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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________________________________________________
 FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______                    
Commission file number: 001-14667
NSM-20210630_G1.JPG
________________________________________________________________________________________________________
Mr. Cooper Group Inc.
(Exact name of registrant as specified in its charter)
Delaware   91-1653725
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
8950 Cypress Waters Blvd, Coppell, TX
  75019
(Address of principal executive offices)   (Zip Code)
(469) 549-2000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, $0.01 par value per share COOP The Nasdaq Stock Market
____________________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.
Large Accelerated Filer x Accelerated Filer ☐
Non-Accelerated Filer ¨ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  x
Number of shares of common stock, $0.01 par value, outstanding as of July 22, 2021 was 86,148,567.

MR. COOPER GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
    Page
PART I
Item 1.
3
Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020
3
Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2021 and 2020
4
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2021 and 2020
5
Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2021 and 2020
7
9
9
10
11
14
15
16
16
17
19
20
21
23
23
27
27
16. Segment Information
29
Item 2.
33
Item 3.
62
Item 4.
63
PART II
Item 1.
64
Item 1A.
64
Item 2.
64
Item 3.
64
Item 4.
64
Item 5.
64
Item 6.
65

2
PART I. Financial Information

Item 1. Financial Statements
MR. COOPER GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions of dollars, except share data)
June 30, 2021 December 31, 2020
  (unaudited)  
Assets
Cash and cash equivalents $ 716  $ 695 
Restricted cash 113  135 
Mortgage servicing rights at fair value 3,307  2,703 
Advances and other receivables, net of reserves of $191 and $208, respectively
837  940 
Mortgage loans held for sale at fair value 6,961  5,720 
Property and equipment, net of accumulated depreciation of $108 and $96, respectively
110  113 
Deferred tax assets, net 1,118  1,339 
Other assets 5,211  7,173 
Assets of discontinued operations 4,935  5,347 
Total assets $ 23,308  $ 24,165 
Liabilities and Stockholders’ Equity
Unsecured senior notes, net $ 2,075  $ 2,074 
Advance and warehouse facilities, net 7,310  6,258 
Payables and other liabilities 4,895  7,159 
MSR related liabilities - nonrecourse at fair value 888  967 
Liabilities of discontinued operations 4,790  5,203 
Total liabilities 19,958  21,661 
Commitments and contingencies (Note 15)
Preferred stock at $0.00001 - 10 million shares authorized, 1.0 million shares issued and outstanding, respectively; aggregate liquidation preference of ten dollars, respectively
—  — 
Common stock at $0.01 par value - 300 million shares authorized, 93.2 million and 92.0 million shares issued, respectively
1  1 
Additional paid-in-capital 1,120  1,126 
Retained earnings 2,434  1,434 
Treasury shares at cost - 7.1 million and 2.6 million shares, respectively
(206) (58)
Total Mr. Cooper stockholders’ equity 3,349  2,503 
Non-controlling interests 1  1 
Total stockholders’ equity 3,350  2,504 
Total liabilities and stockholders’ equity $ 23,308  $ 24,165 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).
3
MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(millions of dollars, except for earnings per share data)
  Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Revenues:
Service related, net $ (8) $ —  $ 572  $ (67)
Net gain on mortgage loans held for sale 582  618  1,261  949 
Total revenues 574  618  1,833  882 
Expenses:
Salaries, wages and benefits 277  238  554  472 
General and administrative 148  160  325  350 
Total expenses 425  398  879  822 
Interest income 51  22  97  97 
Interest expense (119) (127) (245) (266)
Other income, net 486  —  486  1 
Total other income (expenses), net 418  (105) 338  (168)
Income (loss) from continuing operations before income tax expense (benefit) 567  115  1,292  (108)
Less: Income tax expense (benefit) 140  38  306  (26)
Net income (loss) from continuing operations 427  77  986  (82)
Net income (loss) from discontinued operations 12  (4) 14  (16)
Net income (loss) 439  73  1,000  (98)
Less: Net loss attributable to non-controlling interests —  —  —  (3)
Net income (loss) attributable to Mr. Cooper 439  73  1,000  (95)
Less: Undistributed earnings attributable to participating stockholders 4  1  9  — 
Net income (loss) attributable to common stockholders $ 435  $ 72  $ 991  $ (95)
Earnings from continuing operations per common share attributable to Mr. Cooper:
Basic $ 4.91  $ 0.82  $ 11.13  $ (0.86)
Diluted $ 4.72  $ 0.81  $ 10.65  $ (0.86)
Earnings from discontinued operations per common share attributable to Mr. Cooper:
Basic $ 0.14  $ (0.04) $ 0.16  $ (0.18)
Diluted $ 0.13  $ (0.04) $ 0.15  $ (0.18)
Earnings per common share attributable to Mr. Cooper:
Basic $ 5.05  $ 0.78  $ 11.29  $ (1.04)
Diluted $ 4.85  $ 0.77  $ 10.80  $ (1.04)
    
See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).
4
MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions of dollars, except share data)
Preferred Stock Common Stock
Shares
(in thousands) 		Amount Shares
(in thousands) 		Amount Additional Paid-in Capital Retained Earnings Treasury Share Amount Total Mr. Cooper Stockholders’ Equity Non-controlling Interests Total Stockholders’
Equity
Balance at March 31, 2020 1,000  $ —  91,970  $ 1  $ 1,108  $ 961  $ —  $ 2,070  $ (4) $ 2,066 
Shares issued / (surrendered) under incentive compensation plan —  —  52  —  —  —  —  —  —  — 
Share-based compensation —  —  —  —  6  —  —  6  —  6 
Net income —  —  —  —  —  73  —  73  —  73 
Balance at June 30, 2020 1,000  $ —  92,022  $ 1  $ 1,114  $ 1,034  $ —  $ 2,149  $ (4) $ 2,145 
Balance at March 31, 2021 1,000  $ —  86,135  $ 1  $ 1,113  $ 1,995  $ (206) $ 2,903  $ 1  $ 2,904 
Shares issued / (surrendered) under incentive compensation plan —  —  14  —  (1) —  —  (1) —  (1)
Share-based compensation —  —  —  —  8  —  —  8  —  8 
Net income —  —  —  —  —  439  —  439  —  439 
Balance at June 30, 2021 1,000  $ —  86,149  $ 1  $ 1,120  $ 2,434  $ (206) $ 3,349  $ 1  $ 3,350 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

5
MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions of dollars, except share data)
Preferred Stock Common Stock
Shares
(in thousands) 		Amount Shares
(in thousands) 		Amount Additional Paid-in Capital Retained Earnings Treasury Share Amount Total Mr. Cooper Stockholders’ Equity Non-controlling Interests Total Stockholders’
Equity
Balance at January 1, 2020 1,000  $ —  91,118  $ 1  $ 1,109  $ 1,122  $ —  $ 2,232  $ (1) $ 2,231 
Shares issued / (surrendered) under incentive compensation plan —  —  904  —  (5) —  —  (5) —  (5)
Share-based compensation —  —  —  —  10  —  —  10  —  10 
Cumulative effect adjustments pursuant to the
adoption of CECL-related accounting guidance 		—  —  —  —  —  7  —  7  —  7 
Net loss —  —  —  —  —  (95) —  (95) (3) (98)
Balance at June 30, 2020 1,000  $ —  92,022  $ 1  $ 1,114  $ 1,034  $ —  $ 2,149  $ (4) $ 2,145 
Balance at January 1, 2021 1,000  $ —  89,457  $ 1  $ 1,126  $ 1,434  $ (58) $ 2,503  $ 1  $ 2,504 
Shares issued / (surrendered) under incentive compensation plan —  —  1,197  —  (20) —  —  (20) —  (20)
Share-based compensation —  —  —  —  14  —  —  14  —  14 
Repurchase of common stock —  —  (4,505) —  —  —  (148) (148) —  (148)
Net income —  —  —  —  —  1,000  —  1,000  —  1,000 
Balance at June 30, 2021 1,000  $ —  86,149  $ 1  $ 1,120  $ 2,434  $ (206) $ 3,349  $ 1  $ 3,350 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

6
MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
Six Months Ended June 30,
  2021 2020
Operating Activities
Net income (loss) $ 1,000  $ (98)
Less: Net income (loss) from discontinued operations 14  (16)
Net income (loss) from continuing operations 986  (82)
Adjustments to reconcile net income (loss) from continuing operations to net cash attributable to operating activities:
Deferred tax expense (benefit) 220  (49)
Net gain on mortgage loans held for sale (1,261) (949)
Provision for servicing and non-servicing reserves 21  11 
Fair value changes and amortization of mortgage servicing rights 190  1,055 
Fair value changes in MSR related liabilities 2  (89)
Depreciation and amortization for property and equipment and intangible assets 31  36 
Gain on sale of business (487) — 
Other operating activities 24  26 
Repurchases of forward loan assets out of Ginnie Mae securitizations (5,812) (2,092)
Mortgage loans originated and purchased for sale, net of fees (47,560) (23,110)
Sales proceeds and loan payment proceeds for mortgage loans held for sale 52,923  26,606 
Changes in assets and liabilities:
Advances and other receivables 48  270 
Other assets 101  (5)
Payables and other liabilities 13  (119)
Net cash attributable to operating activities - continuing operations (561) 1,509 
Net cash attributable to operating activities - discontinued operations 447  557 
Net cash attributable to operating activities (114) 2,066 
Investing Activities
Property and equipment additions, net of disposals (26) (26)
Purchase of forward mortgage servicing rights (217) (31)
Proceeds on sale of forward mortgage servicing rights 13  43 
Other investing activities (17) — 
Net cash attributable to investing activities - continuing operations (247) (14)
Net cash attributable to investing activities - discontinued operations —  — 
Net cash attributable to investing activities (247) (14)
Financing Activities
Increase in advance and warehouse facilities 1,047  (520)
Settlements and repayments of excess spread financing (81) (110)
Issuance of unsecured senior notes —  600 
Redemption and repayment of unsecured senior notes —  (698)
Repurchase of common stock (148) — 
Other financing activities (24) (2)
Net cash attributable to financing activities - continuing operations 794  (730)
Net cash attributable to financing activities - discontinued operations (440) (633)
Net cash attributable to financing activities 354  (1,363)
Net (decrease) increase in cash, cash equivalents, and restricted cash (7) 689 
Cash, cash equivalents, and restricted cash - beginning of period 913  612 
Cash, cash equivalents, and restricted cash - end of period(1)
$ 906  $ 1,301 
Supplemental Disclosures of Non-cash Investing Activities
Consideration from sale of business $ 499  $ — 
Purchase of forward mortgage servicing rights $ 7  $ — 

7
(1)The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the condensed consolidated balance sheets.
June 30, 2021 June 30, 2020
Cash and cash equivalents $ 716  $ 1,041 
Restricted cash 113  178 
Restricted cash within assets of discontinued operations 77  82 
Total cash, cash equivalents, and restricted cash $ 906  $ 1,301 
See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited). 
8
MR COOPER GROUP INC.
NOTES TO CONDENSED 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 technology and data enhanced solutions to homebuyers, home sellers, real estate agents and mortgage companies. 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 Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-Q.

On March 12, 2021, the Company entered into a Stock Purchase Agreement with Blend Labs, Inc. (“Blend Labs”), a Delaware corporation, pursuant to which Blend Labs will acquire the title business of the Company for a purchase price of approximately $500, consisting of approximately $450 in cash, subject to certain adjustments specified therein, and a retained interest of 9.9% for the Company (the “Title Transaction”). The Title Transaction was completed on June 30, 2021, with consideration received on July 1, 2021. A receivable for consideration was recorded in other assets in the Company’s condensed consolidated balance sheets as of June 30, 2021. Pursuant to the Stock Purchase Agreement, all cash generated, subject to certain adjustments, between March 13, 2021 and the closing date of the Title Transaction, were held for the benefit of Blend Labs. A $487 gain on the Title Transaction was recorded in the second quarter of 2021 upon closing of the Title Transaction, which was included in other income, net within the condensed consolidated statements of operations. In addition, the Company recorded total transaction costs of $2 and $5 for the three and six months ended June 30, 2021, respectively. The results of the title business were previously reported under the Xome segment. The carrying amounts of assets and liabilities associated with the title business were not material to the condensed consolidated balance sheets as of December 31, 2020.

On July 1, 2021, the Company entered into a definitive agreement for the sale of its reverse servicing portfolio, operating under the Champion Mortgage brand (“Champion”), to Mortgage Assets Management, LLC and its affiliates (“MAM”). The reverse servicing operation was previously reported in the Company’s Servicing segment. The Company determined the sale of the reverse servicing portfolio qualified for reporting as discontinued operations as of June 30, 2021. As a result, the reverse servicing operation is presented as discontinued operations in the Company’s condensed consolidated statements of operations and the assets and liabilities of the reverse servicing operation are presented as discontinued operations in the Company’s condensed consolidated balance sheets for all periods presented. Unless otherwise indicated, information in this report relates to the Company’s continuing operations. Refer to Note 2, Discontinued Operations for further details.

Basis of Presentation
The interim condensed consolidated 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 Securities and Exchange Commission. 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, 2020.

The interim condensed 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.
9

Basis of Consolidation
The condensed 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.

Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed 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.

In the second quarter of 2021, the Company refined its estimation process for determining the fair value of forward MSRs by incorporating an estimate of future cash flows from existing loans that are expected to be recaptured, which is consistent with recent pricing observed from market participants. This refinement did not result in a significant change to the overall valuation of the Company’s mortgage servicing rights (“MSRs”) portfolio. See Note 3, Mortgage Servicing Rights and Related Liabilities and Note 13, Fair Value Measurements for further discussion. There were no other changes to the Company’s use of estimates for the period ended June 30, 2021.

Recent Accounting Guidance Adopted
Accounting Standards Update 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”) simplifies accounting for income taxes by removing certain exceptions from the general principles in Topic 740 including elimination of the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items such as other comprehensive income. ASU 2019-12 also clarifies and amends certain guidance in Topic 740. ASU 2019-12 is effective for the Company on January 1, 2021. The adoption of the standard did not have a material impact to the Company’s condensed consolidated financial statements.


2. Discontinued Operations

On July 1, 2021, the Company entered into a definitive agreement for the sale of its reverse servicing portfolio, operating under Champion, to MAM. Upon close of the transaction, which is subject to regulatory approvals and other closing conditions, MAM will assume Champion’s reverse portfolio and related operations. The sale is expected to close prior to the end of 2021. The carrying amounts of assets and liabilities associated with the reverse servicing operation are reported under the Servicing segment. The Company determined reverse servicing operations met the criteria for classification as held for sale as of June 30, 2021 and represents a strategic shift in the Company’s operations. Therefore, the sale of the reverse servicing portfolio qualifies for reporting as discontinued operations, and the assets and liabilities of the reverse servicing portfolio are reported as discontinued operations in the condensed consolidated balance sheets and related results of operations are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.

As part of the transaction, the Company entered into a servicing agreement with MAM, under which the Company will be compensated for continuing to service these reverse loans through the date that the loans are transferred out of Company’s servicing system, which will be the date of close. In addition, the Company will retain certain loans related to the reverse servicing portfolio, primarily related to previously liquidated loans, with total assets of $112 and total liabilities of $88 as of June 30, 2021.
10
The following table sets forth the assets and liabilities included in discontinued operations:
June 30, 2021 December 31, 2020
Carrying amounts of assets of discontinued operations
Restricted cash $ 77  $ 83 
Reverse mortgage interests, net 4,910  5,253 
Other 9  11 
Loss recognized on classification as discontinued operations (61) — 
Total assets of discontinues operations $ 4,935  $ 5,347 
Carrying amounts of liabilities of discontinued operations
Advances and warehouse facilities, net $ 525  $ 505 
Payables and other liabilities 224  233 
Mortgage servicing liabilities 42  41 
Other nonrecourse debt, net 3,999  4,424 
Total liabilities of discontinued operations $ 4,790  $ 5,203 

The following table sets forth the condensed consolidated statements of operations data for discontinued operations:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Revenue - service related, net $ 1  $ 12  $ 9  $ 26 
Salaries, wages and benefits expense (8) (10) (16) (22)
General and administrative expense 71  (10) 64  (18)
Interest income 43  53  87  96 
Interest expense (30) (50) (64) (103)
Loss on classification as discontinued operations (61) —  (61) — 
Income (loss) from discontinued operations before income tax expense (benefit) 16  (5) 19  (21)
Less: Income tax expense (benefit) 4  (1) 5  (5)
Net income (loss) from discontinued operations $ 12  $ (4) $ 14  $ (16)


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 mortgage servicing rights and related liabilities, the impact of the current environment was considered in the determination of key assumptions.
MSRs and Related Liabilities June 30, 2021 December 31, 2020
Forward MSRs - fair value $ 3,307  $ 2,703 
Excess spread financing - fair value $ 867  $ 934 
Mortgage servicing rights financing - fair value 21  33 
MSR related liabilities - nonrecourse at fair value $ 888  $ 967 

11
Forward Mortgage Servicing Rights
The following table sets forth the activities of forward MSRs:
Six Months Ended June 30,
Forward MSRs - Fair Value 2021 2020
Fair value - beginning of period $ 2,703  $ 3,496 
Additions:
Servicing retained from mortgage loans sold 554  249 
Purchases of servicing rights 218  24 
Dispositions:
Sales of servicing assets (12) — 
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model 270  (717)
Changes in valuation due to amortization (460) (338)
Other changes 34  43 
Fair value - end of period $ 3,307  $ 2,757 

During the six months ended June 30, 2021 and 2020, the Company sold $1,076 and $71 in unpaid principal balance (“UPB”) of forward MSRs, of which $1,008 and none were retained by the Company as subservicer, respectively.

MSRs measured at fair value are 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. 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”). Non-agency investors consist of investors in private-label securitizations.

The following table provides a breakdown of UPB and fair value for the Company’s forward MSRs:
June 30, 2021 December 31, 2020
Forward MSRs - UPB and Fair Value Breakdown UPB Fair Value UPB Fair Value
Investor Pools
Agency $ 248,799  $ 2,955  $ 227,136  $ 2,305 
Non-agency 38,656  352  44,053  398 
Total $ 287,455  $ 3,307  $ 271,189  $ 2,703 

In the second quarter of 2021, the Company refined its estimate of the fair value of forward MSRs by incorporating an estimate of future cash flows from existing loans that are expected to be recaptured. The estimate of future cash flows related to recapture is consistent with recent pricing observed from various market participants, including the Company’s independent, third-party valuation firms. As a result of considering the recapture rate, the Company adjusted its discount rate assumption in order to ensure that the fair value of forward MSRs remains consistent with current market participant pricing and was also corroborated with valuations provided by independent, third parties. The net impact on the overall forward MSRs fair value was not significant during the three and six months ended June 30, 2021. Refer to Note 13, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in estimating the fair value of forward MSRs.

12
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
Cost to Service per Loan
Forward MSRs - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
June 30, 2021
Mortgage servicing rights $ (112) $ (216) $ (139) $ (268) $ (43) $ (87)
December 31, 2020
Mortgage servicing rights $ (100) $ (192) $ (181) $ (347) $ (45) $ (89)

These hypothetical sensitivities should be evaluated with care. The effect on fair value of an 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.

Excess Spread Financing - Fair Value
The Company had excess spread financing liability of $867 and $934 as of June 30, 2021 and December 31, 2020, respectively. Refer to Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of excess spread financing.

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, 2021
Excess spread financing $ 30  $ 61  $ 34  $ 70 
December 31, 2020
Excess spread financing $ 30  $ 62  $ 41  $ 84 

These hypothetical sensitivities should be evaluated with care. The effect on fair value of an 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. 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
The Company had MSR financing liability of $21 and $33 as of June 30, 2021 and December 31, 2020, respectively. Refer to Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of the MSR financing liability.
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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 2021 2020 2021 2020
Contractually specified servicing fees(1)
$ 275  $ 285  $ 551  $ 582 
Other service-related income(1)
214  62  359  111 
Incentive and modification income(1)
14  8  28  18 
Late fees(1)
16  20  34  47 
Mark-to-market adjustments(2)
(180) (261) 174  (644)
Counterparty revenue share(3)
(76) (88) (159) (164)
Amortization, net of accretion(4)
(158) (107) (314) (191)
Total revenues - Servicing $ 105  $ (81) $ 673  $ (241)

(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 $8 and $3 for the three months ended June 30, 2021 and 2020 and $20 and $13 for the six months ended June 30, 2021 and 2020, 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 $70 and $79 during the three months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021 and 2020, amortization is net of excess spread accretion of $146 and $147, respectively.


4. Advances and Other Receivables

Advances and other receivables, net, consists of the following:
Advances and Other Receivables, Net June 30, 2021 December 31, 2020
Servicing advances, net of $26 and $72 purchase discount, respectively
$ 856  $ 975 
Receivables from agencies, investors and prior servicers, net of $20 and $21 purchase discount, respectively
172  173 
Reserves (191) (208)
Total advances and other receivables, net $ 837  $ 940 

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 2021 2020 2021 2020
Balance - beginning of period $ 206  $ 193  $ 208  $ 168 
Provision and other additions(1)
26  29  41  59 
Write-offs (41) (6) (58) (11)
Balance - end of period $ 191  $ 216  $ 191  $ 216 

(1)The Company recorded a provision of $8 and $3 through the MTM adjustments in revenues - service related, net, in the unaudited condensed consolidated statements of operations during the three months ended June 30, 2021 and 2020, respectively, and $20 and $13 during the six months ended June 30, 2021 and 2020, 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.

14
Purchase Discount for Advances and Other Receivables
The following tables set forth the activities of the purchase discounts for advances and other receivables:
Three Months Ended June 30,
2021 2020
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 $ 63  $ 20  $ 125  $ 21 
Utilization of purchase discounts (37) —  (8) — 
Balance - end of period $ 26  $ 20  $ 117  $ 21 

Six Months Ended June 30,
2021 2020
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 $ 72  $ 21  $ 131  $ 21 
Utilization of purchase discounts (46) (1) (14) — 
Balance - end of period $ 26  $ 20  $ 117  $ 21 

Credit Loss for Advances and Other Receivables
During the three and six months ended June 30, 2021, the Company increased the current expected credit loss (“CECL”) reserve by $3 and $4, respectively. 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, 2021, the total CECL reserve was $42, of which $25 and $17 were recorded in reserves and purchase discount for advances and other receivables, respectively. As of June 30, 2020, the total CECL reserve was $31, of which $14 and $17 were recorded in reserves and purchase discount for advances and other receivables, respectively.

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. Mortgage Loans Held for Sale

Mortgage loans held for sale are recorded at fair value as set forth below:
Mortgage Loans Held for Sale June 30, 2021 December 31, 2020
Mortgage loans held for sale – UPB $ 6,706  $ 5,438 
Mark-to-market adjustment(1)
255  282 
Total mortgage loans held for sale $ 6,961  $ 5,720 

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

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The following table sets forth the activities of mortgage loans held for sale:
Six Months Ended June 30,
Mortgage Loans Held for Sale 2021 2020
Balance - beginning of period $ 5,720  $ 4,077 
Loans sold (52,128) (26,149)
Mortgage loans originated and purchased, net of fees 47,560  23,110 
Repurchase of loans out of Ginnie Mae securitizations 5,812  2,092 
Net change in unrealized (loss) gain on retained loans held for sale (5) 42 
Net transfers of mortgage loans held for sale(1)
2  7 
Balance - end of period $ 6,961  $ 3,179 

(1)Amount reflects transfers to other assets for loans transitioning into REO status and transfers to advances and other receivables, net, for claims made on certain government insurance mortgage loans. Transfers out are net of transfers in upon receipt of proceeds from an REO sale or claim filing.

During the six months ended June 30, 2021 and 2020, the Company received proceeds of $52,923 and $26,606, respectively, on the sale of mortgage loans held for sale, resulting in gains of $795 and $457, respectively.

The total UPB and fair value of mortgage loans held for sale on non-accrual status was as follows:
June 30, 2021 December 31, 2020
Mortgage Loans Held for Sale UPB Fair Value UPB Fair Value
Non-accrual(1)
$ 1,178  $ 1,216  $ 64  $ 54 

(1)Non-accrual UPB includes $1,149 and $48 of UPB related to Ginnie Mae repurchased loans as of June 30, 2021 and December 31, 2020, respectively.

The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $19 and $20 as of June 30, 2021 and December 31, 2020, respectively.

6. Loans Subject to Repurchase from Ginnie Mae

Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. The Company, as the issuer of the mortgage backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including payments not being received from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its condensed consolidated balance sheets and establishes a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The Company had loans subject to repurchase from Ginnie Mae of $4,057 and $6,159 as of June 30, 2021 and December 31, 2020, respectively, which are included in both other assets and payables and other liabilities in the condensed consolidated balance sheets. Loans subject to repurchase from Ginnie Mae as of June 30, 2021 and December 31, 2020 include $3,825 and $5,879 loans in forbearance related to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), respectively, whereby no payments have been received from borrowers for greater than 90 days.


7. Goodwill and Intangible Assets

The Company had goodwill of $120 as of June 30, 2021 and December 31, 2020. The Company had intangible assets of $22 and $31 as of June 30, 2021 and December 31, 2020, respectively. Goodwill and intangible assets are included in other assets within the condensed consolidated balance sheets.


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8. Derivative Financial Instruments

Derivative instruments are used as part of the overall strategy to manage exposure to market risks primarily associated with fluctuations in interest rates related to originations. Derivative instruments utilized by the Company primarily include interest rate lock commitments (“IRLCs”), loan purchase commitments (“LPCs”), forward Mortgage Backed Securities (“MBS”) purchase commitments, Eurodollar and Treasury futures and interest rate swap agreements. The changes in value on the derivative instruments are recorded in earnings as a component of net gain on mortgage loans held for sale on the condensed consolidated statements of operations and condensed consolidated statement of cash flows, except for a portion of forward MBS trades to hedge MSR pipelines and related fair value changes, which is recorded in service related, net on the condensed consolidated statements of operations and in changes in other assets or other liabilities on the condensed consolidated statements of cash flows.

The following tables provide the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses) for the derivative financial instruments:
June 30, 2021 Six Months Ended June 30, 2021
Derivative Financial Instruments Expiration
Dates 		Outstanding
Notional 		Fair
Value 		Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments 2021 $ 1,514  $ 39  $ (63)
Derivative financial instruments
IRLCs 2021 6,730  204  (210)
LPCs 2021 1,984  10  (28)
Forward MBS trades 2021 9,749  27  (10)
Swap futures 2021 60  —  — 
Total derivative financial instruments - assets $ 18,523  $ 241  $ (248)
Liabilities
Derivative financial instruments
IRLCs 2021 $ 9  $ —  $ — 
LPCs 2021 708  1  — 
Forward MBS trades 2021 11,747  25  (131)
Total derivative financial instruments - liabilities $ 12,464  $ 26  $ (131)

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June 30, 2020 Six Months Ended June 30, 2020
Derivative Financial Instruments Expiration
Dates 		Outstanding
Notional 		Fair
Value 		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 

The Company held $2 and $61 in collateral deposits on derivative instruments as of June 30, 2021 and December 31, 2020, respectively, which are recorded in other assets in the Company’s condensed consolidated balance sheets. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the condensed consolidated balance sheets.


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9. Indebtedness

Advance and Warehouse Facilities
June 30, 2021 December 31, 2020
Interest Rate Maturity Date Collateral Capacity Amount Outstanding Collateral Pledged Outstanding Collateral Pledged
Advance Facilities
$875 advance facility
CP+2.0% to 6.5%
January 2022 Servicing advance receivables $ 875  $ 143  $ 168  $ 168  $ 195 
$640 advance facility(1)
LIBOR+3.9%
August 2022 Servicing advance receivables 640  201  264  235  305 
$425 advance facility
LIBOR+1.7% to 6.5%
October 2021 Servicing advance receivables 425  167  219  192  246 
$100 advance facility
LIBOR+2.5%
January 2022 Servicing advance receivables 100  66  69  74  98 
Advance facilities principal amount 577  720  669  844 
Warehouse Facilities
$2,500 warehouse facility(2)
LIBOR+1.6% to 1.9%
October 2021 Mortgage loans or MBS 2,500  1,374  1,424  1,003  1,037 
$2,000 warehouse facility(3)
LIBOR+1.5% to 1.8%
February 2023 Mortgage loans or MBS 2,000  1,968  2,124  339  392 
$1,500 warehouse facility
LIBOR+1.5%
June 2022 Mortgage loans or MBS 1,500  607  584  1,081  1,028 
$1,350 warehouse facility(4)(5)
LIBOR+1.8% to 3.9%
September 2022 Mortgage loans or MBS 1,350  1,018  1,065  951  977 
$1,200 warehouse facility(5)
LIBOR+1.8% to 3.0%
November 2021 Mortgage loans or MBS 1,200  293  303  586  607 
$750 warehouse facility
LIBOR+1.8% to 2.3%
August 2021 Mortgage loans or MBS 750  400  412  477  492 
$750 warehouse facility
LIBOR+1.7% to 2.8%
October 2021 Mortgage loans or MBS 750  303  313  562  574 
$600 warehouse facility(5)
LIBOR+2.5%
February 2022 Mortgage loans or MBS 600  77  78  —  — 
$500 warehouse facility
LIBOR+1.5% to 3.0%
June 2023 Mortgage loans or MBS 500  —  —  —  — 
$500 warehouse facility(5)
LIBOR+1.5% to 4.0%
June 2022 Mortgage loans or MBS 500  146  145  —  — 
$300 warehouse facility
LIBOR+1.4%
January 2022 Mortgage loans or MBS 300  93  94  163  164 
$200 warehouse facility
LIBOR+1.8%
August 2021 Mortgage loans or MBS 200  180  184  131  134 
$50 warehouse facility
LIBOR+1.8% to 4.8%
April 2022 Mortgage loans or MBS 50  11  15  37  42 
$30 warehouse facility(5)(6)
LIBOR+3.3%
January 2022 Mortgage loans or MBS 30  —  —  —  — 
Warehouse facilities principal amount 6,470  6,741  5,330  5,447 
MSR Facilities
$260 warehouse facility(1)
LIBOR+3.9%
August 2022 MSR 260 260 865 260 668
$200 warehouse facility
LIBOR+3.5%
August 2021 MSR 200 — 517 — 247
$150 warehouse facility(4)
LIBOR+3.8%
September 2022 MSR 150 — 453 — 228
$50 warehouse facility
LIBOR+3.3%
November 2022 MSR 50 10 72 10 74
MSR facilities principal amount 270 1,907 270 1,217
Advance, warehouse and MSR facilities principal amount 7,317  $ 9,368 6,269  $ 7,508 
Unamortized debt issuance costs (7) (11)
Advance and warehouse facilities, net $ 7,310 $ 6,258
Pledged Collateral for warehouse and MSR facilities:
Mortgage loans held for sale $ 6,470  $ 6,741  $ 5,330  $ 5,447 
MSR 270  1,907  270  1,217 

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(1)Total capacity for this facility is $900, of which $640 is internally allocated for advance financing and $260 is internally allocated for MSR financing; capacity is fully fungible and is not restricted by these allocations.
(2)The capacity amount for this warehouse facility increased from $1,500 to $2,500 in 2021.
(3)The capacity amount for this warehouse facility subsequently increased from $2,000 to $4,000 in July 2021.
(4)Total capacity amount for this facility is $1,500, of which $150 is a sublimit for MSR financing.
(5)The outstanding and collateral pledged amounts excluded balances related to reverse mortgage interests, which are included in liabilities of discontinued operations. Refer to Note 2, Discontinued Operations for further details on liabilities of discontinued operations.
(6)The capacity amount for this warehouse facility decreased from $40 to $30 in 2021.

Unsecured Senior Notes
Unsecured senior notes consist of the following:
Unsecured Senior Notes June 30, 2021 December 31, 2020
$850 face value, 5.500% interest rate payable semi-annually, due August 2028
$ 850  $ 850 
$650 face value, 5.125% interest rate payable semi-annually, due December 2030
650  650 
$600 face value, 6.000% interest rate payable semi-annually, due January 2027
600  600 
Unsecured senior notes principal amount 2,100  2,100 
Unamortized debt issuance costs (25) (26)
Unsecured senior notes, net $ 2,075  $ 2,074 

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 six months ended June 30, 2021 and three months ended June 30, 2020. During the six months ended June 30, 2020, the Company repaid $100 in principal of outstanding notes, and redeemed $598 in principal of outstanding notes, resulting in a gain of $1.

As of June 30, 2021, the expected maturities of the Company’s unsecured senior notes based on contractual maturities are as follows:
Year Ending December 31, Amount
2021 through 2025 $ — 
Thereafter 2,100 
Total unsecured senior notes principal amount $ 2,100 

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, 2021.


10. Securitizations and Financings

Variable Interest Entities
In the normal course of business, the Company enters into various types of on- and off-balance sheet 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 certain advance facilities trusts should be consolidated as the Company is the primary beneficiary of each of these entities.

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A summary of the assets and liabilities of the Company’s transactions with VIEs included in the Company’s condensed consolidated balance sheets is presented below:
June 30, 2021 December 31, 2020
Consolidated Transactions with VIEs Transfers
Accounted for as
Secured
Borrowings 		Transfers
Accounted for as
Secured
Borrowings
Assets
Restricted cash $ 44  $ 47 
Advances and other receivables, net 387  441 
Total assets $ 431  $ 488 
Liabilities
Advance facilities(1)
$ 310  $ 358 
Payables and other liabilities —  1 
Total liabilities $ 310  $ 359 

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

The following table shows a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by the Company:
Unconsolidated Securitization Trusts June 30, 2021 December 31, 2020
Total collateral balances - UPB $ 1,230  $ 1,326 
Total certificate balances $ 1,229  $ 1,329 

The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of June 30, 2021 and December 31, 2020. Therefore, it 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, 2021 December 31, 2020
Unconsolidated securitization trusts $ 141  $ 154 


11. Earnings Per Share

The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series A Preferred Stock is considered participating securities because it has dividend rights determined on an as-converted basis in the event of Company’s declaration of a dividend or distribution for common shares. On March 26, 2021, the Company repurchased 3,700 thousand shares of its common stock from affiliates of Kohlberg Kravis Roberts & Co. L.P., a related party of the Company, for a total cost of $119 or $32.25 per share.

21
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 2021 2020 2021 2020
Net income (loss) from continuing operations $ 427  $ 77  $ 986  $ (82)
Less: Net loss attributable to non-controlling interests —  —  —  (3)
Less: Undistributed earnings from continuing operations attributable to participating stockholders 4  1  9  — 
Net income (loss) from continuing operations attributable to Mr. Cooper common stockholders $ 423  $ 76  $ 977  $ (79)
Net income (loss) from discontinued operations $ 12  $ (4) $ 14  $ (16)
Less: Undistributed earnings from discontinued operations attributable to participating stockholders —  —  —  — 
Net income (loss) from discontinued operations attributable to Mr. Cooper common stockholders $ 12  $ (4) $ 14  $ (16)
Net income (loss) $ 439  $ 73  $ 1,000  $ (98)
Less: Net loss attributable to non-controlling interests —  —  —  (3)
Net income (loss) attributable to Mr. Cooper 439  73  1,000  (95)
Less: Undistributed earnings attributable to participating stockholders 4  1  9  — 
Net income (loss) attributable to common stockholders $ 435  $ 72  $ 991  $ (95)
Earnings from continuing operations per common share attributable to Mr. Cooper:
Basic $ 4.91  $ 0.82  $ 11.13  $ (0.86)
Diluted $ 4.72  $ 0.81  $ 10.65  $ (0.86)
Earnings from discontinued operations per common share attributable to Mr. Cooper:
Basic $ 0.14  $ (0.04) $ 0.16  $ (0.18)
Diluted $ 0.13  $ (0.04) $ 0.15  $ (0.18)
Earnings per common share attributable to Mr. Cooper:
Basic $ 5.05  $ 0.78  $ 11.29  $ (1.04)
Diluted $ 4.85  $ 0.77  $ 10.80  $ (1.04)
Weighted average shares of common stock outstanding (in thousands):
Basic 86,142  91,997  87,791  91,691 
Dilutive effect of stock awards(1)
2,664  176  3,123  — 
Dilutive effect of participating securities(1)
839  839  839  — 
Diluted 89,645  93,012  91,753  91,691 

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

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12. Income Taxes

For the three and six months ended June 30, 2021, the effective tax rate was 24.8% and 23.7%, respectively, which differed from the statutory federal rate of 21% primarily due to state income taxes and nondeductible executive compensation. The effective tax rate decreased during the six months ended June 30, 2021 compared to the same period in 2020, primarily due to quarterly discrete tax items related to the completion of the Title Transaction and excess tax benefit from stock-based compensation.

For the three and six months ended June 30, 2020, the effective tax rate was 33.0% and 24.2%, respectively, which differed from the statutory federal rate of 21% primarily due to state income taxes and nondeductible executive compensation.


13. Fair Value Measurements

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

There have been no significant changes to the valuation techniques and inputs used by the Company in estimating fair values of Level 2 and Level 3 assets and liabilities as disclosed in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2020, with the exception of the following:

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 a discounted cash flow model which incorporates prepayment speeds, delinquencies, discount rate, ancillary revenues, float earnings and other assumptions (including costs to service, recapture rates and forbearance rates), with the key assumptions being mortgage prepayment speeds, discount rates, and cost to service. In the second quarter of 2021, the Company refined its estimate of the fair value of forward MSRs by incorporating an estimate of future cash flows from loans that are expected to be recaptured. The estimate of future cash flows related to recapture is consistent with recent pricing observed from various market participants, including the Company’s independent third-party valuation firms As a result of considering the recapture rate, the Company adjusted its discount rate assumption in order to ensure that the fair value of forward MSRs remains consistent with current market participant pricing and is reflective of an exit price. The estimated fair value was also corroborated with valuations provided by independent third parties. The net impact on the overall forward MSRs fair value was not significant during the three and six months ended June 30, 2021. 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.

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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, 2021
    Recurring Fair Value Measurements
Fair Value - Recurring Basis Total Fair Value Level 1 Level 2 Level 3
Assets
Mortgage loans held for sale $ 6,961  $ —  $ 6,961  $ — 
Forward mortgage servicing rights 3,307  —  —  3,307 
Derivative financial instruments
IRLCs
204  —  —  204 
LPCs
10  —  —  10 
Forward MBS trades
27  —  27  — 
Liabilities
Derivative financial instruments
LPCs
1  —  —  1 
Forward MBS trades 25  —  25  — 
Mortgage servicing rights financing 21  —  —  21 
Excess spread financing 867  —  —  867 

  December 31, 2020
    Recurring Fair Value Measurements
Fair Value - Recurring Basis Total Fair Value Level 1 Level 2 Level 3
Assets
Mortgage loans held for sale $ 5,720  $ —  $ 5,720  $ — 
Forward mortgage servicing rights 2,703  —  —  2,703 
Derivative financial instruments
IRLCs 414  —  —  414 
LPCs 38  —  —  38 
Forward MBS trades 37  —  37  — 
Liabilities
Derivative financial instruments
LPCs 1  —  —  1 
Forward MBS trades 156  —  156  — 
Mortgage servicing rights financing 33  —  —  33 
Excess spread financing 934  —  —  934 

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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, 2021
  Assets Liabilities
Fair Value - Level 3 Assets and Liabilities Forward mortgage servicing rights IRLCs LPCs Excess spread financing Mortgage servicing rights financing
Balance - beginning of period $ 2,703  $ 414  $ 38  $ 934  $ 33 
Changes in fair value included in earnings (190) (210) (28) 14  (12)
Other changes 34  —  —  —  — 
Purchases, issuances, sales, repayments and settlements
Purchases 218  —  —  —  — 
Issuances 554  —  —  —  — 
Sales (12) —  —  —  — 
Settlements and repayments —  —  —  (81) — 
Balance - end of period $ 3,307  $ 204  $ 10  $ 867  $ 21 

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 
Changes in fair value included in earnings (1,055) 235  (101) 12 
Other changes 43 —  —  — 
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 

No transfers were made in or out of Level 3 fair value assets and liabilities for the Company during the six months ended June 30, 2021 and 2020.


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The tables below present the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities:
June 30, 2021 December 31, 2020
Range Weighted Average Range Weighted Average
Level 3 Inputs Min Max Min Max
Forward MSR
Discount rate 9.5  % 13.8  % 11.0  % 8.2  % 12.0  % 9.4  %
Prepayment speed 12.4  % 18.8  % 13.6  % 14.2  % 21.3  % 15.4  %
Cost to service per loan(1)
$ 63  $ 223  $ 86  $ 66  $ 257  $ 98 
Average life(2)
5.5 years 5.0 years
IRLCs
Value of servicing (basis points per loan) (0.7) 2.3  1.4  (1.0) 2.2  1.2 
Excess spread financing
Discount rate 9.5  % 13.8  % 11.2  % 9.9  % 15.7  % 12.2  %
Prepayment speed 12.6  % 15.3  % 13.5  % 13.9  % 15.0  % 14.4  %
Recapture rate 13.7  % 29.5  % 21.3  % 17.7  % 24.2  % 19.5  %
Average life(2)
5.4 years 5.1 years
Mortgage servicing rights financing
Advance financing and counterparty fee rates 5.3  % 8.2  % 6.9  % 4.6  % 8.5  % 7.5  %
Annual advance recovery rates 18.9  % 22.7  % 20.8  % 18.3  % 22.0  % 19.9  %

(1)Presented in whole dollar amounts.
(2)Average life is included for informational purposes.

The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial instruments not carried at fair value:
  June 30, 2021
  Carrying
Amount 		Fair Value
Financial Instruments Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 716  $ 716  $ —  $ — 
Restricted cash 113  113  —  — 
Advances and other receivables, net 837  —  —  837 
Loans subject to repurchase from Ginnie Mae 4,057  —  4,057  — 
Financial liabilities
Unsecured senior notes, net 2,075  2,117  —  — 
Advance and warehouse facilities, net 7,310  —  7,317  — 
Liability for loans subject to repurchase from Ginnie Mae 4,057  —  4,057  — 

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December 31, 2020
Carrying
Amount 		Fair Value
Financial Instruments Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 695  $ 695  $ —  $ — 
Restricted cash 135  135  —  — 
Advances and other receivables, net 940  —  —  940 
Loans subject to repurchase from Ginnie Mae 6,159  —  6,159  — 
Financial liabilities
Unsecured senior notes, net 2,074  2,208  —  — 
Advance and warehouse facilities, net 6,258  —  6,269  — 
Liability for loans subject to repurchase from Ginnie Mae 6,159  —  6,159  — 


14. Capital Requirements

Certain of the Company’s secondary market investors require minimum net worth (“capital”) requirements, as specified in the respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated requirements to approve large servicing transfers. To the extent that these requirements are not met, the Company’s secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of the Company’s selling and servicing agreements, which would prohibit the Company from further originating or securitizing these specific types of mortgage loans or being an approved servicer. The Company’s various capital requirements related to its outstanding selling and servicing agreements are measured based on the Company’s operating subsidiary, Nationstar Mortgage LLC. As of June 30, 2021, the Company was in compliance with its selling and servicing capital requirements.


15. Commitments and Contingencies

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

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

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The Company operates within highly regulated industries on a federal, state and local level. In the normal and ordinary course of its business, the Company is routinely subject to extensive examinations, investigations, subpoenas, inquiries and reviews by various federal, state and local governmental, regulatory and enforcement agencies, including the Consumer Financial Protection Bureau, the Securities and Exchange Commission, 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, various State mortgage banking regulators and various State Attorneys General, related to the Company’s residential loan servicing and origination practices, its financial reporting and other aspects of its businesses. Any 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 and results of operation.

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 $8 and $21 for three and six months ended June 30, 2021, respectively, and $12 and $27 for three and six months ended June 30, 2020, respectively, was included in general and administrative expenses on the unaudited condensed consolidated statements of operations.

For 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. Management currently believes the aggregate range of reasonably possible loss is $2 to $17 in excess of the accrued liability (if any) related to those matters as of June 30, 2021. 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.    

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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 condensed consolidated financial statements.

Other Loss Contingencies
As part of the Company’s ongoing operations, it acquires servicing rights of forward 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 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, 2021, 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.

In the second quarter of 2021, the Company entered into an agreement, under which the Company committed a total of $83 over a period of 5 years in exchange for cloud platform service.


16. Segment Information

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, 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.

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On June 30, 2021, the Company closed the previously announced sale of title business to Blend Labs. Pursuant to the Stock Purchase Agreement, all cash generated, subject to certain adjustments, between March 13, 2021 and the closing date of the Title Transaction, were held for the benefit of Blend Labs. The title business was reported in the Company’s Xome segment. See Note 1, Nature of Business and Basis of Presentation for further details. The Company recorded a $487 gain in the second quarter of 2021 upon closing of the transaction. The gain was included in other income, net in the condensed statements of operations and reported under the Xome segment.

On July 1, 2021, the Company entered into a definitive agreement for the sale of its reverse servicing portfolio, operating under the Champion Mortgage brand, to Mortgage Assets Management, LLC and its affiliates. The reverse servicing operation was previously reported in the Company’s Servicing segment. The reverse servicing operation is presented as discontinued operations in Company’s condensed consolidated financial statements for all periods presented and as such is not included in the continuing operations of the Servicing segment. Refer to Note 2, Discontinued Operations for further details. As of June 30, 2021 and December 31, 2020, total assets of discontinued operations was $4,935 and $5,347, respectively.

The following tables present financial information by segment:
  Three Months Ended June 30, 2021
Financial Information by Segment Servicing Originations Xome Corporate/Other Consolidated
Revenues
Service related, net $ (92) $ 45  $ 39  $ —  $ (8)
Net gain on mortgage loans held for sale 197  385  —  —  582 
Total revenues 105  430  39  —  574 
Total expenses 121  226  45  33  425 
Interest income 25  26  —  —  51 
Interest expense (65) (23) —  (31) (119)
Other income, net —  —  486  —  486 
Total other (expenses) income, net (40) 3  486  (31) 418 
(Loss) Income from continuing operations before income tax (benefit) expense $ (56) $ 207  $ 480  $ (64) $ 567 
Depreciation and amortization for property and equipment and intangible assets from continuing operations $ 7  $ 6  $ 3  $ —  $ 16 
Total assets $ 15,973  $ 4,582  $ 573  $ 2,180  $ 23,308 

Three Months Ended June 30, 2020
Financial Information by Segment Servicing Originations Xome Corporate/Other Consolidated
Revenues
Service related, net $ (126) $ 21  $ 106  $ (1) $ — 
Net gain on mortgage loans held for sale 45  573  —  —  618 
Total revenues (81) 594  106  (1) 618 
Total expenses 102  167  95  34  398 
Interest income 3  19  —  —  22 
Interest expense (67) (13) —  (47) (127)
Other income (expense), net —  —  1  (1) — 
Total other (expenses) income, net (64) 6  1  (48) (105)
(Loss) income from continuing operations before income tax (benefit) expense $ (247) $ 433  $ 12  $ (83) $ 115 
Depreciation and amortization for property and equipment and intangible assets from continuing operations $ 4  $ 4  $ 3  $ 6  $ 17 
Total assets $ 10,736  $ 3,592  $ 135  $ 2,837  $ 17,300 

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Six Months Ended June 30, 2021
Financial information by segment Servicing Originations Xome Corporate/Other Consolidated
Revenues
Service related, net $ 349  $ 88  $ 135  $ —  $ 572 
Net gain on mortgage loans held for sale 324  937  —  —  1,261 
Total revenues 673  1,025  135  —  1,833 
Total expenses 231  457  132  59  879 
Interest income 48  49  —  —  97 
Interest expense (136) (48) —  (61) (245)
Other income, net —  —  486  —  486 
Total other (expenses) income, net (88) 1  486  (61) 338 
Income (loss) from continuing operations before income tax (benefit) expense $ 354  $ 569  $ 489  $ (120) $ 1,292 
Depreciation and amortization for property and equipment and intangible assets from continuing operations $ 12  $ 10  $ 6  $ 3  $ 31 
Total assets $ 15,973  $ 4,582  $ 573  $ 2,180  $ 23,308 

Six Months Ended June 30, 2020
Financial information by segment Servicing Originations Xome Corporate/Other Consolidated
Revenues
Service related, net $ (320) $ 41  $ 212  $ —  $ (67)
Net gain on mortgage loans held for sale 79  870  —  —  949 
Total revenues (241) 911  212  —  882 
Total expenses 231  333  191  67  822 
Interest income 43  53  —  1  97 
Interest expense (127) (40) —  (99) (266)
Other income (expense), net —  —  2  (1) 1 
Total other (expenses) income, net (84) 13  2  (99) (168)
(Loss) income from continuing operations before income tax expense (benefit) $ (556) $ 591  $ 23  $ (166) $ (108)
Depreciation and amortization for property and equipment and intangible assets from continuing operations $ 8  $ 7  $ 6  $ 15  $ 36 
Total assets $ 10,736  $ 3,592  $ 135  $ 2,837  $ 17,300 
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CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, core initiatives, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts, including the projected impact of COVID-19 on our business, financial performance and operating results. When used in this discussion, the words “anticipate,” “appears,” “believe,” “foresee,” “intend,” “should,” “expect,” “estimate,” “project,” “plan,” “may,” “could,” “will,” “are likely” and similar expressions are intended to identify forward-looking statements. These statements involve predictions of our future financial condition, performance, plans and strategies and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or incorrect. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances, and we are under no obligation to, and express disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.

A number of important factors exist that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to:

•economic, financial and public health disruptions caused by the COVID-19 pandemic 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 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 Factors 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, 2020 for further information on these and other risk factors affecting us.

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

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020. The following discussion contains, in addition to the historical information, forward-looking statements that include risks, assumptions and uncertainties that could cause actual results to differ materially from those anticipated by such statements.

Dollar amounts are reported in millions, except per share data and other key metrics, unless otherwise noted.

We have provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, at the end of the MD&A section.

Overview

We are a leading servicer and originator of residential mortgage loans, and a provider of real estate services through our Xome subsidiary. Our purpose is to keep the dream of homeownership alive, and we do this as a servicer by helping mortgage borrowers manage what is typically their largest financial asset, and by helping our investors maximize the returns from their portfolios of residential mortgages. We have a track record of significant growth, having expanded our servicing portfolio from $10 billion in 2009 to $654 billion as of June 30, 2021. We believe this track record reflects our strong operating capabilities, which include a proprietary low-cost servicing platform, strong loss mitigation skills, a commitment to compliance, a customer-centric culture, a demonstrated ability to retain customers, growing origination capabilities, and significant investment in technology.

Our strategy is to position the Company for sustainable long-term growth, drive improved efficiency and profitability, and generate a return on tangible equity of 12% or higher. Key strategic priorities include the following:

•Strengthen our balance sheet by building capital and liquidity, and managing interest rate and other forms of risk;
•Improve efficiency by driving continuous improvement in unit costs for Servicing and Originations segments, as well as by taking corporate actions to eliminate costs throughout the organization;
•Grow our servicing portfolio to $1 trillion in UPB and grow our customer base by acquiring new customers and retaining existing customers;
•Reinvent the customer experience by acting as the customer’s advocate and by harnessing technology to deliver user-friendly digital solutions;
•Sustain the talent of our people and the culture of our organization; and
•Maintain strong relationships with agencies, investors, regulators, and other counterparties and a strong reputation for compliance and customer service.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic introduces unprecedented uncertainty in the economy, including the risk of a significant employment shock and recessionary conditions, with implications for the health and safety of our employees, borrower delinquency rates, servicing advances, origination volumes, the availability of financing, and our overall profitability and liquidity. We have implemented the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which makes available forbearance plans for up to eighteen months for borrowers under government and government agency mortgage programs, which we have extended to borrowers in our private label mortgage servicing portfolio. As of July 18, 2021, approximately 3.6% of our customers were on a forbearance plan, down from a peak of 7.2% in July 2020. More customers are now exiting forbearance than are entering. We include loans in forbearance related to the CARES Act, whereby no payments have been received from borrowers for greater than 90 days, in loans subject to repurchase rights from Ginnie Mae in other assets and payables and other liabilities on a gross basis. The balance was $3,825 as of June 30, 2021. See liquidity discussion related to the COVID-19 pandemic in Liquidity and Capital Resources section in MD&A.

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Anticipated Trends

In the second quarter of 2021, our forward MSR and subservicing portfolio continued to grow due to strong execution across all channels - correspondent, direct-to-consumer, subservicing and acquisitions. We expect to see continued portfolio growth in the remainder of 2021. We benefited from early-buyout gains in the first half of 2021 as we helped customers exit forbearance and expect another quarter of strong early-buyout revenues in third quarter of 2021, although down about 30% sequentially, after which revenues will begin to taper off, since we will be nearing the end of the inventory, as loans in forbearance continue to decrease. Based on the current interest rate environment, we expect prepayment speeds and amortization to be roughly flat in the third quarter of 2021. On July 1, 2021, we entered into a definitive agreement for the sale of our reverse servicing portfolio, operating under the Champion Mortgage brand. The sale is expected to close prior to the end of 2021. Refer to Note 2, Discontinued Operations, for further details. The sale of the reverse servicing portfolio allows us to focus on our core business.

Our Originations segment continued to generate strong funded volumes from both the correspondent and direct-to-consumer channels in the second quarter of 2021 despite competitive pricing pressure. We expect the originations profits to be relatively flat quarter-over-quarter in the third quarter of 2021.

Our Xome segment completed the previously announced sale of its title business in the second quarter of 2021 for total consideration of approximately $500 and recognized a one-time gain of $487. In connection with the sale agreement, earnings from the title business subsequent to March 12, 2021 were held for the benefit of the buyer, therefore, the title business did not contribute to the Xome segment’s earnings in the second quarter of 2021. Xome’s revenue from the Exchange division has been, negatively impacted due to the foreclosure moratoriums. The current foreclosure moratoriums are set to expire on July 31, 2021.


Results of Operations
Table 1. Consolidated Operations
Three Months Ended June 30,
2021 2020 Change
Revenues - operational(1)
$ 754  $ 879  $ (125)
Revenues - mark-to-market (180) (261) 81 
Total revenues 574  618  (44)
Total expenses 425  398  27 
Total other income (expenses), net 418  (105) 523 
Income from continuing operations before income tax expense 567  115  452 
Less: Income tax expense 140  38  102 
Net income from continuing operations 427  77  350 
Less: Net income attributable to non-controlling interests —  —  — 
Net income from continuing operations attributable to Mr. Cooper $ 427  $ 77  $ 350 

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

During the three months ended June 30, 2021, income from continuing operations before income tax expense increased to $567 from $115 in 2020. The increase was primarily driven by the completion of our previously announced sale of the title business to Blend Labs Inc. on June 30, 2021, which resulted in a $487 gain recorded in total other income (expenses), net. See further discussions in the Segment Results section of the MD&A.

During the three months ended June 30, 2021 and 2020, we had income tax expense from continuing operations. The effective tax rate during the three months ended June 30, 2021 was 24.8% as compared to the effective tax rate of 33.0% in 2020. The change in effective tax rate is primarily attributable to state income taxes and discrete tax items during the three months ended June 30, 2021 as compared to 2020.

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Table 1.1 Consolidated Operations
Six Months Ended June 30,
2021 2020 Change
Revenues - operational(1)
$ 1,659  $ 1,526  $ 133 
Revenues - Mark-to-market 174  (644) 818 
Total revenues 1,833  882  951 
Total expenses 879  822  57 
Total other income (expenses), net 338  (168) 506 
Income (loss) from continuing operations before income tax expense (benefit) 1,292  (108) 1,400 
Less: Income tax expense (benefit) 306  (26) 332 
Net income (loss) from continuing operations 986  (82) 1,068 
Less: Net income (loss) attributable to non-controlling interests —  (3) 3 
Net income (loss) from continuing operations attributable to Mr. Cooper $ 986  $ (79) $ 1,065 
(1)Revenues - operational consists of total revenues, excluding mark-to-market.

During the six months ended June 30, 2021, we recorded income from continuing operations before income tax expense of $1,292 compared to a loss from continuing operations before income tax benefit of $108 for 2020. The change was primarily driven by the completion of our previously announced sale of the title business to Blend Labs Inc. on June 30, 2021, which resulted in a $487 gain recorded in total other income (expenses), net. The change was also attributable to a favorable MTM adjustments in 2021 compared to negative MTM adjustments in 2020. See further discussions in Segment Results section of the MD&A.

During the six months ended June 30, 2021 and 2020, we had an income tax expense and benefit, respectively. The effective tax rate during the six months ended June 30, 2021 was 23.7% as compared to the effective tax rate of 24.2% in 2020. The change in effective tax rate is primarily attributable to state income taxes and nondeductible executive compensation expenses during the six months ended June 30, 2021 as compared to 2020.

Segment Results

Our operations are conducted through three segments: Servicing, Originations, and Xome.

•The Servicing segment performs operational activities on behalf of investors or owners of the underlying mortgages, including collecting and disbursing borrower payments, investor reporting, customer service, modifying loans where appropriate to help borrowers stay current, and when necessary performing collections, foreclosures, and the sale of REO.
•The Originations segment originates residential mortgage loans through our direct-to-consumer channel, which provides refinance options for our existing customers, and through our correspondent channel, which purchases or originates loans from mortgage bankers.
•The Xome segment provides a variety of real estate services to mortgage originators, mortgage and real estate investors, and mortgage servicers, including valuation, title, and field services, and operates an exchange which facilitates the sale of foreclosed properties. On March 12, 2021, we entered into an agreement to sell the title business. The sale was completed on June 30, 2021. For more information, see Note 1, Nature of Business and Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements (unaudited).

Refer to Note 16, Segment Information, in the Notes to the Condensed Consolidated Financial Statements (unaudited) for a summary of segment results.


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Servicing Segment

The Servicing segment’s strategy is to generate income by growing the portfolio and maximizing the servicing margin. We believe several competitive strengths have been critical to our long-term growth as a servicer, including our low-cost platform, our skill in mitigating losses for investors, our commitment to strong customer service and regulatory compliance, our history of successfully boarding new loans, and the ability to retain existing customers by offering attractive refinance options. We believe that our operational capabilities are reflected in our strong servicer ratings.

Table 2. Servicer Ratings
Fitch(1)
Moody’s(2)
S&P(3)
Rating date May 2021 February 2021 December 2020
Residential RPS2 SQ2- Above Average
Master Servicer RMS2+ SQ2 Above Average
Special Servicer RSS2 SQ2- Above Average
Subprime Servicer RPS2 SQ2- Above Average

(1)Fitch Rating Scale of 1 (Highest Performance) to 5 (Low/No Proficiency)
(2)Moody’s Rating Scale of SQ1 (Strong Ability/Stability) to SQ5 (Weak Ability/Stability)
(3)S&P Rating Scale of Strong to Weak

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The following tables set forth the results of operations for the Servicing segment:
Table 3. Servicing Segment Results of Operations
Three Months Ended June 30,
2021 2020 Change
Amt
bps(1)
Amt
bps(1)
Amt bps
Revenues
Operational $ 443  27  $ 287  19  $ 156  8 
Amortization, net of accretion (158) (10) (107) (7) (51) (3)
Mark-to-market (180) (11) (261) (17) 81  6 
Total revenues 105  6  (81) (5) 186  11 
Expenses
Salaries, wages and benefits 70  4  65  4  5  — 
General and administrative
Servicing support fees 22  1  24  2  (2) (1)
Corporate and other general and administrative expenses 30  2  30  2  —  — 
Foreclosure and other liquidation related (recoveries) expenses, net (8) —  (21) (1) 13  1 
Depreciation and amortization 7  —  4  —  3  — 
Total general and administrative expenses 51  3  37  3  14  — 
Total expenses 121  7  102  7  19  — 
Other income (expense)
Other interest income 25  2  3  —  22  2 
Interest income 25  2  3  —  22  2 
Advance interest expense (4) —  (8) —  4  — 
Other interest expense (61) (4) (59) (4) (2) — 
Interest expense (65) (4) (67) (4) 2  — 
Total other expenses, net (40) (2) (64) (4) 24  2 
(Loss) from continuing operations before income tax expense (benefit) $ (56) (3) $ (247) (16) $ 191  13 
Weighted average cost - advance facilities 3.4  % 2.9  % 0.5  %
Weighted average cost - excess spread financing 9.0  % 9.0  % —  %

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

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Table 3.1 Servicing - Revenues
Three Months Ended June 30,
2021 2020 Change
Amt
bps(1)
Amt
bps(1)
Amt bps
Forward MSR Operational Revenue
Base servicing fees $ 221  14 $ 239  16 $ (18) (2)
Modification fees(2)
7  — 2  — 5  —
Incentive fees(2)
—  — 5  1 (5) (1)
Late payment fees(2)
14  1 16  1 (2) —
Other ancillary revenues(2)
208  13 44  3 164  10
Total forward MSR operational revenue 450  28 306  21 144  7
Base subservicing fees and other subservicing revenue(2)
69  4 69  4 —  —
Total servicing fee revenue 519  32 375  25 144  7
MSR financing liability costs (6) (1) (9) (1) 3  —
Excess spread costs - principal (70) (4) (79) (5) 9  1
Total operational revenue 443  27 287  19 156  8
Amortization, Net of Accretion
Forward MSR amortization (228) (14) (186) (12) (42) (2)
Excess spread accretion 70  4 79  5 (9) (1)
Total amortization, net of accretion (158) (10) (107) (7) (51) (3)
Mark-to-Market Adjustments
MSR fair value MTM (240) (15) (316) (21) 76  6
Other MTM(3)
31  2 (5) — 36  2
Excess spread / financing MTM 29  2 60  4 (31) (2)
Total MTM adjustments (180) (11) (261) (17) 81  6
Total revenues - Servicing $ 105  6 $ (81) (5) $ 186  11

(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
(3)The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $8 and $3 during the three months ended June 30, 2021 and 2020, respectively.

Servicing Segment Revenues
The following provides the changes in revenues for the Servicing segment:

Forward - Other ancillary revenue increased during the three months ended June 30, 2021 as compared to 2020 primarily due to the $181 gain on sale associated with loans bought out of GNMA securitization, modified and redelivered following GNMA guidelines.

Forward MSR amortization increased during the three months ended June 30, 2021 as compared to 2020, primarily due to higher prepayments driven by the low interest rate environment.

Negative MTM adjustments decreased during the three months ended June 30, 2021 compared to 2020, primarily due to favorable impact from changes in interest rates.

Subservicing - There were no material changes for Subservicing fees during the three months ended June 30, 2021 as compared to 2020.

Servicing Segment Expenses
Total expenses increased during the three months ended June 30, 2021 as compared to 2020, primarily driven by the change in foreclosure and other liquidation related recoveries, net. Foreclosure and other liquidation related recoveries, net decreased in 2021 compared to 2020, primarily due to a decrease in the release of loss reserves on servicing advances.
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Servicing Segment Other Income (Expenses), net
Total other expenses, net decreased during the three months ended June 30, 2021 as compared to 2020, primarily due to an increase in other interest income due to higher pandemic related buyouts.

Table 4. Servicing Segment Results of Operations
Six Months Ended June 30,
2021 2020 Change
Amt
bps(1)
Amt
bps(1)
Amt bps
Revenues
Operational $ 813  26  $ 594  20  $ 219  6 
Amortization, net of accretion (314) (10) (191) (7) (123) (3)
Mark-to-market 174  5  (644) (21) 818  26 
Total revenues 673  21  (241) (8) 914  29 
Expenses
Salaries, wages and benefits 136  4  139  5  (3) (1)
General and administrative
Servicing support fees 43  1  45  1  (2) — 
Corporate and other general and administrative expenses 60  2  62  2  (2) — 
Foreclosure and other liquidation related (recoveries) expenses, net (20) —  (23) —  3  — 
Depreciation and amortization 12  —  8  —  4  — 
Total general and administrative expenses 95  3  92  3  3  — 
Total expenses 231  7  231  8  —  (1)
Other income (expense)
Other interest income 48  1  43  1  5  — 
Interest income 48  1  43  1  5  — 
Advance interest expense (10) —  (13) —  3  — 
Other interest expense (126) (4) (114) (4) (12) — 
Interest expense (136) (4) (127) (4) (9) — 
Total other expenses, net (88) (3) (84) (3) (4) — 
Income (loss) from continuing operations before income tax expense (benefit) $ 354  11  $ (556) (19) $ 910  30 
Weighted average cost - advance facilities 3.2  % 3.0  % 0.2  %
Weighted average cost - excess spread financing 9.0  % 9.0  % —  %

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

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Table 4.1 Servicing - Revenues
Six Months Ended June 30,
2021 2020 Change
Amt
bps(1)
Amt
bps(1)
Amt bps
Forward MSR Operational Revenue
Base servicing fees $ 444  14 $ 489  16 $ (45) (2)
Modification fees(2)
14  — 5  — 9  —
Incentive fees(2)
1  — 9  1 (8) (1)
Late payment fees(2)
28  1 39  1 (11) —
Other ancillary revenues(2)
349  11 82  3 267  8
Total forward MSR operational revenue 836  26 624  21 212  5
Base subservicing fees and other subservicing revenue(2)
136  5 134  4 2  1
Total servicing fee revenue 972  31 758  25 214  6
MSR financing liability costs (13) — (17) — 4  —
Excess spread costs - principal (146) (5) (147) (5) 1  —
Total operational revenue 813  26 594  20 219  6
Amortization, Net of Accretion
Forward MSR amortization (460) (15) (338) (12) (122) (3)
Excess spread accretion 146  5 147  5 (1) —
Total amortization, net of accretion (314) (10) (191) (7) (123) (3)
Mark-to-Market Adjustments
MSR fair value MTM 270  8 (717) (24) 987  32
Other MTM(3)
(94) (3) (16) — (78) (3)
Excess spread / financing MTM (2) — 89  3 (91) (3)
Total MTM adjustments 174  5 (644) (21) 818  26
Total revenues - Servicing $ 673  21 $ (241) (8) $ 914  29

(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
(3)The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $20 and $13 during the six months ended June 30, 2021 and 2020, respectively.

Servicing Segment Revenues
The following provides the changes in revenues for the Servicing segment:

Forward - Base servicing fee revenue decreased during the six months ended June 30, 2021 as compared to 2020 primarily due a decrease in average outstanding forward UPB and increase in delinquencies. Other ancillary revenues increased primarily due to the $290 gain on sale associated with loans bought out of GNMA securitization, modified and redelivered following GNMA guidelines. Late payment fees decreased due to loan forbearance related to the CARES Act.

Forward MSR amortization increased during the six months ended June 30, 2021 as compared to 2020, primarily due to higher prepayments driven by the low interest rate environment.

MTM adjustments increased during the six months ended June 30, 2021 compared to 2020, primarily due to favorable impact from changes in interest rates. Other MTM decreased during the six months ended June 30, 2021 compared to 2020 primarily due to losses related to loan-related derivatives.

Subservicing - There were no material changes for Subservicing fees during the six months ended June 30, 2021 as compared to 2020.

Servicing Segment Expenses
There were no material changes for total expenses during the six months ended June 30, 2021 as compared to 2020.

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Servicing Segment Other Income (Expenses), net
There were no material changes for Total other expenses, net during the six months ended June 30, 2021 as compared to 2020.

Table 5. Servicing Portfolio - Unpaid Principal Balances
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Average UPB
Forward MSRs $ 290,946  $ 289,707  $ 286,233  $ 296,446 
Subservicing and other(1)
356,354  301,680  345,792  306,121 
Total average UPB $ 647,300  $ 591,387  $ 632,025  $ 602,567 
June 30, 2021 June 30, 2020
UPB Carrying Amount bps UPB Carrying Amount bps
Forward MSRs
Agency $ 248,799  $ 2,955  119 $ 228,680  $ 2,308  101
Non-agency 38,656  352  91 49,295  449  91
Total forward MSRs 287,455  3,307  115 277,975  2,757  99
Subservicing and other(1)
Agency 352,643  N/A 286,710  N/A
Non-agency 14,219  N/A 10,082  N/A
Total subservicing and other 366,862  N/A 296,792  N/A
Total ending balance $ 654,317  $ 3,307  $ 574,767  $ 2,757 
Forward MSRs UPB Encumbrance June 30, 2021 June 30, 2020
Forward MSRs - unencumbered $ 143,420  $ 83,683 
Forward MSRs - encumbered(2)
144,035  194,292 
Total Forward MSRs UPB $ 287,455  $ 277,975 

(1)Subservicing and other includes (i) loans we service for others, (ii) residential mortgage loans originated but have yet to be sold, and (iii) agency REO balances for which we own the mortgage servicing rights.
(2)The encumbered forward MSRs consist of residential mortgage loans included within our excess spread financing transactions and MSR financing liability.

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The following tables provide a rollforward of our forward MSR and subservicing and other portfolio UPB:
Table 6. Forward Servicing and Subservicing and Other Portfolio UPB Rollforward
Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
Forward MSR Subservicing and Other Total Forward MSR Subservicing and Other Total
Balance - beginning of period $ 276,028  $ 352,481  $ 628,509  $ 290,634  $ 316,933  $ 607,567 
Additions:
Originations 20,907  1,374  22,281  9,478  1,024  10,502 
Acquisitions / Increase in subservicing(1)
12,414  49,642  62,056  (1,634) 16,908  15,274 
Deductions:
Dispositions (18) (4,815) (4,833) (31) (9,751) (9,782)
Principal reductions and other (2,688) (3,627) (6,315) (2,678) (2,168) (4,846)
Voluntary reductions(2)
(18,989) (28,162) (47,151) (17,435) (26,113) (43,548)
Involuntary reductions(3)
(123) (31) (154) (251) (41) (292)
Net changes in loans serviced by others (76) —  (76) (108) —  (108)
Balance - end of period $ 287,455  $ 366,862  $ 654,317  $ 277,975  $ 296,792  $ 574,767 

(1)Includes transfers to/from Subservicing and Other.
(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.

During the three months ended June 30, 2021, our forward MSR UPB increased primarily due to increased originations volumes and acquisition, partially offset by increased voluntary reductions in the low interest rate environment. During the three months ended June 30, 2021, our subservicing and other portfolio UPB increased primarily due to portfolio growth from our subservicing clients, partially offset by increased voluntary reductions in the low interest rate environment.

Table 6.1 Forward Servicing and Subservicing and Other Portfolio UPB Rollforward
Six Months Ended June 30, 2021 Six Months Ended June 30, 2020
Forward MSR Subservicing and Other Total Forward MSR Subservicing and Other Total
Balance - beginning of period $ 271,189  $ 336,513  $ 607,702  $ 296,782  $ 323,983  $ 620,765 
Additions:
Originations 44,530  2,878  47,408  21,113  1,686  22,799 
Acquisitions / Increase in subservicing(1)
17,061  102,960  120,021  (2,307) 40,260  37,953 
Deductions:
Dispositions (68) (5,945) (6,013) (71) (20,110) (20,181)
Principal reductions and other (5,390) (6,858) (12,248) (5,426) (5,133) (10,559)
Voluntary reductions(2)
(39,463) (62,617) (102,080) (31,299) (43,785) (75,084)
Involuntary reductions(3)
(256) (69) (325) (638) (109) (747)
Net changes in loans serviced by others (148) —  (148) (179) —  (179)
Balance - end of period $ 287,455  $ 366,862  $ 654,317  $ 277,975  $ 296,792  $ 574,767 

(1)Includes transfers to/from Subservicing and Other.
(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.

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During the six months ended June 30, 2021, our forward MSR UPB increased primarily due to increased originations volumes and acquisitions, partially offset by increased voluntary reductions in the low interest rate environment. During the six months ended June 30, 2021, our subservicing and other portfolio UPB increased primarily driven by increased acquisitions, partially offset by increased voluntary reductions in the low interest rate environment.

The table below summarizes the overall performance of the forward servicing and subservicing portfolio:
Table 7. Key Performance Metrics - Forward Servicing and Subservicing Portfolio(1)
June 30, 2021 June 30, 2020
Loan count(2)
3,461,557  3,360,826 
Average loan amount(3)
$ 189,026  $ 171,022 
Average coupon - agency(4)
3.8  % 4.4  %
Average coupon - non-agency(4)
4.4  % 4.7  %
60+ delinquent (% of loans)(5)
4.5  % 4.7  %
90+ delinquent (% of loans)(5)
4.2  % 2.2  %
120+ delinquent (% of loans)(5)
4.0  % 1.6  %
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Total prepayment speed (12-month constant prepayment rate) 26.0  % 26.0  % 28.4  % 22.6  %

(1)Characteristics and key performance metrics of our servicing portfolio exclude UPB and loan counts acquired but not yet boarded and currently serviced by others.
(2)As of June 30, 2021 and 2020, loan count includes 123,194 and 195,423 loans in forbearance related to the CARES Act, respectively.
(3)Average loan amount is presented in whole dollar amounts.
(4)The weighted average coupon amounts presented in the table above are only reflective of our owned forward MSR portfolio that is reported at fair value.
(5)Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan. Loan delinquency includes loans in forbearance.

Delinquency is an assumption in determining the mark-to-market adjustment and is a key indicator of MSR portfolio performance. Delinquent loans contribute to lower MSR values due to higher costs to service and increased carrying costs of advances. Due to the COVID-19 pandemic and the implementation of the CARES Act, loans greater than 90 days and 120 days delinquent have increased as of June 30, 2021 compared to 2020.

Table 8. Forward Loan Modifications and Workout Units
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 Change 2021 2020 Change
Modifications(1)
17,545  4,329  13,216  33,180  9,044  24,136 
Workouts(2)
18,036  2,253  15,783  36,377  5,366  31,011 
Total modifications and workout units 35,581  6,582  28,999  69,557  14,410  55,147 

(1)Modifications adjust the terms of the loan.
(2)Workouts are other loss mitigation options which do not adjust the terms of the loan. Workouts exclude loans which did not miss a contractual payment during forbearance related to the CARES Act.

Total modifications and workouts during the three and six months ended June 30, 2021 increased compared to 2020 primarily due to an increase in modifications and workouts related to loans impacted by the COVID-19 pandemic which successfully exited their forbearance plans.

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Servicing Portfolio and Related Liabilities

The following table sets forth the activities of forward MSRs:
Table 9. Forward MSRs - Fair Value Rollforward
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Fair value - beginning of period $ 3,354  $ 3,109  $ 2,703  $ 3,496 
Additions:
Servicing retained from mortgage loans sold 266  126  554  249 
Purchases of servicing rights 151  —  218  24 
Dispositions:
Sales and cancellation of servicing assets (10) —  (12) — 
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model:
Agency (215) (284) 146  (635)
Non-agency (25) (32) 124  (82)
Changes in valuation due to amortization:
Scheduled principal payments (25) (23) (49) (46)
Prepayments
Voluntary prepayments
Agency (192) (152) (389) (268)
Non-agency (10) (9) (20) (18)
Involuntary prepayments
Agency (1) (2) (2) (6)
Non-agency —  —  —  — 
Other changes:
Disposition of negative MSRs and other(1)
14  24  34  43 
Fair value - end of period $ 3,307  $ 2,757  $ 3,307  $ 2,757 

(1)Amounts primarily represent negative fair values reclassified from the MSR asset to reserves as underlying loans are removed from the MSR and other reclassification adjustments.

See Note 3, Mortgage Servicing Rights and Related Liabilities and Note 13, Fair Value Measurements, in the Notes to the Condensed Consolidated Financial Statements (unaudited), for additional information regarding the range of assumptions and sensitivities related to the fair value measurement of forward MSRs as of June 30, 2021 and December 31, 2020.

Excess Spread Financing

As further disclosed in Note 3, Mortgage Servicing Rights and Related Liabilities, in the Notes to the Condensed Consolidated Financial Statements (unaudited), we have entered into sale and assignment agreements treated as financing arrangements whereby the acquirer has the right to receive a specified percentage of the excess cash flow generated from an MSR.

The servicing fees associated with an MSR can be segregated into (i) a base servicing fee and (ii) an excess servicing fee. The base servicing fee, along with ancillary income and other revenues, is designed to cover costs incurred to service the specified pool plus a reasonable margin. The remaining servicing fee is considered excess. We sell a percentage of the excess fee as a method for efficiently financing acquired MSRs and the purchase of loans. We do not currently utilize these transactions as a primary source of financing due to the availability of lower cost sources of funding.

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Excess spread financings are recorded at fair value, and the impact of fair value adjustments varies primarily due to (i) prepayment speeds (ii) recapture rates and (iii) discount rates. See Note 3, Mortgage Servicing Rights and Related Liabilities and Note 13, Fair Value Measurements, in the Notes to the Condensed Consolidated Financial Statements (unaudited), for additional information regarding the range of assumptions and sensitivities related to the measurement of the excess spread financing liability as of June 30, 2021 and December 31, 2020.

The following table sets forth the change in the excess spread financing:
Table 10. Excess Spread Financing - Rollforward
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Fair value - beginning of period $ 934  $ 1,242  $ 934  $ 1,311 
Additions:
New financings —  —  —  24 
Deductions:
Settlements and repayments (40) (52) (81) (110)
Changes in fair value:
Agency (29) (60) 9  (103)
Non-agency 2  (6) 5  2 
Fair value - end of period $ 867  $ 1,124  $ 867 $ 1,124


Originations Segment

The strategy of our Originations segment is to originate or acquire new loans for the servicing portfolio at a more attractive cost than purchasing MSRs in bulk transactions and to retain our existing customers by providing them with attractive refinance options. The Originations segment plays a strategically important role because its profitability is typically counter cyclical to that of the Servicing segment. Furthermore, by originating or acquiring loans at a more attractive cost than would be the case in bulk MSR acquisitions, the Originations segment improves our overall profitability and cash flow. Growing the Originations segment has been a strategic focus for us for several years.

The Originations segment includes two channels:

•Our direct-to-consumer (“DTC”) lending channel relies on our call centers, website and mobile apps, specially trained teams of licensed mortgage originators, predictive analytics and modeling utilizing proprietary data from our servicing portfolio to reach our existing customers who may benefit from a new mortgage. Depending on borrower eligibility, we will refinance existing loans into conventional, government or non-agency products. Through lead campaigns and direct marketing, the direct-to-consumer channel seeks to convert leads into loans in a cost-efficient manner.

•Our correspondent lending channel acquires newly originated residential mortgage loans that have been underwritten to investor guidelines. This includes both conventional and government-insured loans that qualify for inclusion in securitizations that are guaranteed by the GSEs. Our correspondent lending channel enables us to replenish servicing portfolio run-off typically at a better rate of return than traditional bulk or flow acquisitions.

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The following tables set forth the results of operations for the Originations segment:
Table 11. Originations Segment Results of Operations
Three Months Ended June 30,
2021 2020 Change
Revenues
Service related, net $ 45  $ 21  $ 24 
Net gain on mortgage loans held for sale
Net gain on loans originated and sold 143  453  (310)
Capitalized servicing rights 246  123  123 
Provision for repurchase reserves, net of release (4) (3) (1)
Total net gain on mortgage loans held for sale 385  573  (188)
Total revenues 430  594  (164)
Expenses
Salaries, wages and benefits 164  120  44 
General and administrative
Loan origination expenses 26  16  10 
Corporate and other general administrative expenses 17  16  1 
Marketing and professional service fees 13  11  2 
Depreciation and amortization 6  4  2 
Total general and administrative 62  47  15 
Total expenses 226  167  59 
Other income (expenses)
Interest income 26  19  7 
Interest expense (23) (13) (10)
Total other income, net 3  6  (3)
Income from continuing operations before income tax expense $ 207  $ 433  $ (226)
Weighted average note rate - mortgage loans held for sale 3.1  % 3.3  % (0.2) %
Weighted average cost of funds (excluding facility fees) 2.1  % 2.6  % (0.5) %

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Table 11.1 Originations - Key Metrics
Three Months Ended June 30,
2021 2020 Change
Key Metrics
Consumer direct lock pull through adjusted volume(1)
$ 8,634  $ 9,595  $ (961)
Other locked pull through adjusted volume(1)
9,724  2,799  6,925 
Total pull through adjusted lock volume $ 18,358  $ 12,394  $ 5,964 
Funded volume $ 22,227  $ 10,729  $ 11,498 
Volume of loans sold $ 24,950  $ 11,172  $ 13,778 
Recapture percentage(2)
31.9  % 26.1  % 5.8  %
Refinance recapture percentage(3)
41.5  % 30.9  % 10.6  %
Purchase as a percentage of funded volume 23.9  % 10.3  % 13.6  %
Value of capitalized servicing on retained settlements 128   bps 133   bps (5)  bps
Originations Margin
Revenue $ 430  $ 594  $ (164)
Pull through adjusted lock volume $ 18,358  $ 12,394  $ 5,964 
Revenue as a percentage of pull through adjusted lock volume(4)
2.34  % 4.79  % (2.45) %
Expenses(5)
$ 223  $ 161  $ 62 
Funded volume $ 22,227  $ 10,729  $ 11,498 
Expenses as a percentage of funded volume(6)
1.00  % 1.50  % (0.50) %
Originations Margin 1.34  % 3.29  % (1.95) %

(1)Pull through adjusted volume represents the expected funding from locks taken during the period.
(2)Recapture percentage includes new loan originations for both purchase and refinance transactions where borrower retention and/or property retention occurs as a result of a loan payoff from our servicing portfolio. Excludes loans we are contractually unable to solicit.
(3)Refinance recapture percentage includes new loan originations for refinance transactions where borrower retention and property retention occurs as a result of a loan payoff from our servicing portfolio. Excludes loans we are contractually unable to solicit.
(4)Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.
(5)Expenses include total expenses and total other income (expenses), net.
(6)Calculated on funded volume as expenses are incurred based on closing of the loan.

Income from continuing operations before income tax expense decreased for the three months ended June 30, 2021 as compared to 2020 primarily due to a decrease in total revenues driven by a decrease in net gain on loans originated and sold in connection with unfavorable mark-to-market loans-related derivatives/hedges revenues. The Originations Margin for the three months ended June 30, 2021 decreased as compared to 2020 primarily due to a lower revenue ratio as a percentage of pull through adjusted lock volume driven by lower margins from a shift in channel mix from DTC to higher correspondent channel mix. Correspondent channel mix for the three months ended June 30, 2021 was 53% compared to 23% in 2020.

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Originations Segment Revenues
Total revenues decreased during the three months ended June 30, 2021 compared to 2020 primarily driven by a decrease in net gain on loans originated and sold as a result of unfavorable mark-to-market loans-related derivatives/hedges revenue, partially offset by higher origination volumes in a lower interest rate environment, primarily from the correspondent channel. Total revenue decreased $164 or 28% period over period despite a total pull through adjusted lock volume increase of 48% during the same period. There were no material changes for repurchase reserves.

Originations Segment Expenses
Total expenses during the three months ended June 30, 2021 increased when compared to 2020 primarily due to growth in origination volumes. The origination volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs. Despite the increase in expenses, our expenses as a percentage of funded volume decreased during the three months ended June 30, 2021 when compared to 2020, demonstrating an improvement in cost efficiencies and scale.

Originations Segment Other Income (Expenses), Net
Interest income relates primarily to mortgage loans held for sale. Interest expense is associated with the warehouse facilities utilized to finance newly originated loans.

Interest income during the three months ended June 30, 2021 increased when compared to 2020 primarily driven by higher originations volume offset by an increase in interest expense driven by originations volume growth.
Table 12. Originations Segment Results of Operations
Six Months Ended June 30,
2021 2020 Change
Revenues
Service related, net $ 88  $ 41  $ 47 
Net gain on mortgage loans held for sale
Net gain on loans originated and sold 429  636  (207)
Capitalized servicing rights 520  242  278 
Provision for repurchase reserves, net of release (12) (8) (4)
Total net gain on mortgage loans held for sale 937  870  67 
Total revenues 1,025  911  114 
Expenses
Salaries, wages and benefits 331  237  94 
General and administrative
Loan origination expenses 53  32  21 
Corporate and other general administrative expenses 37  34  3 
Marketing and professional service fees 26  23  3 
Depreciation and amortization 10  7  3 
Total general and administrative 126  96  30 
Total expenses 457  333  124 
Other income (expenses)
Interest income 49  53  (4)
Interest expense (48) (40) (8)
Total other income, net 1  13  (12)
Income from continuing operations before income tax expense $ 569  $ 591  $ (22)
Weighted average note rate - mortgage loans held for sale 3.0  % 3.5  % (0.5) %
Weighted average cost of funds (excluding facility fees) 2.2  % 2.9  % (0.7) %

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Table 12.1 Originations - Key Metrics
Six Months Ended June 30,
2021 2020 Change
Key Metrics
Consumer direct lock pull through adjusted volume(1)
$ 18,956  $ 17,018  $ 1,938 
Other locked pull through adjusted volume(1)
22,669  8,053  14,616 
Total pull through adjusted lock volume $ 41,625  $ 25,071  $ 16,554 
Funded volume $ 47,360  $ 23,088  $ 24,272 
Volume of loans sold $ 51,261  $ 24,427  $ 26,834 
Recapture percentage(2)
31.5  % 27.5  % 4.0  %
Refinance recapture percentage(3)
38.6  % 33.4  % 5.2  %
Purchase as a percentage of funded volume 17.7  % 18.7  % (1.0) %
Value of capitalized servicing on retained settlements 128   bps 135   bps (7)  bps
Originations Margin
Revenue $ 1,025  $ 911  $ 114 
Pull through adjusted lock volume $ 41,625  $ 25,071  $ 16,554 
Revenue as a percentage of pull through adjusted lock volume(4)
2.46  % 3.63  % (1.17) %
Expenses(5)
$ 456  $ 320  $ 136 
Funded volume $ 47,360  $ 23,088  $ 24,272 
Expenses as a percentage of funded volume(6)
0.96  % 1.39  % (0.43) %
Originations Margin 1.50  % 2.24  % (0.74) %

(1)Pull through adjusted volume represents the expected funding from locks taken during the period.
(2)Recapture percentage includes new loan originations for both purchase and refinance transactions where borrower retention and/or property retention occurs as a result of a loan payoff from our servicing portfolio. Excludes loans we are contractually unable to solicit.
(3)Refinance recapture percentage includes new loan originations for refinance transactions where borrower retention and property retention occurs as a result of a loan payoff from our servicing portfolio. Excludes loans we are contractually unable to solicit.
(4)Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.
(5)Expenses include total expenses and total other income (expenses), net.
(6)Calculated on funded volume as expenses are incurred based on closing of the loan.

Income from continuing operations before income tax expense decreased for the six months ended June 30, 2021 as compared to 2020 primarily due to an increase in total expenses driven by higher salaries, wages and benefits and loan originations expenses as a result of higher origination volume due to the low interest rate environment and funding out the pipeline. The Originations Margin for 2021 decreased as compared to 2020 primarily due to a lower revenue ratio as a percentage of pull through adjusted lock volume driven by lower margins from a shift in channel mix from DTC to higher correspondent channel mix.


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Originations Segment Revenues
Total revenues increased during the six months ended June 30, 2021 compared to 2020 primarily driven by higher origination volumes in a lower interest rate environment, primarily from the correspondent channel, partially offset by a decrease in net gain on loans originated and sold in connection with unfavorable mark-to-market loans-related derivatives revenue. Total revenue increased $114 or 13% period over period as total pull through adjusted lock volume increased 66% during the same period. There were no material changes for repurchase reserves.

Originations Segment Expenses
Total expenses during the six months ended June 30, 2021 increased when compared to 2020 primarily due to growth in origination volumes. The origination volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs. Despite the increase in expenses, our expenses as a percentage of funded volume decreased during the six months ended June 30, 2021 when compared to 2020, demonstrating an improvement in cost efficiencies and scale.

Originations Segment Other Income (Expenses), Net
Interest income during the six months ended June 30, 2021 decreased when compared to 2020 primarily driven by a lower average note rate on mortgage loans held for sale partially offset by growth in originations volume. Interest expense increased primarily due to the growth of originations volume.


Xome Segment

Xome is a real estate services company that provides services for mortgage originators and servicers, including Mr. Cooper, as well as mortgage and real estate investors. Xome generates fee income that complements our servicing and origination businesses without requiring a significant amount of capital or exposing us to the same level of interest rate or credit risk.

Xome historically has been organized into three divisions: Exchange, Solutions, and Title. On March 12, 2021, we entered into a Stock Purchase Agreement with Blend Labs, in which Blend Labs will acquire our title business. Pursuant to the Stock Purchase Agreement, all cash generated, subject to certain adjustments, between March 13, 2021 and the closing date of the transaction, were held for the benefit of Blend Labs. The transaction was completed on June 30, 2021. Consequently, we have removed any discussion of the Title division from our results of operations from March 12, 2021 forward. Our other Xome divisions are:

•The Exchange division consists of the Xome.com auction platform which utilizes proprietary technology designed to provide efficient execution for sales of foreclosed properties.

•The Solutions division consists of field services, collateral valuation, recapture and data analytic solutions to improve purchase, refinance and default transactions.
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The following tables set forth the results of operations for the Xome segment:
Table 13. Xome Segment Results of Operations
Three Months Ended June 30,
2021 2020 Change
Xome - Operations
Revenues:
Exchange $ 5  $ 9  $ (4)
Title —  52  (52)
Solutions 34  45  (11)
Total revenues 39  106  (67)
Expenses:
Salaries, wages and benefits 17  33  (16)
General and administrative
Operational expenses 25  59  (34)
Depreciation and amortization 3  3  — 
Total general and administrative 28  62  (34)
Total expenses 45  95  (50)
Total other income, net 486  1  485 
Income from continuing operations before income tax expense $ 480  $ 12  $ 468 
Pre-tax margin 1230.8  % 11.3  % 1219.5  %
Key Metrics
Exchange properties sold 659  1,191  (532)
Average Exchange properties under management 14,196  17,438  (3,242)
Title completed orders —  245,252  (245,252)
Solutions completed orders 475,507  521,169  (45,662)
Percentage of revenue earned from third-party customers 35.8  % 53.4  % (17.6) %

Income from continuing operations before income tax expense increased during the three months ended June 30, 2021 as compared to 2020 primarily due to an increase in total other income, net, partially offset by a decrease in total revenues. The increase in total other income, net, is a result of the gain of $487 associated with the sale of the title business to Blend Labs, Inc. We initially entered into a Stock Purchase Agreement with Blend Labs on March 12, 2021 to sell our title business, which was subsequently completed on June 30, 2021. Under the Stock Purchase Agreement, all cash generated, subject to certain adjustments, between March 13, 2021 and the closing date of the Title Transaction would be held to the benefit of Blend Labs. As result, the title business did not contribute to the Xome segment’s revenues in the second quarter of 2021. For more information, see Note 1, Nature of Business and Basis of Presentation, in the Notes to the Condensed Consolidated Financial Statements (unaudited).
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Table 13.1 Xome Segment Results of Operations
Six Months Ended June 30,
2021 2020 Change
Xome - Operations
Revenues:
Exchange $ 10  $ 25  $ (15)
Title 56  95  (39)
Solutions 69  92  (23)
Total revenues 135  212  (77)
Expenses:
Salaries, wages and benefits 46  68  (22)
General and administrative
Operational expenses 80  117  (37)
Depreciation and amortization 6  6  — 
Total general and administrative 86  123  (37)
Total expenses 132  191  (59)
Total other income, net 486  2  484 
Income from continuing operations before income tax expense $ 489  $ 23  $ 466 
Pre-tax margin 362.2  % 10.8  % 351.4  %
Key Metrics
Exchange properties sold 1,369  3,305  (1,936)
Average Exchange properties under management 14,203  17,608  (3,405)
Title completed orders 188,356  475,900  (287,544)
Solutions completed orders 1,022,059  951,895  70,164 
Percentage of revenue earned from third-party customers 44.6  % 54.0  % (9.4) %

Income from continuing operations before income tax expense increased during the six months ended June 30, 2021 as compared to 2020 primarily due to an increase in total other income, net, partially offset by a decrease in total revenues. The increase in total other income, net, is a result of the gain associated with the sale of the title business to Blend Labs, Inc. The decrease in total revenues was driven by the Stock Purchase Agreement which stipulated that all cash generated, subject to certain adjustments, between March 13, 2021 and the closing date of the Title Transaction would be held to the benefit of Blend Labs.

Corporate/Other

Corporate/Other represents unallocated overhead expenses, including the costs of executive management and other corporate functions that are not directly attributable to our operating segments, and interest expense on our unsecured senior notes.

The following table set forth the selected financial results for Corporate/Other:
Table 14. Corporate/Other Selected Financial Results
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 Change 2021 2020 Change
Corporate/Other - Operations
Total expenses $ 33  $ 34  $ (1) $ 59  $ 67  $ (8)
Interest expense 31  47  (16) 61  99  (38)

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There were no material changes for total expenses during the three months ended June 30, 2021 as compared to 2020. Total expenses decreased in the six months ended June 30, 2021 as compared to 2020 primarily due to a decrease in general and administrative expense. General and administrative expense was higher in 2020 due to an $8 loss on impairment of assets in connection with an ancillary business and higher legal reserves.

Interest expense decreased in the three and six months ended June 30, 2021 as compared to 2020 primarily due to a decrease in interest expense on unsecured senior notes as a result of repayment and redemption in 2020 of the unsecured senior notes due 2021, 2022, 2023 and 2026 and the issuance in 2020 of the unsecured senior notes due 2027, 2028 and 2030 at lower interest rates.


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Liquidity and Capital Resources

We measure liquidity by unrestricted cash and availability of borrowings on our MSR facilities and other facilities. We held cash and cash equivalents on hand of $716 as of June 30, 2021 compared to $695 as of December 31, 2020. We have sufficient borrowing capacity to support our operations. As of June 30, 2021, total available borrowing capacity was $14,930, of which $7,088 was unused.

The economic impact of the COVID-19 pandemic could continue to result in an increase in servicing advances and liquidity demands related to the utilization of forbearance programs offered by the CARES Act. Forbearance rates have declined since the peak during the second of quarter of 2020. As of June 30, 2021, our total advance facility capacity was $2,040, of which $1,463 remained unused. For more information on our advance facilities, see Note 9, Indebtedness in the Notes to the Condensed Consolidated Financial Statements (unaudited).

Sources and Uses of Cash
Our primary sources of funds for liquidity include: (i) servicing fees and ancillary revenues; (ii) advance and warehouse facilities, other secured borrowings and the unsecured senior notes; and (iii) payments received in connection with the sale of excess spread.

Our primary uses of funds for liquidity include: (i) funding of servicing advances (ii) originations of loans; (iii) payment of interest expenses; (iv) payment of operating expenses; (v) repayment of borrowings and repurchases or redemptions of outstanding indebtedness; (vi) payments for acquisitions of MSRs; and (vii) payment of our technology expenses.

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

In addition, 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. See Note 8, Derivative Financial Instruments, in the Notes to the Condensed Consolidated Financial Statements (unaudited) in Item 1, Financial Statements and Supplementary Data, which is incorporated herein for a summary of our derivative transactions.

In the normal course of business, we enter into various types of on- and off-balance sheet transactions with special purpose entities (“SPEs”) determined to be variable interest entities (“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 we transfer assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets. In these securitization transactions, we typically receive cash and/or other interests in the SPE as proceeds for the transferred assets. See Note 10, Securitizations and Financings, in the Notes to the Condensed Consolidated Financial Statements (unaudited) in Item 1, Financial Statements and Supplementary Data, which is incorporated herein for a summary of our transactions with VIEs and unconsolidated balances, and details of their impact on our condensed consolidated financial statements.

Cash Flows
The table below presents cash flows information:
Table 15. Cash Flows
Six Months Ended June 30,
2021 2020 Change
Net cash attributable to:
Operating activities $ (114) $ 2,066  $ (2,180)
Investing activities (247) (14) (233)
Financing activities
354  (1,363) 1,717 
Net (decrease) increase in cash, cash equivalents, and restricted cash
$ (7) $ 689  $ (696)

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Operating activities
Our operating activities used cash of $114 during the six months ended June 30, 2021 compared to cash generated of $2,066 in 2020. The change in cash attributable to operating activities was primarily related to continuing operations, driven by an increase of $1,853 in the cash used from originations net sale activities, as a result of an increase in repurchases of forward loan assets out of Ginnie Mae securitizations, and a decrease of $774 driven by fair values changes in MSRs. In addition, we recorded a $487 gain from the sale of the title business in 2021.

Investing activities
Our investing activities used cash of $247 during the six months ended June 30, 2021 compared to cash used of $14 in 2020. The increase in used cash for investing activities was primarily related to continuing operations, driven by an increase of $186 in cash used for the purchase of forward mortgage servicing rights and a decrease in cash generated of $30 from proceeds on sale of forward mortgage servicing rights.

Financing activities
Our financing activities generated cash of $354 during the six months ended June 30, 2021 compared to cash used of $1,363 in 2020. The change in cash attributable to financing activities was primarily related to continuing operations, driven by an increase of $1,567 in cash generated from advance and warehouse facilities due to net increased borrowing of $1,047 from advance and warehouse facilities compared to net repayment of $520 in 2020. Additionally, in 2020, $698 of cash was used in the redemption and repayment of the 2021 and 2022 unsecured senior notes, partially offset by $600 related to the issuance of the 2027 unsecured senior notes. There were no such activities in 2021.


Capital Resources

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

Financial Covenants
Our credit facilities contain various financial covenants, which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements. These covenants are measured at our operating subsidiary, Nationstar Mortgage LLC. As of June 30, 2021, we were in compliance with our required financial covenants.

Seller/Servicer Financial Requirements
We are also subject to net worth, liquidity and capital ratio requirements established by the Federal Housing Finance Agency (“FHFA”) for Fannie Mae and Freddie Mac Seller/Servicers, and Ginnie Mae for single family issuers, as summarized below. These requirements apply to our operating subsidiary, Nationstar Mortgage, LLC.

Minimum Net Worth
▪FHFA - a net worth base of $2.5 plus 25 basis points of outstanding UPB for total loans serviced.
▪Ginnie Mae - a net worth equal to the sum of (i) base of $2.5 plus 35 basis points of the issuer’s total single-family effective outstanding obligations, and (ii) base of $5 plus 1% of the total effective outstanding HMBS obligations.

Minimum Liquidity
•FHFA - 3.5 basis points of total Agency Mortgage Servicing UPB plus incremental 200 basis points of total nonperforming Agency, measured at 90+ delinquencies, servicing in excess of 6% total Agency servicing UPB.
•Ginnie Mae - the greater of $1 or 10 basis points of our outstanding single-family MBS and at least 20% of our net worth requirement for Home Equity Conversion Mortgage (“HECM”) mortgage-backed securities (“HMBS”).

Minimum Capital Ratio
▪FHFA and Ginnie Mae - a ratio of Tangible Net Worth to Total Assets (excluding HMBS securitizations) greater than 6%.

Secured Debt to Gross Tangible Asset Ratio
•Ginnie Mae - a secured debt to gross tangible asset ratios no greater than 60%.

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As of June 30, 2021, we were in compliance with our seller/servicer financial requirements for FHFA and Ginnie Mae.

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

In addition, Fannie Mae or Freddie Mac may require capital ratios in excess of stated requirements. Refer to Note 14, Capital Requirements, in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information.

Table 16. Debt
June 30, 2021 December 31, 2020
Advance facilities principal amount $ 577  $ 669 
Warehouse facilities principal amount 6,470  5,330 
MSR facilities principal amount 270  270 
Unsecured senior notes principal amount 2,100  2,100 

Advance Facilities
As part of our normal course of business, we borrow money to fund servicing advances. Our servicing agreements require that we advance our own funds to meet contractual principal and interest payments for certain investors, and to pay taxes, insurance, foreclosure costs and various other items that are required to preserve the assets being serviced. Delinquency rates and prepayment speeds affect the size of servicing advance balances, and we exercise our ability to stop advancing principal and interest where the pooling and servicing agreements permit, where the advance is deemed to be non-recoverable from future proceeds. These servicing requirements affect our liquidity. We rely upon several counterparties to provide us with financing facilities to fund a portion of our servicing advances. As of June 30, 2021, we had a total borrowing capacity of $2,040, of which we could borrow an additional $1,463.

Warehouse and MSR Facilities
Loan origination activities generally require short-term liquidity in excess of amounts generated by our operations. The loans we originate are financed through several warehouse lines on a short-term basis. We typically hold the loans for approximately 30 days and then sell or place the loans in government securitizations in order to repay the borrowings under the warehouse lines. Our ability to fund current operations depends upon our ability to secure these types of short-term financings on acceptable terms and to renew or replace the financings as they expire. As of June 30, 2021, we had a total borrowing capacity of $12,890 for warehouse and MSR facilities, of which we could borrow an additional $5,625.

Unsecured Senior Notes
In 2020, we completed offerings of unsecured senior notes with maturity dates ranging from 2027 to 2030. We pay interest semi-annually to the holders of these notes at interest rates ranging from 5.125% to 6.000%. For more information regarding our indebtedness, see Note 9, Indebtedness, in the Notes to the Condensed Consolidated Financial Statements (unaudited).

Contractual Obligations
As of June 30, 2021, no material changes to our outstanding contractual obligations were made from the amounts previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 except for the following:

In the second quarter of 2021, we entered into an agreement, under which we committed a total of $83 over a period of 5 years in exchange for cloud platform service.


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Critical Accounting Policies and Estimates

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified the following policies that, due to the judgment, estimates and assumptions inherent in those policies, are critical to an understanding of our condensed consolidated financial statements. These policies relate to fair value measurements, particularly those determined to be Level 3 as discussed in Note 13, Fair Value Measurements, in the Notes to the Condensed Consolidated Financial Statements (unaudited), goodwill, and valuation and realization of deferred tax assets. We believe that the judgment, estimates and assumptions used in the preparation of our condensed consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of these critical accounting policies on our condensed consolidated financial statements, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. Fair value measurements considered to be Level 3 representing estimated values based on significant unobservable inputs include (i) the valuation of MSRs, (ii) the valuation of excess spread financing, and (iii) the valuation of IRLCs. For further information on our critical accounting policies and estimates, please refer to the Company’s Annual Reports on Form 10-K for the year ended December 31, 2020. There have been no material changes to our critical accounting policies and estimates since December 31, 2020.


Other Matters

Recent Accounting Developments

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

Accounting Standards Update 2020-04 and 2021-01, collectively implemented as Accounting Standards Codification Topic 848 (“ASC 848”), Reference Rate Reform provide temporary optional expedients and exceptions for applying generally accepted accounting principles to contract modifications, hedge accounting and other transactions affected by the transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. If LIBOR ceases to exist or if the methods of calculating LIBOR change from current methods for any reasons, interest rates on our floating rate loans, obligation derivatives, and other financial instruments tied to LIBOR rates, may be affected and need renegotiation with its lenders. In January 2021, ASU 2021-01 was issued to clarify that all derivatives instruments affected by changes to the interests rates used for discounting, margining alignment due to reference rate reform are in scope of ASC 848. ASU 2020-04 and ASU 2021-01 are effective March 2020 and January 2021, respectively, through December 31, 2022. The guidance in ASU 2020-04 and ASU 2021-01 is optional and may be elected over time as reference rate reform activities occur. We are currently assessing the impact of ASU 2020-04 and ASU 2021-01 on our consolidated financial statements.


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GLOSSARY OF TERMS

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

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

Agency. Government entities guaranteeing the mortgage investors that the principal amount of the loan will be repaid; the Federal Housing Administration, the Department of Veterans Affairs, the US Department of Agriculture and Ginnie Mae (and collectively, the “Agencies”)

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

Asset-Backed Securities (“ABS”). A financial security whose income payments and value is derived from and collateralized (or “backed”) by a specified pool of underlying receivables or other financial assets.

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

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

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

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

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

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

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

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

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

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

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

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

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

Forbearance. An agreement between the mortgage servicer or lender and borrower for a temporary postponement of mortgage payments. It is a form of repayment relief granted by the lender or creditor in lieu of forcing a property into foreclosure.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Recapture. Voluntarily prepaid loans that are expected to be refinanced by the related servicer.

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

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

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

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

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

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

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

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

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

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

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

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

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Refer to the discussion included in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes in the types of market risks faced by us since December 31, 2020. Our market risks include the broad effects of the COVID-19 pandemic. While the pandemic’s effect on the macroeconomic environment has yet to be fully determined and could continue for months or years, the pandemic and governmental programs created as a response to the pandemic, has affected and will continue to affect our business, financial conditions and results of operations.

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

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

We utilize a discounted cash flow analysis to determine the fair value of MSRs and the impact of parallel interest rate shifts on MSRs. The discounted cash flow model incorporates prepayment speeds, discount rate, costs to service, and other assumptions (including delinquencies, ancillary revenues, float earnings and forbearance rates) that management believes are consistent with the assumptions that other similar market participants use in valuing the MSRs. The key assumptions to determine fair value include prepayment speed, discount rate and cost to service. However, this analysis ignores the impact of interest rate changes on certain material variables, such as the benefit or detriment on the value of future loan originations, non-parallel shifts in the spread relationships between MBS, swaps and U.S. Treasury rates and changes in primary and secondary mortgage market spreads. For mortgage loans, IRLCs and forward delivery commitments on MBS, we rely on a model in determining the impact of interest rate shifts. In addition, the primary assumption used for IRLCs, is the borrower’s propensity to close their mortgage loans under the commitment.

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

We used June 30, 2021 market rates on our instruments to perform the sensitivity analysis. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in fair value may not be linear.

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The following table summarizes the estimated change in the fair value of our assets and liabilities sensitive to interest rates as of June 30, 2021 given hypothetical instantaneous parallel shifts in the yield curve. Actual results could differ materially.

Table 17. Change in Fair Value
June 30, 2021
Down 25 bps Up 25 bps
Increase (decrease) in assets
Mortgage servicing rights at fair value $ (183) $ 187 
Mortgage loans held for sale at fair value 36  (43)
Derivative financial instruments:
Interest rate lock commitments 64  (76)
Forward MBS trades (32) 38 
Total change in assets (115) 106 
Increase (decrease) in liabilities
Mortgage servicing rights financing at fair value (3) 3 
Excess spread financing at fair value (17) 19 
Derivative financial instruments:
Interest rate lock commitments (7) 8 
Forward MBS trades 76  (90)
Total change in liabilities 49  (60)
Total, net change $ (164) $ 166 


Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of June 30, 2021.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2021, our disclosure controls and procedures are effective. Disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting
During the three months ended June 30, 2021, no changes in our internal control over financial reporting occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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


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PART II – OTHER INFORMATION
Item 1. Legal Proceedings

For a description of our material legal proceedings, see Note 15, Commitments and Contingencies, of the Notes to the Condensed Consolidated Financial Statements within Part I, Item 1. Financial Statements, of this Form 10-Q.

Item 1A. Risk Factors

There have been no material changes or additions to the risk factors previously disclosed under “Risk Factors” included in our Annual Report on Form 10-K filed for the year ended December 31, 2020.

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

We did not make any repurchases of our shares during the three months ended June 30, 2021.

On July 29, 2021, we announced that our Board of Directors authorized the repurchase of up to $500 of our outstanding common stock. The new stock repurchase plan will go into effect upon the completion of our current program which has a remaining capacity of approximately $4.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

We entered into a Transition and Separation Agreement (the “Separation Agreement”) with Anthony Ebers on July 27, 2021, in connection with his previously-announced resignation from the position of Chief Operating Officer. Pursuant to the Separation Agreement, among other things, the parties have agreed to the following: (i) Mr. Ebers will receive a cash payment in the amount of $1.125 paid out over thirty-nine roughly equal installments, (ii) Mr. Ebers will receive a cash payment in the amount of $4.875 in two installments, with the first payment of $1.5 being made on or before March 1, 2022, and the second payment of $3.375 being made on February 1, 2023, and (iii) Mr. Ebers’s medical coverage will continue under our group health plan until August 31, 2021, and if Mr. Ebers properly exercises COBRA rights, we will provide continuation coverage until the earlier of (A) the period of time Mr. Ebers takes to become eligible for group health benefits from another employer or (B) September 1, 2022. The Separation Agreement contains certain non-compete, non-solicitation and non-disparagement provisions. The foregoing summary of the Separation Agreement is qualified in its entirety by reference to the text of the Separation Agreement, which is being filed as Exhibit 10.1 to this report and is incorporated in this report by reference.


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Item 6. Exhibits
Incorporated by Reference
Exhibit 
Number 		Description Form File No. Exhibit Filing Date Filed or Furnished Herewith
10.1** X
31.1 X
31.2 X
32.1 X
32.2 X
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X
101.SCH Inline XBRL Taxonomy Extension Schema Document X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101.) X

**    Management, contract, compensatory plan or arrangement.

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

MR. COOPER GROUP INC.
July 29, 2021 /s/ Jay Bray
Date Jay Bray
Chief Executive Officer
(Principal Executive Officer)
July 29, 2021 /s/ Christopher G. Marshall
Date Christopher G. Marshall
Vice Chairman, President & Chief Financial Officer
(Principal Financial and Accounting Officer)

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