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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________________________________________________
 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______                    
Commission file number: 001-14667
coop-20220331_g1.jpg
________________________________________________________________________________________________________
Mr. Cooper Group Inc.
(Exact name of registrant as specified in its charter)
Delaware   91-1653725
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
8950 Cypress Waters Blvd, Coppell, TX
  75019
(Address of principal executive offices)   (Zip Code)
(469) 549-2000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, $0.01 par value per share COOP The Nasdaq Stock Market
____________________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.
Large Accelerated Filer x Accelerated Filer
Non-Accelerated Filer ¨ Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  x
Number of shares of common stock, $0.01 par value, outstanding as of April 21, 2022 was 73,906,095.


MR. COOPER GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
    Page
PART I
Item 1.
3
Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021
3
4
5
Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2022 and 2021
6
8
8
9
16. Segment Information
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

PART I. Financial Information

Item 1. Financial Statements
MR. COOPER GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions of dollars, except share data)
March 31, 2022 December 31, 2021
  (unaudited)  
Assets
Cash and cash equivalents $ 579  $ 895 
Restricted cash 130  146 
Mortgage servicing rights at fair value 6,006  4,223 
Advances and other receivables, net of reserves of $152 and $167, respectively
1,044  1,228 
Mortgage loans held for sale at fair value 3,593  4,381 
Property and equipment, net of accumulated depreciation of $107 and $122, respectively
75  98 
Deferred tax assets, net 794  991 
Other assets 2,269  2,242 
Total assets $ 14,490  $ 14,204 
Liabilities and Stockholders’ Equity
Unsecured senior notes, net $ 2,670  $ 2,670 
Advance and warehouse facilities, net 4,795  4,997 
Payables and other liabilities 2,203  2,392 
MSR related liabilities - nonrecourse at fair value 845  778 
Total liabilities 10,513  10,837 
Commitments and contingencies (Note 15)
Preferred stock at $0.00001 - 10 million shares authorized, zero shares issued, zero shares outstanding; aggregate liquidation preference of zero
  — 
Common stock at $0.01 par value - 300 million shares authorized, 93.2 million shares issued
1 
Additional paid-in-capital 1,085  1,116 
Retained earnings 3,537  2,879 
Treasury shares at cost - 19.3 million and 19.4 million shares, respectively
(647) (630)
Total Mr. Cooper stockholders’ equity 3,976  3,366 
Non-controlling interests 1 
Total stockholders’ equity 3,977  3,367 
Total liabilities and stockholders’ equity $ 14,490  $ 14,204 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).
3

MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(millions of dollars, except for earnings per share data)
  Three Months Ended March 31,
2022 2021
Revenues:
Service related, net $ 755  $ 580 
Net gain on mortgage loans held for sale 297  679 
Total revenues 1,052  1,259 
Expenses:
Salaries, wages and benefits 228  277 
General and administrative 110  177 
Total expenses 338  454 
Interest income 36  46 
Interest expense (106) (126)
Other income, net 222  — 
Total other income (expense), net 152  (80)
Income from continuing operations before income tax expense 866  725 
Less: Income tax expense 208  166 
Net income from continuing operations 658  559 
Net income from discontinued operations  
Net income 658  561 
Less: Undistributed earnings attributable to participating stockholders  
Net income attributable to common stockholders $ 658  $ 556 
Earnings from continuing operations per common share attributable to Mr. Cooper:
Basic $ 8.91  $ 6.20 
Diluted $ 8.59  $ 5.90 
Earnings from discontinued operations per common share attributable to Mr. Cooper:
Basic $   $ 0.02 
Diluted $   $ 0.02 
Earnings per common share attributable to Mr. Cooper:
Basic $ 8.91  $ 6.22 
Diluted $ 8.59  $ 5.92 
    
See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).
4

MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions of dollars, except share data)
Preferred Stock Common Stock
Shares
(in thousands)
Amount Shares
(in thousands)
Amount Additional Paid-in Capital Retained Earnings Treasury Share Amount Total Mr. Cooper Stockholders’ Equity Non-controlling Interests Total Stockholders’
Equity
Balance at January 1, 2021 1,000  $ —  89,457  $ $ 1,126  $ 1,434  $ (58) $ 2,503  $ $ 2,504 
Shares issued / (surrendered) under incentive compensation plan —  —  1,183  —  (19) —  —  (19) —  (19)
Share-based compensation —  —  —  —  —  —  — 
Repurchase of common stock —  —  (4,505) —  —  —  (148) (148) —  (148)
Net income —  —  —  —  —  561  —  561  —  561 
Balance at March 31, 2021 1,000  $ —  86,135  $ $ 1,113  $ 1,995  $ (206) $ 2,903  $ $ 2,904 
Balance at January 1, 2022   $   73,777  $ 1  $ 1,116  $ 2,879  $ (630) $ 3,366  $ 1  $ 3,367 
Shares issued / (surrendered) under incentive compensation plan     850    (39)   18  (21)   (21)
Share-based compensation         8      8    8 
Repurchase of common stock     (721)       (35) (35)   (35)
Net income           658    658    658 
Balance at March 31, 2022   $   73,906  $ 1  $ 1,085  $ 3,537  $ (647) $ 3,976  $ 1  $ 3,977 

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

5

MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
Three Months Ended March 31,
  2022 2021
Operating Activities
Net income $ 658  $ 561 
Less: Net income from discontinued operations  
Net income from continuing operations 658  559 
Adjustments to reconcile net income from continuing operations to net cash attributable to operating activities:
Deferred tax expense 197  111 
Net gain on mortgage loans held for sale (297) (679)
Provision for servicing and non-servicing reserves 6  13 
Fair value changes and amortization of mortgage servicing rights (563) (278)
Fair value changes in MSR related liabilities 99  31 
Depreciation and amortization for property and equipment and intangible assets 11  15 
Gain on disposition of assets (223) — 
Other operating activities 21  20 
Repurchases of forward loan assets out of Ginnie Mae securitizations (2,249) (2,255)
Mortgage loans originated and purchased for sale, net of fees (11,598) (25,214)
Sales proceeds and loan payment proceeds for mortgage loans held for sale 14,727  27,048 
Changes in assets and liabilities:
Advances and other receivables 169  71 
Other assets (99) 106 
Payables and other liabilities 67  194 
Net cash attributable to operating activities - continuing operations 926  (258)
Net cash attributable to operating activities - discontinued operations   182 
Net cash attributable to operating activities 926  (76)
Investing Activities
Property and equipment additions, net of disposals (3) (14)
Purchase of mortgage servicing rights (965) (69)
Proceeds on sale of mortgage servicing rights 4  — 
Other investing activities  
Net cash attributable to investing activities - continuing operations (964) (82)
Net cash attributable to investing activities - discontinued operations   — 
Net cash attributable to investing activities (964) (82)
Financing Activities
(Decrease) increase in advance and warehouse facilities (204) 608 
Settlements and repayments of excess spread financing (32) (41)
Repurchase of common stock (35) (148)
Other financing activities (23) (22)
Net cash attributable to financing activities - continuing operations (294) 397 
Net cash attributable to financing activities - discontinued operations   (217)
Net cash attributable to financing activities (294) 180 
Net (decrease) increase in cash, cash equivalents, and restricted cash (332) 22 
Cash, cash equivalents, and restricted cash - beginning of period 1,041  913 
Cash, cash equivalents, and restricted cash - end of period(1)
$ 709  $ 935 
Supplemental Disclosures of Non-cash Investing Activities
Equity consideration received from disposition of assets $ 250  $ — 
Purchase of mortgage servicing rights $ 64  $ — 

6

(1)The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the condensed consolidated balance sheets.
March 31, 2022 March 31, 2021
Cash and cash equivalents $ 579  $ 674 
Restricted cash 130  176 
Restricted cash within assets of discontinued operations   85 
Total cash, cash equivalents, and restricted cash $ 709  $ 935 
See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited). 
7

MR COOPER GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(millions of dollars, unless otherwise stated)

1. Nature of Business and Basis of Presentation

Nature of Business
Mr. Cooper Group Inc., collectively with its consolidated subsidiaries, (“Mr. Cooper,” the “Company,” “we,” “us” or “our”) provides servicing, origination and transaction-based services related to single family residences throughout the United States with operations under its primary brands: Mr. Cooper® and Xome®. Mr. Cooper is one of the largest home loan originators and servicers in the country focused on delivering a variety of servicing and lending products, services and technologies. The Company’s corporate website is located at www.mrcoopergroup.com. The Company has provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-Q.

Basis of Presentation
The interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2021.

The interim condensed consolidated financial statements are unaudited; however, in the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation of the results of the interim periods have been included. Dollar amounts are reported in millions, except per share data and other key metrics, unless otherwise noted.

Share-based compensation for restricted stock units granted to employees of the Company, consultants, and non-employee directors is based on 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. Shares for these awards are issued to employees from treasury stock.

Basis of Consolidation
The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, other entities in which the Company has a controlling financial interest and those variable interest entities (“VIE”) where the Company’s wholly-owned subsidiaries are the primary beneficiaries. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that the Company became the primary beneficiary through the date the Company ceases to be the primary beneficiary. The Company applies the equity method of accounting to investments where it is able to exercise significant influence, but not control, over the policies and procedures of the entity and owns less than 50% of the voting interests. These investments are initially measured at cost and subsequently adjusted for Company’s proportionate share of earnings and losses in the investee. Investments in certain companies over which the Company does not exert significant influence are recorded at fair value, or at cost upon election of measurement alternative, at the end of each reporting period. Intercompany balances and transactions on consolidated entities have been eliminated.

Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates due to factors such as adverse changes in the economy, changes in interest rates, secondary market pricing for loans held for sale and derivatives, strength of underwriting and servicing practices, changes in prepayment assumptions, declines in home prices or discrete events adversely affecting specific borrowers, uncertainties in the economy from the COVID-19 pandemic, and such differences could be material.

Reclassifications
Certain reclassifications have been made in the 2021 condensed consolidated financial statements to conform to 2022 presentation. Such reclassifications did not affect total revenues or net income.

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Recent Accounting Guidance Adopted
The Company did not adopt any accounting guidance during the three months ended March 31, 2022 that had a material impact on its condensed consolidated financial statements or disclosures.


2. Dispositions

Sale of Mortgage Servicing Platform
On March 31, 2022, the Company completed the sale of certain assets and liabilities of its servicing and subservicing technology platform for performing and non-performing mortgage loans (the “Mortgage Servicing Platform”) to Sagent M&C, LLC (“Sagent”), in exchange for Class A-1 Common Units equal to 19.9% ownership of Sagent, and the sale of certain tangible personal property of the Company used in the conduct of the Mortgage Servicing Platform in exchange for $9.9 in cash, for total consideration of $260 (the “Sagent Transaction”). In connection with the Sagent Transaction, the Company recorded a gain of $223, which was included in other income, net within the condensed consolidated statements of operations, and recorded $4 transaction costs during the three months ended March 31, 2022. The net carrying amount of assets and liabilities associated with the Sagent Transaction was $31 and reported under Corporate/Other.

The Company accounted for the equity interest under the equity method of accounting, as the Company has the ability to exercise significant influence over Sagent’s operating and financial decisions but does not own a majority equity interest or otherwise control the respective entity. Under the equity method of accounting, the investment is initially stated at cost and subsequently adjusted for additional investments and the Company’s proportionate share of Sagent’s earnings or losses and distributions. The initial cost of the equity interest recorded was $250, which represented the fair value as of March 31, 2022.

Sale of Reverse Servicing Portfolio
On December 1, 2021, the Company completed the sale of its reverse servicing portfolio, operating under Champion Mortgage brand (“Champion”), to Mortgage Assets Management, LLC and its affiliates (“MAM”) for total consideration of $1,640. Upon close of the transaction, MAM assumed Champion’s reverse portfolio and related operations. The Company recorded no transaction costs during the three months ended March 31, 2022 and 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 related results of operations are reported as discontinued operations in the condensed consolidated statements of operations for prior 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 subservice the reverse loans through the date that the loans are transferred out of Company’s servicing system. The transfer of the loans out of the Company’s servicing system was completed on April 1, 2022. In addition, the Company retained certain loans related to the reverse servicing portfolio, primarily related to previously liquidated loans. As of March 31, 2022, the retained total assets and total liabilities were $48 and $39, respectively. As of December 31, 2021, the retained total assets and total liabilities were $55 and $39, respectively. The retained assets and liabilities are included in other assets, and payables and other liabilities, respectively, on the condensed consolidated balance sheets.

The following table sets forth the condensed consolidated statements of operations data for discontinued operations for the three months ended March 31, 2021:
Revenue - service related, net $
Salaries, wages and benefits expense (8)
General and administrative expense (7)
Interest income 43 
Interest expense (33)
Income from discontinued operations before income tax expense
Less: Income tax expense
Net income from discontinued operations $


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3. Mortgage Servicing Rights and Related Liabilities

The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities. In estimating the fair value of all mortgage servicing rights and related liabilities, the impact of the current environment was considered in the determination of key assumptions.
MSRs and Related Liabilities March 31, 2022 December 31, 2021
MSRs - fair value $ 6,006  $ 4,223 
Excess spread financing - fair value $ 815  $ 768 
Mortgage servicing rights financing - fair value 30  10 
MSR related liabilities - nonrecourse at fair value $ 845  $ 778 

Mortgage Servicing Rights
The following table sets forth the activities of MSRs:
Three Months Ended March 31,
MSRs - Fair Value 2022 2021
Fair value - beginning of period $ 4,223  $ 2,703 
Additions:
Servicing retained from mortgage loans sold 200  288 
Purchases of servicing rights 1,015  67 
Dispositions:
Sales of servicing assets (4) (2)
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM) 798  521 
Changes in valuation due to amortization (235) (243)
Other changes 9  20 
Fair value - end of period $ 6,006  $ 3,354 

During the three months ended March 31, 2022 and 2021, the Company sold $361 and $50 in unpaid principal balance (“UPB”) of MSRs, of which $342 and none were retained by the Company as subservicer, respectively.

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 government sponsored enterprises (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan Mortgage Corp (“Freddie Mac” or “FHLMC”), and the Government National Mortgage Association (“Ginnie Mae” or “GNMA”). Non-agency investors consist of investors in private-label securitizations.

The following table provides a breakdown of UPB and fair value for the Company’s MSRs:
March 31, 2022 December 31, 2021
MSRs - UPB and Fair Value Breakdown UPB Fair Value UPB Fair Value
Investor Pools
Agency $ 377,225  $ 5,635  $ 302,851  $ 3,859 
Non-agency 34,615  371  36,357  364 
Total $ 411,840  $ 6,006  $ 339,208  $ 4,223 

Refer to Note 13, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in estimating the fair value of MSRs.

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The following table shows the hypothetical effect on the fair value of the Company’s 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
MSRs - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
March 31, 2022
Mortgage servicing rights $ (207) $ (399) $ (134) $ (259) $ (56) $ (113)
December 31, 2021
Mortgage servicing rights $ (141) $ (272) $ (148) $ (286) $ (46) $ (93)

These hypothetical sensitivities should be evaluated with care. The effect on fair value of an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.

Excess Spread Financing - Fair Value
The Company had excess spread financing liability of $815 and $768 as of March 31, 2022 and December 31, 2021, respectively. Refer to Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of excess spread financing liability.

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
March 31, 2022
Excess spread financing $ 31  $ 64  $ 23  $ 47 
December 31, 2021
Excess spread financing $ 26  $ 54  $ 28  $ 58 

These hypothetical sensitivities should be evaluated with care. The effect on fair value of an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing. Excess spread financing’s cash flow assumptions that are utilized in determining fair value are based on the related cash flow assumptions used in the financed MSRs. Any fair value change recognized in the financed MSRs attributable to related cash flows assumptions would inherently have an inverse impact on the carrying amount of the related excess spread financing.

Mortgage Servicing Rights Financing - Fair Value
The Company had MSR financing liability of $30 and $10 as of March 31, 2022 and December 31, 2021, respectively. Refer to Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of the MSR financing liability.
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Servicing Segment Revenues
The following table sets forth the items comprising total revenues for the Servicing segment:
Three Months Ended March 31,
Total Revenues - Servicing 2022 2021
Contractually specified servicing fees(1)
$ 327  $ 276 
Other service-related income(1)
48  145 
Incentive and modification income(1)
9  14 
Late fees(1)
19  18 
Mark-to-market adjustments(2)
553  365 
Amortization, net of accretion(3)
(202) (167)
Other(4)
(38) (83)
Total revenues - Servicing $ 716  $ 568 

(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 $6 and $12 for the three months ended March 31, 2022 and 2021.
(3)Amortization is net of excess spread accretion of $33 and $76 during the three months ended March 31, 2022 and 2021, 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.


4. Advances and Other Receivables

Advances and other receivables, net, consists of the following:
Advances and Other Receivables, Net March 31, 2022 December 31, 2021
Servicing advances, net of $16 and $19 purchase discount, respectively
$ 1,075  $ 1,263 
Receivables from agencies, investors and prior servicers, net of $8 and $12 purchase discount, respectively
121  132 
Reserves (152) (167)
Total advances and other receivables, net $ 1,044  $ 1,228 

The following table sets forth the activities of the servicing reserves for advances and other receivables:
Three Months Ended March 31,
Reserves for Advances and Other Receivables 2022 2021
Balance - beginning of period $ 167  $ 208 
Provision and other additions(1)
16  15 
Write-offs (31) (17)
Balance - end of period $ 152  $ 206 

(1)The Company recorded a provision of $6 and $12 through the MTM adjustments in revenues - service related, net, in the condensed consolidated statements of operations during the three months ended March 31, 2022 and 2021, 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.

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Purchase Discount for Advances and Other Receivables
The following tables set forth the activities of the purchase discounts for advances and other receivables:
Three Months Ended March 31,
2022 2021
Purchase Discount for Advances and Other Receivables Servicing Advances Receivables from Agencies, Investors and Prior Servicers Servicing Advances Receivables from Agencies, Investors and Prior Servicers
Balance - beginning of period $ 19  $ 12  $ 72  $ 21 
Utilization of purchase discounts (3) (4) (9) (1)
Balance - end of period $ 16  $ 8  $ 63  $ 20 

Credit Loss for Advances and Other Receivables
During the three months ended March 31, 2022 and 2021, the Company increased the current expected credit loss (“CECL”) reserve by $4 and $1, respectively. In addition, the Company wrote off $5 of the CECL reserve during the three months ended March 31, 2022. As of March 31, 2022, the total CECL reserve was $30, of which $22 and $8 were recorded in reserves and purchase discount for advances and other receivables, respectively. As of March 31, 2021, the total CECL reserve was $39, of which $22 and $17 were recorded in reserves and purchase discount for advances and other receivables, respectively.

The Company determined that the credit-related risk associated with applicable financial instruments typically increase with the passage of time. The CECL reserve methodology considers these financial instruments collectible to a point in time of 39 months. Any projected remaining balance at the end of the collection period is considered a loss and factors into the overall CECL loss rate required.

5. Mortgage Loans Held for Sale

Mortgage loans held for sale are recorded at fair value as set forth below:
Mortgage Loans Held for Sale March 31, 2022 December 31, 2021
Mortgage loans held for sale – UPB $ 3,607  $ 4,257 
Mark-to-market adjustment(1)
(14) 124 
Total mortgage loans held for sale $ 3,593  $ 4,381 

(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 condensed consolidated statements of operations.

The following table sets forth the activities of mortgage loans held for sale:
Three Months Ended March 31,
Mortgage Loans Held for Sale 2022 2021
Balance - beginning of period $ 4,381  $ 5,720 
Loans sold (14,527) (26,734)
Mortgage loans originated and purchased, net of fees 11,598  25,214 
Repurchase of loans out of Ginnie Mae securitizations 2,249  2,255 
Net change in unrealized loss on retained loans held for sale (109) (105)
Net transfers of mortgage loans held for sale(1)
1 
Balance - end of period $ 3,593  $ 6,351 

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

During the three months ended March 31, 2022 and 2021, the Company received proceeds of $14,727 and $27,048, respectively, on the sale of mortgage loans held for sale, resulting in gains of $200 and $314, respectively.

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The total UPB and fair value of mortgage loans held for sale on non-accrual status was as follows:
March 31, 2022 December 31, 2021
Mortgage Loans Held for Sale UPB Fair Value UPB Fair Value
Non-accrual(1)
$ 230  $ 224  $ 104  $ 94 

(1)Non-accrual UPB includes $221 and $94 of UPB related to Ginnie Mae repurchased loans as of March 31, 2022 and December 31, 2021, respectively.

The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $37 and $16 as of March 31, 2022 and December 31, 2021, respectively.

6. Loans Subject to Repurchase from Ginnie Mae

Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. The Company, as the issuer of the mortgage backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including payments not being received from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its condensed consolidated balance sheets and establishes a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The Company had loans subject to repurchase from Ginnie Mae of $1,175 and $1,496 as of March 31, 2022 and December 31, 2021, respectively, which are included in both other assets and payables and other liabilities in the condensed consolidated balance sheets. Loans subject to repurchase from Ginnie Mae as of March 31, 2022 and December 31, 2021 include $1,003 and $1,301 loans in forbearance related to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), respectively, whereby no payments have been received from borrowers for greater than 90 days.


7. Goodwill and Intangible Assets

The Company had goodwill of $120 as of March 31, 2022 and December 31, 2021, and intangible assets of $13 and $14 as of March 31, 2022 and December 31, 2021, respectively. Goodwill and intangible assets are included in other assets within the condensed consolidated balance sheets.


8. Derivative Financial Instruments

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

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The following tables provide the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses) for the derivative financial instruments:
March 31, 2022 Three Months Ended March 31, 2022
Derivative Financial Instruments Expiration
Dates
Outstanding
Notional
Fair
Value
Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments 2022 $ 543  $ 1  $ (24)
Derivative financial instruments
IRLCs 2022 3,122  72  (62)
LPCs 2022 203  2  (1)
Forward MBS trades 2022 4,653  79  72 
Total derivative financial instruments - assets $ 7,978  $ 153  $ 9 
Liabilities
Derivative financial instruments
IRLCs 2022 $ 551  $ 5  $ 5 
LPCs 2022 658  8  6 
Forward MBS trades 2022 695  6  (2)
Swap futures 2022 1,097  49  43 
Total derivative financial instruments - liabilities $ 3,001  $ 68  $ 52 

March 31, 2021 Three Months Ended March 31, 2021
Derivative Financial Instruments Expiration
Dates
Outstanding
Notional
Fair
Value
Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments 2021 $ 2,341  $ 42  $ (60)
Derivative financial instruments
IRLCs 2021 8,950  232  (182)
LPCs 2021 1,165  (30)
Forward MBS trades 2021 22,566  286  249 
Total derivative financial instruments - assets $ 32,681  $ 526  $ 37 
Liabilities
Derivative financial instruments
IRLCs 2021 $ 240  $ $
LPCs 2021 3,974  38  37 
Forward MBS trades 2021 6,341  76  (80)
Swap futures 2021 60 
Total derivative financial instruments - liabilities $ 10,615  $ 116  $ (41)

As of March 31, 2022, the Company held $80 and $108 in collateral deposits and collateral obligations on derivative instruments, respectively. As of December 31, 2021, the Company held $27 in collateral deposits on derivative instruments. Collateral deposits and collateral obligations are recorded in other assets and payable and other liabilities, respectively, in the Company’s condensed consolidated balance sheets. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the condensed consolidated balance sheets.


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9. Indebtedness

Advance and Warehouse Facilities
March 31, 2022 December 31, 2021
Maturity Date Collateral Capacity Amount Outstanding Collateral Pledged Outstanding Collateral Pledged
Advance Facilities
$400 advance facility(1)
August 2023 Servicing advance receivables $ 400  $ 219  $ 312  $ 234  $ 318 
$350 advance facility October 2022 Servicing advance receivables 350  156  189  160  197 
$350 advance facility January 2023 Servicing advance receivables 350  158  186  162  190 
$75 advance facility December 2022 Servicing advance receivables 75  53  79  58  89 
Advance facilities principal amount 586  766  614  794 
Warehouse Facilities
$4,000 warehouse facility February 2023 Mortgage loans or MBS 4,000  987  1,118  1,224  1,341 
$2,500 warehouse facility October 2022 Mortgage loans or MBS 2,500  746  772  991  1,024 
$1,600 warehouse facility(2)
September 2023 Mortgage loans or MBS 1,600  148  161  409  425 
$1,500 warehouse facility June 2022 Mortgage loans or MBS 1,500  349  352  356  345 
$750 warehouse facility October 2022 Mortgage loans or MBS 750  256  272  256  270 
$550 warehouse facility August 2022 Mortgage loans or MBS 550  48  49  87  89 
$500 warehouse facility June 2023 Mortgage loans or MBS 500  216  224  188  194 
$500 warehouse facility September 2022 Mortgage loans or MBS 500  284  293  419  430 
$500 warehouse facility June 2022 Mortgage loans or MBS 500  137  163  39  39 
$500 warehouse facility August 2023 Mortgage loans or MBS 500  178  184  38  39 
$325 warehouse facility December 2022 Mortgage loans or MBS 325  38  38  67  67 
$250 warehouse facility(3)
May 2022 Mortgage loans or MBS 250  1  2 
$200 warehouse facility June 2022 Mortgage loans or MBS 200  31  39  46  58 
$30 warehouse facility(4)
January 2022 Mortgage loans or MBS 30      —  — 
Warehouse facilities principal amount 3,419  3,667  4,125  4,327 
MSR Facilities
$800 warehouse facility(1)(5)
August 2023 MSR 800 260 1,345  260 1,107 
$400 warehouse facility August 2022 MSR 400 300 1,246 838
$400 warehouse facility(2)
September 2023 MSR 400 215 1,114 745
$50 warehouse facility November 2023 MSR 50 25 84 10 124
MSR facilities principal amount 800 3,789 270 2,814
Advance, warehouse and MSR facilities principal amount 4,805  $ 8,222 5,009  $ 7,935 
Unamortized debt issuance costs (10) (12)
Advance and warehouse facilities, net $ 4,795 $ 4,997

(1)Total capacity for this facility is $1,200, of which $400 is internally allocated for advance financing and $800 is internally allocated for MSR financing; capacity is fully fungible and is not restricted by these allocations, in comparison to $1,200, $940, and $260 respectively in 2021.
(2)The capacity amount for this facility is $2,000, of which $400 is a sublimit for MSR financing.
(3)The capacity amount for this warehouse facility decreased from $600 to $250 in 2022.
(4)This facility was terminated in January 2022.
(5)The capacity amount for this warehouse facility increased from $260 to $800 in 2022.

The weighted average interest rate for advance facilities was 2.4% and 3.0% for three months ended March 31, 2022 and 2021, respectively. The weighted average interest rate for warehouse and MSR facilities was 2.1% and 2.2% for three months ended March 31, 2022 and 2021, respectively.


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Unsecured Senior Notes
Unsecured senior notes consist of the following:
Unsecured Senior Notes March 31, 2022 December 31, 2021
$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  600 
Unsecured senior notes principal amount 2,700  2,700 
Unamortized debt issuance costs (30) (30)
Unsecured senior notes, net $ 2,670  $ 2,670 

The indentures provide that on or before certain fixed dates, the Company may redeem up to 40% of the aggregate principal amount of the unsecured senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest, to the redemption dates, subject to compliance with certain conditions. In addition, the Company may redeem all or a portion of the unsecured senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. No notes were repurchased or redeemed during the three months ended March 31, 2022 and 2021.

As of March 31, 2022, 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 

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 $86 and $93 for the three months ended March 31, 2022 and 2021, respectively.

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 March 31, 2022.


10. Securitizations and Financings

Variable Interest Entities
In the normal course of business, the Company enters into various types of on- and off-balance sheet transactions with special purpose entities (“SPEs”) determined to be VIEs, which primarily consist of securitization trusts established for a limited purpose. Generally, these SPEs are formed for the purpose of securitization transactions in which the Company transfers assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets.

The Company has determined that the SPEs created in connection with certain advance facilities trusts should be consolidated as the Company is the primary beneficiary of each of these entities.

17

A summary of the assets and liabilities of the Company’s transactions with VIEs included in the Company’s condensed consolidated balance sheets is presented below:
March 31, 2022 December 31, 2021
Consolidated Transactions with VIEs Transfers
Accounted for as
Secured
Borrowings
Transfers
Accounted for as
Secured
Borrowings
Assets
Restricted cash $ 47  $ 50 
Advances and other receivables, net 375  387 
Total assets $ 422  $ 437 
Liabilities
Advance facilities, net(1)
$ 314  $ 322 
Payables and other liabilities  
Total liabilities $ 314  $ 323 

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

The following table shows a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by the Company:
Unconsolidated Securitization Trusts March 31, 2022 December 31, 2021
Total collateral balances - UPB $ 1,074  $ 1,122 
Total certificate balances $ 1,061  $ 1,112 

The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of March 31, 2022 and December 31, 2021. Therefore, it does not have a significant maximum exposure to loss related to these unconsolidated VIEs.

A summary of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 60 days or more past due are presented below:
Principal Amount of Transferred Loans 60 Days or More Past Due March 31, 2022 December 31, 2021
Unconsolidated securitization trusts $ 134  $ 138 


11. Earnings Per Share

The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series A Preferred Stock is considered participating securities because it has dividend rights determined on an as-converted basis in the event of Company’s declaration of a dividend or distribution for common shares. In 2021, the Company repurchased a total of 14,773 thousand shares of its common stock from affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”), a related party of the Company. In addition, in August 2021, the Company repurchased 1,000 thousand shares of its preferred stock from affiliates of KKR. After giving effect to these transactions, KKR no longer held any equity interests in the Company.

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The following table sets forth the computation of basic and diluted net income per common share (amounts in millions, except per share amounts):
Three Months Ended March 31,
Computation of Earnings Per Share 2022 2021
Net income from continuing operations $ 658  $ 559 
Less: Undistributed earnings from continuing operations attributable to participating stockholders  
Net income from continuing operations attributable to Mr. Cooper common stockholders $ 658  $ 554 
Net income from discontinued operations $   $
Less: Undistributed earnings from discontinued operations attributable to participating stockholders   — 
Net income from discontinued operations attributable to Mr. Cooper common stockholders $   $
Net income $ 658  $ 561 
Less: Undistributed earnings attributable to participating stockholders  
Net income attributable to common stockholders $ 658  $ 556 
Earnings from continuing operations per common share attributable to Mr. Cooper:
Basic $ 8.91  $ 6.20 
Diluted $ 8.59  $ 5.90 
Earnings from discontinued operations per common share attributable to Mr. Cooper:
Basic $   $ 0.02 
Diluted $   $ 0.02 
Earnings per common share attributable to Mr. Cooper:
Basic $ 8.91  $ 6.22 
Diluted $ 8.59  $ 5.92 
Weighted average shares of common stock outstanding (in thousands):
Basic 73,864  89,458 
Dilutive effect of stock awards 2,704  3,590 
Dilutive effect of participating securities   839 
Diluted 76,568  93,887 


12. Income Taxes

For the three months ended March 31, 2022, the effective tax rate for continuing operations was 24.0%, which differed from the statutory federal rate of 21% primarily due to state income taxes and permanent differences including nondeductible executive compensation. The effective tax rate increased during the three months ended March 31, 2022 compared to the same period in 2021, primarily due to the impact of quarterly discrete tax items relative to the income before taxes for the respective period, including the excess tax benefit from stock-based compensation and prior period tax credits.

For the three months ended March 31, 2021, the effective tax rate for continuing operations was 22.8% which differed from the statutory federal rate of 21% primarily due to state income taxes, as well as unfavorable permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m).


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13. Fair Value Measurements

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

There have been no significant changes to the valuation techniques and inputs used by the Company in estimating fair values of Level 2 and Level 3 assets and liabilities as disclosed in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2021.

The following tables present the estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis:
  March 31, 2022
    Recurring Fair Value Measurements
Fair Value - Recurring Basis Total Fair Value Level 1 Level 2 Level 3
Assets
Mortgage loans held for sale $ 3,593  $   $ 3,593  $  
Mortgage servicing rights 6,006      6,006 
Equity securities 62  8  —  54 
Derivative financial instruments
IRLCs 72      72 
LPCs 2      2 
Forward MBS trades 79    79   
Liabilities
Derivative financial instruments
IRLCs 5      5 
LPCs 8      8 
Forward MBS trades 6    6   
Swap futures 49    49   
Mortgage servicing rights financing 30      30 
Excess spread financing 815      815 

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  December 31, 2021
    Recurring Fair Value Measurements
Fair Value - Recurring Basis Total Fair Value Level 1 Level 2 Level 3
Assets
Mortgage loans held for sale $ 4,381  $ —  $ 4,381  $ — 
Mortgage servicing rights 4,223  —  —  4,223 
Equity securities 63  —  54 
Derivative financial instruments
IRLCs 134  —  —  134 
Forward MBS trades —  — 
LPCs —  — 
Liabilities
Derivative financial instruments
Forward MBS trades —  — 
LPCs —  — 
Swap futures —  — 
Mortgage servicing rights financing 10  —  —  10 
Excess spread financing 768  —  —  768 

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:
Three Months Ended March 31, 2022
  Assets Liabilities
Fair Value - Level 3 Assets and Liabilities Mortgage servicing rights Equity securities IRLCs Excess spread financing Mortgage servicing rights financing
Balance - beginning of period $ 4,223  $ 54  $ 134  $ 768  $ 10 
Changes in fair value included in earnings 563    (62) 79  20 
Purchases 1,015         
Issuances 200         
Sales (4)        
Settlements and repayments       (32)  
Other changes 9         
Balance - end of period $ 6,006  $ 54  $ 72  $ 815  $ 30 

Three Months Ended March 31, 2021
  Assets Liabilities
Fair Value - Level 3 Assets and Liabilities Mortgage servicing rights IRLCs Excess spread financing Mortgage servicing rights financing
Balance - beginning of period $ 2,703  $ 414  $ 934  $ 33 
Changes in fair value included in earnings 278  (182) 41  (10)
Purchases 67  —  —  — 
Issuances 288  —  —  — 
Sales (2) —  —  — 
Settlements and repayments —  —  (41) — 
Other changes 20  —  —  — 
Balance - end of period $ 3,354  $ 232  $ 934  $ 23 

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The Company had LPCs assets and liabilities of $2 and $8 as of March 31, 2022, respectively. During the three months ended March 31, 2022, the Company had an immaterial change in LPCs assets and liabilities. The Company had LPCs assets and liabilities of $8 and $38 as of March 31, 2021, respectively. During the three months ended March 31, 2021, LPCs assets decreased by $30 and LPCs liabilities increased by $37 due to fair value changes, which are included in earnings. The Company had IRLCs liabilities of $5 and $1 as of March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022 and 2021, the Company had an immaterial change in IRLCs liabilities. No transfers were made in or out of Level 3 fair value assets and liabilities for the Company during the three months ended March 31, 2022 and 2021.

The tables below present the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities:
March 31, 2022 December 31, 2021
Range Weighted Average Range Weighted Average
Level 3 Inputs Min Max Min Max
MSR
Discount rate 9.5  % 13.7  % 10.7  % 9.5  % 13.7  % 10.9  %
Prepayment speed 7.2  % 14.8  % 8.9  % 11.7  % 16.4  % 13.0  %
Cost to service per loan(1)
$ 57  $ 128  $ 74  $ 59  $ 168  $ 77 
Average life(2)
7.4 years 5.8 years
IRLCs
Value of servicing (basis points per loan) (0.4) 2.6  1.9  (0.7) 2.4  1.4 
Excess spread financing
Discount rate 9.5  % 13.8  % 11.2  % 9.5  % 13.8  % 11.2  %
Prepayment speed 9.1  % 15.1  % 10.4  % 12.8  % 15.2  % 13.4  %
Average life(2)
6.4 years 5.4 years
Mortgage servicing rights financing
Advance financing and counterparty fee rates 4.6  % 8.6  % 6.9  % 4.5  % 7.9  % 6.5  %
Annual advance recovery rates 18.9  % 26.4  % 20.7  % 19.2  % 23.0  % 21.3  %

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

The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial instruments not carried at fair value:
  March 31, 2022
  Carrying
Amount
Fair Value
Financial Instruments Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 579  $ 579  $   $  
Restricted cash 130  130     
Advances and other receivables, net 1,044      1,044 
Loans subject to repurchase from Ginnie Mae 1,175    1,175   
Financial liabilities
Unsecured senior notes, net 2,670  2,605     
Advance and warehouse facilities, net 4,795    4,805   
Liability for loans subject to repurchase from Ginnie Mae 1,175    1,175   

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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  — 


14. Capital Requirements

Certain of the Company’s secondary market investors require minimum net worth (“capital”) requirements, as specified in the respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated requirements to approve large servicing transfers. To the extent that these requirements are not met, the Company’s secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of the Company’s selling and servicing agreements, which would prohibit the Company from further originating or securitizing these specific types of mortgage loans or being an approved servicer. The Company’s various capital requirements related to its outstanding selling and servicing agreements are measured based on the Company’s operating subsidiary, Nationstar Mortgage LLC. As of March 31, 2022, the Company was in compliance with its selling and servicing capital requirements.


15. Commitments and Contingencies

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

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

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The Company operates within highly regulated industries on a federal, state and local level. In the normal and ordinary course of its business, the Company is routinely subject to extensive examinations, investigations, subpoenas, inquiries and reviews by various federal, state and local governmental, regulatory and enforcement agencies, including the Consumer Financial Protection Bureau, the Securities and Exchange Commission, the Department of Justice, the Office of the Special Inspector General for the Troubled Asset Relief Program, the U.S. Department of Housing and Urban Development, various State mortgage banking regulators and various State Attorneys General, related to the Company’s residential loan servicing and origination practices, its financial reporting and other aspects of its businesses. Any pending or potential future investigations, subpoenas, examinations or inquiries may lead to administrative, civil or criminal proceedings or settlements, and possibly result in remedies including fines, penalties, restitution, or alterations in the Company’s business practices, and additional expenses and collateral costs. The Company is cooperating fully in these matters. Responding to these matters requires the Company to devote substantial resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase the Company’s operating expenses and reduce its revenues, require it to change business practices and limit its ability to grow and otherwise materially and adversely affect its business, reputation, financial condition and results of operation.

The Company seeks to resolve all legal proceedings and other matters in the manner management believes is in the best interest of the Company and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. The Company has entered into agreements with a number of entities and regulatory agencies that toll applicable limitations periods with respect to their claims.

On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal and regulatory and governmental proceedings utilizing the latest information available. Where available information indicates that it is probable a liability has been incurred, and the Company can reasonably estimate the amount of the loss, an accrued liability is established. The actual costs of resolving these proceedings may be substantially higher or lower than the amounts accrued.

As a legal matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company will establish an accrued liability and record a corresponding amount to legal-related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Legal-related expense for the Company include legal settlements and the fees paid to external legal service providers and are included in general and administrative expenses on the condensed consolidated statements of operations. During the three months ended March 31, 2022 and 2021, the Company recorded $2 of legal-related recoveries, net of legal-related expenses, and $13 of legal-related expense, respectively.

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 $10 to $18 in excess of the accrued liability (if any) related to those matters as of March 31, 2022. This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within the estimated range. Therefore, this estimated range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure and the Company cannot provide assurance that its litigations reserves will not need to be adjusted in the future. Thus, the Company’s exposure and ultimate losses may be higher, possibly significantly so, than the amounts accrued or this aggregate amount.    

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In the Company’s experience, legal proceedings are inherently unpredictable. One or more of the following factors frequently contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis or, if permitted to proceed as a class action, how the class will be defined; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental investigations and inquiries, the possibility of fines and penalties); the matter presents meaningful legal uncertainties, including novel issues of law; the Company has not engaged in meaningful settlement discussions; discovery has not started or is not complete; there are significant facts in dispute; predicting possible outcomes depends on making assumptions about future decisions of courts or governmental or regulatory bodies or the behavior of other parties; and there are a large number of parties named as defendants (including where it is uncertain how damages or liability, if any, will be shared among multiple defendants). Generally, the less progress that has been made in the proceedings or the broader the range of potential results, the harder it is for the Company to estimate losses or ranges of losses that is reasonably possible the Company could incur.

Based on current knowledge, and after consultation with counsel, management believes that the current legal accrued liability within payables and accrued liabilities, is appropriate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such proceedings could be material to the Company’s operating results and cash flows for a particular period depending, on among other things, the level of the Company’s revenues or income for such period. However, in the event of significant developments on existing cases, it is possible that the ultimate resolution, if unfavorable, may be material to the Company’s condensed consolidated financial statements.

Other Loss Contingencies
As part of the Company’s ongoing operations, it acquires servicing rights of 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 March 31, 2022, the Company believes all recorded balances for which recovery is sought from the seller are valid claims, and no evidence suggests additional reserves are warranted.

Loan and Other Commitments
The Company enters into IRLCs with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rates to the borrower. The Company also enters into LPCs with prospective sellers. These loan commitments are treated as derivatives and are carried at fair value. See Note 8, Derivative Financial Instruments, for more information.


16. Segment Information

The Company’s segments are based upon the Company’s organizational structure, which focuses primarily on the services offered. Corporate functional expenses are allocated to individual segments based on the actual cost of services performed, direct resource utilization, estimate of percentage use for shared services or headcount percentage for certain functions. Facility costs are allocated to individual segments based on cost per headcount for specific facilities utilized. Group insurance costs are allocated to individual segments based on global cost per headcount. Non-allocated corporate expenses include the administrative costs of executive management and other corporate functions that are not directly attributable to Company’s operating segments. Revenues generated on inter-segment services performed are valued based on similar services provided to external parties.

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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. 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 is no longer 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.

On December 1, 2021, the Company completed the sale of its reverse servicing portfolio, operating under the Champion Mortgage brand, to MAM and its affiliates. The reverse servicing operation was previously reported in the Company’s Servicing segment. The reverse servicing operation is presented as discontinued operations in Company’s condensed financial statements for all periods presented and, as such, is not included in the continuing operations of the Servicing segment.

On March 31, 2022, the Company completed the sale of its Mortgage Servicing Platform to Sagent and recorded a gain of $223, which was included in other income, net within the condensed statements of operations and reported under Corporate/Other. Refer to Note 2, Dispositions for further details.

The following tables present financial information by segment:
  Three Months Ended March 31, 2022
Financial Information by Segment Servicing Originations Corporate/Other Consolidated
Revenues
Service related, net $ 701  $ 42  $ 12  $ 755 
Net gain on mortgage loans held for sale 15  282    297 
Total revenues