Excess Spread Financing - Fair Value
The Company had excess spread financing liability of $1,044 and $1,311 as of September 30, 2020 and December 31, 2019, respectively.
The Company used the following key weighted-average assumptions in the Company’s valuation of excess spread financing:
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|
|
|
|
|
|
|
|
|
|
|
Excess Spread Financing Key Assumptions
|
September 30, 2020
|
|
December 31, 2019
|
Discount rate
|
11.9
|
%
|
|
11.6
|
%
|
Prepayment speeds
|
13.6
|
%
|
|
12.6
|
%
|
Recapture rate
|
19.1
|
%
|
|
20.1
|
%
|
Average life
|
5.3 years
|
|
5.8 years
|
The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
Prepayment Speeds
|
Excess Spread Financing - Hypothetical Sensitivities
|
100 bps
Adverse
Change
|
|
200 bps
Adverse
Change
|
|
10%
Adverse
Change
|
|
20%
Adverse
Change
|
September 30, 2020
|
|
|
|
|
|
|
|
Excess spread financing
|
$
|
35
|
|
|
$
|
72
|
|
|
$
|
44
|
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Excess spread financing
|
$
|
46
|
|
|
$
|
95
|
|
|
$
|
46
|
|
|
$
|
96
|
|
These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing. Excess spread financing’s cash flow assumptions that are utilized in determining fair value are based on the related cash flow assumptions used in the financed MSRs. Any fair value change recognized in the financed MSRs attributable to related cash flows assumptions would inherently have an inverse impact on the carrying amount of the related excess spread financing.
Mortgage Servicing Rights Financing - Fair Value
The Company had MSR financing liability of $47 and $37 as of September 30, 2020 and December 31, 2019, respectively.
The following table sets forth the key weighted-average assumptions used in the valuation of the MSR financing liability:
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|
|
|
|
|
|
|
|
|
|
|
Mortgage Servicing Rights Financing Key Assumptions
|
September 30, 2020
|
|
December 31, 2019
|
Advance financing and counterparty fee rates
|
8.2
|
%
|
|
8.9
|
%
|
Annual advance recovery rates
|
20.2
|
%
|
|
18.8
|
%
|
Servicing Segment Revenues
The following table sets forth the items comprising total revenues for the Servicing segment:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Total Revenues - Servicing
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Contractually specified servicing fees(1)
|
$
|
282
|
|
|
$
|
305
|
|
|
$
|
864
|
|
|
$
|
893
|
|
Other service-related income(1)
|
59
|
|
|
51
|
|
|
170
|
|
|
133
|
|
Incentive and modification income(1)
|
12
|
|
|
12
|
|
|
30
|
|
|
29
|
|
Late fees(1)
|
18
|
|
|
30
|
|
|
65
|
|
|
82
|
|
Reverse servicing fees
|
6
|
|
|
7
|
|
|
19
|
|
|
24
|
|
Mark-to-market adjustments(2)
|
(29)
|
|
|
(83)
|
|
|
(673)
|
|
|
(607)
|
|
Counterparty revenue share(3)
|
(104)
|
|
|
(86)
|
|
|
(268)
|
|
|
(204)
|
|
Amortization, net of accretion(4)
|
(112)
|
|
|
(73)
|
|
|
(290)
|
|
|
(152)
|
|
Total revenues - Servicing
|
$
|
132
|
|
|
$
|
163
|
|
|
$
|
(83)
|
|
|
$
|
198
|
|
(1)The Company recognizes revenue on an earned basis for services performed. Amounts include subservicing related revenues.
(2)Mark-to-market (“MTM”) adjustments include fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $7 and $18 during the three months ended September 30, 2020 and 2019, and $20 and $46 during the nine months ended September 30, 2020 and 2019, respectively.
(3)Counterparty revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSR financing arrangements.
(4)Amortization is net of excess spread accretion of $96 and $77 and MSL accretion of $4 and $10 during the three months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, amortization is net of excess spread accretion of $243 and $172 and MSL accretion of $17 and $39, respectively.
3. Advances and Other Receivables, Net
Advances and other receivables, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Advances and Other Receivables, Net
|
September 30, 2020
|
|
December 31, 2019
|
Servicing advances, net of $92 and $131 purchase discount, respectively
|
$
|
746
|
|
|
$
|
970
|
|
Receivables from agencies, investors and prior servicers, net of $21 and $21 purchase discount, respectively
|
190
|
|
|
193
|
|
Reserves
|
(191)
|
|
|
(175)
|
|
Total advances and other receivables, net
|
$
|
745
|
|
|
$
|
988
|
|
The following table sets forth the activities of the servicing reserves for advances and other receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Reserves for Advances and Other Receivables
|
2020
|
|
|
2019
|
|
2020
|
|
2019
|
Balance - beginning of period
|
$
|
216
|
|
|
|
$
|
98
|
|
|
$
|
168
|
|
|
$
|
47
|
|
Provision and other additions(1)
|
13
|
|
|
|
35
|
|
|
72
|
|
|
102
|
|
Write-offs
|
(38)
|
|
|
|
(3)
|
|
|
(49)
|
|
|
(19)
|
|
Balance - end of period
|
$
|
191
|
|
|
|
$
|
130
|
|
|
$
|
191
|
|
|
$
|
130
|
|
(1)The Company recorded a provision of $7 and $18 through the MTM adjustments in revenues - service related, net, in the consolidated statements of operations during the three months ended September 30, 2020 and 2019, respectively, and $20 and $46 during the nine months ended September 30, 2020 and 2019, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.
Purchase Discount for Advances and Other Receivables
The following tables set forth the activities of the purchase discounts for advances and other receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Three Months Ended September 30, 2019
|
Purchase Discount for Advances and Other Receivables
|
Servicing Advances
|
|
Receivables from Agencies, Investors and Prior Servicers
|
|
Servicing Advances
|
|
Receivables from Agencies, Investors and Prior Servicers
|
Balance - beginning of period
|
$
|
117
|
|
|
$
|
21
|
|
|
$
|
156
|
|
|
$
|
48
|
|
Utilization of purchase discounts
|
(25)
|
|
|
—
|
|
|
(8)
|
|
|
—
|
|
Balance - end of period
|
$
|
92
|
|
|
$
|
21
|
|
|
$
|
148
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Nine Months Ended September 30, 2019
|
Purchase Discount for Advances and Other Receivables
|
Servicing Advances
|
|
Receivables from Agencies, Investors and Prior Servicers
|
|
Servicing Advances
|
|
Receivables from Agencies, Investors and Prior Servicers
|
Balance - beginning of period
|
$
|
131
|
|
|
$
|
21
|
|
|
$
|
205
|
|
|
$
|
48
|
|
Addition from acquisition
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
Utilization of purchase discounts
|
(39)
|
|
|
—
|
|
|
(76)
|
|
|
—
|
|
Balance - end of period
|
$
|
92
|
|
|
$
|
21
|
|
|
$
|
148
|
|
|
$
|
48
|
|
Credit Loss for Advances and Other Receivables
As described in Note 1, Nature of Business and Basis of Presentation, advances and other receivables are within the scope of ASU 2016-13, and the Company modified its accounting policy regarding its assessment of reserves for credit-related losses in accordance with CECL framework. During the three and nine months ended September 30, 2020, the Company increased the CECL reserve by $13 and $27, respectively. As of September 30, 2020, the total CECL reserve was $44, of which $27 and $17 was recorded in reserves and purchase discount for advances and other receivables, respectively.
Based upon the Company’s application of ASU 2016-13, the Company determined that the credit-related risk associated with applicable financial instruments typically increase with the passage of time. The CECL reserve methodology considers these financial instruments collectible to a point in time of 39 months. Any projected remaining balance at the end of the collection period is considered a loss and factors into the overall CECL loss rate required.
4. Reverse Mortgage Interests, Net
Reverse mortgage interests, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Reverse Mortgage Interests, Net
|
September 30, 2020
|
|
December 31, 2019
|
Participating interests in HECM mortgage-backed securities (“HMBS”)
|
$
|
3,663
|
|
|
$
|
4,282
|
|
Other interests securitized
|
1,002
|
|
|
994
|
|
Unsecuritized interests
|
920
|
|
|
1,117
|
|
Purchase discount, net
|
(125)
|
|
|
(114)
|
|
Total reverse mortgage interests, net
|
$
|
5,460
|
|
|
$
|
6,279
|
|
Participating Interests in HMBS
The Company does not originate reverse mortgages, but during the nine months ended September 30, 2020 and 2019, a total of $134 and $211 in UPB associated with new draws on existing loans was transferred to GNMA and securitized by the Company, respectively.
In March 2019, the Company entered into an agreement with Fannie Mae for the transfer of reverse mortgage loans. As a result, $61 was transferred from Fannie Mae and securitized into GNMA HMBS during the nine months ended September 30, 2019. There was no such activity during the nine months ended September 30, 2020.
Other Interests Securitized
The reverse mortgage interests under other interest securitized have been transferred to private securitization trusts and are accounted for as a secured borrowing. During the nine months ended September 30, 2020, the Company securitized a total of $516 UPB through Trust 2020-1 and a total of $337 UPB from Trust 2018-2 and Trust 2018-3 was called and the related debt was extinguished. During the nine months ended September 30, 2019, the Company securitized a total of $398 UPB through Trust 2019-1 and a total of $249 UPB from Trust 2017-2 was called and the related debt was extinguished. The Company sold $20 UPB of Trust 2018-3 during the nine months ended September 30, 2019. Refer to Other Nonrecourse Debt in Note 9, Indebtedness for additional information.
Unsecuritized Interests
Unsecuritized interests in reverse mortgages consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Unsecuritized interests
|
September 30, 2020
|
|
December 31, 2019
|
Repurchased HECM loans (exceeds 98% of their Max Claim Amount (“MCA”))
|
$
|
634
|
|
|
$
|
789
|
|
HECM related receivables(1)
|
213
|
|
|
250
|
|
Funded borrower draws not yet securitized
|
56
|
|
|
64
|
|
Real estate owned (“REO”) related receivables
|
17
|
|
|
14
|
|
Total unsecuritized interests
|
$
|
920
|
|
|
$
|
1,117
|
|
(1)HECM related receivables consist primarily of receivables from FNMA for corporate advances and service fees and claims receivables from the U.S. Department of Housing and Urban Development (“HUD”) on reverse mortgage interests.
The Company repurchased a total of $912 and $2,132 of HECM loans out of GNMA HMBS securitizations during the nine months ended September 30, 2020 and 2019, respectively, of which $244 and $561 were subsequently assigned to a third party in accordance with applicable servicing agreements, respectively. To the extent a loan is not subject to applicable servicing agreements and assigned to a third party, the loan is either subject to assignment to HUD, per contractual obligations with GNMA, liquidated via a payoff from the borrower or liquidated via a foreclosure according to the terms of the underlying mortgage. The Company assigned a total of $630 and $1,458 of HECM loans to HUD during the nine months ended September 30, 2020 and 2019, respectively.
Purchase Discount, net, for Reverse Mortgage Interests
The following table sets forth the activities of the purchase discounts, net, for reverse mortgage interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Purchase discount, net, for reverse mortgage interests(1)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Balance - beginning of period
|
$
|
(127)
|
|
|
$
|
(163)
|
|
|
$
|
(114)
|
|
|
$
|
(164)
|
|
Adjustments(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(24)
|
|
Utilization of purchase discounts(3)
|
8
|
|
|
40
|
|
|
27
|
|
|
80
|
|
Amortization, net of accretion
|
(6)
|
|
|
(1)
|
|
|
(38)
|
|
|
(16)
|
|
Balance - end of period
|
$
|
(125)
|
|
|
$
|
(124)
|
|
|
$
|
(125)
|
|
|
$
|
(124)
|
|
(1)Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans.
(2)Adjustments during the nine months ended September 30, 2019 due to revised cost to service assumption utilized in the valuation of reverse mortgage assets and liabilities acquired from the Merger.
(3)Utilization of purchase discounts on liquidated loans, for which the remaining receivable was written off.
Credit Loss for Reverse Mortgage Interests
As described in Note 1, Nature of Business and Basis of Presentation, reverse mortgage interests are within the scope of ASU 2016-13, requiring an assessment of reserves regarding credit-related losses in accordance with the CECL framework. Upon applying ASU 2016-13, the Company determined that credit-related losses are immaterial given the government insured nature of the HECM loan product. Any expected credit-related losses are contemplated in the Company’s existing reserve methodology due to the nature of this financial instrument. Accordingly, no cumulative effect adjustment was required upon adoption of ASU 2016-13 on January 1, 2020 and no additional CECL reserve was recorded as of September 30, 2020.
The credit-risk characteristics of reverse mortgage interests do not vary with time as the financial instruments have no contractual life or financial profile as the primary counterparty is the government agency insuring the loans.
Reverse Mortgage Interest Income
Total interest earned on the Company’s reverse mortgage interests was $41 and $74 during the three months ended September 30, 2020 and 2019, respectively, and $158 and $241 during the nine months ended September 30, 2020 and 2019, respectively.
5. Mortgage Loans Held for Sale
Mortgage loans held for sale are recorded at fair value as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans Held for Sale
|
September 30, 2020
|
|
December 31, 2019
|
Mortgage loans held for sale – UPB
|
$
|
3,642
|
|
|
$
|
3,949
|
|
Mark-to-market adjustment(1)
|
175
|
|
|
128
|
|
Total mortgage loans held for sale
|
$
|
3,817
|
|
|
$
|
4,077
|
|
(1)The mark-to-market adjustment includes net change in unrealized gain/loss, premium on correspondent loans and fees on direct-to-consumer loans. The mark-to-market adjustment is recorded in net gain on mortgage loans held for sale in the consolidated statements of operations.
The following table sets forth the activities of mortgage loans held for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
Mortgage Loans Held for Sale
|
2020
|
|
2019
|
Balance - beginning of period
|
$
|
4,077
|
|
|
$
|
1,631
|
|
Loans sold
|
(42,185)
|
|
|
(27,413)
|
|
Mortgage loans originated and purchased, net of fees
|
38,709
|
|
|
28,209
|
|
Repurchase of loans out of Ginnie Mae securitizations
|
3,173
|
|
|
1,823
|
|
Net change in unrealized gain (loss) of loans held for sale
|
36
|
|
|
2
|
|
Net transfers of mortgage loans held for sale(1)
|
7
|
|
|
15
|
|
Balance - end of period
|
$
|
3,817
|
|
|
$
|
4,267
|
|
(1)Amount reflects transfers to other assets for loans transitioning into REO status and transfers to advances and other receivables, net, for claims made on certain government insurance mortgage loans. Transfers out are net of transfers in upon receipt of proceeds from an REO sale or claim filing.
During the nine months ended September 30, 2020 and 2019, the Company received proceeds of $43,040 and $27,778, respectively, on the sale of mortgage loans held for sale, resulting in gains of $855 and $365, respectively.
The total UPB and fair value of mortgage loans held for sale on non-accrual status was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Mortgage Loans Held for Sale
|
UPB
|
|
Fair Value
|
|
UPB
|
|
Fair Value
|
Non-accrual(1)
|
$
|
49
|
|
|
$
|
39
|
|
|
$
|
29
|
|
|
$
|
22
|
|
(1)Non-accrual UPB includes $37 and $25 of UPB related to Ginnie Mae repurchased loans as of September 30, 2020 and December 31, 2019, respectively.
The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $20 and $21 as of September 30, 2020 and December 31, 2019, respectively.
6. Loans Subject to Repurchase from Ginnie Mae
Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. The Company, as the issuer of the mortgage backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including payments not being received from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its consolidated balance sheets and establishes a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The Company had loans subject to repurchase from Ginnie Mae of $5,395 and $560 as of September 30, 2020 and December 31, 2019, respectively, which are included in both other assets and payables and other liabilities in the consolidated balance sheets. Loans subject to repurchase from Ginnie Mae as of September 30, 2020 include $5,095 loans in forbearance related to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) whereby no payments have been received from borrowers for greater than 90 days.
7. Goodwill and Intangible Assets
The Company had goodwill of $120 as of September 30, 2020 and December 31, 2019. The Company had intangible assets of $45 and $74 as of September 30, 2020 and December 31, 2019, respectively. Goodwill and intangible assets are included in other assets within the consolidated balance sheets.
8. Derivative Financial Instruments
Derivative instruments are used as part of the overall strategy to manage exposure to market risks primarily associated with fluctuations in interest rates related to originations. Derivative instruments utilized by the Company primarily include interest rate lock commitments (“IRLCs”), loan purchase commitments (“LPCs”), forward Mortgage Backed Securities (“MBS”) purchase commitments, Eurodollar and Treasury futures and interest rate swap agreements.
The following tables provide the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses) for the derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
|
Nine Months Ended September 30, 2020
|
Derivative Financial Instruments
|
Expiration
Dates
|
|
Outstanding
Notional
|
|
Fair
Value
|
|
|
|
Gains/(Losses)
|
Assets
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
Loan sale commitments
|
2020
|
|
$
|
1,908
|
|
|
$
|
75
|
|
|
|
|
$
|
43
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
IRLCs
|
2020-2021
|
|
10,967
|
|
|
414
|
|
|
|
|
279
|
|
LPCs
|
2020
|
|
5,217
|
|
|
38
|
|
|
|
|
26
|
|
Forward MBS trades
|
2020-2021
|
|
11,452
|
|
|
23
|
|
|
|
|
17
|
|
Total derivative financial instruments - assets
|
|
|
$
|
27,636
|
|
|
$
|
475
|
|
|
|
|
$
|
322
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
IRLCs
|
2020
|
|
$
|
2
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
LPCs
|
2020
|
|
598
|
|
|
2
|
|
|
|
|
(1)
|
|
Forward MBS trades
|
2020-2021
|
|
15,974
|
|
|
42
|
|
|
|
|
30
|
|
Total derivative financial instruments - liabilities
|
|
|
$
|
16,574
|
|
|
$
|
44
|
|
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
Derivative Financial Instruments
|
Expiration
Dates
|
|
Outstanding
Notional
|
|
Fair
Value
|
|
Gains/(Losses)
|
Assets
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
Loan sale commitments
|
2019
|
|
$
|
1,508
|
|
|
$
|
35
|
|
|
$
|
9
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
2019
|
|
4,964
|
|
|
144
|
|
|
84
|
|
LPCs
|
2019
|
|
1,397
|
|
|
18
|
|
|
17
|
|
Forward MBS trades
|
2019
|
|
3,054
|
|
|
8
|
|
|
6
|
|
Eurodollar futures
|
2019-2021
|
|
6
|
|
|
—
|
|
|
—
|
|
Total derivative financial instruments - assets
|
|
|
$
|
9,421
|
|
|
$
|
170
|
|
|
$
|
107
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
2019
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
LPCs
|
2019
|
|
547
|
|
|
3
|
|
|
3
|
|
Forward MBS trades
|
2019
|
|
5,667
|
|
|
16
|
|
|
(8)
|
|
Eurodollar futures
|
2019-2021
|
|
8
|
|
|
—
|
|
|
—
|
|
Total derivative financial instruments - liabilities
|
|
|
$
|
6,237
|
|
|
$
|
19
|
|
|
$
|
(5)
|
|
Associated with the Company’s derivatives are $14 and $6 in collateral deposits on derivative instruments recorded in other assets in the Company’s consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the consolidated balance sheets.
9. Indebtedness
Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
Interest Rate
|
|
Maturity Date
|
|
Collateral
|
|
Capacity Amount
|
|
Outstanding
|
|
Collateral Pledged
|
|
Outstanding
|
|
Collateral Pledged
|
Advance Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$875 advance facility(1)
|
|
CP+2.5% to 6.5%
|
|
April 2021
|
|
Servicing advance receivables
|
|
$
|
875
|
|
|
$
|
144
|
|
|
$
|
169
|
|
|
$
|
37
|
|
|
$
|
88
|
|
$640 advance facility(2)
|
|
LIBOR+3.9%
|
|
August 2022
|
|
Servicing advance receivables
|
|
640
|
|
|
144
|
|
|
196
|
|
|
—
|
|
|
—
|
|
$425 advance facility(3)
|
|
LIBOR+2.8% to 6.5%
|
|
October 2021
|
|
Servicing advance receivables
|
|
425
|
|
|
206
|
|
|
261
|
|
|
224
|
|
|
285
|
|
$250 advance facility(4)
|
|
LIBOR+1.5% to 2.6%
|
|
December 2020
|
|
Servicing advance receivables
|
|
250
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
167
|
|
$100 advance facility
|
|
LIBOR+2.5%
|
|
January 2021
|
|
Servicing advance receivables
|
|
100
|
|
|
75
|
|
|
102
|
|
|
63
|
|
|
125
|
|
Advance facilities principal amount
|
|
|
|
|
|
569
|
|
|
728
|
|
|
422
|
|
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1,500 warehouse facility
|
|
LIBOR+1.7%
|
|
June 2021
|
|
Mortgage loans or MBS
|
|
1,500
|
|
|
666
|
|
|
634
|
|
|
759
|
|
|
733
|
|
$1,200 warehouse facility
|
|
LIBOR+1.5% to 3.0%
|
|
November 2020
|
|
Mortgage loans or MBS
|
|
1,200
|
|
|
564
|
|
|
610
|
|
|
683
|
|
|
724
|
|
$1,050 warehouse facility(5)
|
|
LIBOR+1.8% to 3.9%
|
|
September 2022
|
|
Mortgage loans or MBS
|
|
1,050
|
|
|
627
|
|
|
679
|
|
|
589
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
Interest Rate
|
|
Maturity Date
|
|
Collateral
|
|
Capacity Amount
|
|
Outstanding
|
|
Collateral Pledged
|
|
Outstanding
|
|
Collateral Pledged
|
$750 warehouse facility
|
|
LIBOR+1.8%
|
|
August 2021
|
|
Mortgage loans or MBS
|
|
750
|
|
|
574
|
|
|
591
|
|
|
—
|
|
|
—
|
|
$750 warehouse facility
|
|
LIBOR+1.7% to 2.8%
|
|
October 2021
|
|
Mortgage loans or MBS
|
|
750
|
|
|
472
|
|
|
481
|
|
|
411
|
|
|
425
|
|
$750 warehouse facility(6)
|
|
LIBOR+2.3%
|
|
September 2022
|
|
Mortgage loans or MBS
|
|
750
|
|
|
105
|
|
|
135
|
|
|
54
|
|
|
78
|
|
$700 warehouse facility(7)
|
|
LIBOR+1.3% to 2.2%
|
|
November 2020
|
|
Mortgage loans or MBS
|
|
700
|
|
|
488
|
|
|
505
|
|
|
469
|
|
|
488
|
|
$600 warehouse facility
|
|
LIBOR+2.2%
|
|
February 2021
|
|
Mortgage loans or MBS
|
|
600
|
|
|
156
|
|
|
185
|
|
|
174
|
|
|
202
|
|
$500 warehouse facility
|
|
LIBOR+2.5% to 4.0%
|
|
May 2021
|
|
Mortgage loans or MBS
|
|
500
|
|
|
—
|
|
|
—
|
|
|
336
|
|
|
349
|
|
$300 warehouse facility
|
|
LIBOR+1.4%
|
|
January 2021
|
|
Mortgage loans or MBS
|
|
300
|
|
|
258
|
|
|
258
|
|
|
136
|
|
|
136
|
|
$250 warehouse facility(8)
|
|
LIBOR+1.4% to 2.3%
|
|
December 2020
|
|
Mortgage loans or MBS
|
|
250
|
|
|
—
|
|
|
—
|
|
|
762
|
|
|
783
|
|
$200 warehouse facility
|
|
LIBOR+1.8%
|
|
April 2021
|
|
Mortgage loans or MBS
|
|
200
|
|
|
72
|
|
|
74
|
|
|
27
|
|
|
27
|
|
$200 warehouse facility
|
|
LIBOR+1.3%
|
|
November 2020
|
|
Mortgage loans or MBS
|
|
200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$50 warehouse facility
|
|
LIBOR+1.8% to 4.8%
|
|
April 2021
|
|
Mortgage loans or MBS
|
|
50
|
|
|
43
|
|
|
45
|
|
|
11
|
|
|
15
|
|
$40 warehouse facility
|
|
LIBOR+3.3%
|
|
January 2021
|
|
Mortgage loans or MBS
|
|
40
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
Warehouse facilities principal amount
|
|
4,028
|
|
|
4,201
|
|
|
4,416
|
|
|
4,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$450 warehouse facility(9)
|
|
LIBOR+5.1%
|
|
May 2021
|
|
MSR
|
|
450
|
|
—
|
|
—
|
|
150
|
|
945
|
$260 warehouse facility(2)
|
|
LIBOR+3.9%
|
|
August 2022
|
|
MSR
|
|
260
|
|
256
|
|
659
|
|
—
|
|
—
|
$200 warehouse facility(10)
|
|
LIBOR+3.5%
|
|
August 2021
|
|
MSR
|
|
200
|
|
—
|
|
187
|
|
—
|
|
200
|
$150 warehouse facility(5)
|
|
LIBOR+3.8%
|
|
September 2022
|
|
MSR
|
|
150
|
|
—
|
|
149
|
|
—
|
|
130
|
$50 warehouse facility
|
|
LIBOR+2.8%
|
|
November 2020
|
|
MSR
|
|
50
|
|
10
|
|
80
|
|
10
|
|
84
|
MSR facilities principal amount
|
|
266
|
|
1,075
|
|
160
|
|
1,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance, warehouse and MSR facilities principal amount
|
|
4,863
|
|
|
$
|
6,004
|
|
4,998
|
|
|
$
|
6,646
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
|
|
(12)
|
|
|
|
(1)
|
|
|
|
Advance and warehouse facilities, net
|
|
$
|
4,851
|
|
|
|
$
|
4,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged Collateral for warehouse and MSR facilities:
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
$
|
3,560
|
|
|
$
|
3,637
|
|
|
$
|
3,826
|
|
|
$
|
3,931
|
|
Reverse mortgage interests
|
|
|
|
|
|
|
|
468
|
|
|
564
|
|
|
590
|
|
|
691
|
|
MSR
|
|
|
|
|
|
|
|
266
|
|
|
1,075
|
|
|
160
|
|
|
1,359
|
|
(1)The capacity amount for this advance facility increased from $125 to $875 in April 2020.
(2)Total capacity for this facility is $900, of which $640 is internally allocated for Advance financing and $260 is internally allocated for MSR financing; capacity is fully fungible and is not restricted by these allocations.
(3)The capacity amount for this advance facility increased from $325 to $425 in April 2020.
(4)This advance facility was terminated and transferred to another advance facility in April 2020.
(5)Total capacity amount for this facility is $1,200, of which $150 is a sublimit for MSR financing. The capacity amount increased from $800 to $1,200 in September 2020.
(6)The capacity amount for this warehouse facility increased from $200 to $750 in September 2020.
(7)The capacity amount for this warehouse facility was subsequently increased to $1,500 in October 2020 with a maturity date of October 2021.
(8)The capacity amount for this warehouse facility decreased from $1,000 to $250 in May 2020.
(9)This MSR facility was terminated in August 2020.
(10)The capacity amount for this MSR facility decreased from $400 to $200 in August 2020.
Unsecured Senior Notes
Unsecured senior notes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured senior notes
|
September 30, 2020
|
|
December 31, 2019
|
$850 face value, 5.500% interest rate payable semi-annually, due August 2028(1)
|
$
|
850
|
|
|
$
|
—
|
|
$750 face value, 9.125% interest rate payable semi-annually, due July 2026
|
750
|
|
|
750
|
|
$600 face value, 6.000% interest rate payable semi-annually, due January 2027(2)
|
600
|
|
|
—
|
|
$600 face value, 6.500% interest rate payable semi-annually, due July 2021(3)
|
—
|
|
|
492
|
|
$300 face value, 6.500% interest rate payable semi-annually, due June 2022(3)
|
—
|
|
|
206
|
|
$950 face value, 8.125% interest rate payable semi-annually, due July 2023(4)
|
—
|
|
|
950
|
|
Unsecured senior notes principal amount
|
2,200
|
|
|
2,398
|
|
Unamortized debt issuance costs, premium and discount
|
(33)
|
|
|
(32)
|
|
Unsecured senior notes, net
|
$
|
2,167
|
|
|
$
|
2,366
|
|
(1)On August 6, 2020, the Company completed an offering of $850 aggregate principal amount of 5.500% Senior Notes due 2028 (the “2028 Notes”)
(2)On January 16, 2020, the Company completed an offering of $600 aggregate principal amount of 6.000% Senior Notes due 2027 (the “2027 Notes”).
(3)This note was redeemed in full on February 15, 2020 using the net proceeds of the 2027 Notes offering, together with cash on hand.
(4)This note was redeemed in full on August 13, 2020 using the net proceeds of the 2028 Notes offering, together with cash on hand.
The indentures provide that on or before certain fixed dates, the Company may redeem up to 40% of the aggregate principal amount of the unsecured senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest, to the redemption dates, subject to compliance with certain conditions. In addition, the Company may redeem all or a portion of the unsecured senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. During the nine months ended September 30, 2020, the Company repaid $100 in principal of outstanding notes. Additionally, the Company redeemed $950 and $1,548 in principal of outstanding notes during the three and nine months ended September 30, 2020, resulting in a net loss of $53 and $52, respectively. No notes were repurchased or redeemed during the three and nine months ended September 30, 2019.
As of September 30, 2020, the expected maturities of the Company’s unsecured senior notes based on contractual maturities are as follows:
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2020 through 2024
|
|
$
|
—
|
|
Thereafter
|
|
2,200
|
|
Total unsecured senior notes principal amount
|
|
$
|
2,200
|
|
Other Nonrecourse Debt
Other nonrecourse debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Other nonrecourse debt
|
Issue Date
|
|
Maturity Date
|
|
Interest Rate
|
|
Class of Note
|
|
Collateral Amount
|
|
Outstanding
|
|
Outstanding
|
Participating interest financing(1)
|
—
|
|
—
|
|
0.3%-5.6%
|
|
—
|
|
$
|
—
|
|
|
$
|
3,664
|
|
|
$
|
4,284
|
|
Securitization of nonperforming HECM loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust 2020-1
|
September 2020
|
|
September 2030
|
|
1.3%-7.5%
|
|
A, M1, M2, M3, M4, M5
|
|
519
|
|
|
516
|
|
|
—
|
|
Trust 2019-2
|
November 2019
|
|
November 2029
|
|
2.3%-6.0%
|
|
A, M1, M2, M3, M4, M5
|
|
275
|
|
|
259
|
|
|
333
|
|
Trust 2019-1
|
June 2019
|
|
June 2029
|
|
2.7%-6.0%
|
|
A, M1, M2, M3, M4, M5
|
|
248
|
|
|
226
|
|
|
302
|
|
Trust 2018-3(2)
|
November 2018
|
|
November 2028
|
|
3.6%-6.0%
|
|
A, M1, M2, M3, M4, M5
|
|
—
|
|
|
—
|
|
|
209
|
|
Trust 2018-2(2)
|
July 2018
|
|
July 2028
|
|
3.2%-6.0%
|
|
A, M1, M2, M3, M4, M5
|
|
—
|
|
|
—
|
|
|
148
|
|
Other nonrecourse debt principal amount
|
|
|
|
|
|
|
|
|
|
|
4,665
|
|
|
5,276
|
|
Unamortized debt issuance costs, premium and discount
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
10
|
|
Other nonrecourse debt, net
|
|
|
|
|
|
|
|
|
|
|
$
|
4,671
|
|
|
$
|
5,286
|
|
(1)Amounts represent the Company’s participating interest in GNMA HMBS securitized portfolios.
(2)As discussed in Note 4, Reverse Mortgage Interests, Net, Trust 2018-3 and Trust 2018-2 were collapsed and the related debt was extinguished during the nine months ended September 30, 2020.
Financial Covenants
The Company’s credit facilities contain various financial covenants which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements, which are measured at the Company’s operating subsidiary, Nationstar Mortgage LLC. The Company was in compliance with its required financial covenants as of September 30, 2020.
10. Securitizations and Financings
Variable Interest Entities
In the normal course of business, the Company enters into various types of on- and off-balance sheet transactions with special purpose entities (“SPEs”) determined to be VIEs, which primarily consist of securitization trusts established for a limited purpose. Generally, these SPEs are formed for the purpose of securitization transactions in which the Company transfers assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets.
The Company has determined that the SPEs created in connection with certain advance facilities trusts should be consolidated as the Company is the primary beneficiary of each of these entities. Also, the Company consolidated certain reverse mortgage SPEs as it is the primary beneficiary of each of these entities. These SPEs include the Nationstar HECM Loan Trusts.
A summary of the assets and liabilities of the Company’s transactions with VIEs included in the Company’s consolidated financial statements is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Consolidated transactions with VIEs
|
Transfers
Accounted for as
Secured
Borrowings
|
|
Reverse Secured Borrowings
|
|
Transfers
Accounted for as
Secured
Borrowings
|
|
Reverse Secured Borrowings
|
Assets
|
|
|
|
|
|
|
|
Restricted cash
|
$
|
44
|
|
|
$
|
25
|
|
|
$
|
66
|
|
|
$
|
42
|
|
Reverse mortgage interests, net(1)
|
—
|
|
|
4,603
|
|
|
—
|
|
|
5,230
|
|
Advances and other receivables, net
|
430
|
|
|
—
|
|
|
540
|
|
|
—
|
|
Total assets
|
$
|
474
|
|
|
$
|
4,628
|
|
|
$
|
606
|
|
|
$
|
5,272
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Advance facilities(2)
|
$
|
347
|
|
|
$
|
—
|
|
|
$
|
359
|
|
|
$
|
—
|
|
Payables and other liabilities
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Participating interest financing
|
—
|
|
|
3,664
|
|
|
—
|
|
|
4,284
|
|
HECM Securitizations (HMBS)
|
|
|
|
|
|
|
|
Trust 2020-1
|
—
|
|
|
516
|
|
|
—
|
|
|
—
|
|
Trust 2019-2
|
—
|
|
|
259
|
|
|
—
|
|
|
333
|
|
Trust 2019-1
|
—
|
|
|
226
|
|
|
—
|
|
|
302
|
|
Trust 2018-3
|
—
|
|
|
—
|
|
|
—
|
|
|
209
|
|
Trust 2018-2
|
—
|
|
|
—
|
|
|
—
|
|
|
148
|
|
Total liabilities
|
$
|
347
|
|
|
$
|
4,665
|
|
|
$
|
360
|
|
|
$
|
5,277
|
|
(1)Amounts include net purchase discount of $62 and $46 as of September 30, 2020 and December 31, 2019, respectively.
(2)Refer to advance facilities in Note 9, Indebtedness, for additional information.
The following table shows a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated securitization trusts
|
September 30, 2020
|
|
December 31, 2019
|
Total collateral balances - UPB
|
$
|
1,378
|
|
|
$
|
1,503
|
|
Total certificate balances
|
$
|
1,378
|
|
|
$
|
1,512
|
|
The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of September 30, 2020 and December 31, 2019 and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs.
A summary of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 60 days or more past due are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of Transferred Loans 60 Days or More Past Due
|
September 30, 2020
|
|
December 31, 2019
|
Unconsolidated securitization trusts
|
$
|
179
|
|
|
$
|
193
|
|
11. Earnings Per Share
The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series A Preferred Stock is considered participating securities because it has dividend rights determined on an as-converted basis in the event of Company’s declaration of a dividend or distribution for common shares.
The following table sets forth the computation of basic and diluted net income (loss) per common share (amounts in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Computation of earnings per share
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income (loss) attributable to Mr. Cooper
|
$
|
209
|
|
|
$
|
84
|
|
|
$
|
114
|
|
|
$
|
(189)
|
|
Less: Undistributed earnings attributable to participating stockholders
|
2
|
|
|
1
|
|
|
1
|
|
|
—
|
|
Net income (loss) attributable to common stockholders
|
$
|
207
|
|
|
$
|
83
|
|
|
$
|
113
|
|
|
$
|
(189)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share attributable to Mr. Cooper:
|
|
|
|
|
|
|
|
Basic
|
$
|
2.26
|
|
|
$
|
0.91
|
|
|
$
|
1.23
|
|
|
$
|
(2.08)
|
|
Diluted
|
$
|
2.18
|
|
|
$
|
0.90
|
|
|
$
|
1.20
|
|
|
$
|
(2.08)
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding (in thousands):
|
|
|
|
|
|
|
|
Basic
|
91,682
|
|
|
91,080
|
|
|
91,688
|
|
|
91,012
|
|
Dilutive effect of stock awards(1)
|
2,563
|
|
|
117
|
|
|
1,529
|
|
|
—
|
|
Dilutive effect of participating securities(1)
|
839
|
|
|
839
|
|
|
839
|
|
|
—
|
|
Diluted
|
95,084
|
|
|
92,036
|
|
|
94,056
|
|
|
91,012
|
|
(1)For periods with net loss, the Company excluded potential common shares from the computation of diluted EPS because inclusion would be antidilutive.
12. Income Taxes
For the three and nine months ended September 30, 2020, the effective tax rate was 24.0% and 23.9%, respectively, which differed from the statutory federal rate of 21% primarily due to state income taxes, as well as unfavorable permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m). The effective tax rate increased during the three and nine months ended September 30, 2020 compared to the same periods in 2019, primarily due to the relative unfavorable tax impacts of the permanent differences on the annual effective rate.
For the three and nine months ended September 30, 2019, the effective tax rate was 22.3% and 21.5%, respectively, which differed from the statutory federal rate of 21% primarily due to permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m) and nondeductible meals and entertainment expenses, as well as other recurring items such as the state tax benefit.
13. Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).
There have been no significant changes to the valuation techniques and inputs used by the Company in estimating fair values of Level 2 and Level 3 assets and liabilities as disclosed in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2019, with the exception of the following:
Derivative Financial Instruments (Level 2 and Level 3) – During the three months ended June 30, 2020, the Company changed the fair value classification of its IRLCs and LPCs derivatives from Level 2 to Level 3. IRLCs and LPCs are carried at fair value primarily based on secondary market prices for underlying mortgage loans, which is observable data, with adjustments made to such observable data for the inherent value of servicing, which is an unobservable input. The fair value is also subject to adjustments for the estimated pull-through rate. The impact of the unobservable input to the overall valuation of IRLCs and LPCs was previously much less significant, resulting in a classification of Level 2 in the fair value hierarchy as of December 31, 2019. During the three months ended June 30,2020, market interest rates continued to decline and fell to record lows, which drove an increase in the volume of the Company’s IRLCs and LPCs and increased the impact of the unobservable input on the overall valuation of IRLCs and LPCs. Such increased impact of the unobservable input on the overall valuation resulted in a classification of Level 3 in the fair value hierarchy as of June 30, 2020.
For other derivatives, they are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, the Company classifies these contracts as Level 2 in the fair value disclosure.
Derivative financial instruments are recorded in other assets and payables and other liabilities within the consolidated balance sheets. See Note 8, Derivative Financial Instruments, for more information.
The following tables present the estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
|
Recurring Fair Value Measurements
|
Fair value - Recurring basis
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
$
|
3,817
|
|
|
$
|
—
|
|
|
$
|
3,817
|
|
|
$
|
—
|
|
Forward mortgage servicing rights
|
2,663
|
|
|
—
|
|
|
—
|
|
|
2,663
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
414
|
|
|
—
|
|
|
—
|
|
|
414
|
|
Forward MBS trades
|
23
|
|
|
—
|
|
|
23
|
|
|
—
|
|
LPCs
|
38
|
|
|
—
|
|
|
—
|
|
|
38
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
Forward MBS trades
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
42
|
|
|
$
|
—
|
|
LPCs
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Mortgage servicing rights financing
|
47
|
|
|
—
|
|
|
—
|
|
|
47
|
|
Excess spread financing
|
1,044
|
|
|
—
|
|
|
—
|
|
|
1,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Recurring Fair Value Measurements
|
Fair value - Recurring basis
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
$
|
4,077
|
|
|
$
|
—
|
|
|
$
|
4,077
|
|
|
$
|
—
|
|
Forward mortgage servicing rights
|
3,496
|
|
|
—
|
|
|
—
|
|
|
3,496
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
IRLCs
|
135
|
|
|
—
|
|
|
135
|
|
|
—
|
|
Forward MBS trades
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
LPCs
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
Forward MBS trades
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
—
|
|
LPCs
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Mortgage servicing rights financing
|
37
|
|
|
—
|
|
|
—
|
|
|
37
|
|
Excess spread financing
|
1,311
|
|
|
—
|
|
|
—
|
|
|
1,311
|
|
The tables below present a reconciliation for all of the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Assets
|
|
Liabilities
|
Fair value - Level 3 assets and liabilities
|
Forward mortgage servicing rights
|
|
IRLCs
|
|
LPCs
|
|
Excess spread financing
|
|
Mortgage servicing rights financing
|
Balance - beginning of period
|
$
|
3,496
|
|
|
$
|
135
|
|
|
$
|
12
|
|
|
$
|
1,311
|
|
|
$
|
37
|
|
Total gains or losses included in earnings
|
(1,275)
|
|
|
279
|
|
|
26
|
|
|
(132)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, issuances, sales, repayments and settlements
|
|
|
|
|
|
|
|
|
|
Purchases
|
30
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuances
|
412
|
|
|
—
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Settlements and repayments
|
—
|
|
|
—
|
|
|
—
|
|
|
(159)
|
|
|
—
|
|
Balance - end of period
|
$
|
2,663
|
|
|
$
|
414
|
|
|
$
|
38
|
|
|
$
|
1,044
|
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Assets
|
|
Liabilities
|
Fair value - Level 3 assets and liabilities
|
Forward mortgage servicing rights
|
|
Mortgage loans held for investment
|
|
Excess spread financing
|
|
Mortgage servicing rights financing
|
Balance - beginning of period
|
$
|
3,665
|
|
|
$
|
119
|
|
|
$
|
1,184
|
|
|
$
|
32
|
|
Total gains or losses included in earnings
|
(1,039)
|
|
|
3
|
|
|
(190)
|
|
|
15
|
|
Payments received from borrowers
|
—
|
|
|
(11)
|
|
|
—
|
|
|
—
|
|
Purchases, issuances, sales, repayments and settlements
|
|
|
|
|
|
|
|
Purchases
|
732
|
|
|
—
|
|
|
469
|
|
|
—
|
|
Issuances
|
298
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Sales
|
(317)
|
|
|
(94)
|
|
|
—
|
|
|
—
|
|
Settlements and repayments
|
—
|
|
|
—
|
|
|
(182)
|
|
|
—
|
|
Transfers to mortgage loans held for sale
|
—
|
|
|
(12)
|
|
|
—
|
|
|
—
|
|
Transfers to real estate owned
|
—
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
Balance - end of period
|
$
|
3,339
|
|
|
$
|
—
|
|
|
$
|
1,281
|
|
|
$
|
47
|
|
The Company had LPCs liabilities of $2 and $3 as of September 30, 2020 and December 31, 2019, respectively. During the nine months ended September 30, 2020, the Company had an immaterial change in LPCs liabilities.
No transfers were made in or out of Level 3 fair value assets and liabilities for the Company during the nine months ended September 30, 2020, with the exception of the change in classification for IRLCs and LPCs from Level 2 fair value assets to Level 3 fair value assets as discussed above. No transfers were made into Level 3 fair value assets and liabilities for the Company during the nine months ended September 30, 2019. During the nine months ended September 30, 2019, $12 was transferred from mortgage loans held for investment, a Level 3 fair value asset, to mortgage loans held for sale, a Level 2 fair value asset, in connection with the collapse of Trust 2009-A, the Company’s legacy portfolio, and sale of the loans held in the trust.
The tables below present the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
Range
|
|
Weighted Average
|
Level 3 inputs
|
Min
|
|
Max
|
|
Forward MSR
|
|
|
|
|
|
Discount rate
|
8.3
|
%
|
|
12.0
|
%
|
|
9.5
|
%
|
Prepayment speed
|
12.6
|
%
|
|
19.2
|
%
|
|
14.4
|
%
|
Cost to service per loan(1)
|
$
|
68
|
|
|
$
|
295
|
|
|
$
|
105
|
|
|
|
|
|
|
|
IRLCs
|
|
|
|
|
|
Value of servicing (basis points per loan)
|
(0.4)
|
|
|
2.1
|
|
|
1.2
|
|
|
|
|
|
|
|
Excess spread financing
|
|
|
|
|
|
Discount rate
|
9.8
|
%
|
|
15.5
|
%
|
|
11.9
|
%
|
Prepayment speed
|
13.4
|
%
|
|
14.0
|
%
|
|
13.6
|
%
|
Recapture rate
|
17.1
|
%
|
|
23.5
|
%
|
|
19.1
|
%
|
Average life
|
5.2 years
|
|
5.5 years
|
|
5.3 years
|
|
|
|
|
|
|
Mortgage servicing rights financing
|
|
|
|
|
|
Advance financing and counterparty fee rates
|
6.4
|
%
|
|
9.4
|
%
|
|
8.2
|
%
|
Annual advance recovery rates
|
18.6
|
%
|
|
22.6
|
%
|
|
20.2
|
%
|
(1)Presented in whole dollar amounts.
The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial instruments not carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
Carrying
Amount
|
|
Fair Value
|
Financial instruments
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
946
|
|
|
$
|
946
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
229
|
|
|
229
|
|
|
—
|
|
|
—
|
|
Advances and other receivables, net
|
745
|
|
|
—
|
|
|
—
|
|
|
745
|
|
Reverse mortgage interests, net
|
5,460
|
|
|
—
|
|
|
—
|
|
|
5,574
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Unsecured senior notes(1)
|
2,167
|
|
|
2,237
|
|
|
—
|
|
|
—
|
|
Advance and warehouse facilities(1)
|
4,851
|
|
|
—
|
|
|
4,851
|
|
|
—
|
|
Participating interest financing(1)
|
3,676
|
|
|
—
|
|
|
—
|
|
|
3,679
|
|
HECM Securitization (HMBS)(1)
|
|
|
|
|
|
|
|
Trust 2020-1
|
513
|
|
|
—
|
|
|
—
|
|
|
513
|
|
Trust 2019-2
|
257
|
|
|
—
|
|
|
—
|
|
|
257
|
|
Trust 2019-1
|
225
|
|
|
—
|
|
|
—
|
|
|
225
|
|
(1)The amounts are presented net of unamortized debt issuance costs, premium and discount.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Carrying
Amount
|
|
Fair Value
|
Financial instruments
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
329
|
|
|
$
|
329
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
283
|
|
|
283
|
|
|
—
|
|
|
—
|
|
Advances and other receivables, net
|
988
|
|
|
—
|
|
|
—
|
|
|
988
|
|
Reverse mortgage interests, net
|
6,279
|
|
|
—
|
|
|
—
|
|
|
6,318
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Unsecured senior notes(1)
|
2,366
|
|
|
2,505
|
|
|
—
|
|
|
—
|
|
Advance and warehouse facilities(1)
|
4,997
|
|
|
—
|
|
|
4,997
|
|
|
—
|
|
Participating interest financing(1)
|
4,299
|
|
|
—
|
|
|
—
|
|
|
4,299
|
|
HECM Securitization (HMBS)(1)
|
|
|
|
|
|
|
|
Trust 2019-2
|
331
|
|
|
—
|
|
|
—
|
|
|
331
|
|
Trust 2019-1
|
300
|
|
|
—
|
|
|
—
|
|
|
300
|
|
Trust 2018-3
|
208
|
|
|
—
|
|
|
—
|
|
|
208
|
|
Trust 2018-2
|
148
|
|
|
—
|
|
|
—
|
|
|
148
|
|
(1)The amounts are presented net of unamortized debt issuance costs, premium and discount.
14. Capital Requirements
Certain of the Company’s secondary market investors require minimum net worth (“capital”) requirements, as specified in the respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated requirements to approve large servicing transfers. To the extent that these requirements are not met, the Company’s secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of the Company’s selling and servicing agreements, which would prohibit the Company from further originating or securitizing these specific types of mortgage loans or being an approved servicer. The Company’s various capital requirements related to its outstanding selling and servicing agreements are measured based on the Company’s operating subsidiary, Nationstar Mortgage LLC. As of September 30, 2020, the Company was in compliance with its selling and servicing capital requirements.
15. Commitments and Contingencies
Litigation and Regulatory
The Company and its subsidiaries are routinely and currently involved in a significant number of legal proceedings, including, but not limited to, judicial, arbitration, regulatory and governmental proceedings related to matters that arise in connection with the conduct of the Company’s business. The legal proceedings are at varying stages of adjudication, arbitration or investigation and are generally based on alleged violations of consumer protection, securities, employment, contract, tort, common law fraud and other numerous laws, including, without limitation, the Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, National Housing Act, Homeowners Protection Act, Service Member’s Civil Relief Act, Telephone Consumer Protection Act, Truth in Lending Act, Financial Institutions Reform, Recovery, and Enforcement Act of 1989, unfair, deceptive or abusive acts or practices in violation of the Dodd-Frank Act, the Securities Act of 1933, the Securities Exchange Act of 1934, the Home Mortgage Disclosure Act, Title 11 of the United States Code (aka the “Bankruptcy Code”), False Claims Act and Making Home Affordable loan modification programs.
In addition, along with others in its industry, the Company is subject to repurchase and indemnification claims and may continue to receive claims in the future, regarding alleged breaches of representations and warranties relating to the sale of mortgage loans, the placement of mortgage loans into securitization trusts or the servicing of mortgage loans securitizations. The Company is also subject to legal actions or proceedings related to loss sharing and indemnification provisions of its various acquisitions. Certain of the pending or threatened legal proceedings include claims for substantial compensatory, punitive and/or statutory damages or claims for an indeterminate amount of damages.
The Company’s business is also subject to extensive examinations, investigations and reviews by various federal, state and local governmental, regulatory and enforcement agencies. The Company has historically had a number of open investigations with these agencies and that trend continues. The Company is currently the subject of various governmental or regulatory investigations, subpoenas, examinations and inquiries related to its residential loan servicing and origination practices, bankruptcy and collections practices, its financial reporting and other aspects of its businesses. These matters include investigations by the Consumer Financial Protection Bureau (the “CFPB”), the Securities and Exchange Commission, the Executive Office of the United States Trustees, the Department of Justice, the Office of the Special Inspector General for the Troubled Asset Relief Program, the U.S. Department of Housing and Urban Development, the multi-state committee of mortgage banking regulators and various State Attorneys General. These specific matters and other pending or potential future investigations, subpoenas, examinations or inquiries may lead to administrative, civil or criminal proceedings or settlements, and possibly result in remedies including fines, penalties, restitution, or alterations in the Company’s business practices, and additional expenses and collateral costs. The Company is cooperating fully in these matters. Responding to these matters requires the Company to devote substantial resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase the Company’s operating expenses and reduce its revenues, require it to change business practices and limit its ability to grow and otherwise materially and adversely affect its business, reputation, financial condition or results of operation.
In particular, the Company continues to progress towards resolution of certain legacy regulatory matters with (i) the CFPB, (ii) the multi-state committee of mortgage banking regulators and various State Attorneys General and (iii) the Executive Office of the United States Trustee, all of which involve examination findings in prior years for alleged violations of certain laws related to the Company’s business practices. The Company believes that it has reached a settlement in principle to resolve these matters with each of these parties. Accordingly, the Company believes that it has fully accrued for these matters as of September 30, 2020.
The Company seeks to resolve all legal proceedings and other matters in the manner management believes is in the best interest of the Company and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. The Company has entered into agreements with a number of entities and regulatory agencies that toll applicable limitations periods with respect to their claims.
On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal and regulatory and governmental proceedings utilizing the latest information available. Where available information indicates that it is probable, a liability has been incurred, and the Company can reasonably estimate the amount of the loss, an accrued liability is established. The actual costs of resolving these proceedings may be substantially higher or lower than the amounts accrued.
As a legal matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company will establish an accrued liability and record a corresponding amount to legal-related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Legal-related expense for the Company, which includes legal settlements and the fees paid to external legal service providers, of $9 and $36 for the three and nine months ended September 30, 2020, respectively and $24 and $56 for the three and nine months ended September 30, 2019, respectively, was included in general and administrative expenses on the consolidated statements of operations.
For a number of matters for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material legal matters on an ongoing basis, in conjunction with any outside counsel handling the matter. For those matters for which an estimate is possible, management currently believes the aggregate range of reasonably possible loss is $3 to $20 in excess of the accrued liability (if any) related to those matters as of September 30, 2020. This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within the estimated range. Therefore, this estimated range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure and the Company cannot provide assurance that its litigations reserves will not need to be adjusted in the future. Thus, the Company’s exposure and ultimate losses may be higher, possibly significantly so, than the amounts accrued or this aggregate amount.
In the Company’s experience, legal proceedings are inherently unpredictable. One or more of the following factors frequently contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis or, if permitted to proceed as a class action, how the class will be defined; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental investigations and inquiries, the possibility of fines and penalties); the matter presents meaningful legal uncertainties, including novel issues of law; the Company has not engaged in meaningful settlement discussions; discovery has not started or is not complete; there are significant facts in dispute; predicting possible outcomes depends on making assumptions about future decisions of courts or governmental or regulatory bodies or the behavior of other parties; and there are a large number of parties named as defendants (including where it is uncertain how damages or liability, if any, will be shared among multiple defendants). Generally, the less progress that has been made in the proceedings or the broader the range of potential results, the harder it is for the Company to estimate losses or ranges of losses that is reasonably possible the Company could incur.
Based on current knowledge, and after consultation with counsel, management believes that the current legal accrued liability within payables and accrued liabilities, is appropriate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such proceedings could be material to the Company’s operating results and cash flows for a particular period depending, on among other things, the level of the Company’s revenues or income for such period. However, in the event of significant developments on existing cases, it is possible that the ultimate resolution, if unfavorable, may be material to the Company’s consolidated financial statements.
Other Loss Contingencies
As part of the Company’s ongoing operations, it acquires servicing rights of forward and reverse mortgage loan portfolios that are subject to indemnification based on the representations and warranties of the seller. From time to time, the Company will seek recovery under these representations and warranties for incurred costs. The Company believes all balances sought from sellers recorded in advances and other receivables and reverse mortgage interests represent valid claims. However, the Company acknowledges that the claims process can be prolonged due to the required time to perfect claims at the loan level. Because of the required time to perfect or remediate these claims, management relies on the sufficiency of documentation supporting the claim, current negotiations with the counterparty and other evidence to evaluate whether a reserve is required for non-recoverable balances. In the absence of successful negotiations with the seller, all amounts claimed may not be recovered. Balances may be written-off and charged against earnings when management identifies amounts where recoverability from the seller is not likely. As of September 30, 2020, the Company believes all recorded balances for which recovery is sought from the seller are valid claims, and no evidence suggests additional reserves are warranted.
Loan and Other Commitments
The Company enters into IRLCs with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rates to the borrower. The Company also enters into LPCs with prospective sellers. These loan commitments are treated as derivatives and are carried at fair value. See Note 8, Derivative Financial Instruments, for more information.
The Company had certain reverse MSRs, reverse MSLs and reverse mortgage loans related to approximately $20,006 and $22,725 of UPB in reverse mortgage loans as of September 30, 2020 and December 31, 2019, respectively. As a servicer for these reverse mortgage loans, among other things, the Company is obligated to fund borrowers’ draws to the loan customers as required in accordance with the loan agreement. As of September 30, 2020 and December 31, 2019, the Company’s maximum unfunded advance obligation to fund borrower draws related to these reverse MSRs and loans was approximately $2,304 and $2,617, respectively. Upon funding any portion of these draws, the Company expects to securitize and sell the advances in transactions that will be accounted for as secured borrowings.
16. Business Segment Reporting
The Company’s segments are based upon the Company’s organizational structure, which focuses primarily on the services offered. Corporate functional expenses are allocated to individual segments based on the actual cost of services performed based on direct resource utilization, estimate of percentage use for shared services or headcount percentage for certain functions. Facility costs are allocated to individual segments based on cost per headcount for specific facilities utilized. Group insurance costs are allocated to individual segments based on global cost per headcount. Non-allocated corporate expenses include the administrative costs of executive management and other corporate functions that are not directly attributable to Company’s operating segments. Revenues generated on inter-segment services performed are valued based on similar services provided to external parties.
In the second quarter of 2020, the Company updated its presentation of segment assets to be aligned with a change in the reporting package provided to the Chief Operating Decision Maker. The presentation change had no impact on the segments' operations. Assets allocated to the Servicing segment include MSRs; advances and other receivables, except for co-issue MSR holdback; Servicing related mortgage loans held for sale; and other assets including property, plant and equipment, lease-related assets, prepaid assets, and goodwill. Assets allocated to Originations segment include co-issue MSR holdback in advances and other receivables; Originations related mortgage loans held for sale; derivative assets; and other assets including property, plant and equipment, lease-related assets, prepaid assets, and goodwill. Assets allocated to the Xome segment include cash and cash equivalents; tax-related assets; receivables; and other assets including property, plant and equipment, lease-related assets, prepaid assets, goodwill, and other intangible assets. All assets that are not specifically identified or allocated to a reporting segment are reported as part of Corporate/Other and include cash and cash equivalents; tax-related assets; and intangibles assets excluding goodwill and assets allocated to Xome. Eliminations are also included in Corporate/Other. Prior year financial information has been adjusted retrospectively to reflect the updated presentation.
The following tables present financial information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
Financial information by segment
|
Servicing
|
|
Originations
|
|
Xome
|
|
Corporate/Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Service related, net(1)
|
$
|
92
|
|
|
$
|
27
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
227
|
|
Net gain on mortgage loans held for sale
|
40
|
|
|
605
|
|
|
—
|
|
|
—
|
|
|
645
|
|
Total revenues
|
132
|
|
|
632
|
|
|
108
|
|
|
—
|
|
|
872
|
|
Total expenses
|
99
|
|
|
195
|
|
|
94
|
|
|
43
|
|
|
431
|
|
Interest income
|
40
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
56
|
|
Interest expense
|
(105)
|
|
|
(15)
|
|
|
—
|
|
|
(45)
|
|
|
(165)
|
|
Other income (expenses), net
|
—
|
|
|
—
|
|
|
1
|
|
|
(52)
|
|
|
(51)
|
|
Total other (expenses) income, net
|
(65)
|
|
|
1
|
|
|
1
|
|
|
(97)
|
|
|
(160)
|
|
(Loss) income before income tax (benefit) expense
|
$
|
(32)
|
|
|
$
|
438
|
|
|
$
|
15
|
|
|
$
|
(140)
|
|
|
$
|
281
|
|
Depreciation and amortization for property and equipment and intangible assets
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
19
|
|
Total assets
|
$
|
14,707
|
|
|
$
|
4,250
|
|
|
$
|
135
|
|
|
$
|
2,663
|
|
|
$
|
21,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
Financial information by segment
|
Servicing
|
|
Originations
|
|
Xome
|
|
Corporate/Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Service related, net(1)
|
$
|
126
|
|
|
$
|
22
|
|
|
$
|
112
|
|
|
$
|
(2)
|
|
|
$
|
258
|
|
Net gain on mortgage loans held for sale
|
37
|
|
|
312
|
|
|
—
|
|
|
11
|
|
|
360
|
|
Total revenues
|
163
|
|
|
334
|
|
|
112
|
|
|
9
|
|
|
618
|
|
Total expenses
|
171
|
|
|
155
|
|
|
101
|
|
|
51
|
|
|
478
|
|
Interest income
|
137
|
|
|
24
|
|
|
—
|
|
|
2
|
|
|
163
|
|
Interest expense
|
(120)
|
|
|
(24)
|
|
|
—
|
|
|
(52)
|
|
|
(196)
|
|
Other (expense) income, net
|
—
|
|
|
(1)
|
|
|
3
|
|
|
(2)
|
|
|
—
|
|
Total other income (expenses), net
|
17
|
|
|
(1)
|
|
|
3
|
|
|
(52)
|
|
|
(33)
|
|
Income (loss) before income tax expense (benefit)
|
$
|
9
|
|
|
$
|
178
|
|
|
$
|
14
|
|
|
$
|
(94)
|
|
|
$
|
107
|
|
Depreciation and amortization for property and equipment and intangible assets
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
9
|
|
|
$
|
22
|
|
Total assets
|
$
|
12,065
|
|
|
$
|
4,386
|
|
|
$
|
172
|
|
|
$
|
1,855
|
|
|
$
|
18,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
Financial information by segment
|
Servicing
|
|
Originations
|
|
Xome
|
|
Corporate/Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Service related, net(1)
|
$
|
(202)
|
|
|
$
|
68
|
|
|
$
|
320
|
|
|
$
|
—
|
|
|
$
|
186
|
|
Net gain on mortgage loans held for sale
|
119
|
|
|
1,475
|
|
|
—
|
|
|
—
|
|
|
1,594
|
|
Total revenues
|
(83)
|
|
|
1,543
|
|
|
320
|
|
|
—
|
|
|
1,780
|
|
Total expenses
|
370
|
|
|
528
|
|
|
285
|
|
|
111
|
|
|
1,294
|
|
Interest income
|
180
|
|
|
69
|
|
|
—
|
|
|
1
|
|
|
250
|
|
Interest expense
|
(335)
|
|
|
(55)
|
|
|
—
|
|
|
(144)
|
|
|
(534)
|
|
Other income (expense), net
|
—
|
|
|
—
|
|
|
3
|
|
|
(53)
|
|
|
(50)
|
|
Total other (expenses) income, net
|
(155)
|
|
|
14
|
|
|
3
|
|
|
(196)
|
|
|
(334)
|
|
(Loss) income before income tax (benefit) expense
|
$
|
(608)
|
|
|
$
|
1,029
|
|
|
$
|
38
|
|
|
$
|
(307)
|
|
|
$
|
152
|
|
Depreciation and amortization for property and equipment and intangible assets
|
$
|
14
|
|
|
$
|
12
|
|
|
$
|
11
|
|
|
$
|
19
|
|
|
$
|
56
|
|
Total assets
|
$
|
14,707
|
|
|
$
|
4,250
|
|
|
$
|
135
|
|
|
$
|
2,663
|
|
|
$
|
21,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
Financial information by segment
|
Servicing
|
|
Originations
|
|
Xome
|
|
Corporate/Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Service related, net(1)
|
$
|
108
|
|
|
$
|
57
|
|
|
$
|
316
|
|
|
$
|
(2)
|
|
|
$
|
479
|
|
Net gain on mortgage loans held for sale
|
90
|
|
|
687
|
|
|
—
|
|
|
11
|
|
|
788
|
|
Total revenues
|
198
|
|
|
744
|
|
|
316
|
|
|
9
|
|
|
1,267
|
|
Total expenses
|
555
|
|
|
404
|
|
|
301
|
|
|
153
|
|
|
1,413
|
|
Interest income
|
388
|
|
|
64
|
|
|
—
|
|
|
7
|
|
|
459
|
|
Interest expense
|
(343)
|
|
|
(67)
|
|
|
—
|
|
|
(162)
|
|
|
(572)
|
|
Other income (expense), net
|
—
|
|
|
4
|
|
|
14
|
|
|
(2)
|
|
|
16
|
|
Total other income (expenses), net
|
45
|
|
|
1
|
|
|
14
|
|
|
(157)
|
|
|
(97)
|
|
(Loss) income before income tax (benefit) expense
|
$
|
(312)
|
|
|
$
|
341
|
|
|
$
|
29
|
|
|
$
|
(301)
|
|
|
$
|
(243)
|
|
Depreciation and amortization for property and equipment and intangible assets
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
11
|
|
|
$
|
30
|
|
|
$
|
67
|
|
Total assets
|
$
|
12,065
|
|
|
$
|
4,386
|
|
|
$
|
172
|
|
|
$
|
1,855
|
|
|
$
|
18,478
|
|
(1)Service related, net revenues for Corporate/Other include intersegment eliminations.
CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, core initiatives, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts, including the projected impact of COVID-19 on our business, financial performance and operating results. When used in this discussion, the words “anticipate,” “appears,” “believe,” “foresee,” “intend,” “should,” “expect,” “estimate,” “project,” “plan,” “may,” “could,” “will,” “are likely” and similar expressions are intended to identify forward-looking statements. These statements involve predictions of our future financial condition, performance, plans and strategies and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or incorrect. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances, and we are under no obligation to, and express disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
A number of important factors exist that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to:
•the severity and duration of the COVID-19 pandemic; the pandemic’s impact on the U.S. and global economies; and federal, state and local governmental responses to the pandemic
•our ability to maintain or grow the size of our servicing portfolio;
•our ability to maintain or grow our originations volume and profitability;
•our ability to recapture voluntary prepayments related to our existing servicing portfolio;
•our shift in the mix of our servicing portfolio to subservicing, which is highly concentrated;
•delays in our ability to collect or be reimbursed for servicing advances;
•our ability to obtain sufficient liquidity and capital to operate our business;
•changes in prevailing interest rates;
•our ability to finance and recover costs of our reverse servicing operations;
•our ability to successfully implement our strategic initiatives;
•our ability to realize anticipated benefits of our previous acquisitions;
•our ability to use net operating loss carryforwards and other tax attributes;
•changes in our business relationships or changes in servicing guidelines with Fannie Mae, Freddie Mac and Ginnie Mae;
•Xome’s ability to compete in highly competitive markets;
•our ability to pay down debt;
•our ability to manage legal and regulatory examinations and enforcement investigations and proceedings, compliance requirements and related costs;
•our ability to prevent cyber intrusions and mitigate cyber risks; and
•our ability to maintain our licenses and other regulatory approvals.
All of these factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assess the effect of each such new factor on our business. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and any of these statements included herein may prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Please refer to Risk Factor and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this report and in our Annual Report on Form 10-K for the year ended December 31, 2019 for further information on these and other risk factors affecting us.