NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(millions of dollars, unless otherwise stated)
1. Nature of Business and Basis of Presentation
Nature of Business
Mr. Cooper Group Inc. collectively with its consolidated subsidiaries, (“Mr. Cooper,” the “Company,” “we,” “us” or “our”) provides servicing, origination and transaction-based services related to single family residences throughout the United States with operations under its primary brands: Mr. Cooper® and Xome®. Mr. Cooper is one of the largest home loan servicers in the country focused on delivering a variety of servicing and lending products, services and technologies. The Company has provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K. Company’s common stock has been traded on the Nasdaq Stock Market under the ticker symbol “COOP” since October 10, 2018. Prior to October 10, 2018, Company’s common stock traded under the ticker symbol “WMIH”.
On March 12, 2021, the Company entered into a Stock Purchase Agreement to sell its Title business to Blend Labs, Inc. (“Blend Labs”) for a total consideration of $500, consisting of $450 in cash, subject to certain adjustments specified therein, and a retained interest of 9.9% in the sold business (the “Title Transaction”). The Title Transaction was completed on June 30, 2021. Pursuant to the Stock Purchase Agreement, all cash generated, subject to certain adjustments, between March 13, 2021 and the closing date of the Title Transaction, were held for the benefit of Blend Labs. A $487 gain was recorded in the second quarter of 2021 upon closing of the Title Transaction, which was included in other income, net within the consolidated statements of operations. In addition, the Company recorded total transaction costs of $7 for the year ended December 31, 2021. The results of the Title business are reported under Corporate/Other in Note 20, Segment Information.
On August 31, 2021, the Company completed the sale of its Valuations business (the “Valuations Transaction”) to Voxtur Analytics Corp. (“Voxtur”) for a total consideration of $16, consisting of $9 in cash and a number of Voxtur common stock with an aggregate value of $7. A $7 gain was recorded in the third quarter of 2021 upon the closing of the Valuations Transaction and was included in other income, net within the consolidated statements of operations. There were no transaction costs recorded for the year ended December 31, 2021. The results of the Valuations business are reported under Corporate/Other in Note 20, Segment Information.
On October 22, 2021, the Company completed the sale of its Field Services business (the “Field Services Transaction”) to Cyprexx Services LLC for a total consideration of $41, consisting of $36 in cash and a retained interest of 10% in the sold business. A $34 gain was recorded in the fourth quarter of 2021 upon the closing of the Field Services Transaction and was included in other income, net within the consolidated statements of operations. There were immaterial transaction costs recorded for the year ended December 31, 2021. The results of the Field Services business are reported under Corporate/Other in Note 20, Segment Information.
On December 1, 2021, the Company completed the sale of its reverse servicing portfolio, operating under the Champion Mortgage brand (“Champion”), to Mortgage Assets Management, LLC and its affiliates (“MAM”) for a total consideration of $1,640. The reverse servicing operation was previously reported in the Company’s Servicing segment. The Company determined the sale of the reverse servicing portfolio qualified for reporting as discontinued operations. As a result, the reverse servicing operation is presented as discontinued operations in the Company’s consolidated statements of operations and the assets and liabilities of the reverse servicing operation are presented as discontinued operations in the Company’s consolidated balance sheets for all periods presented. Unless otherwise indicated, information in this report relates to the Company’s continuing operations. Refer to Note 3, Discontinued Operations for further details.
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The significant accounting policies described below, together with the other notes that follow, are an integral part of the consolidated financial statements.
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Basis of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, other entities in which the Company has a controlling financial interest, and those variable interest entities (“VIE”) where the Company’s wholly owned subsidiaries are the primary beneficiaries. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that the Company became the primary beneficiary through the date the Company ceases to be the primary beneficiary. The Company applies the equity method of accounting to investments where it is able to exercise significant influence, but not control, over the policies and procedures of the entity and owns less than 50% of the voting interests. Investments in certain companies over which the Company does not exert significant influence are accounted for as cost method investments. Intercompany balances and transactions on consolidated entities have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates, and such differences could be material, due to factors such as adverse changes in the economy, changes in interest rates, secondary market pricing for loans held for sale and derivatives, strength of underwriting and servicing practices, changes in prepayment assumptions, declines in home prices or discrete events adversely affecting specific borrowers, and uncertainties in the economy from the COVID-19 pandemic.
Reclassifications
Certain reclassifications have been made in the 2020 consolidated financial statements to conform to 2021 presentation. Such reclassifications did not affect total revenues or net income.
Recent Accounting Guidance Adopted
Accounting Standards Update 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”) simplifies accounting for income taxes by removing certain exceptions from the general principles in Topic 740 including elimination of the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items such as other comprehensive income. ASU 2019-12 also clarifies and amends certain guidance in Topic 740. ASU 2019-12 is effective for the Company on January 1, 2021. The adoption of the standard did not have a material impact to the Company’s consolidated financial statements.
2. Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include unrestricted cash on hand and other interest-bearing investments with original maturity dates of 90 days or less.
Restricted Cash
Restricted cash includes collected funds pledged to certain advance and warehouse facilities, collected fees payable to third parties, and contractual escrow funds.
Mortgage Servicing Rights (“MSR”)
The Company recognizes the rights to service mortgage loans for others, or MSRs, whether acquired or as a result of the sale of loans the Company originates with servicing retained, as assets. The Company initially records all MSRs at fair value. The Company has elected to subsequently measure forward MSRs at fair value.
The fair value of the forward MSRs is based upon the present value of the expected future net cash flows related to servicing the underlying loans. The Company determines the fair value of the MSRs by the use of a discounted cash flow model which incorporates prepayment speeds, discount rate, costs to service, delinquencies, ancillary revenues, recapture rates and other assumptions that management believes are consistent with the assumptions that other similar market participants use in valuing the MSRs. The key assumptions to determine fair value include prepayment speed, discount rate and cost to service. The credit quality and stated interest rates of the forward loans underlying the MSRs affect the assumptions used in the cash flow models. The Company obtains third-party valuations quarterly to assess the reasonableness of the fair value calculated by the cash flow model. Fair value adjustments are recorded within revenues - service related, net in the consolidated statements of operations.
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Advances and Other Receivables, Net
The Company advances funds to or on behalf of the investors when the borrower fails to meet contractual payments (e.g., principal, interest, property taxes, insurance) in accordance with terms of its servicing agreements. Other receivables consist of advances funded to maintain and market underlying loan collateral through foreclosure and ultimate liquidation on behalf of the investors. Advances are recovered from borrowers for performing loans and from the investors and loan proceeds for non-performing loans.
The Company may also acquire servicer advances in connection with the acquisition of MSRs through asset acquisitions or business combinations. These advances are recorded at their relative fair value amounts upon acquisition. The Company records receivables upon determining that collection of amounts due from loan proceeds, investors, mortgage insurers, or prior servicers is probable. Reserves related to recoverability of advances and other receivables are discussed below in Reserves for Forward Servicing Activity.
Mortgage Loans Held for Sale
The Company originates prime residential mortgage loans with the intention of selling such loans on a servicing-retained basis in the secondary market. As these loans are originated with intent to sell, the loans are classified as held for sale and the Company has elected to measure these loans held for sale at fair value. The Company estimates fair value of mortgage loans held for sale 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. In connection with the Company’s election to measure originated mortgage loans held for sale at fair value, the Company records the loan originations fees when earned, net of direct loan originations costs associated with these loans. Loan origination fees, gains or losses recognized upon sale of loans, and fair value adjustments are recorded in net gain on sale of mortgage loans held for sale in the consolidated statements of operations.
From time to time, the Company exercises this right to repurchase individual delinquent loans in GNMA securitization pools to minimize interest spread losses, re-pool into new GNMA securitizations or otherwise sell to third-party investors. The majority of GNMA repurchased loans are repurchased in connection with loan modifications and loan resolution activity with the intent to re-pool into new GNMA securitizations upon re-performance of the loan or otherwise sell to third-party investors. Therefore, the Company classifies such loans as loans held for sale and has elected to measure these repurchased loans at fair value.
Loans Subject to Repurchase from Ginnie Mae
For certain forward loans sold into GNMA mortgage-backed securities, the Company, as servicer/transferor, has the unilateral right to repurchase, without GNMA’s prior authorization, any individual loan in a GNMA securitization pool if that loan meets certain criteria, including payment not being received from the borrower for greater than 90 days (“delinquent status”). For loans in delinquent status, the Company must recognize in its consolidated balance sheets the right to repurchase the loan and a corresponding repurchase liability, regardless of whether the Company intends to repurchase the loan. The Company records these rights to repurchase in other assets at the unpaid principal balance, which approximates fair value, and a corresponding liability in payables and other liabilities in its consolidated balance sheets.
MSR Related Liabilities - Nonrecourse
Excess Spread Financing
In conjunction with the acquisition of certain MSRs on various pools of residential mortgage loans (the “Portfolios”), the Company entered into sale and assignment agreements related to its right to servicing fees, under which the Company sells to third parties the right to receive a portion of the excess cash flow generated from the Portfolios after receipt of a fixed base servicing fee per loan. The excess cash flow payments to third parties are considered counterparty payments, which are recorded as an adjustment to the Company’s revenues - service related, net in the consolidated statement of operations. The agreements consist of two components - current excess spread, or remittance of a percentage of excess spread on currently serviced loans, and future excess spread, or the obligation to transfer currently serviced loans that have been refinanced into current excess spread 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. The sale of these rights is accounted for as a secured borrowing under ASC 860, with the total proceeds received being recorded as a component of MSR related liabilities - nonrecourse at fair value in the consolidated balance sheets. The Company determines the effective interest rate on these liabilities and allocates total repayments between interest expense and the outstanding liability.
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The Company has elected to measure the outstanding financings related to the excess spread financing agreements at fair value with all changes in fair value recorded to revenues - service related, net in the consolidated statements of operations. The fair value on excess spread financing is based on the present value of future expected discounted cash flows with the discount rate approximating current market 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 and discount rate.
Changes to excess spread financing other than payments and fair value measurements include accretion, which results from changes in the portfolio. Changes related to accretion are recorded to revenues - service related, net with an offset to excess spread financing liability on the balance sheet.
Mortgage Servicing Rights Financing
The Company entered into certain transactions with third parties to sell a contractually specified base fee component of certain MSRs and servicer advances under specified terms. The Company evaluates these transactions to determine if they are sales or secured borrowings. When these transfers qualify for sale treatment, the Company derecognizes the transferred assets in its consolidated balance sheets. The Company has determined that for a portion of these transactions, the related MSRs sales are contingent on the receipt of consents from various third parties. Until these required consents are obtained, for accounting purposes, legal ownership of the MSRs continues to reside with the Company. The Company continues to account for the MSRs in its consolidated balance sheets. In addition, the Company records an MSR financing liability associated with this financing transaction. The Company continues to account for the sold excess cash flows within MSRs in its consolidated balance sheets. Counterparty payments related to this financing arrangement are recorded as an adjustment to the Company’s revenues - service related, net in the consolidated statements of operations.
The Company has elected to measure the mortgage servicing rights financing liabilities at fair value with all changes in fair value recorded to revenues - service related, net in the consolidated statements of operations. The fair value on mortgage servicing right financings is based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being advance financing rates and advance recovery rates.
Property and Equipment, Net
Property and equipment is comprised of building, furniture, fixtures, leasehold improvements, computer software, and computer hardware. These assets are stated at cost less accumulated depreciation. Repairs and maintenance are expensed as incurred which is included in general and administrative expenses in the consolidated statements of operations. Depreciation, which includes depreciation and amortization on finance leases, is recorded using the straight-line method over the estimated useful lives of the related assets. Cost and accumulated depreciation applicable to assets retired or sold are eliminated from the accounts, and any resulting gains or losses are recognized at such time through a charge or credit to general and administrative expenses. Costs to internally developed computer software are capitalized during the development stage and include internal and external costs incurred to develop software.
Long-lived assets shall be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. The Company will perform a quarterly evaluation to determine whether such events have occurred. If events and circumstances indicate the carrying values exceed the fair value of the fixed assets, the Company will proceed with impairment testing. Impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of undiscounted cash flows expected to result from the use and eventual disposition of the asset. The impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.
Leases
If the Company determines an arrangement contains a lease or lease components, then the lease will be accounted for under Accounting Standards Codification (“ASC”) 842 and classified as either a finance or operating lease. At the lease commencement date, the Company recognizes a leased right-of-use (“ROU”) asset and corresponding lease liability based on the present value of the lease payments over the lease term. Leased ROU assets are tested for impairment in accordance with ASC 360, Property, Plant, and Equipment. The Company did not have material finance leases for the periods presented.
ASC 842 provides for two policy elections. The first refers to leases with a term of 12 months or less and the second relates to separating lease components from nonlease components. The Company elected not to recognize lease assets and lease liabilities for leases with a term of 12 months or less and not to separate lease components from nonlease components.
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Leases primarily consist of various corporate and other office facilities. Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities, which are included in other assets and payables and other liabilities, respectively, on the consolidated balance sheets. Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date, as most of the Company’s leases do not provide an implicit rate. ROU assets are further adjusted for lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in general and administrative expenses in the consolidated statements of operations. Operating lease activity is included in operating activities within the consolidated statements of cash flows.
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 and MSRs. The Company recognizes all derivatives at fair value on a recurring basis in other assets and payables and other liabilities on its consolidated balance sheets. The Company treats all of its derivative instruments as economic hedges, therefore none of its derivative instruments are designated as accounting hedges.
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 futures, Treasury futures, interest rate swap agreements and interest rate caps.
IRLCs represent an agreement to extend credit to a mortgage loan applicant, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set prior to funding. The fair values of mortgage loans held for sale, which are held in inventory awaiting sale into the secondary market, and interest rate lock commitments, are subject to changes in mortgage interest rates from the date of the commitment through the sale of the loan into the secondary market. As a result, the Company is exposed to interest rate risk during the period from the date of the lock commitment through (i) the lock commitment cancellation or expiration date; or (ii) the date of sale into the secondary mortgage market. IRLCs are considered freestanding derivatives and are recorded at fair value at inception inclusive of the inherent value of servicing. Loan commitments generally range between 30 days and 90 days, and the Company typically sells mortgage loans within 30 days of origination. Changes in fair value subsequent to inception are based on changes in the fair value of the underlying loan, and changes in the probability that the loan will fund within the terms of the commitment. Any changes in fair value are recorded in earnings as a component of net gain on mortgage loans held for sale on the consolidated statement of operations and consolidated statement of cash flows.
The Company uses other derivative financial instruments, primarily forward sales commitments, to manage exposure to interest rate risk and changes in the fair value of IRLCs and mortgage loans held for sale. These commitments are recorded at fair value based on the dealer’s market. The forward sales commitments fix the forward sales price that will be realized in the secondary market and thereby reduce the interest rate and price risk to the Company. The Company’s expectation of the amount of its interest rate lock commitments that will ultimately close is a key factor in determining the notional amount of derivatives used in economically hedging the position. The Company may also enter into commitments to purchase MBS as part of its overall hedging strategy. The estimated fair values of forward MBS are based on the exchange prices. The changes in value on the forward sales commitments and forward sales of MBS are recorded as a charge or credit to net gain on mortgage loans held for sale on the consolidated statement of operations and consolidated statement of cash flows.
The Company also purchases interest rate swaps, Eurodollar futures and Treasury futures to mitigate exposure to interest rate risk related to cash flows on securitized mortgage borrowings.
Intangible Assets
Intangible assets primarily consist of customer relationships and technology acquired through business combinations. Those intangible assets are deemed to have finite useful lives and are amortized either on a straight-line basis over their estimated useful lives (trade name, technology and internally developed software), or on a basis more representative of the time pattern over which the benefit is derived (customer relationships). Intangible assets are recorded at their estimated fair value at the date of acquisition.
Intangible assets with finite useful lives are tested for impairment whenever events or circumstances indicate that their carrying amount may not be recoverable by comparing the carrying value of the assets to the estimated future undiscounted cash flows to be generated by the asset. If an impairment is determined to exist for intangible assets, the carrying value of the asset is reduced to the estimated fair value.
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Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations and is assigned to the reporting unit in which the acquired business will operate. Goodwill is not amortized but is instead subject to impairment testing. The Company evaluates its goodwill for impairment annually as of October 1 of each year or more frequently if impairment indicators arise in accordance with ASC 350, Intangibles - Goodwill and Other. When testing goodwill for impairment, the Company may elect to perform either a qualitative test or a quantitative test to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value.
During a qualitative analysis, the Company considers the impact of any changes to the following factors: macroeconomic, industry and market factors, cost factors, and changes in overall financial performance, as well as any other relevant events and uncertainties impacting a reporting unit. If the qualitative assessment does not conclude that it is more likely than not that the estimated fair value of the reporting unit is greater than the carrying value, the Company performs a quantitative analysis. In a quantitative test, the carrying value of the reporting unit is compared to its estimated fair value.
In a quantitative test, the fair value of a reporting unit is determined based on a discounted cash flow analysis and further analyzed using other methods of valuation. A discounted cash flow analysis requires the Company to make various assumptions, including assumptions about future cash flows, growth rates and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s long-term projections by reporting unit. In addition, an assumed terminal value is used to project future cash flows beyond base years. Assumptions used in the Company’s impairment testing are consistent with its internal forecasts and operating plans. The discount rate is based on the Company’s debt and equity balances, adjusted for current market conditions and investor expectations of return on the Company’s equity. If the fair value of a reporting unit exceeds its carrying amount, there is no impairment. If not, the Company compares the fair value of the reporting unit with its carrying amount. To the extent the carrying amount of the reporting unit exceeds its fair value, a write-down of the reporting unit’s goodwill would be necessary.
Reverse Servicing
As a result of the sale of the reverse servicing portfolio in December 2021, the assets and liabilities of the reverse servicing portfolio are reporting as discontinued operations in the consolidated balance sheets and related results of operations are reported as discontinued operations in the consolidated statement of operations for all periods presented.
Reverse Mortgage Servicing Liabilities
Prior to the sale of the reverse servicing portfolio, the Company owned servicing rights for certain reverse mortgage loans, for which the Company initially recorded mortgage servicing liability (“MSL”) at fair value on the acquisition date. The Company subsequently applied the amortization cost method by accreting the MSL ratably over the expected life of the portfolio.
Reverse Mortgage Interests
Reverse mortgage interests include the following:
•Participating interests in HMBS consist of the Company’s reverse mortgage interests in Home Equity Conversion Mortgages (“HECMs”) loans which have been transferred to GNMA and subsequently securitized through the issuance of HMBS. The Company does not own these loans, but due to HMBS program buyout requirements, such interests are consolidated in the Company’s consolidated balance sheets.
•Other interest securitized consists 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.
•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 (“MCA”) established at origination in accordance with HMBS program guidelines.
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•In connection with a previous merger, the Company recorded the acquired reverse mortgage interests at estimated fair value as of the acquisition date, which resulted in a net purchase discount associated with financial and operational losses on reverse mortgage interests associated with servicing the loans through foreclosure and collateral liquidation. The premium and discount are amortized and accreted, respectively, based on the effective yield method, whereby the Company updates its prepayment assumptions for actual prepayments on a quarterly basis. Consistent with the Company’s accounting policy, the Company calculates reserve requirements on the reverse mortgage interests portfolio each reporting period and compares such calculated reserve requirements against the remaining net purchase discount. If the calculated reserve requirements exceed the remaining net purchase discount, the Company will record an additional reserve and associated provision to general and administrative expense.
The Company accrues interest income for its participating interest in reverse mortgages based on the stated rates underlying HECM loans and FHA guidelines.
Revenue Recognition
ASC 606, Revenue from Contracts with Customers, establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers as performance obligations are satisfied in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services. The majority of the Company’s revenue-generating transactions in the Servicing and Originations segments, including revenue generated from financial instruments, such as the Company’s loans and derivatives, as well as revenue related to the Company’s mortgage servicing activities, are not within the scope of ASC 606 as these activities are subject to other GAAP discussed elsewhere within the Company’s disclosures. All revenues from Xome fall within the scope of ASC 606.
The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers as performance obligations are satisfied in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services.
Revenues from Servicing Activities
•Revenues from Forward Servicing Activities - Service related revenues primarily include contractually specified servicing fees, late charges, prepayment penalties, fair value adjustments, and other ancillary revenues. The servicing fees are based on a contractual percentage of the outstanding principal balance and recognized as revenue as earned during the life of the loan. Corresponding loan servicing costs are charged to expense as incurred. The Company recognizes ancillary revenues and earnings on float as they are earned.
In addition, the Company receives various fees in the course of providing servicing on its various portfolios. These fees include modification fees for modifications performed outside of government programs, modification fees for modifications pursuant to various government programs, and incentive fees for servicing performance on specific government-sponsored entities (“GSE”) portfolios. Fees recorded on modifications of mortgage loans serviced by the Company for others are recognized on collection and are recorded as a component of revenues - service related, net. Fees recorded on modifications pursuant to various government programs are recognized based upon completion of all necessary steps by the Company and the minimum loan performance time frame to establish eligibility for the fee. Revenue earned on modifications pursuant to various government programs is included as a component of revenues - service related, net. Incentive fees for servicing performance on specific GSE portfolios are recognized as various incentive standards are achieved and are recorded as a component of revenues - service related, net.
Fair value adjustments related to MSRs, excess spread financing and MSRs financing are recorded as component of revenue – service related, net.
The Company also acts as a subservicer for certain parties that own the underlying servicing rights and receives subservicing fees, which are typically a stated monthly fee per loan that varies based on types of loans. Fees related to the subserviced portfolio are accrued in the period the services are performed.
Net gain on mortgage loans held for sale, within the Servicing segment, includes servicing retained from mortgage loans sold and the realized and unrealized gains and losses on sales of mortgage loans that are repurchased out of GNMA securities and subsequently modified and re-securitized, and the fair market value adjustments related to mortgage loans held for sale.
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Revenues from Origination Activities
•Revenues from Origination and other loan fees - Loan origination and other loan fees generally represent flat, per-loan fee amounts and are recognized as revenue at the time the loans are funded.
•Net gain on mortgage loans held for sale - Net gain on loans held for sale includes the realized and unrealized gains and losses on sales of newly originated mortgage loans, as well as the changes in fair value of all loan-related derivatives, including interest rate lock commitments.
Revenue from Xome Activities
•After the sale of the Title, Valuation and Field Services businesses in 2021, Xome consists of REO auction exchange, which is a proprietary digital exchange for selling foreclosed property. Revenue is recognized when the performance obligation is completed, which is at the closing of real estate transactions and there is transfer of ownership to the buyer. Xome’s business is included in Corporate/Other.
Repurchase Reserves for Origination Activity
The Company accrues reserves for the repurchase of loans from GSEs, GNMA, and third-party investors primarily due to delinquency or foreclosure and are initially recorded upon sale of the loan to a third party with subsequent reserves recorded based on repurchase demands. The repurchase reserves are included within payables and accrued liabilities in the consolidated balance sheets and the provision for repurchase reserves is a component of net gain on mortgage loans held for sale in the consolidated statements of operations.
The Company utilizes internal models to estimate repurchase reserves for loan origination activities based upon its expectation of future defaults and the historical defect rate for government insured loans. The estimate for the repurchase reserve is based on judgments and assumptions which can be influenced by many factors and may change over the life of the underlying loans, including: (i) historical loss rate, (ii) secondary market pricing of loans; (iii) home prices and the levels of home equity; (iv) the quality of Company’s underwriting procedures; (v) borrower delinquency and default patterns; and (vi) other Company-specific and macro-economic factors. On a quarterly basis, management corroborates these assumptions using third-party data, where applicable.
Reserves for Forward Servicing Activity
In connection with forward loan servicing activities, the Company records reserves primarily for the recoverability of advances, interest claims, and mortgage insurance claims. Reserves for advances and other receivables associated with loans in the MSR portfolio are considered within the MSR valuation, and the provision expense for such advances is recorded in the mark-to-market adjustment in revenues - service related, net in the consolidated statement of operations. Such valuation gives consideration to the expected cash outflows and inflows for advances and other receivables in accordance with the fair value framework. Reserves for advances and other receivables on loans transferred out of the MSR portfolio are established within advances and other receivables, net. As loans serviced transfer out of the MSR portfolio, any negative MSR value or any GNMA loan fallout value associated with the loans transferred is reclassified from the MSR to the reserve within advances and other receivables, net, to the extent such reserves continue to be required for balances remaining on the consolidated balance sheets. Management evaluates reserves for sufficiency each reporting period and any additional reserve requirements are recorded as a provision in general and administrative expense, as needed.
The Company records reserves for advances and other receivables and evaluates the sufficiency of such reserves through internal models considering both historical and expected recovery rates on claims filed with government agencies, government sponsored enterprises, vendors, prior servicer and other counterparties. Key assumptions used in the model include but are not limited to expected recovery rates by loan types and aging of the receivable. Recovery of advances and other receivables is subject to 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. 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.
Credit Loss Reserves
ASC 326 – Financial Instruments – Credit Losses requires expected credit losses for financial instruments held at the reporting date to be measured based on historical experience, current conditions and reasonable and supportable forecasts, which is referred to as the current expected credit loss, or CECL, methodology. The new standard reflects management’s best estimate of all expected credit losses for the Company’s financial assets that are recognized at amortized cost. The revised CECL methodology considers expected lifetime loss rates calculated from historical data using a weighted average life to determine the current expected credit loss required.
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The Company determined that advances and other receivables, net of reserves, and certain financial instruments included in other assets are within the scope of ASC 326. Certain financial instruments within these respective line items have been determined to have limited expected credit-related losses due to the contractual servicing agreements with agencies and loan product guarantees.
For advances and other receivables, net, the Company determined that the majority of estimated losses are due to servicing operational errors, and credit-related losses are not significant because of the contractual relationships with the agencies. The Company determined that the credit-related risk associated with certain applicable financial instruments can 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.
For other assets, primarily trade receivables and service fees earned but not received, the Company determined that these are short-term in nature (less than one year), and the estimated credit-related losses over the life of these receivables are similar to those resulting from the Company’s existing loss reserve process. The Company monitors the financial status of customers to determine if any specific loss considerations are required.
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”), 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. In these securitization transactions, the Company typically receives cash and/or other interests in the SPE as proceeds for the transferred assets. The Company will typically retain the right to service the transferred receivables and to repurchase the transferred receivables from the SPE if the outstanding balance of the receivables falls to a level where the cost exceeds the benefits of servicing the transferred receivables.
The Company evaluates its interests in each SPE for classification as a Variable Interest Entity (“VIE”). When an SPE meets the definition of a VIE and the Company determines that the Company is the primary beneficiary, the Company includes the SPE in its consolidated financial statements.
The Company consolidates certain SPEs connected with forward mortgage activities. See Note 13, Securitizations and Financings, for more information on Company SPEs, and Note 12, Indebtedness, for certain debt activity connected with SPEs.
Securitizations and Asset-Backed Financing Arrangements
The Company and its subsidiaries have been a transferor in connection with a number of securitizations and asset-backed financing arrangements. The Company has continuing involvement with the financial assets of the securitizations and the asset-backed financing arrangements. The Company has aggregated these transactions into two groups: (1) securitizations of residential mortgage loans accounted for as sales and (2) financings of advances on loans serviced for others accounted for as secured borrowings.
Securitizations Treated as Sales
The Company’s continuing involvement typically includes acting as servicer for the mortgage loans held by the trust and holding beneficial interests in the trust. The Company’s responsibilities as servicer include, among other things, collecting monthly payments, maintaining escrow accounts, providing periodic reports and managing insurance in exchange for a contractually specified servicing fee. The beneficial interests held consist of both subordinate and residual securities that were retained at the time of securitization. These securitizations generally do not result in consolidation of the VIE as the beneficial interests that are held in the unconsolidated securitization trusts have no value and no potential for significant cash flows in the future. In addition, at December 31, 2021, the Company had no other significant assets in its consolidated financial statements related to these trusts. The Company has no obligation to provide financial support to unconsolidated securitization trusts and has provided no such support. The creditors of the trusts can look only to the assets of the trusts themselves for satisfaction of the debt issued by the trusts and have no recourse against the assets of the Company. The general creditors of the Company have no claim on the assets of the trusts. The Company’s exposure to loss as a result of its continuing involvement with the trusts is limited to the carrying values, if any, of its investments in the residual and subordinate securities of the trusts, the MSRs that are related to the trusts and the advances to the trusts. The Company considers the probability of loss arising from its advances to be remote because of their position ahead of most of the other liabilities of the trusts. See Note 5, Advances and Other Receivables, and Note 4, Mortgage Servicing Rights and Related Liabilities, for additional information regarding advances and MSRs.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 72
Financings
The Company transfers advances on loans serviced for others to SPEs in exchange for cash. The Company consolidates these SPEs because the Company is the primary beneficiary of the VIE.
These VIEs issue debt supported by collections on the transferred advances. The Company made these transfers under the terms of its advance facility agreements. The Company classifies the transferred advances on its consolidated balance sheets as advances and classifies the related liabilities as advance facilities and other nonrecourse debt. The SPEs use collections of the pledged advances to repay principal and interest and to pay the expenses of the entity. Holders of the debt issued by these entities can look only to the assets of the entities themselves for satisfaction of the debt and have no recourse against the Company.
Financings include the HMBS and private securitization trusts as previously discussed.
Interest Income
Interest income is recognized on loans held for sale for the period from loan funding to sale, which is typically within 30 days. Loans are placed on non-accrual status when any portion of the principal or interest is greater than 90 days past due. Loans return to accrual status when the principal and interest become current and it is probable that the amounts are fully collectible. For individual loans that have been modified, a period of six timely payments is required before the loan is returned to an accrual basis. Interest income also includes interest earned on custodial cash deposits associated with the mortgage loans serviced.
Interest Expense
Interest expense primarily includes interest incurred on advance and warehouse facilities, unsecured senior notes, excess spread financing and compensating bank balances, as well as bank fees. The Company incurred interest expense related to advance and warehouse facilities, unsecured senior notes and excess spread financing of $370, $409 and $467 for the years ended December 31, 2021, 2020 and 2019, respectively.
Share-Based Compensation
Equity based awards include restricted stock units (“RSUs”) granted to employees of the Company and non-employee directors and performance-based stock awards (“PSUs”) granted to certain executive officers. The RSUs are valued at the fair market value of the Company’s common stock on the grant date and recognized as an expense over the requisite employee service period on a straight-line basis using an accelerated attribution model. The PSUs are valued using a model that incorporates the market condition of the grants and expensed on a straight-line basis over the requisite employee service period. The Company applies a dynamic forfeiture rate and records share-based compensation in Salaries, wages and benefits within the consolidated statements of operations.
Advertising Costs
Advertising costs are expensed as incurred and are included as part of general and administrative expenses. The Company incurred advertising costs of $40, $38 and $33 for the years ended December 31, 2021, 2020 and 2019, respectively.
Income Taxes
The Company is subject to the income tax laws of the U.S. and its states and municipalities. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities.
Deferred income taxes are determined using the balance sheet method. Deferred taxes are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date.
73 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
The Company regularly reviews the carrying amount of its deferred tax assets to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized in future periods, a deferred tax valuation allowance is established. Consideration is given to various positive and negative evidence that could affect the realization of the deferred tax assets. In evaluating this available evidence, management considers, among other things, historical financial performance, expectation of future earnings, length of statutory carryforward periods, experience with operating tax loss and tax credit carryforwards which may expire unused, the use of tax planning strategies and the timing of reversals of temporary differences. The Company’s evaluation is based on current tax laws as well as management’s expectations of future performance.
The Company initially recognizes tax positions in the consolidated financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority, assuming the tax authority has full knowledge of the position and all relevant facts. In establishing a provision for income tax expense, the Company makes judgments and interpretations about the application of these inherently complex tax laws. The Company recognizes interest and penalties related to uncertain tax positions as a component of provisions for income taxes in accordance with ASC 740.
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. In the third quarter of 2021, the Company retired its preferred shares.
Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing net income available to common stockholders by the sum of the weighted average number of common shares outstanding and any dilutive securities for the period.
3. Discontinued Operations
On December 1, 2021, the Company completed the sale of its reverse servicing portfolio, operating under Champion, to MAM for total consideration of $1,640. Upon close of the transaction, MAM assumed Champion’s reverse portfolio and related operations. The Company recorded total transaction costs of $4 for the year ended December 31, 2021. The carrying amounts of assets and liabilities associated with the reverse servicing operation were reported under the Servicing segment. The sale of business represents a strategic shift in the Company’s operations. Therefore, the sale of the reverse servicing portfolio qualifies for reporting as discontinued operations, and the assets and liabilities of the reverse servicing portfolio are reported as discontinued operations in the consolidated balance sheets and related results of operations are reported as discontinued operations in the consolidated statements of operations for all periods presented.
As part of the transaction, the Company entered into a transitional servicing agreement with MAM, under which the Company was compensated for continuing to service these reverse loans through the date that the loans are transferred out of Company’s servicing system. In addition, the Company retained certain loans related to the reverse servicing portfolio, primarily related to previously liquidated loans, with total assets of $55 and total liabilities of $39 as of December 31, 2021. The retained assets and liabilities are included in other assets, and payables and other liabilities, respectively, on the consolidated balance sheet as of December 31, 2021.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 74
The following table sets forth the assets and liabilities included in discontinued operations:
| | | | | |
| December 31, 2020 |
Carrying amounts of assets of discontinued operations | |
Restricted cash | $ | 83 | |
Reverse mortgage interests, net | 5,253 | |
Other | 11 | |
Total assets of discontinued operations | $ | 5,347 | |
| |
Carrying amounts of liabilities of discontinued operations | |
Advances and warehouse facilities, net | $ | 505 | |
Payables and other liabilities | 233 | |
Mortgage servicing liabilities | 41 | |
Other nonrecourse debt, net | 4,424 | |
Total liabilities of discontinued operations | $ | 5,203 | |
The following table sets forth the consolidated statements of operations data for discontinued operations:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Revenue - service related, net | $ | 26 | | | $ | 44 | | | $ | 80 | |
Salaries, wages and benefits expense | (30) | | | (41) | | | (64) | |
General and administrative expense | 21 | | | (8) | | | (73) | |
Interest income | 137 | | | 176 | | | 314 | |
Interest expense | (105) | | | (174) | | | (236) | |
Loss on classification as discontinued operations | (65) | | | — | | | — | |
(Loss) income from discontinued operations before income tax (benefit) expense | (16) | | | (3) | | | 21 | |
Less: Income tax (benefit) expense | (4) | | | (1) | | | 5 | |
Net (loss) income from discontinued operations before income tax (benefit) expense | $ | (12) | | | $ | (2) | | | $ | 16 | |
4. Mortgage Servicing Rights and Related Liabilities
The following table sets forth the carrying value of the Company’s MSRs and the related liabilities. In estimating the fair value of all mortgage servicing rights and related liabilities, the impact of the current environment was considered in the determination of key assumptions.
| | | | | | | | | | | |
MSRs and Related Liabilities | December 31, 2021 | | December 31, 2020 |
Forward MSRs at fair value | $ | 4,223 | | | $ | 2,703 | |
| | | |
Excess spread financing at fair value | $ | 768 | | | $ | 934 | |
Mortgage servicing rights financing at fair value | 10 | | | 33 | |
MSR related liabilities - nonrecourse at fair value | $ | 778 | | | $ | 967 | |
Forward Mortgage Servicing Rights
The Company owns and records at fair value the rights to service traditional residential mortgage (“forward”) loans for others either as a result of purchase transactions or from the retained servicing associated with the sales and securitizations of loans originated. MSRs are comprised of servicing rights of both agency and non-agency loans.
75 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
The following table sets forth the activities of forward MSRs:
| | | | | | | | | | | |
| Year Ended December 31, |
Forward MSRs - Fair Value | 2021 | | 2020 |
Fair value - beginning of year | $ | 2,703 | | | $ | 3,496 | |
Additions: | | | |
Servicing retained from mortgage loans sold | 1,077 | | | 687 | |
Purchases of servicing rights | 948 | | | 124 | |
Dispositions: | | | |
Sales of servicing assets | (55) | | | (9) | |
Changes in fair value: | | | |
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM) | 502 | | | (819) | |
Changes in valuation due to amortization | (1,008) | | | (848) | |
Other changes | 56 | | | 72 | |
Fair value - end of year | $ | 4,223 | | | $ | 2,703 | |
From time to time, the Company sells its ownership interest in certain MSRs and is retained as the subservicer for the sold assets. The Company has evaluated the sale accounting requirements related to these transactions, including the Company’s continued involvement as the subservicer, and concluded that these transactions qualify for sale accounting treatment. During the years ended December 31, 2021 and 2020, the Company sold $5,163 and $1,070 in unpaid principal balance of forward MSRs, of which $3,937 and $960 was retained by the Company as subservicer, respectively.
Forward MSRs are segregated between investor type into agency and non-agency pools (referred to herein as “investor pools”) based upon contractual servicing agreements with investors at the respective balance sheet date to evaluate the MSR portfolio and fair value of the portfolio. Agency investors primarily consist of GSEs, such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan Mortgage Corp (“Freddie Mac” or “FHLMC”), and the Government National Mortgage Association (“Ginnie Mae” or “GNMA”). Non-agency investors consist of investors in private-label securitizations.
The following table provides a breakdown of UPB and fair value for the Company’s forward MSRs:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Forward MSRs - UPB and Fair Value Breakdown | UPB | | Fair Value | | UPB | | Fair Value |
Investor Pools | | | | | | | |
Agency | $ | 302,851 | | | $ | 3,859 | | | $ | 227,136 | | | $ | 2,305 | |
Non-agency | 36,357 | | | 364 | | | 44,053 | | | 398 | |
Total | $ | 339,208 | | | $ | 4,223 | | | $ | 271,189 | | | $ | 2,703 | |
Refer to Note 17, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in estimating the fair value of forward MSRs.
The following table shows the hypothetical effect on the fair value of the Company’s forward MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Discount Rate | | Total Prepayment Speeds | | Cost to Service per Loan |
Forward MSRs - Hypothetical Sensitivities | 100 bps Adverse Change | | 200 bps Adverse Change | | 10% Adverse Change | | 20% Adverse Change | | 10% Adverse Change | | 20% Adverse Change |
December 31, 2021 | | | | | | | | | | | |
Mortgage servicing rights | $ | (141) | | | $ | (272) | | | $ | (148) | | | $ | (286) | | | $ | (46) | | | $ | (93) | |
| | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | |
Mortgage servicing rights | $ | (100) | | | $ | (192) | | | $ | (181) | | | $ | (347) | | | $ | (45) | | | $ | (89) | |
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 76
These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
Excess Spread Financing
In order to finance the acquisition of certain MSRs on various portfolios, the Company previously entered into sale and assignment agreements with third parties and sold to these entities the right to receive a specified percentage of the excess cash flow generated from the portfolios in excess of a fixed base servicing fee per loan. The Company retains all the base servicing fees, ancillary income and interest float earnings on principal along with interest payments and escrow, and also incurs costs to service the specified pool. The Company is the legal owner and the servicer of the portfolios and provides all servicing and advancing functions.
In connection with the above transactions, the Company entered into refinanced loan obligations with third parties that require the Company to transfer the new loan or a replacement loan of similar economic characteristics into the respective portfolio if the Company refinances any loan in the portfolio. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above.
The Company had excess spread financing liability of $768 and $934 as of December 31, 2021 and 2020, respectively. Refer to Note 17, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in the valuation of excess spread financing.
The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Discount Rate | | Prepayment Speeds |
Excess Spread Financing - Hypothetical Sensitivities | 100 bps Adverse Change | | 200 bps Adverse Change | | 10% Adverse Change | | 20% Adverse Change |
December 31, 2021 | | | | | | | |
Excess spread financing | $ | 26 | | | $ | 54 | | | $ | 28 | | | $ | 58 | |
| | | | | | | |
December 31, 2020 | | | | | | | |
Excess spread financing | $ | 30 | | | $ | 62 | | | $ | 41 | | | $ | 84 | |
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.
77 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
Mortgage Servicing Rights Financing
The Company had MSR financing liability of $10 and $33 as of December 31, 2021 and 2020, respectively. Refer to Note 2, Significant Accounting Policies, for further discussion on MSR financing, and Note 17, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in the valuation of the MSR financing liability.
Servicing Segment Revenues
The following table sets forth the items comprising total revenues for the Servicing segment:
| | | | | | | | | | | |
| Year Ended December 31, |
Total Revenues - Servicing | 2021 | | 2020 |
Contractually specified servicing fees(1) | $ | 1,122 | | | $ | 1,141 | |
Other service-related income(1) | 640 | | | 290 | |
Incentive and modification income(1) | 51 | | | 39 | |
Late fees(1) | 71 | | | 83 | |
Mark-to-market adjustments(2) | 421 | | | (609) | |
Amortization, net of accretion(3) | (753) | | | (510) | |
Other(4) | (279) | | | (371) | |
Total revenues - Servicing | $ | 1,273 | | | $ | 63 | |
(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 $35 and $28 for the years ended December 31, 2021 and 2020, respectively.
(3)Amortization for the Company is net of excess spread accretion of $255 and $338 for the years ended December 31, 2021 and 2020, respectively.
(4)Other represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements, portfolio runoff and the payments made associated with MSR financing arrangements.
5. Advances and Other Receivables
Advances and other receivables, net consists of the following:
| | | | | | | | | | | |
Advances and Other Receivables, Net | December 31, 2021 | | December 31, 2020 |
Servicing advances, net of $19 and $72 purchase discount, respectively | $ | 1,263 | | | $ | 975 | |
Receivables from agencies, investors and prior servicers, net of $12 and $21 purchase discount, respectively | 132 | | | 173 | |
Reserves | (167) | | | (208) | |
Total advances and other receivables, net | $ | 1,228 | | | $ | 940 | |
The Company, as loan servicer, is contractually responsible to advance funds on behalf of the borrower and investor primarily for loan principal and interest, property taxes, 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.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 78
The following table sets forth the activities of the servicing reserves for advances and other receivables:
| | | | | | | | | | | |
| Year Ended December 31, |
Reserves for Advances and Other Receivables | 2021 | | 2020 |
Balance - beginning of year | $ | 208 | | | $ | 168 | |
Provision and other additions(1) | 75 | | | 108 | |
Write-offs | (116) | | | (68) | |
Balance - end of year | $ | 167 | | | $ | 208 | |
(1)The Company recorded a provision of $35 and $28 through the MTM adjustments in revenues - service related, net, in the consolidated statements of operations during the years ended December 31, 2021 and 2020, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.
Purchase Discount for Advances and Other Receivables
The following table sets forth the activities of the purchase discount for advances and other receivables:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
Purchase Discount for Advances and Other Receivables | Servicing Advances | | Receivables from Agencies, Investors and Prior Servicers | | Servicing Advances | | Receivables from Agencies, Investors and Prior Servicers |
Balance - beginning of year | $ | 72 | | | $ | 21 | | | $ | 131 | | | $ | 21 | |
Utilization of purchase discounts | (53) | | | (9) | | | (59) | | | — | |
Balance - end of year | $ | 19 | | | $ | 12 | | | $ | 72 | | | $ | 21 | |
Credit Loss for Advances and Other Receivables
During the years ended December 31, 2021 and 2020, the Company increased the CECL reserve by $9 and $21, respectively. In addition, the Company wrote-off $16 of the CECL reserve during the year ended December 31, 2021. As of December 31, 2021, the total CECL reserve was $31, of which $21 and $10 was recorded in reserves and purchase discount for advances and other receivables, respectively. As of December 31, 2020, the total CECL reserve was $38, of which $21 and $17 was recorded in reserves and purchase discount for advances and other receivables, respectively.
The Company determined that the credit-related risk associated with applicable financial instruments typically increase with the passage of time. The CECL reserve methodology considers these financial instruments collectible to a point in time of 39 months. Any projected remaining balance at the end of the collection period is considered a loss and factors into the overall CECL loss rate required.
6. Mortgage Loans Held for Sale
Mortgage Loans Held for Sale
The Company maintains a strategy of originating and purchasing residential mortgage loan products primarily for the purpose of selling to GSEs or other third-party investors in the secondary market on a servicing-retained basis. The Company purchases closed loans through its correspondent channel and assists customers currently in the Company’s servicing portfolio with refinancing of loans or new home purchases through its Direct to Consumer channel. Generally, all newly originated mortgage loans held for sale are securitized and transferred to GSEs or delivered to third-party purchasers shortly after origination on a servicing-retained basis.
79 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
Mortgage loans held for sale are recorded at fair value as set forth below:
| | | | | | | | | | | |
| Year Ended December 31, |
Mortgage Loans Held for Sale | 2021 | | 2020 |
Mortgage loans held for sale - UPB | $ | 4,257 | | | $ | 5,438 | |
Mark-to-market adjustment(1) | 124 | | | 282 | |
Total mortgage loans held for sale | $ | 4,381 | | | $ | 5,720 | |
(1)The mark-to-market adjustment includes net change in unrealized gain/loss, premium on correspondent loans and fees on direct-to-consumer loans. The mark-to-market adjustment is recorded in net gain on mortgage loans held for sale in the consolidated statements of operations.
The following table sets forth the activities of mortgage loans held for sale:
| | | | | | | | | | | |
| Year Ended December 31, |
Mortgage Loans Held for Sale | 2021 | | 2020 |
Balance - beginning of year | $ | 5,720 | | | $ | 4,077 | |
Loans sold | (96,077) | | | (66,545) | |
Mortgage loans originated and purchased, net of fees | 84,684 | | | 63,233 | |
Repurchase of loans out of Ginnie Mae securitizations(1) | 10,156 | | | 4,822 | |
Net change in unrealized gain on retained loans held for sale | (107) | | | 123 | |
Net transfers of mortgage loans held for sale(2) | 5 | | | 10 | |
Balance - end of year | $ | 4,381 | | | $ | 5,720 | |
(1)The Company 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 in connection with loan modifications and loan resolution activity, with the intent to re-pool into new Ginnie Mae securitizations upon re-performance of the loan or to otherwise sell to third-party investors. Therefore, these loans are classified as held for sale.
(2)Amount reflects transfers to other assets for loans transitioning into REO status and transfers to advances and other receivables, net, for claims made on certain government insurance mortgage loans. Transfers out are net of transfers in upon receipt of proceeds from an REO sale or claim filing.
For the years ended December 31, 2021 and 2020, the Company received proceeds of $97,515 and $67,894, respectively, on the sale of mortgage loans held for sale, resulting in gains of $1,438 and $1,349, respectively.
The Company accrues interest income as earned and places loans on non-accrual status after any portion of principal or interest has been delinquent for more than 90 days. In the second half of 2021, the Company began accruing interest for loans in forbearance related to the CARES Act. Accrued interest is recorded as interest income in the consolidated statements of operations.
The total UPB of mortgage loans held for sale on non-accrual status was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Mortgage Loans Held for Sale | UPB | | Fair Value | | UPB | | Fair Value |
Non-accrual(1) | $ | 104 | | | $ | 94 | | | $ | 64 | | | $ | 54 | |
(1)Non-accrual includes $94 and $44 of UPB related to Ginnie Mae repurchased loans as of December 31, 2021 and 2020, respectively.
The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $16 and $20 as of December 31, 2021 and 2020, respectively.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 80
7. Property and Equipment
The composition of property and equipment, net, and the corresponding ranges of estimated useful lives were as follows:
| | | | | | | | | | | | | | | | | |
| | | |
Property and Equipment, Net | December 31, 2021 | | December 31, 2020 | | Estimated Useful Life |
Furniture, fixtures, and equipment | $ | 57 | | | $ | 55 | | | 3 - 5 years |
Capitalized software costs | 98 | | | 80 | | | 3 - 5 years |
Software in development and other | 26 | | | 29 | | | |
Leasehold improvements | 31 | | | 33 | | | 3 - 5 years |
Long-term finance leases - computer equipment | 8 | | | 8 | | | 5 years |
Property and equipment | 220 | | | 205 | | | |
Less: Accumulated depreciation | (122) | | | (92) | | | |
Property and equipment, net | $ | 98 | | | $ | 113 | | | |
The Company recorded depreciation expense on property and equipment of $45 and $42 for the years ended December 31, 2021 and 2020, respectively. The Company has entered into various lease agreements for computer equipment, which are classified as finance leases. See Note 8, Leases, for more information.
The Company recorded immaterial impairment charges during the year ended December 31, 2021 and impairment charges of $12 during the year ended December 31, 2020. The impairment charges were included in the general and administrative expenses in the consolidated statements of operations.
8. Leases
The Company’s leases primarily relate to office space and equipment, with remaining lease terms of generally 1 to 8 years. Certain lease arrangements contain extension options, which typically range from 3 to 8 years, at the then fair market rental rates. As of December 31, 2021 and 2020, operating lease ROU assets were $111 and $97, respectively, and liabilities were $122 and $108, respectively, which were included in other assets, and payables and other liabilities, respectively, on the consolidated balance sheets. The Company does not currently have any significant finance leases in which it is the lessee.
The table below summarizes the Company’s net lease cost:
| | | | | | | | | | | |
| Year Ended December 31, |
Net Lease Cost | 2021 | | 2020 |
Operating lease cost | $ | 31 | | | $ | 37 | |
Sublease income | (4) | | | (6) | |
| | | |
| | | |
Total net lease cost | $ | 27 | | | $ | 31 | |
The table below summarizes other information related to the Company’s operating leases:
| | | | | | | | | | | |
| Year Ended December 31, |
Operating Leases - Other Information | 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 27 | | | $ | 35 | |
Leased assets obtained in exchange for new operating lease liabilities | $ | 46 | | | $ | 14 | |
Weighted average remaining lease term - operating leases, in years | 6.3 | | 5.3 |
Weighted average discount rate - operating leases | 3.8 | % | | 4.9 | % |
81 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
Maturities of operating lease liabilities as of December 31, 2021 are as follows:
| | | | | | | | |
Year Ending December 31, | | Operating Leases |
2022 | | $ | 24 | |
2023 | | 24 | |
2024 | | 20 | |
2025 | | 16 | |
2026 | | 15 | |
Thereafter | | 36 | |
Total future minimum lease payments | | 135 | |
Less: imputed interest | | 13 | |
Total operating lease liabilities | | $ | 122 | |
9. 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 $1,496 and $6,159 as of December 31, 2021 and 2020, 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 December 31, 2021 and 2020 included $1,301 and $5,879, respectively, of 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.
10. Goodwill and Intangible Assets
Goodwill
Goodwill was $120 as of December 31, 2021 and 2020. During the years ended December 31, 2021 and 2020, the Company performed a quantitative assessment of its three reporting units (Servicing, Originations and Xome) and determined that no impairment of goodwill existed. As of December 31, 2021 and 2020, $80, $28 and $12 of the goodwill is associated with the Servicing, Originations and Xome reporting units, respectively. The goodwill associated with the Xome reporting unit is included in Corporate/Other. Goodwill is recorded in other assets within the consolidated balance sheets.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 82
Intangible Assets
The following tables present the composition of intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
Intangible Assets | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Remaining Life in Years |
Customer relationships | $ | 74 | | | $ | (62) | | | $ | 12 | | | 5.6 |
Technology(1) | 25 | | | (25) | | | — | | | 2.1 |
Trade name | 7 | | | (5) | | | 2 | | | 1.6 |
Total intangible assets | $ | 106 | | | $ | (92) | | | $ | 14 | | | 4.9 |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
Intangible Assets | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Remaining Life in Years |
Customer relationships | $ | 86 | | | $ | (65) | | | $ | 21 | | | 5.5 |
Technology | 33 | | | (27) | | | 6 | | | 1.4 |
Trade name | 8 | | | (4) | | | 4 | | | 2.6 |
Total intangible assets | $ | 127 | | | $ | (96) | | | $ | 31 | | | 4.4 |
(1)Technology intangible assets’ net carrying amount as of December 31, 2021 is less than $1.
Intangible assets are recorded in other assets within the consolidated balance sheets.
The Company recognized $12 and $31 of amortization expense related to intangible assets during the years ended December 31, 2021 and 2020.
No impairment on intangible assets was recorded during the year ended December 31, 2021. During the year ended December 31, 2020, in connection with an ancillary business, the Company recorded a $10 impairment of technology intangible assets within Corporate/Other. The impairment charges were included in the general and administrative expenses in the consolidated statements of operations.
The Company expects to record amortization expense for existing amortizable intangible assets of $6 and $4 in the years ending December 31, 2022 and 2023, respectively, and $1 for each of the years ending December 31, 2024 to 2027.
11. 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, loan purchase commitments, forward Mortgage Backed Securities purchase commitments, Eurodollar and Treasury futures and interest rate swap agreements. The changes in value on the derivative instruments are recorded in earnings as a component of net gain on mortgage loans held for sale on the consolidated statements of operations and consolidated statement of cash flows, except for a portion of forward MBS trades to hedge MSR pipelines and related fair value changes, which is recorded in service related, net on the consolidated statements of operations and in changes in other assets or other liabilities on the consolidated statements of cash flows.
83 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
The following table provides the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses) for the derivative financial instruments:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | Year Ended December 31, 2021 |
Derivative Financial Instruments | Expiration Dates | | Outstanding Notional | | Fair Value | | Gains/(Losses) |
Assets | | | | | | | |
Mortgage loans held for sale | | | | | | | |
Loan sale commitments | 2022 | | $ | 1,051 | | | $ | 25 | | | $ | (77) | |
Derivative financial instruments | | | | | | | |
IRLCs | 2022 | | 5,237 | | | 134 | | | (280) | |
LPCs | 2022 | | 487 | | | 3 | | | (35) | |
Forward MBS trades | 2022 | | 3,569 | | | 7 | | | (23) | |
Total derivative financial instruments - assets | | | $ | 9,293 | | | $ | 144 | | | $ | (338) | |
Liabilities | | | | | | | |
Derivative financial instruments | | | | | | | |
IRLCs | 2022 | | $ | 10 | | | $ | — | | | $ | — | |
LPCs | 2022 | | 646 | | | 2 | | | 1 | |
Forward MBS trades | 2022 | | 4,091 | | | 8 | | | (94) | |
Swap futures | 2022 | | 923 | | | 6 | | | 6 | |
Total derivative financial instruments - liabilities | | | $ | 5,670 | | | $ | 16 | | | $ | (87) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 | | Year Ended December 31, 2020 |
Derivative Financial Instruments | Expiration Dates | | Outstanding Notional | | Fair Value | | Gains/(Losses) |
Assets | | | | | | | |
Mortgage loans held for sale | | | | | | | |
Loan sale commitments | 2021 | | $ | 2,710 | | | $ | 102 | | | $ | 70 | |
Derivative financial instruments | | | | | | | |
IRLCs | 2021 | | 10,179 | | | 414 | | | 279 | |
LPCs | 2021 | | 5,406 | | | 38 | | | 26 | |
Forward MBS trades | 2021 | | 5,853 | | | 37 | | | 31 | |
Total derivative financial instruments - assets | | | $ | 21,438 | | | $ | 489 | | | $ | 336 | |
Liabilities | | | | | | | |
Derivative financial instruments | | | | | | | |
IRLCs | 2021 | | $ | 2 | | | $ | — | | | $ | — | |
LPCs | 2021 | | 280 | | | 1 | | | (2) | |
Forward MBS trades | 2021 | | 25,156 | | | 156 | | | 144 | |
Swap futures | 2021 | | 60 | | | — | | | — | |
Total derivative financial instruments - liabilities | | | $ | 25,498 | | | $ | 157 | | | $ | 142 | |
Associated with the Company’s derivatives are $27 and $61 in collateral deposits on derivative instruments recorded in other assets on the Company’s consolidated balance sheets as of December 31, 2021 and 2020, 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.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 84
12. Indebtedness
Advance and Warehouse Facilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | December 31, 2021 | | December 31, 2020 |
| | Interest Rate | | Maturity Date | | Collateral | | Capacity Amount | | Outstanding | | Collateral Pledged | | Outstanding | | Collateral pledged |
Advance Facilities | | | | | | | | | | | | | | | | |
$940 advance facility(1) | | LIBOR+3.5% | | August 2023 | | Servicing advance receivables | | $ | 940 | | | $ | 234 | | | $ | 318 | | | $ | 235 | | | $ | 305 | |
$350 advance facility(2) | | LIBOR+1.1% to 6.5% | | October 2022 | | Servicing advance receivables | | 350 | | | 160 | | | 197 | | | 192 | | | 246 | |
$350 advance facility(3) | | CP+1.5% to 6.5% | | January 2023 | | Servicing advance receivables | | 350 | | | 162 | | | 190 | | | 168 | | | 195 | |
$75 advance facility(4) | | LIBOR+2.0% | | December 2022 | | Servicing advance receivables | | 75 | | | 58 | | | 89 | | | 74 | | | 98 | |
Advance facilities principal amount | | | | | | 614 | | | 794 | | | 669 | | | 844 | |
| | | | | | | | | | | | | | | | |
Warehouse Facilities | | | | | | | | | | | | | | | | |
$4,000 warehouse facility(5) | | LIBOR+1.6% to 2.2% | | February 2023 | | Mortgage loans or MBS | | 4,000 | | | 1,224 | | | 1,341 | | | 339 | | | 392 | |
$2,500 warehouse facility(6) | | LIBOR+1.5% to 1.9% | | October 2022 | | Mortgage loans or MBS | | 2,500 | | | 991 | | | 1,024 | | | 1,003 | | | 1,037 | |
$1,600 warehouse facility(7) | | LIBOR+1.5% to 3.0% | | September 2023 | | Mortgage loans or MBS | | 1,600 | | | 409 | | | 425 | | | 1,067 | | | 1,128 | |
$1,500 warehouse facility | | LIBOR+1.5% | | June 2022 | | Mortgage loans or MBS | | 1,500 | | | 356 | | | 345 | | | 1,081 | | | 1,028 | |
$750 warehouse facility(8) | | LIBOR+1.5% to 3.0% | | October 2022 | | Mortgage loans or MBS | | 750 | | | 256 | | | 270 | | | 787 | | | 839 | |
$600 warehouse facility | | LIBOR+2.5% | | March 2022 | | Mortgage loans or MBS | | 600 | | | 5 | | | 6 | | | 187 | | | 222 | |
$550 warehouse facility(9) | | LIBOR+1.5% | | August 2022 | | Mortgage loans or MBS | | 550 | | | 87 | | | 89 | | | 477 | | | 492 | |
$500 warehouse facility | | LIBOR+1.6% to 3.0% | | June 2023 | | Mortgage loans or MBS | | 500 | | | 188 | | | 194 | | | — | | | — | |
$500 warehouse facility(10) | | LIBOR+1.5% to 1.8% | | September 2022 | | Mortgage loans or MBS | | 500 | | | 419 | | | 430 | | | 562 | | | 574 | |
$500 warehouse facility | | LIBOR+1.5% to 4.0% | | June 2022 | | Mortgage loans or MBS | | 500 | | | 39 | | | 39 | | | — | | | — | |
$500 warehouse facility | | LIBOR+1.7% | | August 2023 | | Mortgage loans or MBS | | 500 | | | 38 | | | 39 | | | — | | | — | |
$325 warehouse facility | | LIBOR+1.5% | | December 2022 | | Mortgage loans or MBS | | 325 | | | 67 | | | 67 | | | 163 | | | 164 | |
$200 warehouse facility(11) | | LIBOR+1.8% | | October 2021 | | Mortgage loans or MBS | | 200 | | | — | | | — | | | 131 | | | 134 | |
$200 warehouse facility(12) | | LIBOR+1.6% to 4.9% | | April 2022 | | Mortgage loans or MBS | | 200 | | | 46 | | | 58 | | | 37 | | | 42 | |
$30 warehouse facility(13) | | LIBOR+3.3% | | January 2022 | | Mortgage loans or MBS | | 30 | | | — | | | — | | | 1 | | | 1 | |
Warehouse facilities principal amount | | 4,125 | | | 4,327 | | | 5,835 | | | 6,053 | |
| | | | | | | | | | | | | | | | |
MSR Facilities | | | | | | | | | | | | | | | | |
$400 warehouse facility(14) | | LIBOR+3.0% | | August 2022 | | MSR | | 400 | | | — | | | 838 | | | — | | | 247 | |
$400 warehouse facility(7) | | LIBOR+3.0% | | September 2023 | | MSR | | 400 | | | — | | | 745 | | | — | | | 228 | |
$260 warehouse facility(1) | | LIBOR+3.5% | | August 2023 | | MSR | | 260 | | | 260 | | | 1,107 | | | 260 | | | 668 | |
$50 warehouse facility | | LIBOR+2.8% | | November 2023 | | MSR | | 50 | | | 10 | | | 124 | | | 10 | | | 74 | |
MSR facilities principal amount | | 270 | | | 2,814 | | | 270 | | | 1,217 | |
| | | | | | | | | | | | | | | | |
Advance, warehouse and MSR facilities principal amount | | 5,009 | | | $ | 7,935 | | | 6,774 | | | $ | 8,114 | |
Unamortized debt issuance costs | | (12) | | | | | (11) | | | |
Total advance and warehouse facilities, net(15) | | $ | 4,997 | | | | | $ | 6,763 | | | |
85 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
(1)Total capacity for this facility is $1,200, of which $940 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, in comparison to $900, $640, and $260 respectively in 2020.
(2)The capacity amount for this advance facility decreased from $425 to $350 in 2021.
(3)The capacity amount for this advance facility decreased from $875 to $350 in 2021.
(4)The capacity amount for this advance facility decreased from $100 to $75 in 2021.
(5)The capacity amount for this warehouse facility increased from $2,000 to $4,000 in 2021.
(6)The capacity amount for this warehouse facility increased from $1,500 to $2,500 in 2021.
(7)Total capacity amount for this facility increased from $1,500 to $2,000, and its related sublimit for MSR financing has increased from $150 to $400 in 2021.
(8)The capacity amount for this warehouse facility decreased from $1,200 to $750 in 2021.
(9)The capacity amount for this warehouse facility decreased from $750 to $550 in 2021.
(10)The capacity amount for this warehouse facility decreased from $750 to $500 in 2021.
(11)This facility was terminated in 2021.
(12)The capacity amount for this warehouse facility increased from $50 to $200 in 2021.
(13)This facility was subsequently terminated in 2022.
(14)The capacity amount for this warehouse facility increased from $200 to $400 in 2021.
(15)Total advance and warehouse facilities, net as of December 31, 2020 includes $505 of warehouse facilities related to discontinued operations included in liabilities of discontinued operations within the consolidated balance sheets.
Unsecured Senior Notes
Unsecured senior notes consist of the following:
| | | | | | | | | | | |
Unsecured Senior Notes | December 31, 2021 | | December 31, 2020 |
$850 face value, 5.500% interest rate payable semi-annually, due August 2028 | $ | 850 | | | $ | 850 | |
$650 face value, 5.125% interest rate payable semi-annually, due December 2030 | 650 | | | 650 | |
$600 face value, 6.000% interest rate payable semi-annually, due January 2027 | 600 | | | 600 | |
$600 face value, 5.750% interest rate payable semi-annually, due November 2031 | 600 | | | — | |
Unsecured senior notes principal amount | 2,700 | | | 2,100 | |
Unamortized debt issuance costs and discount, net of premium | (30) | | | (26) | |
Unsecured senior notes, net | $ | 2,670 | | | $ | 2,074 | |
The ratios included in the indentures for the unsecured senior notes are incurrence-based compared to the customary ratio covenants that are often found in credit agreements that require a company to maintain a certain ratio. The incurrence-based covenants limit the issuer(s) and restricted subsidiaries ability to incur additional indebtedness, pay dividends, make certain investments, create liens, consolidate, merge or sell substantially all of their assets or enter into certain transactions with affiliates. The indentures contain certain events of default, including (subject, in some cases, to customary cure periods and materiality thresholds) defaults based on (i) the failure to make payments under the applicable indenture when due, (ii) breach of covenants, (iii) cross-defaults to certain other indebtedness, (iv) certain bankruptcy or insolvency events, (v) material judgments and (vi) invalidity of material guarantees.
The indentures provide that on or before certain fixed dates, the Company may redeem up to 40% of the aggregate principal amount of the unsecured senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest, to the redemption dates, subject to compliance with certain conditions. In addition, the Company may redeem all or a portion of the unsecured senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. No notes were repurchased or redeemed during the year ended December 31, 2021. During the year ended December 31, 2020, the Company repaid $100 in principal of outstanding notes. Additionally, the Company redeemed $2,298 in principal of outstanding notes during the year ended December 31, 2020, resulting in a net loss of $138.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 86
As of December 31, 2021, the expected maturities of the Company’s unsecured senior notes based on contractual maturities are as follows:
| | | | | | | | |
Year Ending December 31, | | Amount |
2022 through 2026 | | $ | — | |
Thereafter | | 2,700 | |
Total unsecured senior notes principal amount | | $ | 2,700 | |
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 December 31, 2021.
13. 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 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.
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:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Consolidated Transactions with VIEs | Transfers Accounted for as Secured Borrowings | | Transfers Accounted for as Secured Borrowings |
Assets | | | |
Restricted cash | $ | 50 | | | $ | 47 | |
Advances and other receivables, net | 387 | | | 441 | |
Total assets | $ | 437 | | | $ | 488 | |
| | | |
Liabilities | | | |
Advance facilities(1) | $ | 322 | | | $ | 358 | |
Payables and other liabilities | 1 | | | 1 | |
Total liabilities | $ | 323 | | | $ | 359 | |
(1)Refer to advance facilities in Note 12, 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 | December 31, 2021 | | December 31, 2020 |
Total collateral balances - UPB | $ | 1,122 | | | $ | 1,326 | |
Total certificate balances | $ | 1,112 | | | $ | 1,329 | |
The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of December 31, 2021, and 2020, and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs.
87 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
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 | December 31, 2021 | | December 31, 2020 |
Unconsolidated securitization trusts | $ | 138 | | | $ | 154 | |
14. Stockholders' Equity and Employee Benefit Plans
Share-based awards under the 2019 Omnibus Incentive Plan (the “2019 Plan”) include (i) restricted stock units (“RSUs”) granted to employees of the Company, consultants, and non-employee directors and (ii) performance stock units (“PSUs”) granted to certain executive officers.
Restricted Stock Units
The RSUs are valued at the fair market value of the Company’s common stock on the grant date as defined in the 2019 Plan. The stock awards for employees generally vest in equal installments on each of the first three anniversaries of the awards, provided that (i) the participant remains continuously employed with the Company during that time or (ii) the participant’s employment has terminated by reason of retirement. The stock awards for non-employee directors generally vest the earlier of (a) the first anniversary of the grant date or (b) the date of the next annual stockholders meeting following the grant date. In addition, upon death or disability, the unvested shares of an award will vest. Any forfeiture of restricted stock awards before vesting has been achieved, results in a reduction in the balance of outstanding common shares.
Performance Stock Units
The PSUs are valued at the fair market value of the Company’s common stock on the grant date as defined in the 2019 Plan. In March 2020 and March 2021, certain executives of the Company were granted 0.5 million PSUs (the “2020 PSUs”) and 0.3 million PSUs (the “2021 PSUs”), respectively. The 2020 and 2021 PSUs are eligible to vest and be settled into shares of common stock in an amount between 0% and 200% of a target award based on achievement of total shareholder return performance vesting criteria over a period of three years beginning March 1, 2020 and 2021, respectively, with one-third of the units also eligible to vest based on performance through March 1, 2021 and 2022, respectively.
Share-Based Award Activities
The following table summarizes the Company’s share-based awards:
| | | | | | | | | | | |
Share-based Awards | Shares (or Units) (in thousands) | | Weighted-Average Grant Date Fair Value, per Share (or Unit) |
Share-based awards outstanding as of December 31, 2020 | 4,829 | | | $ | 12.74 | |
Granted | 1,154 | | | 31.00 | |
Vested | (1,872) | | | 12.40 | |
Forfeited | (826) | | | 17.72 | |
Share-based awards outstanding as of December 31, 2021 | 3,285 | | | 18.11 | |
The Company recorded $29, $22 and $18 of expenses related to share-based awards during the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, unrecognized compensation expense totaled $32 related to non-vested stock award payments that are expected to be recognized over a weighted average period of 0.9 years.
The Company is eligible to receive a tax benefit when the vesting date fair value of an award exceeds the value used to recognize compensation expense at the date of grant. The excess tax benefit resulting from tax deductions in excess of the compensation cost recognized by the Company was $9 for the year ended December 31, 2021. The excess tax deficiency resulting from tax deductions exceeding the compensation cost recognized by the Company was immaterial for the years ended December 31, 2020 and 2019.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 88
Employee Benefit Plans
The Company sponsors a defined contribution plan (401(k) plan) that covers all full-time employees. The Company matches 100% of participant contributions up to 2% of their total eligible annual base compensation and matches 50% of contributions for the next 4% of each participant’s total eligible annual base compensation. Matching contributions by the Company totaled $26 and $24 for the years ended December 31, 2021 and 2020, respectively.
15. 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. In March 2021, the Company repurchased 3,700 thousand shares of its common stock from affiliates of Kohlberg Kravis Roberts & Co. L.P., (“KKR”) a related party of the Company, for a total cost of $119. In August 2021, the Company repurchased 11,073 thousand shares of its common stock and 1,000 thousand shares of its preferred stock from affiliates of KKR for a total cost of $396. After giving effect to the transaction, KKR no longer held any equity interests in the Company.
89 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
The following table sets forth the computation of basic and diluted net income (loss) per common share (amounts in millions, except per share amounts):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
Computation of Earnings Per Share | 2021 | | 2020 | | 2019 |
Net income from continuing operations | $ | 1,466 | | | $ | 309 | | | $ | 254 | |
Less: Net income (loss) attributable to non-controlling interests | — | | | 2 | | | (4) | |
Less: Undistributed earnings from continuing operations attributable to participating stockholders | 8 | | | 3 | | | 2 | |
Less: Premium on retirement of preferred stock | 28 | | | — | | | — | |
Net income from continuing operations attributable to Mr. Cooper common stockholders | $ | 1,430 | | | $ | 304 | | | $ | 256 | |
| | | | | |
Net (loss) income from discontinued operations | $ | (12) | | | $ | (2) | | | $ | 16 | |
Less: Undistributed earnings from discontinued operations attributable to participating stockholders | — | | | — | | | — | |
Net (loss) income from discontinued operations attributable to Mr. Cooper common stockholders | $ | (12) | | | $ | (2) | | | $ | 16 | |
| | | | | |
Net income | $ | 1,454 | | | $ | 307 | | | $ | 270 | |
Less: Net income (loss) attributable to non-controlling interests | — | | | 2 | | | (4) | |
Net income attributable to Mr. Cooper | $ | 1,454 | | | $ | 305 | | | $ | 274 | |
Less: Undistributed earnings attributable to participating stockholders | 8 | | | 3 | | | 2 | |
Less: Premium on retirement of preferred stock | 28 | | | — | | | — | |
Net income attributable to common stockholders | $ | 1,418 | | | $ | 302 | | | $ | 272 | |
| | | | | |
Earnings from continuing operations per common share attributable to Mr. Cooper: | | | | | |
Basic | $ | 17.39 | | | $ | 3.33 | | | $ | 2.81 | |
Diluted | $ | 16.67 | | | $ | 3.22 | | | $ | 2.78 | |
| | | | | |
Earnings from discontinued operations per common share attributable to Mr. Cooper: | | | | | |
Basic | $ | (0.15) | | | $ | (0.02) | | | $ | 0.18 | |
Diluted | $ | (0.14) | | | $ | (0.02) | | | $ | 0.17 | |
| | | | | |
Earnings per common share attributable to Mr. Cooper: | | | | | |
Basic | $ | 17.24 | | | $ | 3.31 | | | $ | 2.99 | |
Diluted | $ | 16.53 | | | $ | 3.20 | | | $ | 2.95 | |
| | | | | |
Weighted average shares of common stock outstanding (in thousands): | | | | | |
Basic | 82,247 | | | 91,312 | | | 91,035 | |
Dilutive effect of stock awards | 3,067 | | | 2,343 | | | 270 | |
Dilutive effect of participating securities | 492 | | | 839 | | | 839 | |
Diluted | 85,806 | | | 94,494 | | | 92,144 | |
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 90
16. Income Taxes
The components of income tax expense (benefit) for continuing operations were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
Total Income Tax Expense (Benefit) on continuing operations | 2021 | | 2020 | | 2019 |
Current Income Taxes | | | | | |
Federal | $ | 7 | | | $ | (3) | | | $ | 19 | |
State | 113 | | | 92 | | | 74 | |
Total current income taxes | 120 | | | 89 | | | 93 | |
| | | | | |
Deferred Income Taxes | | | | | |
Federal | 376 | | | 87 | | | (303) | |
State | (25) | | | (83) | | | (68) | |
Total deferred income taxes | 351 | | | 4 | | | (371) | |
Total income tax expense (benefit) | $ | 471 | | | $ | 93 | | | $ | (278) | |
The provision for income taxes does not reflect the tax effects of the sale of the Company’s reverse servicing portfolio reported as discontinued operations.
The following table presents a reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the actual effective tax rate:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
Reconciliation of the Income Tax Provision | 2021 | | 2020 | | 2019 |
Tax Expense (Benefit) at Federal Statutory Rate | $ | 407 | | | 21.0 | % | | $ | 84 | | | 21.0 | % | | $ | (5) | | | 21.0 | % |
Effect of: | | | | | | | | | | | |
State taxes, net of federal benefit | 70 | | | 3.6 | % | | 8 | | | 1.7 | % | | 3 | | | (17.5) | % |
Non-controlling interests | — | | | — | % | | — | | | — | % | | 1 | | | (3.1) | % |
Change in valuation allowance | — | | | — | % | | — | | | — | % | | (285) | | | 1,172.8 | % |
Deferred adjustments | (6) | | | (0.3) | % | | (5) | | | (1.1) | % | | 2 | | | (9.3) | % |
Nondeductible items | 2 | | | 0.1 | % | | 7 | | | 1.7 | % | | 5 | | | (19.9) | % |
Other, net | (2) | | | (0.1) | % | | (1) | | | (0.3) | % | | 1 | | | (0.8) | % |
Total income tax expense (benefit) | $ | 471 | | | 24.3 | % | | $ | 93 | | | 23.0 | % | | $ | (278) | | | 1,143.2 | % |
In 2021 and 2020, the effective tax rate differed from the statutory tax rate primarily due to state tax adjustments and permanent differences such as nondeductible executive compensation and nondeductible penalties. In 2019, the effective tax rate differed from the statutory tax rate primarily due to the release of the valuation allowance associated with the net operating loss (“NOL”) carryforwards of WMIH and state tax adjustments.
The Company has federal NOL carryforwards (pre-tax) of approximately $0.6 billion and $2.6 billion as of December 31, 2021 and 2020, respectively.
In the assessment of whether a valuation allowance was required as of December 31, 2021, the Company considered the four sources of taxable income under ASC 740-10-30-18 including the future reversals of existing taxable temporary differences and identified tax planning strategies that were considered prudent and feasible.
Consistent with the prior year analysis, the Company based its projection of future taxable income on historical pre-tax income and assumed a steady state of operations that would generate cash flows and liquidity sufficient to maintain current operations. The Company considered other factors in its determination of future taxable income that was demonstrated by historical performance.
91 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
As a result, the Company still believes it is more likely than not that its deferred tax assets will be realized prior to their expiration except for certain federal 382 limited NOLs that begin to expire with the 2026 tax year, if unused, and immaterial state NOL carryforwards that begin to expire with the 2021 tax year, if unused. Accordingly, the Company has recorded a federal and state valuation allowance of $7 and $2, respectively, as of December 31, 2021 and 2020 related to these NOL carryforwards. The Company does not expect any future tax loss limitations under Sections 382 and 384 that would impact its utilization of remaining federal NOL carryforwards.
Temporary differences and carryforwards that give rise to deferred tax assets and liabilities are comprised of the following:
| | | | | | | | | | | |
Deferred Tax Assets and Liabilities | December 31, 2021 | | December 31, 2020 |
Deferred Tax Assets | | | |
Effect of: | | | |
Goodwill and intangible assets | $ | 998 | | | $ | 728 | |
Loss carryforwards (federal, state & capital) | 134 | | | 558 | |
Loss reserves | 104 | | | 115 | |
| | | |
Lease liability | 30 | | | 26 | |
Accruals | 16 | | | 24 | |
Other, net | 20 | | | 52 | |
Total deferred tax assets | 1,302 | | | 1,503 | |
| | | |
Deferred Tax Liabilities | | | |
MSR amortization and mark-to-market, net | (240) | | | (117) | |
Right-of-use assets | (27) | | | (23) | |
Depreciation and amortization, net | (19) | | | (13) | |
Prepaid assets | (2) | | | (2) | |
Other, net | (14) | | | — | |
Total deferred tax liabilities | (302) | | | (155) | |
Valuation allowance | (9) | | | (9) | |
Deferred tax assets, net | $ | 991 | | | $ | 1,339 | |
The Company elected to account for the Global Intangible Low-Taxed Income (“GILTI”) tax expense in the period in which it is incurred. As a result, no deferred tax impact of GILTI has been provided in the consolidated financial statements.
The Company files income tax returns in the U.S. federal jurisdiction and numerous U.S. state jurisdictions. With few exceptions, as of December 31, 2021, the Company is no longer subject to U.S. federal and state income tax examinations for tax years prior to 2018.
As of December 31, 2021 and 2020, the Company had no unrecognized tax benefits recorded related to uncertain tax positions.
17. Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).
The following describes the methods and assumptions used by the Company in estimating fair values:
Cash and Cash Equivalents, Restricted Cash (Level 1) – The carrying amount reported in the consolidated balance sheets approximates fair value.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 92
Mortgage Loans Held for Sale (Level 2) – The Company originates mortgage loans in the U.S. that it intends to sell into Fannie Mae, Freddie Mac, and Ginnie Mae (collectively, the “Agencies”) MBS. Additionally, the Company holds mortgage loans that it intends to sell into the secondary markets via whole loan sales or securitizations. The Company measures newly originated prime residential mortgage loans held for sale at fair value.
Newly originated 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. Those loans 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, the Company classifies these valuations as Level 2 in the fair value disclosures.
The Company may also purchase loans out of a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. The volume of these loans increased significantly in 2021 as the delinquency rate increased during the coronavirus pandemic. The Company has elected to carry these loans at fair value. Majority of these loans are valued on a recurring basis using a market approach similar to newly originated loans as mentioned above. The remaining repurchased loans have not been modified and are valued using recent observable market trades for similar loans, adjusted for assumptions including fail rate, partial claim rate and modification status. As these prices are derived from market observable inputs, the Company classifies these valuations as Level 2 in the fair value disclosures.
The Company may acquire mortgage loans held for sale from various securitization trusts for which it acts as servicer through the exercise of various clean-up call options as permitted through the respective pooling and servicing agreements. The Company has elected to account for these loans at the lower of cost or market. The Company classifies these valuations as Level 2 in the fair value disclosures.
Mortgage Servicing Rights – Fair Value (Level 3) – The Company estimates the fair value of its forward MSRs on a recurring basis using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on a discounted cash flow model which incorporates prepayment speeds, discount rate, costs to service, delinquencies, ancillary revenues, recapture rates and other assumptions, with the key assumptions being mortgage prepayment speeds, discount rates, and cost to service. In the second quarter of 2021, the Company refined its estimate of the fair value of forward MSRs by incorporating an estimate of future cash flows from loans that are expected to be recaptured. The estimate of future cash flows related to recapture is consistent with recent pricing observed from various market participants, including the Company’s independent third-party valuation firms. As a result of considering the recapture rate, the Company adjusted its discount rate assumption in order to ensure that the fair value of forward MSRs remains consistent with current market participant pricing and is reflective of an exit price. The estimated fair value was also corroborated with valuations provided by independent third parties. The net impact of this refinement on the overall forward MSRs fair value was not significant during the year ended December 31, 2021.
The cash flow assumptions and prepayment assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency and coupon dispersion. These assumptions require the use of judgment by the Company and can have a significant impact on the fair value of the MSRs. Quarterly, management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal cash flow model. Because of the nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 4, Mortgage Servicing Rights and Related Liabilities, for more information.
Advances and Other Receivables, Net (Level 3) - Advances and other receivables, net are valued at their net realizable value after taking into consideration the reserves. Advances have no stated maturity. Their net realizable value approximates fair value as the net present value based on discounted cash flow is not materially different from the net realizable value. See Note 5, Advances and Other Receivables, for more information.
Equity Securities (Level 1 and Level 3) – The fair value of the common stock received from the sale of the Title and Field Services businesses is measured quarterly based on the minimum exit value, which was established at the time of the transaction, and observable market indicators. Because of the nature of the unobservable inputs, the Company classifies these securities as Level 3 in the fair value disclosures.
93 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
The fair value of the common stock received from the sale of the Valuations business is measured using the closing price reported on an active market in which the securities are traded. As the fair value is based on market observable inputs, the Company classifies these securities as Level 1 in the fair value disclosures.
See Note 1, Nature of Business and Basis of Presentation, for further details on the sale of the Title, Field Services and Valuation businesses.
Derivative Financial Instruments (Level 2 and Level 3) – The Company enters into a variety of derivative financial instruments as part of its hedging strategy and measures these instruments at fair value on a recurring basis in the consolidated balance sheets. These derivatives 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, these contracts are classified as Level 2. In addition, the Company enters into IRLCs and LPCs with prospective borrowers and other loan originators. 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 is significant and results in a classification of Level 3 in the fair value hierarchy. The Company 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. The Company 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. Derivative financial instruments are recorded in other assets and payables and other liabilities within the consolidated balance sheets. See Note 11, Derivative Financial Instruments, for more information.
Loans Subject to Repurchase from Ginnie Mae (Level 2) – As the Company has the unilateral right to repurchase these loans at the unpaid principal balance, the carrying amount, which is based on the unpaid principal balance, approximates fair value. See Note 9, Loans Subject to Repurchase from Ginnie Mae, 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 12, 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 12, Indebtedness, for more information.
Excess Spread Financing (Level 3) – The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds and discount rate. As these prices are derived from a combination of internally developed valuation models and quoted market prices based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. Excess spread financing is recorded in MSR related liabilities within the consolidated balance sheets. See Note 2, Significant Accounting Policies, for more information.
Mortgage Servicing Rights Financing Liability (Level 3) - The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being advance financing rates and annual advance recovery rates. As these assumptions are derived from internally developed valuation models based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. Mortgage servicing rights financing liability is recorded in MSR related liabilities within the consolidated balance sheets. See Note 4, Mortgage Servicing Rights and Related Liabilities, for more information.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 94
The following table presents 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:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Total Fair Value | | Recurring Fair Value Measurements |
Fair Value - Recurring Basis | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Mortgage loans held for sale | $ | 4,381 | | | $ | — | | | $ | 4,381 | | | $ | — | |
Forward mortgage servicing rights | 4,223 | | | — | | | — | | | 4,223 | |
Equity securities | 63 | | | 9 | | | — | | | 54 | |
Derivative financial instruments: | | | | | | | |
IRLCs | 134 | | | — | | | — | | | 134 | |
Forward MBS trades | 7 | | | — | | | 7 | | | — | |
LPCs | 3 | | | — | | | — | | | 3 | |
| | | | | | | |
Liabilities | | | | | | | |
Derivative financial instruments: | | | | | | | |
Forward MBS trades | 8 | | | — | | | 8 | | | — | |
LPCs | 2 | | | — | | | — | | | 2 | |
Swap futures | 6 | | | — | | | 6 | | | — | |
Mortgage servicing rights financing | 10 | | | — | | | — | | | 10 | |
Excess spread financing | 768 | | | — | | | — | | | 768 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Total Fair Value | | Recurring Fair Value Measurements |
Fair Value - Recurring Basis | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Mortgage loans held for sale | $ | 5,720 | | | $ | — | | | $ | 5,720 | | | $ | — | |
Forward mortgage servicing rights | 2,703 | | | — | | | — | | | 2,703 | |
Derivative financial instruments: | | | | | | | |
IRLCs | 414 | | | — | | | — | | | 414 | |
Forward MBS trades | 37 | | | — | | | 37 | | | — | |
LPCs | 38 | | | — | | | — | | | 38 | |
| | | | | | | |
Liabilities | | | | | | | |
Derivative financial instruments: | | | | | | | |
Forward MBS trades | 156 | | | — | | | 156 | | | — | |
LPCs | 1 | | | — | | | — | | | 1 | |
Mortgage servicing rights financing | 33 | | | — | | | — | | | 33 | |
Excess spread financing | 934 | | | — | | | — | | | 934 | |
95 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Assets | | Liabilities |
Fair Value - Level 3 Assets and Liabilities | Forward Mortgage Servicing Rights | | Equity Securities | | IRLCs | | LPCs | | Excess Spread Financing | | Mortgage Servicing Rights Financing |
Balance - beginning of year | $ | 2,703 | | | $ | — | | | $ | 414 | | | $ | 38 | | | $ | 934 | | | $ | 33 | |
Changes in fair value included in earnings | (506) | | | (1) | | | (280) | | | (35) | | | (10) | | | (23) | |
Purchases | 948 | | | — | | | — | | | — | | | — | | | — | |
Equity consideration received | — | | | 55 | | | — | | | — | | | — | | | — | |
Issuances | 1,077 | | | — | | | — | | | — | | | — | | | — | |
Sales | (55) | | | — | | | — | | | — | | | — | | | — | |
Settlements and repayments | — | | | — | | | — | | | — | | | (156) | | | — | |
Other changes | 56 | | | — | | | — | | | — | | | — | | | — | |
Balance - end of year | $ | 4,223 | | | $ | 54 | | | $ | 134 | | | $ | 3 | | | $ | 768 | | | $ | 10 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 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 year | $ | 3,496 | | | $ | 135 | | | $ | 12 | | | $ | 1,311 | | | $ | 37 | |
Changes in fair value included in earnings | (1,667) | | | 279 | | | 26 | | | (194) | | | (4) | |
Purchases | 124 | | | — | | | — | | | — | | | — | |
Issuances | 687 | | | — | | | — | | | 24 | | | — | |
Sales | (9) | | | — | | | — | | | — | | | — | |
Settlements and repayments | — | | | — | | | — | | | (207) | | | — | |
Other changes | 72 | | | — | | | — | | | — | | | — | |
Balance - end of year | $ | 2,703 | | | $ | 414 | | | $ | 38 | | | $ | 934 | | | $ | 33 | |
The Company had LPCs liabilities of $2 and $1 as of December 31, 2021 and 2020, respectively. During the years ended December 31, 2021 and 2020, the Company had an immaterial change in LPCs liabilities.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 96
The tables below present the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Range | | Weighted Average | | Range | | Weighted Average |
Level 3 Inputs | Min | | Max | | | Min | | Max | |
Forward MSR | | | | | | | | | | | |
Discount rate | 9.5 | % | | 13.7 | % | | 10.9 | % | | 8.2 | % | | 12.0 | % | | 9.4 | % |
Prepayment speed | 11.7 | % | | 16.4 | % | | 13.0 | % | | 14.2 | % | | 21.3 | % | | 15.4 | % |
Cost to service per loan(1) | $ | 59 | | | $ | 168 | | | $ | 77 | | | $ | 66 | | | $ | 257 | | | $ | 98 | |
Average life(2) | | | | | 5.8 years | | | | | | 5.0 years |
| | | | | | | | | | | |
IRLCs | | | | | | | | | | | |
Value of servicing (basis points per loan) | (0.7) | | | 2.4 | | | 1.4 | | | (1.0) | | | 2.2 | | | 1.2 | |
| | | | | | | | | | | |
Excess spread financing | | | | | | | | | | | |
Discount rate | 9.5 | % | | 13.8 | % | | 11.2 | % | | 9.9 | % | | 15.7 | % | | 12.2 | % |
Prepayment speed | 12.8 | % | | 15.2 | % | | 13.4 | % | | 13.9 | % | | 15.0 | % | | 14.4 | % |
Average life(2) | | | | | 5.4 years | | | | | | 5.1 years |
| | | | | | | | | | | |
Mortgage servicing rights financing | | | | | | | | | | | |
Advance financing and counterparty fee rates | 4.5 | % | | 7.9 | % | | 6.5 | % | | 4.6 | % | | 8.5 | % | | 7.5 | % |
Annual advance recovery rates | 19.2 | % | | 23.0 | % | | 21.3 | % | | 18.3 | % | | 22.0 | % | | 19.9 | % |
(1)Presented in whole dollar amounts.
(2)Average life is included for informational purposes.
The tables below present a summary of the carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Carrying Amount | | Fair Value |
Financial Instruments | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | |
Cash and cash equivalents | $ | 895 | | | $ | 895 | | | $ | — | | | $ | — | |
Restricted cash | 146 | | | 146 | | | — | | | — | |
Advances and other receivables, net | 1,228 | | | — | | | — | | | 1,228 | |
Loans subject to repurchase from Ginnie Mae | 1,496 | | | — | | | 1,496 | | | — | |
Financial liabilities | | | | | | | |
Unsecured senior notes, net | 2,670 | | | 2,737 | | | — | | | — | |
Advance and warehouse facilities, net | 4,997 | | | — | | | 5,009 | | | — | |
Liability for loans subject to repurchase from Ginnie Mae | 1,496 | | | — | | | 1,496 | | | — | |
97 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Carrying Amount | | Fair Value |
Financial Instruments | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | |
Cash and cash equivalents | $ | 695 | | | $ | 695 | | | $ | — | | | $ | — | |
Restricted cash | 135 | | | 135 | | | — | | | — | |
Advances and other receivables, net | 940 | | | — | | | — | | | 940 | |
Loans subject to repurchase from Ginnie Mae | 6,159 | | | — | | | 6,159 | | | — | |
Financial liabilities | | | | | | | |
Unsecured senior notes, net | 2,074 | | | 2,208 | | | — | | | — | |
Advance and warehouse facilities, net | 6,258 | | | — | | | 6,269 | | | — | |
Liability for loans subject to repurchase from Ginnie Mae | 6,159 | | | — | | | 6,159 | | | — | |
18. Capital Requirements
Fannie Mae, Freddie Mac, Ginnie Mae and certain private label mortgage investors require the Company to maintain 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 December 31, 2021, the Company was in compliance with its selling and servicing capital requirements.
19. 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, the CARES 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.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 98
The Company operates within highly regulated industries on a federal, state and local level. In the normal and ordinary course of its business, the Company is routinely subject to extensive examinations, investigations, subpoenas, inquiries and reviews by various federal, state and local governmental, regulatory and enforcement agencies, including the Consumer Financial Protection Bureau, the Securities and Exchange Commission, the Department of Justice, the Office of the Special Inspector General for the Troubled Asset Relief Program, the U.S. Department of Housing and Urban Development, various State mortgage banking regulators and various State Attorneys General, related to the Company’s residential loan servicing and origination practices, its financial reporting and other aspects of its businesses. Any pending or potential future investigations, subpoenas, examinations or inquiries may lead to administrative, civil or criminal proceedings or settlements, and possibly result in remedies including fines, penalties, restitution, or alterations in the Company’s business practices, and additional expenses and collateral costs. The Company is cooperating fully in these matters. Responding to these matters requires the Company to devote substantial resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase the Company’s operating expenses and reduce its revenues, require it to change business practices and limit its ability to grow and otherwise materially and adversely affect its business, reputation, financial condition and results of operation.
The Company seeks to resolve all legal proceedings and other matters in the manner management believes is in the best interest of the Company and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. The Company has entered into agreements with a number of entities and regulatory agencies that toll applicable limitations periods with respect to their claims.
On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal and regulatory and governmental proceedings utilizing the latest information available. Where available information indicates that it is probable, a liability has been incurred, and the Company can reasonably estimate the amount of the loss, an accrued liability is established. The actual costs of resolving these proceedings may be substantially higher or lower than the amounts accrued.
As a legal matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company will establish an accrued liability and record a corresponding amount to legal-related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Legal-related expense for the Company, which includes legal settlements and the fees paid to external legal service providers, of $39 and $51 for the years ended December 31, 2021 and 2020, respectively, was included in general and administrative expenses on the consolidated statements of operations.
For matters for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material legal matters on an ongoing basis, in conjunction with any outside counsel handling the matter. Management currently believes the aggregate range of reasonably possible loss is $8 to $17 in excess of the accrued liability (if any) related to those matters as of December 31, 2021. This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within the estimated range. Therefore, this estimated range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure and the Company cannot provide assurance that its litigations reserves will not need to be adjusted in the future. Thus, the Company’s exposure and ultimate losses may be higher, possibly significantly so, than the amounts accrued or this aggregate amount.
99 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
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 mortgage loan portfolios that are subject to indemnification based on the representations and warranties of the seller. From time to time, the Company will seek recovery under these representations and warranties for incurred costs. The Company believes all balances sought from sellers recorded in advances and other receivables represent valid claims. However, the Company acknowledges that the claims process can be prolonged due to the required time to perfect claims at the loan level. Because of the required time to perfect or remediate these claims, management relies on the sufficiency of documentation supporting the claim, current negotiations with the counterparty and other evidence to evaluate whether a reserve is required for non-recoverable balances. In the absence of successful negotiations with the seller, all amounts claimed may not be recovered. Balances may be written-off and charged against earnings when management identifies amounts where recoverability from the seller is not likely. As of December 31, 2021, the Company believes all recorded balances for which recovery is sought from the seller are valid claims, and no evidence suggests additional reserves are warranted.
Loan and Other Commitments
The Company enters into IRLCs with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rates to the borrower. The Company also enters into LPCs with prospective sellers. These loan commitments are treated as derivatives and are carried at fair value. See Note 11, Derivative Financial Instruments, for more information.
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20. Segment Information
The Company’s segments are based upon the Company’s organizational structure, which focuses primarily on the services offered. Corporate functional expenses are allocated to individual segments based on the actual cost of services performed, direct resource utilization, estimate of percentage use for shared services or headcount percentage for certain functions. Facility costs are allocated to individual segments based on cost per headcount for specific facilities utilized. Group insurance costs are allocated to individual segments based on global cost per headcount. Non-allocated corporate expenses include the administrative costs of executive management and other corporate functions that are not directly attributable to Company’s operating segments. Revenues generated on inter-segment services performed are valued based on similar services provided to external parties.
In the third quarter of 2021, the Company updated its presentation of segments to align with a change in the reporting package provided to the Chief Operating Decision Maker. In 2021, the Company sold its Title business, Valuations business and Field Services business. See Note 1, Nature of Business and Basis of Presentation for further details. The Title, Valuations and Field Services businesses were previously reported under the Xome segment. With the sale of the majority of Xome’s operations and the related changes to business structure and internal reporting, the Xome segment will no longer be considered a reportable segment. Accordingly, beginning in the third quarter of 2021, the Company began reporting Xome’s financial results within Corporate/Other. Prior year financial information has been adjusted retrospectively to reflect the updated presentation.
In 2021, the Company closed the sale of its Title, Valuations and Field Services businesses. The Title, Valuations, and Field Services businesses were reported within Corporate/Other. The Company recorded $487, $7 and $34 gain in 2021 upon closing of the Title Transaction, Valuations Transaction and Field Services Transaction, respectively. The gain was included in other income, net in the consolidated statements of operations and reported under Corporate/Other.
On December 1, 2021, the Company completed the sale of its reverse servicing portfolio, operating under the Champion Mortgage brand, to Mortgage Assets Management, LLC and its affiliates. The reverse servicing operation was previously reported in the Company’s Servicing segment. The reverse servicing operation is presented as discontinued operations in Company’s consolidated financial statements for all periods presented and, as such, is not included in the continuing operations of the Servicing segment. Refer to Note 3, Discontinued Operations for further details. As of December 31, 2021 and December 31, 2020, total assets of discontinued operations was none and $5,347, respectively.
The following tables present financial information by segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
Financial Information by Segment | Servicing | | Originations | | Corporate/ Other | | Consolidated |
Revenues | | | | | | | |
Service related, net | $ | 705 | | | $ | 176 | | | $ | 186 | | | $ | 1,067 | |
Net gain on mortgage loans held for sale | 568 | | | 1,683 | | | — | | | 2,251 | |
Total revenues | 1,273 | | | 1,859 | | | 186 | | | 3,318 | |
Total expenses | 502 | | | 852 | | | 308 | | | 1,662 | |
Interest income | 129 | | | 102 | | | — | | | 231 | |
Interest expense | (262) | | | (88) | | | (128) | | | (478) | |
Other income (expenses), net | — | | | — | | | 528 | | | 528 | |
Total other (expenses) income, net | (133) | | | 14 | | | 400 | | | 281 | |
Income from continuing operations before income tax expense | $ | 638 | | | $ | 1,021 | | | $ | 278 | | | $ | 1,937 | |
Depreciation and amortization for property and equipment and intangible assets from continuing operations | $ | 32 | | | $ | 24 | | | $ | 1 | | | $ | 57 | |
Total assets | $ | 8,733 | | | $ | 3,143 | | | $ | 2,328 | | | $ | 14,204 | |
101 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
Financial Information by Segment | Servicing | | Originations | | Corporate/ Other | | Consolidated |
Revenues | | | | | | | |
Service related, net | $ | (159) | | | $ | 105 | | | $ | 433 | | | $ | 379 | |
Net gain on mortgage loans held for sale | 222 | | | 2,088 | | | — | | | 2,310 | |
Total revenues | 63 | | | 2,193 | | | 433 | | | 2,689 | |
Total expenses | 491 | | | 746 | | | 545 | | | 1,782 | |
Interest income | 61 | | | 95 | | | 2 | | | 158 | |
Interest expense | (268) | | | (78) | | | (182) | | | (528) | |
Other (expenses) income, net | — | | | — | | | (135) | | | (135) | |
Total other (expenses) income, net | (207) | | | 17 | | | (315) | | | (505) | |
(Loss) income from continuing operations before income tax (benefit) expense | $ | (635) | | | $ | 1,464 | | | $ | (427) | | | $ | 402 | |
Depreciation and amortization for property and equipment and intangible assets from continuing operations | $ | 20 | | | $ | 18 | | | $ | 35 | | | $ | 73 | |
Total assets | $ | 16,173 | | | $ | 5,447 | | | $ | 2,545 | | | $ | 24,165 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
Financial Information by Segment | Servicing | | Originations | | Corporate/ Other | | Consolidated |
Revenues | | | | | | | |
Service related, net | $ | 328 | | | $ | 80 | | | $ | 421 | | | $ | 829 | |
Net gain on mortgage loans held for sale | 124 | | | 963 | | | 11 | | | 1,098 | |
Total revenues | 452 | | | 1,043 | | | 432 | | | 1,927 | |
Total expenses | 554 | | | 568 | | | 592 | | | 1,714 | |
Interest income | 186 | | | 98 | | | 7 | | | 291 | |
Interest expense | (233) | | | (98) | | | (212) | | | (543) | |
Other income, net | 4 | | | 4 | | | 7 | | | 15 | |
Total other (expenses) income, net | (43) | | | 4 | | | (198) | | | (237) | |
(Loss) income from continuing operations before income tax (benefit) expense | $ | (145) | | | $ | 479 | | | $ | (358) | | | $ | (24) | |
Depreciation and amortization for property and equipment and intangible assets from continuing operations | $ | 19 | | | $ | 18 | | | $ | 53 | | | $ | 90 | |
Total assets | $ | 11,743 | | | $ | 4,313 | | | $ | 2,249 | | | $ | 18,305 | |
21. Subsequent Events
On February 10, 2022, the Company entered into a Contribution Agreement (the “Transaction Agreement”) with Sagent M&C, LLC (“Sagent”), pursuant to which the Company will transfer (a) certain assets and liabilities of its servicing and subservicing technology platform for performing and non-performing mortgage loans (the “Mortgage Servicing Platform”) and (b) certain tangible personal property of the Company used in the conduct of the Mortgage Servicing Platform to Sagent in exchange for 200,760 Class A-1 Common Units of Sagent (subject to certain adjustments as set forth in the Transaction Agreement) and $9.9 in cash. The Company expects to record a pre-tax gain of approximately $225 related to the sale, which is expected to close during the first half of 2022. In connection with the sale, the Company entered into a Transition Services Agreement with Sagent to operate the Mortgage Servicing Platform for twelve months prior to closing. Additionally, the Company entered into a seven-year license agreement to license back the Mortgage Servicing Platform from Sagent, which includes tiered pricing based on active loan volume.
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