related expenses (recoveries), net		(17)		(1)	32		2	(49)		(3)	(153)	%	(150)	%
Foreclosure and other liquidation related (recoveries) expenses, net															Foreclosure and other liquidation related (recoveries) expenses, net	(45)		(3)		11		1	(56)		(4)	(509)	%	(400)	%
Depreciation and amortization	Depreciation and amortization	5		—	4		—	1		—	25	%	—	%	Depreciation and amortization	6		1		5		—	1		1	20	%	100	%
Total general and administrative expenses	Total general and administrative expenses	47		3	99		6	(52)		(3)	(53)	%	(50)	%	Total general and administrative expenses	22		2		86		6	(64)		(4)	(74)	%	(67)	%
Total expenses - Servicing	Total expenses - Servicing	$	122	8	$	189	12	$	(67)	(4)	(35)	%	(33)	%	Total expenses - Servicing	$	99	7		$	171	11	$	(72)	(4)	(42)	%	(36)	%

⁽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~~September 30, 2020 compared to the same period in 2019, primarily driven by a decrease in foreclosure and other liquidation (recoveries) expenses, ~~(recoveries),~~ net. Foreclosure and other liquidation related (recoveries) 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~~$46 on loss recoveries related to a settlement with a ~~prior servicer.~~government agency. 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.~~

efficiencies. The decrease in Corporate and other general and administrative expenses was primarily driven by lower repairs and maintenance expenses and temporary labor costs.

5749


Table ~~11.1~~9.1 Servicing - Expenses


		Six Months Ended June 30,																				Nine Months Ended September 30,
		2020					2019				Change								% Change				2020			2019				Change	% Change
		Amt		bps⁽¹⁾	Amt		bps⁽¹⁾	Amt		bps⁽¹⁾	Amt		bps⁽¹⁾			Amt		bps(1)		Amt		bps(1)	Amt		bps(1)	Amt		bps(1)
Salaries, wages and benefits	Salaries, wages and benefits	$	161	5	$	176	6	$	(15)	(1)	(9)	%	(17)	%	Salaries, wages and benefits	$	238	5		$	261	6	$	(23)	(1)	(9)	%	(17)	%
General and administrative	General and administrative														General and administrative
Servicing support fees	Servicing support fees	52		2	63		2	(11)		—	(17)	%	—	%	Servicing support fees	80		2		93		2	(13)		—	(14)	%	—	%
Corporate and other general and administrative expenses	Corporate and other general and administrative expenses	67		2	78		3	(11)		(1)	(14)	%	(33)	%	Corporate and other general and administrative expenses	100		2		118		3	(18)		(1)	(15)	%	(33)	%
Foreclosure and other liquidation related expenses (recoveries), net		(17)		—	59		2	(76)		(2)	(129)	%	(100)	%
Foreclosure and other liquidation related (recoveries) expenses, net															Foreclosure and other liquidation related (recoveries) expenses, net	(62)		(1)		70		1	(132)		(2)	(189)	%	(200)	%
Depreciation and amortization	Depreciation and amortization	8		—	8		—	—		—	—	%	—	%	Depreciation and amortization	14		—		13		—	1		—	8	%	—	%
Total general and administrative expenses	Total general and administrative expenses	110		4	208		7	(98)		(3)	(47)	%	(43)	%	Total general and administrative expenses	132		3		294		6	(162)		(3)	(55)	%	(50)	%
Total expenses - Servicing	Total expenses - Servicing	$	271	9	$	384	13	$	(113)	(4)	(29)	%	(31)	%	Total expenses - Servicing	$	370	8		$	555	12	$	(185)	(4)	(33)	%	(33)	%

⁽¹⁾Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.

Total expenses decreased during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the same period in 2019, primarily driven by a decrease in foreclosure and other liquidation (recoveries) expenses, ~~(recoveries),~~ net. Foreclosure and other liquidation related (recoveries) 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 $46 on loss recoveries related to a settlement with a government agency and improved performance of $15 on loss recoveries related to a settlement with a prior ~~servicer during the six months ended June 30, 2020.~~servicer. The decrease in Corporate and other general and administrative expenses in 2020 was primarily driven by lower occupancy expenses and temporary labor costs. 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.~~10. Servicing - Other (Expenses) Income, Net


		Three Months Ended June 30,																									Three Months Ended September 30,
		2020							2019					Change									% Change					2020				2019				Change	% Change
		Amt			bps⁽¹⁾	Amt			bps⁽¹⁾	Amt			bps⁽¹⁾	Amt		bps⁽¹⁾			Amt			bps(1)		Amt			bps(1)	Amt			bps(1)	Amt		bps(1)
Income earned on Reverse mortgage interest	Income earned on Reverse mortgage interest	$	54		4	$	86		6	$	(32)		(2)	(37)	%	(33)	%	Income earned on Reverse mortgage interest	$	40		3		$	81		5	$	(41)		(2)	(51)	%	(40)	%
Other interest income	Other interest income	3			—	50			3	(47)			(3)	(94)	%	(100)	%	Other interest income	—			—		56			4	(56)			(4)	(100)	%	(100)	%
Interest income	Interest income	57			4	136			9	(79)			(5)	(58)	%	(56)	%	Interest income	40			3		137			9	(97)			(6)	(71)	%	(67)	%

Reverse mortgage interest expense	Reverse mortgage interest expense	(51)			(3)	(46)			(3)	(5)			—	11	%	—	%	Reverse mortgage interest expense	(37)			(3)		(58)			(4)	21			1	(36)	%	(25)	%
Advance interest expense	Advance interest expense	(8)			(1)	(8)			(1)	—			—	—	%	—	%	Advance interest expense	(7)			—		(6)			—	(1)			—	17	%	—	%
Other interest expense	Other interest expense	(58)			(4)	(55)			(3)	(3)			(1)	5	%	33	%	Other interest expense	(61)			(4)		(56)			(4)	(5)			—	9	%	—	%
Interest expense	Interest expense	(117)			(8)	(109)			(7)	(8)			(1)	7	%	14	%	Interest expense	(105)			(7)		(120)			(8)	15			1	(13)	%	(13)	%

Total other (expenses) income, net - Servicing	Total other (expenses) income, net - Servicing	$	(60)		(4)	$	27		2	$	(87)		(6)	(322)	%	(300)	%	Total other (expenses) income, net - Servicing	$	(65)		(4)		$	17		1	$	(82)		(5)	(482)	%	(500)	%

Weighted average cost - advance facilities	Weighted average cost - advance facilities	2.9		%		5.5		%		(2.6)		%		(47)	%			Weighted average cost - advance facilities	3.0		%			3.8		%		(0.8)		%		(21)	%
Weighted average cost - excess spread financing	Weighted average cost - excess spread financing	9.0		%		8.9		%		0.1		%		1	%			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.

5850

~~For~~During the three months ended ~~June~~September 30, 2020, we had total other expenses, net, of ~~$60~~$65 compared to total other income, net, of ~~$27~~$17 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~~due to 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~~decreased during the three months ended ~~June~~September 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~~a decrease in reverse mortgage interest expense ~~was~~ primarily driven ~~by lower bond premium amortization, partially offset~~ by the decline in the reverse mortgage interest portfolio.


Table ~~12.1~~10.1 Servicing - Other (Expenses) Income, Net


		Six Months Ended June 30,																									Nine Months Ended September 30,
		2020							2019					Change									% Change					2020				2019				Change	% Change
		Amt			bps⁽¹⁾	Amt			bps⁽¹⁾	Amt			bps⁽¹⁾	Amt		bps⁽¹⁾			Amt			bps(1)		Amt			bps(1)	Amt			bps(1)	Amt		bps(1)
Income earned on Reverse mortgage interest	Income earned on Reverse mortgage interest	$	97		3	$	168		5	$	(71)		(2)	(42)	%	(40)	%	Income earned on Reverse mortgage interest	$	137		3		$	249		5	$	(112)		(2)	(45)	%	(40)	%
Other interest income	Other interest income	43			1	83			3	(40)			(2)	(48)	%	(67)	%	Other interest income	43			1		139			3	(96)			(2)	(69)	%	(67)	%
Interest income	Interest income	140			4	251			8	(111)			(4)	(44)	%	(50)	%	Interest income	180			4		388			8	(208)			(4)	(54)	%	(50)	%

Reverse mortgage interest expense	Reverse mortgage interest expense	(103)			(3)	(117)			(4)	14			1	(12)	%	(25)	%	Reverse mortgage interest expense	(140)			(3)		(175)			(4)	35			1	(20)	%	(25)	%
Advance interest expense	Advance interest expense	(13)			—	(17)			—	4			—	(24)	%	—	%	Advance interest expense	(20)			—		(23)			—	3			—	(13)	%	—	%
Other interest expense	Other interest expense	(114)			(4)	(89)			(3)	(25)			(1)	28	%	33	%	Other interest expense	(175)			(4)		(145)			(3)	(30)			(1)	21	%	33	%
Interest expense	Interest expense	(230)			(7)	(223)			(7)	(7)			—	3	%	—	%	Interest expense	(335)			(7)		(343)			(7)	8			—	(2)	%	—	%

Total other (expenses) income, net - Servicing	Total other (expenses) income, net - Servicing	$	(90)		(3)	$	28		1	$	(118)		(4)	(421)	%	(400)	%	Total other (expenses) income, net - Servicing	$	(155)		(3)		$	45		1	$	(200)		(4)	(444)	%	(400)	%

Weighted average cost - advance facilities	Weighted average cost - advance facilities	3.0		%		5.1		%		(2.1)		%		(41)	%			Weighted average cost - advance facilities	3.0		%			4.0		%		(1.0)		%		(25)	%
Weighted average cost - excess spread financing	Weighted average cost - excess spread financing	9.0		%		8.9		%		0.1		%		1	%			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~~During the ~~six~~nine months ended ~~June~~September 30, 2020, we had total other expenses, net, of ~~$90~~$155 compared to total other income, net, of ~~$28~~$45 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. Other interest income decreased due to lower interest income earned on custodial balances due to lower LIBOR rates. Interest expense remained relatively flat ~~for~~during the ~~six~~nine months ended ~~June~~September 30, 2020 as compared to the same period in 2019.

5951

Servicing Portfolio and Related Liabilities

The table below summarizes the servicing portfolio and related liabilities in the Servicing segment:

Table ~~13.~~11. Servicing Portfolios and Related Liabilities


		June 30, 2020														December 31, 2019													September 30, 2020					December 31, 2019
				UPB			Carrying Amount		bps			UPB			Carrying Amount		bps			UPB			Carrying Amount		bps			UPB			Carrying Amount		bps
Forward MSRs - acquisition pool:	Forward MSRs - acquisition pool:																Forward MSRs - acquisition pool:
Credit sensitive	Credit sensitive	$	131,105		$	1,307		100		$	147,895		$	1,613		109	Credit sensitive	$	122,422		$	1,206		99		$	147,895		$	1,613		109
Interest sensitive	Interest sensitive	146,870			1,450			99		148,887			1,883			126	Interest sensitive	144,245			1,457			101		148,887			1,883			126
Total forward MSRs - fair value	Total forward MSRs - fair value	$	277,975		$	2,757		99		$	296,782		$	3,496		118	Total forward MSRs - fair value	$	266,667		$	2,663		100		$	296,782		$	3,496		118

Forward MSRs - investor pool:	Forward MSRs - investor pool:																Forward MSRs - investor pool:
Agency	Agency	$	228,680		$	2,308		101		$	240,688		$	2,944		122	Agency	$	220,139		$	2,234		102		$	240,688		$	2,944		122
Non-agency	Non-agency	49,295			449			91		56,094			552			98	Non-agency	46,528			429			92		56,094			552			98
Total forward MSRs - fair value	Total forward MSRs - fair value	$	277,975		$	2,757		99		$	296,782		$	3,496		118	Total forward MSRs - fair value	$	266,667		$	2,663		100		$	296,782		$	3,496		118

Total forward MSRs	Total forward MSRs	$	277,975		$	2,757				$	296,782		$	3,496			Total forward MSRs	$	266,667		$	2,663				$	296,782		$	3,496

Subservicing and other⁽¹⁾	Subservicing and other⁽¹⁾																Subservicing and other(1)
Agency	Agency	286,710			N/A					308,532			N/A				Agency	285,704			N/A					308,532			N/A
Non-agency	Non-agency	10,082			N/A					15,451			N/A				Non-agency	15,151			N/A					15,451			N/A
Total subservicing and other	Total subservicing and other	296,792			N/A					323,983			N/A				Total subservicing and other	300,855			N/A					323,983			N/A

Reverse portfolio - amortized cost	Reverse portfolio - amortized cost																Reverse portfolio - amortized cost
MSR	MSR	2,190			6					2,508			6				MSR	2,079			6					2,508			6
MSL	MSL	12,891			(48)					13,994			(61)				MSL	12,485			(44)					13,994			(61)
Securitized loans	Securitized loans	5,677			5,709					6,223			6,279				Securitized loans	5,442			5,460					6,223			6,279
Total reverse portfolio serviced	Total reverse portfolio serviced	20,758			5,667					22,725			6,224				Total reverse portfolio serviced	20,006			5,422					22,725			6,224
Total servicing portfolio unpaid principal balance	Total servicing portfolio unpaid principal balance	$	595,525		$	8,424				$	643,490		$	9,720			Total servicing portfolio unpaid principal balance	$	587,528		$	8,085				$	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~~September 30, 2020, when measuring the fair value of the portfolio as a basis point of the unpaid principal balance, our ~~credit sensitive pool~~total forward MSRs decreased in value by ~~9 bps and interest sensitive pool decreased in value by 27~~18 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.

6052

The following table sets forth the activities of forward MSRs:

Table ~~14.~~12. Forward MSRs - Fair Value Rollforward


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Fair value - beginning of period	Fair value - beginning of period	$	3,109	$	3,481	$	3,496	$	3,665	Fair value - beginning of period	$	2,757	$	3,505	$	3,496	$	3,665
Additions:	Additions:									Additions:
Servicing retained from mortgage loans sold	Servicing retained from mortgage loans sold	126		103		249		169		Servicing retained from mortgage loans sold	163		129		412		298
Purchases of servicing rights	Purchases of servicing rights	—		280		24		689		Purchases of servicing rights	6		43		30		732
Dispositions:	Dispositions:									Dispositions:
Sales and cancellation of servicing assets	Sales and cancellation of servicing assets	—		(34)		—		(294)		Sales and cancellation of servicing assets	—		(24)		—		(317)
Changes in fair value:	Changes in fair value:									Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model:	Due to changes in valuation inputs or assumptions used in the valuation model:									Due to changes in valuation inputs or assumptions used in the valuation model:
Credit sensitive	Credit sensitive	(40)		(35)		(221)		(156)		Credit sensitive	(41)		(72)		(262)		(228)
Interest sensitive	Interest sensitive	(276)		(175)		(496)		(386)		Interest sensitive	(24)		(102)		(520)		(488)
Other changes in fair value:	Other changes in fair value:									Other changes in fair value:
Scheduled principal payments	Scheduled principal payments	(24)		(23)		(47)		(45)		Scheduled principal payments	(23)		(24)		(70)		(69)
Disposition of negative MSRs and other⁽¹⁾	Disposition of negative MSRs and other⁽¹⁾	25		11		45		23		Disposition of negative MSRs and other(1)	12		20		57		43
Prepayments	Prepayments									Prepayments
Voluntary prepayments	Voluntary prepayments									Voluntary prepayments
Credit sensitive	Credit sensitive	(26)		(26)		(50)		(45)		Credit sensitive	(31)		(27)		(81)		(72)
Interest sensitive	Interest sensitive	(135)		(70)		(237)		(102)		Interest sensitive	(155)		(103)		(392)		(205)
Involuntary prepayments	Involuntary prepayments									Involuntary prepayments
Credit sensitive	Credit sensitive	—		(2)		(1)		(4)		Credit sensitive	—		(1)		(1)		(6)
Interest sensitive	Interest sensitive	(2)		(5)		(5)		(9)		Interest sensitive	(1)		(5)		(6)		(14)
Fair value - end of period	Fair value - end of period	$	2,757	$	3,505	$	2,757	$	3,505	Fair value - end of period	$	2,663	$	3,339	$	2,663	$	3,339

⁽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.

6153

The following table sets forth the weighted-average key inputs and assumptions in estimating the fair value of forward MSRs:

Table ~~15.~~13. MSRs - Fair Value


		June 30, 2020		June 30, 2019			September 30, 2020		September 30, 2019
Total MSRs Portfolio	Total MSRs Portfolio					Total MSRs Portfolio
Discount rate	Discount rate	9.5	%	9.7	%	Discount rate	9.5	%	9.7	%
Prepayment speeds	Prepayment speeds	14.2	%	13.7	%	Prepayment speeds	14.4	%	13.9	%
Average life	Average life	5.3 years		5.8 years		Average life	5.2 years		5.6 years

Acquisition Pools:	Acquisition Pools:					Acquisition Pools:
Credit Sensitive	Credit Sensitive					Credit Sensitive
Discount rate	Discount rate	9.9	%	10.6	%	Discount rate	10.0	%	10.4	%
Prepayment speeds	Prepayment speeds	12.6	%	13.5	%	Prepayment speeds	12.6	%	13.2	%
Average life	Average life	5.6 years		5.9 years		Average life	5.6 years		5.9 years

Interest Sensitive	Interest Sensitive					Interest Sensitive
Discount rate	Discount rate	9.0	%	8.9	%	Discount rate	9.0	%	9.0	%
Prepayment speeds	Prepayment speeds	15.8	%	13.9	%	Prepayment speeds	15.9	%	14.6	%
Average life	Average life	4.9 years		5.6 years		Average life	4.9 years		5.4 years

Investor Pools:	Investor Pools:					Investor Pools:
Agency	Agency					Agency
Discount rate	Discount rate	8.9	%	9.0	%	Discount rate	8.9	%	9.0	%
Prepayment speeds	Prepayment speeds	14.4	%	13.5	%	Prepayment speeds	14.5	%	13.7	%
Average life	Average life	5.2 years		5.7 years		Average life	5.1 years		5.5 years

Non-Agency	Non-Agency					Non-Agency
Discount rate	Discount rate	12.0	%	12.6	%	Discount rate	12.0	%	12.6	%
Prepayment speeds	Prepayment speeds	13.4	%	14.5	%	Prepayment speeds	13.9	%	14.3	%
Average life	Average life	5.6 years		6.0 years		Average life	5.5 years		6.0 years

The weighted-average discount rate for total MSRs portfolio decreased as of ~~June~~September 30, 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 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.

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 underlying estimate of future servicing revenues related to those loans.

6254

Excess Spread Financing

As further disclosed in Note 3,2, 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 and the purchase of 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 (i) prepayment speeds and (ii) our ability to recapture mortgage prepayments through the origination platform. See Note 3,2, Mortgage Servicing Rights and Related Liabilities, for additional information regarding the range of assumptions and sensitivities related to the measurement of the excess spread financing liability as of ~~June~~September 30, 2020 and December 31, 2019.

The following table sets forth the change in the excess spread financing and the related weighted-average key assumptions:

Table ~~16.~~14. Excess Spread Financing


		Three Months Ended June 30,							Six Months Ended June 30,								Three Months Ended September 30,						Nine Months Ended September 30,
		2020		2019		2020			2019				2020		2019		2020			2019
Fair value - beginning of period	Fair value - beginning of period	$	1,242	$	1,309	$	1,311		$	1,184		Fair value - beginning of period	$	1,124	$	1,429	$	1,311		$	1,184
Additions:	Additions:											Additions:
New financings	New financings	—		193		24			438			New financings	—		31		24			469
Deductions:	Deductions:											Deductions:
Settlements and repayments	Settlements and repayments	(52)		(68)		(110)			(119)			Settlements and repayments	(49)		(63)		(159)			(182)
Changes in fair value:	Changes in fair value:											Changes in fair value:
Credit Sensitive	Credit Sensitive	(22)		17		(24)			(15)			Credit Sensitive	(14)		(59)		(38)			(74)
Interest Sensitive	Interest Sensitive	(44)		(22)		(77)			(59)			Interest Sensitive	(17)		(57)		(94)			(116)
Fair value - end of period	Fair value - end of period	$	1,124	$	1,429	$	1,124		$	1,429		Fair value - end of period	$	1,044	$	1,281	$	1,044		$	1,281

Key Weighted-Average Assumptions:						June 30, 2020			June 30, 2019
Weighted-Average Key Assumptions												Weighted-Average Key Assumptions					September 30, 2020			September 30, 2019
Total Excess Spread Portfolio	Total Excess Spread Portfolio											Total Excess Spread Portfolio
Discount rate	Discount rate					12.0		%	9.6		%	Discount rate					11.9		%	11.9		%
Prepayment speeds	Prepayment speeds					13.4		%	13.1		%	Prepayment speeds					13.6		%	13.3		%
Recapture rate	Recapture rate					18.7		%	20.2		%	Recapture rate					19.1		%	22.2		%
Average life	Average life					5.4 years			5.7 years			Average life					5.3 years			5.7 years

Credit Sensitive	Credit Sensitive											Credit Sensitive
Discount rate	Discount rate					12.7		%	10.3		%	Discount rate					12.6		%	12.5		%
Prepayment speeds	Prepayment speeds					12.7		%	13.1		%	Prepayment speeds					13.0		%	12.9		%
Recapture rate	Recapture rate					20.3		%	22.3		%	Recapture rate					20.6		%	23.6		%
Average life	Average life					5.6 years			5.8 years			Average life					5.5 years			5.8 years

Interest Sensitive	Interest Sensitive											Interest Sensitive
Discount rate	Discount rate					10.7		%	8.4		%	Discount rate					10.6		%	10.9		%
Prepayment speeds	Prepayment speeds					14.6		%	12.9		%	Prepayment speeds					14.7		%	13.9		%
Recapture rate	Recapture rate					15.8		%	17.4		%	Recapture rate					16.4		%	20.0		%
Average life	Average life					5.1 years			5.4 years			Average life					5.1 years			5.5 years

6355

The following table sets forth the change in the MSRs financing liability and the related weighted-average key assumptions:

Table ~~17.~~15. MSRs Financing Liability - Rollforward


		Three Months Ended June 30,							Six Months Ended June 30,								Three Months Ended September 30,						Nine Months Ended September 30,
		2020		2019		2020			2019				2020		2019		2020			2019
Fair value - beginning of period	Fair value - beginning of period	$	43	$	34	$	37		$	32		Fair value - beginning of period	$	49	$	43	$	37		$	32
Changes in fair value:	Changes in fair value:											Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model	Changes in valuation inputs or assumptions used in the valuation model	9		13		18			19			Changes in valuation inputs or assumptions used in the valuation model	3		9		21			28
Other changes in fair value	Other changes in fair value	(3)		(4)		(6)			(8)			Other changes in fair value	(5)		(5)		(11)			(13)
Fair value - end of period	Fair value - end of period	$	49	$	43	$	49		$	43		Fair value - end of period	$	47	$	47	$	47		$	47

						June 30, 2020			June 30, 2019								September 30, 2020			September 30, 2019
Weighted-Average Assumptions
Advance financing rates						4.3		%	3.7		%
Weighted-Average Key Assumptions												Weighted-Average Key Assumptions
Advance financing and counterparty fee rates												Advance financing and counterparty fee rates					8.2		%	8.7		%
Annual advance recovery rates	Annual advance recovery rates					18.6		%	19.3		%	Annual advance recovery rates					20.2		%	18.7		%

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 recorded as an MSR financing liability in our consolidated balance sheets and represent the incremental costs relative to the market participant assumptions contained in the MSR valuation. Changes in the value of the MSR financing 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 rate 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 involve excess spread financing with our co-investment partners for the periods indicated:

Table ~~18.~~16. Leveraged Portfolio Characteristics


		June 30, 2020		June 30, 2019			September 30, 2020		September 30, 2019
Owned forward servicing portfolio - unencumbered	Owned forward servicing portfolio - unencumbered	$	83,683	$	87,007	Owned forward servicing portfolio - unencumbered	$	85,937	$	89,308
Owned forward servicing portfolio - encumbered	Owned forward servicing portfolio - encumbered	194,292		229,005		Owned forward servicing portfolio - encumbered	180,730		217,373
Subserviced forward servicing portfolio and other	Subserviced forward servicing portfolio and other	296,792		302,108		Subserviced forward servicing portfolio and other	300,855		310,531
Total unpaid principal balance	Total unpaid principal balance	$	574,767	$	618,120	Total unpaid principal balance	$	567,522	$	617,212

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.

6456

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 ~~19.~~17. Reverse Mortgage Portfolio Characteristics


		June 30, 2020			June 30, 2019				September 30, 2020			September 30, 2019
Loan count	Loan count	154,313			180,899			Loan count	151,412			170,903
Ending unpaid principal balance	Ending unpaid principal balance	$	20,758		$	25,569		Ending unpaid principal balance	$	20,006		$	23,990
Average loan amount⁽¹⁾	Average loan amount⁽¹⁾	$	134,516		$	141,342		Average loan amount(1)	$	132,127		$	140,374
Average coupon	Average coupon	2.2		%	4.3		%	Average coupon	2.1		%	3.8		%
Average borrower age	Average borrower age	81			80			Average borrower age	80.7 years			80.1 years

⁽¹⁾Average loan amount is presented in whole dollar amounts.

Historically, we acquired servicing rights and participating interests in reverse mortgage portfolios. 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. For acquired servicing rights, 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, net of the respective portfolios’ 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 ~~June~~September 30, 2020.

Originations Segment

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 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 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. WeOur wholesale channel was 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.

6557

The charts below set forth the pull through adjusted lock volume and funded volume by channel and channel mix ($ in Billions):

6658

The following tables set forth the results of operations for the Originations segment:


Table ~~20.~~18. Originations Segment Results of Operations


		Three Months Ended June 30,															Three Months Ended September 30,
		2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Total revenues	Total revenues	$	594		$	264		$	330		125	%	Total revenues	$	632		$	334		$	298		89	%
Total expenses	Total expenses	167			145			22			15	%	Total expenses	195			155			40			26	%
Total other income (expenses), net	Total other income (expenses), net	6			(1)			7			(700)	%	Total other income (expenses), net	1			(1)			2			(200)	%
Income before income tax expense	Income before income tax expense	$	433		$	118		$	315		267	%	Income before income tax expense	$	438		$	178		$	260		146	%

Originations Margin	Originations Margin												Originations Margin
Revenue	Revenue	$	594		$	264		$	330		125	%	Revenue	$	632		$	334		$	298		89	%
Pull through adjusted lock volume	Pull through adjusted lock volume	$	12,394		$	11,197		$	1,197		11	%	Pull through adjusted lock volume	$	19,794		$	12,699		$	7,095		56	%
Revenue as a percentage of pull through adjusted lock volume⁽¹⁾	Revenue as a percentage of pull through adjusted lock volume⁽¹⁾	4.79		%	2.36		%	2.43		%	103	%	Revenue as a percentage of pull through adjusted lock volume(1)	3.19		%	2.63		%	0.56		%	21	%

Expenses(2)	Expenses(2)	$	167		$	145		$	22		15	%	Expenses(2)	$	194		$	156		$	40		26	%
Funded volume	Funded volume	$	10,729		$	9,996		$	733		7	%	Funded volume	$	15,598		$	11,911		$	3,687		31	%
Expenses as a percentage of funded volume⁽²⁾⁽³⁾	Expenses as a percentage of funded volume⁽²⁾⁽³⁾	1.56		%	1.45		%	0.11		%	8	%	Expenses as a percentage of funded volume⁽²⁾⁽³⁾	1.24		%	1.31		%	(0.07)		%	(5)	%

Originations Margin	Originations Margin	3.23		%	0.91		%	2.32		%	255	%	Originations Margin	1.95		%	1.32		%	0.63		%	48	%

⁽¹⁾Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.

⁽²⁾Expenses include total expenses and total other income (expenses), net.

(3)Calculated on funded volume as expenses are incurred based on closing of the loan.

Income before income tax expense increased ~~for~~during the three months ended ~~June~~September 30, 2020 as compared to the same period in 2019 primarily due to an increase in revenues driven by origination volume growth ~~predominately in~~from both the DTC ~~channel. In response to the COVID-19 pandemic, we slowed operations in the~~and correspondent ~~channel in order to prioritize cash build and de-risk the pipeline.~~channels. The growth in origination volume was primarily due to declining interest rates. The Originations Margin ~~for~~during the three months ended ~~June~~September 30, 2020 increased as compared to the same period in 2019 primarily due to higher revenue as a percentage of pull through adjusted lock volume driven by an increase in volume from the DTC channel.

6759


Table ~~20.1~~18.1 Originations Segment Results of Operations


		Six Months Ended June 30,															Nine Months Ended September 30,
		2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Total revenues	Total revenues	$	911		$	410		$	501		122	%	Total revenues	$	1,543		$	744		$	799		107	%
Total expenses	Total expenses	333			249			84			34	%	Total expenses	528			404			124			31	%
Total other income, net	Total other income, net	13			2			11			550	%	Total other income, net	14			1			13			1,300	%
Income before income tax expense	Income before income tax expense	$	591		$	163		$	428		263	%	Income before income tax expense	$	1,029		$	341		$	688		202	%

Originations Margin	Originations Margin												Originations Margin
Revenue	Revenue	$	911		$	410		$	501		122	%	Revenue	$	1,543		$	744		$	799		107	%
Pull through adjusted lock volume	Pull through adjusted lock volume	$	25,071		$	17,157		$	7,914		46	%	Pull through adjusted lock volume	$	44,865		$	29,856		$	15,009		50	%
Revenue as a percentage of pull through adjusted lock volume⁽¹⁾	Revenue as a percentage of pull through adjusted lock volume⁽¹⁾	3.63		%	2.39		%	1.24		%	52	%	Revenue as a percentage of pull through adjusted lock volume(1)	3.44		%	2.49		%	0.95		%	38	%

Expenses(2)	Expenses(2)	$	333		$	249		$	84		34	%	Expenses(2)	$	514		$	403		$	124		31	%
Funded volume	Funded volume	$	23,088		$	15,712		$	7,376		47	%	Funded volume	$	38,686		$	27,623		$	11,063		40	%
Expenses as a percentage of funded volume⁽²⁾⁽³⁾	Expenses as a percentage of funded volume⁽²⁾⁽³⁾	1.44		%	1.58		%	(0.14)		%	(9)	%	Expenses as a percentage of funded volume⁽²⁾⁽³⁾	1.33		%	1.46		%	(0.13)		%	(9)	%

Originations Margin	Originations Margin	2.19		%	0.81		%	1.38		%	170	%	Originations Margin	2.11		%	1.03		%	1.08		%	105	%

⁽¹⁾Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.

⁽²⁾Expenses include total expenses and total other income, net.

(3)Calculated on funded volume as expenses are incurred based on closing of the loan.

Income before tax expense increased ~~for~~during the ~~six~~nine months ended ~~June~~September 30, 2020 as compared to the same period in 2019 primarily due to an increase in revenues driven by origination volume growth predominately in the DTC channel. In response to the COVID-19 pandemic, we temporarily slowed operations in the correspondent channel in order to prioritize cash build and de-risk the pipeline. As the market stabilized post pandemic, we returned to normal correspondent activity in the third quarter 2020. The growth in origination volume was ~~primarily~~ due to declining interest rates. The Originations Margin ~~for~~during the ~~six~~nine months ended ~~June~~September 30, 2020 increased as compared to the same period in 2019 due to higher revenue as a percentage of 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 originated loans and from other lenders for loans purchased through the correspondent channel, and includes loan application, underwriting, and other similar fees.

Net gain on loans originated and sold represents the gains and losses from the origination, purchase, and sale of loans and related derivative instruments. Gains from the origination and sale of loans are affected by the volume and margin of our originations activity and is impacted by fluctuation in interest rates.

Capitalized servicing rights represents the fair value attributed to mortgage servicing rights at the time in which they are retained in connection with the sale of loans during the period.

6860

Total revenues for the Originations segment are set forth in the tables below:


Table ~~21.~~19. Originations - Revenues


		Three Months Ended June 30,															Three Months Ended September 30,
		2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Service related, net - Originations	Service related, net - Originations	$	21		$	20		$	1		5	%	Service related, net - Originations	$	27		$	22		$	5		23	%
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale												Net gain on mortgage loans held for sale
Net gain on loans originated and sold	Net gain on loans originated and sold	453			152			301			198	%	Net gain on loans originated and sold	449			191			258			135	%
Capitalized servicing rights	Capitalized servicing rights	123			100			23			23	%	Capitalized servicing rights	162			126			36			29	%
Provision for repurchase reserves, net of release	Provision for repurchase reserves, net of release	(3)			(8)			5			(63)	%	Provision for repurchase reserves, net of release	(6)			(5)			(1)			20	%
Total net gain on mortgage loans held for sale	Total net gain on mortgage loans held for sale	573			244			329			135	%	Total net gain on mortgage loans held for sale	605			312			293			94	%
Total revenues - Originations	Total revenues - Originations	$	594		$	264		$	330		125	%	Total revenues - Originations	$	632		$	334		$	298		89	%

Key Metrics	Key Metrics												Key Metrics
Consumer direct lock pull through adjusted volume⁽¹⁾	Consumer direct lock pull through adjusted volume⁽¹⁾	$	9,595		$	4,390		$	5,205		119	%	Consumer direct lock pull through adjusted volume(1)	$	10,414		$	5,488		$	4,926		90	%
Other locked pull through adjusted volume⁽¹⁾	Other locked pull through adjusted volume⁽¹⁾	2,799			6,807			(4,008)			(59)	%	Other locked pull through adjusted volume(1)	9,380			7,211			2,169			30	%
Total pull through adjusted volume	Total pull through adjusted volume	$	12,394		$	11,197		$	1,197		11	%	Total pull through adjusted volume	$	19,794		$	12,699		$	7,095		56	%
Funded volume	Funded volume	$	10,729		$	9,996		$	733		7	%	Funded volume	$	15,598		$	11,911		$	3,687		31	%
Volume of loans sold	Volume of loans sold	$	11,172		$	9,089		$	2,083		23	%	Volume of loans sold	$	15,206		$	12,150		$	3,056		25	%
Recapture percentage⁽²⁾	Recapture percentage⁽²⁾	26.1		%	23.1		%	3.0		%	13	%	Recapture percentage(2)	24.9		%	24.6		%	0.3		%	1	%
Refinance recapture percentage⁽³⁾	Refinance recapture percentage⁽³⁾	30.9		%	43.7		%	(12.8)		%	(29)	%	Refinance recapture percentage(3)	31.2		%	36.9		%	(5.7)		%	(15)	%
Purchase as a percentage of funded volume	Purchase as a percentage of funded volume	10.3		%	52.8		%	(42.5)		%	(80)	%	Purchase as a percentage of funded volume	16.4		%	39.1		%	(22.7)		%	(58)	%
Value of capitalized servicing on retained settlements	Value of capitalized servicing on retained settlements	133		bps	149		bps	(16)		bps	(11)	%	Value of capitalized servicing on retained settlements	133		bps	154		bps	(21)		bps	(14)	%

⁽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~~during the three months ended ~~June~~September 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~~primarily from the DTC channel. Total revenue increased ~~$330~~$298 or ~~125%~~89% period over period as consumer direct lock pull through adjusted volume increased ~~119%~~90% during the same period. There were no material changes for repurchase reserves.

6961


Table ~~21.1~~19.1 Originations - Revenues


		Six Months Ended June 30,															Nine Months Ended September 30,
		2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Service related, net - Originations	Service related, net - Originations	$	41		$	35		$	6		17	%	Service related, net - Originations	$	68		$	57		$	11		19	%
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale												Net gain on mortgage loans held for sale
Net gain on loans originated and sold	Net gain on loans originated and sold	636			224			412			184	%	Net gain on loans originated and sold	1,085			415			670			161	%
Capitalized servicing rights	Capitalized servicing rights	242			161			81			50	%	Capitalized servicing rights	404			287			117			41	%
Provision for repurchase reserves, net of release	Provision for repurchase reserves, net of release	(8)			(10)			2			(20)	%	Provision for repurchase reserves, net of release	(14)			(15)			1			(7)	%
Total net gain on mortgage loans held for sale	Total net gain on mortgage loans held for sale	870			375			495			132	%	Total net gain on mortgage loans held for sale	1,475			687			788			115	%
Total revenues - Originations	Total revenues - Originations	$	911		$	410		$	501		122	%	Total revenues - Originations	$	1,543		$	744		$	799		107	%

Key Metrics	Key Metrics												Key Metrics
Consumer direct lock pull through adjusted volume⁽¹⁾	Consumer direct lock pull through adjusted volume⁽¹⁾	$	17,018		$	6,723		$	10,295		153	%	Consumer direct lock pull through adjusted volume(1)	$	27,432		$	12,211		$	15,221		125	%
Other locked pull through adjusted volume⁽¹⁾	Other locked pull through adjusted volume⁽¹⁾	8,053			10,434			(2,381)			(23)	%	Other locked pull through adjusted volume(1)	17,433			17,645			(212)			(1)	%
Total pull through adjusted volume	Total pull through adjusted volume	$	25,071		$	17,157		$	7,914		46	%	Total pull through adjusted volume	$	44,865		$	29,856		$	15,009		50	%
Funded volume	Funded volume	$	23,088		$	15,712		$	7,376		47	%	Funded volume	$	38,686		$	27,623		$	11,063		40	%
Volume of loans sold	Volume of loans sold	$	24,427		$	15,324		$	9,103		59	%	Volume of loans sold	$	39,633		$	27,474		$	12,159		44	%
Recapture percentage⁽²⁾	Recapture percentage⁽²⁾	27.5		%	24.9		%	2.6		%	10	%	Recapture percentage(2)	26.5		%	24.8		%	1.7		%	7	%
Refinance recapture percentage⁽³⁾	Refinance recapture percentage⁽³⁾	33.4		%	46.9		%	(13.5)		%	(29)	%	Refinance recapture percentage(3)	32.4		%	41.2		%	(8.8)		%	(21)	%
Purchase as a percentage of funded volume	Purchase as a percentage of funded volume	18.7		%	52.4		%	(33.7)		%	(64)	%	Purchase as a percentage of funded volume	17.8		%	46.7		%	(28.9)		%	(62)	%
Value of capitalized servicing on retained settlements	Value of capitalized servicing on retained settlements	135		bps	146		bps	(11)		bps	(8)	%	Value of capitalized servicing on retained settlements	134		bps	149		bps	(15)		bps	(10)	%

⁽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~~during the ~~six~~nine months ended ~~June~~September 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~~primarily from the DTC channel. Total revenue increased ~~$501~~$799 or ~~122%~~107% period over period as consumer direct lock pull through adjusted volume increased ~~153%~~125% during the same period. There were no material changes for repurchase reserves.

The tables below summarize expenses for the Originations segment:


Table ~~22.~~20. Originations - Expenses


		Three Months Ended June 30,											Three Months Ended September 30,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change
Salaries, wages and benefits	Salaries, wages and benefits	$	120	$	88	$	32	36	%	Salaries, wages and benefits	$	140	$	104	$	36	35	%
General and administrative	General and administrative									General and administrative
Loan origination expenses	Loan origination expenses	16		17		(1)		(6)	%	Loan origination expenses	20		16		4		25	%
Corporate and other general and administrative expenses	Corporate and other general and administrative expenses	16		13		3		23	%	Corporate and other general and administrative expenses	16		16		—		—	%
Marketing and professional service fees	Marketing and professional service fees	11		21		(10)		(48)	%	Marketing and professional service fees	14		12		2		17	%
Depreciation and amortization	Depreciation and amortization	4		6		(2)		(33)	%	Depreciation and amortization	5		4		1		25	%

Loss on impairment of assets										Loss on impairment of assets	—		3		(3)		(100)	%
Total general and administrative	Total general and administrative	47		57		(10)		(18)	%	Total general and administrative	55		51		4		8	%
Total expenses - Originations	Total expenses - Originations	$	167	$	145	$	22	15	%	Total expenses - Originations	$	195	$	155	$	40	26	%

7062

Total expenses ~~for~~during the three months ended ~~June~~September 30, 2020 increased when compared to the same period in 2019 primarily due to growth in origination volumes, which was driven by the low interest rate environment. 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~~20.1 Originations - Expenses


		Six Months Ended June 30,											Nine Months Ended September 30,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change
Salaries, wages and benefits	Salaries, wages and benefits	$	237	$	157	$	80	51	%	Salaries, wages and benefits	$	377	$	261	$	116	44	%
General and administrative	General and administrative									General and administrative
Loan origination expenses	Loan origination expenses	32		27		5		19	%	Loan origination expenses	52		43		9		21	%
Corporate and other general and administrative expenses	Corporate and other general and administrative expenses	34		27		7		26	%	Corporate and other general and administrative expenses	50		43		7		16	%
Marketing and professional service fees	Marketing and professional service fees	23		29		(6)		(21)	%	Marketing and professional service fees	37		41		(4)		(10)	%
Depreciation and amortization	Depreciation and amortization	7		9		(2)		(22)	%	Depreciation and amortization	12		13		(1)		(8)	%

Loss on impairment of assets										Loss on impairment of assets	—		3		(3)		(100)	%
Total general and administrative	Total general and administrative	96		92		4		4	%	Total general and administrative	151		143		8		6	%
Total expenses - Originations	Total expenses - Originations	$	333	$	249	$	84	34	%	Total expenses - Originations	$	528	$	404	$	124	31	%

Total expenses ~~for~~during the ~~six~~nine months ended ~~June~~September 30, 2020 increased when compared to the same period in 2019 primarily due to growth in origination volumes, which was driven by the low interest rate environment. The origination 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 increased during the ~~six~~nine months ended ~~June~~September 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.~~costs.

The tables below summarize other income (expenses), net, for the Originations segment:


Table ~~23.~~21. Originations - Other Income (Expenses), Net


		Three Months Ended June 30,															Three Months Ended September 30,
		2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Interest income	Interest income	$	19		$	23		$	(4)		(17)	%	Interest income	$	16		$	24		$	(8)		(33)	%
Interest expense	Interest expense	(13)			(25)			12			(48)	%	Interest expense	(15)			(24)			9			(38)	%
Other income, net		—			1			(1)			(100)	%
Other expense, net													Other expense, net	—			(1)			1			100	%
Total other income (expenses), net - Originations	Total other income (expenses), net - Originations	$	6		$	(1)		$	7		(700)	%	Total other income (expenses), net - Originations	$	1		$	(1)		$	2		(200)	%

Weighted average note rate - mortgage loans held for sale	Weighted average note rate - mortgage loans held for sale	3.3		%	4.4		%	(1.1)		%	(25)	%	Weighted average note rate - mortgage loans held for sale	3.1		%	4.1		%	(1.0)		%	(24)	%
Weighted average cost of funds (excluding facility fees)	Weighted average cost of funds (excluding facility fees)	2.6		%	4.3		%	(1.7)		%	(40)	%	Weighted average cost of funds (excluding facility fees)	2.5		%	3.8		%	(1.3)		%	(34)	%

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~~during the three months ended ~~June~~September 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.

7163


Table ~~23.1~~21.1 Originations - Other Income, Net


		Six Months Ended June 30,															Nine Months Ended September 30,
		2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Interest income	Interest income	$	53		$	40		$	13		33	%	Interest income	$	69		$	64		$	5		8	%
Interest expense	Interest expense	(40)			(43)			3			(7)	%	Interest expense	(55)			(67)			12			(18)	%
Other income, net	Other income, net	—			5			(5)			(100)	%	Other income, net	—			4			(4)			(100)	%
Total other income, net - Originations	Total other income, net - Originations	$	13		$	2		$	11		550	%	Total other income, net - Originations	$	14		$	1		$	13		1,300	%

Weighted average note rate - mortgage loans held for sale	Weighted average note rate - mortgage loans held for sale	3.5		%	4.6		%	(1.1)		%	(24)	%	Weighted average note rate - mortgage loans held for sale	3.4		%	4.4		%	(1.0)		%	(23)	%
Weighted average cost of funds (excluding facility fees)	Weighted average cost of funds (excluding facility fees)	2.9		%	4.5		%	(1.6)		%	(36)	%	Weighted average cost of funds (excluding facility fees)	2.7		%	4.3		%	(1.6)		%	(37)	%

Interest ~~income for~~expense during the ~~six~~nine months ended ~~June~~September 30, 2020 ~~increased~~decreased when compared to the same period in 2019 primarily driven by ~~higher funded volume, partially offset by~~a lower ~~average note rate on mortgage loans held for sale.~~cost of funds. The ~~increase~~decrease in interest ~~income~~expense was partially offset by a decrease in other income, net. Other income, net, was higher in 2019 due to recognition of incentives we received related to our financing of certain loans satisfying certain customer 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. We recorded $5$4 in other income, net, related to such incentives ~~for~~during the ~~six~~nine months ended ~~June~~September 30, 2019. The master repurchase agreement expired during the third quarter of 2019.

Xome Segment

Xome is a real estate 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.

•The Data/Technology division contains a diversified set of businesses that provide technology solutions to real estate service providers, aggregators, and a variety of investors. This includes providing aggregation, standardization and licensing for one of the nation’s largest set of MLS, public records and neighborhood demographic data.

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The charts below set forth Xome’s total revenues ($ in Millions), Exchange properties sold, and Services completed orders:

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The following tables set forth the results of operations for the Xome segment:


Table ~~24.~~22. Xome Segment Results of Operations


		Three Months Ended June 30,															Three Months Ended September 30,
		2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Xome - Operations	Xome - Operations												Xome - Operations
Total revenues	Total revenues	$	106		$	108		$	(2)		(2)	%	Total revenues	$	108		$	112		$	(4)		(4)	%
Total expenses	Total expenses	95			101			(6)			(6)	%	Total expenses	94			101			(7)			(7)	%
Total other income, net	Total other income, net	1			—			1			100	%	Total other income, net	1			3			(2)			(67)	%
Income before income tax expense	Income before income tax expense	$	12		$	7		$	5		71	%	Income before income tax expense	$	15		$	14		$	1		7	%
Pre-tax margin	Pre-tax margin	11.3		%	6.5		%	4.8		%	74	%	Pre-tax margin	13.9		%	12.5		%	1.4		%	11	%

Xome - Revenues	Xome - Revenues												Xome - Revenues
Exchange	Exchange	$	9		$	20		$	(11)		(55)	%	Exchange	$	6		$	19		$	(13)		(68)	%
Services	Services	94			82			12			15	%	Services	99			87			12			14	%
Data/Technology	Data/Technology	3			6			(3)			(50)	%	Data/Technology	3			6			(3)			(50)	%
Total revenues - Xome	Total revenues - Xome	$	106		$	108		$	(2)		(2)	%	Total revenues - Xome	$	108		$	112		$	(4)		(4)	%

Key Metrics	Key Metrics												Key Metrics
Exchange properties sold	Exchange properties sold	1,191			2,645			(1,454)			(55)	%	Exchange properties sold	860			2,453			(1,593)			(65)	%
Average Exchange properties under management	Average Exchange properties under management	17,438			6,693			10,745			161	%	Average Exchange properties under management	15,067			6,688			8,379			125	%
Services completed orders	Services completed orders	423,974			417,510			6,464			2	%	Services completed orders	422,935			429,128			(6,193)			(1)	%
Percentage of revenue earned from third-party customers	Percentage of revenue earned from third-party customers	53.3		%	52.9		%	0.4		%	1	%	Percentage of revenue earned from third-party customers	50.1		%	53.4		%	(3.3)		%	(6)	%

Xome - Expenses	Xome - Expenses												Xome - Expenses
Salaries, wages and benefits	Salaries, wages and benefits	$	33		$	36		$	(3)		(8)	%	Salaries, wages and benefits	$	32		$	37		$	(5)		(14)	%
General and administrative	General and administrative												General and administrative
Operational expenses	Operational expenses	59			62			(3)			(5)	%	Operational expenses	57			60			(3)			(5)	%
Depreciation and amortization	Depreciation and amortization	3			3			—			—	%	Depreciation and amortization	5			4			1			25	%
Total general and administrative	Total general and administrative	62			65			(3)			(5)	%	Total general and administrative	62			64			(2)			(3)	%
Total expenses - Xome	Total expenses - Xome	$	95		$	101		$	(6)		(6)	%	Total expenses - Xome	$	94		$	101		$	(7)		(7)	%

Income before income tax expense increased ~~for~~during the three months ended ~~June~~September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in total ~~expenses.~~expenses, partially offset by lower total revenues. 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~~decreased during the three months ended ~~June~~September 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 related to the CARES Act, offset by an increase in Services revenues primarily driven by originations volume from ~~higher volume of units for~~ title ~~and close, and field~~ services.

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Table ~~24.1~~22.1 Xome Segment Results of Operations


		Six Months Ended June 30,															Nine Months Ended September 30,
		2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Xome - Operations	Xome - Operations												Xome - Operations
Total revenues	Total revenues	$	212		$	204		$	8		4	%	Total revenues	$	320		$	316		$	4		1	%
Total expenses	Total expenses	191			200			(9)			(5)	%	Total expenses	285			301			(16)			(5)	%
Total other income, net	Total other income, net	2			11			(9)			(82)	%	Total other income, net	3			14			(11)			(79)	%
Income before income tax expense	Income before income tax expense	$	23		$	15		$	8		53	%	Income before income tax expense	$	38		$	29		$	9		31	%
Pre-tax margin	Pre-tax margin	10.8		%	7.4		%	3.4		%	46	%	Pre-tax margin	11.9		%	9.2		%	2.7		%	29	%

Xome - Revenues	Xome - Revenues												Xome - Revenues
Exchange	Exchange	$	25		$	40		$	(15)		(38)	%	Exchange	$	31		$	59		$	(28)		(47)	%
Services	Services	179			153			26			17	%	Services	278			240			38			16	%
Data/Technology	Data/Technology	8			11			(3)			(27)	%	Data/Technology	11			17			(6)			(35)	%
Total revenues - Xome	Total revenues - Xome	$	212		$	204		$	8		4	%	Total revenues - Xome	$	320		$	316		$	4		1	%

Key Metrics	Key Metrics												Key Metrics
Exchange properties sold	Exchange properties sold	3,305			5,066			(1,761)			(35)	%	Exchange properties sold	4,165			7,519			(3,354)			(45)	%
Average Exchange properties under management	Average Exchange properties under management	17,608			6,484			11,124			172	%	Average Exchange properties under management	16,761			6,552			10,209			156	%
Services completed orders	Services completed orders	832,708			797,095			35,613			4	%	Services completed orders	1,255,643			1,226,223			29,420			2	%
Percentage of revenue earned from third-party customers	Percentage of revenue earned from third-party customers	54.0		%	53.0		%	1.0		%	2	%	Percentage of revenue earned from third-party customers	52.7		%	53.1		%	(0.4)		%	(1)	%

Xome - Expenses	Xome - Expenses												Xome - Expenses
Salaries, wages and benefits	Salaries, wages and benefits	$	68		$	74		$	(6)		(8)	%	Salaries, wages and benefits	$	100		$	111		$	(11)		(10)	%
General and administrative	General and administrative												General and administrative
Operational expenses	Operational expenses	117			119			(2)			(2)	%	Operational expenses	174			179			(5)			(3)	%
Depreciation and amortization	Depreciation and amortization	6			7			(1)			(14)	%	Depreciation and amortization	11			11			—			—	%
Total general and administrative	Total general and administrative	123			126			(3)			(2)	%	Total general and administrative	185			190			(5)			(3)	%
Total expenses - Xome	Total expenses - Xome	$	191		$	200		$	(9)		(5)	%	Total expenses - Xome	$	285		$	301		$	(16)		(5)	%

Income before income tax expense increased ~~for~~during the ~~six~~nine months ended ~~June~~September 30, 2020 as compared to the same period in 2019 due to ~~an increase in total revenues and~~a 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 from higher volumes of units for title and close, and field services, partially offset by a decrease in Exchange revenues due to the decrease in defaults and foreclosures nationwide. The decrease in total expenses was primarily due to a decrease in salaries, wages and benefits driven by operational efficiencies. The decrease in total other income, net, was due to the change in fair value of the contingent consideration of ~~$11~~$15 recorded in 2019 in connection with the acquisition of AMS. Total revenues remained relatively flat during the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due to an increase in Services revenues from higher volumes of units for title and close, and field services, partially offset by a decrease in Exchange revenues due to the decrease in defaults and foreclosures nationwide related to the CARES Act.

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Corporate/Other ~~Segment~~

The following tables set forth the selected financial results ~~of operations~~ for ~~the~~ Corporate/~~Other segment:~~Other:


Table ~~25.~~23. Corporate/Other ~~Segment~~Selected Financial 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 % — % — %


	Three Months Ended September 30,
	2020	2019	$ Change	% Change
Corporate/Other - Operations
Total expenses	43	51	(8)	(16)	%
Interest expense	45	52	(7)	(13)	%
Other expense, net	(52)	—	(52)	(100)	%

~~Loss before income tax benefit~~Total expenses decreased in the three months ended ~~June~~September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in ~~total expenses. Total expenses were~~general and administrative expense. General and administrative expense was higher in the three months ended ~~June~~September 30, 2019 due to ~~acquisition and integration expenses related to the Pacific Union acquisition and the Seterus acquisition in February 2019. Depreciation~~higher legal reserves. Additionally, depreciation and amortization decreased in the three months ended ~~June~~September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in amortization of intangible assets.

~~Other~~ Partially offsetting the decrease in total expenses ~~net for the Corporate/Other segment consists~~was a $7 loss on impairment 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.~~assets in connection with technology write-offs.

~~The change in total other expenses, net,~~Interest expense decreased in the three months ended June 30, 2020 as compared to the same period in 2019 was primarily due to a decrease in interest expense on unsecured senior notes as a result of the repayment and redemption of the 2021 and 2022 unsecured senior notes, partially offset by the issuance of the 2027 unsecured senior notes which was completed in January 2020.


~~Table 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 % — % — %

~~Loss before income tax benefit decreased in the six months ended June~~September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in interest expense on unsecured senior notes as result of the repayment and redemption of the 2021 and 2022 unsecured senior notes in February 2020 and the 2023 unsecured senior notes in August 2020. The decrease in total ~~expenses.~~ interest expense was partially offset by the issuance of the 2027 unsecured senior notes in January 2020 and issuance of the 2028 unsecured senior notes in August 2020.

The change in other expense, net, in the three months ended September 30, 2020 as compared to the same period in 2019 was primarily due to the $53 loss on redemption of the 2023 unsecured senior notes.


Table 23.1 Corporate/Other Selected Financial Results


	Nine Months Ended September 30,
	2020	2019	$ Change	% Change
Corporate/Other - Operations
Total expenses	111	153	(42)	(27)	%
Interest expense	144	162	(18)	(11)	%
Other (expense) income, net	(53)	5	(58)	(1,160)	%

Total expenses decreased in the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in salaries, wages and benefits, and general and administrative expense. Both salaries, wages and benefits and general and administrative expense were higher in the ~~six~~nine months ended ~~June~~September 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~~were partially offset by ana $7 and $8 loss on impairment of assets in connection with technology write-offs and an ancillary business in 2020, respectively.

Interest expense decreased in the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in interest expense on unsecured senior notes as result of the repayment and redemption of the 2021 and 2022 unsecured senior notes in February 2020 and the 2023 unsecured senior notes in August 2020. The decrease in total interest expense was partially offset by the issuance of the 2027 unsecured senior notes in January 2020 and issuance of the 2028 unsecured senior notes in August 2020.

The change in ~~total~~ other ~~expenses,~~(expense) income, net, in the ~~six~~nine months ended ~~June~~September 30, 2020 as compared to the same period in 2019 was primarily due to ~~a decrease in other interest expense as a result~~the $53 loss on redemption of ~~lower commitment and facility fees, which were higher in 2019 due to~~ the ~~Pacific Union acquisition.~~2023 unsecured senior notes.

~~Changes in Financial Position~~

~~The following table sets forth the change in assets for the periods presented:~~

~~Table 26. 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) %

Total assets as of June 30, 2020 decreased $1,005 or 5% compared with December 31, 2019 primarily due to the decrease in mortgage loans held for sale, mortgage servicing rights, reverse mortgage interests, net, and advances and other receivables, net. Mortgage loans held for sale decreased $898 primarily due to a larger quantity of loans sold in 2020. Mortgage servicing rights decreased primarily due to a negative mark-to-market adjustment of $644 driven by declining interest rates. Reverse mortgage interests, net, decreased $570 primarily due to the collection on participating interests in HMBS. Advances and other receivables, net, decreased primarily due to recoveries on 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 i~~nclude 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 27. Changes in Liabilities and Stockholders’ 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) %

Total stockholders’ equity at June 30, 2020 decreased $86 or 4% compared with the balance as of December 31, 2019 primarily due to net loss of $98 during the six months ended June 30, 2020. Total liabilities at June 30, 2020 decreased $919 or 6% compared with the balance as of December 31, 2019 primarily due to a decrease in other nonrecourse debt, net, and warehouse facilities, net, partially offset by an increase in other. Other nonrecourse debt, net, decreased $579 primarily due to repayments of reverse mortgage related nonrecourse 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 i~~nclude 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.~~

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Liquidity and Capital Resources

We measure liquidity by unrestricted cash and availability of borrowings on our MSR facilities. Our cash and cash equivalents on hand increased to ~~$1,041~~$946 as of ~~June~~September 30, 2020 from $329 as of December 31, 2019. We benefited from strong operating cash flow and ~~drew down cash~~repaid $179 of incremental draws from our MSR facilities ~~to ensure we~~that were ~~prepared to deal with a severe economic scenario resulting from~~incurred at the start of the COVID-19 pandemic. During the three months ended September 30, 2020, we bought back 1.2 million shares of our outstanding common stocks as part of the $100 stock repurchase program.

During the nine months ended September 30, 2020, operating activities generated cash totaling $1,878. As of ~~June~~September 30, 2020, total available borrowing capacity was $11,540, of which $6,677 was unused. As of September 30, 2020, we had ~~$1,008~~$1,075 collateral pledged against the MSR facilities, of which we could borrow an additional $394~~$555.~~ ~~During the six months ended June 30, 2020, operating activities generated cash totaling $2,066. As of June 30, 2020, total available borrowing capacity was $9,590, of which $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~~during 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,~~$200. In addition, in August 2020, we entered into a new financing facility for GNMA MSRs and advances with a capacity of $900, of which $640 was allocated to advances as of September 30, 2020. With this addition, we expanded our total advance facility capacity to $2,040 and total unused advance capacity to $1,471 as of September 30, 2020. We believe our facilities will be adequate for our ~~needs.~~needs, as we expect increases in advances in the coming quarter due to typical seasonal trends. We ~~plan to finance~~have begun financing GNMA advances with ~~existing~~this new financing facility. For more information on our MSR ~~lines~~ and ~~corporate cash flow.~~advance facilities, see Note 9, Indebtedness. For non-agency servicing, we are reimbursed for advances relatively quickly, which should limit growth in balances with even higher forbearance rates.

In August 2020, we redeemed $950 of our unsecured senior notes, using the net proceeds of the 2028 Notes offering, together with $100 cash on hand. As a result, not only did we bring down funding costs, we extended our liquidity runway until 2026 and have no senior note maturities for almost six years.

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, 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.

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.

Cash Flows

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

Table ~~28. Operating~~24. Cash ~~Flow~~

Flows

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) %


	Nine Months Ended September 30,
	2020		2019		$ Change		% Change
Net cash attributable to:
Operating activities	$	1,878	$	(28)	$	1,906	(6,807)	%
Investing activities	(38)		(279)		241		(86)	%
Financing activities	(1,277)		388		(1,665)		(429)	%
Net increase in cash, cash equivalents, and restricted cash	$	563	$	81	$	482	595	%

Operating activities

Our operating activities generated cash of ~~$2,066~~$1,878 during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to cash used of ~~$52~~$28 in the same period in 2019. The change was primarily due to the 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 $7,383 for loan origination activities driven by the declining interest rate environment and an increase in funds used of $1,377 to repurchase forward loan assets out of Ginnie Mae securitizations.

The change in cash attributable to operating activities due to fair value changes in MSRs, MSR related liabilities and mortgage loans held for investment during the six months ended June 30, 2020 increased $281 when compared to the same period in 2019. The change was primarily due to an increase in fair value changes and amortization/accretion of mortgage servicing rights/liabilities of $304, primarily due to the negative mark-to-market adjustment for the six months ended June 30, 2020.

The change in cash attributable to operating activities due to other non-cash adjustments to net loss during the six months ended June 30, 2020 increased $430 when compared to the same period in 2019 primarily due to the $521 increase in net gain on mortgage loans held for sale primarily driven by ~~the~~ higher origination volumes in a ~~declining~~low interest rate environment.

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

~~Table 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) %

Investing activities

Our investing activities used cash of ~~$14~~$38 during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to ~~$242~~$279 during the same period in 2019. The decrease in cash used in investing activities was primarily due to a decrease of ~~$378~~$415 in cash used for the purchase of forward mortgage servicing rights, net of liabilities incurred. In addition, during the ~~six~~nine months ended ~~June~~September 30, 2019, we used $85 cash in connection with the Pacific Union and Seterus acquisitions. The decrease in cash used was partially offset by a decrease in cash generated of ~~$236~~$254 from proceeds on sale of forward mortgage servicing rights.

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

~~Table 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) %

Financing activities

Our financing activities used cash of ~~$1,363~~$1,277 during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to cash generated of ~~$282~~$388 in the same period in 2019. Contributing to the ~~change in~~ cash used was the ~~$1,717~~$1,970 change in advance and warehouse facilities due to a net pay down of ~~$544~~$135 in advance and warehouse facilities during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to a net ~~increase~~increased borrowing of ~~$1,173~~$1,835 in the same period in 2019. Additionally, cash used in the redemption and repayment of unsecured senior debt and nonrecourse debt during the ~~six~~nine months ended ~~June~~September 30, 2020 increased ~~$692~~$1,657 compared to the same period in 2019 due to the repayment and redemption of the 2021 and 2022 unsecured senior notes in February 2020 and the 2023 unsecured senior notes in August 2020. The cash generated from the issuance of excess spread financing decreased $413 due to a decline in excess spread financing deals in the six months ended June 30, 2020 compared to the same period in 2019.

The change in cash used was partially offset by an increase in cash generated of ~~$600~~$1,450 due to the issuance of the 2027 unsecured senior notes in January 2020 and issuance of the 2028 unsecured senior notes in August 2020.

The cash generated from the issuance of excess spread financing decreased $445 during the nine months ended September 30, 2020 compared to the same period in 2019, as we did not enter into any new excess spread financing deals during 2020. In addition, cash used in participating interest financing decreased $546 in 2020 primarily due to a lower repayment of participating interest financing in 2020 compared to the same period in 2019. Further, during the ~~six~~nine months ended ~~June~~September 30, 2019, cash of $294 was used to pay off the notes payable assumed from the Pacific Union acquisition.

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. These covenants are measured at our operating subsidiary, Nationstar Mortgage LLC. As of ~~June~~September 30, 2020, we were in compliance with our required financial covenants.

Seller/Servicer Financial Requirements

We are also subject to net worth, capital ratio and liquidity requirements established by the Federal Housing Finance Agency (“FHFA”) for Fannie Mae and Freddie Mac Seller/Servicers, and Ginnie Mae for single family issuers. In both cases, these requirements apply to our operating subsidiary, Nationstar Mortgage LLC. As of ~~June~~September 30, 2020, we were in compliance with our seller/servicer financial requirements for FHFA and Ginnie Mae.

Minimum Net Worth

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

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

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

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 deferred tax assets, goodwill, intangible assets, affiliate receivables and certain pledged assets. ~~Effective for fiscal year 2020, under the Ginnie Mae MBS Guide, the issuers will no longer be permitted to include deferred tax assets when computing the minimum net worth requirement.~~

Minimum Capital Ratio

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

Minimum Liquidity

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

▪3.5 basis points of total Agency 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~~extent 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 Ginnie Mae is defined as follows:

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

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

Secured Debt to Gross Tangible Asset Ratio

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

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

In addition, Fannie Mae or Freddie Mac may require capital ratios in excess of stated requirements. Refer to Note ~~15,~~14, Capital Requirements, for additional information.

Table ~~31.~~25. Debt

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


	September 30, 2020		December 31, 2019
Advance facilities principal amount	$	569	$	422
Warehouse facilities principal amount	4,028		4,416
MSR facilities principal amount	266		160
Unsecured senior principal amount	2,200		2,398

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, and we exercise our ability to stop advancing principal and interest where the pooling and servicing agreements permit, where the advance 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.

Warehouse and MSR 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. As of ~~June~~September 30, 2020, unsecuritized borrower draws totaled ~~$53,~~$56, and our maximum unfunded advance obligation related to these reverse mortgage loans was ~~$2,408.~~$2,304.

Unsecured Senior Notes

In 2018 and 2020, we completed offerings of unsecured senior notes, which mature on various dates through ~~January 2027.~~August 2028. We pay interest semi-annually to the holders of these notes at interest rates ranging from ~~6.000%~~5.500% to 9.125%. Refer to Note ~~10, Payables and Other Liabilities~~9, Indebtedness, for the contractual maturities of unsecured senior notes.

Contractual Obligations

As of ~~June~~September 30, 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, 2019 except for the following, in connection with the issuance of the 2027 and 2028 Notes and redemption of the 2021, 2022 and ~~2022 notes~~2023 Notes during the ~~six~~nine months ended ~~June~~September 30, 2020:

Table ~~32.~~26. Contractual Obligations


		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total			Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total
Unsecured senior notes	Unsecured senior notes	$	—	$	—	$	950	$	1,350	$	2,300	Unsecured senior notes	$	—	$	—	$	—	$	2,200	$	2,200
Interest payment from unsecured senior notes	Interest payment from unsecured senior notes	182		363		248		175		968		Interest payment from unsecured senior notes	151		304		304		267		1,026
Total	Total	$	182	$	363	$	1,198	$	1,525	$	3,268	Total	$	151	$	304	$	304	$	2,467	$	3,226

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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 ~~14,~~13, Fair Value Measurements, in notes to consolidated financial statements, business combinations and goodwill, and valuation and realization of deferred tax assets. We believe that the judgment, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of these critical accounting policies on our consolidated financial statements, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. Fair value measurements considered to be Level 3 representing estimated values based on significant unobservable inputs include (i) the valuation of MSRs, (ii) the valuation of excess spread financing, (iii) the valuation of the mortgage servicing rights financing liability and (iv) the valuation of IRLCs and LPCs. For further information on our critical accounting policies, please refer to the Company’s Annual Reports on Form 10-K for the year ended December 31, 2019. There have been no material changes to our critical accounting policies since December 31, 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

Below lists recently issued accounting pronouncements applicable to us but not yet effective.

Accounting Standards Update 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”) simplifies accounting for income taxes by removing certain exceptions from the general principles in Topic 740 including elimination of the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items such as other comprehensive income. ASU 2019-12 also clarifies and amends certain guidance in Topic 740. ASU 2019-12 is effective for public companies for fiscal years beginning after December 15, 2020, including interim periods, with early adoption of all amendments in the same period permitted. We are currently assessing the impact of ASU 2019-12, but ~~does~~do 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.

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.

Agency. 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 Ginnie 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 or sold into Ginnie Mae.

Asset-Backed Securities (“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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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, 2019. There have been no material changes in the types of market risks faced by us since December 31, 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 ~~June~~September 30, 2020 market rates on our instruments to perform the sensitivity analysis. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in fair value may not be linear.

The following table summarizes the estimated change in the fair value of our assets and liabilities sensitive to interest rates as of ~~June~~September 30, 2020 given hypothetical instantaneous parallel shifts in the yield curve. Results could differ materially.

Table ~~33.~~27. Change in Fair Value


		June 30, 2020									September 30, 2020
				Down 25 bps			Up 25 bps			Down 25 bps			Up 25 bps
Increase (decrease) in assets	Increase (decrease) in assets						Increase (decrease) in assets
Mortgage servicing rights at fair value	Mortgage servicing rights at fair value	$	(114)		$	127	Mortgage servicing rights at fair value	$	(127)		$	136
Mortgage loans held for sale at fair value	Mortgage loans held for sale at fair value	11			(14)		Mortgage loans held for sale at fair value	17			(22)
Derivative financial instruments:	Derivative financial instruments:						Derivative financial instruments:
Interest rate lock commitments	Interest rate lock commitments	42			(54)		Interest rate lock commitments	74			(98)
Forward MBS trades	Forward MBS trades	(3)			4		Forward MBS trades	(23)			32
Total change in assets	Total change in assets	(64)			63		Total change in assets	(59)			48
Increase (decrease) in liabilities	Increase (decrease) in liabilities						Increase (decrease) in liabilities
Mortgage servicing rights financing at fair value	Mortgage servicing rights financing at fair value	(4)			4		Mortgage servicing rights financing at fair value	(4)			4
Excess spread financing at fair value	Excess spread financing at fair value	(17)			20		Excess spread financing at fair value	(17)			20
Derivative financial instruments:	Derivative financial instruments:						Derivative financial instruments:
Interest rate lock commitments							Interest rate lock commitments	(3)			5
Forward MBS trades	Forward MBS trades	43			(55)		Forward MBS trades	70			(92)
Total change in liabilities	Total change in liabilities	22			(31)		Total change in liabilities	46			(63)
Total, net change	Total, net change	$	(86)		$	94	Total, net change	$	(105)		$	111

8978

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 ~~June~~September 30, 2020.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~June~~September 30, 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 ~~June~~September 30, 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.

9079

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. 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~~We believe that we have fully accrued for these ~~matters.~~matters as of September 30, 2020.

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, 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~~On July 30, 2020, we announced that our Board of Directors authorized the repurchase of up to $100 of our ~~shares during~~outstanding common stock. The stock repurchase program may be suspended, modified or discontinued at any time at our discretion. During the three months ended ~~June~~September 30, ~~2020.~~2020, we have repurchased shares of our common stock at a cost of $24 under our share repurchase program. The number and average price of shares purchased are set forth in the table below:


Period	(a) Total Number of Shares Purchased (in thousands)	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (in thousands)	(d) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program (in millions)
July 2020	—	$	—	—	$	—
August 2020	334	$	18.04	334	$	94
September 2020	853	$	20.30	853	$	76
Total	1,187			1,187

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

9181

Item 6. Exhibits

~~Incorporated by Reference~~

Exhibit
Number

~~Description~~

~~Form~~

~~File No.~~

~~Exhibit~~

~~Filing Date~~

~~Filed or Furnished Herewith~~

~~31.1~~

~~Certification by Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31.2~~

~~Certification by Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32.1~~

~~Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~32.2~~

~~Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~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.~~

~~101.SCH~~

~~Inline XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~

~~Inline XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~

~~Inline XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~

~~Inline XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~

~~Inline XBRL Taxonomy Extension Presentation Linkbase Document~~

~~104~~

~~Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101.)~~

Incorporated by Reference

Exhibit
Number

Description

Form

File No.

Exhibit

Filing Date

Filed or Furnished Herewith

4.1

Indenture, dated as of August 6, 2020, among Mr. Cooper Group Inc., Nationstar Mortgage Holdings Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee

8-K

001-14667

4.1

8/6/2020

10.1

Amendment Number Fourteen to the Second Amended and Restated Master Repurchase Agreement Dated as of January 29, 2016 between Barclays Bank PLC, as Purcha s er and Agent and Nationstar Mortgage LLC, as Seller, dated September 1 1 , 2020

10.2

Amendment Number Twenty to the Mortgage Loan Purchase and Sale Agreement dated as of March 25, 2011 between Barclays Bank PLC, as Purchaser and Agent and Nationstar Mortgage LLC, as Seller, dated September 11, 2020

10.3**

Offer Letter and Acceptance, by and between Mr. Cooper Group Inc. and Michael Rawls

10.4**

Offer Letter and Acceptance, by and between Mr. Cooper Group Inc. and Eldridge A. Burns

31.1

Certification by Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification by Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101.)

** Management, contract, compensatory plan or arrangement.

9282

SIGNATURES

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


						MR. COOPER GROUP INC.

~~July 30,~~October 29, 2020						/s/ Jay Bray
Date						Jay Bray Chief Executive Officer (Principal Executive Officer)

~~July 30,~~October 29, 2020						/s/ Christopher G. Marshall
Date						Christopher G. Marshall Vice Chairman & Chief Financial Officer (Principal Financial and Accounting Officer)

9383


	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)


	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