NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(millions of dollars, unless otherwise stated)
1. Nature of Business and Basis of Presentation
Nature of Business
Mr. Cooper Group Inc., collectively with its consolidated subsidiaries, (“Mr. Cooper”, the “Company”, “we”, “us” or “our”) provides servicing, origination and transaction-based services related to single family residences throughout the United States with operations under its primary brands: Mr. Cooper® and Xome®. Mr. Cooper is one of the largest home loan originators and servicers in the country focused on delivering a variety of servicing and lending products, services and technologies. Xome provides real estate services including real estate brokerage, title, closing, valuation and field services to lenders, investors and consumers. The Company’s corporate website is located at www.mrcoopergroup.com. The Company has provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, in the MD&A section of this Form 10-Q.
Mr. Cooper, which was previously known as WMIH Corp. (“WMIH”), is a corporation duly organized and existing under the laws of the state of Delaware since May 11, 2015. On July 31, 2018, Wand Merger Corporation (“Merger Sub”), a wholly-owned subsidiary of WMIH merged with and into Nationstar Mortgage Holdings Inc. (“Nationstar”), with Nationstar continuing as a wholly-owned subsidiary of WMIH (the “Merger”). Prior to the Merger, WMIH had limited operations other than its reinsurance business that operated in runoff mode. As a result of the Merger, shares of Nationstar common stock were delisted from the New York Stock Exchange. Following the Merger closing, the combined company traded on NASDAQ under the ticker symbol “WMIH” until October 10, 2018, when WMIH changed its name to “Mr. Cooper Group Inc.” and its ticker symbol to “COOP”.
Basis of Presentation
The consolidated interim financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the SEC. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2019.
The interim consolidated financial statements are unaudited; however, in the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation of the results of the interim periods have been included. Dollar amounts are reported in millions, except per share data and other key metrics, unless otherwise noted.
The Company evaluated subsequent events through the date these interim consolidated financial statements were issued.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, other entities in which the Company has a controlling financial interest and those variable interest entities (“VIE”) where the Company’s wholly-owned subsidiaries are the primary beneficiaries. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that the Company became the primary beneficiary through the date the Company ceases to be the primary beneficiary. The Company applies the equity method of accounting to investments where it is able to exercise significant influence, but not control, over the policies and procedures of the entity and owns less than 50% of the voting interests. Investments in certain companies over which the Company does not exert significant influence are accounted for as cost method investments. Intercompany balances and transactions on consolidated entities have been eliminated. Business combinations are included in the consolidated financial statements from their respective dates of acquisition.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates due to factors such as adverse changes in the economy, changes in interest rates, secondary market pricing for loans held for sale and derivatives, strength of underwriting and servicing practices, changes in prepayment assumptions, declines in home prices or discrete events adversely affecting specific borrowers, uncertainties in the economy from the COVID-19 pandemic, and such differences could be material.
Recent Accounting Guidance Adopted
Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326), (“ASU 2016-13”) requires expected credit losses for financial instruments held at the reporting date to be measured based on historical experience, current conditions and reasonable and supportable forecasts, which is referred to as the current expected credit loss (“CECL”) methodology. The update eliminates the initial recognition of credit losses on an incurred basis in current GAAP and instead reflects an entity’s current estimate of all expected credit losses over the life of the asset. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new standard will reflect management’s best estimate of all expected credit losses for the Company’s financial assets that are recognized at amortized cost. The guidance was effective for the Company as of January 1, 2020, with a cumulative-effect adjustment to retained earnings as of that date.
Based upon management’s scoping analysis, the Company determined that reverse mortgage interests, net of reserves, advances and other receivables, net of reserves, and certain financial instruments included in other assets are within the scope of ASU 2016-13. Certain financial instruments within these respective line items have been determined to have limited expected credit-related losses due to the contractual servicing agreements with agencies and loan product guarantees. For advances and other receivables, net, the Company determined that the majority of estimated losses are due to servicing operational errors and credit-related losses are not significant because of the contractual relationships with the agencies. For reverse mortgage interests the Company determined that the guarantee from Federal Housing Administration (“FHA”) on Home Equity Conversion Mortgage (“HECM“) 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 within the scope of ASU 2016-13, the reserve methodology was revised to consider CECL losses. The revised CECL methodology considers expected lifetime loss rates calculated from historical data using a weighted average life to determine the current expected credit loss required. Due to the nature of the financial instrument, reverse mortgage interests, net of reserves, and advances and other receivables had limited impact from the adoption of CECL to the reserve methodology. See Note 4, Advances and Other Receivables, Net, Note 5, Reverse Mortgage Interests, Net, and Note 7, Other Assets, for additional information.
Factors that influenced management’s current estimate of expected credit losses for certain advances and other receivables and certain trade receivables and accrued revenues included the following: historical collection and loss rates, passage of time, weighted average life of receivables, and various qualitative factors including current economic conditions.
Factors that influenced management’s current estimate of expected credit related losses for certain reverse mortgage interests included the following: historical collection and loss rates, foreclosure timelines, and values of underlying collateral.
Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”) removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 fair value measurement methodologies, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020. The guidance does not have a material impact to the disclosures currently provided by the Company.
2. Acquisitions
Acquisition of Pacific Union Financial, LLC
On February 1, 2019, the Company completed the acquisition of all the limited liability units of Pacific Union Financial, LLC (“Pacific Union”), a California limited liability company. Pacific Union was a privately held company that was engaged in the origination, as well as servicing of residential mortgage loans, and operated throughout the United States. The acquisition allows the Company to expand its servicing portfolio and increase its mortgage lending volume and capabilities.
The acquisition has been accounted for in accordance with Accounting Standards Codification 805, Business Combinations, using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The determination of fair value estimates requires management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments. The final purchase price was $116, paid in cash. Based on the allocation of fair value, goodwill of $40 was recorded, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily attributable to the assembled workforce and synergies with the Company’s current operations. $28 and $12 of the goodwill is assigned to the Originations and Servicing segments, respectively, based on expected cash flows, and is expected to be deductible for tax purposes.
|
|
|
|
|
|
|
|
Final Estimated Fair Value of Net Assets Acquired:
|
|
|
Cash and cash equivalents
|
$
|
37
|
|
|
Restricted cash
|
2
|
|
|
Mortgage servicing rights
|
271
|
|
|
Advances and other receivables
|
84
|
|
|
Mortgage loans held for sale
|
536
|
|
|
Mortgage loans held for investment
|
1
|
|
|
Property and equipment
|
8
|
|
|
Other assets
|
483
|
|
|
Fair value of assets acquired
|
1,422
|
|
|
Notes payable(1)
|
294
|
|
|
Advance facilities
|
13
|
|
|
Warehouse facilities
|
393
|
|
|
Payables and other liabilities
|
530
|
|
|
Other nonrecourse debt
|
129
|
|
|
Fair value of liabilities assumed
|
1,359
|
|
|
Total fair value of net tangible assets acquired
|
63
|
|
|
Intangible assets:
|
|
|
Customer relationships(2)
|
13
|
|
|
Goodwill
|
40
|
|
|
Final purchase price
|
$
|
116
|
|
(1)Notes payable was subsequently paid off in February 2019 after the consummation of the acquisition.
(2)The estimated fair values for customer relationships were measured using the excess earnings method and were determined to have a remaining useful life of 10 years.
The Company incurred total acquisition costs of $2 during the three months ended June 30, 2019, of which $1 is included in salaries, wages and benefits expense and $1 in general and administrative expense in the Company’s consolidated statements of operations. The Company incurred total acquisition costs of $4 during the six months ended June 30, 2019, of which $2 is included in salaries, wages and benefits expense and $2 in general and administrative expense in the Company’s consolidated statements of operations. The acquisition costs were primarily related to legal, accounting and consulting services. There were no acquisition costs incurred by the Company during the six months ended June 30, 2020.
For the three and six months ended June 30, 2019, the operations contributed by this acquisition generated total revenues of $79 and $118 and income before income tax of $36 and $50, respectively, which are reported in the Company’s consolidated statements of operations.
The following unaudited pro forma financial information presents the combined results of operations for the three and six months ended June 30, 2019, as if the acquisition had occurred on January 1, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
|
Pro forma financial information
|
(unaudited)
|
|
(unaudited)
|
|
Pro forma total revenues
|
$
|
399
|
|
|
$
|
668
|
|
|
|
|
|
|
|
Pro forma net loss
|
$
|
(87)
|
|
|
$
|
(271)
|
|
3. Mortgage Servicing Rights and Related Liabilities
The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities. In estimating the fair value of all servicing rights and related liabilities, the impact of the COVID-19 pandemic was considered in the determination of key assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs and Related Liabilities
|
June 30, 2020
|
|
December 31, 2019
|
|
Forward MSRs - fair value
|
$
|
2,757
|
|
|
$
|
3,496
|
|
|
Reverse MSRs - amortized cost
|
6
|
|
|
6
|
|
|
Mortgage servicing rights
|
$
|
2,763
|
|
|
$
|
3,502
|
|
|
|
|
|
|
|
Mortgage servicing liabilities - amortized cost
|
$
|
48
|
|
|
$
|
61
|
|
|
|
|
|
|
|
Excess spread financing - fair value
|
$
|
1,124
|
|
|
$
|
1,311
|
|
|
Mortgage servicing rights financing - fair value
|
49
|
|
|
37
|
|
|
MSR related liabilities - nonrecourse at fair value
|
$
|
1,173
|
|
|
$
|
1,348
|
|
Mortgage Servicing Rights
The Company owns and records at fair value the rights to service traditional residential mortgage (“forward”) loans for others, either as a result of purchase transactions or from the retained servicing associated with the sales and securitizations of loans originated. MSRs are comprised of servicing rights of both agency and non-agency loans.
The following table sets forth the activities of forward MSRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
Forward MSRs - Fair Value
|
2020
|
|
2019
|
|
|
|
|
Fair value - beginning of period
|
$
|
3,496
|
|
|
$
|
3,665
|
|
|
|
|
|
Additions:
|
|
|
|
|
|
|
|
Servicing retained from mortgage loans sold
|
249
|
|
|
169
|
|
|
|
|
|
Purchases of servicing rights(1)
|
24
|
|
|
689
|
|
|
|
|
|
Dispositions:
|
|
|
|
|
|
|
|
Sales of servicing assets
|
—
|
|
|
(294)
|
|
|
|
|
|
Changes in fair value:
|
|
|
|
|
|
|
|
Changes in valuation inputs or assumptions used in the valuation model
|
(717)
|
|
|
(542)
|
|
|
|
|
|
Other changes in fair value
|
(295)
|
|
|
(182)
|
|
|
|
|
|
Fair value - end of period
|
$
|
2,757
|
|
|
$
|
3,505
|
|
|
|
|
(1)Purchases of servicing rights during the six months ended June 30, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 2, Acquisitions, for further discussion. In addition, in January 2019, the Company entered into a subservicing contract for $24 billion in mortgages, which were subsequently purchased in May 2019, resulting in additional $253 servicing rights in the second quarter of 2019.
From time to time, the Company sells its ownership interest in certain MSRs and is retained as the subservicer for the sold assets. The Company has evaluated the sale accounting requirements related to these transactions, including the Company’s continued involvement as the subservicer, and concluded that these transactions qualify for sale accounting treatment. During the six months ended June 30, 2020 and 2019, the Company sold $71 and $22,932 in unpaid principal balance (“UPB”) of forward MSRs, of which none and $20,560 were retained by the Company as subservicer, respectively.
MSRs measured at fair value are primarily segregated between credit sensitive and interest sensitive pools (referred to herein as “acquisition pools”). Credit sensitive pools are primarily impacted by borrower performance under specified repayment terms, which most directly impacts involuntary prepayments and delinquency rates. Interest sensitive pools are primarily impacted by changes in forecasted interest rates, which in turn impact voluntary prepayment speeds. The Company assesses whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition, and no subsequent changes are made. Numerous factors are considered in making this assessment, including loan-to-value ratios, FICO scores, percentage of portfolio previously modified, portfolio seasoning and similar criteria.
Credit sensitive portfolios generally consist of higher delinquency, single-family non-conforming residential forward mortgage loans serviced for agency and non-agency investors. Due to the Company’s focus on recapture and modifications, significant amounts of the credit sensitive portfolio have been re-underwritten and, therefore, behave more like the interest sensitive portfolio. Interest sensitive portfolios generally consist of lower delinquency, single-family conforming residential forward mortgage loans for agency investors.
MSRs measured at fair value are also segregated between investor type into agency and non-agency pools (referred to herein as “investor pools”) based upon contractual servicing agreements with investors at the respective balance sheet date to evaluate the MSR portfolio and fair value of the portfolio.
The following table provides a breakdown of UPB and fair value for the Company’s forward MSRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Forward MSRs - UPB and fair value breakdown
|
UPB
|
|
Fair Value
|
|
UPB
|
|
Fair Value
|
|
Acquisition Pools
|
|
|
|
|
|
|
|
|
Credit sensitive
|
$
|
131,105
|
|
|
$
|
1,307
|
|
|
$
|
147,895
|
|
|
$
|
1,613
|
|
|
Interest sensitive
|
146,870
|
|
|
1,450
|
|
|
148,887
|
|
|
1,883
|
|
|
Total
|
$
|
277,975
|
|
|
$
|
2,757
|
|
|
$
|
296,782
|
|
|
$
|
3,496
|
|
|
|
|
|
|
|
|
|
|
|
Investor Pools
|
|
|
|
|
|
|
|
|
Agency(1)
|
$
|
228,680
|
|
|
$
|
2,308
|
|
|
$
|
240,688
|
|
|
$
|
2,944
|
|
|
Non-agency(2)
|
49,295
|
|
|
449
|
|
|
56,094
|
|
|
552
|
|
|
Total
|
$
|
277,975
|
|
|
$
|
2,757
|
|
|
$
|
296,782
|
|
|
$
|
3,496
|
|
(1)Agency investors primarily consist of government sponsored enterprises (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan Mortgage Corp (“Freddie Mac” or “FHLMC”), and the Government National Mortgage Association (“Ginnie Mae” or “GNMA”).
(2)Non-agency investors consist of investors in private-label securitizations.
The Company used the following key weighted-average inputs and assumptions in estimating the fair value of forward MSRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward MSRs - Key inputs and assumptions
|
June 30, 2020
|
|
December 31, 2019
|
|
Total MSR Portfolio
|
|
|
|
|
Discount rate
|
9.5
|
%
|
|
9.7
|
%
|
|
Prepayment speeds
|
14.2
|
%
|
|
13.1
|
%
|
|
Average life
|
5.3 years
|
|
5.8 years
|
|
|
|
|
|
|
Acquisition Pools:
|
|
|
|
|
Credit Sensitive
|
|
|
|
|
Discount rate
|
9.9
|
%
|
|
10.4
|
%
|
|
Prepayment speeds
|
12.6
|
%
|
|
12.7
|
%
|
|
Average life
|
5.6 years
|
|
6.0 years
|
|
|
|
|
|
|
Interest Sensitive
|
|
|
|
|
Discount rate
|
9.0
|
%
|
|
9.1
|
%
|
|
Prepayment speeds
|
15.8
|
%
|
|
13.5
|
%
|
|
Average life
|
4.9 years
|
|
5.7 years
|
|
|
|
|
|
|
Investor Pools:
|
|
|
|
|
Agency
|
|
|
|
|
Discount rate
|
8.9
|
%
|
|
9.0
|
%
|
|
Prepayment speeds
|
14.4
|
%
|
|
13.0
|
%
|
|
Average life
|
5.2 years
|
|
5.8 years
|
|
|
|
|
|
|
Non-agency
|
|
|
|
|
Discount rate
|
12.0
|
%
|
|
12.6
|
%
|
|
Prepayment speeds
|
13.4
|
%
|
|
13.8
|
%
|
|
Average life
|
5.6 years
|
|
6.2 years
|
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
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
$
|
(104)
|
|
|
$
|
(201)
|
|
|
$
|
(175)
|
|
|
$
|
(335)
|
|
|
|
|
|
|
|
|
|
|
|
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 10% adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
Reverse Mortgage Servicing Rights and Liabilities - Amortized Cost
The Company services certain HECM reverse mortgage loans with an unpaid principal balance of $20,758 and $22,725 as of June 30, 2020 and December 31, 2019, respectively. The following table sets forth the activities of reverse MSRs and mortgage servicing liabilities (“MSL”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
Reverse MSRs and Liabilities - Amortized Cost
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Balance - beginning of period
|
$
|
6
|
|
|
$
|
61
|
|
|
$
|
11
|
|
|
$
|
71
|
|
|
Amortization/accretion
|
—
|
|
|
(13)
|
|
|
(1)
|
|
|
(28)
|
|
|
Adjustments(1)
|
—
|
|
|
—
|
|
|
(4)
|
|
|
37
|
|
|
Balance - end of the period
|
$
|
6
|
|
|
$
|
48
|
|
|
$
|
6
|
|
|
$
|
80
|
|
|
Fair value - end of period
|
$
|
6
|
|
|
$
|
12
|
|
|
$
|
7
|
|
|
$
|
44
|
|
(1)Reverse MSR and MSL net adjustments recorded by the Company during the six months ended June 30, 2019 primarily relate to the fair value adjustments for reverse MSR and MSL assumed from the Merger resulting from the revised cost to service assumption used in the valuation of reverse MSR and MSL during the measurement period.
Management evaluates reverse MSRs and MSLs each reporting period for impairment. Based on management’s assessment at June 30, 2020, no impairment or increased obligation was needed.
Excess Spread Financing - Fair Value
In order to finance the acquisition of certain MSRs on various Portfolios, the Company has entered into sale and assignment agreements with third parties and sold to these entities the right to receive a specified percentage of the excess cash flow generated from the portfolios in excess of a fixed base servicing fee per loan. The Company retains all the base servicing fee, ancillary income and interest float earnings on principal along with interest payments and escrows, and also incurs costs to service the specified pool. The Company is the legal owner and the servicer of the portfolios and provides all servicing and advancing functions.
In connection with the above transactions, the Company entered into recapture agreement obligations with third parties that require the Company to transfer the new loan or a replacement loan of similar economic characteristics into the respective portfolio if the Company recaptures any loan in the portfolio. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above. Accordingly, a recapture assumption is included within excess spread valuation.
The Company used the following weighted-average assumptions in the Company’s valuation of excess spread financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess Spread Financing Assumptions
|
June 30, 2020
|
|
December 31, 2019
|
|
Discount rate
|
12.0
|
%
|
|
11.6
|
%
|
|
Prepayment speeds
|
13.4
|
%
|
|
12.6
|
%
|
|
Recapture rate
|
18.7
|
%
|
|
20.1
|
%
|
|
Average life
|
5.4 years
|
|
5.8 years
|
The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
|
Prepayment Speeds
|
|
|
|
Excess Spread Financing - Hypothetical Sensitivities
|
100 bps
Adverse
Change
|
|
200 bps
Adverse
Change
|
|
10%
Adverse
Change
|
|
20%
Adverse
Change
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
Excess spread financing
|
$
|
38
|
|
|
$
|
78
|
|
|
$
|
47
|
|
|
$
|
97
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Excess spread financing
|
$
|
46
|
|
|
$
|
95
|
|
|
$
|
46
|
|
|
$
|
96
|
|
These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing. Excess spread financing’s cash flow assumptions that are utilized in determining fair value are based on the related cash flow assumptions used in the financed MSRs. Any fair value change recognized in the financed MSRs attributable to related cash flows assumptions would inherently have an inverse impact on the carrying amount of the related excess spread financing.
Mortgage Servicing Rights Financing - Fair Value
From December 2013 through June 2014, the Company entered into agreements to sell a contractually specified base servicing fee component of certain MSRs and servicing advances under specified terms to a joint venture capitalized by third-party investors. The purpose of this transaction was to facilitate the financing of advances for private label mortgages. The Company continues to be the named servicer, and, for accounting purposes, ownership of the MSR resides with the Company. Accordingly, the Company records the MSR and an MSR financing liability associated with this transaction in the consolidated balance sheets. The MSR financing liability reflects the incremental costs of this transaction relative to the market participant assumptions contained in the MSR valuation. The Company had MSR financing liability of $49 and $37 as of June 30, 2020 and December 31, 2019, respectively.
The following table sets forth the weighted-average assumptions used in the valuation of the mortgage servicing rights financing liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Servicing Rights Financing Assumptions
|
June 30, 2020
|
|
December 31, 2019
|
|
Advance financing rates
|
4.3
|
%
|
|
3.5
|
%
|
|
Annual advance recovery rates
|
18.6
|
%
|
|
18.8
|
%
|
Servicing Segment Revenues
The following table sets forth the items comprising total revenues for the Servicing segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Total Revenues - Servicing
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Contractually specified servicing fees(1)
|
$
|
285
|
|
|
$
|
307
|
|
|
$
|
582
|
|
|
$
|
588
|
|
|
Other service-related income(1)
|
62
|
|
|
32
|
|
|
111
|
|
|
82
|
|
|
Incentive and modification income(1)
|
8
|
|
|
10
|
|
|
18
|
|
|
17
|
|
|
Late fees(1)
|
20
|
|
|
27
|
|
|
47
|
|
|
52
|
|
|
Reverse servicing fees
|
7
|
|
|
8
|
|
|
13
|
|
|
17
|
|
|
Mark-to-market adjustments(2)
|
(261)
|
|
|
(231)
|
|
|
(644)
|
|
|
(524)
|
|
|
Counterparty revenue share(3)
|
(88)
|
|
|
(70)
|
|
|
(164)
|
|
|
(118)
|
|
|
Amortization, net of accretion(4)
|
(102)
|
|
|
(56)
|
|
|
(178)
|
|
|
(79)
|
|
|
Total revenues - Servicing
|
$
|
(69)
|
|
|
$
|
27
|
|
|
$
|
(215)
|
|
|
$
|
35
|
|
(1)The Company recognizes revenue on an earned basis for services performed. Amounts include subservicing related revenues.
(2)Mark-to-market (“MTM”) adjustments include fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $3 and $17 for the three months ended June 30, 2020 and 2019 and $13 and $28 for the six months ended June 30, 2020 and 2019, respectively.
(3)Counterparty revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSR financing arrangements.
(4)Amortization is net of excess spread accretion of $79 and $59 and MSL accretion of $5 and $11 for the three months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, amortization is net of excess spread accretion of $147 and $95 and MSL accretion of $13 and $29, respectively.
4. Advances and Other Receivables, Net
Advances and other receivables, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances and Other Receivables, Net
|
June 30, 2020
|
|
December 31, 2019
|
|
Servicing advances, net of $117 and $131 purchase discount, respectively
|
$
|
695
|
|
|
$
|
970
|
|
|
Receivables from agencies, investors and prior servicers, net of $21 and $21 purchase discount, respectively
|
189
|
|
|
193
|
|
|
Reserves
|
(216)
|
|
|
(175)
|
|
|
Total advances and other receivables, net
|
$
|
668
|
|
|
$
|
988
|
|
The Company, as loan servicer, is contractually responsible to advance funds on behalf of the borrower and investor primarily for loan principal and interest, property taxes and hazard insurance and foreclosure costs. Advances are primarily recovered through reimbursement from the investor, proceeds from sale of loan collateral, mortgage insurance claims or the borrower. Reserves for advances and other receivables on loans liquidated or purchased out of the MSR portfolio are established within advances and other receivables.
The following table sets forth the activities of the servicing reserves for advances and other receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Reserves for Advances and Other Receivables
|
2020
|
|
|
2019
|
|
2020
|
|
2019
|
|
Balance - beginning of period
|
$
|
193
|
|
|
|
$
|
71
|
|
|
$
|
168
|
|
|
$
|
47
|
|
|
Provision and other additions(1)
|
29
|
|
|
|
37
|
|
|
59
|
|
|
67
|
|
|
Write-offs
|
(6)
|
|
|
|
(10)
|
|
|
(11)
|
|
|
(16)
|
|
|
Balance - end of period
|
$
|
216
|
|
|
|
$
|
98
|
|
|
$
|
216
|
|
|
$
|
98
|
|
(1)The Company recorded a provision of $3 and $17 through the MTM adjustments in revenues - service related, net, in the consolidated statements of operations for the three months ended June 30, 2020 and 2019, respectively, and $13 and $28 for the six months ended June 30, 2020 and 2019, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.
Purchase Discount for Advances and Other Receivables
In connection with the acquisition of Pacific Union in February 2019, the Company recorded the acquired advances and other receivables at estimated fair value as of the acquisition date, which resulted in a purchase discount of $19. Refer to Note 2, Acquisitions, for discussion of the Pacific Union acquisition. In 2018, the Company recorded the acquired advances and other receivables in connection with the Merger at estimated fair value as of the acquisition date, which resulted in a purchase discount of $302.
As of June 30, 2020, a total of $183 purchase discount has been utilized, with $138 purchase discount remaining.
The following tables set forth the activities of the purchase discounts for advances and other receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
Purchase Discount for Advances and Other Receivables
|
Servicing Advances
|
|
Receivables from Agencies, Investors and Prior Servicers
|
|
Servicing Advances
|
|
Receivables from Agencies, Investors and Prior Servicers
|
|
Balance - beginning of period
|
$
|
125
|
|
|
$
|
21
|
|
|
$
|
169
|
|
|
$
|
48
|
|
|
Utilization of purchase discounts
|
(8)
|
|
|
—
|
|
|
(13)
|
|
|
—
|
|
|
Balance - end of period
|
$
|
117
|
|
|
$
|
21
|
|
|
$
|
156
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
Purchase Discount for Advances and Other Receivables
|
Servicing Advances
|
|
Receivables from Agencies, Investors and Prior Servicers
|
|
Servicing Advances
|
|
Receivables from Agencies, Investors and Prior Servicers
|
|
Balance - beginning of period
|
$
|
131
|
|
|
$
|
21
|
|
|
$
|
205
|
|
|
$
|
48
|
|
|
Addition from acquisition
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
Utilization of purchase discounts
|
(14)
|
|
|
—
|
|
|
(68)
|
|
|
—
|
|
|
Balance - end of period
|
$
|
117
|
|
|
$
|
21
|
|
|
$
|
156
|
|
|
$
|
48
|
|
Credit Loss for Advances and Other Receivables
As described in Note 1, Nature of Business and Basis of Presentation, advances and other receivables are within the scope of ASU 2016-13, and the Company modified its accounting policy regarding its assessment of reserves for credit-related losses in accordance with CECL framework. During the three and six months ended June 30, 2020, the Company increased the CECL reserve by $8 and $14, respectively. As of June 30, 2020, the total CECL reserve was $31, of which $14 and $17 was recorded in reserves and purchase discount for advances and other receivables, respectively.
Based upon the Company’s application of ASU 2016-13, the Company determined that the credit-related risk associated with applicable financial instruments typically increase with the passage of time. The CECL reserve methodology considers these financial instruments collectible to a point in time of 39 months. Any projected remaining balance at the end of the collection period is considered a loss and factors into the overall CECL loss rate required.
5. Reverse Mortgage Interests, Net
Reverse mortgage interests, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse Mortgage Interests, Net
|
June 30, 2020
|
|
December 31, 2019
|
|
Participating interests in HECM mortgage-backed securities (“HMBS”)
|
$
|
3,873
|
|
|
$
|
4,282
|
|
|
Other interests securitized
|
825
|
|
|
994
|
|
|
Unsecuritized interests
|
1,138
|
|
|
1,117
|
|
|
Purchase discount, net
|
(127)
|
|
|
(114)
|
|
|
Total reverse mortgage interests, net
|
$
|
5,709
|
|
|
$
|
6,279
|
|
Participating Interests in HMBS
Participating interests in HMBS consist of the Company’s reverse mortgage interests in HECM loans which have been transferred to GNMA and subsequently securitized through the issuance of HMBS. The Company does not own these loans, but due to HMBS program buyout requirements, such interests are consolidated in Company’s consolidated balance sheets. The Company does not originate reverse mortgages, but during the six months ended June 30, 2020 and 2019, a total of $95 and $149 in UPB associated with new draws on existing loans was transferred to GNMA and securitized by the Company, respectively.
In March 2019, the Company entered into an agreement with Fannie Mae for the transfer of reverse mortgage loans. As a result, $61 was transferred from Fannie Mae and securitized into GNMA HMBS during the six months ended June 30, 2019. There was no such activity during the six months ended June 30, 2020.
Other Interests Securitized
Other interests securitized consist of reverse mortgage interests that no longer meet HMBS program eligibility criteria primarily because they have reached 98% of their Max Claim Amount (“MCA”), which is established at origination and in accordance with HMBS program guidelines, requiring a repurchase of loans from the respective HMBS trust. These reverse mortgage interests have subsequently been transferred to private securitization trusts and are accounted for as a secured borrowing. No such securitizations occurred during the six months ended June 30, 2020. During the six months ended June 30, 2019, the Company securitized a total of $398 UPB through Trust 2019-1 and a total of $249 UPB from Trust 2017-2 was called and the related debt was extinguished. The Company sold $20 UPB of Trust 2018-3 during the six months ended June 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
|
June 30, 2020
|
|
December 31, 2019
|
|
Repurchased HECM loans (exceeds 98% MCA)
|
$
|
804
|
|
|
$
|
789
|
|
|
HECM related receivables(1)
|
244
|
|
|
250
|
|
|
Funded borrower draws not yet securitized
|
53
|
|
|
64
|
|
|
Real estate owned (“REO”) related receivables
|
37
|
|
|
14
|
|
|
Total unsecuritized interests
|
$
|
1,138
|
|
|
$
|
1,117
|
|
(1)HECM related receivables consist primarily of receivables from FNMA for corporate advances and service fees and claims receivables from the U.S. Department of Housing and Urban Development (“HUD”) on reverse mortgage interests.
Unsecuritized interests include repurchased HECM loans for which the Company is required to repurchase from the HMBS pool when the outstanding principal balance of the HECM loan is equal to or greater than 98% of the MCA established at origination and in accordance with HMBS program guidelines. These unsecuritized interests are primarily financed through available warehouse lines. The Company repurchased a total of $686 and $1,457 of HECM loans out of GNMA HMBS securitizations during the six months ended June 30, 2020 and 2019, respectively, of which $186 and $371 were subsequently assigned to a third party in accordance with applicable servicing agreements, respectively. To the extent a loan is not subject to applicable servicing agreements and assigned to a third party, the loan is either subject to assignment to HUD, per contractual obligations with GNMA, liquidated via a payoff from the borrower or liquidated via a foreclosure according to the terms of the underlying mortgage. The Company assigned a total of $461 and $983 of HECM loans to HUD during the six months ended June 30, 2020 and 2019, respectively.
Purchase Discount, net, for Reverse Mortgage Interests
In connection with the Merger, the Company recorded the acquired reverse mortgage interests at estimated fair value as of the acquisition date, which resulted in a net purchase discount of $256 associated with financial and operational losses on reverse mortgage interests associated with servicing the loans through foreclosure and collateral liquidation. The premium and discount are amortized and accreted, respectively, based on the effective yield method, whereby the Company updates its prepayment assumptions for actual prepayments on a quarterly basis. Consistent with the Company’s accounting policy, the Company calculates reserve requirements on the reverse mortgage interest portfolio each reporting period and compares such calculated reserve requirements against the remaining net purchase discount. If the calculated reserve requirements exceed the remaining net purchase discount, the Company will record an additional reserve and associated provision to general and administrative expense. No additional reserves were required to be recorded as of June 30, 2020.
The following table sets forth the activities of the purchase discounts, net, for reverse mortgage interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Purchase discount, net, for reverse mortgage interests(1)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Balance - beginning of period
|
$
|
(129)
|
|
|
$
|
(171)
|
|
|
$
|
(114)
|
|
|
$
|
(164)
|
|
|
Adjustments(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(24)
|
|
|
Utilization of purchase discounts(3)
|
9
|
|
|
12
|
|
|
19
|
|
|
40
|
|
|
Amortization, net of accretion
|
(7)
|
|
|
(4)
|
|
|
(32)
|
|
|
(15)
|
|
|
Balance - end of period
|
$
|
(127)
|
|
|
$
|
(163)
|
|
|
$
|
(127)
|
|
|
$
|
(163)
|
|
(1)Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans.
(2)Adjustments during the six months ended June 30, 2019 due to revised cost to service assumption utilized in the valuation of reverse mortgage assets and liabilities acquired from the Merger.
(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 June 30, 2020.
The credit-risk characteristics of reverse mortgage interests do not vary with time as the financial instruments have no contractual life or financial profile as the primary counterparty is the government agency insuring the loans.
Reverse Mortgage Interest Income
The Company accrues interest income for its participating interest in reverse mortgages based on the stated rates underlying HECM loans, in accordance with FHA guidelines. Total interest earned on the Company’s reverse mortgage interests was $55 and $85 for the three months ended June 30, 2020 and 2019, respectively, and $117 and $167 for the six months ended June 30, 2020 and 2019, respectively.
6. Mortgage Loans Held for Sale
The Company maintains a strategy of originating and purchasing residential mortgage loan products primarily for the purpose of selling to GSEs or other third-party investors in the secondary market on a servicing-retained basis. The Company purchases closed loans through its correspondent channel and assists customers currently in the Company’s servicing portfolio with refinancing of loans or new home purchases through its direct-to-consumer channel. Generally, all newly originated mortgage loans held for sale are securitized and transferred to GSEs or delivered to third-party purchasers shortly after origination on a servicing-retained basis.
Mortgage loans held for sale are recorded at fair value as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans Held for Sale
|
June 30, 2020
|
|
December 31, 2019
|
|
Mortgage loans held for sale – UPB
|
$
|
3,033
|
|
|
$
|
3,949
|
|
|
Mark-to-market adjustment(1)
|
146
|
|
|
128
|
|
|
Total mortgage loans held for sale
|
$
|
3,179
|
|
|
$
|
4,077
|
|
(1)The mark-to-market adjustment is recorded in net gain on mortgage loans held for sale in the consolidated statements of operations.
The following table sets forth the activities of mortgage loans held for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Mortgage Loans Held for Sale
|
2020
|
|
2019
|
|
Balance - beginning of period
|
$
|
4,077
|
|
|
$
|
1,631
|
|
|
Loans sold
|
(26,149)
|
|
|
(15,203)
|
|
|
Mortgage loans originated and purchased, net of fees
|
23,110
|
|
|
16,263
|
|
|
Repurchase of loans out of Ginnie Mae securitizations
|
2,092
|
|
|
715
|
|
|
Changes in fair value
|
42
|
|
|
16
|
|
|
Net transfers of mortgage loans held for sale(1)
|
7
|
|
|
—
|
|
|
Balance - end of period
|
$
|
3,179
|
|
|
$
|
3,422
|
|
(1)Amount reflects transfers to other assets for loans transitioning into REO status and transfers to advances and other receivables, net, for claims made on certain government insurance mortgage loans. Transfers out are net of transfers in upon receipt of proceeds from an REO sale or claim filing.
For the six months ended June 30, 2020 and 2019, the Company received proceeds of $26,606 and $15,422, respectively, on the sale of mortgage loans held for sale, resulting in gains of $457 and $219, respectively.
The Company has the right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including having not received borrower payments for greater than 90 days. The majority of Ginnie Mae repurchased loans are repurchased in connection with loan modifications and loan resolution activity, with the intent to re-pool into new Ginnie Mae securitizations upon re-performance of the loan or to otherwise sell to third-party investors. Therefore, these loans are classified as held for sale.
The Company accrues interest income as earned and places loans on non-accrual status after any portion of principal or interest has been delinquent for more than 90 days. Accrued interest is recorded as interest income in the consolidated statements of operations.
The total UPB and fair value of mortgage loans held for sale on non-accrual status was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Mortgage Loans Held for Sale
|
UPB
|
|
Fair Value
|
|
UPB
|
|
Fair Value
|
|
Non-accrual(1)
|
$
|
35
|
|
|
$
|
25
|
|
|
$
|
29
|
|
|
$
|
22
|
|
(1)Non-accrual UPB includes $27 and $25 of UPB related to Ginnie Mae repurchased loans as of June 30, 2020 and December 31, 2019, respectively.
The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $21 and $21 as of June 30, 2020 and December 31, 2019, respectively.
7. Other Assets
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
June 30, 2020
|
|
December 31, 2019
|
|
Loans subject to repurchase right from Ginnie Mae
|
$
|
1,171
|
|
|
$
|
560
|
|
|
Derivative financial instruments
|
391
|
|
|
153
|
|
|
Trade receivables and accrued revenues
|
133
|
|
|
126
|
|
|
Goodwill
|
120
|
|
|
120
|
|
|
Operating lease right-of-use assets
|
108
|
|
|
121
|
|
|
Intangible assets
|
54
|
|
|
74
|
|
|
Other
|
197
|
|
|
236
|
|
|
Total other assets
|
$
|
2,174
|
|
|
$
|
1,390
|
|
Loans Subject to Repurchase Right from Ginnie Mae
Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. The Company, as the issuer of the mortgage backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including payments not being received from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its consolidated balance sheets and establishes a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. Loans subject to repurchase from Ginnie Mae as of June 30, 2020 include $818 loans in forbearance related to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) whereby no payments have been received from borrowers for greater than 90 days.
Derivative Financial Instruments
See Note 8, Derivative Financial Instruments, for further details on derivative financial instruments.
Trade Receivables and Accrued Revenues
Trade receivables and accrued revenues are primarily comprised of trade receivables and service fees earned but not received based upon the terms of the Company’s servicing and subservicing agreements. As described in Note 1, Nature of Business and Basis of Presentation, certain trade receivables and accrued revenues included in other assets are within the scope of ASU 2016-13, requiring an assessment of CECL losses. As of June 30, 2020, the total CECL reserve was $4.
The credit-risk characteristics of trade receivables included in other assets and within the scope of ASU 2016-13 do not change with time as they are primarily short-term in nature. However, the Company does monitor the financial status of customers to determine if any specific loss considerations are required.
Goodwill and Intangible Assets
In 2019, the Company recorded goodwill and intangible assets of $40 and $13, respectively, in connection with the acquisition of Pacific Union. See further discussion in Note 2, Acquisitions. The Company recorded a $4 impairment of technology intangible assets within Corporate/Other segment during the six months ended June 30, 2020 in connection with an ancillary business. The impairment charges were included in the general and administrative expenses in the consolidated statements of operations. There was no impairment expense for intangible assets during the six months ended June 30, 2019.
Operating Lease Right-of-Use (“ROU”) Assets
Operating lease ROU assets represent the Company’s right to use an underlying leased asset during the lease term.
Other
Other primarily includes prepaid expenses, margin call deposits, REO, tax receivables, receivables related to recent loan transfers and various receivables due from investors. REO includes $6 and $11 of REO-related receivables with government insurance as of June 30, 2020 and December 31, 2019, respectively, limiting loss exposure to the Company.
8. Derivative Financial Instruments
Derivative instruments are used as part of the overall strategy to manage exposure to market risks primarily associated with fluctuations in interest rates related to originations. Derivative instruments utilized by the Company primarily include interest rate lock commitments (“IRLCs”), loan purchase commitments (“LPCs”), forward Mortgage Backed Securities (“MBS”) purchase commitments, Eurodollar and Treasury futures and interest rate swap agreements.
Associated with the Company’s derivatives are $23 and $6 in collateral deposits on derivative instruments recorded in other assets on the Company’s consolidated balance sheets as of June 30, 2020 and December 31, 2019, respectively. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the consolidated balance sheets.
The following tables provide the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses) for the derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Derivative Financial Instruments
|
Expiration
Dates
|
|
Outstanding
Notional
|
|
Fair
Value
|
|
|
|
Recorded Gains/(Losses)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
|
Loan sale commitments
|
2020
|
|
$
|
1,673
|
|
|
$
|
81
|
|
|
|
|
$
|
48
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
IRLCs
|
2020
|
|
9,227
|
|
|
370
|
|
|
|
|
235
|
|
|
LPCs
|
2020
|
|
1,823
|
|
|
18
|
|
|
|
|
6
|
|
|
Forward MBS trades
|
2020
|
|
1,239
|
|
|
3
|
|
|
|
|
(3)
|
|
|
Eurodollar futures
|
2020-2021
|
|
6
|
|
|
—
|
|
|
|
|
—
|
|
|
Total derivative financial instruments - assets
|
|
|
$
|
12,295
|
|
|
$
|
391
|
|
|
|
|
$
|
238
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LPCs
|
2020
|
|
$
|
55
|
|
|
$
|
—
|
|
|
|
|
$
|
(2)
|
|
|
Forward MBS trades
|
2020
|
|
10,119
|
|
|
50
|
|
|
|
|
37
|
|
|
Eurodollar futures
|
2020-2021
|
|
5
|
|
|
—
|
|
|
|
|
—
|
|
|
Total derivative financial instruments - liabilities
|
|
|
$
|
10,179
|
|
|
$
|
50
|
|
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
Six Months Ended June 30, 2019
|
|
Derivative Financial Instruments
|
Expiration
Dates
|
|
Outstanding
Notional
|
|
Fair
Value
|
|
Recorded Gains/(Losses)
|
|
Assets
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
Loan sale commitments
|
2019
|
|
$
|
1,659
|
|
|
$
|
47
|
|
|
$
|
21
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
IRLCs
|
2019
|
|
3,649
|
|
|
110
|
|
|
51
|
|
|
LPCs
|
2019
|
|
1,327
|
|
|
17
|
|
|
15
|
|
|
Forward MBS trades
|
2019
|
|
762
|
|
|
1
|
|
|
(1)
|
|
|
Eurodollar futures
|
2019-2021
|
|
8
|
|
|
—
|
|
|
—
|
|
|
Total derivative financial instruments - assets
|
|
|
$
|
5,746
|
|
|
$
|
128
|
|
|
$
|
65
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
IRLCs
|
2019
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
LPCs
|
2019
|
|
212
|
|
|
1
|
|
|
1
|
|
|
Forward MBS trades
|
2019
|
|
4,932
|
|
|
30
|
|
|
6
|
|
|
Eurodollar futures
|
2019-2021
|
|
12
|
|
|
—
|
|
|
—
|
|
|
Total derivative financial instruments - liabilities
|
|
|
$
|
5,160
|
|
|
$
|
31
|
|
|
$
|
7
|
|
9. Indebtedness
Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Advance Facilities
|
|
Interest Rate
|
|
Maturity Date
|
|
Collateral
|
|
Capacity Amount
|
|
Outstanding
|
|
Collateral Pledged
|
|
Outstanding
|
|
Collateral pledged
|
|
$875 advance facility(1)
|
|
CP+2.5% to 6.5%
|
|
April 2021
|
|
Servicing advance receivables
|
|
$
|
875
|
|
|
$
|
193
|
|
|
$
|
220
|
|
|
$
|
37
|
|
|
$
|
88
|
|
|
$425 advance facility(2)
|
|
LIBOR+2.8% to 6.5%
|
|
October 2021
|
|
Servicing advance receivables
|
|
425
|
|
|
211
|
|
|
273
|
|
|
224
|
|
|
285
|
|
|
$250 advance facility(3)
|
|
LIBOR+1.5% to 2.6%
|
|
December 2020
|
|
Servicing advance receivables
|
|
250
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
167
|
|
|
$200 advance facility
|
|
LIBOR+2.5%
|
|
January 2021
|
|
Servicing advance receivables
|
|
200
|
|
|
76
|
|
|
106
|
|
|
63
|
|
|
125
|
|
|
Advance facilities principal amount
|
|
|
|
|
|
|
|
|
|
480
|
|
|
$
|
599
|
|
|
422
|
|
|
$
|
665
|
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
|
—
|
|
|
|
|
Advance facilities, net
|
|
|
|
|
|
|
|
|
|
$
|
475
|
|
|
|
|
$
|
422
|
|
|
|
(1)The capacity amount for this advance facility increased from $125 to $875 in April 2020.
(2)The capacity amount for this advance facility increased from $325 to $425 in April 2020.
(3)This advance facility was terminated and transferred to another advance facility in April 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Warehouse Facilities
|
|
Interest Rate
|
|
Maturity Date
|
|
Collateral
|
|
Capacity Amount
|
|
Outstanding
|
|
Collateral pledged
|
|
Outstanding
|
|
Collateral pledged
|
|
$1,500 warehouse facility
|
|
LIBOR+1.7%
|
|
June 2021
|
|
Mortgage loans or MBS
|
|
$
|
1,500
|
|
|
$
|
669
|
|
|
$
|
637
|
|
|
$
|
759
|
|
|
$
|
733
|
|
|
$1,200 warehouse facility
|
|
LIBOR+1.5% to 3.0%
|
|
November 2020
|
|
Mortgage loans or MBS
|
|
1,200
|
|
|
568
|
|
|
606
|
|
|
683
|
|
|
724
|
|
|
$800 warehouse facility(1)
|
|
LIBOR+2.1% to 3.8%
|
|
April 2021
|
|
Mortgage loans or MBS
|
|
800
|
|
|
642
|
|
|
700
|
|
|
589
|
|
|
656
|
|
|
$750 warehouse facility
|
|
LIBOR+1.4% to 2.8%
|
|
September 2020
|
|
Mortgage loans or MBS
|
|
750
|
|
|
572
|
|
|
583
|
|
|
411
|
|
|
425
|
|
|
$700 warehouse facility
|
|
LIBOR+1.3% to 2.2%
|
|
November 2020
|
|
Mortgage loans or MBS
|
|
700
|
|
|
624
|
|
|
644
|
|
|
469
|
|
|
488
|
|
|
$600 warehouse facility
|
|
LIBOR+2.2%
|
|
February 2021
|
|
Mortgage loans or MBS
|
|
600
|
|
|
233
|
|
|
278
|
|
|
174
|
|
|
202
|
|
|
$500 warehouse facility
|
|
LIBOR+2.5% to 4.0%
|
|
May 2021
|
|
Mortgage loans or MBS
|
|
500
|
|
|
—
|
|
|
1
|
|
|
336
|
|
|
349
|
|
|
$250 warehouse facility(2)
|
|
LIBOR+1.4% to 2.3%
|
|
September 2020
|
|
Mortgage loans or MBS
|
|
250
|
|
|
—
|
|
|
—
|
|
|
762
|
|
|
783
|
|
|
$200 warehouse facility
|
|
LIBOR+1.4%
|
|
January 2021
|
|
Mortgage loans or MBS
|
|
200
|
|
|
175
|
|
|
175
|
|
|
136
|
|
|
136
|
|
|
$200 warehouse facility
|
|
LIBOR+2.5%
|
|
May 2021
|
|
Mortgage loans or MBS
|
|
200
|
|
|
50
|
|
|
74
|
|
|
54
|
|
|
78
|
|
|
$200 warehouse facility
|
|
LIBOR+1.8%
|
|
April 2021
|
|
Mortgage loans or MBS
|
|
200
|
|
|
19
|
|
|
19
|
|
|
27
|
|
|
27
|
|
|
$200 warehouse facility
|
|
LIBOR+1.3%
|
|
October 2020
|
|
Mortgage loans or MBS
|
|
200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$50 warehouse facility
|
|
LIBOR+1.8% to 4.8%
|
|
April 2021
|
|
Mortgage loans or MBS
|
|
50
|
|
|
31
|
|
|
36
|
|
|
11
|
|
|
15
|
|
|
$40 warehouse facility
|
|
LIBOR+3.3%
|
|
September 2020
|
|
Mortgage loans or MBS
|
|
40
|
|
|
4
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
Warehouse facilities principal amount
|
|
|
|
|
|
|
|
|
|
3,587
|
|
|
3,757
|
|
|
4,416
|
|
|
4,622
|
|
|
MSR Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$450 warehouse facility(3)
|
|
LIBOR+5.1%
|
|
May 2021
|
|
MSR
|
|
450
|
|
|
300
|
|
|
628
|
|
|
150
|
|
|
945
|
|
|
$400 warehouse facility
|
|
LIBOR+2.3%
|
|
December 2020
|
|
MSR
|
|
400
|
|
|
75
|
|
|
176
|
|
|
—
|
|
|
200
|
|
|
$150 warehouse facility(1)
|
|
LIBOR+3.8%
|
|
April 2021
|
|
MSR
|
|
150
|
|
|
40
|
|
|
117
|
|
|
—
|
|
|
130
|
|
|
$50 warehouse facility
|
|
LIBOR+2.8%
|
|
August 2020
|
|
MSR
|
|
50
|
|
|
30
|
|
|
87
|
|
|
10
|
|
|
84
|
|
|
MSR facilities principal amount
|
|
|
|
|
|
|
|
|
|
445
|
|
|
1,008
|
|
|
160
|
|
|
1,359
|
|
|
Warehouse and MSR facilities principal amount
|
|
|
|
|
|
|
|
|
|
4,032
|
|
|
$
|
4,765
|
|
|
4,576
|
|
|
$
|
5,981
|
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
(1)
|
|
|
|
|
Warehouse facilities, net
|
|
|
|
|
|
|
|
|
|
$
|
4,031
|
|
|
|
|
$
|
4,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged Collateral:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
$
|
2,963
|
|
|
$
|
3,016
|
|
|
$
|
3,826
|
|
|
$
|
3,931
|
|
|
Reverse mortgage interests
|
|
|
|
|
|
|
|
|
|
624
|
|
|
741
|
|
|
590
|
|
|
691
|
|
|
MSR
|
|
|
|
|
|
|
|
|
|
445
|
|
|
1,008
|
|
|
160
|
|
|
1,359
|
|
(1)Total capacity amount for this facility is $800 of which $150 is a sublimit for MSR financing.
(2)The capacity amount for this warehouse facility decreased from $1,000 to $250 in May 2020.
(3)The capacity amount for this MSR facility increased from $400 to $450 in May 2020.
Unsecured Senior Notes
Unsecured senior notes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured senior notes
|
June 30, 2020
|
|
December 31, 2019
|
|
$950 face value, 8.125% interest rate payable semi-annually, due July 2023
|
$
|
950
|
|
|
$
|
950
|
|
|
$750 face value, 9.125% interest rate payable semi-annually, due July 2026
|
750
|
|
|
750
|
|
|
$600 face value, 6.000% interest rate payable semi-annually, due January 2027(1)
|
600
|
|
|
—
|
|
|
$600 face value, 6.500% interest rate payable semi-annually, due July 2021(2)
|
—
|
|
|
492
|
|
|
$300 face value, 6.500% interest rate payable semi-annually, due June 2022(2)
|
—
|
|
|
206
|
|
|
Unsecured senior notes principal amount
|
2,300
|
|
|
2,398
|
|
|
Unamortized debt issuance costs, premium and discount
|
(39)
|
|
|
(32)
|
|
|
Unsecured senior notes, net
|
$
|
2,261
|
|
|
$
|
2,366
|
|
(1)On January 16, 2020, the Company completed an offering of $600 aggregate principal amount of 6.000% Senior Notes due 2027 (the “2027 Notes”).
(2)This note was redeemed in full on February 15, 2020 using the net proceeds of the 2027 Notes offering, together with cash on hand.
The ratios included in the indentures for the unsecured senior notes are incurrence-based compared to the customary ratio covenants that are often found in credit agreements that require a company to maintain a certain ratio. The incurrence-based covenants limit the issuer(s) and restricted subsidiaries ability to incur additional indebtedness, pay dividends, make certain investments, create liens, consolidate, merge or sell substantially all of their assets or enter into certain transactions with affiliates. The indentures contain certain events of default, including (subject, in some cases, to customary cure periods and materiality thresholds) defaults based on (i) the failure to make payments under the applicable indenture when due, (ii) breach of covenants, (iii) cross-defaults to certain other indebtedness, (iv) certain bankruptcy or insolvency events, (v) material judgments and (vi) invalidity of material guarantees.
The indentures provide that on or before certain fixed dates, the Company may redeem up to 40% of the aggregate principal amount of the unsecured senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest, to the redemption dates, subject to compliance with certain conditions. In addition, the Company may redeem all or a portion of the unsecured senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. No notes were repurchased or redeemed during the three months ended June 30, 2020. During the six months ended June 30, 2020, the Company repaid $100 in principal of outstanding notes. Additionally, the Company redeemed $598 in principal of outstanding notes during the six months ended June 30, 2020, resulting in a gain of $1. No notes were repurchased or redeemed during the three and six months ended June 30, 2019.
As of June 30, 2020, the expected maturities of the Company’s unsecured senior notes based on contractual maturities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
2020
|
|
$
|
—
|
|
|
2021
|
|
—
|
|
|
2022
|
|
—
|
|
|
2023
|
|
950
|
|
|
2024
|
|
—
|
|
|
Thereafter
|
|
1,350
|
|
|
Total unsecured senior notes principal amount
|
|
$
|
2,300
|
|
Other Nonrecourse Debt
Other nonrecourse debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Other nonrecourse debt
|
Issue Date
|
|
Maturity Date
|
|
Class of Note
|
|
Collateral Amount
|
|
Outstanding
|
|
Outstanding
|
|
Participating interest financing(1)
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
$
|
3,875
|
|
|
$
|
4,284
|
|
|
Securitization of nonperforming HECM loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust 2019-2
|
November 2019
|
|
November 2029
|
|
A, M1, M2, M3, M4, M5
|
|
287
|
|
|
274
|
|
|
333
|
|
|
Trust 2019-1
|
June 2019
|
|
June 2029
|
|
A, M1, M2, M3, M4, M5
|
|
264
|
|
|
244
|
|
|
302
|
|
|
Trust 2018-3
|
November 2018
|
|
November 2028
|
|
A, M1, M2, M3, M4, M5
|
|
200
|
|
|
179
|
|
|
209
|
|
|
Trust 2018-2
|
July 2018
|
|
July 2028
|
|
A, M1, M2, M3, M4, M5
|
|
149
|
|
|
127
|
|
|
148
|
|
|
Other nonrecourse debt principal amount
|
|
|
|
|
|
|
|
|
4,699
|
|
|
5,276
|
|
|
Unamortized debt issuance costs, premium and discount
|
|
|
|
|
|
|
|
|
8
|
|
|
10
|
|
|
Other nonrecourse debt, net
|
|
|
|
|
|
|
|
|
$
|
4,707
|
|
|
$
|
5,286
|
|
(1)Amounts represent the Company’s participating interest in GNMA HMBS securitized portfolios.
Participating Interest Financing
Participating interest financing represents the obligation of HMBS pools to third-party security holders. The Company issues HMBS in connection with the securitization of borrower draws and accrues interest on HECM loans. Proceeds are received in exchange for securitized advances on the HECM loan amounts transferred to GNMA, and the Company retains a beneficial interest (referred to as a “participating interest”) in the securitization trust in which the HECM loans and HMBS obligations are held and assume both issuer and servicer responsibilities in accordance with GNMA HMBS program guidelines. Monthly cash flows generated from the HECM loans are used to service the HMBS obligations. The interest rate is based on the underlying HMBS rate with a range of 0.6% to 5.6%.
Securitizations of Nonperforming HECM Loans
From time to time, the Company securitizes its interests in non-performing reverse mortgages. The transactions provide investors with the ability to invest in a pool of both non-performing HECM loans secured by one-to-four-family residential properties and a pool of REO properties acquired through foreclosure of a deed in lieu of foreclosure in connection with HECM loans that are covered by FHA insurance. The transactions provide the Company with access to liquidity for the non-performing HECM loan portfolio, ongoing servicing fees, and potential residual returns. The transactions are structured as secured borrowings with the reverse mortgage loans included in the consolidated financial statements as reverse mortgage interests and the related financing included in other nonrecourse debt. Interest is accrued at a rate of 2.3% to 6.0% on the outstanding securitized notes and recorded as interest expense in consolidated statements of operations. The HECM securitizations are callable with expected weighted average lives of less than one to three years. The Company may re-securitize the previously called loans from earlier HECM securitizations to achieve a lower cost of funds.
Financial Covenants
The Company’s credit facilities contain various financial covenants which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements, which are measured at the Company’s operating subsidiary, Nationstar Mortgage LLC. The Company was in compliance with its required financial covenants as of June 30, 2020.
10. Payables and Other Liabilities
Payables and other liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables and other liabilities
|
June 30, 2020
|
|
December 31, 2019
|
|
Loans subject to repurchase right from Ginnie Mae
|
$
|
1,171
|
|
|
$
|
560
|
|
|
Payables to servicing and subservicing investors
|
345
|
|
|
423
|
|
|
Payable to GSEs and securitized trusts
|
129
|
|
|
182
|
|
|
Operating lease liabilities
|
121
|
|
|
135
|
|
|
Derivative financial instruments
|
50
|
|
|
15
|
|
|
Other liabilities
|
644
|
|
|
701
|
|
|
Total payables and other liabilities
|
$
|
2,460
|
|
|
$
|
2,016
|
|
Loans Subject to Repurchase Right from Ginnie Mae
See Note 7, Other Assets, for a description of assets and liabilities related to loans subject to repurchase right from Ginnie Mae. Loans subject to repurchase from Ginnie Mae as of June 30, 2020 include $818 loans in forbearance related to the CARES Act whereby no payments have been received from borrowers for greater than 90 days.
Payables to Servicing and Subservicing Investors and Payables to GSEs and Securitized Trusts
Payables to servicing and subservicing investors, GSEs and securitized trusts represent amounts due to investors, GSEs and securitized trusts in connection with loans serviced that are paid from collections of the underlying loans, insurance proceeds or proceeds from property disposal.
Derivative Financial Instruments
See Note 8, Derivative Financial Instruments, for further details on derivative financial instruments.
Operating Lease Liabilities
Operating lease liabilities represent the Company’s obligation to make lease payments arising from a lease, measured on a discount basis.
Other Liabilities
Other liabilities primarily include accrued bonus and payroll, accrued interest, accrued legal expenses, payables to insurance carriers and insurance cancellation reserves, repurchase reserves, accounts payable and other accrued liabilities. Payables to insurance carriers and insurance cancellation reserves consist of insurance premiums received from borrower payments awaiting disbursement to the insurance carrier and/or amounts due to third-party investors on liquidated loans.
The following table sets forth the activities of the repurchase reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Repurchase Reserves
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Balance - beginning of period
|
$
|
29
|
|
|
$
|
16
|
|
|
$
|
25
|
|
|
$
|
8
|
|
|
Provisions
|
4
|
|
|
8
|
|
|
9
|
|
|
16
|
|
|
Releases
|
(4)
|
|
|
(1)
|
|
|
(5)
|
|
|
(1)
|
|
|
Balance - end of period
|
$
|
29
|
|
|
$
|
23
|
|
|
$
|
29
|
|
|
$
|
23
|
|
The provision for repurchases represents an estimate of losses to be incurred on the repurchase of loans or indemnification of purchaser’s losses related to forward loans. Certain sale contracts and GSE standards require the Company to repurchase a loan or indemnify the purchaser or insurer for losses if a borrower fails to make initial loan payments or if the accompanying mortgage loan fails to meet certain customary representations and warranties with respect to underwriting standards.
The Company regularly evaluates the adequacy of repurchase reserves based on trends in repurchase and indemnification requests, actual loss experience, settlement negotiation, estimated future loss exposure and other relevant factors including economic conditions. Current loss rates have significantly declined attributable to stronger underwriting standards and due to the falloff of loans underwritten prior to the mortgage loan crisis period prior to 2008. The Company believes its reserve balance as of June 30, 2020 is sufficient to cover loss exposure associated with repurchase contingencies.
11. Securitizations and Financings
Variable Interest Entities (VIEs)
In the normal course of business, the Company enters into various types of on- and off-balance sheet transactions with special purpose entities (“SPEs”) determined to be VIEs, which primarily consist of securitization trusts established for a limited purpose. Generally, these SPEs are formed for the purpose of securitization transactions in which the Company transfers assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets.
The Company has determined that the SPEs created in connection with the (i) Nationstar Mortgage Advance Receivables Trust (NMART), (ii) Nationstar Agency Advance Financing Trust (NAAFT) and (iii) Nationstar Advance Agency Receivables Trust (NAART) should be consolidated as the Company is the primary beneficiary of each of these entities. Also, the Company consolidated four reverse mortgage SPEs as it is the primary beneficiary of each of these entities. These SPEs include the Nationstar HECM Loan Trusts.
A summary of the assets and liabilities of the Company’s transactions with VIEs included in the Company’s consolidated financial statements is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Consolidated transactions with VIEs
|
Transfers
Accounted for as
Secured
Borrowings
|
|
Reverse Secured Borrowings
|
|
Transfers
Accounted for as
Secured
Borrowings
|
|
Reverse Secured Borrowings
|
|
Assets
|
|
|
|
|
|
|
|
|
Restricted cash
|
$
|
95
|
|
|
$
|
27
|
|
|
$
|
66
|
|
|
$
|
42
|
|
|
Reverse mortgage interests, net(1)
|
—
|
|
|
4,639
|
|
|
—
|
|
|
5,230
|
|
|
Advances and other receivables, net
|
492
|
|
|
—
|
|
|
540
|
|
|
—
|
|
|
Total assets
|
$
|
587
|
|
|
$
|
4,666
|
|
|
$
|
606
|
|
|
$
|
5,272
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Advance facilities(2)
|
$
|
399
|
|
|
$
|
—
|
|
|
$
|
359
|
|
|
$
|
—
|
|
|
Payables and other liabilities
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
Participating interest financing
|
—
|
|
|
3,875
|
|
|
—
|
|
|
4,284
|
|
|
HECM Securitizations (HMBS)
|
|
|
|
|
|
|
|
|
Trust 2019-2
|
—
|
|
|
274
|
|
|
—
|
|
|
333
|
|
|
Trust 2019-1
|
—
|
|
|
244
|
|
|
—
|
|
|
302
|
|
|
Trust 2018-3
|
—
|
|
|
179
|
|
|
—
|
|
|
209
|
|
|
Trust 2018-2
|
—
|
|
|
127
|
|
|
—
|
|
|
148
|
|
|
Total liabilities
|
$
|
400
|
|
|
$
|
4,700
|
|
|
$
|
360
|
|
|
$
|
5,277
|
|
(1)Amounts include net purchase discount of $59 and $46 as of June 30, 2020 and December 31, 2019, respectively.
(2)Amounts include the Nationstar agency advance financing facility and notes payable recorded by the Nationstar Mortgage Advance Receivable Trust, and the Nationstar Agency Advance Receivables Trust. Refer to Notes Payable in Note 9, Indebtedness, for additional information.
The following table shows a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated securitization trusts
|
June 30, 2020
|
|
December 31, 2019
|
|
Total collateral balances - UPB
|
$
|
1,422
|
|
|
$
|
1,503
|
|
|
Total certificate balances
|
$
|
1,421
|
|
|
$
|
1,512
|
|
The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of June 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
|
June 30, 2020
|
|
December 31, 2019
|
|
Unconsolidated securitization trusts
|
$
|
239
|
|
|
$
|
193
|
|
12. Earnings Per Share
The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series A Preferred Stock is considered participating securities because it has dividend rights determined on an as-converted basis in the event of Company’s declaration of a dividend or distribution for common shares.
The following table sets forth the computation of basic and diluted net income (loss) per common share (amounts in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Computation of earnings per share
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net income (loss) attributable to Mr. Cooper
|
$
|
73
|
|
|
$
|
(87)
|
|
|
$
|
(95)
|
|
|
$
|
(273)
|
|
|
Less: Undistributed earnings attributable to participating stockholders
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
72
|
|
|
$
|
(87)
|
|
|
$
|
(95)
|
|
|
$
|
(273)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share attributable to Mr. Cooper:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.78
|
|
|
$
|
(0.96)
|
|
|
$
|
(1.04)
|
|
|
$
|
(3.00)
|
|
|
Diluted
|
$
|
0.77
|
|
|
$
|
(0.96)
|
|
|
$
|
(1.04)
|
|
|
$
|
(3.00)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding (in thousands):
|
|
|
|
|
|
|
|
|
Basic
|
91,997
|
|
|
91,054
|
|
|
91,691
|
|
|
90,978
|
|
|
Dilutive effect of stock awards(1)
|
176
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Dilutive effect of participating securities(1)
|
839
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Diluted
|
93,012
|
|
|
91,054
|
|
|
91,691
|
|
|
90,978
|
|
(1)For periods with net loss, the Company excluded potential common shares from the computation of diluted EPS because inclusion would be antidilutive.
13. Income Taxes
The following table sets forth the computation of the effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Income (loss) before income tax expense (benefit)
|
$
|
110
|
|
|
$
|
(117)
|
|
|
$
|
(129)
|
|
|
$
|
(350)
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
$
|
37
|
|
|
$
|
(29)
|
|
|
$
|
(31)
|
|
|
$
|
(76)
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate(1)
|
33.4
|
%
|
|
24.6
|
%
|
|
24.1
|
%
|
|
21.7
|
%
|
(1)Effective tax rate is calculated using whole numbers.
For the three and six months ended June 30, 2020, the effective tax rate differed from the statutory federal rate of 21% primarily due to state income taxes, as well as unfavorable permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m). The effective tax rate increased in the three and six months ended June 30, 2020, as compared to the same periods in 2019, primarily attributable to the increased relative unfavorable tax impacts of the permanent differences on the annual effective rate.
For the three and six months ended June 30, 2019, the effective tax rate differed from the statutory federal rate of 21% primarily due to permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m) and nondeductible meals and entertainment expenses, as well as other recurring items such as the state tax benefit.
14. Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).
The following describes the methods and assumptions used by the Company in estimating fair values:
Cash and Cash Equivalents, Restricted Cash (Level 1) – The carrying amount reported in the consolidated balance sheets approximates fair value.
Mortgage Loans Held for Sale (Level 2) – The Company originates mortgage loans in the U.S. that it intends to sell into Fannie Mae, Freddie Mac and Ginnie Mae MBS. Additionally, the Company holds mortgage loans that it intends to sell into the secondary markets via whole loan sales or securitizations. The Company measures newly originated prime residential mortgage loans held for sale at fair value.
Mortgage loans held for sale are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate and credit quality. Mortgage loans held for sale are valued on a recurring basis using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Company classifies these valuations as Level 2 in the fair value disclosures.
The Company may acquire mortgage loans held for sale from various securitization trusts for which it acts as servicer through the exercise of various clean-up call options as permitted through the respective pooling and servicing agreements. The Company has elected to account for these loans at the lower of cost or market. The Company classifies these valuations as Level 2 in the fair value disclosures.
The Company may also purchase loans out of a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. The Company has elected to carry these loans at fair value. See Note 6, Mortgage Loans Held for Sale, for more information.
Mortgage Servicing Rights – Fair Value (Level 3) – The Company estimates the fair value of its forward MSRs on a recurring basis using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, discount rates, ancillary revenues, earnings on escrow and costs to service. These assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency and coupon dispersion. These assumptions require the use of judgment by the Company and can have a significant impact on the fair value of the MSRs. Quarterly, management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal cash flow model. Because of the nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 3, Mortgage Servicing Rights and Related Liabilities, for more information.
Advances and Other Receivables, Net (Level 3) - Advances and other receivables, net are valued at their net realizable value after taking into consideration the reserves. Advances have no stated maturity. Their net realizable value approximates fair value as the net present value based on discounted cash flow is not materially different from the net realizable value. See Note 4, Advances and Other Receivables, Net for more information.
Reverse Mortgage Interests, Net (Level 3) – The Company’s reverse mortgage interests are primarily comprised of HECM loans that are insured by FHA and guaranteed by Ginnie Mae upon securitization. Quarterly, the Company estimates fair value using discounted cash flows, obtained from a third-party and supplemented with historical loss experience on similar assets, with the discount rate approximating that of similar financial instruments, as observed from recent trades with the HMBS. Key assumptions within the model are based on market participant benchmarks and include discount rates, cost to service, weighted average life of the portfolio, and estimated participating income. Discounted cash flows are applied based on collateral stratifications and include loan rate type, loan status (active vs. inactive), and securitization. Prices are also influenced from both internal models and other observable inputs. The Company determined fair value for all loans based on the applicable tranches established during the Merger valuation. Tranches are segregated based on participation percentages, original loan status as of the Merger date, and interest rate types, and loan status (active vs inactive). Prices are also influenced from both internal models and other observable inputs, including applicable forward interest rate curves. Additionally, historical loss factors are considered within the overall valuation. Because of the unobservable nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 5, Reverse Mortgage Interests, Net for more information.
Derivative Financial Instruments (Level 3 and Level 2) – The Company enters into a variety of derivative financial instruments as part of its hedging strategy and measures these instruments at fair value on a recurring basis in the consolidated balance sheets. Derivative instruments utilized by the Company primarily include IRLCs, LPCs, forward MBS trades, Eurodollar and Treasury futures and interest rate swap agreements.
During the three months ended June 30, 2020, the Company changed the fair value classification of its IRLCs and LPCs derivatives from Level 2 to Level 3. IRLCs and LPCs are carried at fair value primarily based on secondary market prices for underlying mortgage loans, which is observable data, with adjustments made to such observable data for the inherent value of servicing, which is an unobservable input. The fair value is also subject to adjustments for the estimated pull-through rate. The impact of the unobservable input to the overall valuation of IRLCs and LPCs was previously much less significant, resulting in a classification of Level 2 in the fair value hierarchy as of December 31, 2019. During the three months ended June 30,2020, market interest rates continued to decline and fell to record lows, which drove an increase in the volume of the Company’s IRLCs and LPCs and increased the impact of the unobservable input on the overall valuation of IRLCs and LPCs. Such increased impact of the unobservable input on the overall valuation resulted in a classification of Level 3 in the fair value hierarchy as of June 30, 2020.
For other derivatives, they are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, the Company classifies these contracts as Level 2 in the fair value disclosure.
Derivative financial instruments are recorded in other assets and payables and other liabilities within the consolidated balance sheets. See Note 9, Derivative Financial Instruments, for more information.
Advance Facilities and Warehouse Facilities (Level 2) – As the underlying warehouse and advance finance facilities bear interest at a rate that is periodically adjusted based on a market index, the carrying amount reported at amortized cost on the consolidated balance sheets approximates fair value. See Note 9, Indebtedness, for more information.
Unsecured Senior Notes (Level 1) – The fair value of unsecured senior notes, which are carried at amortized cost, is based on quoted market prices and is considered Level 1 from the market observable inputs used to determine fair value. See Note 9, Indebtedness, for more information.
Excess Spread Financing (Level 3) – The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, average life, recapture rates and discount rate. As these prices are derived from a combination of internally developed valuation models and quoted market prices based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. Excess spread financing is recorded in MSR related liabilities within the consolidated balance sheets. See Note 3, Mortgage Servicing Rights and Related Liabilities, for more information.
Mortgage Servicing Rights Financing Liability (Level 3) - The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being advance financing rates and annual advance recovery rates. As these assumptions are derived from internally developed valuation models based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. Mortgage servicing rights financing liability is recorded in MSR related liabilities within the consolidated balance sheets. See Note 3, Mortgage Servicing Rights and Related Liabilities, for more information.
Participating Interest Financing (Level 3) – The Company estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating that of similar financial instruments. As the prices are derived from both internal models and other observable inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. Participating interest financing is recorded in other nonrecourse debt within the consolidated balance sheets. See Note 5, Reverse Mortgage Interests, Net, and Note 9, Indebtedness, for more information.
HECM Securitizations (Level 3) – The Company estimates fair value using a market approach by utilizing the fair value of executed HECM securitizations. Since the executed HECM securitizations are private placements, the Company classifies these valuations as Level 3 in the fair value disclosures. HECM securitizations are recorded at amortized cost in other nonrecourse debt within the consolidated balance sheets. See Note 9, Indebtedness, for more information.
The following tables present the estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Recurring Fair Value Measurements
|
|
|
|
|
|
Fair value - Recurring basis
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
$
|
3,179
|
|
|
$
|
—
|
|
|
$
|
3,179
|
|
|
$
|
—
|
|
|
Forward mortgage servicing rights
|
2,757
|
|
|
—
|
|
|
—
|
|
|
2,757
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
IRLCs
|
370
|
|
|
—
|
|
|
—
|
|
|
370
|
|
|
Forward MBS trades
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
LPCs
|
18
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
Total assets
|
$
|
6,327
|
|
|
$
|
—
|
|
|
$
|
3,182
|
|
|
$
|
3,145
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
Forward MBS trades
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights financing
|
49
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
Excess spread financing
|
1,124
|
|
|
—
|
|
|
—
|
|
|
1,124
|
|
|
Total liabilities
|
$
|
1,223
|
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
1,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Recurring Fair Value Measurements
|
|
|
|
|
|
Fair value - Recurring basis
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
$
|
4,077
|
|
|
$
|
—
|
|
|
$
|
4,077
|
|
|
$
|
—
|
|
|
Forward mortgage servicing rights
|
3,496
|
|
|
—
|
|
|
—
|
|
|
3,496
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
IRLCs
|
135
|
|
|
—
|
|
|
135
|
|
|
—
|
|
|
Forward MBS trades
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
LPCs
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
Total assets
|
$
|
7,727
|
|
|
$
|
—
|
|
|
$
|
4,231
|
|
|
$
|
3,496
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
Forward MBS trades
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
LPCs
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
Mortgage servicing rights financing
|
37
|
|
|
—
|
|
|
—
|
|
|
37
|
|
|
Excess spread financing
|
1,311
|
|
|
—
|
|
|
—
|
|
|
1,311
|
|
|
Total liabilities
|
$
|
1,363
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
1,348
|
|
The tables below present a reconciliation for all of the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Liabilities
|
|
|
|
Fair value - Level 3 assets and liabilities
|
Forward mortgage servicing rights
|
|
IRLCs
|
|
Excess spread financing
|
|
Mortgage servicing rights financing
|
|
Balance - beginning of period
|
$
|
3,496
|
|
|
$
|
135
|
|
|
$
|
1,311
|
|
|
$
|
37
|
|
|
Total gains or losses included in earnings
|
(1,012)
|
|
|
235
|
|
|
(101)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, issuances, sales, repayments and settlements
|
|
|
|
|
|
|
|
|
Purchases
|
24
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuances
|
249
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Settlements and repayments
|
—
|
|
|
—
|
|
|
(110)
|
|
|
—
|
|
|
Balance - end of period
|
$
|
2,757
|
|
|
$
|
370
|
|
|
$
|
1,124
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Liabilities
|
|
|
|
Fair value - Level 3 assets and liabilities
|
Forward mortgage servicing rights
|
|
|
|
Excess spread financing
|
|
Mortgage servicing rights financing
|
|
Balance - beginning of period
|
$
|
3,665
|
|
|
|
|
$
|
1,184
|
|
|
$
|
32
|
|
|
Total gains or losses included in earnings
|
(724)
|
|
|
|
|
(74)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, issuances, sales, repayments and settlements
|
|
|
|
|
|
|
|
|
Purchases
|
689
|
|
|
|
|
—
|
|
|
—
|
|
|
Issuances
|
169
|
|
|
|
|
438
|
|
|
—
|
|
|
Sales
|
(294)
|
|
|
|
|
—
|
|
|
—
|
|
|
Settlements and repayments
|
—
|
|
|
|
|
(119)
|
|
|
—
|
|
|
Balance - end of period
|
$
|
3,505
|
|
|
|
|
$
|
1,429
|
|
|
$
|
43
|
|
As of June 30, 2020 and December 31, 2019, the Company had no mortgage loans held for investment as the related portfolio was sold in September 2019. During the six months ended June 30, 2019, the Company had an immaterial change in mortgage loans held for investment.
As of June 30, 2020 and December 31, 2019, the Company had LPCs assets of $18 and $12, respectively. The Company had less than $1 LPCs liabilities as of June 30, 2020 and LPCs liabilities of $3 as of December 31, 2019. During the six months ended June 30, 2020, the Company had an immaterial change in LPCs assets and liabilities.
No transfers were made in or out of Level 3 fair value assets and liabilities for the Company for the six months ended June 30, 2020 and 2019, with the exception of the change in classification for IRLCs of $370 and LPCs of $18 from Level 2 fair value assets to Level 3 fair value assets during the three months ended June 30, 2020.
The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
|
|
Financial instruments
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,041
|
|
|
$
|
1,041
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Restricted cash
|
260
|
|
|
260
|
|
|
—
|
|
|
—
|
|
|
Advances and other receivables, net
|
668
|
|
|
—
|
|
|
—
|
|
|
668
|
|
|
Reverse mortgage interests, net
|
5,709
|
|
|
—
|
|
|
—
|
|
|
5,736
|
|
|
Mortgage loans held for sale
|
3,179
|
|
|
—
|
|
|
3,179
|
|
|
—
|
|
|
Derivative financial instruments
|
391
|
|
|
—
|
|
|
3
|
|
|
388
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Unsecured senior notes(1)
|
2,261
|
|
|
2,307
|
|
|
—
|
|
|
—
|
|
|
Advance facilities(1)
|
475
|
|
|
—
|
|
|
475
|
|
|
—
|
|
|
Warehouse facilities(1)
|
4,031
|
|
|
—
|
|
|
4,031
|
|
|
—
|
|
|
Mortgage servicing rights financing liability
|
49
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
Excess spread financing
|
1,124
|
|
|
—
|
|
|
—
|
|
|
1,124
|
|
|
Derivative financial instruments
|
50
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
Participating interest financing(1)
|
3,886
|
|
|
—
|
|
|
—
|
|
|
3,857
|
|
|
HECM Securitization (HMBS)(1)
|
|
|
|
|
|
|
|
|
Trust 2019-2
|
272
|
|
|
—
|
|
|
—
|
|
|
272
|
|
|
Trust 2019-1
|
243
|
|
|
—
|
|
|
—
|
|
|
243
|
|
|
Trust 2018-3
|
179
|
|
|
—
|
|
|
—
|
|
|
179
|
|
|
Trust 2018-2
|
127
|
|
|
—
|
|
|
—
|
|
|
127
|
|
(1)The amounts are presented net of unamortized debt issuance costs, premium and discount.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
|
|
Financial instruments
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
329
|
|
|
$
|
329
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Restricted cash
|
283
|
|
|
283
|
|
|
—
|
|
|
—
|
|
|
Advances and other receivables, net
|
988
|
|
|
—
|
|
|
—
|
|
|
988
|
|
|
Reverse mortgage interests, net
|
6,279
|
|
|
—
|
|
|
—
|
|
|
6,318
|
|
|
Mortgage loans held for sale
|
4,077
|
|
|
—
|
|
|
4,077
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
153
|
|
|
—
|
|
|
153
|
|
|
—
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Unsecured senior notes(1)
|
2,366
|
|
|
2,505
|
|
|
—
|
|
|
—
|
|
|
Advance facilities(1)
|
422
|
|
|
—
|
|
|
422
|
|
|
—
|
|
|
Warehouse facilities(1)
|
4,575
|
|
|
—
|
|
|
4,575
|
|
|
—
|
|
|
Mortgage servicing rights financing liability
|
37
|
|
|
—
|
|
|
—
|
|
|
37
|
|
|
Excess spread financing
|
1,311
|
|
|
—
|
|
|
—
|
|
|
1,311
|
|
|
Derivative financial instruments
|
15
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
Participating interest financing(1)
|
4,299
|
|
|
—
|
|
|
—
|
|
|
4,299
|
|
|
HECM Securitization (HMBS)(1)
|
|
|
|
|
|
|
|
|
Trust 2019-2
|
331
|
|
|
—
|
|
|
—
|
|
|
331
|
|
|
Trust 2019-1
|
300
|
|
|
—
|
|
|
—
|
|
|
300
|
|
|
Trust 2018-3
|
208
|
|
|
—
|
|
|
—
|
|
|
208
|
|
|
Trust 2018-2
|
148
|
|
|
—
|
|
|
—
|
|
|
148
|
|
(1)The amounts are presented net of unamortized debt issuance costs, premium and discount.
15. Capital Requirements
Certain of the Company’s secondary market investors require minimum net worth (“capital”) requirements, as specified in the respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated requirements to approve large servicing transfers. To the extent that these requirements are not met, the Company’s secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of the Company’s selling and servicing agreements, which would prohibit the Company from further originating or securitizing these specific types of mortgage loans or being an approved servicer. The Company’s various capital requirements related to its outstanding selling and servicing agreements are measured based on the Company’s operating subsidiary, Nationstar Mortgage LLC. As of June 30, 2020, the Company was in compliance with its selling and servicing capital requirements.
16. Commitments and Contingencies
Litigation and Regulatory
The Company and its subsidiaries are routinely and currently involved in a significant number of legal proceedings, including, but not limited to, judicial, arbitration, regulatory and governmental proceedings related to matters that arise in connection with the conduct of the Company’s business. The legal proceedings are at varying stages of adjudication, arbitration or investigation and are generally based on alleged violations of consumer protection, securities, employment, contract, tort, common law fraud and other numerous laws, including, without limitation, the Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, National Housing Act, Homeowners Protection Act, Service Member’s Civil Relief Act, Telephone Consumer Protection Act, Truth in Lending Act, Financial Institutions Reform, Recovery, and Enforcement Act of 1989, unfair, deceptive or abusive acts or practices in violation of the Dodd-Frank Act, the Securities Act of 1933, the Securities Exchange Act of 1934, the Home Mortgage Disclosure Act, Title 11 of the United States Code (aka the “Bankruptcy Code”), False Claims Act and Making Home Affordable loan modification programs.
In addition, along with others in its industry, the Company is subject to repurchase and indemnification claims and may continue to receive claims in the future, regarding alleged breaches of representations and warranties relating to the sale of mortgage loans, the placement of mortgage loans into securitization trusts or the servicing of mortgage loans securitizations. The Company is also subject to legal actions or proceedings related to loss sharing and indemnification provisions of its various acquisitions. Certain of the pending or threatened legal proceedings include claims for substantial compensatory, punitive and/or statutory damages or claims for an indeterminate amount of damages.
The Company’s business is also subject to extensive examinations, investigations and reviews by various federal, state and local governmental, regulatory and enforcement agencies. The Company has historically had a number of open investigations with these agencies and that trend continues. The Company is currently the subject of various governmental or regulatory investigations, subpoenas, examinations and inquiries related to its residential loan servicing and origination practices, bankruptcy and collections practices, its financial reporting and other aspects of its businesses. These matters include investigations by the Consumer Financial Protection Bureau (the “CFPB”), the Securities and Exchange Commission, the Executive Office of the United States Trustees, the Department of Justice, the Office of the Special Inspector General for the Troubled Asset Relief Program, the U.S. Department of Housing and Urban Development, the multi-state committee of mortgage banking regulators and various State Attorneys General. These specific matters and other pending or potential future investigations, subpoenas, examinations or inquiries may lead to administrative, civil or criminal proceedings or settlements, and possibly result in remedies including fines, penalties, restitution, or alterations in the Company’s business practices, and additional expenses and collateral costs. The Company is cooperating fully in these matters. Responding to these matters requires the Company to devote substantial resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase the Company’s operating expenses and reduce its revenues, require it to change business practices and limit its ability to grow and otherwise materially and adversely affect its business, reputation, financial condition or results of operation.
In particular, as previously disclosed, the Company continues to progress towards resolution of certain legacy regulatory matters with (i) the CFPB, (ii) the multi-state committee of mortgage banking regulators and various State Attorneys General and (iii) the Executive Office of the United States Trustee, all of which involve examination findings in prior years for alleged violations of certain laws related to the Company’s business practices. The Company believes that it has reached a settlement in principle to resolve these matters with each of these parties. Accordingly, the Company has recorded an additional accrual during the three months ended June 30, 2020 in addition to amounts previously accrued and believes that it has fully accrued for these matters.
The Company seeks to resolve all legal proceedings and other matters in the manner management believes is in the best interest of the Company and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. The Company has entered into agreements with a number of entities and regulatory agencies that toll applicable limitations periods with respect to their claims.
On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal and regulatory and governmental proceedings utilizing the latest information available. Where available information indicates that it is probable, a liability has been incurred, and the Company can reasonably estimate the amount of the loss, an accrued liability is established. The actual costs of resolving these proceedings may be substantially higher or lower than the amounts accrued.
As a legal matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company will establish an accrued liability and record a corresponding amount to legal-related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Legal-related expense for the Company, which includes legal settlements and the fees paid to external legal service providers, of $12 and $27 for the three and six months ended June 30, 2020, respectively and $21 and $32 for the three and six months ended June 30, 2019, respectively, was included in general and administrative expenses on the consolidated statements of operations.
For a number of matters for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material legal matters on an ongoing basis, in conjunction with any outside counsel handling the matter. For those matters for which an estimate is possible, management currently believes the aggregate range of reasonably possible loss is $2 to $18 in excess of the accrued liability (if any) related to those matters as of June 30, 2020. This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within the estimated range. Therefore, this estimated range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure and the Company cannot provide assurance that its litigations reserves will not need to be adjusted in the future. Thus, the Company’s exposure and ultimate losses may be higher, possibly significantly so, than the amounts accrued or this aggregate amount.
In the Company’s experience, legal proceedings are inherently unpredictable. One or more of the following factors frequently contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis or, if permitted to proceed as a class action, how the class will be defined; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental investigations and inquiries, the possibility of fines and penalties); the matter presents meaningful legal uncertainties, including novel issues of law; the Company has not engaged in meaningful settlement discussions; discovery has not started or is not complete; there are significant facts in dispute; predicting possible outcomes depends on making assumptions about future decisions of courts or governmental or regulatory bodies or the behavior of other parties; and there are a large number of parties named as defendants (including where it is uncertain how damages or liability, if any, will be shared among multiple defendants). Generally, the less progress that has been made in the proceedings or the broader the range of potential results, the harder it is for the Company to estimate losses or ranges of losses that is reasonably possible the Company could incur.
Based on current knowledge, and after consultation with counsel, management believes that the current legal accrued liability within payables and accrued liabilities, is appropriate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such proceedings could be material to the Company’s operating results and cash flows for a particular period depending, on among other things, the level of the Company’s revenues or income for such period. However, in the event of significant developments on existing cases, it is possible that the ultimate resolution, if unfavorable, may be material to the Company’s consolidated financial statements.
Other Loss Contingencies
As part of the Company’s ongoing operations, it acquires servicing rights of forward and reverse mortgage loan portfolios that are subject to indemnification based on the representations and warranties of the seller. From time to time, the Company will seek recovery under these representations and warranties for incurred costs. The Company believes all balances sought from sellers recorded in advances and other receivables and reverse mortgage interests represent valid claims. However, the Company acknowledges that the claims process can be prolonged due to the required time to perfect claims at the loan level. Because of the required time to perfect or remediate these claims, management relies on the sufficiency of documentation supporting the claim, current negotiations with the counterparty and other evidence to evaluate whether a reserve is required for non-recoverable balances. In the absence of successful negotiations with the seller, all amounts claimed may not be recovered. Balances may be written-off and charged against earnings when management identifies amounts where recoverability from the seller is not likely. As of June 30, 2020, the Company believes all recorded balances for which recovery is sought from the seller are valid claims, and no evidence suggests additional reserves are warranted.
Loan and Other Commitments
The Company enters into IRLCs with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rates to the borrower. The Company also enters into LPCs with prospective sellers. These loan commitments are treated as derivatives and are carried at fair value. See Note 8, Derivative Financial Instruments, for more information.
The Company had certain reverse MSRs, reverse MSLs and reverse mortgage loans related to approximately $20,758 and $22,725 of UPB in reverse mortgage loans as of June 30, 2020 and December 31, 2019, respectively. As a servicer for these reverse mortgage loans, among other things, the Company is obligated to fund borrowers’ draws to the loan customers as required in accordance with the loan agreement. As of June 30, 2020 and December 31, 2019, the Company’s maximum unfunded advance obligation to fund borrower draws related to these reverse MSRs and loans was approximately $2,408 and $2,617, respectively. Upon funding any portion of these draws, the Company expects to securitize and sell the advances in transactions that will be accounted for as secured borrowings.
17. Business Segment Reporting
The Company’s segments are based upon the Company’s organizational structure, which focuses primarily on the services offered. Corporate functional expenses are allocated to individual segments based on the actual cost of services performed based on direct resource utilization, estimate of percentage use for shared services or headcount percentage for certain functions. Facility costs are allocated to individual segments based on cost per headcount for specific facilities utilized. Group insurance costs are allocated to individual segments based on global cost per headcount. Non-allocated corporate expenses include the administrative costs of executive management and other corporate functions that are not directly attributable to Company’s operating segments. Revenues generated on inter-segment services performed are valued based on similar services provided to external parties.
In the second quarter of 2020, the Company updated its presentation of segment assets to be aligned with a change in the reporting package provided to the Chief Operating Decision Maker. The presentation change had no impact on the segments' operations. Assets allocated to the Servicing segment include MSRs; advances and other receivables, except for co-issue MSR holdback; Servicing related mortgage loans held for sale; and other assets including property, plant and equipment, lease-related assets, prepaid assets, and goodwill. Assets allocated to Originations segment include co-issue MSR holdback in advances and other receivables; Originations related mortgage loans held for sale; derivative assets; and other assets including property, plant and equipment, lease-related assets, prepaid assets, and goodwill. Assets allocated to the Xome segment include cash and cash equivalents; tax-related assets; receivables; and other assets including property, plant and equipment, lease-related assets, prepaid assets, goodwill, and other intangible assets. All assets that are not specifically identified or allocated to a reporting segment are reported as part of Corporate/Other segment, and include cash and cash equivalents; tax-related assets; and intangibles assets excluding goodwill and assets allocated to Xome. Eliminations are also included in Corporate/Other segment. Prior year financial information has been adjusted retrospectively to reflect the updated presentation.
The following tables present financial information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
Financial information by segment
|
Servicing
|
|
Originations
|
|
Xome
|
|
Corporate/Other
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
$
|
(114)
|
|
|
$
|
21
|
|
|
$
|
106
|
|
|
$
|
(1)
|
|
|
$
|
12
|
|
|
Net gain on mortgage loans held for sale
|
45
|
|
|
573
|
|
|
—
|
|
|
—
|
|
|
618
|
|
|
Total revenues
|
(69)
|
|
|
594
|
|
|
106
|
|
|
(1)
|
|
|
630
|
|
|
Total expenses
|
122
|
|
|
167
|
|
|
95
|
|
|
35
|
|
|
419
|
|
|
Interest income
|
57
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
76
|
|
|
Interest expense
|
(117)
|
|
|
(13)
|
|
|
—
|
|
|
(47)
|
|
|
(177)
|
|
|
Other income (expenses), net
|
—
|
|
|
—
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
Total other (expenses) income, net
|
(60)
|
|
|
6
|
|
|
1
|
|
|
(48)
|
|
|
(101)
|
|
|
(Loss) income before income tax (benefit) expense
|
$
|
(251)
|
|
|
$
|
433
|
|
|
$
|
12
|
|
|
$
|
(84)
|
|
|
$
|
110
|
|
|
Depreciation and amortization for property and equipment and intangible assets
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
6
|
|
|
$
|
18
|
|
|
Total assets
|
$
|
10,736
|
|
|
$
|
3,592
|
|
|
$
|
135
|
|
|
$
|
2,837
|
|
|
$
|
17,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
Financial information by segment
|
Servicing
|
|
Originations
|
|
Xome
|
|
Corporate/Other
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
$
|
9
|
|
|
$
|
20
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
137
|
|
|
Net gain on mortgage loans held for sale
|
18
|
|
|
244
|
|
|
—
|
|
|
—
|
|
|
262
|
|
|
Total revenues
|
27
|
|
|
264
|
|
|
108
|
|
|
—
|
|
|
399
|
|
|
Total expenses
|
189
|
|
|
145
|
|
|
101
|
|
|
57
|
|
|
492
|
|
|
Interest income
|
136
|
|
|
23
|
|
|
—
|
|
|
3
|
|
|
162
|
|
|
Interest expense
|
(109)
|
|
|
(25)
|
|
|
—
|
|
|
(53)
|
|
|
(187)
|
|
|
Other income, net
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Total other income (expenses), net
|
27
|
|
|
(1)
|
|
|
—
|
|
|
(50)
|
|
|
(24)
|
|
|
(Loss) income before income tax (benefit) expense
|
$
|
(135)
|
|
|
$
|
118
|
|
|
$
|
7
|
|
|
$
|
(107)
|
|
|
$
|
(117)
|
|
|
Depreciation and amortization for property and equipment and intangible assets
|
$
|
4
|
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
11
|
|
|
$
|
24
|
|
|
Total assets
|
$
|
12,906
|
|
|
$
|
3,462
|
|
|
$
|
112
|
|
|
$
|
1,925
|
|
|
$
|
18,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
Financial information by segment
|
Servicing
|
|
Originations
|
|
Xome
|
|
Corporate/Other
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
$
|
(294)
|
|
|
$
|
41
|
|
|
$
|
212
|
|
|
$
|
—
|
|
|
$
|
(41)
|
|
|
Net gain on mortgage loans held for sale
|
79
|
|
|
870
|
|
|
—
|
|
|
—
|
|
|
949
|
|
|
Total revenues
|
(215)
|
|
|
911
|
|
|
212
|
|
|
—
|
|
|
908
|
|
|
Total expenses
|
271
|
|
|
333
|
|
|
191
|
|
|
68
|
|
|
863
|
|
|
Interest income
|
140
|
|
|
53
|
|
|
—
|
|
|
1
|
|
|
194
|
|
|
Interest expense
|
(230)
|
|
|
(40)
|
|
|
—
|
|
|
(99)
|
|
|
(369)
|
|
|
Other income (expense), net
|
—
|
|
|
—
|
|
|
2
|
|
|
(1)
|
|
|
1
|
|
|
Total other (expenses) income, net
|
(90)
|
|
|
13
|
|
|
2
|
|
|
(99)
|
|
|
(174)
|
|
|
(Loss) income before income tax (benefit) expense
|
$
|
(576)
|
|
|
$
|
591
|
|
|
$
|
23
|
|
|
$
|
(167)
|
|
|
$
|
(129)
|
|
|
Depreciation and amortization for property and equipment and intangible assets
|
$
|
8
|
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
16
|
|
|
$
|
37
|
|
|
Total assets
|
$
|
10,736
|
|
|
$
|
3,592
|
|
|
$
|
135
|
|
|
$
|
2,837
|
|
|
$
|
17,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
Financial information by segment
|
Servicing
|
|
Originations
|
|
Xome
|
|
Corporate/Other
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
$
|
(18)
|
|
|
$
|
35
|
|
|
$
|
204
|
|
|
$
|
—
|
|
|
$
|
221
|
|
|
Net gain on mortgage loans held for sale
|
53
|
|
|
375
|
|
|
—
|
|
|
—
|
|
|
428
|
|
|
Total revenues
|
35
|
|
|
410
|
|
|
204
|
|
|
—
|
|
|
649
|
|
|
Total expenses
|
384
|
|
|
249
|
|
|
200
|
|
|
102
|
|
|
935
|
|
|
Interest income
|
251
|
|
|
40
|
|
|
—
|
|
|
5
|
|
|
296
|
|
|
Interest expense
|
(223)
|
|
|
(43)
|
|
|
—
|
|
|
(110)
|
|
|
(376)
|
|
|
Other income, net
|
—
|
|
|
5
|
|
|
11
|
|
|
—
|
|
|
16
|
|
|
Total other income (expenses), net
|
28
|
|
|
2
|
|
|
11
|
|
|
(105)
|
|
|
(64)
|
|
|
(Loss) income before income tax (benefit) expense
|
$
|
(321)
|
|
|
$
|
163
|
|
|
$
|
15
|
|
|
$
|
(207)
|
|
|
$
|
(350)
|
|
|
Depreciation and amortization for property and equipment and intangible assets
|
$
|
8
|
|
|
$
|
9
|
|
|
$
|
7
|
|
|
$
|
21
|
|
|
$
|
45
|
|
|
Total assets
|
$
|
12,906
|
|
|
$
|
3,462
|
|
|
$
|
112
|
|
|
$
|
1,925
|
|
|
$
|
18,405
|
|
CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, core initiatives, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts, including the projected impact of COVID-19 on our business, financial performance and operating results. When used in this discussion, the words “anticipate,” “appears,” “believe,” “foresee,” “intend,” “should,” “expect,” “estimate,” “project,” “plan,” “may,” “could,” “will,” “are likely” and similar expressions are intended to identify forward-looking statements. These statements involve predictions of our future financial condition, performance, plans and strategies and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or incorrect. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances, and we are under no obligation to, and express disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
A number of important factors exist that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to:
•the severity and duration of the COVID-19 pandemic; the pandemic’s impact on the U.S. and global economies; and federal, state and local governmental responses to the pandemic
•our ability to maintain or grow the size of our servicing portfolio;
•our ability to maintain or grow our originations volume and profitability;
•our ability to recapture voluntary prepayments related to our existing servicing portfolio;
•our shift in the mix of our servicing portfolio to subservicing, which is highly concentrated;
•delays in our ability to collect or be reimbursed for servicing advances;
•our ability to obtain sufficient liquidity and capital to operate our business;
•changes in prevailing interest rates;
•our ability to finance and recover costs of our reverse servicing operations;
•our ability to successfully implement our strategic initiatives;
•our ability to realize anticipated benefits of our previous acquisitions;
•our ability to use net operating loss carryforwards and other tax attributes;
•changes in our business relationships or changes in servicing guidelines with Fannie Mae, Freddie Mac and Ginnie Mae;
•Xome’s ability to compete in highly competitive markets;
•our ability to pay down debt;
•our ability to manage legal and regulatory examinations and enforcement investigations and proceedings, compliance requirements and related costs;
•our ability to prevent cyber intrusions and mitigate cyber risks; and
•our ability to maintain our licenses and other regulatory approvals.
All of these factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assess the effect of each such new factor on our business. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and any of these statements included herein may prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Please refer to Risk Factor and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this report and in our Annual Report on Form 10-K for the year ended December 31, 2019 for further information on these and other risk factors affecting us.