UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DCD.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 September 30, ~~2017~~

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~~number: 001-14667

~~WMIH Corp.~~

Mr. Cooper Group Inc.

(Exact name of registrant as specified in its charter)

~~Delaware~~	~~91-1653725~~
Delaware		91-1653725
(State or other jurisdiction of ~~incorporation)~~ incorporation or organization)		(~~IRS~~I.R.S. Employer Identification No.)
~~800 FIFTH AVENUE, SUITE 4100~~ ~~SEATTLE, WASHINGTON~~			~~98104~~
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

~~(206) 922-2957~~

~~(Registrant’s telephone number, including area code)~~

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). ☒Yes ☐x No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule ~~12b-2~~12(b)-2 of the Exchange Act.

~~Large accelerated filer~~

☐

~~Accelerated filer~~

☒

Large Accelerated Filer

Accelerated Filer

~~Non-accelerated filer~~

Non-Accelerated Filer

☐ ~~(Do not check if a smaller reporting company)~~

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

~~Indicate the number~~x

Number of shares ~~outstanding of each of the issuer’s classes~~ of common stock, $0.01 par value, outstanding as of ~~the latest practicable date.~~

October 23, 2020 was 90,853,569.

MR. COOPER GROUP INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

~~Common Stock $0.00001 par value~~		~~206,714,132~~
~~(Class)~~						~~(Outstanding at November 1, 2017)~~

~~Forward-Looking Statements~~

Certain information included in this Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q that address activities, events, conditions or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business and these statements are not guarantees of future performance. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements may include the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “strategy,” “future,” “opportunity,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result” and similar expressions. Such forward-looking statements involve risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by such statements. Some of these risks are identified and discussed under Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016. These risk factors will be important to consider in determining future results and should be reviewed in their entirety. These forward-looking statements are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that the events, results or trends identified in these forward-looking statements will occur or be achieved. Forward-looking statements speak only as of the date they are made, and we do not undertake to update any forward-looking statement, except as required by law.

~~* * * * *~~

As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, (i) the terms “Company,” “we,” “us,” or “our” refer to WMIH Corp. (formerly WMI Holdings Corp.) and its subsidiaries on a consolidated basis; (ii) “WMIH” refers only to WMIH Corp., without regard to its subsidiaries; (iii) “WMIHC” refers only to WMI Holdings Corp., without regard to its subsidiaries; (iv) “WMMRC” means WM Mortgage Reinsurance Company, Inc. (a wholly-owned subsidiary of WMIH); and (v) “WMIIC” means WMI Investment Corp. (a wholly-owned subsidiary of WMIH).

~~WMIH CORP.~~

~~FORM 10-Q~~

~~INDEX~~

	Page
PART I –		FINANCIAL INFORMATION

Item 1. ~~Condensed~~		Financial Statements	3

		Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	3

		Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019	4

		Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019	5

		Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2020 and 2019	7

		Notes to Consolidated Financial Statements (unaudited).		3 9

Item 2. ~~Management’s~~		Management's Discussion and Analysis of Financial Condition and Results of Operations		29 36

Item 3.		Quantitative and Qualitative Disclosures about Market Risk		45 78

Item 4.		Controls and ~~Procedures.~~Procedures		45 79



PART II –		OTHER INFORMATION

Item 1.		Legal Proceedings		46 80

Item 1A.		Risk Factors.		46 80
~~Item 6. Exhibits~~.			47
~~SIGNATURES~~ Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	48 81

Item 3.		Defaults Upon Senior Securities	81

Item 4.		Mine Safety Disclosures	81

Item 5.		Other Information	81

Item 6.		Exhibits	82

PART I

~~FINANCIAL INFORMATION~~

I. Financial Information

~~Item 1.~~

~~Condensed Consolidated Financial Statements.~~

~~WMIH CORP. AND SUBSIDIARIES~~

~~CONDENSED~~

Item 1. Financial Statements

MR. COOPER GROUP INC.

CONSOLIDATED BALANCE SHEETS

(~~in thousands,~~millions of dollars, except share data)

~~(Unaudited)~~

September 30, 2017

December 31, 2016 ⁽¹⁾

ASSETS:

Investments held in trust:

Fixed-maturity securities
$
9,022

$
29,206

Cash equivalents held in trust

6,804

2,176

Total investments held in trust

15,826

31,382

Cash and cash equivalents

25,542

2,491

Fixed-maturity securities

1,400

47,625

Restricted cash

577,220

573,347

Derivative asset - embedded conversion feature

111,877

80,651

Accrued investment income

109

187

Other assets

764

507

Total assets
$
732,738

$
736,190

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Liabilities:

Notes payable - principal
$
—

$
18,774

Notes payable - interest

—

203

Losses and loss adjustment reserves

705

811

Losses payable

29

53

Unearned premiums

33

270

Accrued ceding commissions

57

22

Loss contract reserve

—

5,645

Other liabilities

13,774

14,063

Total liabilities

14,598

39,841

Commitments and contingencies

Redeemable convertible series B preferred stock, $0.00001 par value; 600,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016; aggregate liquidation preference of $600,000,000 as of September 30, 2017 and December 31, 2016

502,213

502,213

Stockholders’ equity:

Convertible series A preferred stock, $0.00001 par value; 1,000,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016; aggregate liquidation preference of $10 as of September 30, 2017 and December 31, 2016

—

—

Common stock, $0.00001 par value; 3,500,000,000 authorized; 206,714,132 and 206,380,800 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

2

2

Additional paid-in capital

108,830

108,415

Retained earnings

107,095

85,719

Total stockholders’ equity

215,927

194,136

Total liabilities, redeemable convertible preferred stock and stockholders’ equity
$
732,738

$
736,190


	September 30, 2020		December 31, 2019
	(unaudited)
Assets
Cash and cash equivalents	$	946	$	329
Restricted cash	229		283
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	745		988
Reverse mortgage interests, net of purchase discount of $125 and $114, respectively	5,460		6,279
Mortgage loans held for sale at fair value	3,817		4,077
Property and equipment, net of accumulated depreciation of $84 and $55, respectively	114		112
Deferred tax assets, net	1,344		1,345
Other assets	6,431		1,390
Total assets	$	21,755	$	18,305

Liabilities and Stockholders’ Equity
Unsecured senior notes, net	$	2,167	$	2,366
Advance and warehouse facilities, net	4,851		4,997
Payables and other liabilities	6,590		2,016
MSR related liabilities - nonrecourse at fair value	1,091		1,348
Mortgage servicing liabilities	44		61
Other nonrecourse debt, net	4,671		5,286
Total liabilities	19,414		16,074
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	0		0
Common stock at $0.01 par value - 300 million shares authorized, 92.0 million and 91.1 million shares issued, respectively	1		1
Additional paid-in-capital	1,120		1,109
Retained earnings	1,243		1,122
Treasury shares at cost - 1.2 million and 0 shares, respectively	(24)		0
Total Mr. Cooper stockholders’ equity	2,340		2,232
Non-controlling interests	1		(1)
Total stockholders’ equity	2,341		2,231
Total liabilities and stockholders’ equity	$	21,755	$	18,305

~~The~~

See accompanying notes ~~are an integral part of~~to the ~~condensed~~ consolidated financial ~~statements.~~

⁽¹⁾~~Balances derived from audited financial~~ statements ~~as of December 31, 2016.~~

(unaudited).

~~WMIH CORP. AND SUBSIDIARIES~~

~~CONDENSED~~

MR. COOPER GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(~~in thousands,~~millions of dollars, except for earnings per share ~~amounts and share~~ data)

~~(Unaudited)~~

Three months
ended
September 30, 2017

Three months
ended
September 30, 2016

Nine months
ended
September 30, 2017

Nine months
ended
September 30, 2016

Revenues:

Premiums earned
$
344

$
786

$
1,103

$
2,426

Net investment income

1,943

498

4,826

1,747

Total revenues

2,287

1,284

5,929

4,173

Operating expenses:

Losses and loss adjustment expense

48

183

207

702

Ceding commission expense

44

75

137

234

General and administrative expense

2,117

1,357

5,915

4,878

Loss contract reserve reduction

(210
)

(565
)

(5,645
)

(2,362
)
Interest expense

579

636

1,788

1,994

Total operating expenses

2,578

1,686

2,402

5,446

Net operating (loss) income

(291
)

(402
)

3,527

(1,273
)
Other (income) expense:

Other (income)

(123
)

—

(123
)

—

Unrealized (gain) loss on change in fair value of derivative embedded conversion feature

(38,579
)

16,243

(31,226
)

(62,587
)
Total other (income) expense

(38,702
)

16,243

(31,349
)

(62,587
)
Income (loss) before income taxes

38,411

(16,645
)

34,876

61,314

Income tax expense (benefit)

—

—

—

—

Net income (loss)

38,411

(16,645
)

34,876

61,314

Redeemable convertible series B preferred stock dividends

(4,500
)

(4,500
)

(13,500
)

(13,500
)
Net income (loss) attributable to common and participating stockholders
$
33,911

$
(21,145
)

$
21,376

$
47,814

Basic net income (loss) per share attributable to common stockholders (Note 12)
$
0.06

$
(0.10
)

$
0.04

$
0.10

Shares used in computing basic net income (loss) per share

202,660,492

202,341,209

202,573,315

202,247,275

Diluted net income (loss) per share attributable to common stockholders (Note 12)
$
0.06

$
(0.10
)

$
0.04

$
0.09

Shares used in computing diluted net income (loss) per share

212,726,121

202,341,209

212,638,944

237,575,014


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues:
Service related, net	$	227	$	258	$	186	$	479
Net gain on mortgage loans held for sale	645		360		1,594		788
Total revenues	872		618		1,780		1,267
Expenses:
Salaries, wages and benefits	275		250		769		703
General and administrative	156		228		525		710
Total expenses	431		478		1,294		1,413

Interest income	56		163		250		459
Interest expense	(165)		(196)		(534)		(572)
Other income (expense), net	(51)		0		(50)		16
Total other expenses, net	(160)		(33)		(334)		(97)
Income (loss) before income tax expense (benefit)	281		107		152		(243)
Less: Income tax expense (benefit)	67		24		36		(52)
Net income (loss)	214		83		116		(191)
Less: Net income (loss) attributable to non-controlling interests	5		(1)		2		(2)
Net income (loss) attributable to Mr. Cooper	209		84		114		(189)
Less: Undistributed earnings attributable to participating stockholders	2		1		1		0
Net income (loss) attributable to common stockholders	$	207	$	83	$	113	$	(189)

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

~~The~~

See accompanying notes ~~are an integral part of~~to the ~~condensed~~ consolidated financial ~~statements.~~

statements (unaudited).

~~WMIH CORP. AND SUBSIDIARIES~~

~~CONDENSED~~

MR. COOPER GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF ~~CHANGES IN REDEEMABLE CONVERTIBLE~~

~~PREFERRED STOCK AND~~ STOCKHOLDERS’ EQUITY

(~~in thousands,~~millions of dollars, except share ~~amounts)~~

~~(Unaudited)~~

data)

Series B Redeemable Convertible
Preferred Stock

Series A Convertible
Preferred Stock

Common Stock

Shares

Amount

Shares

Amount

Shares

Amount

Additional
paid-in
capital

(Accumulated deficit) retained earnings

Total stockholders’ equity

Balance at January 1, 2016

600,000

502,213

1,000,000

—

206,168,035

2

107,757

(97,981
)

9,778

Net income

—

—

—

—

—

—

—

201,700

201,700

Redeemable convertible series B preferred stock dividends

—

—

—

—

—

—

—

(18,000
)

(18,000
)
Issuance of common stock under restricted stock compensation arrangement

—

—

—

—

212,765

—

—

—

—

Equity-based compensation

—

—

—

—

—

—

658

—

658

Balance at December 31, 2016

600,000

502,213

1,000,000

—

206,380,800

2

108,415

85,719

194,136

Net income

—

—

—

—

—

—

—

34,876

34,876

Redeemable convertible series B preferred stock dividends

—

—

—

—

—

—

—

(13,500
)

(13,500
)
Issuance of common stock under restricted stock compensation arrangement

—

—

—

—

333,332

—

—

—

—

Equity-based compensation

—

—

—

—

—

—

415

—

415

Balance at September 30, 2017

600,000

$
502,213

1,000,000

$
—

206,714,132

$
2

$
108,830

$
107,095

$
215,927


	Preferred Stock			Common Stock
	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 June 30, 2019	1,000	$	0	91,061	$	1	$	1,100	$	575	$	0	$	1,676	$	2	$	1,678
Shares issued under incentive compensation plan	—	—		26	—		1		—		—		1		—		1
Share-based compensation	—	—		—	—		5		—		—		5		—		5
Net income (loss)	—	—		—	—		—		84		—		84		(1)		83
Balance at September 30, 2019	1,000	$	0	91,087	$	1	$	1,106	$	659	$	0	$	1,766	$	1	$	1,767

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	—	—		19	—		—		—		—		—		—		—
Share-based compensation	—	—		—	—		6		—		—		6		—		6
Repurchase of common stock	—	—		(1,187)	—		—		—		(24)		(24)		—		(24)
Net income	—	—		—	—		—		209		—		209		5		214
Balance at September 30, 2020	1,000	$	0	90,854	$	1	$	1,120	$	1,243	$	(24)	$	2,340	$	1	$	2,341

~~The~~

See accompanying notes ~~are an integral part of~~to the ~~condensed~~ consolidated financial ~~statements.~~

statements (unaudited).

~~WMIH CORP. AND SUBSIDIARIES~~

~~CONDENSED~~

MR. COOPER GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(millions of dollars, except share data)


	Preferred Stock			Common Stock
	Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
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	—	—		266	—		(1)		—		—		(1)		—		(1)
Share-based compensation	—	—		—	—		14		—		—		14		—		14
Net loss	—	—		—	—		—		(189)		—		(189)		(2)		(191)
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	1,000	$	0	91,118	$	1	$	1,109	$	1,122	$	0	$	2,232	$	(1)	$	2,231
Shares issued / (surrendered) under incentive compensation plan	—	—		923	—		(5)		—		—		(5)		—		(5)
Share-based compensation	—	—		—	—		16		—		—		16		—		16
Cumulative effect adjustments pursuant to the adoption of ASU 2016-13	—	—		—	—		—		7		—		7		—		7
Repurchase of common stock	—	—		(1,187)	—		—		—		(24)		(24)		—		(24)
Net income	—	—		—	—		—		114		—		114		2		116
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

(~~in thousands)~~

~~(Unaudited)~~

millions of dollars)

Nine months ended
September 30, 2017

Nine months ended
September 30, 2016

Cash flows from operating activities:

Net income
$
34,876

$
61,314

Adjustments to reconcile net income to net cash (used in) operating activities:

Amortization of premium or discount on fixed maturity securities

108

247

Net realized loss (gain) on sale of investments

63

(19
)
Unrealized (gain) on trading securities

(67
)

(83
)
Unrealized (gain) on derivative embedded conversion feature

(31,226
)

(62,587
)
Equity-based compensation

415

484

Changes in assets and liabilities:

Accrued investment income

78

(18
)
Other assets

(257
)

(270
)
Cash equivalents held in trust

(4,628
)

1,358

Restricted cash

(3,873
)

(1,476
)
Losses and loss adjustment reserves

(106
)

(2,733
)
Losses payable

(24
)

(395
)
Unearned premiums

(237
)

(463
)
Accrued ceding commission expense

35

(8
)
Accrued interest on notes payable

(203
)

(24
)
Loss contract reserve

(5,645
)

(2,362
)
Other liabilities

(289
)

(626
)
Total adjustments

(45,856
)

(68,975
)
Net cash used in operating activities

(10,980
)

(7,661
)
Cash flows from investing activities:

Purchase of investments

(19,973
)

(130,469
)
Proceeds from sales and maturities of investments

86,278

146,920

Net cash provided by investing activities

66,305

16,451

Cash flows from financing activities:

Redeemable convertible series B preferred stock dividends

(13,500
)

(13,500
)
Notes payable – principal repayments

(18,774
)

(2,185
)
Net cash used in financing activities

(32,274
)

(15,685
)
Increase (decrease) in cash and cash equivalents

23,051

(6,895
)
Cash and cash equivalents, beginning of period

2,491

9,924

Cash and cash equivalents, end of period
$
25,542

$
3,029

Supplementary disclosure of cash flow information:

Cash paid during the period:

Interest
$
1,991

$
2,008


	Nine Months Ended September 30,
	2020		2019
Operating Activities
Net income (loss)	$	116	$	(191)
Adjustments to reconcile net income (loss) to net cash attributable to operating activities:
Deferred tax benefit	(1)		(53)
Net gain on mortgage loans held for sale	(1,594)		(788)
Interest income on reverse mortgage loans	(158)		(241)
Provision for servicing and non-servicing reserves	18		53
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities	1,258		998
Fair value changes in excess spread financing	(132)		(190)
Fair value changes in mortgage servicing rights financing liability	10		15
Fair value changes in mortgage loans held for investment	0		(3)
Amortization of premiums, net of discount accretion	45		(38)
Depreciation and amortization for property and equipment and intangible assets	56		67
Share-based compensation	16		14
Loss on redemption of unsecured senior notes	52		0
Other loss	17		5
Repurchases of forward loan assets out of Ginnie Mae securitizations	(3,173)		(1,823)
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	43,040		27,916
Changes in assets and liabilities:
Advances and other receivables	228		264
Reverse mortgage interests	1,031		1,700
Other assets	(4,797)		9
Payables and other liabilities	4,555		(69)
Net cash attributable to operating activities	1,878		(28)

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

~~The~~

Continued on following page. See accompanying notes ~~are an integral part of~~to the ~~condensed~~ consolidated financial ~~statements.~~

statements (unaudited).

~~WMIH CORP. AND SUBSIDIARIES~~

MR. COOPER GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

(millions of dollars)


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

Supplemental Disclosures of Cash Activities
Cash paid for interest expense	$	180	$	166
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.


	September 30, 2020		September 30, 2019
Cash and cash equivalents	$	946	$	371
Restricted cash	229		271
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 ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

~~(Unaudited)~~

~~Unless~~ (UNAUDITED)

(millions of dollars, unless otherwise ~~indicated, financial information, including dollar values stated in~~stated)

1. Nature of Business and Basis of Presentation

Nature of Business

Mr. Cooper Group Inc., collectively with its consolidated subsidiaries, (“Mr. Cooper,” the ~~text of the notes to financial statements, is expressed in thousands.~~

~~References herein, unless the context requires otherwise, to (i) the terms~~ “Company,” “we,” “us” or “our” ~~generally are intended~~) provides servicing, origination and transaction-based services related to ~~refer~~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 ~~WMIH Corp. (formerly WMI Holdings Corp.)~~lenders, investors and its subsidiaries on a consolidated basis; (ii) “WMIH” refers only to WMIH Corp. without regard to its subsidiaries; (iii) “WMIHC” refers only to WMI Holdings Corp. without regard to its subsidiaries; (iv) “WMMRC” means WM Mortgage Reinsurance Company, Inc. (a wholly-owned subsidiary of WMIH); and (v) “WMIIC” means WMI Investment Corp. (a wholly-owned subsidiary of WMIH)consumers. The Company’s corporate website is located at www.mrcoopergroup.com.

~~Note 1:~~ 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.

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. The final purchase price was $116, paid in cash, and the purchase price allocation was finalized as of 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 operated throughout the United States. The acquisition allows the Company to expand its ~~Subsidiaries~~

~~WMIH Corp.~~

~~WMIH Corp. (“WMIH”) is a corporation duly organized~~servicing portfolio and ~~existing under the laws~~increase its mortgage lending volume and capabilities.

Basis of Presentation

The consolidated interim financial statements of the ~~State of Delaware. On May 11, 2015, WMIH merged~~Company have been prepared in accordance with ~~its parent corporation, WMI Holdings Corp., a Washington corporation~~U.S. generally accepted accounting principles (“~~WMIHC”~~GAAP”), with WMIH as the surviving corporation in the merger (the “Merger”). The Merger occurred as part of the reincorporation of WMIHC from the State of Washington to the State of Delaware effective May 11, 2015 (the “Reincorporation Date”).

WMIH, formerly known as WMIHC and Washington Mutual, Inc. (“WMI”), is the direct parent of WM Mortgage Reinsurance Company, Inc., a Hawaii corporation (“WMMRC”), and WMI Investment Corp., a Delaware corporation (“WMIIC”). Since the emergence from bankruptcy on March 19, 2012, our business activities consist of operating WMMRC’s legacy reinsurance business in runoff mode. In addition, we are actively seeking acquisition opportunities across a broad array of industries with a specific focus in the for interim financial ~~services industry, including targets with consumer finance, specialty finance, leasing~~information and ~~insurance operations.~~

As of September 30, 2017, WMIH was authorized to issue up to 3,500,000,000 shares of common stock, and up to 10,000,000 shares of preferred stock (in one or more series), in each case with a par value of $0.00001 per share. As of September 30, 2017 and December 31, 2016, 206,714,132 and 206,380,800 shares, respectively, of WMIH’s common stock were issued and outstanding. As of September 30, 2017 and December 31, 2016, 1,000,000 shares of WMIH’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”) were issued and outstanding. As of September 30, 2017 and December 31, 2016, 600,000 shares of WMIH’s 3% Series B Convertible Preferred Stock (the “Series B Preferred Stock”) were issued and outstanding.

While we remain committed to consummating an acquisition, we also are mindful that the Company’s Series B Preferred Stock is redeemable on January 5, 2018 if we have not consummated a Qualified Acquisition, as more fully described in Note 6: Service Agreements and Related Party Transactions, or executed a definitive agreement to consummate an Acquisition (as such term is defined in Article VI of WMIH’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”)), prior to that date. Accordingly, as previously disclosed, we formed the Finance Committee of the Company’s Board of Directors (the “Finance Committee”), comprised solely of independent directors, to explore potential financing and refinancing alternatives, including the potential restructuring or refinancing of the Series B Preferred Stock. The Finance Committee has retained financial advisors to provide certain financial advisory services in connection with the Finance Committee’s mandate to review the Company’s capital structure and potential financing alternatives. There can be no assurance that any transaction, including a refinancing of the Series B Preferred Stock, will occur or if so on what terms.

~~WMMRC~~

WMMRC is a wholly-owned subsidiary of WMIH. Prior to August 2008 (at which time WMMRC became a direct subsidiary of WMI), WMMRC was a wholly-owned subsidiary of FA Out-of-State Holdings, Inc., a second-tier subsidiary of Washington Mutual Bank (“WMB”) and third-tier subsidiary of WMI. WMMRC is a pure captive insurance company domiciled in the State of Hawaii. WMMRC was incorporated on February 25, 2000, and received a Certificate of Authority, dated March 2, 2000, from the Insurance Division of the State of Hawaii.

WMMRC was originally organized to reinsure private mortgage insurance risk for seven primary mortgage insurers then offering private mortgage insurance on loans originated or purchased by former subsidiaries of WMI. The seven primary mortgage insurers are United Guaranty Residential Insurance Company (“UGRIC”), Genworth Mortgage Insurance Corporation (“GMIC”), Mortgage Guaranty Insurance Corporation (“MGIC”), PMI Mortgage Insurance Company (“PMI”), Radian Guaranty Incorporated (“Radian”), Republic Mortgage Insurance Company (“RMIC”) and Triad Guaranty Insurance Company (“Triad”).

Due to the then deteriorating performance in the mortgage guarantee markets and the closure and receivership of WMB, the reinsurance agreements with each of the primary mortgage insurers were terminated or placed into runoff during 2008. The agreements with UGRIC and Triad were placed into runoff effective May 31, 2008. The agreements with all other primary mortgage insurers were placed into runoff effective September 26, 2008. As a result, effective September 26, 2008, WMMRC’s continuing operations consisted solely of the runoff of coverage associated with mortgages placed with the primary mortgage carriers prior to September 26, 2008. In runoff, an insurer generally writes no new business but continues to service its obligations under in force policies and otherwise continues as a licensed insurer. The reinsurance agreements with Triad, PMI and UGRIC were commuted on August 31, 2009, October 2, 2012 and April 3, 2014, respectively, and the related trust assets were distributed in accordance with the ~~commutation agreements. On October 23, 2017,~~instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the reinsurance agreement with Radian was commuted and the related trust assets were released to WMMRC. On September 13, 2017, the Insurance Division of the State of Hawaii approved this commutation and a related distribution of up to $10.7 million to WMIH, which distribution has not been completed as of the date of the filing of this Form 10-Q. For more information see Note 14: Subsequent Events. As a result, WMMRC’s current continuing operations, subsequent to the Radian commutation, consist solely of the runoff of coverage associated with mortgages placed with the following three remaining carriers, GMIC, MGIC and RMIC.

~~WMIIC~~

~~WMIIC does not currently have any operations and is fully eliminated upon consolidation.~~

~~Note 2: Significant Accounting Policies~~

~~Basis of Presentation~~

~~WMIH resumed timely filing of all periodic reports for a reporting company under the Exchange Act for all periods after emergence from bankruptcy on March 19, 2012 (the “Effective Date”).~~

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reporting. Certain information and footnote disclosures normally included inSEC. Accordingly, the financial statements do not include all of the information and prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures included are appropriate. The condensed consolidated balance sheet as of December 31, 2016, included herein, was derived from the audited consolidatedfootnotes required by GAAP for complete financial statements ~~as of that date.~~

~~These interim unaudited condensed consolidated financial statements~~ and ~~notes thereto~~ should be read in conjunction with the ~~Company’s~~ audited consolidated financial statements and notes thereto ~~filed~~included in the Company’s Annual ~~Report~~Reports on Form 10-K ~~filed with~~for the ~~SEC on March 14, 2017. Interim information presented in the unaudited condensed~~year ended December 31, 2019.

The interim consolidated financial statements ~~has been prepared by management. In~~are unaudited; however, in the opinion of management, ~~the financial statements include~~ all adjustments, consisting of normal recurring items, considered necessary for a fair presentation ~~and that all such adjustments are of a normal, recurring nature and necessary for the fair statement~~ 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 ~~position,~~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 ~~cash flows for the periods presented in accordance with GAAP. The results of operations for the nine months ended September 30, 2017 are not necessarily indicative~~procedures of the ~~results to be expected~~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 ~~the full year ending December 31, 2017.~~

~~All significant intercompany~~as cost method investments. Intercompany balances and transactions ~~and balances~~on consolidated entities have been ~~eliminated~~eliminated. Business combinations are included in ~~preparing~~ the ~~condensed~~ consolidated financial ~~statements.~~

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 ~~amounts of assets~~in the consolidated financial statements and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Management has made significant estimates in certain areas, including valuing certain financial instruments, other assets and liabilities, the determination of the contingent risk liabilities, and in determining appropriate insurance reserves.accompanying notes. Actual results could differ ~~substantially~~ from ~~those estimates.~~

~~Fair Value~~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 ~~Certain~~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

~~Fair value~~ - 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 ~~defined~~referred to as the ~~price that would be received to sell~~current expected credit loss (“CECL”) methodology. The update eliminates the initial recognition of credit losses on an ~~asset or paid to transfer a liability~~incurred basis in current GAAP and instead reflects an ~~orderly transaction between market participants at~~entity’s current estimate of all expected credit losses over the ~~measurement date. Generally,~~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”) 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 3, Advances and Other Receivables, Net, and Note 4, Reverse Mortgage Interests, Net, 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. 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	September 30, 2020		December 31, 2019
Forward MSRs - fair value	$	2,663	$	3,496
Reverse MSRs - amortized cost	6		6
Mortgage servicing rights	$	2,669	$	3,502

Mortgage servicing liabilities - amortized cost	$	44	$	61

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

Mortgage Servicing Rights

The following table sets forth the activities of forward MSRs:


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

(1)Purchases of servicing rights during the nine months ended September 30, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 1, Nature of Business and Basis of Presentation, for further discussion. In addition, in 2019, the Company entered into a subservicing contract, resulting in additional $253 servicing rights in the second quarter of 2019.

During the nine months ended September 30, 2020 and 2019, the Company sold $94 and $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.

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 ~~Company uses quoted market prices or valuation models~~respective balance sheet date to ~~estimate their~~evaluate the MSR portfolio and fair ~~value. These models incorporate inputs~~value of the portfolio.

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


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

Investor Pools
Agency(1)	$	220,139	$	2,234	$	240,688	$	2,944
Non-agency(2)	46,528		429		56,094		552
Total	$	266,667	$	2,663	$	296,782	$	3,496

(1)Agency investors primarily consist of government sponsored enterprises (“GSE”), such as ~~forward yield curves, market volatilities~~the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and ~~pricing spreads, utilizing market-based~~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 ~~where readily available. The degree of management judgment involved~~and assumptions in estimating the fair value of forward MSRs:


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

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

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

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

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

The following table shows the hypothetical effect on the fair value of the Company’s forward MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated:


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

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

These hypothetical sensitivities should be evaluated with care. The effect on fair value of a ~~financial instrument~~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 $20,006 and $22,725 as of September 30, 2020 and December 31, 2019, respectively. The following table sets forth the activities of reverse MSRs and mortgage servicing liabilities (“MSL”):


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

(1)Reverse MSR and MSL net adjustments recorded by the Company during the nine months ended September 30, 2019 primarily relate to the finalization of the preliminary fair value estimates recorded in connection with the merger of Nationstar Mortgage Holdings, Inc. (the “Merger”).

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

Excess Spread Financing - Fair Value

The Company had excess spread financing liability of $1,044 and $1,311 as of September 30, 2020 and December 31, 2019, respectively.

The Company used the following key weighted-average assumptions in the Company’s valuation of excess spread financing:


Excess Spread Financing Key Assumptions	September 30, 2020		December 31, 2019
Discount rate	11.9	%	11.6	%
Prepayment speeds	13.6	%	12.6	%
Recapture rate	19.1	%	20.1	%
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
Excess Spread Financing - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change
September 30, 2020
Excess spread financing	$	35	$	72	$	44	$	92

December 31, 2019
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 ~~asset is dependent upon~~assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the ~~availability~~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 ~~quoted market prices or observable market inputs. For financial instruments~~the excess spread financing. Excess spread financing’s cash flow assumptions that are ~~actively traded~~utilized in ~~the marketplace or whose values~~determining fair value are based on ~~readily available market~~the related cash flow assumptions used in the financed MSRs. Any fair value ~~data, little judgment is necessary when estimating~~change recognized in the ~~instrument’s fair value. When observable market prices and data are not readily available, significant management judgment often is necessary~~financed MSRs attributable to ~~estimate fair value. In those cases, different~~related cash flows assumptions ~~could result in significant changes in valuation.~~

would inherently have an inverse impact on the carrying amount of the related excess spread financing.

Mortgage Servicing Rights Financing - Fair Value

The Company ~~classifies fixed-maturity investments~~had MSR financing liability of $47 and $37 as ~~trading securities,~~of September 30, 2020 and December 31, 2019, respectively.

The following table sets forth the key weighted-average assumptions used in the valuation of the MSR financing liability:


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	%

Servicing Segment Revenues

The following table sets forth the items comprising total revenues for the Servicing segment:


	Three Months Ended September 30,				Nine Months Ended September 30,
Total Revenues - Servicing	2020		2019		2020		2019
Contractually specified servicing fees(1)	$	282	$	305	$	864	$	893
Other service-related income(1)	59		51		170		133
Incentive and modification income(1)	12		12		30		29
Late fees(1)	18		30		65		82
Reverse servicing fees	6		7		19		24
Mark-to-market adjustments(2)	(29)		(83)		(673)		(607)
Counterparty revenue share(3)	(104)		(86)		(268)		(204)
Amortization, net of accretion(4)	(112)		(73)		(290)		(152)
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 $7 and $18 during the three months ended September 30, 2020 and 2019, and $20 and $46 during the nine months ended 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 $96 and $77 and MSL accretion of $4 and $10 during the three months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, amortization is net of excess spread accretion of $243 and $172 and MSL accretion of $17 and $39, respectively.

3. Advances and Other Receivables, Net

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


Advances and Other Receivables, Net	September 30, 2020		December 31, 2019
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	190		193
Reserves	(191)		(175)
Total advances and other receivables, net	$	745	$	988

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


	Three Months Ended September 30,				Nine Months Ended September 30,
Reserves for Advances and Other Receivables	2020		2019			2020		2019
Balance - beginning of period	$	216	$	98		$	168	$	47
Provision and other additions(1)	13		35			72		102
Write-offs	(38)		(3)			(49)		(19)
Balance - end of period	$	191	$	130		$	191	$	130

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

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


	Three Months Ended September 30, 2020				Three Months Ended September 30, 2019
Purchase Discount for Advances and Other Receivables	Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Servicing Advances		Receivables from Agencies, Investors and Prior Servicers
Balance - beginning of period	$	117	$	21	$	156	$	48
Utilization of purchase discounts	(25)		0		(8)		0
Balance - end of period	$	92	$	21	$	148	$	48


	Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
Purchase Discount for Advances and Other Receivables	Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Servicing Advances		Receivables from Agencies, Investors and Prior Servicers
Balance - beginning of period	$	131	$	21	$	205	$	48
Addition from acquisition	0		0		19		0
Utilization of purchase discounts	(39)		0		(76)		0
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 framework. During the three and nine months ended September 30, 2020, the Company increased the CECL reserve by $13 and $27, respectively. As of September 30, 2020, the total CECL reserve was $44, of which $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.

4. Reverse Mortgage Interests, Net

Reverse mortgage interests, net, consists of the following:


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

Participating Interests in HMBS

The Company does not originate reverse mortgages, but during the nine months ended September 30, 2020 and 2019, a total of $134 and $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 nine months ended September 30, 2019. There was 0 such activity during the nine months ended September 30, 2020.

Other Interests Securitized

The reverse mortgage interests under other interest securitized have been transferred to private securitization trusts and are accounted for as a secured borrowing. During the nine months ended September 30, 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 nine months ended 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 nine months ended 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	September 30, 2020		December 31, 2019
Repurchased HECM loans (exceeds 98% of their Max Claim Amount (“MCA”))	$	634	$	789
HECM related receivables(1)	213		250
Funded borrower draws not yet securitized	56		64
Real estate owned (“REO”) related receivables	17		14
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.

The Company repurchased a total of $912 and $2,132 of HECM loans out of GNMA HMBS securitizations during the nine months ended September 30, 2020 and 2019, respectively, of which $244 and $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 $630 and $1,458 of HECM loans to HUD during the nine months ended September 30, 2020 and 2019, respectively.

Purchase Discount, net, for Reverse Mortgage Interests

The following table sets forth the activities of the purchase discounts, net, for reverse mortgage interests:


	Three Months Ended September 30,				Nine Months Ended September 30,
Purchase discount, net, for reverse mortgage interests(1)	2020		2019		2020		2019
Balance - beginning of period	$	(127)	$	(163)	$	(114)	$	(164)
Adjustments(2)	0		0		0		(24)
Utilization of purchase discounts(3)	8		40		27		80
Amortization, net of accretion	(6)		(1)		(38)		(16)
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 nine months ended 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.

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 no additional CECL reserve was recorded as of 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

Total interest earned on the Company’s reverse mortgage interests was $41 and $74 during the three months ended September 30, 2020 and 2019, respectively, and $158 and $241 during the nine months ended September 30, 2020 and 2019, respectively.

5. Mortgage Loans Held for Sale

Mortgage loans held for sale are recorded at fair ~~value. As such, changes~~value as set forth below:


Mortgage Loans Held for Sale	September 30, 2020		December 31, 2019
Mortgage loans held for sale – UPB	$	3,642	$	3,949
Mark-to-market adjustment(1)	175		128
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:


	Nine Months Ended September 30,
Mortgage Loans Held for Sale	2020		2019
Balance - beginning of period	$	4,077	$	1,631
Loans sold	(42,185)		(27,413)
Mortgage loans originated and purchased, net of fees	38,709		28,209
Repurchase of loans out of Ginnie Mae securitizations	3,173		1,823
Net change in unrealized gain (loss) of loans held for sale	36		2
Net transfers of mortgage loans held for sale(1)	7		15
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.

During the nine months ended September 30, 2020 and 2019, the Company received proceeds of $43,040 and $27,778, respectively, on the sale of mortgage loans held for sale, resulting in gains of $855 and ~~losses~~$365, respectively.

The total UPB and fair value of mortgage loans held for sale on ~~investments~~non-accrual status was as follows:


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

(1)Non-accrual UPB includes $37 and $25 of UPB related to Ginnie Mae repurchased loans as of 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 $20 and $21 as of September 30, 2020 and December 31, 2019, respectively.

6. Loans Subject to Repurchase from Ginnie Mae

Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. The Company, as the issuer of the mortgage backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including payments not being received from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its 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 September 30, 2020 include $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.

7. Goodwill and Intangible Assets

The Company had goodwill of $120 as of September 30, 2020 and December 31, 2019. The Company had intangible assets of $45 and $74 as of September 30, 2020 and December 31, 2019, respectively. Goodwill and intangible assets are included in other assets within the 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 $14 and $6 in collateral deposits on derivative instruments recorded in other assets in the Company’s consolidated balance sheets as of 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.

9. Indebtedness

Notes Payable


						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.

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

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

(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.

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

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

Unsecured Senior Notes

Unsecured senior notes consist of the following:


Unsecured senior notes	September 30, 2020		December 31, 2019
$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		750
$600 face value, 6.000% interest rate payable semi-annually, due January 2027(2)	600		0
$600 face value, 6.500% interest rate payable semi-annually, due July 2021(3)	0		492
$300 face value, 6.500% interest rate payable semi-annually, due June 2022(3)	0		206
$950 face value, 8.125% interest rate payable semi-annually, due July 2023(4)	0		950
Unsecured senior notes principal amount	2,200		2,398
Unamortized debt issuance costs, premium and discount	(33)		(32)
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”).

(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)This note was redeemed in full on August 13, 2020 using the net proceeds of the 2028 Notes offering, together with cash on 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 ~~balance~~applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. During the nine months ended September 30, 2020, the Company repaid $100 in principal of outstanding notes. Additionally, the Company redeemed $950 and $1,548 in principal of outstanding notes during the three and nine months ended September 30, 2020, resulting in a net loss of $53 and $52, respectively. No notes were repurchased or redeemed during the three and nine months ended September 30, 2019.

As of 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 through 2024	$	0
Thereafter	2,200
Total unsecured senior notes principal amount	$	2,200

Other Nonrecourse Debt

Other nonrecourse debt consists of the following:


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

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

(2)As discussed in Note 4, Reverse Mortgage Interests, Net, Trust 2018-3 and Trust 2018-2 were collapsed and the related debt was extinguished during the nine months ended September 30, 2020.

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 September 30, 2020.

10. Securitizations and Financings

Variable Interest Entities

In the normal course of business, the Company enters into various types of on- and off-balance sheet ~~date~~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 ~~recognized~~formed for the purpose of securitization transactions in which the Company transfers assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets.

The Company has determined that the SPEs created in connection with certain advance facilities trusts should be consolidated as the Company is the primary beneficiary of each of these entities. Also, the Company consolidated certain reverse mortgage SPEs as it is the primary beneficiary of each of these entities. These SPEs include the Nationstar HECM Loan Trusts.

A summary of the assets and ~~reported~~liabilities of the Company’s transactions with VIEs included in the Company’s consolidated financial statements is presented below:


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

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

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

(2)Refer to advance facilities in Note 9, Indebtedness, for additional information.

The following table shows a ~~component~~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	September 30, 2020		December 31, 2019
Total collateral balances - UPB	$	1,378	$	1,503
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 September 30, 2020 and December 31, 2019 and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs.

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


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

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 ~~investment~~ income (loss) per common share (amounts in millions, except per share amounts):


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

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

Weighted average shares of common stock outstanding (in thousands):
Basic	91,682		91,080		91,688		91,012
Dilutive effect of stock awards(1)	2,563		117		1,529		0
Dilutive effect of participating securities(1)	839		839		839		0
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.

12. Income Taxes

For the three and nine months ended 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 during the three and nine months ended September 30, 2020 compared to the same periods in 2019, primarily due to the relative unfavorable tax impacts of the permanent differences on the ~~condensed consolidated statement~~annual effective rate.

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

13. Fair Value Measurements

Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value ~~provides better matching of investment earnings to potential cash flow generated from the investment portfolio and reduces subjectivity related to evaluating other-than-temporary impairment~~measurements, a three-tiered fair value hierarchy has been established based on the ~~Company’s investment portfolio.~~

~~The carrying value~~level of ~~cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate their respective fair values because of their short-term nature.~~

~~The carrying value of~~observable inputs used in the loss contract reserve approximates its fair value and is based on valuation methodologies using discounted cash flows at interest rates which approximate the Company’s weighted-average cost of capital.

~~The carrying value of the derivative embedded conversion feature~~ ~~of the Series B Preferred Stock~~ ~~is adjusted to its fair value as determined using Level 3 inputs described below under fair value measurement.~~

~~The carrying value of notes payable approximates fair value based on time to maturity, underlying collateral, and prevailing interest rates.~~

~~Fair Value Measurement~~

~~The Company’s estimates~~measurement of fair value for financial assets and financial liabilities are based on the framework established in the Financial Accounting Standards Board Fair Value Measurements and Disclosures accounting guidance. The framework is based on the inputs used in valuation and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions.

~~The three levels of the hierarchy are as follows:~~

(e.g., Level ~~1–Inputs to the valuation methodology are~~1 representing quoted prices for identical assets or liabilities ~~traded~~ in an active ~~markets.~~

market; Level 2–Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active,2 representing values using observable inputs other than quoted prices ~~that are observable~~included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).

There have been no significant changes to the valuation techniques and inputs used by the Company in estimating fair values of Level 2 and Level 3 assets and liabilities as disclosed in the Company’s Annual Reports on Form 10-K for the ~~asset or liability~~year ended December 31, 2019, with the exception of the following:

Derivative Financial Instruments (Level 2 and ~~market corroborated inputs.~~

Level ~~3–Valuations~~3) – 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 ~~models where significant inputs are not observable. The~~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 ~~inputs reflect the Company’s own assumptions about the inputs that market participants would use.~~

Fair values are based on quoted prices in active markets when available (Level 1). The Company receives the quoted prices from a third party, nationally recognized pricing service. When quoted prices are not available, the Company utilizes a pricing service to determine an estimate of fair value.input. The fair value is ~~generally~~also subject to adjustments for the estimated ~~using current market inputs for similar financial instruments with comparable terms~~pull-through rate. The impact of the unobservable input to the overall valuation of IRLCs and ~~credit quality, commonly referred to as matrix pricing (Level 2). These valuation techniques involve some level~~LPCs was previously much less significant, resulting in a classification of ~~management estimation and judgment. The Company recognizes transfers between levels~~Level 2 in the fair value hierarchy atas of December 31, 2019. During the ~~end~~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 ~~reporting period.~~

~~Fixed-Maturity Securities~~

~~Fixed-maturity securities consist~~Company’s IRLCs and LPCs and increased the impact of ~~U.S. Treasury securities, obligations~~the unobservable input on the overall valuation of ~~U.S. government sponsored agencies~~IRLCs and ~~domestic and foreign corporate debt securities. Fixed-maturity securities held~~LPCs. Such increased impact of the unobservable input on the overall valuation resulted in ~~trust~~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 ~~benefit~~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 8, Derivative Financial Instruments, for more information.

The following tables present the estimated carrying amount and fair value of the primary insurers as more fully described in Note 3: Insurance Activity. Investments in fixed-maturity securities are reported at their estimated fair values and are classified as trading securities in accordance with applicable accounting guidance. Realized gains and losses on the sale of fixed-maturity securities are determined using the specific identification method and are reported as a component of net investment income within the condensed consolidated statement of operations.

~~Investments Held in Trust~~

~~Investments held in trust consist of cash equivalents, which include highly liquid overnight money market~~Company’s financial instruments and ~~fixed-maturity securities which are held in trust~~other assets and liabilities measured at fair value on a recurring basis:


	September 30, 2020
			Recurring Fair Value Measurements
Fair value - Recurring basis	Total Fair Value		Level 1		Level 2		Level 3
Assets
Mortgage loans held for sale	$	3,817	$	0	$	3,817	$	0
Forward mortgage servicing rights	2,663		0		0		2,663
Derivative financial instruments
IRLCs	414		0		0		414
Forward MBS trades	23		0		23		0
LPCs	38		0		0		38

Liabilities
Derivative financial instruments
Forward MBS trades	$	42	$	0	$	42	$	0
LPCs	2		0		0		2
Mortgage servicing rights financing	47		0		0		47
Excess spread financing	1,044		0		0		1,044


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

Liabilities
Derivative financial instruments
Forward MBS trades	$	12	$	0	$	12	$	0
LPCs	3		0		3		0
Mortgage servicing rights financing	37		0		0		37
Excess spread financing	1,311		0		0		1,311

The tables below present a reconciliation for ~~the benefit~~all of the ~~primary insurers, as more fully described in Note 3: Insurance Activity~~Company’s Level 3 assets and ~~Note 4: Investment Securities, and are subject to the restrictions on distribution of net assets of subsidiaries as described below.~~

~~Third Party Restrictions on Distribution of Net Assets of Wholly-Owned Subsidiaries~~

The net assets of WMMRC are subject to restrictions on distribution from multiple sources, including the primary insurers who have approval control of distributions from the trust, and the Insurance Division of the State of Hawaii who has approval authority over distributions or intercompany advances. As more fully described in Note 14: Subsequent Events, a distribution from WMMRC to WMIH of up to $10.7 million was approved by the Insurance Division of the State of Hawaii on September 13, 2017.

~~Premium Recognition~~

~~Premiums assumed are earned~~liabilities measured at fair value on a daily pro-rata basis over the underlying policy terms. Premiums assumed relating to the unexpired portion of policies in force at the balance sheet date are recorded as unearned premiums. Unearned premiums also include a reserve for post default premium reserves. Post default premium reserves occur when a loan is in a default position and the servicer continues to advance the premiums. If the loan ultimately goes to claim, the premiums advanced during the period of default are subject to recapture. recurring basis:


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

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

Settlements and repayments	0		0		0		(159)		0
Balance - end of period	$	2,663	$	414	$	38	$	1,044	$	47


	Nine Months Ended September 30, 2019
	Assets				Liabilities
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	$	3,665	$	119	$	1,184	$	32
Total gains or losses included in earnings	(1,039)		3		(190)		15
Payments received from borrowers	0		(11)		0		0
Purchases, issuances, sales, repayments and settlements
Purchases	732		0		469		0
Issuances	298		0		0		0
Sales	(317)		(94)		0		0
Settlements and repayments	0		0		(182)		0
Transfers to mortgage loans held for sale	0		(12)		0		0
Transfers to real estate owned	0		(5)		0		0
Balance - end of period	$	3,339	$	0	$	1,281	$	47

The Company records a default premium reserve based on information provided by the underlying mortgage insurers when they provide information on the default premium reserve separately from other reserves. The change in the post default premium reserve is reflected as a reduction or increase, as the case may be, in premiums assumed. The Company has recorded unearned premiums totaling $33 thousandhad LPCs liabilities of $2 and ~~$0.3 million~~$3 as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

The Company recognizes premium deficiencies when there is a probable loss on an insurance contract. Premium deficiencies are recognized if the sum of the present value of expected losses and loss adjustment expenses, unamortized deferred acquisition costs, and maintenance costs, excluding intercompany charges, exceed expected future unearned premiums and anticipated investment income. Premium deficiency reserves have been recorded totaling $0.5 million and $0.3 million as of September 30, 2017 and December 31, 2016, respectively. Intercompany administrative costs are excluded from the computation of premium deficiencies.

The Company’s premium deficiency analysis was performed on a single book basis and includes all book years and reinsurance treaties aggregated together using assumptions based on the actuarial best estimates at the balance sheet date. The calculation for premium deficiency requires significant judgment and includes estimates of future expected premiums, claims, loss adjustment expenses and investment income as of the balance sheet date. To the extent ultimate losses are higher or premiums are lower than estimated, additional premium deficiency reserves may be required in the future.

~~Cash and Cash Equivalents~~

Cash and cash equivalents include cash on hand, amounts due from banks, U.S. Treasury bills and overnight investments. Except as described above in Investments Held in Trust, the Company considers all amounts that are invested in highly liquid overnight money market instruments to be cash equivalents. The Federal Deposit Insurance Corporation (“FDIC”) insures amounts on deposit with each financial institution up to limits as prescribed by law. The Company may hold funds with financial institutions in excess of the FDIC insured amount, however, the Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk on cash and cash equivalents.

~~Restricted Cash~~

Restricted cash includes (i) amounts held for the express purposes of paying principal, interest and related fees on the Runoff Notes (as defined in Note 7: Notes Payable) pursuant to the terms of the Indentures (as defined in Note 7: Notes Payable) and (ii) proceeds of the Series B Preferred Stock offering held in escrow.

~~Ceding Commission Expense~~

~~The Company is required to pay a ceding commission to certain primary insurers pursuant to certain reinsurance agreements.~~

~~Losses and Loss Adjustment Reserves~~

The losses and loss adjustment reserves include case basis estimates of reported losses and supplemental amounts for incurred but not reported (“IBNR”) losses. A default is considered the incident (e.g., the failure to make timely payment of mortgage payments) that may give rise to a claim for mortgage insurance. In establishing the losses and loss adjustment reserve, the Company based its estimates primarily on the ceded loss and loss adjustment reserves as provided by the primary mortgage guaranty carriers.

~~WMMRC has recorded reserves~~ at the ceded case reserves and IBNR loss levels established and reported by the primary mortgage guaranty carriers as of September 30, 2017 and December 31, 2016, respectively. Management believes that the recorded aggregate liability for unpaid losses and loss adjustment expenses at period end represents the Company’s best estimate, based upon the available data, of the amount necessary to cover the current cost of losses. However, due to the inherent uncertainty arising from fluctuations in the persistency rate of mortgage insurance claims, the Company’s size and lack of prior operating history, external factors such as future changes in regional or national economic conditions, judicial decisions, federal and state legislation related to mortgage restructuring and foreclosure restrictions, claims denials and coverage rescissions by primary carriers and other factors beyond the Company’s control, it is not presently possible to determine whether actual loss experience will conform to the assumptions used in determining the estimated amounts for such liability at the balance sheet date. Accordingly, the ultimate liability could be significantly higher or lower, as the case may be, than the amount indicated in the financial statements and there can be no assurance that the reserve amounts recorded will be sufficient. As adjustments to these estimates become necessary, such adjustments are reflected in current operations.

~~Loss Contract Reserve~~

A loss contract reserve relating to contractual obligations of WMMRC was established at March 19, 2012 as a result of applying fresh start accounting and in compliance with Accounting Standards Codification (“ASC”) 805-10-55-21 (b) (1) which defines a loss contract as “a contract in which the unavoidable costs of meeting the obligation under the contract exceed the economic benefits expected to be received under it.” The value of this reserve is analyzed quarterly and is adjusted accordingly. The adjustment (if any) to the reserve produces an expense or contra-expense in the condensed consolidated statements of operations.

~~Derivative Embedded Conversion Feature~~

The Company has recorded a derivative embedded conversion feature of the Series B Preferred Stock which is adjusted to its fair value as determined using Level 3 inputs described above under Fair Value Measurement. The change in fair value of the derivative embedded conversion feature is calculated at each reporting date and recorded as other income or other expense on the condensed consolidated statement of operations.

~~Other Liabilities~~

At September 30, 2017, the total balance of $13.8 million of other liabilities is comprised of $12.3 million of accrued fees relating to the Series B Preferred Stock offering, an accrual for professional fees and recurring business expenses currently payable of approximately $0.8 million and $0.7 million of accrued dividends relating to the Series B Preferred Stock. The accrued fees would be paid in the event of a Qualified Acquisition, as more fully described in Note 6: Service Agreements and Related Party Transactions.

~~Comprehensive Income~~

~~The Company has no comprehensive income other than the net income disclosed in the condensed consolidated statement of operations.~~

~~Net Income Per Common Share~~

~~In calculating earnings per share, the Company follows the two-class method, which distinguishes between the classes of securities based on the proportionate p~~articipation rights of each security type in the Company's undistributed income. The Series A Preferred Stock and the Series B Preferred Stock are treated as one class for purposes of applying the two-class method, because they have substantially equal rights and share equally on an as converted basis with respect to income available to WMIH common stockholders.

Basic net income per WMIH common share is computed by dividing net income attributable to WMIH’s common stockholders by the weighted-average number of common shares outstanding for the period after subtracting the weighted-average of any unvested restricted shares outstanding, as these are subject to repurchase. Basic net income attributable to common stockholders is computed by deducting preferred dividends and the basic calculation of undistributed earnings attributable to participating securities from net income.

Diluted net income per WMIH common share is computed by dividing net income attributable to WMIH’s common stockholders by the weighted-average number of common shares outstanding during the period after subtracting the weighted-average of any unvested restricted shares outstanding, as these are subject to repurchase, and adding any potentially dilutive WMIH common stock equivalents outstanding during the period. Diluted net income attributable to common stockholders is computed by deducting preferred dividends and the diluted calculation of undistributed earnings attributable to participating securities from net income.

If common stock equivalents exist, in periods where there is a net loss, diluted net loss per common share would be equal to or less than basic net loss per common share, since the effect of including any common stock equivalents would be antidilutive.

~~Equity-Based Compensation~~

On May 22, 2012, WMIH’s Board of Directors (the “Board” or “Board of Directors”) approved the Company’s 2012 Long-Term Incentive Plan (the “2012 Plan”) so that awards of restricted stock could be made to its non-employee directors and to have a plan in place for awards of equity based compensation to executives and others in connection with the Company’s operations and future strategic plans. A total of 2.0 million shares of WMIH’s common stock were initially reserved for future issuance under the 2012 Plan, which became effective upon the Board approval on May 22, 2012. On February 10, 2014, the Board approved and adopted a First Amendment to the 2012 Plan, pursuant to which the number of shares of WMIH’s common stock reserved and available for grants under the 2012 Plan was increased from 2.0 million shares to 3.0 million shares, and the terms of the 2012 Plan were modified to permit such an increase through action of the Board, except when stockholder approval is necessary to comply with any applicable law, regulation or rule of any stock exchange on which WMIH’s shares are listed, quoted or traded. On February 25, 2015, the number of shares authorized and available for awards under the 2012 Plan was increased from 3.0 million to 12.0 million shares of WMIH’s common stock, subject to approval of stockholders of WMIH. This approval was received at the Company’s Annual Meeting of Stockholders on April 28, 2015. The 2012 Plan provides for the granting of restricted shares and other cash and share based awards. The value of restricted stock is generally determined using the fair market value determined to be the trading price at the close of business on the respective date the awards were granted.

~~Income Taxes~~

The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the carrying amounts and tax bases of assets and liabilities and losses carried forward and tax credits. Deferred tax assets and liabilities are measured using enacted tax rates and laws applicable to the years in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized.

The Company recognizes the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Penalties and interest, of which there are none, would be reflected in income tax expense. Tax years are open to the extent the Company has net operating loss (“NOL”) carry-forwards available to be utilized currently.

~~Dividend Policy~~

~~WMIH has paid no dividends on its common stock on or after the Effective Date and currently has no plans to pay a dividend on its common stock.~~

~~WMIH has declared and paid $13.5 million and $18.0 million of dividends on its Series B Preferred Stock for~~ During the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. Additionally, WMIH has accrued unpaid and undeclared dividends of $0.7 million, based on the Series B Preferred Stock 3% interest rate, as of both September 30, 2017 and December 31, 2016.

~~New Accounting Pronouncements~~

The Company has reviewed new accounting pronouncements issued between August 9, 2017, the filing date of our most recent prior Form 10-Q, and the filing date of this Form 10-Q and has determined that no pronouncements issued are relevant to2020, the Company ~~and/~~had an immaterial change in LPCs liabilities.

No transfers were made in or ~~have a material impact on the Company’s consolidated financial position, results~~out of ~~operations or disclosure requirements.~~

~~Note 3: Insurance Activity~~

~~The Company, through WMMRC, reinsures mortgage guaranty risks of mortgage loans originated by affiliates of~~Level 3 fair value assets and liabilities for the Company during the period from 1997 through 2008. WMMRC is (or was) a party to reinsurance agreements with UGRIC, GMIC, MGIC, PMI, Radian, RMIC and Triad. The agreements with UGRIC and Triad were placed into runoff effective May 31, 2008. The agreements with all other primary mortgage insurers were placed into runoff effective September 26, 2008. The reinsurance agreements with Triad, PMI and UGRIC were commuted on August 31, 2009, October 2, 2012 and April 3, 2014, respectively. On October 23, 2017, the reinsurance agreement with Radian was commuted and the related trust assets were released to WMMRC. For more information see Note 14: Subsequent Events.

All agreements between WMMRC and the primary mortgage insurers are on an excess of loss basis, except for a reinsurance treaty with GMIC during 2008, which is reinsured on a 50% quota share basis. Pursuant to the excess of loss reinsurance treaties, WMMRC reinsures a second loss layer which ranges from 5% to 10% of the risk in force in excess of the primary mortgage insurer’s first loss percentage which range from 4% to 5%. Each calendar year, or book year, is treated separately from other years when calculating losses. In return for accepting a portion of the risk, WMMRC receives, net of ceding commission, a percentage of the premium that ranges from 25% to 40%.

As security for the ceding insurers, WMMRC has entered into separate trust agreements with each of the primary mortgage insurance companies whereby a portion of the funds from premiums assumed are held in trust accounts for the benefit of each separate insurer. Pursuant to the terms of the reinsurance agreements, WMMRC is required to keep such assets in trust for a minimum of five years and is subject to claims for up to ten years from termination of obligations arising from the last year in which insurance business was written prior to runoff. Release of funds from the trust by WMMRC requires approval from the primary mortgage insurance companies.

~~Premiums assumed and earned are as follows for the periods ended September 30, 2017 and 2016, respectively:~~

Three months
ended
September 30, 2017

Three months
ended
September 30, 2016

Nine months
ended
September 30, 2017

Nine months
ended
September 30, 2016

Premiums assumed
$
342

$
739

$
866

$
1,963

Change in unearned premiums

2

47

237

463

Premiums earned
$
344

$
786

$
1,103

$
2,426

~~The components of the liability for losses and loss adjustment reserves are as follows as of September 30, 2017 and December 31, 2016, respectively:~~

September 30, 2017

December 31, 2016

Case-basis reserves
$
174

$
553

IBNR reserves

1

—

Premium deficiency reserves

530

258

Total losses and loss adjustment reserves
$
705

$
811

~~Losses and loss adjustment reserve activity are as follows for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively:~~

Nine months ended
September 30, 2017

Year ended
December 31, 2016

Balance at beginning of period
$
811

$
5,063

Incurred (released) - prior periods

207

(669
)
Paid or terminated - prior periods

(313
)

(3,583
)
Total losses and loss adjustment reserves
$
705

$
811

The loss contract reserve balance is analyzed and adjusted quarterly. The balance in the reserve was zero and $5.6 million as of September 30, 2017 and December 31, 2016, respectively. The value of this reserve decreased by $5.6 million during the nine months ended September 30, ~~2017~~2020, with the exception of the change in classification for IRLCs and ~~decreased by $2.3 million~~LPCs 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 nine months ended September 30, ~~2016. In periods during which~~2019. During the nine months ended September 30, 2019, $12 was transferred from mortgage loans held for investment, a ~~reduction~~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 ~~loss contract reserve occurs, a corresponding decrease in expense is reflected~~trust.

The tables below present the quantitative information for significant unobservable inputs used in the ~~condensed consolidated statement~~fair value measurement of ~~operations for~~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 ~~respective period.~~

~~Note 4: Investment Securities~~

~~The amortized cost, gross unrealized gains, gross unrealized losses~~estimated carrying amount and ~~estimated fair values of total fixed-maturity securities and total fixed-maturity securities held in trust at September 30, 2017, are as follows:~~

September 30, 2017

Class of securities:
Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

U.S. government treasury securities
$
250

$
—

$
—

$
250

Obligations of U.S. government sponsored enterprises

2,749

—

(7
)

2,742

Corporate debt securities

3,683

—

(2
)

3,681

Foreign corporate debt securities

3,750

—

(1
)

3,749

Total fixed-maturity securities

10,432

—

(10
)

10,422

Less total unrestricted fixed-maturity securities

1,402

—

(2
)

1,400

Total fixed-maturity securities held in trust
$
9,030

$
—

$
(8
)

$
9,022

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of total fixed-maturity securities and total fixed-maturity securities held in trust at December 31, 2016, are as follows:

December 31, 2016

Class of securities:
Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

U.S. government treasury securities
$
249

$
—

$
—

$
249

Obligations of U.S. government sponsored enterprises

59,450

1

(80
)

59,371

Corporate debt securities

11,415

9

(9
)

11,415

Foreign corporate debt securities

5,798

5

(7
)

5,796

Total fixed-maturity securities

76,912

15

(96
)

76,831

Less total unrestricted fixed-maturity securities

47,635

—

(10
)

47,625

Total fixed-maturity securities held in trust
$
29,277

$
15

$
(86
)

$
29,206

~~Amortized cost and estimated~~ fair value of ~~fixed-maturity securities~~the Company’s financial instruments not carried at fair value:


	September 30, 2020
	Carrying Amount		Fair Value
Financial instruments			Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	946	$	946	$	0	$	0
Restricted cash	229		229		0		0
Advances and other receivables, net	745		0		0		745
Reverse mortgage interests, net	5,460		0		0		5,574
Financial liabilities
Unsecured senior notes(1)	2,167		2,237		0		0
Advance and warehouse facilities(1)	4,851		0		4,851		0
Participating interest financing(1)	3,676		0		0		3,679
HECM Securitization (HMBS)(1)
Trust 2020-1	513		0		0		513
Trust 2019-2	257		0		0		257
Trust 2019-1	225		0		0		225

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


	December 31, 2019
	Carrying Amount		Fair Value
Financial instruments			Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	329	$	329	$	0	$	0
Restricted cash	283		283		0		0
Advances and other receivables, net	988		0		0		988
Reverse mortgage interests, net	6,279		0		0		6,318
Financial liabilities
Unsecured senior notes(1)	2,366		2,505		0		0
Advance and warehouse facilities(1)	4,997		0		4,997		0
Participating interest financing(1)	4,299		0		0		4,299
HECM Securitization (HMBS)(1)
Trust 2019-2	331		0		0		331
Trust 2019-1	300		0		0		300
Trust 2018-3	208		0		0		208
Trust 2018-2	148		0		0		148

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

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 September 30, ~~2017~~2020, the Company was in compliance with its selling and servicing capital requirements.

15. Commitments and Contingencies

Litigation and Regulatory

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

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

The Company’s business is also subject to extensive examinations, investigations and reviews by ~~contractual maturity are~~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, 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 believes that it has fully accrued for these matters as ~~follows:~~

of September 30, 2020.

Amortized
Cost

Estimated
Fair Value

Maturity in:

2017
$
6,750

$
6,749

2018

3,682

3,673

Total fixed-maturity securities
$
10,432

$
10,422

~~Actual maturities~~

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 ~~differ from contractual maturities because certain borrowers have~~be substantially higher or lower than the ~~right~~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 ~~call or prepay obligations with or without call or prepayment penalties.~~

~~Net investment income~~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 $9 and $36 for the three and nine months ended September 30, ~~2017~~2020, respectively and ~~2016, respectively, is summarized as follows:~~

Three months
ended
September 30, 2017

Three months
ended
September 30, 2016

Nine months
ended
September 30, 2017

Nine months
ended
September 30, 2016

Investment income:

Amortization of premium or discount on fixed-maturity securities
$
(32
)

$
(74
)

$
(108
)

$
(247
)
Investment income on fixed-maturity securities

72

233

403

792

Interest income on cash and cash equivalents

1,895

405

4,527

1,100

Realized net (loss) gain from sale of investments

(36
)

18

(63
)

19

Unrealized gain (loss) on trading securities held at period end

44

(84
)

67

83

Net investment income
$
1,943

$
498

$
4,826

$
1,747

~~The following table shows how~~$24 and $56 for the ~~Company’s investments are categorized in accordance with fair value measurement, as of~~

~~September 30, 2017:~~

September 30, 2017

Level 1

Level 2

Level 3

Total

Class of securities:

U.S. government treasury securities
$
250

$
—

$
—

$
250

Obligations of U.S. government sponsored enterprises

1,497

1,245

—

2,742

Corporate debt securities

3,151

530

—

3,681

Foreign corporate debt securities

3,749

—

—

3,749

Total fixed-maturity securities

8,647

1,775

—

10,422

Money market funds

32,007

—

—

32,007

Total
$
40,654

$
1,775

$
—

$
42,429

~~The following table shows how the Company’s investments are categorized in accordance with fair value measurement, as of December 31, 2016:~~

December 31, 2016

Level 1

Level 2

Level 3

Total

Class of securities:

U.S. government treasury securities
$
249

$
—

$
—

$
249

Obligations of U.S. government sponsored enterprises

47,489

11,882

—

59,371

Corporate debt securities

7,033

4,382

—

11,415

Foreign corporate debt securities

5,796

—

—

5,796

Total fixed-maturity securities

60,567

16,264

—

76,831

Money market funds

4,548

—

—

4,548

Total
$
65,115

$
16,264

$
—

$
81,379

A review of the fair value hierarchy classifications of the Company’s investments is conducted quarterly. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications are reported as transfers in or transfers out of the applicable Level at the end of the calendar quarter in which the reclassifications occur. During thethree and nine months ended September 30, ~~2017~~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 $3 to $20 in excess of the accrued liability (if any) related to those matters as of 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 ~~year ended~~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 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 $20,006 and $22,725 of UPB in reverse mortgage loans as of September 30, 2020 and December 31, ~~2016, $0.9 million~~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 September 30, 2020 and ~~$11.0 million, respectively,~~December 31, 2019, the Company’s maximum unfunded advance obligation to fund borrower draws related to these reverse MSRs and loans was approximately $2,304 and $2,617, respectively. Upon funding any portion of ~~investments were transferred from Level 2~~these draws, the Company expects to ~~Level 1~~securitize and sell the advances in transactions that will be accounted for as secured borrowings.

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 and include cash and cash equivalents; tax-related assets; and intangibles assets excluding goodwill and assets allocated to Xome. Eliminations are also included in Corporate/Other. Prior year financial information has been adjusted retrospectively to reflect the updated presentation.

The following tables present financial information by segment:


	Three Months Ended September 30, 2020
Financial information by segment	Servicing		Originations		Xome		Corporate/Other		Consolidated
Revenues
Service related, net(1)	$	92	$	27	$	108	$	0	$	227
Net gain on mortgage loans held for sale	40		605		0		0		645
Total revenues	132		632		108		0		872
Total expenses	99		195		94		43		431
Interest income	40		16		0		0		56
Interest expense	(105)		(15)		0		(45)		(165)
Other income (expenses), net	0		0		1		(52)		(51)
Total other (expenses) income, net	(65)		1		1		(97)		(160)
(Loss) income before income tax (benefit) expense	$	(32)	$	438	$	15	$	(140)	$	281
Depreciation and amortization for property and equipment and intangible assets	$	6	$	5	$	5	$	3	$	19
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


	Nine Months Ended September 30, 2020
Financial information by segment	Servicing		Originations		Xome		Corporate/Other		Consolidated
Revenues
Service related, net(1)	$	(202)	$	68	$	320	$	0	$	186
Net gain on mortgage loans held for sale	119		1,475		0		0		1,594
Total revenues	(83)		1,543		320		0		1,780
Total expenses	370		528		285		111		1,294
Interest income	180		69		0		1		250
Interest expense	(335)		(55)		0		(144)		(534)
Other income (expense), net	0		0		3		(53)		(50)
Total other (expenses) income, net	(155)		14		3		(196)		(334)
(Loss) income before income tax (benefit) expense	$	(608)	$	1,029	$	38	$	(307)	$	152
Depreciation and amortization for property and equipment and intangible assets	$	14	$	12	$	11	$	19	$	56
Total assets	$	14,707	$	4,250	$	135	$	2,663	$	21,755


	Nine Months Ended September 30, 2019
Financial information by segment	Servicing		Originations		Xome		Corporate/Other		Consolidated
Revenues
Service related, net(1)	$	108	$	57	$	316	$	(2)	$	479
Net gain on mortgage loans held for sale	90		687		0		11		788
Total revenues	198		744		316		9		1,267
Total expenses	555		404		301		153		1,413
Interest income	388		64		0		7		459
Interest expense	(343)		(67)		0		(162)		(572)
Other income (expense), net	0		4		14		(2)		16
Total other income (expenses), net	45		1		14		(157)		(97)
(Loss) income before income tax (benefit) expense	$	(312)	$	341	$	29	$	(301)	$	(243)
Depreciation and amortization for property and equipment and intangible assets	$	13	$	13	$	11	$	30	$	67
Total assets	$	12,065	$	4,386	$	172	$	1,855	$	18,478

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

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 ~~improving market conditions for short-term~~new information, future events or otherwise.

A number of important factors exist that could cause future results to differ materially from historical performance and ~~investment grade corporate securities.~~

these forward-looking statements. Factors that might cause such a difference include, but are not limited to:

January 1, 2017 to
September 30, 2017

January 1, 2016 to
December 31, 2016

Transfers
from Level 1 to
Level 2

Transfers
from Level 2
to Level 1

Transfers
from Level 1 to
Level 2

Transfers
from Level 2
to Level 1

Class of securities:

Corporate debt securities
$
—

$
901

$
—

$
5,737

Foreign corporate debt securities

—

—

—

5,295

Total transfers
$
—

$
901

$
—

$
11,032

~~Note 5: Income Taxes~~

~~For~~

•the ~~nine months ended September 30, 2017, the Company recorded net income attributable to common~~severity and participating stockholders of approximately $21.4 million. The Company projects tax losses for the year ending December 31, 2017. Due to this projected tax loss and the existence of NOL carry-forwards which have a 100% valuation allowance recorded to reduce them to zero, the Company has not recorded an income tax expense or benefit for the nine months ended September 30, 2017. The Company recorded no income tax expense or benefit for the year ended December 31, 2016 due to tax losses in that period.

•our ability to maintain or grow the size of ~~1986, as amended (the “Code”), that apply~~our servicing portfolio;

•our ability to ~~property~~maintain or grow our originations volume and ~~casualty insurance companies. WMIH, as WMMRC’s parent, pays federal income taxes on behalf~~profitability;

•our ability to recapture voluntary prepayments related to our existing servicing portfolio;

•our shift in the mix of ~~WMMRC~~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 ~~settles the federal income tax obligation on a current basis~~capital to operate our business;

•changes in ~~accordance with the tax sharing agreement. WMMRC made no tax payments~~prevailing interest rates;

•our ability to ~~WMIH during the nine months ended September 30, 2017 or the year ended December 31, 2016 associated with the Company’s tax liability from the preceding year.~~

~~Deferred federal income taxes arise from temporary differences between the valuation~~finance and recover costs of ~~assets and liabilities as determined for financial reporting purposes and income tax purposes. Temporary differences principally relate~~our reverse servicing operations;

•our ability to discounting of loss reserves, accruals, derivate instruments, net operating losses and unrealized gains and losses on investments. As of September 30, 2017 and December 31, 2016, the Company recorded a valuation allowance equal to 100% of the net deferred federal income tax asset due to uncertainty regarding the Company’ssuccessfully 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 ~~benefits in~~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 ~~future.~~

~~On March 19, 2012, WMIH emerged from bankruptcy. Prior to emergence, WMI abandoned the stock~~effect of WMB, thereby generating a worthless stock deduction of approximately $8.37 billion which gave rise to a NOL for the year ended December 31, 2012. Under Section 382 of the Code (“Section 382”), and basedeach such new factor on ~~the Company’s analysis,~~our business. Although we believe that the ~~Company experienced an “ownership change” (generally defined~~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 ~~greater than 50% change (by value) in our equity ownership over a three-year period) on March 19, 2012, and our ability to use our pre-change of control NOLs and~~representation by us or any other pre-change tax attributes against our post-change income was limited. The Section 382 limitation is applied annually so as to limit the use of our pre-change NOLs to an amount that generally equals the value of our stock immediately before the ownership change multiplied by a designated federal long-term tax-exempt rate. Due to applicable limitations under Section 382 and a reduction of tax attributes due to cancellation of indebtedness, a portion of these NOLs were limited and will expire unused. We believeperson that the ~~total available~~results or conditions described in such statements or our objectives and ~~utilizable NOL carry-forward at December 31, 2016 was approximately $6.0 billion. At September 30, 2017, there was no limitation on the use~~plans will be achieved. Please refer to Risk Factor and Management’s Discussion and Analysis of ~~these NOLs. These NOLs will begin to expire~~Financial Condition and Results of Operations, included in ~~2031. The Company’s ability to utilize the NOLs or realize any benefits related to the NOLs is subject to a number of risks. (See Part I-Item 1A. Risk Factors~~this report and in our Annual Report on Form 10-K for the year ended December 31, ~~2016).~~

The Company accounts for uncertain tax positions in accordance with the income tax accounting guidance. The Company has analyzed filing positions in the federal and state jurisdictions where it is required to file tax returns, as well as the open tax years in these jurisdictions. Tax years 2011 to present are subject to examination by the Internal Revenue Service. The Company believes that its federal income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain federal income tax positions have been recorded. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the provision for federal income taxes. The Company did not incur any federal income tax related interest income, interest expense or penalties for the nine months ended September 30, 2017 or for the year ended December 31, 2016.

~~Note 6: Service Agreements and Related Party Transactions~~

WMMRC has engaged a Hawaii-based service provider, Marsh Management Services, Inc., to provide accounting and related management services for its operations. In exchange for performing these services, WMMRC pays such service provider a management fee.

WMIH entered into an Investment Management Agreement and an Administrative Services Agreement with WMMRC on March 19, 2012. Each of these agreements was approved by WMMRC’s primary regulator, the Insurance Division of the State of Hawaii. Total amounts incurred under these agreements totaled $1.0 million and $1.0 million for the nine months ended September 30, 2017 and 2016, respectively. The expense and related income eliminate on consolidation. These agreements are described below.

Under the terms of such Investment Management Agreement, WMIH receives from WMMRC a fee equal to the product of (x) the ending dollar amount of assets under management during the calendar month in question and (y) .002 divided by 12. WMIH is responsible for investing the funds of WMMRC based on applicable investment criteria and subject to rules and regulations to which WMMRC is subject.

Under the terms of such Administrative Services Agreement, WMIH receives from WMMRC a fee of $110 thousand per month. WMIH is responsible for providing administrative services to support, among other things, supervision, governance, financial administration and reporting, risk management and claims management as may be necessary, together with such other general or specific administrative services that may be reasonably required or requested by WMMRC in the ordinary course of its business.

On March 22, 2012, WMIH and the WMI Liquidating Trust (the “Trust”) entered into a Transition Services Agreement (the “TSA”). Pursuant to the TSA, the Trust makes available certain services and employees. The TSA provides the Company with basic infrastructure and support services to facilitate the Company’s operations. The TSA, as amended, extends the term of the agreement through January 31, 2019 with automatic renewals thereafter for successive additional three-month terms, subject to non-renewal at the end of any additional term upon written notice by either party at least 30 days prior to the expiration of the additional term.

In connection with implementing the Company’s Seventh Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code (as modified, the “Plan”), certain holders of specified “Allowed Claims” had the right to elect to receive such holder’s “Pro Rata Share of the Common Stock Allotment.” Essentially, the Plan defines the “Pro Rata Share of the Common Stock Allotment” as a pro rata share of ten million (10,000,000) shares of WMIH’s common stock (i.e. five percent (5%)) issued and outstanding on the Effective Date. Holders exercising the foregoing election did so in lieu of receiving (i) 50% of such holder’s interest in and to certain litigation proceeds that could be realized by the Trust on account of certain claims and causes of action asserted by the Trust as contemplated by the Plan (“Litigation Proceeds”), and (ii) some or all of the Runoff Notes to which such holder may be entitled (if such holder elected to receive Runoff Notes in accordance with the terms of the Plan).

If a holder exercised the election described above and, as a result of such election, received shares of WMIH’s common stock, then such holder’s share of Runoff Notes to which the election was effective (i.e., One Dollar ($1.00) of original principal amount of Runoff Notes for each share of WMIH’s common stock) were not issued. In addition, as a result of making the aforementioned election, such holders conveyed to WMIH, and WMIH retained an economic interest in Litigation Proceeds, if any, recovered by the Trust in connection with certain litigation brought by the Trust as contemplated by the Plan. Distributions, if any, to WMIH on account of the foregoing will be effected in accordance with the Plan and the court order confirming the Plan.

On or about October 14, 2014, the Trust filed a lawsuit in King County Superior Court in the State of Washington against 16 former directors and officers of WMI (the “D&O Litigation”). The Trust’s complaint alleged, among other things, that the defendants named therein breached their fiduciary duties to WMI and committed corporate waste and fraud by squandering WMI’s financial resources. In connection with the settlement of the D&O Litigation, during the year ended December 31, 2015, among the Trust, certain former directors and officers of WMI and certain insurance carriers that underwrote director and officer liability insurance policies for the benefit of WMI and its affiliates (including such former directors and officers), such insurance carriers agreed to pay the Trust $37.0 million, of which $3.0 million would be placed into a segregated reserve account (the “RSA Reserve”) to be administered by a third party pursuant to the terms of a Reserve Settlement Agreement (the “RSA”).

During the years ended December 31, 2016 and 2015, WMIH had other income of $123 thousand and $7.8 million, respectively, as a result of its receipt of net Litigation Proceeds related to the D&O Litigation. As of September 30, 2017, $1.5 million remained in the RSA Reserve. Under the RSA, funds are released from the RSA Reserve to the Trust if and when certain designated conditions are satisfied. If and when these funds are released to the Trust, and to the extent WMIH is entitled to receive such funds in accordance with the Plan, it is anticipated the Trust will make payments to WMIH in an amount equal to WMIH’s share of Litigation Proceeds as provided under the Plan. Due to the contingent nature of future distributions from the RSA Reserve, there can be no assurance that WMIH will receive any distributions from the remaining balance in the RSA Reserve in the future. During the nine months ended September 30, 2017, WMIH has recorded income from Litigation Proceeds of $123 thousand. As of September 30, 2017, WMIH has not received any Litigation Proceeds, other than as described above.

In preparation for the offering of the Series B Preferred Stock, WMIH engaged KKR Capital Markets LLC (“KCM”), an affiliate of KKR & Co. L.P., to act as a joint book-running manager for the Series B Preferred Stock offering. KCM also acted as an initial purchaser of the Series B Preferred Stock. During the year ended December 31, 2015, as a result of satisfying a post-closing covenant to reincorporate in the State of Delaware within 180 days following the closing of the Series B Preferred Stock offering, we paid $8.25 million to KCM. Upon consummation of a “Qualified Acquisition” (as such term is defined in Article VI of the Certificate of Incorporation), we will pay KCM an additional fee (the “KCM Deferred Fee”) of $8.25 million. We have recorded the KCM Deferred Fee in “other liabilities” on our condensed consolidated balance sheet and this amount was included in “accrued fees relating to Series B Preferred Stock issuance” on our condensed consolidated statements of cash flows.

~~Note 7: Notes Payable~~

On the Effective Date, WMIH issued $110.0 million aggregate principal amount of its 13% Senior First Lien Notes due 2030 (the “First Lien Notes”) under an indenture, dated as of March 19, 2012 (the “First Lien Indenture”), between WMIH and Wilmington Trust, National Association, as Trustee. Additionally, WMIH issued $20.0 million aggregate principal amount of its 13% Senior Second Lien Notes due 2030 (the “Second Lien Notes” and, together with the First Lien Notes, the “Runoff Notes”) under an indenture, dated as of March 19, 2012 (the “Second Lien Indenture” and, together with the First Lien Indenture, the “Indentures”), between WMIH and Law Debenture Trust Company of New York, as Trustee. On January 5, 2017, The Law Debenture Trust Company of New York notified WMIH that it had completed the transfer of substantially all of its corporate trust business to Delaware Trust Company, and that Delaware Trust Company had become the successor trustee under the Second Lien Indenture. The Runoff Notes were scheduled to mature on March 19, 2030 and pay interest quarterly.

The Runoff Notes were secured by, and had a specified priority in right of payment in, a securities or deposit account into which WMIH was required to deposit distributions it received of Runoff Proceeds (as defined in the Indentures) (the “Collateral Account”). WMIH agreed to cause WMMRC, while the Runoff Notes were outstanding, to deposit all distributions, dividends or other receipts in respect of Runoff Proceeds Distributions (as defined in the Indentures) on the date paid to WMIH in the Collateral Account established in accordance with the terms of the Indentures. On any interest payment date, payments were made from the Collateral Account and from any other Runoff Proceeds Distributions in the priority set forth in the Indentures. In connection with certain interest payments due and payable in respect of the First and Second Lien Notes, WMIH elected, consistent with the terms of the Indentures, to issue payment-in-kind notes in lieu of making such interest payments in cash when no cash was available.

~~As of April 15, 2015, the First Lien Notes were fully redeemed by the Company, and on April 27, 2015, the First Lien Indenture was satisfied and discharged.~~

Second Lien Note principal outstanding totaled zero and approximately $18.8 million as of September 30, 2017 and December 31, 2016, respectively. Approximately $18.8 million of Second Lien Note principal was paid during the nine months ended September 30, 2017, and $2.9 million of Second Lien Note principal was paid during the year ended December 31, 2016. Interest on Second Lien Notes paid in cash totaled approximately $2.0 million during each of the nine months ended September 30, 2017 and 2016. ~~As of September 29, 2017, the Second Lien Notes were fully redeemed by the Company, and on October 2, 2017, the Second Lien Indenture was satisfied and discharged.~~ As a result of the satisfaction and discharge of the Second Lien Indenture the Collateral Account was subsequently closed and remaining funds transferred to cash and cash equivalents to be used for general corporate purposes. For more information see Note 14: Subsequent Events.

~~Note 8: Financing Arrangements~~

As of September 30, 2017, the Company had no debt financing arrangements in place. As of December 31, 2016, the Company had no debt financing arrangements in place other than the Second Lien Notes which are described in Note 7: Notes Payable.

~~Note 9: Capital Stock and Derivative Instruments~~

On the Effective Date, all shares of common and preferred equity securities previously issued by WMI were cancelled and extinguished. As of the Effective Date, and pursuant to WMIHC’s Amended and Restated Articles of Incorporation (the “Articles”), WMIHC was authorized to issue up to 500,000,000 shares of common stock and up to 5,000,000 shares of blank check preferred stock, in one or more series, each with a par value of $0.00001 per share. 200,000,000 shares of common stock were issued by WMIHC pursuant to the Plan and in reliance on Section 1145 of the United States Bankruptcy Code on the Effective Date.

On the Reincorporation Date all shares of common and preferred equity securities previously issued by WMIHC automatically were converted into one share of the substantially similar common stock, Series A Preferred Stock or Series B Preferred Stock, as applicable, of WMIH. At the same time, each outstanding option, right or warrant to acquire shares of WMIH’s common stock was converted into an option, right or warrant to acquire an equal number of shares of WMIH’s common stock under the same terms and conditions as the original options, rights or warrants. As of the Reincorporation Date, and pursuant to the Certificate of Incorporation, WMIH is authorized to issue up to 3,500,000,000 shares of common stock and up to 10,000,000 shares of blank check preferred stock, in one or more series, each with a par value of $0.00001 per share.

All of the terms of the agreements described below and attributed to WMIH are also attributable to WMIHC relative to the various agreements and instruments prior to the Reincorporation Date. The references to WMIH are based on the date this Form 10-Q has been filed. The references would have been to WMIHC prior to the Reincorporation Date.

On January 30, 2014, WMIH entered into (i) an investment agreement, dated as of January 30, 2014 (the “Investment Agreement”), with KKR Fund Holdings L.P. (“KKR Fund”) and, for limited purposes, KKR Management Holdings L.P., and (ii) an investor rights agreement, dated as of January 30, 2014 (the “Investor Rights Agreement”), with KKR Fund. On January 30, 2014, pursuant to the Investment Agreement, WMIH issued 1,000,000 shares of its Series A Preferred Stock having the terms, rights, obligations and preferences contained in the Articles of Amendment of WMIH dated January 30, 2014 for a purchase price equal to $11.1 million and has issued to KKR Fund warrants to purchase, in the aggregate, 61.4 million shares of WMIH’s common stock, 30.7 million of which have an exercise price of $1.32 per share and 30.7 million of which have an exercise price of $1.43 per share (together, the “Warrants”).

The Series A Preferred Stock has rights substantially similar to those associated with WMIH’s common stock, with the exception of a liquidation preference, conversion rights and customary anti-dilution protections. The Series A Preferred Stock has a liquidation preference equal to the greater of (i) $10.00 per one million shares of Series A Preferred Stock plus declared but unpaid dividends on such shares and (ii) the amount that the holder would be entitled to in a relevant transaction had the Series A Preferred Stock been converted to common stock of WMIH. The Series A Preferred Stock is convertible at a conversion price of $1.10 per share into shares of common stock of WMIH either at the option of the holder or automatically upon transfer by KKR Fund to a non-affiliated party. As a result of the calculation of a beneficial conversion feature as required by ASC topic 470 - Debt a preferred deemed dividend of $9.5 million was recorded in conjunction with the issuance of the Series A Preferred Stock. This preferred deemed dividend resulted in an increase to our accumulated deficit, and an increase in additional paid in capital. Further, KKR Fund, as the holder of the Series A Preferred Stock and the Warrants, has received other rights pursuant to the Investor Rights Agreement as described below.

The Warrants have a five-year term from the date of issuance and are subject to customary structural adjustment provisions for stock splits, combinations, recapitalizations and other similar transactions. KKR Fund’s rights as a holder of the Series A Preferred Stock and the Warrants, and the rights of any subsequent holder that is an affiliate of KKR Fund (together with KKR Fund, the “Series A Holders”) are governed by the Investor Rights Agreement.

In accordance with the Investor Rights Agreement, except for the issuance of WMIH’s common stock in respect of the Warrants and the Series A Preferred Stock, KKR Fund and its affiliates shall not purchase or acquire any equity securities of WMIH or its subsidiaries without WMIH’s prior written consent, subject to certain exceptions.

The Investor Rights Agreement also provides the Series A Holders with registration rights, including three long form demand registration rights, unlimited short form demand registration rights and customary piggyback registration rights with respect to WMIH’s common stock (and WMIH’s common stock underlying the Series A Preferred Stock and the Warrants), subject to certain minimum thresholds, customary blackout periods and lockups of 180 days. On July 1, 2015, WMIH filed a shelf registration statement (the “Initial Registration Statement”) covering resales of Series B Preferred Stock and WMIH’s common stock issuable upon mandatory conversion of the Series B Preferred Stock. On November 23, 2015, WMIH amended the Initial Registration Statement to cover WMIH’s common stock issuable upon conversion of the Series A Preferred Stock and shares of WMIH’s common stock issuable upon exercise of warrants issued in connection with the issuance of our Series A Preferred Stock currently outstanding (as amended, the “Registration Statement”). The Registration Statement was declared effective under the Securities Act on November 25, 2015.

For as long as the Series A Holders beneficially own any shares of common stock of WMIH or Series A Preferred Stock or any of the Warrants, WMIH has agreed to provide customary Rule 144A information rights, to provide the Series A Holders with regular audited and unaudited financial statements and to allow the Series A Holders or their representatives to inspect WMIH’s books and records.

The foregoing description of (i) the Investor Rights Agreement is qualified in its entirety by reference to the Investor Rights Agreement, which was filed with the SEC as Exhibit 4.2 on Form 8-K on January 31, 2014, and incorporated by reference, (ii) the Warrants are qualified in their entirety by reference to the Form of Tranche A Warrant and Form of Tranche B Warrant, which were filed with the SEC as Exhibits 4.3 and 4.4, respectively, on Form 8-K on January 31, 2014, and incorporated by reference, (iii) the Series A Preferred Stock is qualified in its entirety by reference to the Articles of Amendment of WMIH dated January 30, 2014, which were filed with the SEC as Exhibit 4.5 on Form 8-K on January 31, 2014, and incorporated by reference, the Form of Series A Convertible Preferred Stock Certificate, which was filed with the SEC as Exhibit 4.6 on Form 8-K on January 31, 2014, and incorporated by reference, and the Certificate of Incorporation, which was filed with the SEC as Exhibit 3.1 on Form 8-K12G3 on May 13, 2015, and incorporated by reference, and (iv) the Investment Agreement is qualified in its entirety by reference to the Investment Agreement, which was filed with the SEC as Exhibit 10.1 on Form 8-K on January 31, 2014, and incorporated by reference.

On January 5, 2015, WMIH, in connection with an offering of 600,000 shares of its Series B Preferred Stock, filed with the Secretary of State of Washington Articles of Amendment of Articles of Incorporation (the “Articles of Amendment”) containing the Designation of Rights and Preferences of the 3% Series B Convertible Preferred Stock (the “Certificate of Designation”) creating the Series B Preferred Stock and designating the rights and preferences of the Series B Preferred Stock.

The foregoing descriptions of the Articles of Amendment and the Certificate of Designation are qualified in their entirety by the provisions of the Articles of Amendment and the Certificate of Designation, filed as Exhibits 3.1 and 4.1 to a Form 8-K on January 5, 2015, respectively, and incorporated by reference herein~~, and the Certificate of Incorporation, which was filed with the SEC as Exhibit 3.1 on Form 8-K12G3 on May 13, 2015, and incorporated by reference~~.

On January 5, 2015, in connection with the offering and pursuant to that certain Purchase Agreement, dated December 19, 2014 (the “Purchase Agreement”), by and among WMIH, Citigroup Global Markets Inc. (“Citi”) and KCM (KCM and Citi together, the “Initial Purchasers”), WMIH entered into a Registration Rights Agreement with the Initial Purchasers (the “Registration Rights Agreement”), pursuant to which WMIH has agreed that, subject to certain conditions, WMIH will use its reasonable efforts to (i) file a shelf registration statement covering resales of WMIH’s common stock issuable upon mandatory conversion of the Series B Preferred Stock no later than six months after January 5, 2015 (the “Issue Date”); (ii) file a shelf registration statement covering resales of the Series B Preferred Stock no later than one year after the Issue Date; and (iii) cause each of these shelf registration statements to be declared effective under the Securities Act. On July 1, 2015, WMIH filed the Initial Registration Statement covering resales of Series B Preferred Stock and shares of WMIH’s common stock issuable upon mandatory conversion of the Series B Preferred Stock. On November 23, 2015, WMIH amended the Initial Registration Statement to cover WMIH’s common stock issuable upon conversion of the Series A Preferred Stock and shares of WMIH’s common stock issuable upon exercise of warrants issued in connection with the issuance of our Series A Preferred Stock currently outstanding. ~~The Registration Statement was declared effective under the Securities Act on November 25, 2015.~~

The foregoing description of the Registration Rights Agreement is qualified in its entirety by the provisions of the Registration Rights Agreement, filed on Form 8-K on January 5, 2015, as Exhibit 10.1 and incorporated by reference herein.

On January 5, 2015, in connection with the offering and pursuant to the Purchase Agreement, WMIH entered into an Escrow Agreement (the “Escrow Agreement”) with Citibank, N.A., as Escrow Agent (the “Escrow Agent”), pursuant to which WMIH caused to be deposited with the Escrow Agent the amount of $598.5 million, representing the proceeds of the offering of Series B Preferred Stock less offering fees payable on the Issue Date but before payment of other offering fees and expenses (including fees contingent upon future events). These net proceeds have been, and will be, released from escrow from time to time to WMIH as instructed by WMIH in amounts necessary to (i) pay certain fees related to the offering that may become payable to the Initial Purchasers, (ii) finance WMIH’s efforts to explore and/or fund, in whole or in part, acquisitions, whether completed or not, including reasonable attorney fees and expenses related thereto, accounting expenses, due diligence and financial advisor fees and expenses, (iii) pay certain amounts that may become payable to the holders of the Series B Preferred Stock upon the occurrence of certain put events, (iv) pay certain amounts that would become payable to the holders of the Series B Preferred Stock upon a mandatory redemption of the Series B Preferred Stock, and (v) pay certain expenses related to the offering. The entire net proceeds will be released from escrow as instructed by WMIH upon consummation of a Qualified Acquisition (as defined in Article VI of the Certificate of Incorporation). If a Qualified Acquisition is not consummated by January 5, 2018, and no Acquisitions (as defined in Article VI of the Certificate of Incorporation) have been consummated such that all of the Series B Preferred Stock remains outstanding and has not been converted to WMIH’s common stock, the outstanding Series B Preferred Stock becomes redeemable. The aggregate redemption costs, assuming all 600,000 shares remain outstanding, of all of the Series B Preferred Stock is $600.0 million, plus accrued and unpaid dividends, if any, whether or not declared. As of September 30, 2017 and December 31, 2016, the balance remaining in the escrow account totaled approximately $577.2 million and $572.9 million, respectively. The foregoing description of the Escrow Agreement is qualified in its entirety by the provisions of the Escrow Agreement, filed on Form 8-K on January 5, 2015, as Exhibit 10.2 and incorporated by reference herein.

If the Series B Preferred Stock is redeemed or determined likely to be redeemed, the Company would be required to record a charge to earnings of approximately $97.8 million to accrete the value of the Series B Preferred Stock to the $600 million redemption value. The Company continues to pursue its business strategy of consummating an acquisition, and to explore potential financing and refinancing alternatives, and as of September 30, 2017, the Company has determined that recording for accretion to the Series B Preferred Stock’s redemption value is not required.

The Series B Preferred Stock are hybrid financial instruments that blend characteristics of both equity and debt securities. The terms of the Series B Preferred Stock provide for either redemption of the principal and interest for cash at maturity or in the event of certain predetermined circumstances (“Forward Component”) or mandatory conversion into WMIH’s common stock (“Embedded Conversion Feature” or “ECF”). The Series B Preferred Stock also embody contingent equity-linked share price protections on the ECF in the form of a variable conversion price based on a 20 trading day average of volume weighted-average price. Upon any conversion of Series B Preferred Stock in accordance with its terms, the Series B Preferred Stock shall convert based on the outstanding principal and accrued interest, subject to a floor of $1.75 per share of WMIH’s common stock and a maximum of $2.25 per share. As a result, the Company determined that the Series B Preferred Stock contain certain embedded derivative features. Management’s evaluation resulted in the conclusion that the compound derivative financial instrument required bifurcation and separately accounted for the embedded conversion feature option as a derivative. A derivative liability results primarily when the Company average stock price (as defined in the Certificate of Incorporation) exceeds the conversion price, including the ceiling conversion price of $2.25, as defined by the Certificate of Incorporation. A derivative asset results primarily when the Company’s average stock price is less than the conversion price, including the floor price of $1.75. The aggregate fair value of the embedded conversion feature was a liability of $66.2 million on the date of issuance of the Series B Preferred Stock. At September 30, 2017, September 30, 2016 and December 31, 2016, the fair value of the embedded conversion feature was an asset of $111.9 million, a liability of $58.3 million and an asset of $80.7 million, respectively. Any change in the fair value of the embedded conversion feature will constitute other income or expense, as the case may be, in the applicable reporting period. Upon conversion or redemption of the Series B Preferred Stock, any asset or liability related to the embedded conversion feature would be eliminated. During the year ended December 31, 2016, the fair value of the embedded conversion feature changed by $201.5 million and this change is included as other income in the condensed consolidated statement of operations for the year ended December 31, 2016. During the three and nine months ended September 30, 2017, the fair value of the derivative asset increased by $38.6 million and $31.2 million, respectively. During the three and nine months ended September 30, 2016, the fair value of the derivative liability increased by $16.2 million and decreased by $62.6 million, respectively. The change in fair value is included as other income or expense, as the case may be, in the condensed consolidated statement of operations for the respective periods.

On June 1, 2017 and on June 1, 2016, WMIH issued restricted stock grants to members of the Board totaling $0.4 million and $0.5 million, respectively, of aggregate fair value. The restricted shares noted above vest over a three-year period.

On May 15, 2015, WMIH issued restricted stock grants to our Chief Executive Officer, William C. Gallagher, and our Chief Operating Officer, Thomas L. Fairfield, in conjunction with employment agreements totaling $9.8 million of aggregate fair value (the “Exec Grants”) based on the $2.76 trading price of WMIH shares at the close of business on the date issued. ~~WMIH may be required to issue additional shares if the conversion price applicable to the Series B Preferred Stock is less than $2.25 per share.~~ ~~The Exec Grants~~ will vest in full and will be recognized as compensation expense upon the consummation of a Qualified Acquisition, subject to the executives continued employment with the Company until such time. The foregoing description of the restricted stock agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Gallagher Restricted Stock Agreement and the Fairfield Restricted Stock Agreement (the “Executive Agreements”), which were filed as Exhibit 10.3 and Exhibit 10.5, respectively, of Form 8-K12G3 filed on May 13, 2015 and incorporated herein by reference. The fair market value of the Exec Grants as of September 30, 2017 approximates $4.3 million as a result of the terms of the Executive Agreements which would result in additional share issuances if the value is below $2.25 per share limited to a maximum of shares based on a minimum conversion price of $1.75 per share. The stock price was $0.95 per share at the close of the market on September 30, 2017 and if the Exec Grants had vested then the minimum conversion price of $1.75 per share would have been utilized, therefore, a total of 1,015,874 additional shares (the “Exec Additional Shares”) would have been required to be issued, 507,937 additional shares each to both Mr. Gallagher and Mr. Fairfield.

~~The unamortized value related to the unvested restricted share grants totals $5.0 million and $7.7 million at September 30, 2017 and December 31, 2016, respectively.~~

The unamortized value of $5.0 million at September 30, 2017, if all are ultimately vested, would be amortized according to the following schedule. The fair value of the Exec Grants will vest and be recognized on the date of the consummation of a Qualified Acquisition. Additionally, any Exec Additional Shares required to be issued, would be issued and immediately vest on the date of the consummation of a Qualified Acquisition.

Amortization Schedule
(in thousands)

September 30, 2017 unamortized dollar value

4th quarter 2017

$
103

1st quarter 2018

98

2nd quarter 2018

71

3rd quarter 2018

71

4th quarter 2018

71

1st quarter 2019

66

2nd quarter 2019

36

3rd quarter 2019

36

4th quarter 2019

36

1st quarter 2020

31

Unamortized fair-value - subject to vesting schedule

619

Unamortized fair-value - event dependent

4,343

Total unamortized dollar value

4,962

Equity-based compensation totaled $0.4 million and $0.5 million for the nine months ended September 30, 2017 and September 30, 2016, respectively. The restricted stock awards were issued at the fair market value determined to be the trading price at the close of business on the respective date the awards were granted.

~~A summary of WMIH’s restricted stock award activity for the nine months ended September 30, 2017 and year ended December 31, 2016 is presented below:~~

Number of restricted stock awards outstanding

Weighted-average grant date fair value

Aggregate fair value
(in thousands)

Outstanding—January 1, 2016

6,168,035

2.1230

13,095

Restricted stock awards granted during 2016

212,765

2.3500

500

Restricted stock awards released or forfeited during 2016

—

—

—

Outstanding—December 31, 2016

6,380,800

$
2.1306

$
13,595

Restricted stock awards granted during 2017

333,332

1.2000

400

Restricted stock awards released or forfeited during 2017

—

—

—

Outstanding—September 30, 2017

6,714,132

$
2.0844

$
13,995

WMIH has issued the total number of shares subject to the restricted stock grants, however, until vested they are subject to repurchase. Shares subject to repurchase totaled 4,053,640 on September 30, 2017 and 4,039,591 on December 31, 2016. The Exec Grants vest upon future events, and are not time specific, and for this reason we have used 1st quarter 2018 as the vesting date in the following table as this date corresponds with the Series B Preferred Stock potential redemption date. The shares subject to repurchase at September 30, 2017 will vest, assuming circumstances remain unchanged, according to the following schedule:

~~Vesting schedule of shares subject to repurchase~~	~~September 30, 2017 unvested shares~~
~~4th quarter 2017~~		—
~~1st quarter 2018~~		~~3,774,684~~
~~2nd quarter 2018~~		—
~~3rd quarter 2018~~		—
~~4th quarter 2018~~		—
~~1st quarter 2019~~		~~167,848~~
~~2nd quarter 2019~~		—
~~3rd quarter 2019~~		—
~~4th quarter 2019~~		—
~~1st quarter 2020~~		~~111,108~~
~~Total unvested shares~~		~~4,053,640~~

Pursuant to a restricted stock agreement, WMIH has the right, but not the obligation, to repurchase any unvested (but issued) shares of common stock subject to the restricted stock agreement at $0.0001 per share upon the termination of service in the case of a director, or in the case of the Exec Grants, on January 5, 2018 if the Series B Preferred Stock are redeemed or as a result of certain circumstances as defined by the terms of the Exec Grants.

~~A summary of WMIH’s restricted shares issued and subject to repurchase as of September 30, 2017 and December 31, 2016 is presented below:~~

~~Vesting schedule of shares subject to repurchase~~	~~Unvested shares~~
~~Shares subject to repurchase—January 1, 2016~~		~~4,197,396~~
~~Shares issued subject to vesting during 2016~~		~~212,765~~
~~Unvested shares repurchased during 2016~~		—
~~Shares vested during 2016~~		~~(370,570~~	)
~~Shares subject to repurchase—December 31, 2016~~		~~4,039,591~~
~~Shares issued subject to vesting during 2017~~		~~333,332~~
~~Unvested shares repurchased during 2017~~		—
~~Shares vested during 2017~~		~~(319,283~~	)
~~Shares subject to repurchase—September 30, 2017~~		~~4,053,640~~

On June 1, 2017 and June 1, 2016, WMIH issued 333,332 and 212,765 restricted stock grants, respectively, to members of the Board totaling $0.4 million and $0.5 million, respectively, of aggregate fair value. The share price was determined based on the closing sales price of $1.20 and $2.35 on the respective dates of the awards.

As of September 30, 2017 and December 31, 2016, 206,714,132 and 206,380,800, respectively, of WMIH’s common stock were issued and outstanding. As of September 30, 2017 and December 31, 2016, 1,000,000 shares of the Series A Preferred Stock were issued and outstanding. As of September 30, 2017 and December 31, 2016, 600,000 shares of the Series B Preferred Stock were issued and outstanding. As of September 30, 2017 and December 31, 2016, 61,400,000 warrants to purchase WMIH’s common stock were issued and outstanding.

~~See Note 12: Net Income Per Common Share~~ for further information on ~~shares used for EPS calculations.~~

~~Note 10: Pending Litigation~~

Asthese and other risk factors affecting us.

Item 2.Management’s Discussion and Analysis of ~~September 30, 2017, the Company was not a party to, or aware~~Financial Condition and Results of ~~any pending legal proceedings or investigations requiring disclosure at this time.~~

~~Note 11: Restriction on Distribution~~Operations

Management’s discussion and analysis of ~~Net Assets from Subsidiary~~

~~WMMRC has net assets totaling $17.7 million~~financial condition and $33.8 million as of September 30, 2017 and December 31, 2016, respectively. These net assets are not immediately available for distribution to WMIH due to restrictions imposed by trust agreements, and the requirement that the Insurance Division of the State of Hawaii must approve dividends from WMMRC. Prior to ~~September 29, 2017, when the Second Lien Notes were fully redeemed by the Company and October 2, 2017 when the Second Lien Indenture was satisfied and discharged~~, distributions from WMMRC to WMIH were further restricted by the terms of the Runoff Notes and Indentures described in Note 7: Notes Payable. As more fully described in Note 14: Subsequent Events, a distribution from WMMRC to WMIH of up to $10.7 million was approved by the Insurance Division of the State of Hawaii on September 13, 2017.

~~Note 12: Net Income (Loss) Per Common Share~~

In calculating earnings per share, the Company follows the two-class method, which distinguishes between the classes of securities based on the proportionate participation rights of each security type in the Company's undistributed income. The Series A Preferred Stock and the Series B Preferred Stock are treated as one class for purposes of applying the two-class method, because they have substantially equal rights and share equally on an as converted basis with respect to income available to WMIH common stockholders.

Basic net income per WMIH share attributable to common stockholders is computed by dividing net income attributable to WMIH’s common stockholders by the weighted-average number of common shares outstanding for the period after subtracting the weighted-average of any unvested restricted shares outstanding, as these shares are subject to repurchase. Basic net income attributable to common stockholders is computed by deducting preferred dividends and the basic calculation of undistributed earnings attributable to participating securities from net income.

Diluted net income per WMIH share is computed by dividing net income attributable to WMIH’s common stockholders for the period by the weighted-average number of common shares outstanding after subtracting the weighted-average of any incremental unvested restricted shares outstanding and adding any potentially dilutive common equivalent shares outstanding during the period, if dilutive. Potentially dilutive common equivalent shares are comprised of the incremental common shares issuable upon the exercise of warrants for WMIH’s common stock and the potential conversion of preferred shares to common shares and the dilutive effect of unvested restricted stock. Diluted net income attributable to common stockholders is computed by deducting preferred dividends and the diluted calculation of undistributed earnings attributable to participating securities from net income.

The dilutive effect of outstanding warrants and restricted stock subject to repurchase is reflected in diluted earnings per share by application of the treasury stock method. There would be no dilutive effects from any equity instruments for periods presented reflecting a net loss, therefore diluted net loss per share would be the same as basic net loss for periods that reflect a net loss attributable to common stockholders. Certain unvested restricted shares and convertible preferred stock are excluded from the calculation of diluted earnings per share until the non-market based contingency occurs.

~~The following table presents the calculation of basic net (loss) income per share~~ ~~for periods presented:~~

~~(in thousands, except per share data):~~

Three months
ended
September 30, 2017

Three months
ended
September 30, 2016

Nine months
ended
September 30, 2017

Nine months
ended
September 30, 2016

Numerator for basic net income (loss) per share:

Net income (loss)
$
38,411

$
(16,645
)

$
34,876

$
61,314

Less: Series B preferred stock dividends

(4,500
)

(4,500
)

(13,500
)

(13,500
)
Less: undistributed earnings attributed to participating securities (basic calculation)

(21,541
)

—

(13,581
)

(27,625
)
Basic net income (loss) attributable to common stockholders
$
12,370

$
(21,145
)

$
7,795

$
20,189

Denominator for basic net income (loss) per share:

Weighted-average shares outstanding

206,714,132

206,380,800

206,529,762

206,261,993

Weighted-average unvested restricted shares outstanding

(4,053,640
)

(4,039,591
)

(3,956,447
)

(4,014,718
)
Denominator for basic net income (loss) per share

202,660,492

202,341,209

202,573,315

202,247,275

Basic net income (loss) per share attributable to common stockholders
$
0.06

$
(0.10
)

$
0.04

$
0.10

~~The following table presents the calculation of diluted net (loss) income per share~~ ~~for periods presented:~~

~~(in thousands, except per share data):~~

Three months
ended
September 30, 2017

Three months
ended
September 30, 2016

Nine months
ended
September 30, 2017

Nine months
ended
September 30, 2016

Numerator for diluted net income (loss) per share:

Net income (loss)
$
38,411

$
(16,645
)

$
34,876

$
61,314

Less: Series B preferred stock dividends

(4,500
)

(4,500
)

(13,500
)

(13,500
)
Less: undistributed earnings attributed to participating securities (diluted calculation)

(21,541
)

—

(13,581
)

(26,241
)
Diluted net income (loss) attributable to common stockholders
$
12,370

$
(21,145
)

$
7,795

$
21,573

Denominator for diluted net income (loss) per share:

Weighted-average shares outstanding

206,714,132

206,380,800

206,529,762

206,261,993

Weighted-average unvested restricted shares outstanding

(4,053,640
)

(4,039,591
)

(3,956,447
)

(4,014,718
)
Effect of dilutive potential shares

10,065,629

—

10,065,629

35,327,739

Denominator for diluted net income (loss) per share

212,726,121

202,341,209

212,638,944

237,575,014

Diluted net income (loss) per share attributable to common stockholders
$
0.06

$
(0.10
)

$
0.04

$
0.09

The following table summarizes shares subject to exercise or vesting conditions as more fully described in Note 9: Capital Stock and Derivative Instruments. These shares could potentially be dilutive in future periods if we realize net income attributable to common and participating stockholders and the contingent or unvested stock is converted to WMIH common stock. The cash payment of $84.4 million, which would be received upon exercise of the warrants, has not been considered as an offset to the dilutive shares under warrants outstanding below.

Potential dilution to common stock

Minimum shares

Maximum shares

Restricted shares subject to vesting

4,053,640

4,053,640

Series A Preferred Stock

10,065,629

10,065,629

Warrants outstanding

61,400,000

61,400,000

Dilutive shares to be issued if Series B Preferred Stock conversion is below $2.25

—

1,015,872

Series B Preferred Stock

266,666,667

342,857,143

Potential dilutive shares if converted to common stock

342,185,936

419,392,284

~~Note 13:~~ ~~Fair Value Measurement~~

We use a fair-value approach to value certain assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We use a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

•	~~Level 1 — Inputs to the valuation methodology are quoted prices for identical assets or liabilities traded in active markets;~~

•	Level 2 — Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market corroborated inputs; and

•	~~Level 3 — Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.~~

Determining which category an asset or liability falls within the fair value accounting guidance hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter. Assets and liabilities measured at fair value on a recurring basis are summarized as follows:

~~The financial instrument that is measured at fair value on a recurring basis is summarized as follows as of September 30, 2017:~~

(in thousands)

Assets

Level 1

Level 2

Level 3

September 30, 2017

Derivative embedded conversion feature

$
—

$
—

$
111,877

$
111,877

~~The financial instrument that is measured at fair value on a recurring basis is summarized as follows as of December 31, 2016:~~

(in thousands)

Assets

Level 1

Level 2

Level 3

December 31, 2016

Derivative embedded conversion feature

$
—

$
—

$
80,651

$
80,651

~~The following table shows the change in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2016 and the nine months ended September 30, 2017:~~

Derivative asset (liability) embedded conversion feature
(in thousands)

Balance, January 1, 2016

$
(120,848
)
Unrealized gain on change in fair value

201,499

Balance, December 31, 2016

80,651

Unrealized gain on change in fair value

31,226

Balance, September 30, 2017

$
111,877

On January 5, 2015, WMIH raised $600.0 million of capital (less transaction costs) through the issuance of 600,000 shares of Series B Preferred Stock. The shares carry a liquidation preference of $1,000 per share, equal to the purchase price, and a mandatory redemption right three years from issuance date at a price equal to the purchase price, plus accrued dividends at 3% per annum.

~~The proceeds from the issuance of the Series B Preferred Stock are to be used to pursue strategic acquisitions. If one or more~~ acquisitions are made on or prior to January 5, 2018 (or such later time as may be permitted pursuant to the terms governing the Series B Preferred Stock), then some or all of such Series B Preferred Stock shall be mandatorily converted into common stock of ~~WMIH at a conversion price that is the lesser of:~~

~~$2.25 per share of WMIH common stock; and~~

~~ii)~~

the arithmetic average of daily volume weighted-average prices of WMIH’s common stock during the 20 trading day period ending on the trading day immediately preceding the public announcement by WMIH of its entry into a definitive agreement for such acquisition, subject to a floor of $1.75 per share of WMIH common stock.

The mandatory conversion feature of the Series B Preferred Stock is subject to fair value accounting and, in connection therewith, since the time of issuance, the Company has used a binomial lattice option model to determine fair value of the Series B Preferred Stock. The fair value of the Series B Preferred Stock embedded conversion feature is revalued each balance sheet date utilizing the binomial lattice option model. The fair value computations are reported in the condensed consolidated statementresults of operations ~~as unrealized gain or (loss) on change in fair value of derivative embedded conversion feature, respectively.~~

Such binomial lattice option model utilizes several inputs to determine such fair value. Such inputs include WMIH’s common stock price as of each reporting date, as well as variable assumptions including, but not limited to, volatility of our stock price, the risk free interest rate, the probability that the Company consummates a Qualified Acquisition and the time of completing any such Qualified Acquisition.

As of September 30, 2017 the following variable assumptions were included in the binomial option model: expected stock price volatility over the term of the convertible preferred securities was estimated at 60%, as compared to 40% as of December 31, 2016; the risk-free interest rate was estimated at 1.1% as compared to 0.6% as of December 31, 2016; the probability of the Company consummating a Qualified Acquisition was estimated at 50% as compared with 90% as of December 31, 2016; and the anticipated timing of the Company consummating a Qualified Acquisition was estimated at 6 months from both September 30, 2017 and December 31, 2016.

The foregoing assumptions were adopted by the Company’s management in order to determine the market value of the embedded conversion feature applicable to the Series B Preferred Stock. Such assumptions necessarily involved and continue to involve the exercise of management’s judgement, as well as the judgement of the third party the Company uses in connection with the embedded derivative valuation process and for no other purpose. Such assumptions are monitored and adjusted from time to time. As assumptions and circumstances change, results may differ and past assumptions and valuations are not indicative of future assumptions or results.

~~Our reported net income attributable to common and participating stockholders~~ (“~~Year to Date Net Income” or “Year to Date Net Loss”~~MD&A”) was approximately $21.4 million for the nine months ended September 30, 2017. The change to our net income attributable to common and participating stockholders resulting from the calculation of the fair value of the embedded conversion feature is analyzed at the end of each reporting period to assess the impact of a 10% change to the various inputs and the result of each change to Year to Date Net Income is highlighted in the following scenarios. If the closing stock price of our common stock had been 10% lower, our Year to Date Net Income would have been approximately $17.7 million higher ($39.1 million). If the closing stock price of our common stock had been 10% higher, our Year to Date Net Income would have been approximately $17.6 million less ($3.8 million). If our volatility assumption on September 30, 2017 had been 10% lower, our Year to Date Net Income would have been approximately $3.0 million higher ($24.4 million). If our volatility assumption had been 10% higher, our Year to Date Net Income would have been approximately $3.3 million less ($18.1 million). If our probability of a transaction occurring assumption on September 30, 2017 had been 10% lower, our Year to Date Net Income would have been approximately $22.4 million less resulting in Year to Date Net Loss of $1.0 million. If our probability of a transaction occurring assumption had been 10% higher, our Year to Date Net Income would have been approximately $22.4 million higher ($43.8 million).

~~Note 14: Subsequent Events~~

On October 23, 2017, the reinsurance agreement with Radian was commuted and the related trust assets were released to WMMRC. On September 13, 2017, the Insurance Division of the State of Hawaii approved this commutation.

On September 13, 2017, the Insurance Division of the State of Hawaii approved a transfer of up to $10.7 million from funds which were held in trust at WMMRC as of September 30, 2017. As of the date of the filing of this Form 10-Q, these funds have not been transferred to WMIH; however, they are no longer held in trust and are available for general corporate purposes.

~~On October 2, 2017, the Second Lien Indenture was satisfied and discharged.~~ ~~As a result of the satisfaction and discharge of the Second Lien Indenture the~~ ~~Collateral~~ ~~Account was subsequently closed and remaining funds transferred to cash and cash equivalents to be used for general corporate purposes. For more information see Note 7: Notes Payable.~~

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

~~The following discussion~~ should be read in conjunction with ~~our~~the accompanying unaudited consolidated financial statements and ~~the related notes, included~~ in ~~Item 1 of Part I of this Quarterly Report on Form 10-Q. The following is a discussion and analysis of~~conjunction with our results of operations for the three and nine months ended September 30, 2017 and 2016 and financial condition as of September 30, 2017 and December 31, 2016 (dollars in thousands, except share and per share data and as otherwise indicated).

References as used herein, unless the context requires otherwise, to (i) the “Company,” “we,” “us,” or “our” refer to WMIH Corp. (formerly WMI Holdings Corp.) and its subsidiaries on a consolidated basis; (ii) “WMIH” refers only to WMIH Corp., without regard to its subsidiaries; (iii) “WMIHC” refers only to WMI Holdings Corp., without regard to its subsidiaries; (iv) “WMMRC” refers to WM Mortgage Reinsurance Company, Inc. (a wholly-owned subsidiary of WMIH); and (v) “WMIIC” refers to WMI Investment Corp. (a wholly-owned subsidiary of WMIH).

~~FORWARD-LOOKING STATEMENTS AND INFORMATION~~

This quarterly report includes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included in this report that address activities, events, conditions or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business and these statements are not guarantees of future performance. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements may include the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “strategy,” “future,” “opportunity,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result” and similar expressions. Such forward-looking statements involve risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by such statements. These risks are identified and discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016 under Risk Factors~~2019. The following discussion contains, in ~~Part I, Item 1A. These risk factors will be important~~addition to ~~consider in determining future results and should be reviewed in their entirety. These~~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 ~~expressed~~reported in ~~good faith~~millions, except per share data and ~~we believe there is~~other key metrics, unless otherwise noted.

We have provided a ~~reasonable basis for them. However, there can be no assurance~~glossary of terms, which defines certain industry-specific and other terms that are used herein, at the ~~events, results or trends identified in these forward-looking statements will occur or be achieved. Forward-looking statements speak only as~~end of the ~~date they~~MD&A section.


Overview

We are ~~made,~~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 $588 billion as of 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, ~~undertake to update any forward-looking statement, except as required by law. Therefore, you~~and should not ~~rely~~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 organization;

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

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

•Sustain the talent of our people and the culture of our organization; 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 ~~statements being current~~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 October 25, 2020, approximately 6.1% of our customers were on a forbearance plan, down from a peak of 7.2%. More customers are 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 $5,095 as of September 30, 2020 and may increase during the fourth quarter. See liquidity discussion related to the COVID-19 pandemic in Liquidity and Capital Resources section in MD&A.

Anticipated Trends

Our Servicing segment 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 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 ~~time~~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 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. However, Xome’s revenue from the Services division has benefited from the lower interest rate environment and increase in 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.

Results of Operations


Table 1. Consolidated Operations


	Three Months Ended September 30,
	2020		2019		$ Change		% Change
Revenues - operational(1)	$	901	$	701	$	200	29	%
Revenues - Mark-to-market	(29)		(83)		54		(65)	%
Total revenues	872		618		254		41	%
Total expenses	431		478		(47)		(10)	%
Total other expenses, net	(160)		(33)		(127)		385	%
Income before income tax expense	281		107		174		163	%
Less: Income tax expense	67		24		43		179	%
Net income	214		83		131		158	%
Less: Net income (loss) attributable to non-controlling interests	5		(1)		6		(600)	%
Net income attributable to Mr. Cooper	$	209	$	84	$	125	149	%

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

Net income increased during the three months ended September 30, 2020 to $214 compared to net income of $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 ~~than~~expenses, net. Operational revenues increased primarily due to increased revenue in our Originations segment, driven by higher originations volume predominately in the ~~time at which this document~~direct-to-consumer (”DTC”) channel, partially offset by a decrease in negative mark-to-market (“MTM”) adjustments during the three months ended September 30, 2020 compared to the same period in 2019. Refer to Table 8. Servicing - Revenues and Table 19. Originations - Revenues for further discussion.

Total expenses during the three months ended 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 ~~filed~~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 during the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest income and increase in 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 10. Servicing - Other (Expenses) Income, Net and Table 23. Corporate/Other Selected Financial Results for further discussion.

During 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


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

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

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

Total expenses during the nine months ended September 30, 2020 decreased compared with the ~~Securities~~same period in 2019 primarily due to lower foreclosure and ~~Exchange Commission.~~

~~OVERVIEW~~

~~Our Business Strategy~~other liquidation related expenses in our Servicing segment primarily driven by loss recoveries from settlement with a government agency and ~~Operating Environment~~

~~WMIH Corp. (“WMIH”) is a corporation duly organized and existing under the laws~~operational improvements of the ~~State of Delaware. On May 11, 2015, WMIH merged~~reverse portfolio with ~~its parent corporation, WMI Holdings Corp., a Washington corporation (“WMIHC”), with WMIH as the surviving corporation~~respect to assignments and adherence to HUD curtailment guidelines. In addition, total expenses in our Corporate/Other segment were higher in the ~~merger (the “Merger”). The Merger occurred as part~~nine months ended September 30, 2019 due to acquisition and integration expenses related to the Pacific Union acquisition and the acquisition of the ~~reincorporation~~Seterus mortgage servicing platform and assumption of ~~WMIHC~~assets related thereto from IBM (“Seterus acquisition”) in February 2019. Partially offsetting the ~~State of Washington~~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 during the nine months ended September 30, 2020 compared to the ~~State~~same period in 2019 primarily due to a decrease in interest income and an increase in 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 ~~Delaware effective May 11, 2015 (the “Reincorporation Date”).~~

~~WMIH, formerly known as WMIHC~~the decline in the reverse mortgage interests balance. Other expenses, net, was higher in the nine months ended September 30, 2020 primarily due to a loss on redemption of the 2023 unsecured senior notes in our Corporate/Other segment and ~~Washington Mutual, Inc. (“WMI”), is~~due to income related to the ~~direct parent~~change in fair value of ~~WM Mortgage Reinsurance Company, Inc. (~~“~~WMMRC”) and WMI Investment Corp. (~~“WMIIC”), which has no assets or liabilities. Since emergence from bankruptcy on March 19, 2012 (the “Effective Date”), we have had limited operations other than WMMRC’s legacy reinsurance business, which is being operatedthe contingent consideration recorded in runoff mode. We continue to operate WMMRC’s business in runoff mode and our primary strategic objective is to consummate one or more acquisitions of an operating business, either through a merger, purchase, business combination or other form of acquisition, and grow our business.

~~We continue to seek, identify and evaluate acquisition opportunities of varying sizes across an array of industries~~2019 for the ~~purpose~~acquisition of ~~facilitating an acquisition by WMIH~~Assurant Mortgage Solutions (“AMS”) in our Xome segment. Refer to Table 10.1 Servicing - Other (Expenses) Income, Net, Table 22.1 Xome Segment Results of one or more operating businesses. Our management team meets regularly with our Board of Directors (the “Board” or “Board of Directors”), the Finance Committee of the Board (the “Finance Committee”)Operations and ~~the Corporate Strategy and Development Committee of the Board (the “CS&D Committee”), as the case may be, to discuss and evaluate potential acquisition targets.~~ Table 23.1 Corporate/Other Selected Financial Results for further discussion

During the nine months ended September 30, ~~2017~~2020 and the year ended December 31, 2016, the Finance Committee, the CS&D Committee and the Board of Directors met formally and informally numerous times to assess various opportunities. We have focused primarily on acquisition targets in the financial services industry, including targets with consumer finance, commercial finance, specialty finance, leasing and insurance operations. We also may review potential targets in other industries, such as information technology, industrials, business services, healthcare and other sectors.

~~On January 5, 2015,~~ ~~we announced that WMIH had~~ completed an offering (the “Series B Preferred Stock Financing”) of 600,000 shares of its 3% Series B Convertible Preferred Stock, par value $0.00001, liquidation preference $1,000 per share (the “Series B Preferred Stock”) in the amount of a~~ggregate gross proceeds equal to $600 million. Net proceeds of $598.5 million were deposited into an escrow account and have been, and will be, released from escrow to us from time to time in amounts needed to finance our efforts to explore and~~ ~~fund, in whole or in part, certain acquisitions, whether completed or not, including reasonable attorney fees and expenses, accounting expenses, due diligence and financial advisor fees and expenses. For further information on the Series B Preferred Stock Financing, see Note 9: Capital Stock and Derivative Instruments, to the condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.~~

WMIH continues to evaluate acquisition opportunities and work with our strategic partner, an affiliate of KKR & CO. L.P. (together with its affiliates, “KKR”), to identify, consider and evaluate potential mergers, acquisitions, business combinations and other strategic opportunities. As of September 30, 2017, and through the date of the filing of this Form 10-Q,2019, we had ~~not entered into definitive documentation relating to~~ an acquisition or consummated an acquisition. If we have not entered into definitive documentation relating to an Acquisition (as defined below), or consummated a Qualified Acquisition (as defined below), on or prior to January 5, 2018, we will be required to redeem all of the outstanding Series B Preferred Stock on January 5, 2018 (the “Series B Redemption Date”). A “Qualified Acquisition” means an Acquisition (as defined below) that, taken together, with prior Acquisitions (if any), collectively utilizes aggregate net proceeds of the Series B Preferred Stock Financing of $450 million. “Acquisition” means any acquisition by the Company (or any of its direct or indirect wholly-owned subsidiaries), in a single transaction or a series of transactions, whether by purchase, merger or otherwise, of all or substantially all of the assets of, or equity interests in, or a business line, unit or division of, any person.

~~Assuming all 600,000 shares are outstanding on the Series B Redemption Date, the aggregate redemption cost will be $600.0 million, plus accrued~~income tax expense and unpaid dividends, if any, whether or not declared. If, prior to the Series B Redemption Date, we publicly announce that we have entered into a definitive agreement for an Acquisition, the Series B Redemption Date will be extended to the earlier to occur of (i) July 5, 2018, and (ii) the day immediately following (x) the date such definitive agreement is terminated or (y) the date such Acquisition is closed.benefit, respectively. The consummation of an Acquisition would result in the mandatory conversion of some or all of the Series B Preferred Stock into common stock in accordance with provisions set forth in Article VI of the Certificate of Incorporation.

While we remain focused on identifying an Acquisition and executing definitive documentation relating to or consummating an Acquisition on or prior to the Series B Redemption Date we can provide no assurance that we will be able to do so and, if so, on what terms. In the event we are required to redeem the Series B Preferred Stock, our available cash, absent a new financing, will be substantially depleted and our ability to (i) utilize our net operating loss (“NOL”) carry-forward, (ii) access significant alternative uses of capital and (iii) to continue business operations would likely be significantly and adversely impaired.

As previously disclosed, the Finance Committee is authorized, among other things, (i) to review the long-term financial structure, objectives and policies of the Company, and to make recommendations to the Board regarding such structure, objectives and policies, if appropriate, (ii) to evaluate the financing requirements of the Company and management’s proposed financing and refinancing plans and to recommend to the Board those actions, authorizations, filings and applications necessary and appropriate to enable management to execute such plans and (iii) to consider and make recommendations to the Board regarding the terms, timing, amount and other material factors (e.g., potential dilution of existing shareholders and the impact of any financing or restructuring on the Company’seffective tax attributes under Section 382 of the Code), related to the possible restructuring or amendment of the Company’s outstanding equity securities, issuance of new equity securities in one or more private or public transactions, redemption of outstanding securities, or other transactions related to the Company’s outstanding securities, capital structure or fundraising to meet the Company’s future liquidity and capital resources needs, in each case as the Finance Committee deems appropriate.

In connection with the foregoing, and as has previously been disclosed, the Finance Committee has retained financial advisors to help the Company assess its overall capital structure and liquidity requirements and to develop potential financing alternatives. As part of these efforts, as of the date of this report, the Finance Committee and its advisers are engaged in discussions relating to, among other things, a possible restructuring or amendment of the Series B Preferred Stock. We can provide no assurance we will be able to restructure, amend or refinance the Series B Preferred Stock and, if so, on what terms.

With respect to our current operations, the Company currently operates a single business through its subsidiary, WMMRC, whose sole activity is the reinsurance of mortgage insurance policies. WMMRC has been operated in runoff mode since September 26, 2008. Since that date, WMMRC has not underwritten any new policies (and by extension any new risk). WMMRC, through predecessor companies, began reinsuring risks in 1997 and continued reinsuring risks through September 25, 2008.

All of WMMRC’s reinsurance agreements are on an excess of loss basis, except for a reinsurance treaty with Genworth Mortgage Insurance Corporation during 2008, which is reinsured on a 50% quota share basis. Pursuant to the excess of loss reinsurance treaties, WMMRC reinsures a second loss layer which ranges from 5% to 10% of the risk in force in excess of the primary mortgage insurer’s first loss percentages which range from 4% to 5%. Each calendar year, or book year, is treated separately from other years when calculating losses. In return for accepting a portion of the risk, WMMRC receives, net of ceding commission, a percentage of the premium that ranges from 25% to 40%.

WMMRC previously commuted three reinsurance agreements, one each, in 2009, 2012 and 2014, respectively, and the related trust assets were distributed in accordance with the commutation agreements. On October 23, 2017, the reinsurance agreement with Radian was commuted and the related trust assets were released to WMMRC. On September 13, 2017, the Insurance Division of the State of Hawaii approved this commutation and a distribution of up to $10.7 million to WMIH. As of the date of the filing of this Form 10-Q, this distribution has not yet been completed. For more information see Note 14: Subsequent Events to the condensed consolidated financial statements ~~in Item 1 of Part I of this Quarterly Report on Form 10-Q~~. We also may seek opportunities to extract excess capital through commutation of one or more of WMMRC’s remaining reinsurance agreements or otherwise, with a view toward accelerating the distribution of trust assets in excess of the amounts needed to pay claims.

Beginning in 2006, the U.S. housing market and related credit markets experienced a multi-year downturn. During that period, housing prices declined materially, credit guidelines tightened, delays in mortgage servicing and foreclosure activities occurred, and deterioration in the credit performance of mortgage loans occurred. In addition, the macro-economic environment during that period demonstrated limited economic growth, stubbornly high unemployment, and limited median wage gains. Beginning in 2012, home prices began to rise again. The current outlook for the housing market is optimistic with low interest rates, steady employment growth, increased household formation rates and less restrictive credit conditions. Nevertheless, WMMRC’s operating environment remains somewhat uncertain as much of its results over the next two years will be directly affected by the inventory of pending defaulted mortgages at its ceding companies arising primarily from mortgages originated in calendar years 2007 and 2008. However, its financial exposure to that environment has been materially reduced as the remaining net aggregate risk exposure has decreased due to the runoff nature of its operations.

~~Our Financial Information~~

~~The financial information in this Quarterly Report on Form 10-Q has been derived from our condensed consolidated financial statements.~~

~~Critical Accounting Policies~~

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), which requires management to make estimates and assumptions that affect reported and disclosed amounts of assets and liabilities and the reported amounts of revenues and expensesrate during the reporting period. We believe that the critical accounting policies set forth in the accompanying condensed consolidated financial statements describe the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. These accounting policies pertain to premium revenues and risk transfer, valuation of investments, loss and loss adjustment expense reserves, our values under fresh start accounting, the resulting loss contract reserve and the valuation of the derivative instrument relating to the embedded conversion feature of the Series B Preferred Stock. If actual events differ significantly from the underlying judgments or estimates used by management in the application of these accounting policies, there could be a material effect on our results of operations and financial condition.

Recently issued accounting standards and their impact on the Company have been presented under “New Accounting Pronouncements” in Note 2: Significant Accounting Policies to the condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

~~Segments~~

The Company manages its business on the basis of one operating segment, mortgage reinsurance, in accordance with GAAP. Within the mortgage reinsurance segment, our current risks arise solely from the reinsurance of mortgage insurance policies that were placed on certain residential mortgage loans prior to the bankruptcy of WMI. The majority of these policies were required by mortgage lenders as a stipulation to approve the mortgage loans. The mortgage insurance policies protect the beneficiaries of the policy from all or a portion of default-related losses.

~~Overview of Revenues and Expenses~~

Because WMIH has no current significant operations of its own, its cash flow is derived almost entirely from earnings on its investment portfolio, and payments it receives from, and dividends paid by, WMMRC. All dividends received by WMIH from

WMMRC that constituted Runoff Proceeds, historically, were required to be distributed to holders of WMIH’s Second Lien Notes in accordance with the terms of the Second Lien Indenture as described below in this Item 2 under “Notes Payable.” As of September 29, 2017, the Second Lien Notes were fully redeemed by the Company and the Second Lien Indenture was satisfied and discharged, therefore future distributions from WMMRC to WMIH will be available for general corporate purposes.

~~WMMRC’s revenues consist primarily of the following:~~

~~net premiums earned on reinsurance contracts;~~

~~positive changes to (and corresponding releases from) loss reserves; and~~

~~net investment income and net gains (losses) on WMMRC’s investment portfolio.~~

~~WMMRC’s expenses consist primarily of the following:~~

~~underwriting expenses; and~~

~~general and administrative expenses.~~

~~Results of Operations for the three and~~ nine months ended September 30, ~~2017 and September 30, 2016~~

~~For~~2020 was 23.9% as compared to the ~~three and~~effective tax rate of 21.5% during the nine months ended September 30, ~~2017, we reported a net operating loss~~2019. The change in effective tax rate is primarily attributable to the relative unfavorable tax impacts of ~~$0.3 million~~permanent differences such as nondeductible executive compensation and ~~net operating income of $3.5 million, respectively. This compares to net operating losses of $0.4 million~~nondeductible meals and ~~$1.3 million for~~entertainment expenses on the ~~three~~annual effective rate, and discrete tax items in the nine months ended September 30, ~~2016, respectively.~~ 2020 as compared to the nine months ended September 30, 2019.

Segment Results

Our operations are conducted through four segments: Servicing, Originations, Xome, and Corporate/Other.

•The ~~components that gave rise~~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 ~~a net operating loss~~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.

•Corporate/Other 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 Note 16, Business Segment Reporting, for a summary of segment results.

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 2. Servicer Ratings

Fitch(1)

Moody’s(2)

S&P(3)

Rating date

January 2020

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

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 September 30, 2020 and 2019:

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

Table 3. Servicing Segment Results of Operations


	Three Months Ended September 30,
	2020		2019		$ Change		% Change
Revenues
Operational	$	273	$	319	$	(46)	(14)	%
Amortization, net of accretion	(112)		(73)		(39)		53	%
Mark-to-market	(29)		(83)		54		(65)	%
Total revenues	132		163		(31)		(19)	%
Total expenses	99		171		(72)		(42)	%
Total other (expenses) income, net	(65)		17		(82)		(482)	%
(Loss) income before income tax (benefit) expense	$	(32)	$	9	$	(41)	(456)	%

During the three months ended September 30, 2020, we incurred a loss before income tax benefit of $32 compared to income before income tax expense of $9 for the same period in 2019. The change was primarily due to a change in total other (expenses) income, net ~~operating~~and a decrease in total revenues, partially offset by a decrease in total expenses. Total other (expenses) income, net, during the three months ended 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 8. Servicing - Revenues, Table 9. Servicing - Expenses and Table 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 3.1 Servicing Segment Results of Operations


	Nine Months Ended September 30,
	2020		2019		$ Change		% Change
Revenues
Operational	$	880	$	957	$	(77)	(8)	%
Amortization, net of accretion	(290)		(152)		(138)		91	%
Mark-to-market	(673)		(607)		(66)		11	%
Total revenues	(83)		198		(281)		(142)	%
Total expenses	370		555		(185)		(33)	%
Total other (expenses) income, net	(155)		45		(200)		(444)	%
Loss before income tax benefit	$	(608)	$	(312)	$	(296)	95	%

During the nine months ended September 30, 2020, we incurred a loss before income tax benefit of $608 compared to $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 due to higher amortization, net of accretion, during the nine months ended September 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, 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 during the nine months ended 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, during the nine months ended 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 8.1 Servicing - Revenues, Table 9.1 Servicing - Expenses and Table 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 4. Servicing Portfolio - Unpaid Principal Balances


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Average UPB
Forward MSRs	$	277,707	$	315,897	$	290,199	$	313,405
Subservicing and other(1)	293,014		297,081		301,752		278,158
Reverse loans	20,260		24,301		21,126		25,933
Total average UPB	$	590,981	$	637,279	$	613,077	$	617,496

					September 30, 2020		September 30, 2019
Ending UPB
Forward MSRs
Agency					$	220,139	$	247,821
Non-agency					46,528		58,860
Total forward MSRs					266,667		306,681

Subservicing and other(1)
Agency					285,704		294,783
Non-agency					15,151		15,748
Total subservicing and other					300,855		310,531

Reverse loans
MSR					2,079		2,761
MSL					12,485		14,641
Securitized loans					5,442		6,588
Total reverse portfolio serviced					20,006		23,990
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.

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


Table 5. Forward Servicing and Subservicing and Other Portfolio UPB Rollforward


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
	Forward MSR		Subservicing and Other		Total		Forward MSR		Subservicing and Other		Total
Balance - beginning of period	$	277,975	$	296,792	$	574,767	$	316,012	$	302,108	$	618,120
Additions:
Originations	14,517		1,232		15,749		11,397		410		11,807
Acquisitions / Increase in subservicing(1)	(2,660)		38,082		35,422		333		33,273		33,606
Deductions:
Dispositions	(23)		(3,046)		(3,069)		(2,707)		(9,399)		(12,106)
Principal reductions and other	(2,683)		(2,659)		(5,342)		(3,029)		(2,597)		(5,626)
Voluntary reductions(2)	(20,215)		(29,506)		(49,721)		(14,515)		(13,030)		(27,545)
Involuntary reductions(3)	(177)		(40)		(217)		(740)		(234)		(974)
Net changes in loans serviced by others	(67)		—		(67)		(70)		—		(70)
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 September 30, 2020, our ending forward MSR UPB decreased primarily due to increased voluntary reductions driven by the low interest rate environment, partially offset by increased origination volumes. During the three months ended 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.

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


Table 6. Key Performance Metrics - Forward Servicing and Subservicing Portfolio(1)


					September 30, 2020			September 30, 2019
Loan count(2)					3,283,769			3,601,322
Average loan amount(3)					$	172,828		$	171,389
Average coupon - credit sensitive(4)					4.6		%	4.8		%
Average coupon - interest sensitive(4)					4.1		%	4.2		%
Average coupon - agency(4)					4.3		%	4.5		%
Average coupon - non-agency(4)					4.6		%	4.8		%
60+ delinquent (% of loans)(5)					5.9		%	2.2		%
90+ delinquent (% of loans)(5)					5.1		%	1.9		%
120+ delinquent (% of loans)(5)					4.3		%	1.6		%

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020			2019
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 September 30, 2020, loan count includes 199,118 loans in forbearance related to the CARES 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 September 30, 2020 compared to the same period in 2019.


Table 7. Forward Loan Modifications and Workout Units


	Three Months Ended September 30,
	2020	2019	Amount Change	% Change
Modifications	3,242	5,061	(1,819)	(36)	%
Workouts(1)	20,483	3,731	16,752	449	%
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 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 7.1 Forward Loan Modifications and Workout Units


	Nine Months Ended September 30, 2020
	2020	2019	Amount Change	% Change
Modifications	12,286	15,882	(3,596)	(23)	%
Workouts(1)	25,849	15,132	10,717	71	%
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 nine months ended 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 8. Servicing - Revenues


	Three Months Ended September 30,
	2020			2019			$ Change			% Change
	Amt		bps(1)	Amt		bps(1)	Amt		bps(1)	Amt		bps(1)
Forward MSR Operational Revenue
Base servicing fees	$	231	16	$	252	16	$	(21)	—	(8)	%	—	%
Modification fees(2)	3		—	4		—	(1)		—	(25)	%	—	%
Incentive fees(2)	—		—	6		—	(6)		—	(100)	%	—	%
Late payment fees(2)	15		1	23		2	(8)		(1)	(35)	%	(50)	%
Other ancillary revenues(2)	51		3	48		3	3		—	6	%	—	%
Total forward MSR operational revenue	300		20	333		21	(33)		(1)	(10)	%	(5)	%
Base subservicing fees and other subservicing revenue(2)	71		5	65		4	6		1	9	%	25	%
Reverse servicing fees	6		1	7		—	(1)		1	(14)	%	100	%
Total servicing fee revenue	377		26	405		25	(28)		1	(7)	%	4	%
MSR financing liability costs	(8)		(1)	(9)		—	1		(1)	(11)	%	(100)	%
Excess spread costs - principal	(96)		(6)	(77)		(5)	(19)		(1)	25	%	20	%
Total operational revenue	273		19	319		20	(46)		(1)	(14)	%	(5)	%
Amortization, net of accretion
Forward MSR amortization	(212)		(14)	(162)		(10)	(50)		(4)	31	%	40	%
Excess spread accretion	96		6	77		5	19		1	25	%	20	%
Reverse MSL accretion	4		—	10		—	(6)		—	(60)	%	—	%
Reverse MSR amortization	—		—	2		—	(2)		—	(100)	%	—	%
Total amortization, net of accretion	(112)		(8)	(73)		(5)	(39)		(3)	53	%	60	%
Mark-to-Market Adjustments
MSR MTM(3)	(63)		(4)	(195)		(12)	132		8	(68)	%	(67)	%
Excess spread / financing MTM	34		2	112		7	(78)		(5)	(70)	%	(71)	%
Total MTM adjustments	(29)		(2)	(83)		(5)	54		3	(65)	%	(60)	%
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 $7 and $18 during the three months ended September 30, 2020 and 2019, respectively.

Forward - Due to the decrease of the forward MSR portfolio’s UPB, base servicing fee revenue decreased during the three months ended September 30, 2020 as compared to the same period in 2019. Late payment fees and incentive fees decreased due to loan forbearance related to the CARES Act.

Forward MSR amortization increased during the three months ended 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 decreased during the three months ended 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 CARES Act.

Subservicing - Subservicing fees increased during the three months ended 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 during the three months ended September 30, 2020 decreased as compared to the same period in 2019, primarily due to the decline in the reverse mortgage portfolio.


Table 8.1 Servicing - Revenues


	Nine Months Ended September 30,
	2020			2019			$ Change			% Change
	Amt		bps(1)	Amt		bps(1)	Amt		bps(1)	Amt		bps(1)
Forward MSR Operational Revenue
Base servicing fees	$	720	16	$	749	16	$	(29)	—	(4)	%	—	%
Modification fees(2)	8		—	13		—	(5)		—	(38)	%	—	%
Incentive fees(2)	9		—	8		—	1		—	13	%	—	%
Late payment fees(2)	54		1	62		2	(8)		(1)	(13)	%	(50)	%
Other ancillary revenues(2)	133		3	126		3	7		—	6	%	—	%
Total forward MSR operational revenue	924		20	958		21	(34)		(1)	(4)	%	(5)	%
Base subservicing fees and other subservicing revenue(2)	205		5	179		4	26		1	15	%	25	%
Reverse servicing fees	19		—	24		—	(5)		—	(21)	%	—	%
Total servicing fee revenue	1,148		25	1,161		25	(13)		—	(1)	%	—	%
MSR financing liability costs	(25)		(1)	(32)		(1)	7		—	(22)	%	—	%
Excess spread costs - principal	(243)		(5)	(172)		(4)	(71)		(1)	41	%	25	%
Total operational revenue	880		19	957		20	(77)		(1)	(8)	%	(5)	%
Amortization, net of accretion
Forward MSR amortization	(550)		(12)	(366)		(8)	(184)		(4)	50	%	50	%
Excess spread accretion	243		5	172		4	71		1	41	%	25	%
Reverse MSL accretion	17		1	39		1	(22)		—	(56)	%	—	%
Reverse MSR amortization	—		—	3		—	(3)		—	(100)	%	—	%
Total amortization, net of accretion	(290)		(6)	(152)		(3)	(138)		(3)	91	%	100	%
Mark-to-Market Adjustments
MSR MTM(3)	(796)		(17)	(782)		(17)	(14)		—	2	%	—	%
Excess spread / financing MTM	123		2	175		4	(52)		(2)	(30)	%	(50)	%
Total MTM adjustments	(673)		(15)	(607)		(13)	(66)		(2)	11	%	15	%
Total revenues - Servicing	$	(83)	(2)	$	198	4	$	(281)	(6)	(142)	%	(150)	%

(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 $20 and $46 during the nine months ended 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 nine months ended September 30, ~~2017 and net operating losses for~~2020 as compared to the ~~three and~~same period in 2019. 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 sales lead incentives due to increased portfolio recapture activity.

Forward MSR amortization increased during the nine months ended September 30, ~~2016 are summarized~~2020 as compared to the same period in 2019, primarily due to higher prepayments driven by the ~~tables below under~~lower interest rate environment.

Total negative MTM adjustments increased during the ~~Net Income (Loss) section. The most significant variances between the comparative three month periods~~nine months ended September 30, ~~2017 and~~2020 as compared to the same period in 2019 primarily due to the declining interest rate environment during 2020.

Subservicing - Subservicing fees increased during the nine months ended September 30, ~~2016 include (i) increased revenue of approximately $1.0 million, (ii) an increase~~2020 as compared to the same period in ~~general~~2019 primarily due to a higher average subservicing portfolio UPB and ~~administrative expense of $0.8 million, (iii) a minimal change~~higher fees earned on delinquent loans.

Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios during the nine months ended September 30, 2020 decreased as compared to the same period in ~~interest expense of $0.1 million, (iv) a net decrease~~2019, primarily due to the decline in ~~underwriting expense of $0.2 million and (v) a reduction of~~ the ~~loss contract reserve of $0.2 million~~reverse mortgage portfolio.

The tables below summarize expenses for the Servicing segment:

Table 9. Servicing - Expenses


	Three Months Ended September 30,
	2020			2019			Change			% Change
	Amt		bps(1)	Amt		bps(1)	Amt		bps(1)	Amt		bps(1)
Salaries, wages and benefits	$	77	5	$	85	5	$	(8)	—	(9)	%	—	%
General and administrative
Servicing support fees	28		2	30		2	(2)		—	(7)	%	—	%
Corporate and other general and administrative expenses	33		2	40		3	(7)		(1)	(18)	%	(33)	%
Foreclosure and other liquidation related (recoveries) expenses, net	(45)		(3)	11		1	(56)		(4)	(509)	%	(400)	%
Depreciation and amortization	6		1	5		—	1		1	20	%	100	%
Total general and administrative expenses	22		2	86		6	(64)		(4)	(74)	%	(67)	%
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 September 30, ~~2017 versus a reduction of $0.5 million during~~2020 compared to the same period in ~~2016. The loss contract reserve decrease, during the three and nine months ended September 30, 2017, is attributed~~2019, primarily to changes in the expected timing of assets being released from trust accounts held at WMMRC which are discounted to present value. When assets are expected to be released from trust earlier than anticipated,driven by a smaller present value discount is applied to the loss contract reserve, thus reducing the reserve. For more information see Note 14: Subsequent Events to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. The most significant variances between the comparative nine month periods ended September 30, 2017 and September 30, 2016 include (i) an increase in revenue of approximately $1.7 million, (ii) an increase in general and administrative expense of $1.0 million (iii) a reduction in interest expense of $0.2 million, (iv) a net decrease in ~~underwriting expense of $0.6 million~~foreclosure and ~~(v) a reduction of the loss contract reserve of $5.6 million during the nine months ended September 30, 2017 versus a reduction of $2.3 million during the same period in 2016.~~

~~For the three months ended September 30, 2017, we reported~~other liquidation (recoveries) expenses, net. Foreclosure and other liquidation related (recoveries) expenses, net, income attributable to common and participating stockholders of $33.9 million compared to a net loss attributable to common and participating stockholders of $21.1 million for the three months ended September 30, 2016. This $55.0 million reduction in net loss attributable to common and participating stockholders, when comparing the three months ended September 30, 2017 to the three months ended September 30, 2016, is primarily the result of the change in fair value of an embedded derivative. This embedded derivative was recorded as a result of the variable conversion feature in our Series B Preferred Stock and the change in fair value is reflected on our condensed consolidated statements of operations as the other income or expense item, “c~~hange in fair value of derivative - embedded conversion feature”~~ which resulted in $38.6 million of other income for the three months ended September 30, 2017, compared to other expense of $16.2 million for the three months ended September 30, 2016. This item is solely attributable to a change in fair value of the derivative–embedded conversion feature and is a non-cash item. Fluctuations in the price of WMIH’s common stock directly impact the fair value of the derivative instrument. The fair value of this derivative instrument is analyzed each period and should not be relied upon to produce changes of this magnitude on an on-going basis as it could also result in a non-cash expense or benefit in future periods. The fair value of the embedded conversion feature will become equity upon conversion of the Series B Preferred Stock, or be reduced to zero upon redemption of the Series B Preferred Stock, as the case may be. For additional details on the derivative–embedded conversion feature, see Note 9: Capital Stock and Derivative Instruments and Note 13: Fair Value Measurement to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition to this change, several other items had a favorable impact on earnings for the three months ended September 30, 2017, including net revenues and decreased ~~interest expense. Our revenues increased~~ primarily due to ~~improved earnings on our investment portfolio including the restricted cash equivalents. Interest expense decreased as a result~~operational improvements of the ~~reduction~~reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in ~~our Runoff Note balances discussed further below. The~~addition to $46 on loss ~~contract reserve~~recoveries related to a settlement with a government agency. Salaries, wages and benefits decreased ~~by $0.2 million~~ in the three months ended September 30, 2017, as compared to $0.5 million in the three months ended September 30, 2016, resulting in a positive improvement to operating income. Underwriting expenses were lower on a comparative basis,2020 primarily due to smaller increases in premium deficiency reserves in the three months ended September 30, 2017 as compared to increases in premium deficiency reserves during the three months ended September 30, 2016 as further described below in this Item 2 of Part I, under “Losses or Benefits Incurred and Losses and Loss Adjustment Expenses.”

For the nine months ended September 30, 2017, we reported net income attributable to common and participating stockholders of $21.4 million compared to net income attributable to common and participating stockholders of $47.8 million for the nine months ended September 30, 2016. This $26.4 million decline in net income attributable to common and participating stockholders, when comparing the nine months ended September 30, 2017 to the nine months ended September 30, 2016, is primarily the result of the change in fair value of an embedded derivative. This embedded derivative was recorded as a result of the variable conversion feature in our Series B Preferred Stock and the change in fair value is reflected on our condensed consolidated statements of operations as the other income or expense item “c~~hange in fair value of derivative embedded conversion feature”~~ which resulted in $31.2 million of other income for the nine months ended September 30, 2017, compared to other income of $62.6 million for the nine months ended September 30, 2016. This item is solely attributable to a change in fair value of the derivative embedded conversion feature, which is further described above. In addition to this change, the other large variance was the positive impact from the loss contract reserve decreasing by $5.6 million for the nine months ended September 30, 2017, as compared to $2.3 million in the same period in 2016.

operational efficiencies. The total revenue for the three and nine months ended September 30, 2017 was $2.3 million and $5.9 million, respectively, compared to revenue of $1.3 million and $4.2 million, respectively, for the three and nine months ended September 30, 2016. The increase in revenue is attributable to improved earnings on our investment portfolio including the restricted cash equivalents, however, WMMRC continues to experience decreasing premium revenue due to operating in runoff mode. In addition, because WMMRC is operating in runoff mode, we expect premiums-earned revenue to continue to decrease, as no new business is being undertaken.

Underwriting expenses (defined as losses and loss adjustment expenses and ceding commission expenses) decreased by $0.2 million to a $0.1 million expense for the three months ended September 30, 2017 compared to an expense of $0.3 million for the three months ended September 30, 2016. Underwriting expenses decreased by $0.6 million to a $0.3 million expense for the nine months ended September 30, 2017 compared to an expense of $0.9 million for the nine months ended September 30, 2016. This decrease was primarily the result of the $0.5 million and $1.0 million additional premium deficiency reserves which were recorded during the three and nine months ended September 30, 2016, respectively, compared to a minimal change and a $0.2 million increase in the premium deficiency reserve during the three and nine months ended September 30, 2017, respectively. These changes in expense are related to the operation of WMMRC in runoff mode and the corresponding decrease in ~~revenues~~Corporate and the change in premium deficiency reserves as further described below in this Item 2 of Part I under “Losses or Benefits Incurred and Losses and Loss Adjustment Expenses.” As more fully described in Note 2: Significant Accounting Policies to the condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, due to the current condition of the mortgage insurance market, WMMRC has recorded reserves based on ceded case reserves and incurred but not recorded (“IBNR”) loss levels established and reported by the primary mortgage guaranty carriers as of each reporting period. Management believes that its estimate of aggregate liability for unpaid losses and loss adjustment expenses as of September 30, 2017 represents its best estimate, based upon the available data, of the amount necessary to cover the current cost of losses.

As of September 30, 2017, the loss contract reserve was analyzed and determined to have a value of zero compared to $5.6 million at December 31, 2016. The value of the loss contract reserve decreased by $0.2 million and $5.6 million, respectively, during the three and nine months ended September 30, 2017 and decreased by $0.5 million and $2.3 million during the three and nine months ended September 30, 2016, respectively. Consequently, there was a related reduction of expenses due to the change in value of the loss contract reserve for the three and nine months ended September 30, 2017. The loss contract reserve was established at a value of $63.1 million on March 19, 2012 as a result of our reorganization. The loss contract reserve decrease during the three and nine months ended September 30, 2017 is attributed primarily to changes in the expected timing of assets being released from trust accounts held at WMMRC. For more information see Note 14: Subsequent Events to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For the three and nine months ended September 30, 2017, our investment portfolio reported net investment income of $1.9 million and $4.8 million, respectively, as compared to net investment income of $0.5 million and $1.7 million, respectively, for the three and nine months ended September 30, 2016. The increase in investment income is primarily the result of higher short term interest rates during 2017 compared to 2016. The components of the investment income are more fully described below in this Item 2 of Part I, under “Net Investment Income.”

~~General and Administrative Expenses~~

~~For the three and nine months ended September 30, 2017 our~~other general and administrative expenses ~~totaled $2.1 million~~was primarily driven by lower repairs and ~~$5.9 million, respectively, compared to $1.4 million~~maintenance expenses and $4.9 million for the three and nine months ended September 30, 2016. General and administrative expenses primarily increased due to expenses related to assistance with transaction sourcing and debt and equity restructuring activities.

~~Interest Expense~~

For the three and nine months ended September 30, 2017, we incurred $0.6 million and $1.8 million, respectively, of interest expense on the Second Lien Notes, which is further described below in this Item 2 of Part I, under “Notes Payable.” This compares to $0.6 million and $2.0 million of interest expense, all of which related to the Second Lien Notes, which was incurred during the three and nine months ended September 30, 2016, respectively. The interest related to Second Lien Notes decreased primarily due to the reduction of Second Lien Note principal balances by $18.8 million during the nine months ended September 30, 2017 and by $2.9 million during the year ended December 31, 2016. Because sufficient Runoff Proceeds have not always been available to pay accrued interest on the Runoff Notes, a portion of our obligation to pay interest on the Runoff Notes has been satisfied using the “pay-in-kind” or “PIK” feature available under the Indentures. The accrued interest is converted to PIK Notes at the next payment date if there is not sufficient cash available to satisfy the required interest payment. For the nine months ended September 30, 2017 and 2016, no PIK Notes were issued in satisfaction of our obligation to pay interest on the Second Lien Notes. For the nine months ended September 30, 2017 and September 30, 2016, respectively, $2.0 million and $2.0 million, of interest was paid in cash.

~~Unrealized Gain (Loss) on Change in Fair Value of Derivative~~

The fair value of the derivative embedded conversion feature is revalued each reportable balance sheet date with the decrease or increase in fair value being reported in the consolidated statements of operations as unrealized gain or (loss) on change in fair value of derivative embedded conversion feature, respectively. The primary factors affecting the fair value of the embedded conversion feature are the probability of occurrence and timing of a Qualified Acquisition, our stock price and our stock price volatility. During the three and nine months ended September 30, 2017, the fair value of the asset increased by $38.6 million and $31.2 million, respectively, and unrealized income was recorded. During the three and nine months ended September 30, 2016, the fair value of the liability increased by $16.2 million and decreased by $62.6 million, respectively, resulting in the recognition of a respective unrealized loss and gain.

~~Net Income (Loss)~~

The net operating (loss) income for the three and nine months ended September 30, 2017 totaled an operating loss of $0.3 million and operating income of $3.5 million, respectively, compared to net operating losses of $0.4 million and $1.3 million, respectively, for the three and nine months ended September 30, 2016.

For the three and nine months ended September 30, 2017, we reported net income attributable to common and participating stockholders of $33.9 million and $21.4 million, respectively. This result compares to net loss attributable to common and participating stockholders of $21.1 million and net income attributable to common and participating stockholders $47.8 million, for the three and nine months ended September 30, 2016, respectively.

The primary factors impacting the change in net operating (loss) income and the change in net income (loss) attributable to common and participating stockholders for the three and nine months ended September 30, 2017 compared to the results for the three and nine months ended September 30, 2016, are summarized in the tables below.

Three months ended September 30, 2017 versus three months ended September 30, 2016 summary of change in net operating (loss) income and net income (loss) attributable to common and participating stockholders (in thousands):

Three months
ended
September 30, 2017

Three months
ended
September 30, 2016

Percentage change favorable
(unfavorable)

Dollar value change
favorable
(unfavorable)

Net revenues
$
2,287

$
1,284

78
%

$
1,003

Underwriting expense (net)

92

258

64
%

166

General and administrative expenses

2,117

1,357

(56
%)

(760
)
Loss contract reserve reduction

(210
)

(565
)

(63
%)

(355
)
Interest expense

579

636

9
%

57

Net operating (loss)

(291
)

(402
)

28
%

111

Other income

123

—

N/A

123

Unrealized gain (loss) on change in value of derivative embedded conversion feature

38,579

(16,243
)

338
%

54,822

Redeemable convertible series B preferred stock dividends

(4,500
)

(4,500
)

0
%

—

Net income (loss) attributable to common and participating stockholders
$
33,911

$
(21,145
)

260
%

$
55,056

temporary labor costs.

Nine months ended September 30, 2017 versus nine months ended September 30, 2016 summary of change in net operating (loss) and net income attributable to common and participating stockholders (in thousands):

Nine months
ended
September 30, 2017

Nine months
ended
September 30, 2016

Percentage change favorable
(unfavorable)

Dollar value change
favorable
(unfavorable)

Net revenues
$
5,929

$
4,173

42
%

$
1,756

Underwriting expenses (net)

344

936

63
%

592

General and administrative expenses

5,915

4,878

(21
%)

(1,037
)
Loss contract reserve reduction

(5,645
)

(2,362
)

139
%

3,283

Interest expense

1,788

1,994

10
%

206

Net operating income (loss)

3,527

(1,273
)

377
%

4,800

Other income

123

—

N/A

123

Unrealized gain on change in fair value of derivative liability - embedded conversion feature

31,226

62,587

(50
%)

(31,361
)
Redeemable convertible series B preferred stock dividends

(13,500
)

(13,500
)

0
%

—

Net income attributable to common and participating stockholders
$
21,376

$
47,814

(55
%)

$
(26,438
)

~~Comprehensive Income~~

~~The Company has no comprehensive income other than the net income disclosed in the condensed consolidated statement of operations.~~

~~Premiums Earned~~

The majority of WMMRC’s reinsurance contracts require premiums to be written and earned monthly. In a few cases, the premiums earned reflect the pro rata inclusion into income of premiums written over the life of the reinsurance contracts. Details of premiums earned are provided in the following table:


Table 9.1 Servicing - Expenses

For the three and nine months ended September 30, 2017, premiums earned totaled $0.3 million and $1.1 million, respectively, a decrease of $0.5 million and $1.3 million, respectively, when compared to premiums earned of $0.8 million and $2.4 million, respectively, for the three and nine months ended September 30, 2016. The Company’s premiums earned are expected to continue to decrease due to WMMRC operating in runoff mode.

~~Losses or Benefits Incurred and Losses and Loss Adjustment Expenses~~

Losses incurred include losses paid and changes in loss reserves, including reserves for IBNR losses, premium deficiency reserves net of actual and estimated loss recoverable amounts. Details of net losses or benefits incurred for the three and nine months ended September 30, 2017 and September 30, 2016, respectively, are provided in the following table:

Three months
ended
September 30, 2017

Three months
ended
September 30, 2016

Nine months
ended
September 30, 2017

Nine months
ended
September 30, 2016

Losses and loss adjustment expense
$
48

$
183

$
207

$
702


	Nine Months Ended September 30,
	2020			2019			Change			% Change
	Amt		bps(1)	Amt		bps(1)	Amt		bps(1)	Amt		bps(1)
Salaries, wages and benefits	$	238	5	$	261	6	$	(23)	(1)	(9)	%	(17)	%
General and administrative
Servicing support fees	80		2	93		2	(13)		—	(14)	%	—	%
Corporate and other general and administrative expenses	100		2	118		3	(18)		(1)	(15)	%	(33)	%
Foreclosure and other liquidation related (recoveries) expenses, net	(62)		(1)	70		1	(132)		(2)	(189)	%	(200)	%
Depreciation and amortization	14		—	13		—	1		—	8	%	—	%
Total general and administrative expenses	132		3	294		6	(162)		(3)	(55)	%	(50)	%
Total expenses - Servicing	$	370	8	$	555	12	$	(185)	(4)	(33)	%	(33)	%

We establish reserves for each contract based on estimates of the ultimate cost of all losses including losses incurred but not reported. These estimated reserves are based on reports received from ceding companies, industry data and historical experience as well as our own actuarial estimates. Quarterly, we review these estimates on a contract by contract

(1)Calculated basis ~~and adjust the estimates as we deem necessary based on updated information and our internal actuarial estimates.~~

For the three and nine months ended September 30, 2017, the loss ratios were 14% and 19%, respectively, compared to loss ratios of 23% and 29%, respectively, for the three and nine months ended September 30, 2016. The loss or benefit ratio is calculated by dividing incurred benefit or losses for the period by earned premiums. The ratio provides a measure of underwriting profit or loss. Loss reinsurance contracts (which represent the significant majority of our loss exposure) are generally structured with limits set on the aggregate amount of losses that can be incurred over the life of such contract. Upon reaching such limits, no additional losses may be realized under the terms of the contract. Nevertheless, even when applicable contract limits are reached, revenues from premiums collected continue to be ceded for the remaining life of the contract. Beginning in 2013, a majority of WMMRC’s reinsurance arrangements for the 2006 through 2008 book years reached their respective loss limits. As a result, WMMRC does not expect to incur any additional losses for those book years; however, WMMRC may continue to realize revenues from those book years, to the extent premiums are ceded therefrom.

~~The components of the liability for losses and loss adjustment reserves~~points (“bps”) are as ~~follows at September 30, 2017 and December 31, 2016, respectively:~~

follows: Annualized dollar amount/Total average UPB X 10000.

September 30, 2017

December 31, 2016

Case-basis reserves
$
174

$
553

IBNR reserves

1

—

Premium deficiency reserves

530

258

Total losses and loss adjustment reserves
$
705

$
811

~~Losses and loss adjustment reserve activity are as follows for the periods ended September 30, 2017 and December 31, 2016, respectively:~~

~~Net Investment Income~~

The increase in investment income during the three and nine months ended September 30, 2017 compared to the same periods in 2016 is primarily the result of higher short term interest rates during 2017 as compared to 2016. A summary of our net investment income for the periods ended September 30, 2017 and 2016, respectively, is as follows:

~~Federal Income Taxes~~

The Company has no current tax expense or liability due as a result of its tax loss position for periods ended September 30, 2017, September 30, 2016 and December 31, 2016. More detailed information regarding the Company’s tax position including NOL carry-forwards is provided in Note 6: Income Taxes to the consolidated financial statements in Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2016 and in Note 5: Income Taxes to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The Company files a consolidated federal income tax return. Pursuant to a tax sharing agreement, WMMRC’s federal income tax liability is calculated on a separate return basis determined by applying 35% to taxable income, in accordance with the provisions of the Internal Revenue Code (the “Code”) that apply to mortgage insurance companies. WMIH, as WMMRC’s parent, pays federal income taxes on behalf of WMMRC and settles the federal income tax obligation on a current basis in accordance with the tax sharing agreement. WMMRC made no tax payments to WMIH during the periods ended September 30, 2017 and December 31, 2016 associated with the Company’s tax liability from the current or preceding periods.

Deferred federal income taxes arise from temporary differences between the valuation of assets and liabilities as determined for financial reporting purposes and income tax purposes. Temporary differences principally relate to discounting of loss reserves, recognition of unearned premiums, changes in value of loss contract reserves and embedded derivatives, net operating losses and unrealized gains and losses on investments.

We believe WMIH experienced an ownership change under Section 382 of the Code in connection with its bankruptcy plan becoming effective. Prior to emergence from bankruptcy, WMI abandoned the stock of Washington Mutual Bank, thereby generating a worthless stock deduction of approximately $8.37 billion, which gave rise to a NOL carry-forward for the year ended December 31, 2012. We believe that the total available and utilizable NOL carry-forward at December 31, 2016 was approximately $6.0 billion and at September 30, 2017 we believe that there was no limit under Section 382 of the Code on the use of these NOLs. As of September 30, 2017 and December 31, 2016, the Company recorded a valuation allowance equal to 100% of the net deferred federal income tax asset due to uncertainty regarding the Company’s ability to realize these benefits in the future.

On November 2, 2017, the Ways and Means Committee of the U.S. House of Representatives introduced a bill containing various amendments to the Internal Revenue Code, including, among other things changes to corporate income tax rates and certain provisions governing NOLs. There can be no assurance that the bill will be approved in its current form or at all and the final form of any tax legislation that is enacted could contain provisions that adversely affect the utility or potential value of the Company’s NOLs.

~~Investments~~

~~General~~

We hold investments at both WMIH and WMMRC and the two portfolios consist entirely of fixed income instruments, excluding funds in overnight money market funds, totaling $10.4 million and $76.8 million as of September 30, 2017 and December 31, 2016, respectively. The Company held $577.2 million and $572.9 million of restricted cash from the Series B Preferred Stock Financing in its escrow account at September 30, 2017 and December 31, 2016, respectively.

~~The value of the consolidated Company’s total cash and investments~~Total expenses decreased during the nine months ended September 30, ~~2017. Cash~~2020 compared to the same period in 2019, primarily driven by a decrease in foreclosure and ~~investments,~~other liquidation (recoveries) expenses, net. Foreclosure and other liquidation related (recoveries) expenses, 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. 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. Salaries, wages and benefits decreased in 2020 compared to the same period in 2019 primarily due to improved operational efficiencies which ~~excludes restricted cash~~included consolidation of ~~$577.2 million and $573.3 million at~~one of our servicing centers.

Table 10. Servicing - Other (Expenses) Income, Net


	Three Months Ended September 30,
	2020				2019				Change				% Change
	Amt			bps(1)	Amt			bps(1)	Amt			bps(1)	Amt		bps(1)
Income earned on Reverse mortgage interest	$	40		3	$	81		5	$	(41)		(2)	(51)	%	(40)	%
Other interest income	—			—	56			4	(56)			(4)	(100)	%	(100)	%
Interest income	40			3	137			9	(97)			(6)	(71)	%	(67)	%

Reverse mortgage interest expense	(37)			(3)	(58)			(4)	21			1	(36)	%	(25)	%
Advance interest expense	(7)			—	(6)			—	(1)			—	17	%	—	%
Other interest expense	(61)			(4)	(56)			(4)	(5)			—	9	%	—	%
Interest expense	(105)			(7)	(120)			(8)	15			1	(13)	%	(13)	%

Total other (expenses) income, net - Servicing	$	(65)		(4)	$	17		1	$	(82)		(5)	(482)	%	(500)	%

Weighted average cost - advance facilities	3.0		%		3.8		%		(0.8)		%		(21)	%
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.

During the three months ended September 30, ~~2017~~2020, we had total other expenses, net, of $65 compared to total other income, net, of $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 due to lower LIBOR rates. Income earned on reverse mortgage interest decreased due to the decline in the reverse mortgage interests balance and ~~December 31, 2016, respectively, totaled $42.8 million and $81.5 million at~~the amortization of a net asset premium into income. Interest expense decreased during the three months ended September 30, ~~2017 and December 31, 2016, respectively. The primary factors that contributed~~2020 as compared to ~~this~~the same period in 2019, primarily due to a decrease in ~~investments were (i)~~reverse mortgage interest expense primarily driven by the ~~payment~~decline in the reverse mortgage interest portfolio.


Table 10.1 Servicing - Other (Expenses) Income, Net


	Nine Months Ended September 30,
	2020				2019				Change				% Change
	Amt			bps(1)	Amt			bps(1)	Amt			bps(1)	Amt		bps(1)
Income earned on Reverse mortgage interest	$	137		3	$	249		5	$	(112)		(2)	(45)	%	(40)	%
Other interest income	43			1	139			3	(96)			(2)	(69)	%	(67)	%
Interest income	180			4	388			8	(208)			(4)	(54)	%	(50)	%

Reverse mortgage interest expense	(140)			(3)	(175)			(4)	35			1	(20)	%	(25)	%
Advance interest expense	(20)			—	(23)			—	3			—	(13)	%	—	%
Other interest expense	(175)			(4)	(145)			(3)	(30)			(1)	21	%	33	%
Interest expense	(335)			(7)	(343)			(7)	8			—	(2)	%	—	%

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

Weighted average cost - advance facilities	3.0		%		4.0		%		(1.0)		%		(25)	%
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.

During the nine months ended September 30, 2020, we had total other expenses, net, of $155 compared to total other income, net, of $45 for the same period in 2019. The change was primarily due to a decrease in interest income, mainly driven by lower income earned on reverse mortgage interest due to the decline in the reverse mortgage interests balance and the amortization of a ~~total of $13.5 million in Series B Preferred Stock cash dividends~~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 during the nine months ended September 30, ~~2017;~~2020 as compared to the same period in 2019.

Servicing Portfolio and ~~(ii)~~Related Liabilities

The table below summarizes the ~~redemption in full of the $18.8 million of Second Lien Notes which were outstanding at December 31, 2016,~~servicing portfolio and ~~the payment of~~ related ~~interest of approximately $2.0 million.~~

~~We work with investment broker dealers and,~~liabilities in the ~~case~~Servicing segment:

Table 11. Servicing Portfolios and Related Liabilities


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

Forward MSRs - investor pool:
Agency	$	220,139	$	2,234	102	$	240,688	$	2,944	122
Non-agency	46,528		429		92	56,094		552		98
Total forward MSRs - fair value	$	266,667	$	2,663	100	$	296,782	$	3,496	118

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

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

Reverse portfolio - amortized cost
MSR	2,079		6			2,508		6
MSL	12,485		(44)			13,994		(61)
Securitized loans	5,442		5,460			6,223		6,279
Total reverse portfolio serviced	20,006		5,422			22,725		6,224
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 WMMRC, collateral trustees, in determining whether a market for a financial instrument is active or inactive. We regularly obtain indicative pricing from market makers and from multiple dealers and compareSeptember 30, 2020, when measuring the level of pricing variances as a way to observe market liquidity for certain investment securities. We also obtain trade history and live market quotations from publicly quoted sources, such as Bloomberg, for trade volume and frequency observation. While we obtain market pricing information from broker dealers, the ultimate fair value of the portfolio as a basis point of the unpaid principal balance, our ~~investments~~total forward MSRs decreased in value by 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.

The following table sets forth the activities of forward MSRs:

Table 12. Forward MSRs - Fair Value Rollforward


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Fair value - beginning of period	$	2,757	$	3,505	$	3,496	$	3,665
Additions:
Servicing retained from mortgage loans sold	163		129		412		298
Purchases of servicing rights	6		43		30		732
Dispositions:
Sales and cancellation of servicing assets	—		(24)		—		(317)
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model:
Credit sensitive	(41)		(72)		(262)		(228)
Interest sensitive	(24)		(102)		(520)		(488)
Other changes in fair value:
Scheduled principal payments	(23)		(24)		(70)		(69)
Disposition of negative MSRs and other(1)	12		20		57		43
Prepayments
Voluntary prepayments
Credit sensitive	(31)		(27)		(81)		(72)
Interest sensitive	(155)		(103)		(392)		(205)
Involuntary prepayments
Credit sensitive	—		(1)		(1)		(6)
Interest sensitive	(1)		(5)		(6)		(14)
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.

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

Table 13. MSRs - Fair Value


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

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

Interest Sensitive
Discount rate	9.0	%	9.0	%
Prepayment speeds	15.9	%	14.6	%
Average life	4.9 years		5.4 years

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

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

The weighted-average discount rate for total MSRs portfolio decreased as of 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.

Excess Spread Financing

As further disclosed in Note 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 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 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 14. Excess Spread Financing


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

Weighted-Average Key Assumptions					September 30, 2020			September 30, 2019
Total Excess Spread Portfolio
Discount rate					11.9		%	11.9		%
Prepayment speeds					13.6		%	13.3		%
Recapture rate					19.1		%	22.2		%
Average life					5.3 years			5.7 years

Credit Sensitive
Discount rate					12.6		%	12.5		%
Prepayment speeds					13.0		%	12.9		%
Recapture rate					20.6		%	23.6		%
Average life					5.5 years			5.8 years

Interest Sensitive
Discount rate					10.6		%	10.9		%
Prepayment speeds					14.7		%	13.9		%
Recapture rate					16.4		%	20.0		%
Average life					5.1 years			5.5 years

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

Table 15. MSRs Financing Liability - Rollforward


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

					September 30, 2020			September 30, 2019
Weighted-Average Key Assumptions
Advance financing and counterparty fee rates					8.2		%	8.7		%
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 ~~statements~~and amounts that involve excess spread financing with our co-investment partners for the periods indicated:

Table 16. Leveraged Portfolio Characteristics


	September 30, 2020		September 30, 2019
Owned forward servicing portfolio - unencumbered	$	85,937	$	89,308
Owned forward servicing portfolio - encumbered	180,730		217,373
Subserviced forward servicing portfolio and other	300,855		310,531
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.

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 17. Reverse Mortgage Portfolio Characteristics


	September 30, 2020			September 30, 2019
Loan count	151,412			170,903
Ending unpaid principal balance	$	20,006		$	23,990
Average loan amount(1)	$	132,127		$	140,374
Average coupon	2.1		%	3.8		%
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 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. 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 charts below set forth the pull through adjusted lock volume and funded volume by channel and channel mix ($ in Billions):

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


Table 18. Originations Segment Results of Operations


	Three Months Ended September 30,
	2020			2019			$ Change			% Change
Total revenues	$	632		$	334		$	298		89	%
Total expenses	195			155			40			26	%
Total other income (expenses), net	1			(1)			2			(200)	%
Income before income tax expense	$	438		$	178		$	260		146	%

Originations Margin
Revenue	$	632		$	334		$	298		89	%
Pull through adjusted lock volume	$	19,794		$	12,699		$	7,095		56	%
Revenue as a percentage of pull through adjusted lock volume(1)	3.19		%	2.63		%	0.56		%	21	%

Expenses(2)	$	194		$	156		$	40		26	%
Funded volume	$	15,598		$	11,911		$	3,687		31	%
Expenses as a percentage of funded volume(3)	1.24		%	1.31		%	(0.07)		%	(5)	%

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 during the three months ended September 30, 2020 as compared to the same period in 2019 primarily due to an increase in revenues driven by origination volume growth from both the DTC and correspondent channels. The growth in origination volume was primarily due to declining interest rates. The Originations Margin during the three months ended 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.


Table 18.1 Originations Segment Results of Operations


	Nine Months Ended September 30,
	2020			2019			$ Change			% Change
Total revenues	$	1,543		$	744		$	799		107	%
Total expenses	528			404			124			31	%
Total other income, net	14			1			13			1,300	%
Income before income tax expense	$	1,029		$	341		$	688		202	%

Originations Margin
Revenue	$	1,543		$	744		$	799		107	%
Pull through adjusted lock volume	$	44,865		$	29,856		$	15,009		50	%
Revenue as a percentage of pull through adjusted lock volume(1)	3.44		%	2.49		%	0.95		%	38	%

Expenses(2)	$	514		$	403		$	124		31	%
Funded volume	$	38,686		$	27,623		$	11,063		40	%
Expenses as a percentage of funded volume(3)	1.33		%	1.46		%	(0.13)		%	(9)	%

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 during the nine months ended 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 due to declining interest rates. The Originations Margin during the nine months ended 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.

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


Table 19. Originations - Revenues


	Three Months Ended September 30,
	2020			2019			$ Change			% Change
Service related, net - Originations	$	27		$	22		$	5		23	%
Net gain on mortgage loans held for sale
Net gain on loans originated and sold	449			191			258			135	%
Capitalized servicing rights	162			126			36			29	%
Provision for repurchase reserves, net of release	(6)			(5)			(1)			20	%
Total net gain on mortgage loans held for sale	605			312			293			94	%
Total revenues - Originations	$	632		$	334		$	298		89	%

Key Metrics
Consumer direct lock pull through adjusted volume(1)	$	10,414		$	5,488		$	4,926		90	%
Other locked pull through adjusted volume(1)	9,380			7,211			2,169			30	%
Total pull through adjusted volume	$	19,794		$	12,699		$	7,095		56	%
Funded volume	$	15,598		$	11,911		$	3,687		31	%
Volume of loans sold	$	15,206		$	12,150		$	3,056		25	%
Recapture percentage(2)	24.9		%	24.6		%	0.3		%	1	%
Refinance recapture percentage(3)	31.2		%	36.9		%	(5.7)		%	(15)	%
Purchase as a percentage of funded volume	16.4		%	39.1		%	(22.7)		%	(58)	%
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 during the three months ended September 30, 2020 compared to the same period in 2019 primarily driven by the higher origination volumes in a declining interest rate environment, primarily from the DTC channel. Total revenue increased $298 or 89% period over period as consumer direct lock pull through adjusted volume increased 90% during the same period. There were no material changes for repurchase reserves.


Table 19.1 Originations - Revenues


	Nine Months Ended September 30,
	2020			2019			$ Change			% Change
Service related, net - Originations	$	68		$	57		$	11		19	%
Net gain on mortgage loans held for sale
Net gain on loans originated and sold	1,085			415			670			161	%
Capitalized servicing rights	404			287			117			41	%
Provision for repurchase reserves, net of release	(14)			(15)			1			(7)	%
Total net gain on mortgage loans held for sale	1,475			687			788			115	%
Total revenues - Originations	$	1,543		$	744		$	799		107	%

Key Metrics
Consumer direct lock pull through adjusted volume(1)	$	27,432		$	12,211		$	15,221		125	%
Other locked pull through adjusted volume(1)	17,433			17,645			(212)			(1)	%
Total pull through adjusted volume	$	44,865		$	29,856		$	15,009		50	%
Funded volume	$	38,686		$	27,623		$	11,063		40	%
Volume of loans sold	$	39,633		$	27,474		$	12,159		44	%
Recapture percentage(2)	26.5		%	24.8		%	1.7		%	7	%
Refinance recapture percentage(3)	32.4		%	41.2		%	(8.8)		%	(21)	%
Purchase as a percentage of funded volume	17.8		%	46.7		%	(28.9)		%	(62)	%
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 during the nine months ended September 30, 2020 compared to the same period in 2019 primarily driven by the higher origination volumes in a declining interest rate environment, primarily from the DTC channel. Total revenue increased $799 or 107% period over period as consumer direct lock pull through adjusted volume increased 125% during the same period. There were no material changes for repurchase reserves.

The tables below summarize expenses for the Originations segment:


Table 20. Originations - Expenses


	Three Months Ended September 30,
	2020		2019		$ Change		% Change
Salaries, wages and benefits	$	140	$	104	$	36	35	%
General and administrative
Loan origination expenses	20		16		4		25	%
Corporate and other general and administrative expenses	16		16		—		—	%
Marketing and professional service fees	14		12		2		17	%
Depreciation and amortization	5		4		1		25	%
Loss on impairment of assets	—		3		(3)		(100)	%
Total general and administrative	55		51		4		8	%
Total expenses - Originations	$	195	$	155	$	40	26	%

Total expenses during the three months ended 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.


Table 20.1 Originations - Expenses


	Nine Months Ended September 30,
	2020		2019		$ Change		% Change
Salaries, wages and benefits	$	377	$	261	$	116	44	%
General and administrative
Loan origination expenses	52		43		9		21	%
Corporate and other general and administrative expenses	50		43		7		16	%
Marketing and professional service fees	37		41		(4)		(10)	%
Depreciation and amortization	12		13		(1)		(8)	%
Loss on impairment of assets	—		3		(3)		(100)	%
Total general and administrative	151		143		8		6	%
Total expenses - Originations	$	528	$	404	$	124	31	%

Total expenses during the nine months ended 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 nine months ended September 30, 2020 primarily driven by higher outsourcing costs.

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


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


	Three Months Ended September 30,
	2020			2019			$ Change			% Change
Interest income	$	16		$	24		$	(8)		(33)	%
Interest expense	(15)			(24)			9			(38)	%
Other expense, net	—			(1)			1			100	%
Total other income (expenses), net - Originations	$	1		$	(1)		$	2		(200)	%

Weighted average note rate - mortgage loans held for sale	3.1		%	4.1		%	(1.0)		%	(24)	%
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 during the three months ended 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.


Table 21.1 Originations - Other Income, Net


	Nine Months Ended September 30,
	2020			2019			$ Change			% Change
Interest income	$	69		$	64		$	5		8	%
Interest expense	(55)			(67)			12			(18)	%
Other income, net	—			4			(4)			(100)	%
Total other income, net - Originations	$	14		$	1		$	13		1,300	%

Weighted average note rate - mortgage loans held for sale	3.4		%	4.4		%	(1.0)		%	(23)	%
Weighted average cost of funds (excluding facility fees)	2.7		%	4.3		%	(1.6)		%	(37)	%

Interest expense during the nine months ended September 30, 2020 decreased when compared to the same period in 2019 primarily driven by a lower cost of funds. The decrease in interest 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 $4 in other income, net, related to such incentives during the nine months ended 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.

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

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


Table 22. Xome Segment Results of Operations


	Three Months Ended September 30,
	2020			2019			$ Change			% Change
Xome - Operations
Total revenues	$	108		$	112		$	(4)		(4)	%
Total expenses	94			101			(7)			(7)	%
Total other income, net	1			3			(2)			(67)	%
Income before income tax expense	$	15		$	14		$	1		7	%
Pre-tax margin	13.9		%	12.5		%	1.4		%	11	%

Xome - Revenues
Exchange	$	6		$	19		$	(13)		(68)	%
Services	99			87			12			14	%
Data/Technology	3			6			(3)			(50)	%
Total revenues - Xome	$	108		$	112		$	(4)		(4)	%

Key Metrics
Exchange properties sold	860			2,453			(1,593)			(65)	%
Average Exchange properties under management	15,067			6,688			8,379			125	%
Services completed orders	422,935			429,128			(6,193)			(1)	%
Percentage of revenue earned from third-party customers	50.1		%	53.4		%	(3.3)		%	(6)	%

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

Income before income tax expense increased during the three months ended September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in total 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 decreased during the three months ended 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 title services.


Table 22.1 Xome Segment Results of Operations


	Nine Months Ended September 30,
	2020			2019			$ Change			% Change
Xome - Operations
Total revenues	$	320		$	316		$	4		1	%
Total expenses	285			301			(16)			(5)	%
Total other income, net	3			14			(11)			(79)	%
Income before income tax expense	$	38		$	29		$	9		31	%
Pre-tax margin	11.9		%	9.2		%	2.7		%	29	%

Xome - Revenues
Exchange	$	31		$	59		$	(28)		(47)	%
Services	278			240			38			16	%
Data/Technology	11			17			(6)			(35)	%
Total revenues - Xome	$	320		$	316		$	4		1	%

Key Metrics
Exchange properties sold	4,165			7,519			(3,354)			(45)	%
Average Exchange properties under management	16,761			6,552			10,209			156	%
Services completed orders	1,255,643			1,226,223			29,420			2	%
Percentage of revenue earned from third-party customers	52.7		%	53.1		%	(0.4)		%	(1)	%

Xome - Expenses
Salaries, wages and benefits	$	100		$	111		$	(11)		(10)	%
General and administrative
Operational expenses	174			179			(5)			(3)	%
Depreciation and amortization	11			11			—			—	%
Total general and administrative	185			190			(5)			(3)	%
Total expenses - Xome	$	285		$	301		$	(16)		(5)	%

Income before income tax expense increased during the nine months ended September 30, 2020 as compared to the same period in 2019 due to a decrease in total expenses, partially offset by a decrease in total other income, net. 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 $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.

Corporate/Other

The following tables set forth the selected financial ~~institutions~~results for Corporate/Other:


Table 23. Corporate/Other Selected Financial Results


	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)	%

Total expenses decreased in the three months ended September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in general and administrative expense. General and administrative expense was higher in the three months ended September 30, 2019 due to higher legal reserves. Additionally, depreciation and amortization decreased in the three months ended September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in amortization of intangible assets. Partially offsetting the decrease in total expenses was a $7 loss on impairment of assets in connection with technology write-offs.

Interest expense decreased in the three 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 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 nine months ended 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 were partially offset by a $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 other (expense) income, net, in the nine 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.

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 $946 as of September 30, 2020 from $329 as of December 31, 2019. We benefited from strong operating cash flow and repaid $179 of incremental draws from our MSR facilities that ~~hold~~were 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 ~~accounts.~~

outstanding common stocks as part of the $100 stock repurchase program.

During the nine months ended September 30, ~~2017~~2020, operating activities generated cash totaling $1,878. As of September 30, 2020, total available borrowing capacity was $11,540, of which $6,677 was unused. As of September 30, 2020, we had $1,075 collateral pledged against the MSR facilities, of which we could borrow an additional $394.

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 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. 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, as we expect increases in advances in the coming quarter due to typical seasonal trends. We have begun financing GNMA advances with this new financing facility. For more information on our MSR and 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 ~~year ended December 31, 2016, we transferred $0.9 million~~unsecured senior notes; and ~~$11.0 million, respectively,~~(v) payments received in connection with the sale of ~~corporate securities that mature within 12 months from Level 2~~advance receivables and excess spread.

Our primary uses of funds for liquidity include: (i) funding of servicing advances, which continue to ~~Level 1,~~increase due to ~~improved liquidity in capital markets~~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 ~~those securities. Please refer~~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 ~~Note 4: Investment Securities~~fund our anticipated ongoing cash requirements. We rely on these facilities to fund operating activities. As the ~~condensed consolidated financial statements in Item 1~~facilities mature, we anticipate renewal of ~~Part I of this Quarterly Report on Form 10-Q, for additional information regarding our investment securities.~~

~~WMIH~~

WMIH’s investments are valued at fair value and any unrealized gains or losses are reflected in net investment income in the condensed consolidated statements of income. At September 30, 2017 and at December 31, 2016, WMIH had zero and $45.0 million, respectively, of investments in obligations of U.S. government sponsored enterprises, all of whichthese facilities will ~~mature within the respective next 12 months. WMIH also had $25.0 million and $2.1 million in~~be achieved. Future debt maturities will be funded with cash and cash equivalents, ~~at September 30, 2017~~cash flow from operating activities and, ~~December 31, 2016, respectively.~~

~~WMMRC~~

~~WMMRC’s investments are valued at fair value~~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 ~~any unrealized gains or losses are reflected in net investment income in the condensed consolidated statements~~uses of ~~operations. At September 30, 2017, approximately 89%~~cash flows:

Table 24. Cash Flows


	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 WMMRC’s cash and investments were held in four trusts for the benefit of primary mortgage insurers with whom WMMRC established agreements to reinsure private mortgage insurance risk. The total portfolio, excluding funds in overnight money market instruments, was valued at approximately $10.4 million and $31.9 million at September 30, 2017 and December 31, 2016, respectively. At September 30, 2017, approximately 90% of the portfolio consisted of securities that will mature within the next 12 months and the remainder of the securities will mature between one and two years from September 30, 2017. WMMRC also had $7.3 million in cash and cash equivalents at September 30, 2017.

~~Liquidity and Capital Resources~~

~~General~~

WMIH is organized as a holding company and has limited operations of its own. With respect to its own operations, WMIH’s continuing cash needs are limited to the payment of general and administrative expenses, costs related to possible acquisitions, dividends on the Series B Preferred Stock and, prior to the redemption thereof, principal and interest payments on the Second Lien Notes described below in this Item 2 of Part I, under “Notes Payable.” ~~As of September 29, 2017, the Second Lien Notes were fully redeemed by the Company and, as of October 2, 2017, the Second Lien Indenture was satisfied and discharged.~~

Our significant business operations are conducted through our wholly-owned reinsurance subsidiary, WMMRC, which formerly underwrote risks associated with our mortgage reinsurance programs, but has been operated in runoff and has not written any new business since September 26, 2008. There are restrictions on WMMRC’s ability to pay dividends which are described in more detail below. WMIH does not currently expect to pay dividends on its common shares.

WMMRC may seek opportunities to commute one or more of its remaining reinsurance agreements, with a view toward accelerating the distribution of trust assets in excess of the amount needed to pay claims. Any such distributions would be available for general corporate purposes. ~~There can be no assurance that any such commutations will be consummated, or if so, on what terms.~~

In regard to the Series B Preferred Stock, we are required (if and when declared by our Board and until the Series B Preferred Stock is converted, redeemed or repurchased) to pay cumulative regular dividends out of funds legally available therefor at an annual rate of 3% per share of the liquidation preference of $1,000 per share of Series B Preferred Stock. WMIH has declared and paid $13.5 million, $13.5 million and $18.0 million of dividends on its Series B Preferred Stock$1,878 during the nine months ended September 30, ~~2017 and 2016 and~~2020 compared to cash used of $28 in the ~~year ended December 31, 2016, respectively, and has accrued an additional $0.7 million of dividends based on~~same period in 2019. The change was primarily due to the 3%cash generated from originations activities primarily driven by higher origination volumes in a low interest rate ~~during each~~environment.

Investing activities

Our investing activities used cash of ~~the periods ended September 30, 2017 and 2016 and the year ended December 31, 2016, respectively.~~

~~The repayment of $18.8 million of Second Lien Notes and the $13.5 million in dividends on our Series B Preferred Stock were our largest uses of cash~~$38 during the nine months ended September 30, ~~2017.~~2020 compared to $279 during the same period in 2019. The ~~Second Lien Notes have been paid~~decrease in full, however, the dividend obligation is likely to continue to be a significant financial obligation of the Company until we either consummate a Qualified Acquisition or redeem or repurchase the Series B Preferred Stock.

~~Unless we consummate a Qualified Acquisition, or enter into a definitive agreement to consummate an Acquisition (or the Series B Redemption Date is extended~~cash used in accordance with the terms of the Series B Preferred Stock), we will be required to redeem the Series B Preferred Stock on the Series B Redemption Date. Consummation of an Acquisition would cause the conversion into common stock of shares of Series B Preferred Stock having an aggregate liquidation preference equal to the cash proceeds utilized in the Acquisition (unless the Acquisition is a Qualified Acquisition, in which case all of the Series B Preferred Stock would be converted into common stock). The redemption of the Series B Preferred Stock would substantially deplete our available cash for acquisitions and business operations; could have a material adverse effect on our financial condition; and could adversely impact our ability to continue business operations. While we continue to work diligently to identify and consummate an Acquisition, there can be no assurance that we will consummate, or enter into a definitive agreement to consummate, an Acquisition prior to the Series B Redemption Date.

In connection with the foregoing, and because we are mindful of the adverse consequences that could result upon a redemption of the Series B Preferred Stock, our Finance Committee and management have been working with financial advisors in an effort to amend and extend the terms of the Series B Preferred Stock. We can provide no assurance we will be able to restructure, amend or refinance the Series B Preferred Stock and, if so, on what terms. For additional information regarding the foregoing, please see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Our Business Strategy and Operating Environment”.

~~Liquidity Management~~

The objective of liquidity management is to ensure the Company has the continuing ability to maintain cash flows that are adequate to fund operations and meet obligations and other commitments on a timely and cost-effective basis. The Company establishes and maintains liquidity guidelines for WMIH as well as for WMMRC, its principal operating subsidiary. Funds held by WMMRC are not available to WMIH to satisfy its liquidity needs. Any dividend or payment by WMMRC to WMIH must be approved by the Insurance Division of the State of Hawaii. In light of the restrictions on dividends applicable to WMMRC, WMIH’s principal sources of liquidity are its unrestricted investments, investment income derived from these investments and fees paid to WMIH by WMMRC with respect to services provided pursuant to the two services agreements approved by the Insurance Division of the State of Hawaii. Additionally, WMIH also has approximately $577.2 million of restricted cash held in escrow, whichinvesting activities was received by WMIH in connection with the Series B Preferred Stock Financing. Because of the runoff nature of WMMRC’s business, as discussed above, all cash available to WMMRC is primarily used to pay reinsurance losses and loss adjustment expenses, ceding commissions, dividends to WMIH to pay interest and principal obligations on the Runoff Notes (prior to the full redemption which occurred on September 29, 2017), and general and administrative expenses.

The Company monitors operating activities, forecasts liquidity needs and adjusts composition of investment securities in order to address liquidity needs. The Company currently has negative monthly cash flows primarily due to ~~loss expenses at WMMRC, general and administrative costs and dividend payments on the Series B Preferred Stock. As~~ a ~~result, the Company maintains a very high quality and short duration investment portfolio~~decrease of $415 in ~~order to match its liability profile at both levels of the consolidated organization.~~

WMMRC has net assets totaling $17.7 million and $33.8 million as of September 30, 2017 and December 31, 2016, respectively. These net assets are not immediately available for distribution to WMIH due to restrictions imposed by the trust arrangements referenced above, and the requirement that the Insurance Division of the State of Hawaii must approve dividends from WMMRC. Distributions from WMMRC to WMIH were, prior to full redemption on September 29, 2017, further restricted by the terms of the Runoff Notes described in Note 7: Notes Payable to the condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. Additionally, as more fully described in Note 14: Subsequent Events to the condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, a distribution from WMMRC to WMIH of up to $10.7 million was approved by the Insurance Division of the State of Hawaii on September 13, 2017.

~~Capital Structure and Management~~

WMIH’s capital structure consists of stockholders’ equity, Series B Preferred Stock proceeds held in escrow which is classified as mezzanine and no term debt as of September 30, 2017. We issued term debt of $130.0 million represented by the Runoff Notes on the Effective Date. The First Lien Notes were redeemed in their entirety on April 15, 2015 and the First Lien Indenture was satisfied and discharged on April 27, 2015. The Second Lien Notes were redeemed in their entirety on September 29, 2017 and the Second Lien Indenture was satisfied and discharged on October 2, 2017

On the Effective Date, all shares of common and preferred equity securities previously issued by WMI were cancelled and extinguished. Prior to reincorporation, WMIH was authorized to issue up to 500,000,000 shares of common stock and up to 5,000,000 shares of preferred stock, each with a par value of $0.00001 per share. Upon reincorporation in Delaware, which is more fully described in Note 1: The Company and its Subsidiaries to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and pursuant to WMIH’s Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”), WMIH is authorized to issue up to 3,500,000,000 shares of common stock and up to 10,000,000 shares of preferred stock, each with a par value of $0.00001 per share. As of September 30, 2017, 206,714,132 shares of WMIH’s common stock were issued and outstanding, and 1,600,000 shares of its preferred stock were issued and outstanding.

On January 30, 2014, pursuant to an Investment Agreement, WMIH issued 1,000,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”) for a purchase price of $11.1 million and warrants to purchase 61,400,000 shares of WMIH’s common stock, 30,700,000 of which have an exercise price of $1.32 per share and 30,700,000 of which have an exercise price of $1.43 per share. The Series A Preferred Stock has rights substantially similar to those associated with WMIH’s common stock, with the exception of a liquidation preference, conversion rights and customary anti-dilution protections. The Series A Preferred Stock has a liquidation preference equal to the greater of (i) $10.00 per one million shares of Series A Preferred Stock plus declared but unpaid dividends on such shares and (ii) the amount that the holder would be entitled to in a relevant transaction had the Series A Preferred Stock been converted to common stock of WMIH. The Series A Preferred Stock is convertible at a conversion price of $1.10 per share into shares of common stock of WMIH, either at the option of the holder or automatically upon transfer by KKR Fund Holdings L.P. (“KKR Fund”) to a non-affiliated party. As a result of the calculation of a beneficial conversion feature as required by Accounting Standards Codification 470, a preferred deemed dividend of $9.5 million was recorded in conjunction with the issuance of the Series A Preferred Stock. This preferred deemed dividend resulted in an increase to our accumulated deficit and an increase in additional paid in capital. Further, KKR Fund, as the holder of the Series A Preferred Stock and the warrants, has received other rights pursuant to the Investor Rights Agreement as more fully de~~scribed in~~ ~~Note 9: Capital Stock and Derivative Instruments to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.~~

On January 5, 2015, WMIH announced that it had completed the Series B Preferred Stock Financing and issued 600,000 shares of Series B Preferred Stock for aggregate gross proceeds of $600.0 million, pursuant to the Purchase Agreement with Citigroup Global Markets Inc. and KKR Capital Markets LLC (together the “Initial Purchasers”). In connection with the Series B Preferred Stock Financing, WMIH entered into an Escrow Agreement (the “Escrow Agreement”) with Citibank, N.A., as Escrow Agent, pursuant to which WMIH caused to be deposited with the Escrow Agent the amount of $598.5 million representing the net proceeds of the Series B Preferred Stock Financing less offering fees payable on January 5, 2015 but before payment of other offering fees and expenses (including fees contingent upon future events). These net proceeds will be released from escrow from time to time to WMIH as instructed by WMIH in amounts necessary to, among other things, explore and/or fund, in whole or in part, acquisitions, whether completed or not. The entire net proceeds will be released from escrow as instructed by WMIH as needed to consummate a Qualified Acquisition.

In connection with the Series B Preferred Stock Financing, WMIH filed with the Secretary of State of Washington Articles of Amendment of Articles of Incorporation (the “Articles of Amendment”) containing the Certificate of Designation creating the Series B Preferred Stock and designating the rights and preferences of the Series B Preferred Stock. Holders of shares of the Series B Preferred Stock are entitled to receive, when, as and if declared, cumulative regular dividends at an annual rate of 3% per share of the liquidation preference of $1,000 per share of Series B Preferred Stock, payable in cash. On each date that WMIH closes any Acquisition, outstanding shares of Series B Preferred Stock having an aggregate liquidation preference equal to the net proceeds of the offering utilized in such Acquisition (as defined below), on a pro rata basis, will automatically convert into shares of WMIH’s common stock. In addition, on the date WMIH closes a Qualified Acquisition, all outstanding shares of Series B Preferred Stock will automatically convert into shares of WMIH’s common stock. Each date that WMIH closes an Acquisition (including a Qualified Acquisition) will be a “Mandatory Conversion Date.” Unless the Series B Preferred Stock has been previously repurchased at the option of a holder ~~upon the occurrence of certain put events~~ or mandatorily converted, WMIH will redeem all outstanding shares of Series B Preferred Stock, if any, on the Series B Redemption Date, which is the third anniversary of January 5, 2015 (or January 5, 2018). The reincorporation of WMIH from the State of Washington to the State of Delaware resulted in the increase of the size of its Board of Directors from 7 to up to 11 members and increased WMIH’s authorized number of shares of common stock in an amount sufficient to permit the conversion of all shares of Series B Preferred Stock (collectively, the “Reincorporation”).

The foregoing transactions pertaining to the Series A Preferred Stock and Series B Preferred Stock are more fully described in Note 9: Capital Stock and Derivative Instruments to the condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

~~WMIH may, subject to market conditions, determine to incur additional indebtedness or raise additional equity capital in connection with undertaking one or more acquisitions.~~

While WMIH is not subject to regulatory capital requirements, WMMRC is required to comply with various solvency and liquidity requirements pursuant to the insurance laws of the State of Hawaii. WMMRC is required to maintain minimum capital and surplus requirements of an amount established under applicable Hawaii law and deemed appropriate by the Insurance Division of the State of Hawaii. As of September 30, 2017, management believes that WMMRC is compliant with applicable statutory solvency, liquidity and minimum capital and surplus requirements. The payment of dividends by WMMRC is subject to statutory restrictions imposed by Hawaii insurance laws and regulations and requires approval from the Insurance Division of the State of Hawaii. In addition, the Second Lien Indenture, prior to the discharge and release on September 29, 2017, imposed restrictions on WMMRC business activities. During the nine months ended September 30, 2017 and the year ended December 31, 2016, WMMRC paid $16.0 million and $5.7 million, respectively, in dividends to WMIH.

~~On the Effective Date, WMI and WMIIC (together, the “Debtors”) (and now the~~ WMI Liquidating Trust (the “Trust”) on behalf of the Debtors) continued to dispute whether the interests of certain former holders of “Equity Interests” or “Claims” (in each case as those terms are defined in the Company’s Seventh Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code (as modified, the “Plan”)) against the Debtors should be allowed. As a result, pursuant to the Plan, on the Effective Date, a “Disputed Equity Escrow” (as defined in the Plan) was createdcash used for the ~~benefit~~purchase of ~~each holder~~forward mortgage servicing rights, net of a “Disputed Equity Interest” (as defined in the Plan). Such Disputed Equity Escrow was created to hold shares of WMIH’s common stock (as well as any dividends, gains or income attributable in respect of such common stock) allocable, on a pro rata basis, to each holder of such a Disputed Equity Interest if and when such Disputed Equity Interest becomes an “Allowed Equity Interest” (as such term is defined in the Plan). All such Equity Interests will constitute Disputed Equity Interests pursuant to the Plan until such time, or from time to time, as each Disputed Equity Interest has been compromised and settled or allowed or disallowed by a final order of the bankruptcy court.

The liquidating trustee of the Trust, William Kosturos (the “Liquidating Trustee”), acts as escrow agent with respect to the Disputed Equity Escrow. As of December 31, 2016, 1,546,294 shares of WMIH’s common stock were held in the Disputed Equity Escrow. Until such time as all of WMIH’s common stock has been distributed from the Disputed Equity Escrow in accordance with the Plan (e.g., as a result of all “Disputed Equity Claims” (as such term is defined in the Plan) becoming Allowed Equity Interests or all Disputed Equity Claims being disallowed), the Liquidating Trustee is vested with the authority to exercise voting or consent rights with respect to such stock; provided, however, that the Liquidating Trustee is obligated to vote or consent, as the case may be, as to such stock in the same proportion as all other holders of WMIH’s common stock have voted or consented, in each case on an issue-by-issue basis. The Trust has no right to or entitlement in any shares of WMIH’s common stock held in the Disputed Equity Escrow. Additionally, WMIH does not have any right to, or interest in, any shares of its common stock held by the Disputed Equity Escrow.

~~Notes Payable~~

On the Effective Date, WMIH issued $110.0 million aggregate principal amount of its 13% Senior First Lien Notes due 2030 (the “First Lien Notes”) under an Indenture, dated as of March 19, 2012 (the “First Lien Indenture”), between WMIH and Wilmington Trust, National Association, as Trustee.liabilities incurred. In addition, WMIH issued $20.0 million aggregate principal amount of its 13% Senior Second Lien Notes due 2030 (the “Second Lien Notes” and, together with the First Lien Notes, the “Runoff Notes”) under an Indenture, dated as of March 19, 2012 (the “Second Lien Indenture” and, together with the First Lien Indenture, the “Indentures”), between WMIH and Law Debenture Trust Company of New York, as Trustee. On January 5, 2017, we were notified by The Law Debenture Company of New York that it had completed the transfer of substantially all of its corporate trust business to Delaware Trust Company, and that Delaware Trust Company had become the successor trustee under the Second Lien Indenture. The First Lien Notes were redeemed in their entirety on April 15, 2015, and the First Lien Indenture was satisfied and discharged on April 27, 2015. ~~The Second Lien Notes~~ ~~were redeemed in their entirety on September 29, 2017, and the Second Lien Indenture was satisfied and discharged on October 2, 2017.~~

~~Contractual Obligations, Commitments and Contingencies~~

WMMRC has engaged a Hawaii-based service provider, Marsh Management Services Inc., to provide accounting and related management services for its operations. In exchange for performing these services, WMMRC pays such service provider a management fee.

On March 19, 2012, WMIH entered into an Investment Management Agreement with WMMRC. Under the terms of this agreement, WMIH receives a fee from WMMRC equal to the product of (x) the ending dollar amount of assets under management during the calendar month in question and (y) .002 divided by 12. WMIH is responsible for investing the funds of WMMRC based on applicable investment criteria and subject to rules and regulations to which WMMRC is subject. The Investment Management Agreement has been approved by the Insurance Division of the State of Hawaii.

On March 19, 2012, WMIH entered into an Administrative Services Agreement with WMMRC. Under the terms of this agreement, WMIH receives from WMMRC a fee of $110 thousand per month. WMIH is responsible for providing administrative services to support, among other things, supervision, governance, financial administration and reporting, risk management and claims management as may be necessary, together with such other general or specific administrative services that may be reasonably required or requested by WMMRC in the ordinary course of its business. The Administrative Services Agreement has been approved by the Insurance Division of the State of Hawaii.

Total amounts incurred under the Investment Management Agreement and Administrative Services Agreement totaled $1.0 million and $1.0 million for the nine months ended September 30, 2017 and 2016, respectively. The expense and related income eliminate on consolidation.

On March 22, 2012, WMIH and the WMI Liquidating Trust (the “Trust”) entered into a Transition Services Agreement (the “TSA”). Pursuant to the TSA, the Trust makes available certain services and employees to the Company. The TSA provided the Company with office space (prior to the Company entering into its own lease) for its current employees and continues to provide basic infrastructure and support services to facilitate the Company’s operations. The TSA as amended, extends the term of the agreement through January 31, 2018, with automatic renewals thereafter for successive additional three-month terms, subject to non-renewal at the end of any additional term upon written notice by either party at least 30 days prior to the expiration of the additional term.

In connection with implementing the Plan, certain holders of specified “Allowed Claims” had the right to elect to receive such holder’s “Pro Rata Share of the Common Stock Allotment.” Essentially, the Plan defines the “Pro Rata Share of the Common Stock Allotment” as a pro rata share of ten million (10,000,000) shares of WMIH’s common stock (i.e. five percent (5%)) issued and outstanding on the Effective Date. Holders exercising the foregoing election did so in lieu of receiving (i) 50% of such holder’s interest in and to certain litigation proceeds that could be realized by the Trust on account of certain claims and causes of action asserted by the Trust as contemplated by the Plan (“Litigation Proceeds”), and (ii) some or all of the Runoff Notes to which such holder may be entitled (if such holder elected to receive Runoff Notes in accordance with the terms of the Plan).

On or about October 14, 2014, the Trust filed a lawsuit in King County Superior Court in the State of Washington against 16 former directors and officers of WMI (the “D&O Litigation”). The Trust’s complaint alleged, among other things, that the defendants named therein breached their fiduciary duties to WMI and committed corporate waste and fraud by squandering WMI’s financial resources. In connection with the settlement of the D&O Litigation, during the year ended December 31, 2015, among the Trust, certain former directors and officers of WMI and certain insurance carriers that underwrote director and officer liability insurance policies for the benefit of WMI and its affiliates (including such former directors and officers), such insurance carriers agreed to pay the Trust $37.0 million, of which $3.0 million was placed into a segregated reserve account (the “RSA Reserve”) to be administered by a third party pursuant to the terms of a Reserve Settlement Agreement (the “RSA”).

During the year ended December 31, 2016 and 2015, WMIH had other income of $123 thousand and $7.8 million, respectively, as a result of its receipt of its share of net Litigation Proceeds related to the D&O Litigation. As of September 30, 2017, $1.5 million remained in the RSA Reserve. Under the RSA, funds are released from the RSA Reserve to the Trust if and when certain designated conditions are satisfied. If and when these funds are released to the Trust, and to the extent WMIH is entitled to receive such funds in accordance with the Plan, it is anticipated the Trust will make payments to WMIH in an amount equal to WMIH’s share of Litigation Proceeds as provided under the Plan. Due to the contingent nature of future distributions from the RSA Reserve, there can be no assurance that WMIH will receive any distributions from the remaining balance in the RSA Reserve in the future. During the nine months ended September 30, 2017, WMIH has recorded income from Litigation Proceeds of $123 thousand. As of September 30, 2017, WMIH had not received any Litigation Proceeds, other than as described above.

As a member of the Litigation Subcommittee of the Trust, Mr. Willingham, who serves as a WMIH Board member and Chairman of the WMIH Audit Committee, participates in overseeing the prosecution of recovery claims by the Trust.

As a result of the Company’s reorganization in bankruptcy, an intangible asset was identified related to reinsurance contracts which were held by WMMRC. The contracts were evaluated to determine whether the value attributable to such contracts was either above market or in a loss contract position. After taking such evaluation into consideration, a loss contract reserve totaling $63.1 million was recorded on the Effective Date. The reserve will be evaluated at each reporting date for changes to its value. As of September 30, 2017 and December 31, 2016, the loss contract reserve was analyzed and determined to have a value of zero and $5.6 million, respectively. The value of this reserve decreased by $5.6 million during the nine months ended September 30, ~~2017~~2019, we used $85 cash in connection with the Pacific Union and ~~decreased~~Seterus acquisitions. The decrease in cash used was partially offset by ~~$2.3 million~~a decrease in cash generated of $254 from proceeds on sale of forward mortgage servicing rights.

Financing activities

Our financing activities used cash of $1,277 during the nine months ended September 30, ~~2016.~~2020 compared to cash generated of $388 in the same period in 2019. Contributing to the cash used was the $1,970 change in advance and warehouse facilities due to a net pay down of $135 in advance and warehouse facilities during the nine months ended September 30, 2020 compared to a net increased borrowing of $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 nine months ended September 30, 2020 increased $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 ~~value~~change in cash used was partially offset by an increase in cash generated of ~~this reserve has been reduced~~$1,450 due to ~~zero,~~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 ~~extraction~~same period in 2019. Further, during the nine months ended 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 ~~proceeds~~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 ~~WMMRC occurring earlier than initially projected~~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 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 ~~elimination~~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 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 ~~higher cost~~issuer’s total single-family effective outstanding obligations, and (ii) base of ~~capital associated with~~$5 plus 1% of the ~~Runoff Notes which have now been paid in their entirety. For additional information see Note 2: Significant Accounting Policies in Item 1 of Part I of this Quarterly Report on Form 10-Q.~~

~~As of January 30, 2014, pursuant~~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.

Minimum Capital Ratio

▪In addition to the ~~terms~~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 ~~conditions~~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 ~~Investment Agreement, WMIH sold~~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 ~~KKR Fund 1,000,000 shares~~the extent this sum exceeds 6% of ~~Series A Preferred Stock, having~~ the ~~terms, rights, obligations~~total Agency Mortgage Servicing UPB.

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

The minimum liquidity requirement for ~~a purchase price~~Ginnie Mae is defined as follows:

▪Maintain liquid assets equal to ~~$11.1 million and issued to KKR Fund warrants to purchase, in~~ the ~~aggregate, 61.4 million shares~~greater of WMIH’s common stock, 30.7 million of which have an exercise price of $1.32 per share and 30.7 million of which have an exercise price of $1.43 per share (together, the “Warrants”). KKR Fund’s rights as a holder of the Series A Preferred Stock and the Warrants, and the rights of any subsequent holder that is an affiliate of KKR Fund (together with KKR Fund, the “Holders”) are governed by the Investor Rights Agreement. The Investor Rights Agreement provides the Holders with registration rights, including three long form demand registration rights, unlimited short form demand registration rights and customary piggyback registration rights with respect to WMIH’s common stock (and WMIH’s common stock underlying the Series A Preferred Stock and the Warrants), subject to certain minimum thresholds, customary blackout periods and lockups of 180 days. On July 1, 2015, WMIH filed a shelf registration statement (the “Initial Registration Statement”) covering resales of Series B Preferred Stock and WMIH’s common stock issuable upon mandatory conversion of the Series B Preferred Stock. On November 23, 2015, WMIH amended the Initial Registration Statement to cover WMIH’s common stock issuable upon conversion of the Series A Preferred Stock and shares of WMIH’s common stock issuable upon exercise of warrants issued in connection with the issuance$1 or 10 basis points of our ~~Series A Preferred Stock currently~~ outstanding ~~(as amended,~~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 ~~“Registration Statement”)~~Ginnie Mae guide, we are also required to maintain a secured debt to gross tangible asset ratios no greater than 60%. ~~The Registration Statement was declared effective under the Securities Act on November 25, 2015. Moreover,~~

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. 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 14, Capital Requirements, for as long as the Holders beneficially own any shares of common stock of WMIH or Series A Preferred Stock or any of the Warrants, WMIH has agreed to provide customary Rule 144A information rights, to provide the Holders with regular audited and unaudited financial statements and to allow the Holders or their representatives to inspect WMIH’s books and records. For further information on the Investment Agreement and the Investor Rights Agreement, see Note 8: Financing Arrangements and Note 9: Capital Stock and Derivative Instruments, to the condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

In conjunction with the Series B Preferred Stock Financing, the Company is contractually committed to make certain fee payments if future events occur. These fees are recorded and presented on our condensed consolidated balance sheets as other liabilities. At September 30, 2017, the total balance of $13.8 million of other liabilities is comprised of $12.3 million of accrued fees relating to the Series B Preferred Stock Financing, an accrual for professional fees currently payable of approximately $0.8 million, $0.7 million of accrued dividends relating to the Series B Preferred Stock and several small accruals for recurring business expenses.

~~Off-Balance Sheet Financing Arrangements~~

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.additional information.

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk.~~

Table 25. Debt


	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 ~~principally exposed~~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 ~~three~~repay the borrowings under the warehouse lines. Our ability to fund current operations depends upon our ability to secure these types of ~~market risk:~~

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 September 30, 2020, unsecuritized borrower draws totaled $56, and our maximum unfunded advance obligation related to these reverse mortgage loans was $2,304.

Unsecured Senior Notes

In 2018 and 2020, we completed offerings of unsecured senior notes, which mature on various dates through August 2028. We pay interest ~~rate risk;~~

semi-annually to the holders of these notes at interest rates ranging from 5.500% to 9.125%. Refer to Note 9, Indebtedness, for the contractual maturities of unsecured senior notes.

~~credit risk; and~~

~~liquidity risk.~~

Contractual Obligations

~~There have been~~

As of September 30, 2020, no material changes to our ~~market risks as~~outstanding contractual obligations were made from the amounts previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

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

~~Item 4.~~

~~Controls and Procedures.~~

Table 26. Contractual Obligations


	Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total
Unsecured senior notes	$	—	$	—	$	—	$	2,200	$	2,200
Interest payment from unsecured senior notes	151		304		304		267		1,026
Total	$	151	$	304	$	304	$	2,467	$	3,226

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 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 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.

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 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 (“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.

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

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

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

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

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

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

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

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

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Refer to the discussion included in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 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 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 September 30, 2020 given hypothetical instantaneous parallel shifts in the yield curve. Results could differ materially.

Table 27. Change in Fair Value


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

Item 4.Controls and Procedures

Evaluation of ~~disclosure controls~~Disclosure Controls and ~~procedures.~~

Procedures

Our management, ~~has evaluated, under the supervision and~~ with the participation of our Chief Executive Officer and ~~Interim~~ Chief Financial Officer, evaluated the effectiveness of ~~the~~our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of ~~the Company~~1934, as amended (“Exchange Act”), as of September 30, ~~2017.~~ 2020.

Based on ~~that~~this evaluation, our Chief Executive Officer and ~~Interim~~ Chief Financial Officer ~~have~~ concluded that, as of September 30, ~~2017, the~~2020, our disclosure controls and procedures ~~(as defined~~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 ~~Rules 13a-15(e) and 15d-15(e)~~reports that we file or submit under the Exchange ~~Act) were effective in ensuring that information required to be disclosed by the Company in reports the Company files or submits under the Exchange Act:~~

~~(1)~~Act is recorded, processed, summarized, and reported within the time periods specified in the ~~Securities and Exchange Commission~~SEC’s rules and forms, and

~~(2)~~ that such information is accumulated and communicated to ~~the Company’s~~our management, including ~~the Company’s principal executive~~our Chief Executive Officer and ~~principal financial officers, or persons performing similar functions,~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control ~~Over~~over Financial Reporting

~~There was~~

During the three months ended September 30, 2020, no ~~change~~changes in ~~the Company’s~~our internal control over financial reporting ~~(as~~occurred that ~~term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during its most recent fiscal quarter that has~~have materially affected, or isare reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

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

PART ~~II—~~II – OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings.~~

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. We believe that we have fully accrued for these matters as of September 30, ~~2017, the Company was not a party to,~~2020.

Item 1A.Risk Factors

There have been no material changes or ~~aware of, any pending legal proceedings or investigations requiring disclosure at this time.~~

~~Item 1A.~~

~~Risk Factors.~~

~~In addition~~additions to the ~~information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the~~risk factors ~~discussed in “Part I-Item 1A. Risk~~previously disclosed under “Risk Factors” included in our Annual Report on Form 10-K filed for the year ended December 31, ~~2016. There have been no material changes in~~2019, and our ~~risk factors from those disclosed in such Annual Report.~~

~~Item 6.~~

~~Exhibits.~~

~~The following exhibits are filed or incorporated by reference as part of this~~ Quarterly Report on Form ~~10-Q.~~

10-Q for the quarter ended March 31, 2020.

Incorporated by reference

Exhibit
Number

Exhibit Description
Form

Exhibit

Filing Date

Filed Herewith

3.1

Amended and Restated Certificate of Incorporation of WMIH Corp.

8-K12G3

3.1

5/13/15

��

3.2

Amended and Restated Bylaws of WMIH Corp.

8-K12G3

3.2

5/13/15

12.1

Statement Regarding Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends

X

31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

32.1

Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

101.INS

XBRL Instance Document.

X

101.SCH

XBRL Taxonomy Extension Schema Document.

X

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

X

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

X

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

X

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

X

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

On July 30, 2020, we announced that our Board of Directors authorized the repurchase of up to $100 of our outstanding common stock. The stock repurchase program may be suspended, modified or discontinued at any time at our discretion. During the three months ended September 30, 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.

Item 6.Exhibits

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.

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.


	~~WMIH CORP.~~
		~~(Registrant)~~ MR. COOPER GROUP INC.
~~Dated: November 9, 2017~~		~~By:~~	~~/s/ William C. Gallagher~~
October 29, 2020		~~Name:~~	~~William C. Gallagher~~ /s/ Jay Bray
Date		~~Title:~~	Jay Bray Chief Executive Officer (Principal Executive Officer)
~~Dated: November 9, 2017~~		~~By:~~	~~/s/ Timothy F. Jaeger~~
October 29, 2020		~~Name:~~	~~Timothy F. Jaeger~~ /s/ Christopher G. Marshall
Date		~~Title:~~	~~Interim~~Christopher G. Marshall Vice Chairman & Chief Financial Officer (Principal Financial and Accounting Officer)

	September 30, 2017		December 31, 2016 ⁽¹⁾
ASSETS:
Investments held in trust:
Fixed-maturity securities	$	9,022	$	29,206
Cash equivalents held in trust		6,804		2,176
Total investments held in trust		15,826		31,382
Cash and cash equivalents		25,542		2,491
Fixed-maturity securities		1,400		47,625
Restricted cash		577,220		573,347
Derivative asset - embedded conversion feature		111,877		80,651
Accrued investment income		109		187
Other assets		764		507
Total assets	$	732,738	$	736,190
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Liabilities:
Notes payable - principal	$	—	$	18,774
Notes payable - interest		—		203
Losses and loss adjustment reserves		705		811
Losses payable		29		53
Unearned premiums		33		270
Accrued ceding commissions		57		22
Loss contract reserve		—		5,645
Other liabilities		13,774		14,063
Total liabilities		14,598		39,841
Commitments and contingencies
Redeemable convertible series B preferred stock, $0.00001 par value; 600,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016; aggregate liquidation preference of $600,000,000 as of September 30, 2017 and December 31, 2016		502,213		502,213
Stockholders’ equity:
Convertible series A preferred stock, $0.00001 par value; 1,000,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016; aggregate liquidation preference of $10 as of September 30, 2017 and December 31, 2016		—		—
Common stock, $0.00001 par value; 3,500,000,000 authorized; 206,714,132 and 206,380,800 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		2		2
Additional paid-in capital		108,830		108,415
Retained earnings		107,095		85,719
Total stockholders’ equity		215,927		194,136
Total liabilities, redeemable convertible preferred stock and stockholders’ equity	$	732,738	$	736,190

	Three months ended September 30, 2017			Three months ended September 30, 2016			Nine months ended September 30, 2017			Nine months ended September 30, 2016
Revenues:
Premiums earned	$	344		$	786		$	1,103		$	2,426
Net investment income		1,943			498			4,826			1,747
Total revenues		2,287			1,284			5,929			4,173
Operating expenses:
Losses and loss adjustment expense		48			183			207			702
Ceding commission expense		44			75			137			234
General and administrative expense		2,117			1,357			5,915			4,878
Loss contract reserve reduction		(210	)		(565	)		(5,645	)		(2,362	)
Interest expense		579			636			1,788			1,994
Total operating expenses		2,578			1,686			2,402			5,446
Net operating (loss) income		(291	)		(402	)		3,527			(1,273	)
Other (income) expense:
Other (income)		(123	)		—			(123	)		—
Unrealized (gain) loss on change in fair value of derivative embedded conversion feature		(38,579	)		16,243			(31,226	)		(62,587	)
Total other (income) expense		(38,702	)		16,243			(31,349	)		(62,587	)
Income (loss) before income taxes		38,411			(16,645	)		34,876			61,314
Income tax expense (benefit)		—			—			—			—
Net income (loss)		38,411			(16,645	)		34,876			61,314
Redeemable convertible series B preferred stock dividends		(4,500	)		(4,500	)		(13,500	)		(13,500	)
Net income (loss) attributable to common and participating stockholders	$	33,911		$	(21,145	)	$	21,376		$	47,814
Basic net income (loss) per share attributable to common stockholders (Note 12)	$	0.06		$	(0.10	)	$	0.04		$	0.10
Shares used in computing basic net income (loss) per share		202,660,492			202,341,209			202,573,315			202,247,275
Diluted net income (loss) per share attributable to common stockholders (Note 12)	$	0.06		$	(0.10	)	$	0.04		$	0.09
Shares used in computing diluted net income (loss) per share		212,726,121			202,341,209			212,638,944			237,575,014

	Series B Redeemable Convertible Preferred Stock				Series A Convertible Preferred Stock				Common Stock
	Shares		Amount		Shares		Amount		Shares		Amount		Additional paid-in capital		(Accumulated deficit) retained earnings			Total stockholders’ equity
Balance at January 1, 2016		600,000		502,213		1,000,000		—		206,168,035		2		107,757		(97,981	)		9,778
Net income		—		—		—		—		—		—		—		201,700			201,700
Redeemable convertible series B preferred stock dividends		—		—		—		—		—		—		—		(18,000	)		(18,000	)
Issuance of common stock under restricted stock compensation arrangement		—		—		—		—		212,765		—		—		—			—
Equity-based compensation		—		—		—		—		—		—		658		—			658
Balance at December 31, 2016		600,000		502,213		1,000,000		—		206,380,800		2		108,415		85,719			194,136
Net income		—		—		—		—		—		—		—		34,876			34,876
Redeemable convertible series B preferred stock dividends		—		—		—		—		—		—		—		(13,500	)		(13,500	)
Issuance of common stock under restricted stock compensation arrangement		—		—		—		—		333,332		—		—		—			—
Equity-based compensation		—		—		—		—		—		—		415		—			415
Balance at September 30, 2017		600,000	$	502,213		1,000,000	$	—		206,714,132	$	2	$	108,830	$	107,095		$	215,927

	Nine months ended September 30, 2017			Nine months ended September 30, 2016
Cash flows from operating activities:
Net income	$	34,876		$	61,314
Adjustments to reconcile net income to net cash (used in) operating activities:
Amortization of premium or discount on fixed maturity securities		108			247
Net realized loss (gain) on sale of investments		63			(19	)
Unrealized (gain) on trading securities		(67	)		(83	)
Unrealized (gain) on derivative embedded conversion feature		(31,226	)		(62,587	)
Equity-based compensation		415			484
Changes in assets and liabilities:
Accrued investment income		78			(18	)
Other assets		(257	)		(270	)
Cash equivalents held in trust		(4,628	)		1,358
Restricted cash		(3,873	)		(1,476	)
Losses and loss adjustment reserves		(106	)		(2,733	)
Losses payable		(24	)		(395	)
Unearned premiums		(237	)		(463	)
Accrued ceding commission expense		35			(8	)
Accrued interest on notes payable		(203	)		(24	)
Loss contract reserve		(5,645	)		(2,362	)
Other liabilities		(289	)		(626	)
Total adjustments		(45,856	)		(68,975	)
Net cash used in operating activities		(10,980	)		(7,661	)
Cash flows from investing activities:
Purchase of investments		(19,973	)		(130,469	)
Proceeds from sales and maturities of investments		86,278			146,920
Net cash provided by investing activities		66,305			16,451
Cash flows from financing activities:
Redeemable convertible series B preferred stock dividends		(13,500	)		(13,500	)
Notes payable – principal repayments		(18,774	)		(2,185	)
Net cash used in financing activities		(32,274	)		(15,685	)
Increase (decrease) in cash and cash equivalents		23,051			(6,895	)
Cash and cash equivalents, beginning of period		2,491			9,924
Cash and cash equivalents, end of period	$	25,542		$	3,029
Supplementary disclosure of cash flow information:
Cash paid during the period:
Interest	$	1,991		$	2,008

	September 30, 2017		December 31, 2016
Case-basis reserves	$	174	$	553
IBNR reserves		1		—
Premium deficiency reserves		530		258
Total losses and loss adjustment reserves	$	705	$	811


	Nine months ended September 30, 2017			Year ended December 31, 2016
Balance at beginning of period	$	811		$	5,063
Incurred (released) - prior periods		207			(669	)
Paid or terminated - prior periods		(313	)		(3,583	)
Total losses and loss adjustment reserves	$	705		$	811

	September 30, 2017
Class of securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government treasury securities	$	250	$	—	$	—		$	250
Obligations of U.S. government sponsored enterprises		2,749		—		(7	)		2,742
Corporate debt securities		3,683		—		(2	)		3,681
Foreign corporate debt securities		3,750		—		(1	)		3,749
Total fixed-maturity securities		10,432		—		(10	)		10,422
Less total unrestricted fixed-maturity securities		1,402		—		(2	)		1,400
Total fixed-maturity securities held in trust	$	9,030	$	—	$	(8	)	$	9,022

	Amortized Cost		Estimated Fair Value
Maturity in:
2017	$	6,750	$	6,749
2018		3,682		3,673
Total fixed-maturity securities	$	10,432	$	10,422


	January 1, 2017 to September 30, 2017				January 1, 2016 to December 31, 2016
	Transfers from Level 1 to Level 2		Transfers from Level 2 to Level 1			Transfers from Level 1 to Level 2		Transfers from Level 2 to Level 1
Class of securities:
Corporate debt securities	$	—	$	901		$	—	$	5,737
Foreign corporate debt securities		—		—			—		5,295
Total transfers	$	—	$	901		$	—	$	11,032

Amortization Schedule (in thousands)	September 30, 2017 unamortized dollar value
4th quarter 2017	$	103
1st quarter 2018		98
2nd quarter 2018		71
3rd quarter 2018		71
4th quarter 2018		71
1st quarter 2019		66
2nd quarter 2019		36
3rd quarter 2019		36
4th quarter 2019		36
1st quarter 2020		31
Unamortized fair-value - subject to vesting schedule		619
Unamortized fair-value - event dependent		4,343
Total unamortized dollar value		4,962

	Number of restricted stock awards outstanding		Weighted-average grant date fair value		Aggregate fair value (in thousands)
Outstanding—January 1, 2016		6,168,035		2.1230		13,095
Restricted stock awards granted during 2016		212,765		2.3500		500
Restricted stock awards released or forfeited during 2016		—		—		—
Outstanding—December 31, 2016		6,380,800	$	2.1306	$	13,595
Restricted stock awards granted during 2017		333,332		1.2000		400
Restricted stock awards released or forfeited during 2017		—		—		—
Outstanding—September 30, 2017		6,714,132	$	2.0844	$	13,995

	Potential dilution to common stock
	Minimum shares		Maximum shares
Restricted shares subject to vesting		4,053,640		4,053,640
Series A Preferred Stock		10,065,629		10,065,629
Warrants outstanding		61,400,000		61,400,000
Dilutive shares to be issued if Series B Preferred Stock conversion is below $2.25		—		1,015,872
Series B Preferred Stock		266,666,667		342,857,143
Potential dilutive shares if converted to common stock		342,185,936		419,392,284

	(in thousands)
Assets	Level 1		Level 2		Level 3		September 30, 2017
Derivative embedded conversion feature	$	—	$	—	$	111,877	$	111,877

	Derivative asset (liability) embedded conversion feature (in thousands)
Balance, January 1, 2016	$	(120,848	)
Unrealized gain on change in fair value		201,499
Balance, December 31, 2016		80,651
Unrealized gain on change in fair value		31,226
Balance, September 30, 2017	$	111,877


	Three months ended September 30, 2017			Three months ended September 30, 2016			Percentage change favorable (unfavorable)			Dollar value change favorable (unfavorable)
Net revenues	$	2,287		$	1,284			78	%	$	1,003
Underwriting expense (net)		92			258			64	%		166
General and administrative expenses		2,117			1,357			(56	%)		(760	)
Loss contract reserve reduction		(210	)		(565	)		(63	%)		(355	)
Interest expense		579			636			9	%		57
Net operating (loss)		(291	)		(402	)		28	%		111
Other income		123			—		N/A				123
Unrealized gain (loss) on change in value of derivative embedded conversion feature		38,579			(16,243	)		338	%		54,822
Redeemable convertible series B preferred stock dividends		(4,500	)		(4,500	)		0	%		—
Net income (loss) attributable to common and participating stockholders	$	33,911		$	(21,145	)		260	%	$	55,056