NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(millions of dollars, unless otherwise stated)
1. Nature of Business and Basis of Presentation
Nature of Business
Nationstar Mortgage Holdings Inc., a Delaware corporation, including its consolidated subsidiaries (collectively, "Nationstar" or the "Company"), earns fees through the delivery of servicing, origination and transaction based services related primarily to single-family residences throughout the United States.
Basis of Presentation
The consolidated interim financial statements of Nationstar have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim 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 ("SEC"). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in Nationstar's Annual Report on Form 10-K
for the year ended December 31, 2016
.
The interim consolidated financial statements are unaudited; however, in the opinion of management, all adjustments considered necessary for a fair presentation of the results of the interim periods have been included. Certain prior period amounts have been reclassified to conform to the current period presentation. Dollar amounts are reported in millions, except per share data and other key metrics, unless otherwise noted.
Nationstar evaluated subsequent events through the date these interim consolidated financial statements were issued.
The Company describes its significant accounting policies in Note 2 of the notes to the consolidated financial statements in its Annual Report on Form 10-K
for the year ended December 31, 2016
. During the
six months ended June 30, 2017
, no significant changes were made to those accounting policies except that the Company updated its policy on advances and other receivables to include more detailed description of its position on write-offs of advance balances. Nationstar records reserves for advances and other receivables and evaluates the sufficiency of such reserves through consideration of both historical and expected recovery rates on claims filed with government agencies, government sponsored enterprises, vendors, prior servicers and other counter parties. Recovery of advances and other receivables is subject to significant judgment and estimates based on the Company’s assessment of its compliance with servicing guidelines, its ability to produce the necessary documentation to support claims, its ability to support amounts from prior servicers and to effectively negotiate settlements, as needed. Each period, management reviews recorded advances and other receivables and upon determination that no further recourse for recovery is available from all means known to management, the recorded balances associated with these receivables are written-off against the reserve.
The Company periodically evaluates corporate allocation methods in order to appropriately align corporate costs with its business. Certain 2016 costs within salaries, wages and benefits and operational expenses were reclassified between segments to conform to current year allocation methods. Such reclassifications had no impact on previously reported net income or shareholders' equity. See Note 17,
Business Segment Reporting
for information on the changes in the Company's reportable segments.
Basis of Consolidation
The consolidated financial statements include the accounts of Nationstar, its wholly-owned subsidiaries, and other entities in which the Company has a controlling financial interest, and those variable interest entities ("VIE") where Nationstar is the primary beneficiary. Nationstar 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. Intercompany balances and transactions on consolidated entities have been eliminated. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that Nationstar became the primary beneficiary through the date Nationstar ceases to be the primary beneficiary.
Recent Accounting Guidance Adopted
Effective January 1, 2017, the Company prospectively adopted Accounting Standards Update No. 2016-09,
Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, calculation of earnings per share, classification of awards as either equity or liabilities, and classification of cash flows. Amendments related to accounting for excess tax benefits or deficiencies have been adopted prospectively, resulting in the recognition of
$1
of excess tax deficiencies within income tax expense rather than additional paid in capital for the
six months ended June 30, 2017
. The impact on diluted earnings per share is
$0.01
per share for the period. Excess tax benefits or deficiencies related to share-based payments are now included in operating cash flows rather than financing cash flows. This change has been applied prospectively in accordance with ASU 2016-09 and prior periods have not been adjusted. The Company has previously classified cash paid for tax withholding purposes as a financing activity in the statement of cash flows, therefore no change is requirement. The amendments allow for a one-time accounting policy election to either account for forfeitures as they occur or continue to estimate forfeitures as required by current guidance. The Company has elected to continue estimating forfeitures under the current guidance.
Recent Accounting Guidance Not Yet Adopted
Accounting Standards Update No. 2014-09, 2016-08, 2016-10, 2016-12 and 2016-20, collectively implemented as FASB Accounting Standards Codification Topic 606 ("ASC 606")
Revenue from Contracts with Customers,
provides guidance for revenue recognition. This ASC’s core principle requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects consideration to which the company expects to be entitled in exchange for those goods or services. The standard also clarifies the principal versus agent considerations, providing the evaluation must focus on whether the entity has control of the goods or services before they are transferred to the customer. The new standard permits the use of either the modified retrospective or full retrospective transition method. The Company's revenue is generated from loan servicing, loan originations, and services provided by Xome. Servicing revenue is comprised of servicing fees and other ancillary fees in connection with our servicing activities as well as fees earned under subservicing arrangements. Origination revenue is comprised of fee income earned at origination of a loan, interest income earned for the period the loans are held, and gain on sale on loans upon disposition of the loan. Xome's revenue is comprised of income earned from real estate exchange, real estate services and real estate technology and support. We have performed a preliminary review of the new guidance as compared to our current accounting policies and are currently evaluating all services rendered to our customers as well as underlying contracts to determine the impact of this standard to our revenue recognition process. The majority of services rendered by the Company in connection with originations and servicing are not within the scope of ASC 606. However, through our review, we have identified one service offering (Services and Software as a Service) under the Xome operating segment that is within the scope of ASC 606. Although revenue recognition may be impacted to some degree for this service offering, we do not anticipate the impact to be materially different from the current revenue recognition processes. The Company expects to adopt the standard in the first quarter of 2018 with a cumulative effect adjustment to opening retained earnings, as necessary.
Accounting Standards Update No. 2016-02,
Leases
(ASU 2016-02), primarily impacts lessee accounting by requiring the recognition of a right-of-use asset and a corresponding lease liability on the balance sheet for long-term lease agreements. The lease liability will be equal to the present value of all reasonably certain lease payments. The right-of-use asset will be based on the liability, subject to adjustment for initial direct costs. Lease agreements with terms 12 months or less are permitted to be excluded from the balance sheet. In general, leases will be amortized on a straight-line basis with the exception of finance lease agreements. ASU 2016-02 is effective for interim periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of this ASU on the consolidated financial statements. If the same lease obligations that are in existence as of June 30, 2017 were also in existence at the time of implementation of this standard, we would expect the additional assets and lease obligations to be added to the consolidated balance sheets upon implementation to approximate
$136
. The Company is currently evaluating the impact of this new standard to its debt covenants and capitalization requirements.
Accounting Standards Update No. 2016-13,
Financial Instruments - Credit Losses (Topic 326)
(ASU 2016-13), requires expected credit losses for financial instruments held at the reporting date to be measured based on historical experience, current conditions and reasonable and supportable forecasts. The update eliminates the probable initial recognition threshold in current GAAP and instead reflects an entity’s current estimate of all expected credit losses. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. ASU 2016-13 is effective for interim periods beginning after December 15, 2019. The Company is currently evaluating the potential impact of ASU 2016-13 on its consolidated financial statements.
Accounting Standards Update No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments
(ASU 2016-15) and Accounting Standards Update No 2016-18
Statement of Cash Flows (Topic 230) Restricted Cash
(ASU 2016-18) both relate to the
Statement of Cash Flows (Topic 230)
and are intended to provide specific guidance to reduce diversity in practice. ASU 2016-15 addresses the following eight cash flow classification issues: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of life insurance claims, (5) proceeds from the settlement of corporate owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. This ASU is effective for fiscal years beginning after December 15, 2017, and will require adoption on a retrospective basis. The Company is currently evaluating the impact of the application of ASU 2016-15 will have on the Company’s classification of cash flows. ASU 2016-18 addresses the classification and presentation of changes in restricted cash on the statement of cash flows. This new standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. ASU 2016-18 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential impact of ASU 2016-18 on its consolidated financial statements.
Accounting Standards Update No. 2017-04,
Simplifying the Test for Goodwill Impairment
, simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in today’s two-step impairment test under Accounting Standards Codification (ASC) 350. The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is currently evaluating the potential impact of ASU 2017-04 on our consolidated financial statements. ASU 2017-04
is effective for the Company for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.
ASU 2017-04
will be adopted prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
2. Mortgage Servicing Rights ("MSRs") and Related Liabilities
The following table sets forth the carrying value of Nationstar's MSRs and the related liabilities.
|
|
|
|
|
|
|
|
|
MSRs and Related Liabilities
|
June 30, 2017
|
|
December 31, 2016
|
Forward MSRs - fair value
|
$
|
3,046
|
|
|
$
|
3,160
|
|
Reverse MSRs - amortized cost
|
5
|
|
|
6
|
|
Mortgage servicing rights
|
$
|
3,051
|
|
|
$
|
3,166
|
|
|
|
|
|
Mortgage servicing liabilities - amortized cost
|
$
|
50
|
|
|
$
|
48
|
|
|
|
|
|
Excess spread financing - fair value
|
$
|
1,121
|
|
|
$
|
1,214
|
|
Mortgage servicing rights financing liability - fair value
|
13
|
|
|
27
|
|
MSR related liabilities (nonrecourse)
|
$
|
1,134
|
|
|
$
|
1,241
|
|
Forward Mortgage Servicing Rights - Fair Value
The Company owns and records at fair value the rights to service traditional residential mortgage loans ("forward" loans) for others either as a result of purchase transactions or from the retained servicing associated with the sales and securitizations of loans originated. Forward MSRs are comprised of servicing rights related to both agency and non-agency loans.
The following table sets forth the activities of forward MSRs during the
six months ended June 30,
2017 and 2016.
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
Forward MSRs - Fair Value
|
2017
|
|
2016
|
Fair value - beginning of period
|
$
|
3,160
|
|
|
$
|
3,358
|
|
Additions:
|
|
|
|
Servicing retained from mortgage loans sold
|
103
|
|
|
86
|
|
Purchases of servicing rights
|
13
|
|
|
2
|
|
Dispositions:
|
|
|
|
Sales of servicing assets
(1)
|
2
|
|
|
(16
|
)
|
Changes in fair value:
|
|
|
|
Changes in valuation inputs or assumptions used in the valuation model
|
(74
|
)
|
|
(462
|
)
|
Other changes in fair value
|
(158
|
)
|
|
(174
|
)
|
Fair value - end of period
|
$
|
3,046
|
|
|
$
|
2,794
|
|
(1)
Amount in 2017 is related to the cost to dispose of negative MSR associated with nonperforming loan portfolios. Amount in 2016 is related to the sale of forward MSRs.
From time to time, the Company sells its ownership interest in certain MSRs and is retained as the subservicer for the sold assets. The Company has evaluated the sale accounting requirements related to these transactions given the continued involvement as the subservicer and concluded that these transactions qualify for sale accounting treatment. During the
six months ended June 30, 2017
, the Company sold forward MSR with a negative balance of
$2
associated with the cost to dispose of nonperforming loan portfolios. During the
six months ended June 30, 2016
, the Company sold
$3,307
in unpaid principal balance ("UPB") of forward MSRs and was retained as the subservicer for
$2,254
UPB of the sold MSRs collateralized by assets.
MSRs measured at fair value are segregated between credit sensitive and interest sensitive pools. Interest sensitive pools are primarily impacted by changes in forecasted interest rates, which in turn impact voluntary prepayment speeds. Credit sensitive pools are primarily impacted by borrower performance under specified repayment terms, which most directly impacts involuntary prepayments and delinquency rates. The Company assesses whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition. Numerous factors are considered in making this assessment, including loan-to-value ratios, FICO scores, percentage of portfolio previously modified, portfolio seasoning and similar criteria. Once the determination for a pool is made on date of acquisition, subsequent changes are not made.
Interest sensitive portfolios generally consist of lower delinquency, single-family conforming residential forward mortgage loans for agency investors. Credit sensitive portfolios generally consist of higher delinquency, single-family non-conforming residential forward mortgage loans serviced for agency and non-agency investors.
The following table provides a breakdown of credit and interest sensitive UPBs for Nationstar's forward owned MSRs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward MSRs - Sensitivity Pools
|
June 30, 2017
|
|
December 31, 2016
|
|
UPB
|
|
Fair Value
|
|
UPB
|
|
Fair Value
|
Credit sensitive
|
$
|
181,843
|
|
|
$
|
1,723
|
|
|
$
|
198,935
|
|
|
$
|
1,818
|
|
Interest sensitive
|
114,501
|
|
|
1,323
|
|
|
113,141
|
|
|
1,342
|
|
Total
|
$
|
296,344
|
|
|
$
|
3,046
|
|
|
$
|
312,076
|
|
|
$
|
3,160
|
|
Nationstar used the following key weighted-average inputs and assumptions in estimating the fair value of MSRs.
|
|
|
|
|
|
|
Credit Sensitive
|
June 30, 2017
|
|
December 31, 2016
|
Discount rate
|
11.4
|
%
|
|
11.6
|
%
|
Total prepayment speeds
|
15.8
|
%
|
|
15.4
|
%
|
Expected weighted-average life
|
5.9 years
|
|
|
6.0 years
|
|
|
|
|
|
Interest Sensitive
|
|
|
|
Discount rate
|
9.2
|
%
|
|
9.3
|
%
|
Total prepayment speeds
|
11.3
|
%
|
|
10.7
|
%
|
Expected weighted-average life
|
6.5 years
|
|
|
6.8 years
|
|
The following table shows the hypothetical effect on the fair value of the forward MSRs fair value when applying certain unfavorable variations of key assumptions to these assets at
June 30, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
Total Prepayment Speeds
|
Forward MSRs - Hypothetical Sensitivities
|
100 bps
Adverse
Change
|
|
200 bps
Adverse
Change
|
|
10%
Adverse
Change
|
|
20%
Adverse
Change
|
June 30, 2017
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
$
|
(113
|
)
|
|
$
|
(218
|
)
|
|
$
|
(123
|
)
|
|
$
|
(236
|
)
|
December 31, 2016
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
$
|
(114
|
)
|
|
$
|
(221
|
)
|
|
$
|
(117
|
)
|
|
$
|
(224
|
)
|
These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
Reverse Mortgage Servicing Rights and Liabilities - Amortized Cost
Nationstar owns the right to service certain Home Equity Conversion Mortgage ("HECM") reverse mortgage loans with an unpaid principal balance of
$36,301
and
$38,940
as of
June 30, 2017
and
December 31, 2016
, respectively. The following table sets forth the activities of reverse MSRs and mortgage servicing liabilities ("MSLs") for the
six months ended June 30, 2017
and
2016
. Management evaluates reverse MSRs and MSLs each reporting period for impairment. Based on management's assessment at
June 30, 2017
,
no
impairment was required to be recorded for reverse MSRs. In addition,
$2
was recorded for increased MSL obligations due to portfolio performance during the six months ended June 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Reverse MSRs and Liabilities - Amortized Cost
|
|
|
|
|
|
|
|
Balance - beginning of period
|
$
|
6
|
|
|
$
|
48
|
|
|
$
|
9
|
|
|
$
|
25
|
|
Increased MSL obligation
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Amortization/accretion
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
(13
|
)
|
Balance - end of the period
|
$
|
5
|
|
|
$
|
50
|
|
|
$
|
7
|
|
|
$
|
12
|
|
Fair value - end of period
(1)
|
$
|
13
|
|
|
$
|
39
|
|
|
$
|
27
|
|
|
$
|
—
|
|
(1)
Fair value of the liability is less than
$1
for June 30, 2016.
Excess Spread Financing - Fair Value
To finance the acquisition of certain forward MSRs on various forward loan pools ("Portfolios"), Nationstar has entered into sale and assignment agreements with a third-party associated with funds and accounts under management of BlackRock Financial Management Inc. ("BlackRock"), and with certain affiliated entities formed and managed by New Residential Investment Corp. ("New Residential"), which is managed by an affiliate of Fortress Investment Group LLC ("Fortress"). Nationstar sold to such entities the right to receive a specified percentage of the excess cash flow generated from the Portfolios after receipt of a fixed base servicing fee per loan. Servicing fees associated with a traditional MSRs can be segregated into a contractually specified base fee component and an excess servicing fee. The base servicing fee, along with ancillary income, is designed to cover costs incurred to service the specified pool plus a reasonable profit margin. The remaining servicing fee is considered excess. Nationstar retains all the base servicing fee and ancillary revenues associated with servicing the Portfolios and retains a portion of the excess servicing fee. Nationstar continues to be the servicer of the Portfolios and provides all servicing and advancing functions.
Contemporaneous with the above, Nationstar has entered into refinanced loan obligations with New Residential and BlackRock. Should Nationstar refinance any loan in the Portfolios, subject to certain limitations, it will be required to transfer the new loan or a replacement loan of similar economic characteristics into the Portfolios. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above, which is the primary driver of the recapture rate assumption.
The range of key assumptions used in Nationstar's valuation of excess spread financing are as follows.
|
|
|
|
|
|
|
|
|
Excess Spread Financing
|
Prepayment Speeds
|
|
Average
Life (Years)
|
|
Discount
Rate
|
|
Recapture Rate
|
June 30, 2017
|
|
|
|
|
|
|
|
Low
|
6.9%
|
|
4.4
|
|
8.5%
|
|
6.8%
|
High
|
22.2%
|
|
7.2
|
|
14.0%
|
|
30.0%
|
Weighted-average
|
14.3%
|
|
6.1
|
|
10.8%
|
|
18.9%
|
December 31, 2016
|
|
|
|
|
|
|
|
Low
|
6.1%
|
|
4.1
|
|
8.5%
|
|
6.7%
|
High
|
21.2%
|
|
8.5
|
|
14.1%
|
|
29.8%
|
Weighted-average
|
13.9%
|
|
6.3
|
|
10.8%
|
|
19.0%
|
The following table shows the hypothetical effect on the excess spread financing fair value when applying certain unfavorable expected levels variations of key assumptions to these liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017
|
|
|
|
|
|
|
|
Excess spread financing
|
$
|
43
|
|
|
$
|
89
|
|
|
$
|
39
|
|
|
$
|
81
|
|
December 31, 2016
|
|
|
|
|
|
|
|
Excess spread financing
|
$
|
49
|
|
|
$
|
101
|
|
|
$
|
41
|
|
|
$
|
85
|
|
As the cash flow assumptions utilized in determining the fair value amounts in the excess spread financing are based on the related cash flow assumptions utilized in the financed MSRs, any fair value changes recognized in the MSRs would inherently have an inverse impact on the carrying amount of the related excess spread financing. For example, while an increase in discount rates would negatively impact the value of the Company's MSRs, it would reduce the carrying value of the associated excess spread financing liability.
These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing.
Forward Mortgage Servicing Rights Financing
From December 2013 through June 2014, Nationstar entered into agreements to sell a contractually specified base fee component of certain forward MSRs and servicing advances under specified terms to a joint venture capitalized by New Residential and certain unaffiliated third-party investors. Nationstar continues to be the named servicer and, for accounting purposes, ownership of the mortgage servicing rights continues to reside with Nationstar. Accordingly, Nationstar records the MSRs and a MSR financing liability associated with this transaction in its consolidated balance sheets. See Note 19,
Transactions with Affiliates
for additional information.
The following table sets forth the weighted average assumptions used in the valuation of the mortgage servicing rights financing liability.
|
|
|
|
|
|
|
Mortgage Servicing Rights Financing Assumptions
|
June 30, 2017
|
|
December 31, 2016
|
Advance financing rates
|
3.4
|
%
|
|
3.2
|
%
|
Annual advance recovery rates
|
26.0
|
%
|
|
23.9
|
%
|
The following table sets forth the items comprising of revenue associated with servicing loan portfolios.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
Servicing Revenue
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Contractually specified servicing fees including subservicing fees
|
$
|
253
|
|
|
$
|
261
|
|
|
$
|
508
|
|
|
$
|
532
|
|
Other service-related income
|
52
|
|
|
87
|
|
|
98
|
|
|
147
|
|
Incentive and modification income
|
21
|
|
|
23
|
|
|
43
|
|
|
47
|
|
Late fees
|
22
|
|
|
19
|
|
|
46
|
|
|
37
|
|
Reverse servicing fees
|
13
|
|
|
17
|
|
|
27
|
|
|
35
|
|
Mark-to-market
(1)
|
(90
|
)
|
|
(231
|
)
|
|
(128
|
)
|
|
(493
|
)
|
Counter party revenue share
(2)
|
(59
|
)
|
|
(74
|
)
|
|
(121
|
)
|
|
(148
|
)
|
Amortization, net of accretion
(3)
|
(66
|
)
|
|
(78
|
)
|
|
(127
|
)
|
|
(143
|
)
|
Total servicing revenue
|
$
|
146
|
|
|
$
|
24
|
|
|
$
|
346
|
|
|
$
|
14
|
|
(1)
Mark-to-market includes fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM reflected is net of cumulative incurred losses related to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio and these incurred losses have been transferred to reserves on advances and other receivables. These cumulative incurred losses totaled
$28
and
$29
for the
three months ended June 30, 2017
and
2016
, respectively, and
$49
and
$58
for the
six months ended June 30, 2017
and
2016
, respectively.
(2)
Counter party revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSRs financing arrangements.
(3)
Accretion was
$40
and
$56
the
three months ended June 30, 2017
and
2016
, respectively, and
$82
and
$103
for the
six months ended June 30, 2017
and
2016
, respectively.
3. Advances and Other Receivables, Net
Advances and other receivables, net consists of the following.
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Servicing advances
|
$
|
1,460
|
|
|
$
|
1,614
|
|
Receivables from agencies, investors and prior servicers
|
370
|
|
|
319
|
|
Reserves
|
(236
|
)
|
|
(184
|
)
|
Total advances and other receivables, net
|
$
|
1,594
|
|
|
$
|
1,749
|
|
Nationstar as loan servicer is contractually responsible to advance funds on behalf of the borrower and investor primarily for loan principal and interest, property taxes and hazard insurance, and foreclosure costs. Advances are primarily recovered through reimbursement from the investor, proceeds from sale of loan collateral, or mortgage insurance claims. Reserves for advances and other receivables on loans transferred out of the MSR portfolio are established within advances and other receivables.
The Company estimates and records an asset for probable recoveries from prior servicers for their respective portion of the losses associated with the underlying loans that were not serviced in accordance with established guidelines. Receivables from prior servicers totaled
$139
and
$94
for the Company's forward loan portfolio at
June 30, 2017
and
December 31, 2016
, respectively.
The activity of the reserves for advances and other receivables is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
Advances and Other Receivables Reserves
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Balance - beginning of period
(1)
|
$
|
208
|
|
|
$
|
205
|
|
|
$
|
184
|
|
|
$
|
163
|
|
Provision and other additions
(2)
|
36
|
|
|
40
|
|
|
76
|
|
|
89
|
|
Write-offs
|
(8
|
)
|
|
(7
|
)
|
|
(24
|
)
|
|
(14
|
)
|
Balance - end of period
|
$
|
236
|
|
|
$
|
238
|
|
|
$
|
236
|
|
|
$
|
238
|
|
(1)
Beginning reserve balance as of December 31, 2015 was updated to reflect the reclassification of reserves for advances and other receivables from the MSR.
(2)
A provision of
$28
and
$29
was recorded through the MTM adjustment in service related revenues for the
three months ended June 30, 2017
and
2016
, respectively, and
$49
and
$58
for the
six months ended June 30, 2017
and
2016
, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves from other balance sheet accounts.
4. Reverse Mortgage Interests, Net
Reverse mortgage interests, net consist of the following.
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Participating interests in HMBS
|
$
|
8,085
|
|
|
$
|
8,839
|
|
Other interests securitized
|
921
|
|
|
753
|
|
Unsecuritized interests
|
1,747
|
|
|
1,572
|
|
Reserves
|
(149
|
)
|
|
(131
|
)
|
Total reverse mortgage interests, net
|
$
|
10,604
|
|
|
$
|
11,033
|
|
Participating interests in HMBS
Participating interests in HMBS consist of the Company's reverse mortgage interests in HECM loans which have been transferred to Ginnie Mae and subsequently securitized through the issuance of HMBS. During the
six months ended June 30, 2017
, a total of
$338
in UPB was transferred to Ginnie Mae and securitized.
Other interests securitized
Other interests securitized consist of reverse mortgage interests that no longer meet HMBS program eligibility criteria and have been repurchased out of HMBS; these reverse mortgage interests have subsequently been transferred to private securitization trusts and are accounted for as a secured borrowing. During the
six months ended June 30, 2017
, a total of
$325
UPB was securitized. Refer to Other Nonrecourse Debt in Note 8,
Indebtedness
for additional information.
Unsecuritized interests
Unsecuritized interests in reverse mortgages consist of the following.
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Repurchased HECM loans
|
$
|
1,323
|
|
|
$
|
1,000
|
|
HECM related receivables
|
312
|
|
|
301
|
|
Funded borrower draws not yet securitized
|
99
|
|
|
236
|
|
Foreclosed assets
|
13
|
|
|
35
|
|
Total unsecuritized interests
|
$
|
1,747
|
|
|
$
|
1,572
|
|
Unsecuritized interests include repurchased HECM loans for which the Company is required to repurchase from the HMBS pool when the outstanding principal balance of the HECM loan is equal to or greater than 98% of the maximum claim amount established at origination in accordance with HMBS program guidelines. The Company repurchased a total of
$2,208
and
$1,466
HECM loans out of Ginnie Mae HMBS securitizations during the
six months ended June 30, 2017
and
2016
, respectively, of which,
$550
and
$430
were subsequently assigned to a prior servicer in accordance with applicable servicing agreements.
The Company also estimates and records an asset for probable recoveries from prior servicers for their respective portion of the losses associated with the underlying loans that were not serviced in accordance with established guidelines. Receivables from prior servicers totaled
$29
and
$38
for the Company's reverse loan portfolio at
June 30, 2017
and
December 31, 2016
, respectively.
Reserves for Reverse Mortgage Interests
Nationstar records an allowance for reserves related to reverse mortgage interests based on potential unrecoverable costs and loss exposures expected to be realized. Recoverability is determined based on the Company’s ability to meet HUD servicing guidelines and is viewed as two different categories of expenses: financial and operational. Financial exposures are defined as the cost of doing business related to servicing the HECM product and include potential unrecoverable costs primarily based on HUD claim guidelines related to recoverable expenses and unfavorable changes in the appraised value of the loan collateral. Operational exposures are defined as unrecoverable debenture interest curtailments imposed for missed FHA-specified servicing timelines.
The activity of the reserves for reverse mortgage interests is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Reserves for reverse mortgage interests - beginning of period
|
$
|
137
|
|
|
$
|
61
|
|
|
$
|
131
|
|
|
$
|
53
|
|
Provision
|
14
|
|
|
7
|
|
|
22
|
|
|
15
|
|
Write-offs
|
(2
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
Other
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Reserves for reverse mortgage interests - end of period
|
$
|
149
|
|
|
$
|
71
|
|
|
$
|
149
|
|
|
$
|
71
|
|
Purchase of Reverse Mortgage Servicing Rights and Interests
On
December 1, 2016
, the Company executed an asset purchase agreement with a large financial institution and acquired
$3,748
reverse mortgage interests. Under the purchase agreement, the Company has agreed to acquire remaining components of the reverse portfolio, primarily including whole HECM loans and REO advances owned by third parties, pending the appropriate regulatory approvals which are expected in the second half of
2017
.
Reverse Interest Income
The Company accrues interest income for its participating interest in reverse mortgages based on the stated rates underlying HECM loans and FHA guidelines. Total interest earned on the Company's reverse mortgage interests was
$115
and
$85
for the
three months ended June 30, 2017
and
2016
, respectively, and $
233
and $
170
for the
six months ended June 30, 2017
and
2016
, respectively.
5. Mortgage Loans Held for Sale and Investment
Mortgage Loans Held for Sale
Nationstar maintains a strategy of originating mortgage loan products primarily for the purpose of selling to government-sponsored enterprises ("GSEs") or other third-party investors in the secondary market on a servicing-retained basis. Nationstar focuses on assisting customers currently in the Company's servicing portfolio with refinancings of loans or new home purchases. Generally, all newly originated mortgage loans held for sale are securitized and transferred to GSEs or delivered to third-party purchasers shortly after origination on a servicing-retained basis.
Mortgage loans held for sale are recorded at fair value as set forth below.
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Mortgage loans held for sale – unpaid principal balance
|
$
|
1,494
|
|
|
$
|
1,759
|
|
Mark-to-market adjustment
(1)
|
49
|
|
|
29
|
|
Total mortgage loans held for sale
|
$
|
1,543
|
|
|
$
|
1,788
|
|
(1)
The mark-to-market adjustment is recorded in net gain on mortgage loans held for sale in the consolidated statements of operations.
Nationstar accrues interest income as earned and places loans on non-accrual status after any portion of principal or interest has been delinquent for more than 90 days. Accrued interest is recorded as interest income in the consolidated statements of operations.
The total UPB of mortgage loans held for sale on nonaccrual status was as follows for the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Mortgage Loans Held for Sale - Unpaid Principal Balance
|
UPB
|
|
Fair Value
|
|
UPB
|
|
Fair Value
|
Non-accrual
|
$
|
89
|
|
|
$
|
85
|
|
|
$
|
106
|
|
|
$
|
103
|
|
From time to time, Nationstar exercises its right to repurchase individual delinquent loans in Ginnie Mae securitization pools to minimize interest spread losses, to re-pool into new Ginnie Mae securitizations, or to otherwise sell to third-party investors. During the
six months ended June 30, 2017
and 2016, Nationstar repurchased
$144
and
$95
of delinquent Ginnie Mae loans, respectively, and securitized or sold to third-party investors
$172
and
$20
of previously repurchased loans, respectively.
As of June 30, 2017
and 2016,
$33
and
$13
of the repurchased loans have reperformed and were held in accrual status, respectively, and remaining balances continue to be held under a nonaccrual status.
The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was
$74
and
$84
as of
June 30, 2017
and
December 31, 2016
, respectively.
The following table details the changes in mortgage loans held for sale.
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
Mortgage loans held for sale
|
2017
|
|
2016
|
Balance - beginning of period
|
$
|
1,788
|
|
|
$
|
1,430
|
|
Mortgage loans originated and purchased, net of fees
|
8,887
|
|
|
9,445
|
|
Loans sold
|
(9,753
|
)
|
|
(9,501
|
)
|
Repurchase of loans out of Ginnie Mae securitizations
|
599
|
|
|
771
|
|
Transfer of mortgage loans held for sale to advances/accounts receivable related to claims
(1)
|
(8
|
)
|
|
(13
|
)
|
Net transfer of mortgage loans held for sale from REO in other assets
(2)
|
11
|
|
|
21
|
|
Changes in fair value
|
10
|
|
|
27
|
|
Other purchase-related activities
|
9
|
|
|
21
|
|
Balance - end of period
|
$
|
1,543
|
|
|
$
|
2,201
|
|
(1)
Amounts are comprised of claims made on certain government insured mortgage loans upon completion of the REO sale.
(2)
Net amounts are comprised of REO in the sales process which are transferred to other assets and certain government insured mortgage REO which are transferred from other assets upon completion of the sale so that the claims process can begin.
For the six months ended June 30, 2017
and
2016
, the Company received proceeds of $
10,007
and $
9,788
, respectively, on the sale of mortgage loans held for sale, resulting in gains of $
254
and $
287
, respectively.
Nationstar has the right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. The majority of Ginnie Mae repurchased loans are repurchased solely with the intent to re-pool into new Ginnie Mae securitizations upon re-performance of the loan or to otherwise sell to third-party investors. The amounts repurchased out of Ginnie Mae pools, as presented above, are primarily in connection with loan modifications and loan resolution activity as part of Nationstar's contractual obligations as the servicer of the loans.
Mortgage Loans Held for Investment, Net
The following sets forth the composition of mortgage loans held for investment, net.
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Mortgage loans held for investment, net – UPB
|
$
|
205
|
|
|
$
|
216
|
|
Transfer discount:
|
|
|
|
Non-accretable
|
(43
|
)
|
|
(52
|
)
|
Accretable
|
(14
|
)
|
|
(13
|
)
|
Total mortgage loans held for investment, net
|
$
|
148
|
|
|
$
|
151
|
|
The changes in accretable yield discount on loans transferred to mortgage loans held for investment are set forth below.
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
Accretable Yield Discount
|
2017
|
|
2016
|
Balance - beginning of the period
|
$
|
(13
|
)
|
|
$
|
(15
|
)
|
Accretion
|
1
|
|
|
1
|
|
Reclassifications from non-accretable discount
|
(2
|
)
|
|
—
|
|
Balance - end of the period
|
$
|
(14
|
)
|
|
$
|
(14
|
)
|
Nationstar may periodically modify the terms of any outstanding mortgage loans held for investment for loans that are either in default or in imminent default. Modifications often involve reduced payments by borrowers, modification of the original terms of the mortgage loans, forgiveness of debt and/or modified servicing advances. As a result of the volume of modification agreements entered into, the estimated average outstanding life in this pool of mortgage loans has been extended. Nationstar records interest income on the transferred loans on a level-yield method. To maintain a level-yield on these transferred loans over the estimated extended life, Nationstar reclassified to accretable yield discount approximately
$2
of transfer discount designated as reserves for future loss, for the
six months ended June 30, 2017
.
No
provision for reserves was required for the six months ended June 30, 2017 and 2016, respectively, as the fair value of the underlying collateral exceeded the carrying value of the loans, net of the non-accretable discount.
The total UPB of mortgage loans held for investment for which the Company has begun formal foreclosure proceedings was
$26
and
$29
as of
June 30, 2017
and
December 31, 2016
, respectively.
6. Other Assets
Other assets consist of the following.
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Accrued revenues
|
$
|
149
|
|
|
$
|
165
|
|
Loans subject to repurchase right from Ginnie Mae
|
148
|
|
|
152
|
|
Goodwill
|
72
|
|
|
74
|
|
Real estate owned (REO), net
|
26
|
|
|
30
|
|
Deposits
|
25
|
|
|
25
|
|
Prepaid expenses
|
25
|
|
|
16
|
|
Intangible assets
|
21
|
|
|
28
|
|
Receivables from affiliates, net
|
6
|
|
|
6
|
|
Other
|
43
|
|
|
64
|
|
Total other assets
|
$
|
515
|
|
|
$
|
560
|
|
Accrued Revenues
Accrued revenue is primarily comprised of service fees earned but not received based upon the terms of the Company's servicing and subservicing agreements.
Goodwill and Intangible Assets
In connection with the sale of Xome's retail title division, the Company wrote off
$2
goodwill and
$4
intangible assets in June 2017. See further discussion in Note 16,
Dispositions and Exit Costs
.
Loans Subject to Repurchase Right from Ginnie Ma
e
Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. Nationstar, 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 being delinquent greater than 90 days. Once Nationstar has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its consolidated balance sheets and establishes a corresponding repurchase liability regardless of Nationstar’s intention to repurchase the loan.
Real estate owned
Real estate owned ("REO") includes
$20
and
$21
of REO loans with government insurance at
June 30, 2017
and
December 31, 2016
, respectively.
Other
Other primarily includes non-advance related accounts receivables due from investors.
7. Derivative Financial Instruments
Derivative instruments utilized by Nationstar primarily include interest rate lock commitments ("IRLCs"), Loan Purchase Commitments ("LPCs"), forward Mortgage Backed Securities ("MBS") trades, Eurodollar and Treasury futures, interest rate swap agreements and interest rate caps.
Associated with the Company's derivatives are
$6
and $
29
in collateral deposits on derivative instruments recorded in other assets and payables and accrued liabilities on the Company's balance sheets as of
June 30, 2017
and
December 31, 2016
, respectively. The Company does not offset fair value amounts recognized for derivative instruments and the amounts collected and/or deposited on derivative instruments in its consolidated balance sheets.
The following table provides the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
Dates
|
|
Outstanding
Notional
|
|
Fair
Value
|
|
Recorded
Gains /
(Losses)
|
Six months ended June 30, 2017
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Mortgage loans held for sale, net
|
|
|
|
|
|
|
|
Loan sale commitments
(1)
|
2017
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
2017
|
|
2,490
|
|
|
71.6
|
|
|
(20.6
|
)
|
Forward sales of MBS
|
2017
|
|
2,613
|
|
|
8.5
|
|
|
(30.7
|
)
|
LPCs
|
2017
|
|
77
|
|
|
0.9
|
|
|
(1.0
|
)
|
Treasury futures
|
2017
|
|
40
|
|
|
0.5
|
|
|
0.5
|
|
Eurodollar futures
(1)
|
2017-2021
|
|
10
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
(1)
|
2017
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
Liabilities
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
2017
|
|
17
|
|
|
0.1
|
|
|
1.0
|
|
Forward sales of MBS
|
2017
|
|
862
|
|
|
3.0
|
|
|
7.0
|
|
LPCs
|
2017
|
|
400
|
|
|
2.6
|
|
|
(1.1
|
)
|
Treasury futures
|
2017
|
|
68
|
|
|
0.6
|
|
|
(0.6
|
)
|
Eurodollar futures
(1)
|
2017-2021
|
|
46
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
(1)
|
2017
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
Loan sale commitments
|
2017
|
|
$
|
1
|
|
|
$
|
0.1
|
|
|
$
|
(0.2
|
)
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
2017
|
|
3,675
|
|
|
92.2
|
|
|
3.1
|
|
Forward sales of MBS
|
2017
|
|
2,580
|
|
|
39.2
|
|
|
33.1
|
|
LPCs
|
2017
|
|
203
|
|
|
1.9
|
|
|
(2.0
|
)
|
Eurodollar futures
(1)
|
2017-2021
|
|
35
|
|
|
—
|
|
|
(0.1
|
)
|
Interest rate swaps
|
2017
|
|
9
|
|
|
0.1
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
2017
|
|
176
|
|
|
1.1
|
|
|
(1.1
|
)
|
Forward sales of MBS
|
2017
|
|
1,689
|
|
|
10.0
|
|
|
(6.3
|
)
|
LPCs
(1)
|
2017
|
|
111
|
|
|
1.5
|
|
|
—
|
|
Eurodollar futures
(1)
|
2017-2021
|
|
27
|
|
|
—
|
|
|
0.1
|
|
Interest rate swaps
|
2017
|
|
9
|
|
|
0.1
|
|
|
0.4
|
|
(1)
Fair values or recorded gains/(losses) of derivative instruments are less than
$0.1
for the specified dates.
8. Indebtedness
Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Advance Facilities
|
|
Interest Rate
|
|
Maturity Date
|
|
Collateral
|
|
Capacity Amount
|
|
Outstanding
|
|
Collateral Pledged
|
|
Outstanding
|
|
Collateral pledged
|
Nationstar agency advance receivables trust
|
|
LIBOR+2.0% to 2.6%
|
|
October 2017
|
|
Servicing advance receivables
|
|
$
|
650
|
|
|
$
|
425
|
|
|
$
|
556
|
|
|
$
|
485
|
|
|
$
|
578
|
|
Nationstar mortgage advance receivable trust
|
|
LIBOR+1.4% to 6.5%
|
|
November 2018
|
|
Servicing advance receivables
|
|
500
|
|
|
228
|
|
|
277
|
|
|
260
|
|
|
301
|
|
Nationstar agency advance financing facility
|
|
LIBOR+1.0% to 7.4%
|
|
January 2018
|
|
Servicing advance receivables
|
|
200
|
|
|
117
|
|
|
140
|
|
|
164
|
|
|
186
|
|
MBS servicer advance facility (2014)
|
|
LIBOR+3.5%
|
|
September 2017
|
|
Servicing advance receivables
|
|
125
|
|
|
60
|
|
|
128
|
|
|
88
|
|
|
142
|
|
MBS advance financing facility
|
|
LIBOR+2.5%
|
|
March 2018
|
|
Servicing advance receivables
|
|
80
|
|
|
52
|
|
|
57
|
|
|
55
|
|
|
60
|
|
MBS advance financing facility (2012)
(1)
|
|
LIBOR+5.0%
|
|
January 2017
|
|
Servicing advance receivables
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44
|
|
|
52
|
|
Advance facilities principal amount
|
|
|
|
|
|
882
|
|
|
1,158
|
|
|
1,096
|
|
|
1,319
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Advance facilities, net
|
|
|
|
$
|
881
|
|
|
$
|
1,158
|
|
|
$
|
1,096
|
|
|
$
|
1,319
|
|
|
(1)
This MBS Advance Financing facility was paid off in full in February 2017.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Warehouse Facilities
|
|
Interest Rate
|
|
Maturity Date
|
|
Collateral
|
|
Capacity Amount
|
|
Outstanding
|
|
Collateral Pledged
|
|
Outstanding
|
|
Collateral pledged
|
$1,200 warehouse facility
|
|
LIBOR+2.0% to 2.9%
|
|
October 2017
|
|
Mortgage loans or MBS
|
|
$
|
1,200
|
|
|
$
|
650
|
|
|
$
|
692
|
|
|
$
|
682
|
|
|
$
|
747
|
|
$1000 warehouse facility
|
|
LIBOR+2.1% to 2.4%
|
|
September 2017
|
|
Mortgage loans or MBS
|
|
1,000
|
|
|
172
|
|
|
176
|
|
|
250
|
|
|
256
|
|
$772 warehouse facility
|
|
LIBOR+2.0% to 2.8%
|
|
November 2017
|
|
Mortgage loans or MBS
|
|
772
|
|
|
544
|
|
|
600
|
|
|
410
|
|
|
415
|
|
$500 warehouse facility
|
|
LIBOR+1.8% to 2.8%
|
|
September 2017
|
|
Mortgage loans or MBS
|
|
500
|
|
|
254
|
|
|
259
|
|
|
229
|
|
|
237
|
|
$500 warehouse facility
|
|
LIBOR+1.8% to 3.3%
|
|
June 2018
|
|
Mortgage loans or MBS
|
|
500
|
|
|
298
|
|
|
330
|
|
|
496
|
|
|
539
|
|
$350 warehouse facility
|
|
LIBOR+2.5% to 2.8%
|
|
April 2018
|
|
Mortgage loans or MBS
|
|
350
|
|
|
177
|
|
|
192
|
|
|
12
|
|
|
13
|
|
$350 warehouse facility
|
|
LIBOR+2.5% to 2.6%
|
|
November 2017
|
|
Mortgage loans or MBS
|
|
350
|
|
|
235
|
|
|
253
|
|
|
173
|
|
|
189
|
|
$300 warehouse facility
|
|
LIBOR+2.3%
|
|
January 2018
|
|
Mortgage loans or MBS
|
|
300
|
|
|
142
|
|
|
170
|
|
|
153
|
|
|
180
|
|
$200 warehouse facility
|
|
LIBOR+1.5%
|
|
April 2019
|
|
Mortgage loans or MBS
|
|
200
|
|
|
43
|
|
|
44
|
|
|
7
|
|
|
8
|
|
$40 warehouse facility
|
|
LIBOR+3.0%
|
|
December 2017
|
|
Mortgage loans or MBS
|
|
40
|
|
|
9
|
|
|
15
|
|
|
11
|
|
|
18
|
|
Warehouse facilities principal amount
|
|
|
|
|
|
2,524
|
|
|
2,731
|
|
|
2,423
|
|
|
2,602
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
Warehouse facilities, net
|
|
|
|
$
|
2,523
|
|
|
$
|
2,731
|
|
|
$
|
2,421
|
|
|
$
|
2,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged Collateral:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
|
|
$
|
1,498
|
|
|
$
|
1,593
|
|
|
$
|
1,693
|
|
|
$
|
1,427
|
|
Reverse mortgage interests, net
|
|
|
|
|
|
|
|
1,026
|
|
|
1,138
|
|
|
730
|
|
|
834
|
|
MSR and other collateral
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
341
|
|
Unsecured Senior Notes
A summary of the balances of unsecured senior notes is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
$600 face value, 6.500% interest rate payable semi-annually, due July 2021
|
$
|
595
|
|
|
$
|
595
|
|
$400 face value, 7.875% interest rate payable semi-annually, due October 2020
|
400
|
|
|
400
|
|
$475 face value, 6.500% interest rate payable semi-annually, due August 2018
|
366
|
|
|
461
|
|
$375 face value, 9.625% interest rate payable semi-annually, due May 2019
|
345
|
|
|
345
|
|
$300 face value, 6.500% interest rate payable semi-annually, due June 2022
|
206
|
|
|
206
|
|
Unsecured senior notes principal amount
|
1,912
|
|
|
2,007
|
|
Unamortized debt issuance costs
|
(13
|
)
|
|
(17
|
)
|
Unsecured senior notes, net
|
$
|
1,899
|
|
|
$
|
1,990
|
|
Nationstar repurchased
$47
and
$95
in principal amount of outstanding notes during the three and
six months ended June 30, 2017
resulting in a loss of
$1
and
$2
, respectively. Nationstar also repurchased
$24
and
$25
in principal amount of outstanding notes during the three and
six months ended June 30, 2016
.
The indentures for the unsecured senior notes contain various covenants and restrictions that limit the ability to incur additional indebtedness, pay dividends, make certain investments, create liens, consolidate, merge or sell substantially all of their assets or enter into certain transactions with affiliates. The indentures contain certain events of default, including (subject, in some cases, to customary cure periods and materiality thresholds) defaults based on (i) the failure to make payments under the indenture when due, (ii) breach of covenants, (iii) cross-defaults to certain other indebtedness, (iv) certain bankruptcy or insolvency events, (v) material judgments and (vi) invalidity of material guarantees.
The indentures for the unsecured senior notes provide that Nationstar may redeem all or a portion of the notes prior to certain fixed dates by paying a make-whole premium plus accrued and unpaid interest and additional interest, if any, to the redemption dates. In addition, Nationstar 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 and additional interest, if any, to the redemption dates.
Additionally, the indentures provide that on or before certain fixed dates, Nationstar may redeem up to
35%
of the aggregate principal amount of the unsecured senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest and additional interest, if any, to the redemption dates, subject to compliance with certain conditions.
The ratios included in the indentures for the unsecured senior notes are incurrence-based compared to the customary ratio covenants that are often found in credit agreements that require a company to maintain a certain ratio.
As of June 30, 2017
, the expected maturities of Nationstar's unsecured senior notes based on contractual maturities are as follows.
|
|
|
|
|
|
Year ending December 31,
|
|
Amount
|
2017
|
|
$
|
—
|
|
2018
|
|
366
|
|
2019
|
|
345
|
|
2020
|
|
400
|
|
2021
|
|
595
|
|
Thereafter
|
|
206
|
|
Unsecured senior notes principal amount
|
|
1,912
|
|
Unamortized debt issuance costs
|
|
(13
|
)
|
Unsecured senior notes, net
|
|
$
|
1,899
|
|
Other Nonrecourse Debt
A summary of the balances of other nonrecourse debt is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Issue Date
|
|
Maturity Date
|
|
Class of Note
|
|
Securitized Amount
|
|
Outstanding
|
|
Outstanding
|
Participating Interest Financing
(1)
|
_
|
|
_
|
|
_
|
|
$
|
—
|
|
|
$
|
8,155
|
|
|
$
|
8,914
|
|
Securitization of nonperforming HECM loans
|
|
|
|
|
|
|
|
|
|
|
|
Trust 2015-2
|
November 2015
|
|
November 2025
|
|
A, M1, M2
|
|
114
|
|
|
86
|
|
|
114
|
|
Trust 2016-1
|
March 2016
|
|
February 2026
|
|
A, M1, M2
|
|
200
|
|
|
159
|
|
|
194
|
|
Trust 2016-2
|
June 2016
|
|
June 2026
|
|
A, M1, M2
|
|
143
|
|
|
117
|
|
|
158
|
|
Trust 2016-3
|
August 2016
|
|
August 2026
|
|
A, M1, M2
|
|
197
|
|
|
170
|
|
|
208
|
|
Trust 2017-1
|
May 2017
|
|
May 2027
|
|
A, M1, M2
|
|
298
|
|
|
275
|
|
|
—
|
|
Nonrecourse debt - legacy assets
|
November 2009
|
|
October 2039
|
|
A
|
|
139
|
|
|
42
|
|
|
50
|
|
Other nonrecourse debt principal amount
|
|
|
|
|
|
|
|
|
9,004
|
|
|
9,638
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
(7
|
)
|
Other nonrecourse debt, net
|
|
|
|
|
|
|
|
|
$
|
8,997
|
|
|
$
|
9,631
|
|
(1)
Amounts represent the Company's participating interest in GNMA HMBS securitized portfolios.
Participating Interest Financing
Participating interest financing represents the obligation of HMBS pools to third-party security holders. The Company issues HMBS in connection with the securitization of advances and accrued interest on HECM loans. Proceeds are received in exchange for securitized advances on the HECM loan amounts transferred to GNMA, and the Company retains a beneficial interest (referred to as a "participating interest") in the securitization trust in which the HECM loans and HMBS obligations are held and assume both issuer and servicer responsibilities in accordance with GNMA HMBS program guidelines. Monthly cash flows generated from the HECM loans are used to service the HMBS obligations. The interest rate is based on the underlying HMBS rate with a range of
1.3%
to
7.0%
.
Securitizations of Nonperforming HECM Loans
From time to time, Nationstar securitizes its interests in non-performing reverse mortgages. The transactions provide investors with the ability to invest in a pool of non-performing HECM loans that are covered by FHA insurance and secured by one-to-four-family residential properties and a pool of REO properties acquired through foreclosure or grant of a deed in lieu of foreclosure in connection with reverse mortgage loans that are covered by FHA insurance. The transactions provide Nationstar with access to liquidity for the non-performing HECM loan portfolio, ongoing servicing fees, and potential residual returns. The transactions are structured as secured borrowings with the reverse mortgage loans included in the consolidated financial statements as reverse mortgage interests and the related financing included in other nonrecourse debt. Interest is accrued at a rate of
2.0%
to
7.4%
on the outstanding securitized notes and recorded as interest expense in consolidated statements of operations. The HECM securitizations are callable with expected weighted average lives of
one
to
three
years. The Company may re-securitize the previously called loans from earlier HECM securitizations to achieve a lower cost of funds.
Nonrecourse Debt–Legacy Assets
During November 2009, Nationstar completed the securitization of approximately
$222
of Asset-Backed Securities ("ABS"), which was accounted for as a secured borrowing. This structure resulted in Nationstar carrying the securitized mortgage loans in its consolidated bal
ance sheets and recognizing the asset-backed certificates acquired by third parties.
The principal and interest on these notes are paid using the cash flows from the underlying mortgage loans, which serve as collateral for the debt. The interest rate paid on the outstanding securities is
7.5%
, which is subject to an available funds cap. The total outstanding principal balance on the underlying mortgage loans serving as collateral for the debt was approximately
$192
and
$208
at
June 30, 2017
and
December 31, 2016
, respectively. The carrying values on the outstanding loans was
$49
and
$58
at
June 30, 2017
and
December 31, 2016
, respectively, and the carrying value of the nonrecourse debt was
$42
and
$50
, respectively.
Financial Covenants
The Company's borrowing arrangements and credit facilities contain various financial covenants which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements. As of
June 30, 2017
, the Company is in compliance with its financial covenants.
Nationstar is required to maintain a minimum tangible net worth of at least
$682
as of each quarter-end related to its outstanding Master Repurchase Agreements on its outstanding repurchase facilities. As of
June 30, 2017
, the Company is in compliance with these minimum tangible net worth requirements.
9. Payables and Accrued Liabilities
Payables and accrued liabilities consist of the following.
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Payables to servicing and subservicing investors
|
$
|
546
|
|
|
$
|
655
|
|
Loans subject to repurchase from Ginnie Mae
|
148
|
|
|
152
|
|
Accounts payable and other accrued liabilities
|
106
|
|
|
178
|
|
Accrued interest
|
60
|
|
|
65
|
|
Payable to insurance carriers and insurance cancellation reserves
|
58
|
|
|
73
|
|
Accrued bonus and payroll
|
57
|
|
|
95
|
|
Professional and legal
|
47
|
|
|
47
|
|
Payable to GSEs and securitized trusts
|
42
|
|
|
58
|
|
Lease obligations
|
28
|
|
|
24
|
|
Repurchase reserves
|
14
|
|
|
18
|
|
MSR purchases payable including advances
|
10
|
|
|
21
|
|
Taxes
|
6
|
|
|
84
|
|
Total payables and accrued liabilities
|
$
|
1,122
|
|
|
$
|
1,470
|
|
Payables to servicing and subservicing investors, Payables to GSEs, and Payables to securitization trusts
Payables to servicing and subservicing investors represent amounts due to investors in connection with loans serviced that are paid from collections of the underlying loans, insurance proceeds or proceeds from property disposal.
Loans Subject to repurchase from Ginnie Mae
See Note 6,
Other Asset
s for a description of assets and liabilities related to loans subject to repurchase from Ginnie Mae.
Payables to insurance carriers and insurance cancellation reserves
Payable to insurance carriers and insurance cancellation reserves consist of insurance premiums received from borrower payments awaiting disbursement to the insurance carrier and/or amounts due to third-party investors on liquidated loans.
Repurchase reserves
The activity of the outstanding repurchase reserves is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
Repurchase Reserves
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Balance - beginning of period
|
$
|
15
|
|
|
$
|
26
|
|
|
$
|
18
|
|
|
$
|
26
|
|
Provision, net of release
|
(1
|
)
|
|
—
|
|
|
(3
|
)
|
|
1
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Balance - end of period
|
$
|
14
|
|
|
$
|
26
|
|
|
$
|
14
|
|
|
$
|
26
|
|
The provision for repurchases represents an estimate of losses to be incurred on the repurchase of loans or indemnification of purchaser's losses related to forward loans. Certain sale contracts and GSE standards require Nationstar to repurchase a loan or indemnify the purchaser or insurer for losses if a borrower fails to make initial loan payments or if the accompanying mortgage loan fails to meet certain customary representations and warranties, such as the manner of origination, the nature and extent of underwriting standards.
In the event of a breach of the representations and warranties, Nationstar may be required to either repurchase the loan or indemnify the purchaser for losses it sustains on the loan. In addition, an investor may request that we refund a portion of the premium paid on the sale of mortgage loans if a loan is prepaid within a certain amount of time from the date of sale. Nationstar records a reserve for estimated losses associated with loan repurchases, purchaser indemnification and premium refunds. The provision for repurchase losses is charged against net gain on mortgage loans held for sale. A release of repurchase reserves is recorded when Company 's assessment reveals that previously recorded reserves are no longer needed.
A selling representation and warranty framework was introduced by the GSEs in 2013 and enhanced in 2014 that helps address concerns of loan sellers with respect to loan repurchase risk. Under the framework, a GSE will not exercise its remedies, including the issuance of repurchase requests, for breaches of certain selling representations and warranties if a mortgage meets certain eligibility requirements. For loans sold to GSEs on or after January 1, 2013, repurchase risk for Home Affordable Refinance Program ("HARP") loans is lowered if the borrower stays current on the loan for 12 months and representation and warranty risks are limited for non-HARP loans that stay current for 36 months.
The Company regularly evaluates the adequacy of repurchase reserves based on trends in repurchase and indemnification requests, actual loss experience, settlement negotiation, estimated future loss exposure and other relevant factors including economic conditions. Current loss rates have significantly declined attributable to stronger underwriting standards and due to the falloff of loans underwritten prior to mortgage loan crisis period prior to 2008. The Company believes its reserve balances as of
June 30, 2017
are sufficient to cover future loss exposure associated with repurchase contingencies.
Other Payables
Other payables are primarily comprised of liabilities related to various vendor and servicing activities.
10. Securitizations and Financings
Variable Interest Entities (VIE)
In the normal course of business, Nationstar enters into various types of on- and off-balance sheet transactions with special purpose entities ("SPE") 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 Nationstar transfers assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets.
Nationstar has determined that the SPEs created in connection with the (i) Nationstar Home Equity Loan Trust 2009-A, (ii) Nationstar Mortgage Advance Receivables Trust (NMART), (iii) Nationstar Agency Advance Financing Trust (NAAFT) and (iv) Nationstar Advance Agency Receivables Trust (NAART) should be consolidated as Nationstar is the primary beneficiary of each of these entities. Also, Nationstar consolidated five reverse mortgage SPEs as it is the primary beneficiary of each of these entities. These SPEs include the Nationstar HECM Loan Trusts.
A summary of the assets and liabilities of Nationstar’s transactions with VIEs included in the Company’s consolidated financial statements is presented below for the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Transfers
Accounted for as
Secured
Borrowings
|
|
Reverse Secured Borrowings
|
|
Transfers
Accounted for as
Secured
Borrowings
|
|
Reverse Secured Borrowings
|
Assets
|
|
|
|
|
|
|
|
Restricted cash
|
$
|
232
|
|
|
$
|
44
|
|
|
$
|
190
|
|
|
$
|
37
|
|
Reverse mortgage interests, net
|
—
|
|
|
8,959
|
|
|
—
|
|
|
9,557
|
|
Advances and other receivables, net
|
972
|
|
|
—
|
|
|
1,065
|
|
|
—
|
|
Mortgage loans held for investment, net
|
147
|
|
|
—
|
|
|
150
|
|
|
—
|
|
Other assets
|
2
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Total assets
|
$
|
1,353
|
|
|
$
|
9,003
|
|
|
$
|
1,409
|
|
|
$
|
9,594
|
|
Liabilities
|
|
|
|
|
|
|
|
Advance facilities
(1)
|
$
|
771
|
|
|
$
|
—
|
|
|
$
|
909
|
|
|
$
|
—
|
|
Payables and accrued liabilities
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Participating interest financing
(2)
|
—
|
|
|
8,085
|
|
|
—
|
|
|
8,840
|
|
HECM Securitizations (HMBS)
|
|
|
|
|
|
|
|
Trust 2015-2
|
—
|
|
|
86
|
|
|
—
|
|
|
114
|
|
Trust 2016-1
|
—
|
|
|
159
|
|
|
—
|
|
|
194
|
|
Trust 2016-2
|
—
|
|
|
117
|
|
|
—
|
|
|
158
|
|
Trust 2016-3
|
—
|
|
|
170
|
|
|
—
|
|
|
208
|
|
Trust 2017-1
|
—
|
|
|
275
|
|
|
—
|
|
|
—
|
|
Nonrecourse debt–legacy assets
|
42
|
|
|
—
|
|
|
50
|
|
|
—
|
|
Total liabilities
|
$
|
814
|
|
|
$
|
8,892
|
|
|
$
|
960
|
|
|
$
|
9,514
|
|
(1)
Advance facilities include the Nationstar agency advance financing facility and notes payable recorded by the Nationstar mortgage advance receivable trust, and the Nationstar agency advance receivables trust. Refer to Notes Payable in Note 8,
Indebtedness
for additional information.
(2)
Participating interest financing excludes premiums.
A summary of the outstanding collateral and certificate balances for securitization trusts for which Nationstar was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by Nationstar for the dates indicated as follows.
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Total collateral balances
|
$
|
2,511
|
|
|
$
|
2,704
|
|
Total certificate balances
|
$
|
2,302
|
|
|
$
|
2,455
|
|
Nationstar has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of
June 30, 2017
, and December 31,
2016
, and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs.
A summary of mortgage loans transferred by Nationstar to unconsolidated securitization trusts that are 60 days or more past due and the credit losses incurred in the unconsolidated securitization trusts are presented below:
|
|
|
|
|
|
|
|
|
Principal Amount of Loans 60 Days or More Past Due
|
June 30, 2017
|
|
December 31, 2016
|
Unconsolidated securitization trusts
|
$
|
441
|
|
|
$
|
548
|
|
11. Stockholders' Equity
Nationstar's Board of Directors approved the repurchase of up to
$100
of the Company's common stock from January 1, 2017 through December 31, 2017.
No
shares were repurchased during the
six months ended June 30, 2017
.
During the three and
six months ended June 30, 2017
, certain employees of Nationstar were granted
126 thousand
and
1,059 thousand
restricted stock units ("RSUs"), respectively. The RSUs generally vest in installments of
33.3%
,
33.3%
and
33.4%
respectively on each of the first three anniversaries of the awards, provided that (i) the participant remains continuously employed with us during that time or (ii) the participant's employment has terminated by reason of retirement. In addition, upon death, disability or a change in control of the Company, the unvested shares of an award will vest. The ultimate value of the award, however, depends on the market value of Nationstar common stock on the vesting date. The Company recognized
$4
and
$5
of expense related to the share-based awards during the
three months ended June 30, 2017
and
2016
, respectively, and
$9
and
$12
for the
six months ended June 30, 2017
and
2016
, respectively.
12. Income Taxes
The components of income tax expense (benefit) on continuing operations were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Income tax expense (benefit)
|
$
|
(10
|
)
|
|
$
|
(53
|
)
|
|
$
|
(9
|
)
|
|
$
|
(135
|
)
|
|
|
|
|
|
|
|
|
Effective tax rate
|
33.1
|
%
|
|
36.6
|
%
|
|
32.8
|
%
|
|
37.5
|
%
|
For the three and
six months ended June 30, 2017
, the effective tax rate differed from the statutory federal rate of
35%
due to recurring items, such as state tax benefit offset by excess tax deficiency related to restricted share-based compensation recognized within income rather than shareholder’s equity under ASU 2016-09. In connection with the sale of Xome's retail title division, the Company recognized approximately
$4
of tax expense as a discrete item in June 2017, which favorably impacts the effective tax rate by
15%
.
For the three and
six months ended June 30, 2016
, the effective tax rate differed from the statutory federal rate of
35%
primarily due to the elimination of the book loss of a less-than-wholly-owned subsidiary, state taxes and certain other permanent differences. The relative impact of these permanent differences on the effective tax rate was based upon forecasted pre-tax income or loss for the year.
13. Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).
The following describes the methods and assumptions used by Nationstar in estimating fair values.
Cash and Cash Equivalents, Restricted Cash (Level 1) –
The carrying amount reported in the consolidated balance sheets approximates fair value.
Mortgage Loans Held for Sale (Level 2) –
Nationstar originates mortgage loans in the U.S. that it intends to sell into Fannie Mae, Freddie Mac, and Ginnie Mae MBS (collectively, the "Agencies"). Additionally, Nationstar holds mortgage loans that it intends to sell into the secondary markets via whole loan sales or securitizations. Nationstar measures newly originated prime residential mortgage loans held for sale at fair value.
Mortgage loans held for sale are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality. Mortgage loans held for sale are valued on a recurring basis using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, Nationstar classifies these valuations as Level 2 in the fair value disclosures.
The Company may acquire mortgage loans held for sale from various securitization trusts for which it acts as servicer through the exercise of various clean-up call options as permitted through the respective pooling and servicing agreements. The Company has elected to account for these loans at the lower of cost or market. Nationstar classifies these valuations as Level 2 in the fair value disclosures.
Nationstar may also purchase loans out of a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. Nationstar has elected to carry these loans at fair value. See Note 5,
Mortgage Loan Held for Sale and Investment
for more information.
Mortgage Loans Held for Investment, Net (Level 3) –
Nationstar determines the fair value of loans held for investment, using internally developed valuation models. These valuation models estimate the exit price Nationstar expects to receive in the loan’s principal market. Although Nationstar utilizes and gives priority to observable market inputs such as interest rates and market spreads within these models, Nationstar typically is required to utilize internal inputs, such as prepayment speeds and discount rates. These internal inputs require the use of judgment by Nationstar and can have a significant impact on the determination of the loan’s fair value. As these prices are derived from internally developed valuation models, Nationstar classifies these valuations as Level 3 in the fair value disclosures. See Note 5,
Mortgage Loan Held for Sale and Investment
for more information.
Mortgage Servicing Rights – Fair Value (Level 3) –
Nationstar estimates the fair value of its forward MSRs on a recurring basis using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, discount rates, ancillary revenues and costs to service. These assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency and coupon dispersion. These assumptions require the use of judgment by Nationstar 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, Nationstar classifies these valuations as Level 3 in the fair value disclosures. See Note 2,
Mortgage Servicing Rights and Related Liabilities
for more information.
Advances and Other Receivables, Net (Level 3)
- Advances and other receivables are valued at their net realizable value after taking into consideration the reserves. Advances have no stated maturity. Their net realizable value approximates fair value as the net present value based on discounted cash flow is not materially different from the net realizable value.
Reverse Mortgage Interests, Net (Level 3) –
The Company’s reverse mortgage interests are primarily comprised of HECM loans that are insured by FHA and guaranteed by Ginnie Mae upon securitization. Fair value for active reverse mortgage loans is estimated based on pricing of recent securitizations with similar attributes and characteristics, such as collateral values and prepayment speeds and adjusted as necessary for differences. The recent timing of these transactions allows the pricing to consider the current interest rate risk exposures. The fair value of inactive reverse mortgage loans is established based upon a discounted par value of the loan derived from the Company’s historical loss factors experienced on foreclosed loans.
Derivative Financial Instruments (Level 2) –
Nationstar enters into a variety of derivative financial instruments as part of its hedging strategy and measures these instruments at fair value on a recurring basis in the balance sheet. The majority of these derivatives are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, Nationstar utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 2. In addition, Nationstar enters into IRLCs and LPCs with prospective borrowers and other loan originators. These commitments are carried at fair value based on the fair value of underling mortgage loans which are based on observable market data. Nationstar adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. IRLCs and LPCs are recorded in derivative financial instruments in the consolidated balance sheets. These commitments are classified as Level 2 in the fair value disclosures, as the valuations are based on market observable inputs. Nationstar has entered into Eurodollar futures contracts as part of its hedging strategy. The futures contracts are measured at fair value on a recurring basis and classified as Level 2 in the fair value disclosures as the valuation is based on market observable data. See Note 7,
Derivative Financial Instruments
for more information.
Advance Facilities and Warehouse Facilities (Level 2) –
As the underlying warehouse and advance finance facilities bear interest at a rate that is periodically adjusted based on a market index, the carrying amount reported on the consolidated balance sheets approximates fair value. See Note 8,
Indebtedness
for more information.
Unsecured Senior Notes (Level 1) –
The fair value of unsecured senior notes, which are carried at amortized cost, is based on quoted market prices and is considered Level 1 from the market observable inputs used to determine fair value. See Note 8,
Indebtedness
for more information.
Nonrecourse Debt – Legacy Assets (Level 3) –
Nationstar estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. These prices are derived from a combination of internally developed valuation models and quoted market prices, and are classified as Level 3. See Note 8,
Indebtedness
for more information.
Excess Spread Financing (Level 3) –
Nationstar estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, average life, recapture rates and discount rate. As these prices are derived from a combination of internally developed valuation models and quoted market prices based on the value of the underlying MSRs, Nationstar classifies these valuations as Level 3 in the fair value disclosures. See Note 2,
Mortgage Servicing Rights and Related Liabilities
for more information.
Mortgage Servicing Rights Financing Liability (Level 3)
- Nationstar estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being advance financing rates, annual advance recovery rates and working capital. As these assumptions are derived from internally developed valuation models based on the value of the underlying MSRs, Nationstar classifies these valuations as Level 3 in the fair value disclosures. See Note 2,
Mortgage Servicing Rights and Related Liabilities
for more information.
Participating Interest Financing (Level 2) –
Nationstar estimates the fair value using a market approach by utilizing the fair value of securities backed by similar participating interests in reverse mortgage loans. Nationstar classifies these valuations as Level 2 in the fair value disclosures. See Note 2,
Mortgage Servicing Rights and Related Liabilities
, and Note 8,
Indebtedness
for more information.
HECM Securitizations (Level 3) –
Nationstar estimates fair value of the nonrecourse debt related to HECM securitization based on the present value of future expected discounted cash flows with the discount rate approximating that of similar financial instruments. As the prices are derived from both internal models and other observable inputs, Nationstar classifies this as Level 3 in the fair value disclosures. See Note 8,
Indebtedness
for more information.
The following table presents the estimated carrying amount and fair value of Nationstar’s financial instruments and other assets and liabilities measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Recurring Fair Value Measurements
|
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
Mortgage loans held for sale
(1)
|
$
|
1,542.6
|
|
|
$
|
—
|
|
|
$
|
1,542.6
|
|
|
$
|
—
|
|
Mortgage servicing rights
(1)
|
3,045.8
|
|
|
—
|
|
|
—
|
|
|
3,045.8
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
71.6
|
|
|
—
|
|
|
71.6
|
|
|
—
|
|
Forward MBS trades
|
8.5
|
|
|
—
|
|
|
8.5
|
|
|
—
|
|
LPCs
|
0.9
|
|
|
—
|
|
|
0.9
|
|
|
—
|
|
Treasury futures
|
0.5
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
Eurodollar futures
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total assets
|
$
|
4,669.9
|
|
|
$
|
—
|
|
|
$
|
1,624.1
|
|
|
$
|
3,045.8
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
Forward MBS trades
|
3.0
|
|
|
—
|
|
|
3.0
|
|
|
—
|
|
LPCs
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
Treasury futures
|
0.6
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
Eurodollar futures
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mortgage servicing rights financing
|
13.2
|
|
|
—
|
|
|
—
|
|
|
13.2
|
|
Excess spread financing
|
1,121.0
|
|
|
—
|
|
|
—
|
|
|
1,121.0
|
|
Total liabilities
|
$
|
1,140.5
|
|
|
$
|
—
|
|
|
$
|
6.3
|
|
|
$
|
1,134.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Recurring Fair Value Measurements
|
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
Mortgage loans held for sale
(1)
|
$
|
1,788.0
|
|
|
$
|
—
|
|
|
$
|
1,788.0
|
|
|
$
|
—
|
|
Mortgage servicing rights
(1)
|
3,160.0
|
|
|
—
|
|
|
—
|
|
|
3,160.0
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
92.2
|
|
|
—
|
|
|
92.2
|
|
|
—
|
|
Forward MBS trades
|
39.2
|
|
|
—
|
|
|
39.2
|
|
|
—
|
|
LPCs
|
1.9
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
Interest rate swaps and caps
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
Total assets
|
$
|
5,081.4
|
|
|
$
|
—
|
|
|
$
|
1,921.4
|
|
|
$
|
3,160.0
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
1.1
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
Forward MBS trades
|
10.0
|
|
|
—
|
|
|
10.0
|
|
|
—
|
|
LPCs
|
1.5
|
|
|
—
|
|
|
1.5
|
|
|
—
|
|
Interest rate swaps and caps
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
Mortgage servicing rights financing
|
27.0
|
|
|
—
|
|
|
—
|
|
|
27.0
|
|
Excess spread financing
|
1,214.0
|
|
|
—
|
|
|
—
|
|
|
1,214.0
|
|
Total liabilities
|
$
|
1,253.7
|
|
|
$
|
—
|
|
|
$
|
12.7
|
|
|
$
|
1,241.0
|
|
(1)
Based on the nature and risks of the underlying assets and liabilities, the fair value is presented for the aggregate account.
(2)
Fair values of derivative instruments are less than
$0.1
for the specified dates.
The table below presents a reconciliation for all of Nationstar’s Level 3 assets and liabilities measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Liabilities
|
Six months ended June 30, 2017
|
Mortgage servicing rights
|
|
Excess spread financing
|
|
Mortgage servicing rights financing
|
Balance at the beginning of the period
|
$
|
3,160
|
|
|
$
|
1,214
|
|
|
$
|
27
|
|
Total gains or losses included in earnings
|
(232
|
)
|
|
15
|
|
|
(14
|
)
|
Purchases, issuances, sales and settlements
|
|
|
|
|
|
Purchases
|
13
|
|
|
—
|
|
|
—
|
|
Issuances
|
103
|
|
|
—
|
|
|
—
|
|
Sales
|
2
|
|
|
—
|
|
|
—
|
|
Settlements
|
—
|
|
|
(108
|
)
|
|
—
|
|
Balance at the end of the period
|
$
|
3,046
|
|
|
$
|
1,121
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Liabilities
|
Year ended December 31, 2016
|
Mortgage servicing rights
|
|
Excess spread financing
|
|
Mortgage servicing rights financing
|
Balance - beginning of period
|
$
|
3,358
|
|
|
$
|
1,232
|
|
|
$
|
69
|
|
Total gains or losses included in earnings
|
(496
|
)
|
|
25
|
|
|
(42
|
)
|
Purchases, issuances, sales and settlements
|
|
|
|
|
|
Purchases
|
157
|
|
|
—
|
|
|
—
|
|
Issuances
|
208
|
|
|
155
|
|
|
—
|
|
Settlements
|
—
|
|
|
(198
|
)
|
|
—
|
|
Dispositions
|
(67
|
)
|
|
—
|
|
|
—
|
|
Balance - end of period
|
$
|
3,160
|
|
|
$
|
1,214
|
|
|
$
|
27
|
|
No transfers were made into or out of Level 3 fair value assets and liabilities for the
six months ended June 30, 2017
or
the year ended December 31, 2016
, respectively.
The table below presents a summary of the estimated carrying amount and fair value of Nationstar’s financial instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
Carrying
Amount
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
184
|
|
|
$
|
184
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
424
|
|
|
424
|
|
|
—
|
|
|
—
|
|
Advances and other receivables, net
|
1,594
|
|
|
—
|
|
|
—
|
|
|
1,594
|
|
Reverse mortgage interests, net
|
10,604
|
|
|
—
|
|
|
—
|
|
|
10,820
|
|
Mortgage loans held for sale
|
1,543
|
|
|
—
|
|
|
1,543
|
|
|
—
|
|
Mortgage loans held for investment, net
|
148
|
|
|
—
|
|
|
—
|
|
|
149
|
|
Derivative financial instruments
|
81
|
|
|
—
|
|
|
81
|
|
|
—
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Unsecured senior notes
|
1,912
|
|
|
1,950
|
|
|
—
|
|
|
—
|
|
Advance facilities
|
882
|
|
|
—
|
|
|
882
|
|
|
—
|
|
Warehouse facilities
|
2,524
|
|
|
—
|
|
|
2,524
|
|
|
—
|
|
Mortgage servicing rights financing liability
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Derivative financial instruments
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
Excess spread financing
|
1,121
|
|
|
—
|
|
|
—
|
|
|
1,121
|
|
Participating interest financing
|
8,155
|
|
|
—
|
|
|
8,388
|
|
|
—
|
|
HECM Securitization (HMBS)
|
|
|
|
|
|
|
|
Trust 2015-2
|
86
|
|
|
—
|
|
|
—
|
|
|
102
|
|
Trust 2016-1
|
159
|
|
|
—
|
|
|
—
|
|
|
179
|
|
Trust 2016-2
|
117
|
|
|
—
|
|
|
—
|
|
|
126
|
|
Trust 2016-3
|
170
|
|
|
—
|
|
|
—
|
|
|
176
|
|
Trust 2017-1
|
275
|
|
|
—
|
|
|
—
|
|
|
268
|
|
Nonrecourse debt - legacy assets
|
42
|
|
|
—
|
|
|
—
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Carrying
Amount
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
489
|
|
|
$
|
489
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
388
|
|
|
388
|
|
|
—
|
|
|
—
|
|
Advances and other receivables, net
|
1,749
|
|
|
—
|
|
|
—
|
|
|
1,749
|
|
Reverse mortgage interests, net
|
11,033
|
|
|
—
|
|
|
—
|
|
|
11,232
|
|
Mortgage loans held for sale
|
1,788
|
|
|
—
|
|
|
1,788
|
|
|
—
|
|
Mortgage loans held for investment, net
|
151
|
|
|
—
|
|
|
—
|
|
|
153
|
|
Derivative financial instruments
|
133
|
|
|
—
|
|
|
133
|
|
|
—
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Unsecured senior notes
|
2,007
|
|
|
2,047
|
|
|
—
|
|
|
—
|
|
Advance facilities
|
1,096
|
|
|
—
|
|
|
1,096
|
|
|
—
|
|
Warehouse facilities
|
2,423
|
|
|
—
|
|
|
2,423
|
|
|
—
|
|
Mortgage servicing rights financing liability
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
Excess spread financing
|
1,214
|
|
|
—
|
|
|
—
|
|
|
1,214
|
|
Derivative financial instruments
|
13
|
|
|
—
|
|
|
13
|
|
|
—
|
|
Participating interest financing
|
8,914
|
|
|
—
|
|
|
9,151
|
|
|
—
|
|
HECM Securitization (HMBS)
|
|
|
|
|
|
|
|
Trust 2015-2
|
114
|
|
|
—
|
|
|
—
|
|
|
125
|
|
Trust 2016-1
|
194
|
|
|
—
|
|
|
—
|
|
|
203
|
|
Trust 2016-2
|
158
|
|
|
—
|
|
|
—
|
|
|
156
|
|
Trust 2016-3
|
208
|
|
|
—
|
|
|
—
|
|
|
205
|
|
Nonrecourse debt - legacy assets
|
50
|
|
|
—
|
|
|
—
|
|
|
50
|
|
14. Capital Requirements
Certain of Nationstar'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, Nationstar's secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of Nationstar's selling and servicing agreements, which would prohibit Nationstar from further originating or securitizing these specific types of mortgage loans or being an approved servicer.
Among Nationstar's various capital requirements related to its outstanding selling and servicing agreements, the most restrictive of these requires Nationstar to maintain a minimum adjusted net worth balance of
$1,000
.
As of June 30, 2017
, Nationstar was in compliance with its selling and servicing capital requirements.
15. Commitments and Contingencies
Litigation and Regulatory Matters
Nationstar and its subsidiaries are routinely and currently involved in a significant number of legal proceedings concerning matters that arise in the ordinary course of business. The legal proceedings are at varying stages of adjudication, arbitration or investigation. These actions and proceedings 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, 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 our 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 our 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.
Nationstar’s business is also subject to extensive examinations, investigations and reviews by various federal, state and local regulatory and enforcement agencies. Nationstar has historically had a number of open investigations with various regulators or enforcement agencies. We have experienced an increase in regulatory and governmental investigations, subpoenas, examinations and other inquiries. Nationstar is currently the subject of various regulatory or governmental investigations, subpoenas, examinations and inquiries related to its residential loan servicing and origination practices, bankruptcy and collections practices, its financial reporting and other aspects of its businesses. These matters include investigations by the Consumer Financial Protection Bureau (the "CFPB"), the Securities and Exchange Commission, the Executive Office of the United States Trustees, the Department of Justice, the U.S. Department of Housing and Urban Development, the multistate coalition of mortgage banking regulators, various State Attorneys General, the New York Department of Financial Services, and the California Department of Business Oversight. These specific matters and other pending or potential future investigations, subpoenas, examinations or inquiries may lead to administrative, civil or criminal proceedings or settlements, and possibly result in remedies including fines, penalties, restitution, or alterations in our business practices, and in additional expenses and collateral costs. For example, we recently entered into a consent order with the CFPB for failure to comply with certain of the data reporting requirements of the Home Mortgage Disclosure Act. Responding to these matters requires Nationstar to devote substantial legal and regulatory resources, resulting in higher costs and lower net cash flows.
The Company seeks to resolve all claims, demands, litigation and regulatory and governmental 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 litigation or regulatory 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 litigation 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. Litigation related expense, which includes legal settlements and the fees paid to external legal service providers, of
$10
and
$19
for the three and
six months ended June 30, 2017
, respectively, and
$20
and
$33
for the three and
six months ended June 30, 2016
, respectively, was included in general and administrative expenses on the consolidated statements of operations.
For a number of matters for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material litigation and regulatory matters on an ongoing basis, in conjunction with any outside counsel handling the matter. For those matters for which an estimate is possible, management currently believes the aggregate range of reasonably possible loss is
$22
to
$57
in excess of the accrued liability (if any) related to those matters as of
June 30, 2017
. 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, our exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or this aggregate amount.
In our 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; we have 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 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 us to estimate losses or ranges of losses that it is reasonably possible we could incur.
Based on current knowledge, and after consultation with counsel, management believes that the current legal accrued liability, within payables and accrued liabilities, is appropriate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such proceedings could be material to the Company’s operating results and cash flows for a particular period depending, on among other things, the level of the Company’s revenues or income for such period. However, in the event of significant developments on existing cases, it is possible that the ultimate resolution, if unfavorable, may be material to the Company’s consolidated financial statements.
Other Loss Contingencies
As part of the Company's ongoing operations, it acquires servicing rights of forward and reverse mortgage loan portfolios that are subject to indemnification based on the representations and warranties of the seller. From time to time, the Company will seek recovery under these representations and warranties for incurred costs. The Company believes all recorded balances sought from sellers represent valid claims. However, the Company acknowledges that the claims process can be a 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, 2017
, 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 at this time.
Loan and Other Commitments
Nationstar 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. Nationstar also enters into LPCs with prospective sellers. These loan commitments are treated as derivatives and are carried at fair value. See Note 7,
Derivative Financial Instruments
for more information.
Nationstar has certain reverse MSRs and reverse mortgage loans related to approximately
$36,301
and
$38,940
of UPB in reverse mortgage loans as of
June 30, 2017
and
December 31, 2016
, respectively. As servicer for these reverse mortgage loans, among other things, the Company is obligated to fund borrowers' draws to the loan customers as required in accordance with the loan agreement. As of
June 30, 2017
, the Company’s maximum unfunded advance obligation to fund borrower draws related to these MSRs and loans was approximately
$4,095
. As of December 31, 2016, the Company’s maximum unfunded advance obligation to fund borrower draws related to these MSRs and loans was approximately
$4,396
. Upon funding any portion of these draws, the Company expects to securitize and sell the advances in transactions that will be accounted for as secured borrowings.
16. Disposition and Exit Costs
Nationstar periodically initiates programs to reduce costs and improve operating effectiveness in order to improve current operating performance and to respond to changes in the Company's business model. These cost reduction initiatives include the restructuring of our facilities' lease portfolio, closing of offices and the termination of portions of Nationstar’s workforce. As part of these restructuring plans, Nationstar has incurred severance and other exit costs totaling
$5
and
$7
for the three and six months ended June 30, 2017, respectively.
The Company's initiatives to reduce costs and improve operating effectiveness include the previously announced closure of its facility in Buffalo, New York scheduled for August 2017, which resulted in a total cost of
$3
for severance and exit costs associated with its facilities lease.
In June 2017, the Company sold Xome's retail title division and recognized
$8
gain, which was recorded in other income (expense) in the consolidated statements of operations. The disposal of the retail title division allows Xome to better align the title business with its operations. In connection with the sale, the Company wrote off net assets of
$7
, including customer relationships of
$4
in intangible assets and
$2
goodwill.
17. Business Segment Reporting
Nationstar’s segments are based upon Nationstar’s organizational structure, which focuses primarily on the services offered. The accounting policies of each reportable segment are consistent with those of Nationstar except for 1) expenses for consolidated back-office operations and general overhead-type expenses such as executive administration and accounting, and 2) revenues generated on inter-segment services performed. Expenses are allocated to individual segments based on the estimated value of services performed, including estimated utilization of square footage and corporate personnel as well as the equity invested in each segment. Revenues generated or inter-segment services performed are valued based on similar services provided to external parties.
The following tables present financial information by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017
|
|
|
Servicing
|
|
Originations
|
|
Xome
|
|
Eliminations
|
|
Total Operating Segments
|
|
Corporate and Other
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
|
$
|
146
|
|
|
$
|
15
|
|
|
$
|
76
|
|
|
$
|
(24
|
)
|
|
$
|
213
|
|
|
$
|
—
|
|
|
$
|
213
|
|
Net gain on mortgage loans held for sale
|
|
—
|
|
|
143
|
|
|
—
|
|
|
24
|
|
|
167
|
|
|
—
|
|
|
167
|
|
Total revenues
|
|
146
|
|
|
158
|
|
|
76
|
|
|
—
|
|
|
380
|
|
|
—
|
|
|
380
|
|
Total expenses
|
|
175
|
|
|
103
|
|
|
67
|
|
|
—
|
|
|
345
|
|
|
24
|
|
|
369
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
123
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
134
|
|
|
5
|
|
|
139
|
|
Interest expense
|
|
(136
|
)
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
(149
|
)
|
|
(37
|
)
|
|
(186
|
)
|
Other
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
(1
|
)
|
|
7
|
|
Total other income (expenses), net
|
|
(13
|
)
|
|
(2
|
)
|
|
8
|
|
|
—
|
|
|
(7
|
)
|
|
(33
|
)
|
|
(40
|
)
|
Income (loss) before income tax expense (benefit)
|
|
$
|
(42
|
)
|
|
$
|
53
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
28
|
|
|
$
|
(57
|
)
|
|
$
|
(29
|
)
|
Depreciation and amortization
|
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
4
|
|
|
$
|
15
|
|
Total assets
|
|
15,482
|
|
|
4,447
|
|
|
369
|
|
|
(2,694
|
)
|
|
17,604
|
|
|
$
|
673
|
|
|
18,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016
(1)
|
|
|
Servicing
|
|
Originations
|
|
Xome
|
|
Eliminations
|
|
Total Operating Segments
|
|
Corporate and Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
|
$
|
24
|
|
|
$
|
15
|
|
|
$
|
119
|
|
|
$
|
(45
|
)
|
|
$
|
113
|
|
|
$
|
—
|
|
|
$
|
113
|
|
Net gain on mortgage loans held for sale
|
|
—
|
|
|
171
|
|
|
—
|
|
|
45
|
|
|
216
|
|
|
—
|
|
|
216
|
|
Total revenues
|
|
24
|
|
|
186
|
|
|
119
|
|
|
—
|
|
|
329
|
|
|
—
|
|
|
329
|
|
Total expenses
|
|
155
|
|
|
130
|
|
|
97
|
|
|
—
|
|
|
382
|
|
|
31
|
|
|
413
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
87
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
103
|
|
|
4
|
|
|
107
|
|
Interest expense
|
|
(110
|
)
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
(125
|
)
|
|
(42
|
)
|
|
(167
|
)
|
Total other income (expenses), net
|
|
(23
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
(38
|
)
|
|
(60
|
)
|
Income (loss) before income tax expense (benefit)
|
|
$
|
(154
|
)
|
|
$
|
57
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
(75
|
)
|
|
$
|
(69
|
)
|
|
$
|
(144
|
)
|
Depreciation and amortization
|
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
14
|
|
Total assets
|
|
12,496
|
|
|
4,681
|
|
|
331
|
|
|
(2,003
|
)
|
|
15,505
|
|
|
980
|
|
|
16,485
|
|
(1)
The Company periodically evaluates corporate allocation methods in order to appropriately align corporate costs with its business. Certain 2016 costs within salaries, wages and benefits and operational expenses were reclassified between segments to conform to current year allocation methods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017
|
|
|
Servicing
|
|
Originations
|
|
Xome
|
|
Eliminations
|
|
Total Operating Segments
|
|
Corporate and Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
|
$
|
346
|
|
|
$
|
31
|
|
|
$
|
161
|
|
|
$
|
(43
|
)
|
|
$
|
495
|
|
|
$
|
1
|
|
|
$
|
496
|
|
Net gain on mortgage loans held for sale
|
|
—
|
|
|
268
|
|
|
—
|
|
|
43
|
|
|
311
|
|
|
—
|
|
|
311
|
|
Total revenues
|
|
346
|
|
|
299
|
|
|
161
|
|
|
—
|
|
|
806
|
|
|
1
|
|
|
807
|
|
Total expenses
|
|
333
|
|
|
220
|
|
|
139
|
|
|
—
|
|
|
692
|
|
|
49
|
|
|
741
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
243
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
268
|
|
|
10
|
|
|
278
|
|
Interest expense
|
|
(272
|
)
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
|
(298
|
)
|
|
(78
|
)
|
|
(376
|
)
|
Other
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
(2
|
)
|
|
6
|
|
Total other income (expenses), net
|
|
(29
|
)
|
|
(1
|
)
|
|
8
|
|
|
—
|
|
|
(22
|
)
|
|
(70
|
)
|
|
(92
|
)
|
Income (loss) before income tax expense (benefit)
|
|
$
|
(16
|
)
|
|
$
|
78
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
92
|
|
|
$
|
(118
|
)
|
|
$
|
(26
|
)
|
Depreciation and amortization
|
|
$
|
10
|
|
|
$
|
5
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
7
|
|
|
$
|
29
|
|
Total assets
|
|
15,482
|
|
|
4,447
|
|
|
369
|
|
|
(2,694
|
)
|
|
17,604
|
|
|
673
|
|
|
18,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2016
(1)
|
|
|
Servicing
|
|
Originations
|
|
Xome
|
|
Eliminations
|
|
Total Operating Segments
|
|
Corporate and Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
|
$
|
14
|
|
|
$
|
31
|
|
|
$
|
220
|
|
|
$
|
(70
|
)
|
|
$
|
195
|
|
|
$
|
2
|
|
|
$
|
197
|
|
Net gain on mortgage loans held for sale
|
|
—
|
|
|
318
|
|
|
—
|
|
|
70
|
|
|
388
|
|
|
(1
|
)
|
|
387
|
|
Total revenues
|
|
14
|
|
|
349
|
|
|
220
|
|
|
—
|
|
|
583
|
|
|
1
|
|
|
584
|
|
Total expenses
|
|
327
|
|
|
253
|
|
|
187
|
|
|
—
|
|
|
767
|
|
|
58
|
|
|
825
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
172
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
203
|
|
|
7
|
|
|
210
|
|
Interest expense
|
|
(217
|
)
|
|
(28
|
)
|
|
—
|
|
|
—
|
|
|
(245
|
)
|
|
(83
|
)
|
|
(328
|
)
|
Total other income (expenses), net
|
|
(45
|
)
|
|
3
|
|
|
—
|
|
|
—
|
|
|
(42
|
)
|
|
(76
|
)
|
|
(118
|
)
|
Income (loss) before income tax expense (benefit)
|
|
$
|
(358
|
)
|
|
$
|
99
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
(226
|
)
|
|
$
|
(133
|
)
|
|
$
|
(359
|
)
|
Depreciation and amortization
|
|
$
|
11
|
|
|
$
|
6
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
2
|
|
|
$
|
31
|
|
Total assets
|
|
12,496
|
|
|
4,681
|
|
|
331
|
|
|
(2,003
|
)
|
|
15,505
|
|
|
980
|
|
|
16,485
|
|
(1)
The Company periodically evaluates corporate allocation methods in order to appropriately align corporate costs with its business. Certain 2016 costs within salaries, wages and benefits and operational expenses were reclassified between segments to conform to current year allocation methods.
18. Guarantor Financial Statement Information
As of
June 30, 2017
, Nationstar Mortgage LLC and Nationstar Capital Corporation
(1)
(collectively, the "Issuer"), both wholly-owned subsidiaries of Nationstar, have issued
$1,899
aggregate principal amount of unsecured senior notes, net of repayments, which mature on various dates through June 2022. The unsecured senior notes are unconditionally guaranteed, jointly and severally, by all of Nationstar Mortgage LLC’s existing and future domestic subsidiaries other than its securitization and certain finance subsidiaries, certain other restricted subsidiaries, excluded restricted subsidiaries and subsidiaries that in the future Nationstar Mortgage LLC designates as unrestricted subsidiaries. All guarantor subsidiaries are
100%
owned by Nationstar Mortgage LLC. Nationstar and its
two
direct wholly-owned subsidiaries are guarantors of the unsecured senior notes as well. Presented below are the condensed consolidating financial statements of Nationstar, Nationstar Mortgage LLC and the guarantor subsidiaries for the periods indicated.
In the condensed consolidating financial statements presented below, Nationstar allocates income tax expense to Nationstar Mortgage LLC as if it were a separate tax payer entity pursuant to ASC 740, Income Taxes.
NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING BALANCE SHEET
JUNE 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationstar
|
|
Issuer
(1)
|
|
Guarantor
(Subsidiaries of Issuer)
|
|
Non-Guarantor
(Subsidiaries of Issuer)
|
|
Eliminations
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
159
|
|
|
$
|
1
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
184
|
|
Restricted cash
|
—
|
|
|
148
|
|
|
—
|
|
|
276
|
|
|
—
|
|
|
424
|
|
Mortgage servicing rights
|
—
|
|
|
3,020
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
3,051
|
|
Advances and other receivables, net
|
—
|
|
|
1,594
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,594
|
|
Reverse mortgage interests, net
|
—
|
|
|
9,730
|
|
|
—
|
|
|
874
|
|
|
—
|
|
|
10,604
|
|
Mortgage loans held for sale at fair value
|
—
|
|
|
1,543
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,543
|
|
Mortgage loans held for investment, net
|
—
|
|
|
1
|
|
|
—
|
|
|
147
|
|
|
—
|
|
|
148
|
|
Property and equipment, net
|
—
|
|
|
113
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
133
|
|
Derivative financial instruments at fair value
|
—
|
|
|
81
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81
|
|
Other assets
|
—
|
|
|
413
|
|
|
174
|
|
|
634
|
|
|
(706
|
)
|
|
515
|
|
Investment in subsidiaries
|
1,788
|
|
|
499
|
|
|
—
|
|
|
—
|
|
|
(2,287
|
)
|
|
—
|
|
Total assets
|
$
|
1,788
|
|
|
$
|
17,301
|
|
|
$
|
175
|
|
|
$
|
2,006
|
|
|
$
|
(2,993
|
)
|
|
$
|
18,277
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured senior notes
|
$
|
—
|
|
|
$
|
1,899
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,899
|
|
Advance facilities, net
|
—
|
|
|
110
|
|
|
—
|
|
|
771
|
|
|
—
|
|
|
881
|
|
Warehouse facilities, net
|
—
|
|
|
2,523
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,523
|
|
Payables and accrued liabilities
|
—
|
|
|
1,083
|
|
|
2
|
|
|
37
|
|
|
—
|
|
|
1,122
|
|
MSR related liabilities - nonrecourse at fair value
|
—
|
|
|
1,113
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
1,134
|
|
Mortgage servicing liabilities
|
—
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50
|
|
Derivative financial instruments, at fair value
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Other nonrecourse debt, net
|
—
|
|
|
8,148
|
|
|
—
|
|
|
849
|
|
|
—
|
|
|
8,997
|
|
Payables to affiliates
|
123
|
|
|
581
|
|
|
—
|
|
|
2
|
|
|
(706
|
)
|
|
—
|
|
Total liabilities
|
123
|
|
|
15,513
|
|
|
2
|
|
|
1,680
|
|
|
(706
|
)
|
|
16,612
|
|
Total stockholders' equity
|
1,665
|
|
|
1,788
|
|
|
173
|
|
|
326
|
|
|
(2,287
|
)
|
|
1,665
|
|
Total liabilities and stockholders' equity
|
$
|
1,788
|
|
|
$
|
17,301
|
|
|
$
|
175
|
|
|
$
|
2,006
|
|
|
$
|
(2,993
|
)
|
|
$
|
18,277
|
|
(1)
Issuer balances exclude the balances of its guarantor and non-guarantor subsidiaries, as previously described.
NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationstar
|
|
Issuer
(1)
|
|
Guarantor
(Subsidiaries of Issuer)
|
|
Non-Guarantor
(Subsidiaries of Issuer)
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
$
|
—
|
|
|
$
|
131
|
|
|
$
|
9
|
|
|
$
|
73
|
|
|
$
|
—
|
|
|
$
|
213
|
|
Net gain on mortgage loans held for sale
|
—
|
|
|
167
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
167
|
|
Total revenues
|
—
|
|
|
298
|
|
|
9
|
|
|
73
|
|
|
—
|
|
|
380
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages benefits
|
—
|
|
|
145
|
|
|
1
|
|
|
36
|
|
|
—
|
|
|
182
|
|
General and administrative
|
—
|
|
|
147
|
|
|
5
|
|
|
35
|
|
|
—
|
|
|
187
|
|
Total expenses
|
—
|
|
|
292
|
|
|
6
|
|
|
71
|
|
|
—
|
|
|
369
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
124
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
139
|
|
Interest expense
|
—
|
|
|
(172
|
)
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(186
|
)
|
Other income (expense)
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
8
|
|
|
—
|
|
|
7
|
|
Gain (loss) from subsidiaries
|
(20
|
)
|
|
14
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
Total other income (expenses), net
|
(20
|
)
|
|
(35
|
)
|
|
—
|
|
|
9
|
|
|
6
|
|
|
(40
|
)
|
Income (loss) before income tax expense (benefit)
|
(20
|
)
|
|
(29
|
)
|
|
3
|
|
|
11
|
|
|
6
|
|
|
(29
|
)
|
Less: Income tax expense
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
Net income (loss)
|
(20
|
)
|
|
(19
|
)
|
|
3
|
|
|
11
|
|
|
6
|
|
|
(19
|
)
|
Less: Net loss attributable to noncontrolling interests
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Net income (loss) attributable to Nationstar
|
$
|
(20
|
)
|
|
$
|
(20
|
)
|
|
$
|
3
|
|
|
$
|
11
|
|
|
$
|
6
|
|
|
$
|
(20
|
)
|
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationstar
|
|
Issuer
(1)
|
|
Guarantor
(Subsidiaries of Issuer)
|
|
Non-Guarantor
(Subsidiaries of Issuer)
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
$
|
—
|
|
|
$
|
316
|
|
|
$
|
14
|
|
|
$
|
166
|
|
|
$
|
—
|
|
|
$
|
496
|
|
Net gain on mortgage loans held for sale
|
—
|
|
|
310
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
311
|
|
Total revenues
|
—
|
|
|
626
|
|
|
14
|
|
|
167
|
|
|
—
|
|
|
807
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages benefits
|
—
|
|
|
298
|
|
|
2
|
|
|
74
|
|
|
—
|
|
|
374
|
|
General and administrative
|
—
|
|
|
285
|
|
|
7
|
|
|
75
|
|
|
—
|
|
|
367
|
|
Total expenses
|
—
|
|
|
583
|
|
|
9
|
|
|
149
|
|
|
—
|
|
|
741
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
251
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
278
|
|
Interest expense
|
—
|
|
|
(347
|
)
|
|
—
|
|
|
(29
|
)
|
|
—
|
|
|
(376
|
)
|
Other income (expense)
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
8
|
|
|
—
|
|
|
6
|
|
Gain (loss) from subsidiaries
|
(18
|
)
|
|
29
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
Total other income (expenses), net
|
(18
|
)
|
|
(69
|
)
|
|
—
|
|
|
6
|
|
|
(11
|
)
|
|
(92
|
)
|
Income (loss) before income tax expense (benefit)
|
(18
|
)
|
|
(26
|
)
|
|
5
|
|
|
24
|
|
|
(11
|
)
|
|
(26
|
)
|
Less: Income tax expense
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
Net income (loss)
|
(18
|
)
|
|
(17
|
)
|
|
5
|
|
|
24
|
|
|
(11
|
)
|
|
(17
|
)
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Net income (loss) attributable to Nationstar
|
$
|
(18
|
)
|
|
$
|
(18
|
)
|
|
$
|
5
|
|
|
$
|
24
|
|
|
$
|
(11
|
)
|
|
$
|
(18
|
)
|
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationstar
|
|
Issuer
(1)
|
|
Guarantor
(Subsidiaries of Issuer)
|
|
Non-Guarantor
(Subsidiaries of Issuer)
|
|
Eliminations
|
|
Consolidated
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Nationstar
|
$
|
(18
|
)
|
|
$
|
(18
|
)
|
|
$
|
5
|
|
|
$
|
24
|
|
|
$
|
(11
|
)
|
|
$
|
(18
|
)
|
Reconciliation of net loss to net cash attributable to operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss from subsidiaries
|
18
|
|
|
(29
|
)
|
|
—
|
|
|
—
|
|
|
11
|
|
|
—
|
|
Noncontrolling interest
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Net gain on mortgage loans held for sale
|
—
|
|
|
(310
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(311
|
)
|
Reverse loan interest income
|
—
|
|
|
(233
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(233
|
)
|
Gain on sale of assets
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
Provision for servicing reserves
|
—
|
|
|
73
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
73
|
|
Fair value changes and amortization of mortgage servicing rights
|
—
|
|
|
233
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
233
|
|
Fair value changes in mortgage loans held for sale
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
Fair value changes in excess spread financing
|
—
|
|
|
16
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
15
|
|
Fair value change in mortgage servicing rights financing liability
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Amortization of premiums and accretion of discount
|
—
|
|
|
(4,271
|
)
|
|
—
|
|
|
4,298
|
|
|
—
|
|
|
27
|
|
Depreciation and amortization
|
—
|
|
|
21
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
29
|
|
Share-based compensation
|
—
|
|
|
6
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
9
|
|
Other losses
|
—
|
|
|
9
|
|
|
—
|
|
|
|
|
|
—
|
|
|
9
|
|
Repurchases of forward loans assets out of Ginnie Mae securitizations
|
—
|
|
|
(599
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(599
|
)
|
Repurchases of reverse loan assets out of Ginnie Mae securitizations, net of assignments to prior servicers
|
—
|
|
|
(1,658
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,658
|
)
|
Mortgage loans originated and purchased, net of fees
|
—
|
|
|
(8,896
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,896
|
)
|
Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment
|
—
|
|
|
14,292
|
|
|
—
|
|
|
(4,284
|
)
|
|
—
|
|
|
10,008
|
|
Excess tax benefit (deficiency) from share based compensation
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Advances and other receivables, net
|
—
|
|
|
112
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
112
|
|
Reverse mortgage interests, net
|
—
|
|
|
2,450
|
|
|
—
|
|
|
(157
|
)
|
|
—
|
|
|
2,293
|
|
Other assets
|
5
|
|
|
(165
|
)
|
|
(6
|
)
|
|
189
|
|
|
—
|
|
|
23
|
|
Payables and accrued liabilities
|
—
|
|
|
(337
|
)
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(348
|
)
|
Net cash attributable to operating activities
|
5
|
|
|
672
|
|
|
(1
|
)
|
|
60
|
|
|
—
|
|
|
736
|
|
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2017
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationstar
|
|
Issuer
(1)
|
|
Guarantor
(Subsidiaries of Issuer)
|
|
Non-Guarantor
(Subsidiaries of Issuer)
|
|
Eliminations
|
|
Consolidated
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment additions, net of disposals
|
—
|
|
|
(23
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(25
|
)
|
Purchase of forward mortgage servicing rights, net of liabilities incurred
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(13
|
)
|
Proceeds on sale of forward and reverse mortgage servicing rights
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Proceeds on sale of assets
|
—
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Net cash attributable to investing activities
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(24
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
Increase in warehouse facilities
|
—
|
|
|
100
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100
|
|
Decrease in advance facilities
|
—
|
|
|
(76
|
)
|
|
—
|
|
|
(138
|
)
|
|
—
|
|
|
(214
|
)
|
Proceeds from HECM securitizations
|
—
|
|
|
—
|
|
|
—
|
|
|
308
|
|
|
—
|
|
|
308
|
|
Repayment of HECM securitizations
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(175
|
)
|
|
—
|
|
|
(176
|
)
|
Decrease in participating interest financing in reverse mortgage interests, net
|
—
|
|
|
(771
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(771
|
)
|
Repayment of excess spread financing
|
—
|
|
|
(108
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(108
|
)
|
Repayment of nonrecourse debt–legacy assets
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(9
|
)
|
Repurchase of unsecured senior notes
|
—
|
|
|
(95
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(95
|
)
|
Transfers to restricted cash, net
|
—
|
|
|
11
|
|
|
—
|
|
|
(47
|
)
|
|
—
|
|
|
(36
|
)
|
Surrender of shares relating to stock vesting
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Debt financing costs
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
Dividends to noncontrolling interests
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Net cash attributable to financing activities
|
(5
|
)
|
|
(951
|
)
|
|
—
|
|
|
(61
|
)
|
|
—
|
|
|
(1,017
|
)
|
Net decrease in cash and cash equivalents
|
—
|
|
|
(294
|
)
|
|
(1
|
)
|
|
(10
|
)
|
|
—
|
|
|
(305
|
)
|
Cash and cash equivalents - beginning of period
|
—
|
|
|
453
|
|
|
2
|
|
|
34
|
|
|
—
|
|
|
489
|
|
Cash and cash equivalents - end of period
|
$
|
—
|
|
|
$
|
159
|
|
|
$
|
1
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
184
|
|
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationstar
|
|
Issuer
(1)
|
|
Guarantor
(Subsidiaries of Issuer)
|
|
Non-Guarantor
(Subsidiaries of Issuer)
|
|
Eliminations
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
453
|
|
|
$
|
2
|
|
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
489
|
|
Restricted cash
|
—
|
|
|
159
|
|
|
—
|
|
|
229
|
|
|
—
|
|
|
388
|
|
Mortgage servicing rights
|
—
|
|
|
3,142
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
3,166
|
|
Advances and other receivables, net
|
—
|
|
|
1,749
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,749
|
|
Reverse mortgage interests, net
|
—
|
|
|
10,316
|
|
|
—
|
|
|
717
|
|
|
—
|
|
|
11,033
|
|
Mortgage loans held for sale at fair value
|
—
|
|
|
1,787
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1,788
|
|
Mortgage loans held for investment, net
|
—
|
|
|
1
|
|
|
—
|
|
|
150
|
|
|
—
|
|
|
151
|
|
Property and equipment, net
|
—
|
|
|
113
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
136
|
|
Derivative financial instruments at fair value
|
—
|
|
|
133
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
133
|
|
Other assets
|
—
|
|
|
444
|
|
|
323
|
|
|
838
|
|
|
(1,045
|
)
|
|
560
|
|
Investment in subsidiaries
|
1,801
|
|
|
634
|
|
|
—
|
|
|
—
|
|
|
(2,435
|
)
|
|
—
|
|
Total assets
|
$
|
1,801
|
|
|
$
|
18,931
|
|
|
$
|
325
|
|
|
$
|
2,016
|
|
|
$
|
(3,480
|
)
|
|
$
|
19,593
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured senior notes
|
$
|
—
|
|
|
$
|
1,990
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,990
|
|
Advance facilities, net
|
—
|
|
|
187
|
|
|
—
|
|
|
909
|
|
|
—
|
|
|
1,096
|
|
Warehouse facilities, net
|
—
|
|
|
2,421
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,421
|
|
Payables and accrued liabilities
|
—
|
|
|
1,420
|
|
|
2
|
|
|
48
|
|
|
—
|
|
|
1,470
|
|
MSR related liabilities - nonrecourse at fair value
|
—
|
|
|
1,219
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
1,241
|
|
Mortgage servicing liabilities
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48
|
|
Derivative financial instruments, at fair value
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Other nonrecourse debt, net
|
—
|
|
|
8,907
|
|
|
—
|
|
|
724
|
|
|
—
|
|
|
9,631
|
|
Payables to affiliates
|
118
|
|
|
925
|
|
|
—
|
|
|
2
|
|
|
(1,045
|
)
|
|
—
|
|
Total liabilities
|
118
|
|
|
17,130
|
|
|
2
|
|
|
1,705
|
|
|
(1,045
|
)
|
|
17,910
|
|
Total stockholders' equity
|
1,683
|
|
|
1,801
|
|
|
323
|
|
|
311
|
|
|
(2,435
|
)
|
|
1,683
|
|
Total liabilities and stockholders' equity
|
$
|
1,801
|
|
|
$
|
18,931
|
|
|
$
|
325
|
|
|
$
|
2,016
|
|
|
$
|
(3,480
|
)
|
|
$
|
19,593
|
|
(1)
Issuer balances exclude the balances of its guarantor and non-guarantor subsidiaries, as previously described.
NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationstar
|
|
Issuer
(1)
|
|
Guarantor
(Subsidiaries of Issuer)
|
|
Non-Guarantor
(Subsidiaries of Issuer)
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
$
|
—
|
|
|
$
|
(15
|
)
|
|
$
|
7
|
|
|
$
|
121
|
|
|
$
|
—
|
|
|
$
|
113
|
|
Net gain on mortgage loans held for sale
|
—
|
|
|
205
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
216
|
|
Total revenues
|
—
|
|
|
190
|
|
|
7
|
|
|
132
|
|
|
—
|
|
|
329
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
—
|
|
|
148
|
|
|
1
|
|
|
56
|
|
|
—
|
|
|
205
|
|
General and administrative
|
—
|
|
|
149
|
|
|
1
|
|
|
58
|
|
|
—
|
|
|
208
|
|
Total expenses
|
—
|
|
|
297
|
|
|
2
|
|
|
114
|
|
|
—
|
|
|
413
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
94
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
107
|
|
Interest expense
|
—
|
|
|
(149
|
)
|
|
—
|
|
|
(18
|
)
|
|
—
|
|
|
(167
|
)
|
Gain (loss) from subsidiaries
|
(92
|
)
|
|
18
|
|
|
—
|
|
|
—
|
|
|
74
|
|
|
—
|
|
Total other income (expenses), net
|
(92
|
)
|
|
(37
|
)
|
|
—
|
|
|
(5
|
)
|
|
74
|
|
|
(60
|
)
|
Income (loss) before income tax expense (benefit)
|
(92
|
)
|
|
(144
|
)
|
|
5
|
|
|
13
|
|
|
74
|
|
|
(144
|
)
|
Less: Income tax (benefit)
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(53
|
)
|
Net income (loss)
|
(92
|
)
|
|
(91
|
)
|
|
5
|
|
|
13
|
|
|
74
|
|
|
(91
|
)
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Net income (loss) attributable to Nationstar
|
$
|
(92
|
)
|
|
$
|
(92
|
)
|
|
$
|
5
|
|
|
$
|
13
|
|
|
$
|
74
|
|
|
$
|
(92
|
)
|
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationstar
|
|
Issuer
(1)
|
|
Guarantor
(Subsidiaries of Issuer)
|
|
Non-Guarantor
(Subsidiaries of Issuer)
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Service related, net
|
$
|
—
|
|
|
$
|
(41
|
)
|
|
$
|
14
|
|
|
$
|
224
|
|
|
$
|
—
|
|
|
$
|
197
|
|
Net gain on mortgage loans held for sale
|
—
|
|
|
367
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
387
|
|
Total revenues
|
—
|
|
|
326
|
|
|
14
|
|
|
244
|
|
|
—
|
|
|
584
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages benefits
|
—
|
|
|
292
|
|
|
2
|
|
|
108
|
|
|
—
|
|
|
402
|
|
General and administrative
|
—
|
|
|
309
|
|
|
5
|
|
|
109
|
|
|
—
|
|
|
423
|
|
Total expenses
|
—
|
|
|
601
|
|
|
7
|
|
|
217
|
|
|
—
|
|
|
825
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
185
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
210
|
|
Interest expense
|
—
|
|
|
(290
|
)
|
|
—
|
|
|
(38
|
)
|
|
—
|
|
|
(328
|
)
|
Gain (loss) from subsidiaries
|
(224
|
)
|
|
21
|
|
|
—
|
|
|
—
|
|
|
203
|
|
|
—
|
|
Total other income (expenses), net
|
(224
|
)
|
|
(84
|
)
|
|
—
|
|
|
(13
|
)
|
|
203
|
|
|
(118
|
)
|
Income (loss) before income tax expense (benefit)
|
(224
|
)
|
|
(359
|
)
|
|
7
|
|
|
14
|
|
|
203
|
|
|
(359
|
)
|
Less: Income tax expense
|
—
|
|
|
(135
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(135
|
)
|
Net income (loss)
|
(224
|
)
|
|
(224
|
)
|
|
7
|
|
|
14
|
|
|
203
|
|
|
(224
|
)
|
Less: Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to Nationstar
|
$
|
(224
|
)
|
|
$
|
(224
|
)
|
|
$
|
7
|
|
|
$
|
14
|
|
|
$
|
203
|
|
|
$
|
(224
|
)
|
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationstar
|
|
Issuer
(1)
|
|
Guarantor
(Subsidiaries of Issuer)
|
|
Non-Guarantor
(Subsidiaries of Issuer)
|
|
Eliminations
|
|
Consolidated
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Nationstar
|
|
$
|
(224
|
)
|
|
$
|
(224
|
)
|
|
$
|
7
|
|
|
$
|
14
|
|
|
$
|
203
|
|
|
$
|
(224
|
)
|
Reconciliation of net loss to net cash attributable to operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain)/loss from subsidiaries
|
|
224
|
|
|
(21
|
)
|
|
—
|
|
|
—
|
|
|
(203
|
)
|
|
—
|
|
Noncontrolling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net gain on mortgage loans held for sale
|
|
—
|
|
|
(367
|
)
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
(387
|
)
|
Reverse loan interest income
|
|
—
|
|
|
(170
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(170
|
)
|
Provision for servicing reserves
|
|
—
|
|
|
74
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
74
|
|
Fair value changes and amortization of mortgage servicing rights
|
|
—
|
|
|
624
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
624
|
|
Fair value changes in mortgage loans held for sale
|
|
—
|
|
|
(27
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27
|
)
|
Fair value changes in excess spread financing
|
|
—
|
|
|
(42
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42
|
)
|
Fair value changes in mortgage servicing rights financing liability
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Amortization of premiums and accretion of discount
|
|
—
|
|
|
(5,111
|
)
|
|
—
|
|
|
5,143
|
|
|
—
|
|
|
32
|
|
Depreciation and amortization
|
|
—
|
|
|
19
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
31
|
|
Share-based compensation
|
|
—
|
|
|
9
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
12
|
|
Repurchases of forward loans assets out of Ginnie Mae securitizations
|
|
—
|
|
|
(771
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(771
|
)
|
Repurchases of reverse loans assets out of Ginnie Mae securitizations, net of assignments to prior servicers
|
|
—
|
|
|
(1,036
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,036
|
)
|
Mortgage loans originated and purchased, net of fees
|
|
—
|
|
|
(9,027
|
)
|
|
—
|
|
|
(497
|
)
|
|
—
|
|
|
(9,524
|
)
|
Sale proceeds and loan payment proceeds for mortgage loans held for sale and held for investment
|
|
—
|
|
|
14,452
|
|
|
—
|
|
|
(4,580
|
)
|
|
—
|
|
|
9,872
|
|
Excess tax benefit (deficiency) from share based compensation
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances and other receivables, net
|
|
—
|
|
|
301
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
301
|
|
Reverse mortgage interests, net
|
|
—
|
|
|
1,376
|
|
|
—
|
|
|
(137
|
)
|
|
—
|
|
|
1,239
|
|
Other assets
|
|
109
|
|
|
(395
|
)
|
|
(7
|
)
|
|
195
|
|
|
—
|
|
|
(98
|
)
|
Payables and accrued liabilities
|
|
—
|
|
|
(210
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(217
|
)
|
Net cash attributable to operating activities
|
|
109
|
|
|
(531
|
)
|
|
—
|
|
|
126
|
|
|
—
|
|
|
(296
|
)
|
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2016
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationstar
|
|
Issuer (1)
|
|
Guarantor
(Subsidiaries of Issuer)
|
|
Non-Guarantor
(Subsidiaries of Issuer)
|
|
Eliminations
|
|
Consolidated
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment additions, net of disposals
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(26
|
)
|
Purchase of forward mortgage servicing rights, net of liabilities incurred
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Proceeds on sale of forward and reverse mortgage servicing rights
|
|
—
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Net cash attributable to investing activities
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(9
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in warehouse facilities
|
|
—
|
|
|
1,098
|
|
|
—
|
|
|
(21
|
)
|
|
—
|
|
|
1,077
|
|
Decrease in advance facilities
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(204
|
)
|
|
—
|
|
|
(209
|
)
|
Proceeds from HECM securitizations
|
|
—
|
|
|
(180
|
)
|
|
—
|
|
|
491
|
|
|
—
|
|
|
311
|
|
Repayment of HECM securitizations
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(362
|
)
|
|
—
|
|
|
(362
|
)
|
Decrease in participating interest financing in reverse mortgage interests, net
|
|
—
|
|
|
(286
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(286
|
)
|
Repayment of excess spread financing
|
|
—
|
|
|
(95
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(95
|
)
|
Repayment of nonrecourse debt - legacy assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
Repurchase of unsecured senior notes
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
Repurchase of common stock
|
|
(106
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(106
|
)
|
Transfers to restricted cash, net
|
|
—
|
|
|
32
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
31
|
|
Excess tax deficiency from share based compensation
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Surrender of shares relating to stock vesting
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Debt financing costs
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Net cash attributable to financing activities
|
|
(109
|
)
|
|
530
|
|
|
—
|
|
|
(105
|
)
|
|
—
|
|
|
316
|
|
Net increase (decrease) in cash and cash equivalents
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
14
|
|
|
—
|
|
|
11
|
|
Cash and cash equivalents - beginning of period
|
|
—
|
|
|
597
|
|
|
1
|
|
|
15
|
|
|
|
|
613
|
|
Cash and cash equivalents - end of period
|
|
$
|
—
|
|
|
$
|
594
|
|
|
$
|
1
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
624
|
|
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
19. Transactions with Affiliates
Nationstar enters into arrangements with Fortress, its subsidiaries managed funds, or affiliates for purposes of financing the Company's MSR acquisitions. An affiliate of Fortress holds a majority of the outstanding common shares of the Company. The following summarizes the transactions with affiliates of Fortress.
Newcastle Investment Corp. ("Newcastle")
Nationstar is the loan servicer for several securitized loan portfolios managed by Newcastle, which is managed by an affiliate of Fortress. Nationstar receives a monthly net servicing fee equal to
0.5%
per annum on the unpaid principal balance of the Portfolios, which was
$533
and
$576
, at
June 30, 2017
and December 31, 2016 respectively.
For the three months ended June 30, 2017
and
2016
, Nationstar received servicing fees and other performance incentive fees of
$0.7
and
$1
, respectively.
For the six months ended June 30, 2017
and
2016
, Nationstar recognized revenue of
$1
and
$2
related to these servicing arrangements, respectively.
New Residential Investment Corp. ("New Residential")
Excess Spread Financing
Nationstar has entered into several agreements with certain entities managed by New Residential, in which New Residential and/or certain funds managed by Fortress own an interest (each a "New Residential Entity"). Nationstar sold to the related New Residential Entity the right to receive a portion of the excess cash flow generated from certain acquired MSRs after a receipt of a fixed base servicing fee per loan. Nationstar, as the servicer of the loans, retains all ancillary revenues and the remaining portion of the excess cash flow after payment of the fixed base servicing fee and also provides all advancing functions for the portfolio. The related New Residential Entity does not have prior or ongoing obligations associated with these MSR portfolios. Should Nationstar refinance any loan in such portfolios, subject to certain limitations, Nationstar will be required to transfer the new loan or a replacement loan of similar economic characteristics into the portfolios. The new or replacement loan will be governed by the same terms set forth in the agreements described above.
The fair value of the outstanding liability related to these agreements was
$967
and
$1,064
at
June 30, 2017
and December 31, 2016, respectively.
For the three months ended June 30, 2017
and
2016
, Nationstar fees paid to New Residential Entity totaled
$63
and
$75
, respectively. Fees paid to New Residential Entity totaled
$127
and
$152
for the
six months ended June 30, 2017
and
2016
, respectively, which are recorded as a reduction to servicing fee revenue, net.
Mortgage Servicing Rights Financing
From December 2013 through June 2014, Nationstar entered into agreements to sell a contractually specified base fee component of certain MSRs and servicing advances under specified terms to a joint venture capitalized by New Residential and certain unaffiliated third-parties. Nationstar continues to be the named servicer and, for accounting purposes, ownership of the mortgage servicing rights continues to reside with Nationstar. Accordingly, Nationstar accounts for the MSRs and the related MSRs financing liability on its consolidated balance sheets.
Special purpose subsidiaries of Nationstar previously issued approximately
$2,100
of nonrecourse variable funding notes to finance the advances funded or acquired by Nationstar. These notes were issued by
two
wholly-owned special purpose entities under servicer advance facilities. Pursuant to a sale agreement, New Residential purchased the outstanding equity of the wholly-owned special purpose entities. On the sale date, New Residential and Nationstar amended and restated the transaction documents for each facility. Under these amended and restated transaction documents for each facility, Nationstar will continue to sell future servicing advances to New Residential.
The fair value of the outstanding liability related to the sale agreement was
$13
and
$27
at
June 30, 2017
and
December 31, 2016
, respectively. Nationstar did not enter into any additional supplemental agreements with these affiliates in 2017 and 2016.
Subservicing and Servicing
In January 2017, the Company entered into a subservicing agreement with a subsidiary of New Residential. Under the agreement, the Company will subservice approximately
$111 billion
of UPB of MSRs that New Residential has agreed to purchase, including approximately
$97 billion
UPB of MSRs from CitiMortgage, Inc. The Company boarded
$36 billion
UPB loans associated with this subservicing agreement and anticipates boarding the rest of the loans throughout 2017.
In May 2014, Nationstar entered into a servicing arrangement with New Residential whereby Nationstar will service residential mortgage loans acquired by New Residential and/or its various affiliates and trust entities.
For the three months ended June 30, 2017
and
2016
, Nationstar recognized revenue of
$6
and
$2
related to these servicing arrangements, respectively.
For the six months ended June 30, 2017
and
2016
, Nationstar recognized revenue of
$8
and
$3
related to these servicing arrangements, respectively. Nationstar acted as servicer or master servicer for New Residential related to the collapse of certain securitization trusts pursuant to the exercise by New Residential of its clean up call rights. The Company earned revenue of
$0.4
for these administration services during the
three months ended June 30, 2017
. The Company earned revenue of
$1
and
$0.2
for these administration services during the
six months ended June 30, 2017
and
2016
, respectively.
OneMain Financial Holdings, LLC
Nationstar receives a monthly per loan subservicing fee and other performance incentive fees subject to agreements with OneMain Financial Holdings, LLC.
For the three months ended June 30, 2017
and
2016
, Nationstar recognized revenue of
$0.2
and
$0.4
, respectively, in additional servicing and other performance incentive fees related to these portfolios.
For the six months ended June 30, 2017
and
2016
, Nationstar recognized revenue of
$1
and
$1
related to these servicing arrangements, respectively.
CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, core initiatives, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. When used in this discussion, the words "anticipate," "appears," "believe," "foresee," "intend," "should," "expect," "estimate," "project," "plan," "may," "could," "will," "are likely" and similar expressions are intended to identify forward-looking statements. These statements involve predictions of our future financial condition, performance, plans and strategies, and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or incorrect. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances and we are under no obligation to and express disclaim any obligation to, update or alter our forward-looking statements, 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:
|
|
•
|
our ability to maintain or grow the size of our servicing portfolio;
|
|
|
•
|
our ability to refinance existing loans, and maintain our originations volume;
|
|
|
•
|
our ability to recapture voluntary prepayments related to our existing servicing portfolio;
|
|
|
•
|
our shift in the mix of our servicing portfolio to subservicing;
|
|
|
•
|
delays in our ability to collect or be reimbursed for servicing advances;
|
|
|
•
|
our ability to obtain sufficient capital to operate our business;
|
|
|
•
|
changes in prevailing interest rates;
|
|
|
•
|
our ability to finance and recover costs of our reverse servicing operations;
|
|
|
•
|
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;
|
|
|
•
|
increased legal and regulatory examinations and enforcement investigations and proceedings, compliance requirements and related costs; and
|
These factors should be considered exhaustive and should be read with the other cautionary statements that are included or incorporated by reference. All of the 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 Item 1A,
Risk Factors
and Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations
sections included in Nationstar's Annual Report on Form 10-K for the year ended December 31, 2016 for further information on these and other risk factors affecting us.