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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________________________________________________
FORM 10-Q
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☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2022
or
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☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _______ to
_______
Commission file number: 001-14667
________________________________________________________________________________________________________
Mr. Cooper Group Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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91-1653725 |
(State or other jurisdiction of incorporation or
organization) |
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(I.R.S. Employer Identification No.) |
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8950 Cypress Waters Blvd, Coppell, TX
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75019 |
(Address of principal executive offices) |
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(Zip Code) |
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(469) 549-2000
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Registrant’s telephone number, including area code |
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Securities registered pursuant to Section 12(b) of the
Act:
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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.
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Large Accelerated Filer |
x |
Accelerated Filer |
☐ |
Non-Accelerated Filer |
¨ |
Smaller reporting company |
☐ |
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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
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Page |
PART I |
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Item 1. |
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Item 2. |
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Item 3. |
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Item 4. |
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PART II |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I. Financial Information
Item 1. Financial Statements
MR. COOPER GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions of dollars, except share data)
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March 31, 2022 |
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December 31, 2021 |
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(unaudited) |
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Assets |
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Cash and cash equivalents |
$ |
579 |
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$ |
895 |
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Restricted cash |
130 |
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146 |
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Mortgage servicing rights at fair value |
6,006 |
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4,223 |
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Advances and other receivables, net of reserves of $152 and $167,
respectively
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1,044 |
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1,228 |
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Mortgage loans held for sale at fair value |
3,593 |
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4,381 |
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Property and equipment, net of accumulated depreciation of $107 and
$122, respectively
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75 |
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98 |
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Deferred tax assets, net |
794 |
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991 |
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Other assets |
2,269 |
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2,242 |
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Total assets |
$ |
14,490 |
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$ |
14,204 |
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Liabilities and Stockholders’ Equity |
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Unsecured senior notes, net |
$ |
2,670 |
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$ |
2,670 |
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Advance and warehouse facilities, net |
4,795 |
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4,997 |
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Payables and other liabilities |
2,203 |
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2,392 |
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MSR related liabilities - nonrecourse at fair value |
845 |
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778 |
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Total liabilities |
10,513 |
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10,837 |
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Commitments and contingencies (Note 15) |
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Preferred stock at
$0.00001 - 10 million
shares authorized, zero shares issued, zero shares outstanding;
aggregate liquidation preference of zero
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— |
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— |
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Common stock at $0.01 par value - 300 million shares authorized,
93.2 million shares issued
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1 |
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1 |
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Additional paid-in-capital |
1,085 |
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1,116 |
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Retained earnings |
3,537 |
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2,879 |
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Treasury shares at cost - 19.3 million and 19.4 million shares,
respectively
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(647) |
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(630) |
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Total Mr. Cooper stockholders’ equity |
3,976 |
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3,366 |
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Non-controlling interests |
1 |
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1 |
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Total stockholders’ equity |
3,977 |
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3,367 |
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Total liabilities and stockholders’ equity |
$ |
14,490 |
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$ |
14,204 |
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See accompanying Notes to the Condensed Consolidated Financial
Statements (unaudited).
MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(millions of dollars, except for earnings per share
data)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Revenues: |
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Service related, net |
$ |
755 |
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$ |
580 |
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Net gain on mortgage loans held for sale |
297 |
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679 |
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Total revenues |
1,052 |
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1,259 |
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Expenses: |
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Salaries, wages and benefits |
228 |
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277 |
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General and administrative |
110 |
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177 |
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Total expenses |
338 |
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454 |
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Interest income |
36 |
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46 |
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Interest expense |
(106) |
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(126) |
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Other income, net |
222 |
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— |
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Total other income (expense), net |
152 |
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(80) |
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Income from continuing operations before income tax
expense |
866 |
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725 |
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Less: Income tax expense |
208 |
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166 |
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Net income from continuing operations |
658 |
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559 |
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Net income from discontinued operations |
— |
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2 |
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Net income |
658 |
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561 |
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Less: Undistributed earnings attributable to participating
stockholders |
— |
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5 |
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Net income attributable to common stockholders |
$ |
658 |
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$ |
556 |
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Earnings from continuing operations per common share attributable
to Mr. Cooper: |
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Basic |
$ |
8.91 |
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$ |
6.20 |
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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).
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 |
|
|
$ |
1,126 |
|
|
$ |
1,434 |
|
|
$ |
(58) |
|
|
$ |
2,503 |
|
|
$ |
1 |
|
|
$ |
2,504 |
|
Shares issued / (surrendered) under incentive compensation
plan |
|
— |
|
|
— |
|
|
1,183 |
|
|
— |
|
|
(19) |
|
|
— |
|
|
— |
|
|
(19) |
|
|
— |
|
|
(19) |
|
Share-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6 |
|
|
— |
|
|
— |
|
|
6 |
|
|
— |
|
|
6 |
|
Repurchase of common stock |
|
— |
|
|
— |
|
|
(4,505) |
|
|
— |
|
|
— |
|
|
— |
|
|
(148) |
|
|
(148) |
|
|
— |
|
|
(148) |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
561 |
|
|
— |
|
|
561 |
|
|
— |
|
|
561 |
|
Balance at March 31, 2021 |
|
1,000 |
|
|
$ |
— |
|
|
86,135 |
|
|
$ |
1 |
|
|
$ |
1,113 |
|
|
$ |
1,995 |
|
|
$ |
(206) |
|
|
$ |
2,903 |
|
|
$ |
1 |
|
|
$ |
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).
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 |
— |
|
|
2 |
|
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 |
— |
|
|
1 |
|
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 |
|
|
$ |
— |
|
(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).
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.
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 |
$ |
8 |
|
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 |
3 |
|
Less: Income tax expense |
1 |
|
Net income from discontinued operations |
$ |
2 |
|
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.
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.
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.
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 |
|
|
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.
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.
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 |
|
|
8 |
|
|
(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 |
|
|
$ |
1 |
|
|
$ |
1 |
|
LPCs |
2021 |
|
3,974 |
|
|
38 |
|
|
37 |
|
Forward MBS trades |
2021 |
|
6,341 |
|
|
76 |
|
|
(80) |
|
Swap futures |
2021 |
|
60 |
|
|
1 |
|
|
1 |
|
|
|
|
|
|
|
|
|
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.
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 |
|
|
5 |
|
|
6 |
|
$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.
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.
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 |
— |
|
|
1 |
|
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.
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 |
— |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations attributable to Mr. Cooper
common stockholders |
$ |
658 |
|
|
$ |
554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations |
$ |
— |
|
|
$ |
2 |
|
|
|
|
|
Less: Undistributed earnings from discontinued operations
attributable to participating stockholders |
— |
|
|
— |
|
|
|
|
|
Net income from discontinued operations attributable to Mr. Cooper
common stockholders |
$ |
— |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
658 |
|
|
$ |
561 |
|
|
|
|
|
Less: Undistributed earnings attributable to participating
stockholders |
— |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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).
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
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 |
|
|
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 |
|
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 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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.
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.
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 |
|