UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
x
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2020
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
nsm-20200930_g1.jpg

Mr. Cooper Group Inc.
(Exact name of registrant as specified in its charter)
Delaware91-1653725
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
8950 Cypress Waters Blvd, Coppell, TX75019
(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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareCOOPThe 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”,filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.
Large Accelerated Filer¨Accelerated Filerx
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 24,October 23, 2020 was 91,970,033. 90,853,569.



MR. COOPER GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
Page
PART I
Page
PART IItem 1.
Item 1.
Financial Statements
3
Consolidated Balance Sheets as of March 31,September 30, 2020 (unaudited) and December 31, 2019
3
Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended March 31,September 30, 2020 and Three Months Ended March 31, 2019
4
Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months Ended March 31,September 30, 2020 and Three Months Ended March 31, 2019
5
Consolidated Statements of Cash Flows (unaudited) for the ThreeNine Months Ended March 31,September 30, 2020 and Three Months Ended March 31, 2019
67
89
Item 2.
4336
Item 3.
8078
Item 4.
8179
PART II
Item 1.
8280
Item 1A.
8380
Item 2.
8381
Item 3.
8381
Item 4.
8381
Item 5.
8381
Item 6.
8482



2

PART I. Financial Information


Item 1. Financial Statements
MR. COOPER GROUP INC.
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except share data)
September 30, 2020December 31, 2019
 (unaudited) 
Assets
Cash and cash equivalents$946 $329 
Restricted cash229 283 
Mortgage servicing rights, $2,663 and $3,496 at fair value, respectively2,669 3,502 
Advances and other receivables, net of reserves of $191 and $175, respectively745 988 
Reverse mortgage interests, net of purchase discount of $125 and $114, respectively5,460 6,279 
Mortgage loans held for sale at fair value3,817 4,077 
Property and equipment, net of accumulated depreciation of $84 and $55, respectively114 112 
Deferred tax assets, net1,344 1,345 
Other assets6,431 1,390 
Total assets$21,755 $18,305 
Liabilities and Stockholders’ Equity
Unsecured senior notes, net$2,167 $2,366 
Advance and warehouse facilities, net4,851 4,997 
Payables and other liabilities6,590 2,016 
MSR related liabilities - nonrecourse at fair value1,091 1,348 
Mortgage servicing liabilities44 61 
Other nonrecourse debt, net4,671 5,286 
Total liabilities19,414 16,074 
Commitments and contingencies (Note 15)
Preferred stock at $0.00001 - 10 million shares authorized, 1.0 million shares issued and outstanding, respectively; aggregate liquidation preference of 10 dollars, respectively0 0 
Common stock at $0.01 par value - 300 million shares authorized, 92.0 million and 91.1 million shares issued, respectively1 1 
Additional paid-in-capital1,120 1,109 
Retained earnings1,243 1,122 
Treasury shares at cost - 1.2 million and 0 shares, respectively(24)0 
Total Mr. Cooper stockholders’ equity2,340 2,232 
Non-controlling interests1 (1)
Total stockholders’ equity2,341 2,231 
Total liabilities and stockholders’ equity$21,755 $18,305 
 March 31, 2020 December 31, 2019
 (unaudited)  
Assets   
Cash and cash equivalents$579
 $329
Restricted cash266
 283
Mortgage servicing rights, $3,109 and $3,496 at fair value, respectively3,115
 3,502
Advances and other receivables, net of reserves of $193 and $175, respectively685
 988
Reverse mortgage interests, net of reserves of $3 and $3, respectively5,955
 6,279
Mortgage loans held for sale at fair value3,922
 4,077
Property and equipment, net of accumulated depreciation of $65 and $55, respectively111
 112
Deferred tax assets, net1,411
 1,345
Other assets1,569
 1,390
Total assets$17,613
 $18,305
    
Liabilities and Stockholders’ Equity   
Unsecured senior notes, net$2,259
 $2,366
Advance facilities, net489
 422
Warehouse facilities, net4,551
 4,575
Payables and other liabilities1,965
 2,016
MSR related liabilities - nonrecourse at fair value1,285
 1,348
Mortgage servicing liabilities53
 61
Other nonrecourse debt, net4,945
 5,286
Total liabilities15,547
 16,074
Commitments and contingencies (Note 18)

 

Preferred stock at $0.00001 - 10 million shares authorized, 1 million shares issued and outstanding, respectively; aggregate liquidation preference of ten dollars, respectively—
 —
Common stock at $0.01 par value - 300 million shares authorized, 92.0 million and 91.1 million shares issued, respectively1
 1
Additional paid-in-capital1,108
 1,109
Retained earnings961
 1,122
Total Mr. Cooper stockholders’ equity2,070
 2,232
Non-controlling interests(4) (1)
Total stockholders’ equity2,066
 2,231
Total liabilities and stockholders’ equity$17,613
 $18,305


See accompanying notes to the consolidated financial statements (unaudited).

3

MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(millions of dollars, except for earnings per share data)
 Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenues:
Service related, net$227 $258 $186 $479 
Net gain on mortgage loans held for sale645 360 1,594 788 
Total revenues872 618 1,780 1,267 
Expenses:
Salaries, wages and benefits275 250 769 703 
General and administrative156 228 525 710 
Total expenses431 478 1,294 1,413 
Interest income56 163 250 459 
Interest expense(165)(196)(534)(572)
Other income (expense), net(51)0 (50)16 
Total other expenses, net(160)(33)(334)(97)
Income (loss) before income tax expense (benefit)281 107 152 (243)
Less: Income tax expense (benefit)67 24 36 (52)
Net income (loss)214 83 116 (191)
Less: Net income (loss) attributable to non-controlling interests5 (1)2 (2)
Net income (loss) attributable to Mr. Cooper209 84 114 (189)
Less: Undistributed earnings attributable to participating stockholders2 1 1 0 
Net income (loss) attributable to common stockholders$207 $83 $113 $(189)
Net income (loss) per common share attributable to Mr. Cooper:
Basic$2.26 $0.91 $1.23 $(2.08)
Diluted$2.18 $0.90 $1.20 $(2.08)
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Revenues:   
Service related, net$(53) $84
Net gain on mortgage loans held for sale331
 166
Total revenues278
 250
Expenses:   
Salaries, wages and benefits246
 215
General and administrative198
 228
Total expenses444
 443
Other income (expenses), net:   
Interest income118
 134
Interest expense(192) (189)
Other income, net1
 15
Total other income (expenses), net(73) (40)
Loss before income tax benefit(239) (233)
Less: Income tax benefit(68) (47)
Net loss(171) (186)
Less: Net loss attributable to non-controlling interests(3) —
Net loss attributable to Mr. Cooper(168) (186)
Less: Undistributed earnings attributable to participating stockholders—
 —
Net loss attributable to common stockholders$(168) $(186)
    
Net loss per common share attributable to Mr. Cooper:   
Basic$(1.84) $(2.05)
Diluted$(1.84) $(2.05)


See accompanying notes to the consolidated financial statements (unaudited).

4

MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions of dollars, except share data)
Preferred StockCommon Stock
Shares
(in thousands)		AmountShares
(in thousands)		AmountAdditional Paid-in CapitalRetained EarningsTreasury Share AmountTotal Mr. Cooper Stockholders’ EquityNon-controlling InterestsTotal Stockholders’
Equity
Balance at June 30, 20191,000 $0 91,061 $1 $1,100 $575 $0 $1,676 $2 $1,678 
Shares issued under incentive compensation plan— — 26 — 1 — — 1 — 1 
Share-based compensation— — — — 5 — — 5 — 5 
Net income (loss)— — — — — 84 — 84 (1)83 
Balance at September 30, 20191,000 $0 91,087 $1 $1,106 $659 $0 $1,766 $1 $1,767 
Balance at June 30, 20201,000 $0 92,022 $1 $1,114 $1,034 $0 $2,149 $(4)$2,145 
Shares issued under incentive compensation plan— — 19 — — — — — — — 
Share-based compensation— — — — 6 — — 6 — 6 
Repurchase of common stock— — (1,187)— — — (24)(24)— (24)
Net income— — — — — 209 — 209 5 214 
Balance at September 30, 20201,000 $0 90,854 $1 $1,120 $1,243 $(24)$2,340 $1 $2,341 
  Preferred Stock Common Stock          
  Shares
(in thousands)		 Amount 
Shares
(in thousands)
 Amount Additional Paid-in Capital Retained Earnings Total Mr. Cooper Stockholders’ Equity Non-controlling Interests 
Total
Equity
Balance at January 1, 2019 1,000
 $—
 90,821
 $1
 $1,093
 $848
 $1,942
 $3
 $1,945
Shares issued / (surrendered) under incentive compensation plan —
 —
 221
 —
 (2) —
 (2) —
 (2)
Share-based compensation —
 —
 —
 —
 4
 —
 4
 —
 4
Net loss —
 —
 —
 —
 —
 (186) (186) —
 (186)
Balance at March 31, 2019 1,000
 $—
 91,042
 $1
 $1,095
 $662
 $1,758
 $3
 $1,761
                   
Balance at January 1, 2020 1,000
 $—
 91,118
 $1
 $1,109
 $1,122
 $2,232
 $(1) $2,231
Shares issued / (surrendered) under incentive compensation plan —
 —
 852
 —
 (5) —
 (5) —
 (5)
Share-based compensation —
 —
 —
 —
 4
 —
 4
 —
 4
Cumulative effect adjustments pursuant to the adoption of ASU 2016-13 —
 —
 —
 —
 —
 7
 7
 —
 7
Net loss —
 —
 —
 —
 —
 (168) (168) (3) (171)
Balance at March 31, 2020 1,000
 $—
 91,970
 $1
 $1,108
 $961
 $2,070
 $(4) $2,066


See accompanying notes to the consolidated financial statements (unaudited).


5

MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions of dollars, except share data)
Preferred StockCommon Stock
Shares
(in thousands)		AmountShares
(in thousands)		AmountAdditional Paid-in CapitalRetained EarningsTreasury Share AmountTotal Mr. Cooper Stockholders’ EquityNon-controlling InterestsTotal Stockholders’
Equity
Balance at January 1, 20191,000 $0 90,821 $1 $1,093 $848 $0 $1,942 $3 $1,945 
Shares issued / (surrendered) under incentive compensation plan— — 266 — (1)— — (1)— (1)
Share-based compensation— — — — 14 — — 14 — 14 
Net loss— — — — — (189)— (189)(2)(191)
Balance at September 30, 20191,000 $0 91,087 $1 $1,106 $659 $0 $1,766 $1 $1,767 
Balance at January 1, 20201,000 $0 91,118 $1 $1,109 $1,122 $0 $2,232 $(1)$2,231 
Shares issued / (surrendered) under incentive compensation plan— — 923 — (5)— — (5)— (5)
Share-based compensation— — — — 16 — — 16 — 16 
Cumulative effect adjustments pursuant to the adoption of ASU 2016-13— — — — — 7 — 7 — 7 
Repurchase of common stock— — (1,187)— — — (24)(24)— (24)
Net income— — — — — 114 — 114 2 116 
Balance at September 30, 20201,000 $0 90,854 $1 $1,120 $1,243 $(24)$2,340 $1 $2,341 

See accompanying notes to the consolidated financial statements (unaudited).
6

MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
Nine Months Ended September 30,
 20202019
Operating Activities
Net income (loss)$116 $(191)
Adjustments to reconcile net income (loss) to net cash attributable to operating activities:
Deferred tax benefit(1)(53)
Net gain on mortgage loans held for sale(1,594)(788)
Interest income on reverse mortgage loans(158)(241)
Provision for servicing and non-servicing reserves18 53 
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities1,258 998 
Fair value changes in excess spread financing(132)(190)
Fair value changes in mortgage servicing rights financing liability10 15 
Fair value changes in mortgage loans held for investment0 (3)
Amortization of premiums, net of discount accretion45 (38)
Depreciation and amortization for property and equipment and intangible assets56 67 
Share-based compensation16 14 
Loss on redemption of unsecured senior notes52 0 
Other loss17 5 
Repurchases of forward loan assets out of Ginnie Mae securitizations(3,173)(1,823)
Mortgage loans originated and purchased for sale, net of fees(38,709)(27,673)
Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment43,040 27,916 
Changes in assets and liabilities:
Advances and other receivables228 264 
Reverse mortgage interests1,031 1,700 
Other assets(4,797)9 
Payables and other liabilities4,555 (69)
Net cash attributable to operating activities1,878 (28)
Investing Activities
Acquisitions, net of cash acquired0 (85)
Property and equipment additions, net of disposals(43)(38)
Purchase of forward mortgage servicing rights, net of liabilities incurred(39)(454)
Proceeds on sale of forward and reverse mortgage servicing rights44 298 
Net cash attributable to investing activities(38)(279)
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Operating Activities   
Net loss$(171) $(186)
Adjustments to reconcile net loss to net cash attributable to operating activities:   
Deferred tax benefit(68) (47)
Net gain on mortgage loans held for sale(331) (166)
Interest income on reverse mortgage loans(62) (82)
Provision for reserves8
 11
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities526
 379
Fair value changes in excess spread financing(35) (69)
Fair value changes in mortgage servicing rights financing liability6
 2
Fair value changes in mortgage loans held for investment—
 (1)
Amortization of premiums, net of discount accretion23
 2
Depreciation and amortization for property and equipment and intangible assets19
 21
Share-based compensation4
 4
Other loss7
 —
Repurchases of forward loan assets out of Ginnie Mae securitizations(919) (364)
Mortgage loans originated and purchased for sale, net of fees(12,375) (5,717)
Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment13,724
 6,197
Changes in assets and liabilities:   
Advances and other receivables300
 120
Reverse mortgage interests400
 614
Other assets(91) (216)
Payables and other liabilities(255) (217)
Net cash attributable to operating activities710
 285
    
Investing Activities   
Acquisitions, net of cash acquired—
 (85)
Property and equipment additions, net of disposals(12) (10)
Purchase of forward mortgage servicing rights, net of liabilities incurred(27) (130)
Proceeds on sale of forward and reverse mortgage servicing rights43
 243
Net cash attributable to investing activities4
 18

Continued on following page. See accompanying notes to the consolidated financial statements (unaudited).

7

MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(millions of dollars)
Nine Months Ended September 30,
 20202019
Financing Activities
(Decrease) increase in advance and warehouse facilities(135)1,835 
Repayment of notes payable0 (294)
Proceeds from HECM securitizations516 398 
Proceeds from sale of HECM securitizations0 20 
Repayment of HECM securitizations(508)(568)
Proceeds from issuance of participating interest financing in reverse mortgage interests139 220 
Repayment of participating interest financing in reverse mortgage interests(845)(1,472)
Proceeds from the issuance of excess spread financing24 469 
Settlements and repayments of excess spread financing(159)(182)
Issuance of unsecured senior debt1,450 0 
Repayment of nonrecourse debt – legacy assets0 (29)
Redemption and repayment of unsecured senior notes(1,686)0 
Repayment of finance lease liability(1)(3)
Surrender of shares relating to stock vesting(5)(1)
Repurchase of common stock(24)0 
Debt financing costs(43)(5)
Net cash attributable to financing activities(1,277)388 
Net increase in cash, cash equivalents, and restricted cash563 81 
Cash, cash equivalents, and restricted cash - beginning of period612 561 
Cash, cash equivalents, and restricted cash - end of period(1)
$1,175 $642 
Supplemental Disclosures of Cash Activities
Cash paid for interest expense$180 $166 
Net cash paid (refunded) for income taxes$40 $(4)
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Financing Activities   
(Decrease) increase in warehouse facilities(25) 307
Increase (decrease) in advance facilities68
 (30)
Repayment of notes payable—
 (294)
Proceeds from sale of HECM securitizations—
 20
Repayment of HECM securitizations(99) (127)
Proceeds from issuance of participating interest financing in reverse mortgage interests55
 86
Repayment of participating interest financing in reverse mortgage interests(330) (494)
Proceeds from the issuance of excess spread financing24
 245
Settlements and repayments of excess spread financing(58) (50)
Issuance of unsecured senior debt600
 —
Repayment of nonrecourse debt – legacy assets—
 (3)
Redemption and repayment of unsecured senior notes(698) —
Repayment of finance lease liability(1) (1)
Surrender of shares relating to stock vesting(5) (2)
Debt financing costs(12) (1)
Net cash attributable to financing activities(481) (344)
Net increase (decrease) in cash, cash equivalents, and restricted cash233
 (41)
Cash, cash equivalents, and restricted cash - beginning of period612
 561
Cash, cash equivalents, and restricted cash - end of period(1)
$845
 $520
    
Supplemental Disclosures of Cash Activities   
Cash paid for interest expense$89
 $74


(1)
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amount reported within the consolidated balance sheets.
(1)The following table provides a reconciliation of cash, cash equivalents and restricted cash to amount reported within the consolidated balance sheets.
March 31, 2020 March 31, 2019September 30, 2020September 30, 2019
Cash and cash equivalents$579
 $181
Cash and cash equivalents$946 $371 
Restricted cash266
 339
Restricted cash229 271 
Total cash, cash equivalents, and restricted cash$845
 $520
Total cash, cash equivalents, and restricted cash$1,175 $642 


See accompanying notes to the consolidated financial statements (unaudited).


8

MR COOPER GROUP INC.
NOTES TO 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”,Cooper,” the “Company”, “we”,“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. Xome provides real estate data as well as a range of services including real estate brokerage, title, closing, valuation and field services to lenders, investors and consumers. 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 the MD&A section of this Form 10-Q.


Mr. Cooper, which was previously known as WMIH Corp.On February 1, 2019, the Company completed the acquisition of all the limited liability units of Pacific Union Financial, LLC (“WMIH”), is a corporation duly organized and existing under the laws of the State of Delaware since May 11, 2015. On July 31, 2018, Wand Merger Corporation (“Merger Sub”Pacific Union”), a wholly-owned subsidiaryCalifornia limited liability company. The final purchase price was $116, paid in cash, and the purchase price allocation was finalized as of WMIH merged withDecember 31, 2019. Pacific Union was a privately held company that was engaged in the origination, as well as servicing of residential mortgage loans, and into Nationstar Mortgage Holdings Inc. (“Nationstar”), with Nationstar continuing as a wholly-owned subsidiary of WMIH (the “Merger”). Prioroperated throughout the United States. The acquisition allows the Company to the Merger, WMIH had limited operations other thanexpand its reinsurance business that operated in runoff mode. As a result of the Merger, shares of Nationstar common stock were delisted from the New York Stock Exchange. Following the Merger closing, the combined company traded on NASDAQ under the ticker symbol “WMIH” until October 10, 2018, when WMIH changedservicing portfolio and increase its name to “Mr. Cooper Group Inc.”mortgage lending volume and its ticker symbol to “COOP”.capabilities.


Basis of Presentation
The consolidated interim 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 SEC. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2019.


The interim 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.


The Company evaluated subsequent events through the date these interim consolidated financial statements were issued.


Basis of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, other entities in which the Company has a controlling financial interest and those variable interest entities (“VIE”) where the Company’s wholly-owned subsidiaries are the primary beneficiaries. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that the Company became the primary beneficiary through the date the Company ceases to be the primary beneficiary. The Company applies the equity method of accounting to investments where it is able to exercise significant influence, but not control, over the policies and procedures of the entity and owns less than 50% of the voting interests. Investments in certain companies over which the Company does not exert significant influence are accounted for as cost method investments. Intercompany balances and transactions on consolidated entities have been eliminated. Business combinations are included in the consolidated financial statements from their respective dates of acquisition.


Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates 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.



9


Recent Accounting Guidance Adopted
Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326), (“ASU 2016-13”) requires expected credit losses for financial instruments held at the reporting date to be measured based on historical experience, current conditions and reasonable and supportable forecasts, which is referred to as the current expected credit loss (“CECL”) methodology. The update eliminates the initial recognition of credit losses on an incurred basis in current GAAP and instead reflects an entity’s current estimate of all expected credit losses over the life of the asset. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new standard will reflect management’s best estimate of all expected credit losses for the Company’s financial assets that are recognized at amortized cost. The guidance iswas effective for the Company as of January 1, 2020, with a cumulative-effect adjustment to retained earnings as of that date.

Based upon management’s scoping analysis, the Company determined that reverse mortgage interests, net of reserves, advances and other receivables, net of reserves, and certain financial instruments included in other assets are within the scope of ASU 2016-13. Certain financial instruments within these respective line items have been determined to have limited expected credit-related losses due to the contractual servicing agreements with agencies and loan product guarantees. For advances and other receivables, net, the Company determined that the majority of estimated losses are due to servicing operational errors and credit-related losses are not significant because of the contractual relationships with the agencies. For reverse mortgage interests the Company determined that the guarantee from Federal Housing Administration (“FHA”) on Home Equity Conversion Mortgage (“HECM“HECM”) loan products limits credit-related losses to an immaterial amount with substantially all losses related to servicing operational errors. For other assets, primarily trade receivables, the Company determined that these are short-term in nature (less than one year), and the estimated credit-related losses over the life of these receivables are similar to those resulting from the Company’s existing loss reserve process. For each of the aforementioned financial instruments carried at amortized cost, the Company enhanced its processes to consider and include the requirements of ASU 2016-13, as applicable, into the determination of credit-related losses.


On January 1, 2020, the Company adopted ASU 2016-13 using the modified retrospective method for the above-mentioned financial assets. Results for reporting periods after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded transition adjustments aggregating to a net increase of $9, or $7 after tax, to retained earnings and a reduction of $7 to the advances and other receivables reserve and a $2 reduction in the other assets reserves, as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13.

In connection with adoption of ASU 2016-13, the Company updated its accounting policies as follows:


For certain financial instruments included in advances and other receivables, net, and certain trade receivables and accrued revenues included in other assets that are within the scope of ASU 2016-13, the reserve methodology was revised to consider CECL losses. The revised CECL methodology considers expected lifetime loss rates calculated from historical data using a weighted average life to determine the current expected credit loss required. Due to the nature of the financial instrument, reverse mortgage interests, net of reserves, and advances and other receivables had limited impact from the adoption of CECL to the reserve methodology. See Note 4,3, Advances and Other Receivables, Net, and Note 5,4, Reverse Mortgage Interests, Net,, and Note 8, Other Assets, for additional information.


Factors that influenced management’s current estimate of expected credit losses for certain advances and other receivables and certain trade receivables and accrued revenues included the following: historical collection and loss rates, passage of time, weighted average life of receivables, and various qualitative factors including current economic conditions.

Factors that influenced management’s current estimate of expected credit related losses for certain reverse mortgage interests included the following: historical collection and loss rates, foreclosure timelines, and values of underlying collateral.

Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820)- Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”) removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 fair value measurement methodologies, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020. The guidance does not have a material impact to the disclosures currently provided by the Company.



2. Acquisitions

Acquisition of Pacific Union Financial, LLC
On February 1, 2019, the Company completed the acquisition of all the limited liability units of Pacific Union Financial, LLC (“Pacific Union”), a California limited liability company. Pacific Union was a privately held company that was engaged in the origination, as well as servicing of residential mortgage loans, and operated throughout the United States. The acquisition allows the Company to expand its servicing portfolio and increase its mortgage lending volume and capabilities.

The acquisition has been accounted for in accordance with Accounting Standards Codification 805, Business Combinations, using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The determination of fair value estimates requires management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments. The final purchase price was $116, paid in cash. Based on the allocation of fair value, goodwill of $40 was recorded, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily attributable to the assembled workforce and synergies with the Company’s current operations. $28 and $12 of the goodwill is assigned to the Originations and Servicing segments, respectively, based on expected cash flows, and is expected to be deductible for tax purposes.

10

Final Estimated Fair Value of Net Assets Acquired: 
Cash and cash equivalents$37
Restricted cash2
Mortgage servicing rights271
Advances and other receivables84
Mortgage loans held for sale536
Mortgage loans held for investment1
Property and equipment8
Other assets483
Fair value of assets acquired1,422
Notes payable(1)
294
Advance facilities13
Warehouse facilities393
Payables and other liabilities530
Other nonrecourse debt129
Fair value of liabilities assumed1,359
Total fair value of net tangible assets acquired63
Intangible assets: 
Customer relationships(2)
13
Goodwill40
Final purchase price$116


(1)
Notes payable was subsequently paid off in February 2019 after the consummation of the acquisition.
(2)
The estimated fair values for customer relationships were measured using the excess earnings method and were determined to have a remaining useful life of 10 years.


The Company incurred total acquisition costs of $2 during the three months ended March 31, 2019, of which $1 is included in salaries, wages and benefits expense and $1 in general and administrative expense in the Company’s consolidated statements of operations. The acquisition costs were primarily related to legal, accounting and consulting services. There were no acquisition costs incurred by the Company in the three months ended March 31, 2020.

For the three months ended March 31, 2019, the operations contributed by this acquisition generated total revenues of $39 and income before income tax of $14, respectively, which are reported in the Company’s consolidated statements of operations.


The following unaudited pro forma financial information presents the combined results of operations for the three months ended March 31, 2019, as if the acquisition had occurred on January 1, 2019:
 Three Months Ended March 31, 2019
Pro forma financial information(unaudited)
Pro forma total revenues$269
  
Pro forma net loss$(184)


3.2. 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:liabilities. In estimating the fair value of all servicing rights and related liabilities, the impact of the COVID-19 pandemic was considered in the determination of key assumptions.
MSRs and Related LiabilitiesSeptember 30, 2020December 31, 2019
Forward MSRs - fair value$2,663 $3,496 
Reverse MSRs - amortized cost6 6 
Mortgage servicing rights$2,669 $3,502 
Mortgage servicing liabilities - amortized cost$44 $61 
Excess spread financing - fair value$1,044 $1,311 
Mortgage servicing rights financing - fair value47 37 
MSR related liabilities - nonrecourse at fair value$1,091 $1,348 
MSRs and Related LiabilitiesMarch 31, 2020 December 31, 2019
Forward MSRs - fair value$3,109
 $3,496
Reverse MSRs - amortized cost6
 6
Mortgage servicing rights$3,115
 $3,502
    
Mortgage servicing liabilities - amortized cost$53
 $61
    
Excess spread financing - fair value$1,242
 $1,311
Mortgage servicing rights financing - fair value43
 37
MSR related liabilities - nonrecourse at fair value$1,285
 $1,348


Mortgage Servicing Rights
The Company owns and records at fair value the rights to service traditional residential mortgage (“forward”) loans for others, either as a result of purchase transactions or from the retained servicing associated with the sales and securitizations of loans originated. MSRs are comprised of servicing rights of both agency and non-agency loans.

The following table sets forth the activities of forward MSRs:
Nine Months Ended September 30,
Forward MSRs - Fair Value20202019
Fair value - beginning of period$3,496 $3,665 
Additions:
Servicing retained from mortgage loans sold412 298 
Purchases of servicing rights(1)
30 732 
Dispositions:
Sales of servicing assets0 (317)
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model(782)(716)
Other changes in fair value(493)(323)
Fair value - end of period$2,663 $3,339 
Forward MSRs - Fair ValueThree Months Ended March 31, 2020 Three Months Ended March 31, 2019
Fair value - beginning of period$3,496
 $3,665
Additions:   
Servicing retained from mortgage loans sold123
 66
Purchases of servicing rights(1)
24
 409
Dispositions:   
Sales of servicing assets—
 (260)
Changes in fair value:   
Changes in valuation inputs or assumptions used in the valuation model(401) (332)
Other changes in fair value(133) (67)
Fair value - end of period$3,109
 $3,481


(1)
Purchases of servicing rights during the three months ended March 31,(1)Purchases of servicing rights during the nine months ended September 30, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 1, Nature of Business and Basis of Presentation, for further discussion. In addition, in 2019, includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 2, Acquisitions, for further discussion.

From time to time, the Company sells its ownership interestentered into a subservicing contract, resulting in certain MSRs and is retained asadditional $253 servicing rights in the subservicer for the sold assets. The Company has evaluated the sale accounting requirements related to these transactions, including the Company’s continued involvement as the subservicer, and concluded that these transactions qualify for sale accounting treatment. second quarter of 2019.

During the threenine months ended March 31,September 30, 2020 and 2019, the Company sold $40$94 and $19,409$25,639 in unpaid principal balance (“UPB”) of forward MSRs, of which noneNaN and $19,276$20,560 were retained by the Company as subservicer, respectively.


MSRs measured at fair value are primarily segregated between credit sensitive and interest sensitive pools (referred to herein as “acquisition pools”). Credit sensitive pools are primarily impacted by borrower performance under specified repayment terms, which most directly impacts involuntary prepayments and delinquency rates. Interest sensitive pools are primarily impacted by changes in forecasted interest rates, which in turn impact voluntary prepayment speeds. The Company assesses whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition. Numerous factors are considered in making this assessment, including loan-to-value ratios, FICO scores, percentage of portfolio previously modified, portfolio seasoning and similar criteria. The determination between credit sensitive and interest sensitive for a pool is made at the date of acquisition, and no subsequent changes are made.

Credit sensitive portfolios generally consist of higher delinquency, single-family non-conforming residential forward mortgage loans serviced for agency and non-agency investors. Due to the Company’s focus on recapture and modifications, significant amounts of the credit sensitive portfolio have been re-underwritten and, therefore, behave more like the interest sensitive portfolio. Interest sensitive portfolios generally consist of lower delinquency, single-family conforming residential forward mortgage loans for agency investors.


MSRs measured at fair value are also segregated between investor type into agency and non-agency pools (referred to herein as “investor pools”) based on upon contractual servicing agreements with investors at the respective balance sheet date to evaluate the MSR portfolio and fair value of the portfolio.


11

The following table provides a breakdown of UPB and fair value for the Company’s forward MSRs:
September 30, 2020December 31, 2019
Forward MSRs - UPB and fair value breakdownUPBFair ValueUPBFair Value
Acquisition Pools
Credit sensitive$122,422 $1,206 $147,895 $1,613 
Interest sensitive144,245 1,457 148,887 1,883 
Total$266,667 $2,663 $296,782 $3,496 
Investor Pools
Agency(1)
$220,139 $2,234 $240,688 $2,944 
Non-agency(2)
46,528 429 56,094 552 
Total$266,667 $2,663 $296,782 $3,496 
 March 31, 2020 December 31, 2019
Forward MSRs - UPB and fair value breakdownUPB Fair Value UPB Fair Value
Acquisition Pools       
 Credit sensitive$138,726
 $1,386
 $147,895
 $1,613
 Interest sensitive151,908
 1,723
 148,887
 1,883
Total$290,634
 $3,109
 $296,782
 $3,496
        
Investors Pools       
 Agency(1)
$238,956
 $2,618
 $240,688
 $2,944
 Non-agency(2)
51,678
 491
 56,094
 552
Total$290,634
 $3,109
 $296,782
 $3,496


(1)
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”).
(2)
Non-agency investors consist of investors in private-label securitizations.

(1)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”).

(2)Non-agency investors consist of investors in private-label securitizations.

The Company used the following key weighted-average inputs and assumptions in estimating the fair value of forward MSRs:
Forward MSRs - Key inputs and assumptionsSeptember 30, 2020December 31, 2019
Total MSR Portfolio
Discount rate9.5 %9.7 %
Prepayment speeds14.4 %13.1 %
Average life5.2 years5.8 years
Acquisition Pools
Credit Sensitive
Discount rate10.0 %10.4 %
Prepayment speeds12.6 %12.7 %
Average life5.6 years6.0 years
Interest Sensitive
Discount rate9.0 %9.1 %
Prepayment speeds15.9 %13.5 %
Average life4.9 years5.7 years
Investor Pools
Agency
Discount rate8.9 %9.0 %
Prepayment speeds14.5 %13.0 %
Average life5.1 years5.8 years
Non-agency
Discount rate12.0 %12.6 %
Prepayment speeds13.9 %13.8 %
Average life5.5 years6.2 years

12
Forward MSRs - Key inputs and assumptionsMarch 31, 2020 December 31, 2019
Total MSR Portfolio   
Discount rate9.7% 9.7%
Prepayment speeds13.4% 13.1%
Average life5.7 years
 5.8 years
    
Acquisition Pools:   
Credit Sensitive   
Discount rate10.2% 10.4%
Prepayment speeds13.0% 12.7%
Average life5.9 years
 6.0 years
    
Interest Sensitive   
Discount rate9.1% 9.1%
Prepayment speeds13.8% 13.5%
Average life5.5 years
 5.7 years
    
Investor Pools:   
Agency   
Discount rate9.0% 9.0%
Prepayment speeds13.2% 13.0%
Average life5.6 years
 5.8 years
    
Non-agency   
Discount rate12.6% 12.6%
Prepayment speeds14.3% 13.8%
Average life6.1 years
 6.2 years


The following table shows the hypothetical effect on the fair value of the Company’s forward MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated:
Discount RateTotal Prepayment Speeds
Forward MSRs - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
September 30, 2020
Mortgage servicing rights$(87)$(179)$(157)$(321)
December 31, 2019
Mortgage servicing rights$(127)$(245)$(165)$(317)
 Discount Rate Total Prepayment Speeds
Forward MSRs - Hypothetical Sensitivities
100 bps
Adverse
Change
 
200 bps
Adverse
Change
 
10%
Adverse
Change
 
20%
Adverse
Change
March 31, 2020       
Mortgage servicing rights$(111) $(214) $(158) $(305)
        
December 31, 2019       
Mortgage servicing rights$(127) $(245) $(165) $(317)


These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.



Reverse Mortgage Servicing Rights and Liabilities - Amortized Cost
The Company services certain HECM reverse mortgage loans with an unpaid principal balance of $21,590$20,006 and $22,725 as of March 31,September 30, 2020 and December 31, 2019, respectively. The following table sets forth the activities of reverse MSRs and mortgage servicing liabilities (“MSL”) for three:
Nine Months Ended September 30,
20202019
Reverse MSRs and Liabilities - Amortized CostAssetsLiabilitiesAssetsLiabilities
Balance - beginning of period$6 $61 $11 $71 
Amortization/accretion0 (17)2 (39)
Adjustments(1)
0 0 (6)37 
Balance - end of the period$6 $44 $7 $69 
Fair value - end of period$6 $7 $7 $41 

(1)Reverse MSR and MSL net adjustments recorded by the Company during the nine months ended March 31, 2020 and 2019:September 30, 2019 primarily relate to the finalization of the preliminary fair value estimates recorded in connection with the merger of Nationstar Mortgage Holdings, Inc. (the “Merger”).
 Three Months Ended March 31,
 2020 2019
Reverse MSRs and Liabilities - Amortized CostAssets Liabilities Assets Liabilities
Balance - beginning of period$6
 $61
 $11
 $71
Amortization/accretion—
 (8) —
 (18)
Adjustments(1)
—
 —
 (4) 37
Balance - end of the period$6
 $53
 $7
 $90
Fair value - end of period$6
 $27
 $7
 $75

(1)
Reverse MSR and MSL net adjustments recorded by the Company during the three months ended March 31, 2019 primarily relate to the fair value adjustments for reverse MSR and MSL assumed from the Merger resulting from the revised cost to service assumption used in the valuation of reverse MSR and MSL during the measurement period.


Management evaluates reverse MSRs and MSLs each reporting period for impairment. Based on management’s assessment at March 31,September 30, 2020, no0 impairment or increased obligation was needed.


Excess Spread Financing - Fair Value
In order to finance the acquisition of certain MSRs on various Portfolios, the Company has entered into sale and assignment agreements with third parties and sold to these entities the right to receive a specified percentage of the excess cash flow generated from the portfolios in excess of a fixed base servicing fee per loan. The Company retains all the base servicing fee, ancillary income and interest float earnings on principal along with interest payments and escrows, and also incurs costs to service the specified pool. The Company is the legal owner and the servicer of the portfolios and provides all servicing and advancing functions.

In connection with the above transactions, the Company entered into recapture agreement obligations with third parties that require the Company to transfer the new loan or a replacement loan of similar economic characteristics into the respective portfolio if the Company recaptures any loan in the portfolio. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above. Accordingly, a recapture assumption is included withinhad excess spread valuation.financing liability of $1,044 and $1,311 as of September 30, 2020 and December 31, 2019, respectively.


The Company used the following key weighted-average assumptions in the Company’s valuation of excess spread financing:
Excess Spread Financing Key AssumptionsSeptember 30, 2020December 31, 2019
Discount rate11.9 %11.6 %
Prepayment speeds13.6 %12.6 %
Recapture rate19.1 %20.1 %
Average life5.3 years5.8 years
13
Excess Spread Financing AssumptionsMarch 31, 2020 December 31, 2019
Discount rate11.6% 11.6%
Prepayment speeds12.8% 12.6%
Recapture rate18.6% 20.1%
Average life5.7 years
 5.8 years


The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated:
Discount RatePrepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
September 30, 2020
Excess spread financing$35 $72 $44 $92 
December 31, 2019
Excess spread financing$46 $95 $46 $96 
 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, 2020       
Excess spread financing$43
 $89
 $48
 $98
        
December 31, 2019       
Excess spread financing$46
 $95
 $46
 $96



These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing. Excess Spreadspread 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
From December 2013 through June 2014, the Company entered into agreements to sell a contractually specified base servicing fee component of certain MSRs and servicing advances under specified terms to a joint venture capitalized by third-party investors. The purpose of this transaction was to facilitate the financing of advances for private label mortgages. The Company continues to be the named servicer, and, for accounting purposes, ownership of the MSR resides with the Company. Accordingly, the Company records the MSR and anhad MSR financing liability associated with this transaction in its consolidated balance sheets. The MSR financing liability reflects the incremental costs of this transaction relative to the market participant assumptions contained in the MSR valuation.$47 and $37 as of September 30, 2020 and December 31, 2019, respectively.


The following table sets forth the key weighted-average assumptions used in the valuation of the mortgage servicing rightsMSR financing liability:
Mortgage Servicing Rights Financing Key AssumptionsSeptember 30, 2020December 31, 2019
Advance financing and counterparty fee rates8.2 %8.9 %
Annual advance recovery rates20.2 %18.8 %

14
Mortgage Servicing Rights Financing AssumptionsMarch 31, 2020 December 31, 2019
Advance financing rates1.7% 3.5%
Annual advance recovery rates18.4% 18.8%


Servicing Segment Revenues
The following table sets forth the items comprising total revenues for the Servicing segment:
Three Months Ended September 30,Nine Months Ended September 30,
Total Revenues - Servicing2020201920202019
Contractually specified servicing fees(1)
$282 $305 $864 $893 
Other service-related income(1)
59 51 170 133 
Incentive and modification income(1)
12 12 30 29 
Late fees(1)
18 30 65 82 
Reverse servicing fees6 7 19 24 
Mark-to-market adjustments(2)
(29)(83)(673)(607)
Counterparty revenue share(3)
(104)(86)(268)(204)
Amortization, net of accretion(4)
(112)(73)(290)(152)
Total revenues - Servicing$132 $163 $(83)$198 

(1)The Company recognizes revenue on an earned basis for services performed. Amounts include subservicing related revenues.
(2)Mark-to-market (“MTM”) adjustments include fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $7 and $18 during the three months ended September 30, 2020 and 2019, and $20 and $46 during the nine months ended September 30, 2020 and 2019, respectively.
(3)Counterparty revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSR financing arrangements.
(4)Amortization is net of excess spread accretion of $96 and $77 and MSL accretion of $4 and $10 during the three months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, amortization is net of excess spread accretion of $243 and $172 and MSL accretion of $17 and $39, respectively.


Total Revenues - ServicingThree Months Ended March 31, 2020 Three Months Ended March 31, 2019
Contractually specified servicing fees(1)
$297
 $281
Other service-related income(1)
49
 50
Incentive and modification income(1)
10
 7
Late fees(1)
27
 25
Reverse servicing fees6
 9
Mark-to-market adjustments(2)
(383) (293)
Counterparty revenue share(3)
(76) (48)
Amortization, net of accretion(4)
(76) (23)
Total revenues - Servicing$(146) $8

(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 for the Company was $10 and $11 for the three months ended March 31, 2020 and 2019, respectively.
(3)
Counterparty revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSR financing arrangements.
(4)
Amortization for the Company is net of excess spread accretion of $68 and $36 and MSL accretion of $8 and $18 for the three months ended March 31, 2020 and 2019, respectively.



4.3. Advances and Other Receivables, Net


Advances and other receivables, net, consists of the following:
Advances and Other Receivables, NetSeptember 30, 2020December 31, 2019
Servicing advances, net of $92 and $131 purchase discount, respectively$746 $970 
Receivables from agencies, investors and prior servicers, net of $21 and $21 purchase discount, respectively190 193 
Reserves(191)(175)
Total advances and other receivables, net$745 $988 
Advances and Other Receivables, NetMarch 31, 2020 December 31, 2019
Servicing advances, net of $125 and $131 discount, respectively$688
 $970
Receivables from agencies, investors and prior servicers, net of $21 and $21 discount, respectively190
 193
Reserves(193) (175)
Total advances and other receivables, net$685
 $988

The Company, as loan servicer, is contractually responsible to advance funds on behalf of the borrower and investor primarily for loan principal and interest, property taxes and hazard insurance and foreclosure costs. Advances are primarily recovered through reimbursement from the investor, proceeds from sale of loan collateral or mortgage insurance claims or the borrower. Reserves for advances and other receivables on loans liquidated or purchased out of the MSR portfolio are established within advances and other receivables.


The following table sets forth the activities of the servicing reserves for advances and other receivables:
Three Months Ended September 30,Nine Months Ended September 30,
Reserves for Advances and Other Receivables2020201920202019
Balance - beginning of period$216 $98 $168 $47 
Provision and other additions(1)
13 35 72 102 
Write-offs(38)(3)(49)(19)
Balance - end of period$191 $130 $191 $130 

(1)The Company recorded a provision of $7 and $18 through the MTM adjustments in revenues - service related, net, in the consolidated statements of operations during the three months ended September 30, 2020 and 2019, respectively, and $20 and $46 during the nine months ended September 30, 2020 and 2019, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.

15
Reserves for Advances and Other ReceivablesThree Months Ended March 31, 2020 Three Months Ended March 31, 2019
Balance - beginning of period$168
 $47
Provision and other additions(1)
30
 30
Write-offs(5) (6)
Balance - end of period$193
 $71


(1)
The Company recorded a provision of $10 and $11 through the MTM adjustments in revenues - service related, net, in the consolidated statements of operations for the three months ended March 31, 2020 and 2019, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.

Purchase Discount for Advances and Other Receivables
In connection with the acquisition of Pacific Union in February 2019, the Company recorded the acquired advances and other receivables at estimated fair value as of the acquisition date, which resulted in a purchase discount of $19. Refer to Note 2, Acquisitions, for discussion of the Pacific Union acquisition. In 2018, the Company recorded the acquired advances and other receivables in connection with the Merger at estimated fair value as of the acquisition date, which resulted in a purchase discount of $302.

As of March 31, 2020, a total of $175 purchase discount has been utilized, with $146 purchase discount remaining.

The following table setstables set forth the activities of the purchase discounts for advances and other receivables:
Three Months Ended September 30, 2020Three Months Ended September 30, 2019
Purchase Discount for Advances and Other ReceivablesServicing AdvancesReceivables from Agencies, Investors and Prior ServicersServicing AdvancesReceivables from Agencies, Investors and Prior Servicers
Balance - beginning of period$117 $21 $156 $48 
Utilization of purchase discounts(25)0 (8)0 
Balance - end of period$92 $21 $148 $48 
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Purchase DiscountsServicing Advances Receivables from Agencies, Investors and Prior Servicers Servicing Advances Receivables from Agencies, Investors and Prior Servicers
Balance - beginning of period$131
 $21
 $205
 $48
Addition from acquisition—
 —
 19
 —
Utilization of purchase discounts(6) —
 (55) —
Balance - end of period$125
 $21
 $169
 $48


Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
Purchase Discount for Advances and Other ReceivablesServicing AdvancesReceivables from Agencies, Investors and Prior ServicersServicing AdvancesReceivables from Agencies, Investors and Prior Servicers
Balance - beginning of period$131 $21 $205 $48 
Addition from acquisition0 0 19 0 
Utilization of purchase discounts(39)0 (76)0 
Balance - end of period$92 $21 $148 $48 



Credit Loss for Advances and Other Receivables
As described in Note 1, Nature of Business and Basis of Presentation, advances and other receivables are within the scope of ASU 2016-13, and the Company modified its accounting policy regarding its assessment of reserves for credit-related losses in accordance with CECLCECL framework. Upon applying ASU 2016-13, the Company reduced its reserve for credit-related losses by $7 as of January 1, 2020. During the three and nine months ended March 31,September 30, 2020, the Company increased the CECL reserve by $6.$13 and $27, respectively. As of March 31,September 30, 2020, the total CECL reserve was $23.$44, of which $27 and $17 was recorded in reserves and purchase discount for advances and other receivables, respectively.


Based upon the Company’s application of ASU 2016-13, the Company determined that the credit-related risk associated with applicable financial instruments typically increase with the passage of time. The CECL reserve methodology considers these financial instruments collectible to a point in time ofof 39 months. AnyAny projected remaining balance at the end of the collection period is considered a loss and factors into the overall CECL loss rate required.


5.4. Reverse Mortgage Interests, Net


Reverse mortgage interests, net, consists of the following:
Reverse Mortgage Interests, NetSeptember 30, 2020December 31, 2019
Participating interests in HECM mortgage-backed securities (“HMBS”)$3,663 $4,282 
Other interests securitized1,002 994 
Unsecuritized interests920 1,117 
Purchase discount, net(125)(114)
Total reverse mortgage interests, net$5,460 $6,279 
Reverse Mortgage Interests, NetMarch 31, 2020 December 31, 2019
Participating interests in HECM mortgage-backed securities (“HMBS”), net of $16 and $10 purchase discount and premium, respectively$4,027
 $4,292
Other interests securitized, net of $44 and $56 purchase discount, respectively851
 938
Unsecuritized interests, net of $69 and $68 purchase discount, respectively1,080
 1,052
Reserves(3) (3)
Total reverse mortgage interests, net$5,955
 $6,279


Participating Interests in HMBS
Participating interests in HMBS consist of the Company’s reverse mortgage interests in HECM loans which have been transferred to GNMA and subsequently securitized through the issuance of HMBS. The Company does not own these loans, but due to HMBS program buyout requirements, such interests are consolidated in Company’s consolidated balance sheets. The Company does not originate reverse mortgages, but during the threenine months ended March 31,September 30, 2020 and 2019, a total of $52 $134 and $82$211 in UPB associated with new draws on existing loans was transferred to GNMA and securitized by the Company, respectively.


In March 2019, the Company entered into an agreement with Fannie Mae for the transfer of reverse mortgage loans. As a result, $61 was transferred from Fannie Mae and securitized into GNMA HMBS during the threenine months ended March 31,September 30, 2019. There was no0 such activity during the threenine months ended March 31,September 30, 2020.


16

Other Interests Securitized
OtherThe reverse mortgage interests under other interest securitized consist of reverse mortgage interests that no longer meet HMBS program eligibility criteria primarily because they have reached 98% of their Max Claim Amount (“MCA”), which is established at origination and in accordance with HMBS program guidelines, requiring a repurchase of loans from the respective HMBS trust. These reverse mortgage interests have subsequently been transferred to private securitization trusts and are accounted for as a secured borrowing. No such securitizations occurred duringDuring the threenine months ended March 31,September 30, 2020, the Company securitized a total of $516 UPB through Trust 2020-1 and 2019.a total of $337 UPB from Trust 2018-2 and Trust 2018-3 was called and the related debt was extinguished. During the nine months ended September 30, 2019, the Company securitized a total of $398 UPB through Trust 2019-1 and a total of $249 UPB from Trust 2017-2 was called and the related debt was extinguished. The Company sold $20 UPB of Trust 2018-3 during the threenine months ended March 31,September 30, 2019. Refer to Other Nonrecourse Debt in Note 10,9, Indebtedness, for additional information.



Unsecuritized Interests
Unsecuritized interests in reverse mortgages consist of the following:
Unsecuritized interestsSeptember 30, 2020December 31, 2019
Repurchased HECM loans (exceeds 98% of their Max Claim Amount (“MCA”))$634 $789 
HECM related receivables(1)
213 250 
Funded borrower draws not yet securitized56 64 
Real estate owned (“REO”) related receivables17 14 
Total unsecuritized interests$920 $1,117 
Unsecuritized interestsMarch 31, 2020 December 31, 2019
Repurchased HECM loans (exceeds 98% MCA)$782
 $789
HECM related receivables(1)
257
 250
Funded borrower draws not yet securitized64
 67
Real estate owned (“REO”) related receivables46
 14
Purchase discount, net(69) (68)
Total unsecuritized interests$1,080
 $1,052


(1)
(1)HECM related receivables consist primarily of receivables from FNMA for corporate advances and service fees and claims receivables from the U.S. Department of Housing and Urban Development (“HUD”) on reverse mortgage interests.

Unsecuritized interests include repurchased HECM loans for which the Company is required to repurchase from the HMBS pool when the outstanding principal balanceU.S. Department of the HECM loan is equal to or greater than 98% of the MCA established at originationHousing and in accordance with HMBS program guidelines. These unsecuritized interests are primarily financed through available warehouse lines. Urban Development (“HUD”) on reverse mortgage interests.

The Company repurchased a total of $383$912 and $740$2,132 of HECM loans out of GNMA HMBS securitizations during the threenine months ended March 31,September 30, 2020 and 2019, respectively, of which $103$244 and $188$561 were subsequently assigned to a third party in accordance with applicable servicing agreements, respectively. To the extent a loan is not subject to applicable servicing agreements and assigned to a third party, the loan is either subject to assignment to HUD, per contractual obligations with GNMA, liquidated via a payoff from the borrower or liquidated via a foreclosure according to the terms of the underlying mortgage. The Company assigned a total of $266$630 and $514$1,458 of HECM loans to HUD during the threenine months ended March 31,September 30, 2020 and 2019, respectively.


ReservesPurchase Discount, net, for Reverse Mortgage Interests
The Company records reserves related to reverse mortgage interests based on potential unrecoverable costs and loss exposures expected to be realized. Recoverability is primarily determined based on the Company’s ability to meet HUD servicing guidelines and is assessed with respect to both financial and operational exposures.

The following table sets forth the activities of the servicing reserves for reverse mortgage interests:
Reserves for reverse mortgage interestsThree Months Ended March 31, 2020 Three Months Ended March 31, 2019
Balance - beginning of period$3
 $13
Provision (release), net—
 —
Write-offs—
 (5)
Balance - end of period$3
 $8


Purchase Discount for Reverse Mortgage Interests
In connection with the Merger, the Company recorded the acquired reverse mortgage interests at estimated fair value as of the acquisition date, which resulted in a purchase premium of $42 for participating interests in HMBS, and a purchase discount of $298 for Other Interest Securitized and Unsecuritized Interests due to the higher exposure to financial and operational losses of servicing the loans through foreclosure and collateral liquidation. The premium and discount are amortized and accreted, respectively, based on the effective yield method, whereby the Company updates its prepayment assumptions for actual prepayments on a quarterly basis.

The following table sets forth the activities of the purchase premiums and discounts, net, for reverse mortgage interests:
Three Months Ended September 30,Nine Months Ended September 30,
Purchase discount, net, for reverse mortgage interests(1)
2020201920202019
Balance - beginning of period$(127)$(163)$(114)$(164)
Adjustments(2)
0 0 0 (24)
Utilization of purchase discounts(3)
8 40 27 80 
Amortization, net of accretion(6)(1)(38)(16)
Balance - end of period$(125)$(124)$(125)$(124)
 Three Months Ended March 31, 2020
Purchase premiums and discounts for reverse mortgage interests
Net Discount for Participating Interests in HMBS(1)
 
Net Discount for Other Interest Securitized(1)
 
Net Discount for Unsecuritized Interests(1)
Balance - beginning of period$10
 $(56) $(68)
Utilization of purchase discounts(2)
—
 5
 5
(Amortization)/Accretion(44) 17
 2
Transfers(3)
18
 (10) (8)
Balance - end of period$(16) $(44) $(69)


(1)Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans.
(2)Adjustments during the nine months ended September 30, 2019 due to revised cost to service assumption utilized in the valuation of reverse mortgage assets and liabilities acquired from the Merger.
 Three Months Ended March 31, 2019
Purchase premiums and discounts for reverse mortgage interests
Net Premium for Participating Interests in HMBS(1)
 
Net Discount for Other Interest Securitized(1)
 
Net Discount for Unsecuritized Interests(1)
Balance - beginning of period$58
 $(100) $(122)
Adjustments(4)
(16) (2) (6)
Utilization of purchase discounts(2)
—
 6
 22
(Amortization)/Accretion(14) (15) 18
Transfers(3)
8
 (1) (7)
Balance - end of period$36
 $(112) $(95)
(3)Utilization of purchase discounts on liquidated loans, for which the remaining receivable was written off.

(1)
Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans.
(2)
Utilization of purchase discounts on liquidated loans, for which the remaining receivable was written-off.
(3)
Transfer of premium/(discount) based on the transfer of associated loans between categories consistent with the underlying loan characteristics.
(4)
Adjustments to premium/(discount) due to revised cost to service assumption utilized in the valuation of reverse mortgage assets and liabilities acquired from the Merger during the measurement period.


Credit Loss for Reverse Mortgage Interests
As described in Note 1, Nature of Business and Basis of Presentation, reverse mortgage interests are within the scope of ASU 2016-13, requiring an assessment of reserves regarding credit-related losses in accordance with the CECL framework. Upon applying ASU 2016-13, the Company determined that credit-related losses are immaterial given the government insured nature of the HECM loan product. Any expected credit-related losses are contemplated in the Company’s existing reserve methodology due to the nature of this financial instrument. Accordingly, no cumulative effect adjustment was required upon adoption of ASU 2016-13 on January 1, 2020 andand no additional CECL reserve was recorded as of March 31,September 30, 2020.


17

The credit-risk characteristics of reverse mortgage interests do not vary with time as the financial instruments have no contractual life or financial profile as the primary counterparty is the government agency insuring the loans.


Reverse Mortgage Interest Income
The Company accrues interest income for its participating interest in reverse mortgages based on the stated rates underlying HECM loans, in accordance with FHA guidelines. Total interest earned on the Company’s reverse mortgage interests was $62 and $82 forwas $41 and $74 during the three months ended March 31,September 30, 2020 and 2019, respectively, and $158 and $241 during the nine months ended September 30, 2020 and 2019, respectively.





6.
5. Mortgage Loans Held for Sale

The Company maintains a strategy of originating and purchasing residential mortgage loan products primarily for the purpose of selling to GSEs or other third-party investors in the secondary market on a servicing-retained basis. The Company purchases closed loans through its correspondent channel and assists customers currently in the Company’s servicing portfolio with refinancing of loans or new home purchases through its Direct to Consumer channel. Generally, all newly originated mortgage loans held for sale are securitized and transferred to GSEs or delivered to third-party purchasers shortly after origination on a servicing-retained basis.


Mortgage loans held for sale are recorded at fair value as set forth below:
Mortgage Loans Held for SaleSeptember 30, 2020December 31, 2019
Mortgage loans held for sale – UPB$3,642 $3,949 
Mark-to-market adjustment(1)
175 128 
Total mortgage loans held for sale$3,817 $4,077 
Mortgage Loans Held for SaleMarch 31, 2020 December 31, 2019
Mortgage loans held for sale – UPB$3,735
 $3,949
Mark-to-market adjustment(1)
187
 128
Total mortgage loans held for sale$3,922
 $4,077


(1)
(1)The mark-to-market adjustment includes net change in unrealized gain/loss, premium on correspondent loans and fees on direct-to-consumer loans. The mark-to-market adjustment is recorded in net gain on mortgage loans held for sale in the consolidated statements of operations.

The Company accrues interest income as earned and places loans on non-accrual status after any portion of principal or interest has been delinquent for more than 90 days. Accrued interest is recorded as interest income in the consolidated statements of operations.


The following table sets forth the activities of mortgage loans held for sale:
Nine Months Ended September 30,
Mortgage Loans Held for Sale20202019
Balance - beginning of period$4,077 $1,631 
Loans sold(42,185)(27,413)
Mortgage loans originated and purchased, net of fees38,709 28,209 
Repurchase of loans out of Ginnie Mae securitizations3,173 1,823 
Net change in unrealized gain (loss) of loans held for sale36 2 
Net transfers of mortgage loans held for sale(1)
7 15 
Balance - end of period$3,817 $4,267 

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

During the nine months ended September 30, 2020 and 2019, the Company received proceeds of $43,040 and $27,778, respectively, on the sale of mortgage loans held for sale, resulting in gains of $855 and $365, respectively.

The total UPB and fair value of mortgage loans held for sale on non-accrual status was as follows:
September 30, 2020December 31, 2019
Mortgage Loans Held for SaleUPBFair ValueUPBFair Value
Non-accrual(1)
$49 $39 $29 $22 
 March 31, 2020 December 31, 2019
Mortgage Loans Held for SaleUPB Fair Value UPB Fair Value
Non-accrual(1)
$33
 $23
 $29
 $22


(1)Non-accrual UPB includes $37 and $25 of UPB related to Ginnie Mae repurchased loans as of September 30, 2020 and December 31, 2019, respectively.
(1)
Non-accrual - UPB includes $28 and $25 of UPB related to Ginnie Mae repurchased loans as of March 31, 2020 and December 31, 2019, respectively.


The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $24$20 and $21 as of March 31,September 30, 2020 and December 31, 2019, respectively.

The following table sets forth the activities of mortgage loans held for sale:
18
Mortgage Loans Held for SaleThree Months Ended March 31, 2020 Three Months Ended March 31, 2019
Balance - beginning of period$4,077
 $1,631
Loans sold(13,510) (6,088)
Mortgage loans originated and purchased, net of fees(1)
12,375
 6,253
Repurchase of loans out of Ginnie Mae securitizations919
 364
Changes in fair value61
 10
Net transfers of mortgage loans held for sale(2)
—
 —
Balance - end of period$3,922
 $2,170

(1)
Mortgage loans originated and purchased during the three months ended March 31, 2019 includes $536 of loans held for sale that were acquired from Pacific Union. See Note 2, Acquisitions, for further discussion.
(2)
Amount reflects transfers to other assets for loans transitioning into REO status and transfers to advances and other receivables, net for claims made on certain government insurance mortgage loans. Transfers out are net of transfers in upon receipt of proceeds from an REO sale or claim filing.

For the three months ended March 31, 2020 and 2019, the Company received proceeds of $13,724 and $6,194, respectively, on the sale of mortgage loans held for sale, resulting in gains of $275 and $106, respectively.


The Company has the right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. The majority of Ginnie Mae repurchased loans are repurchased in connection with loan modifications and loan resolution activity, with the intent to re-pool into new Ginnie Mae securitizations upon re-performance of the loan or to otherwise sell to third-party investors. Therefore, these loans are classified as held for sale.


7. Leases

Operating leases in which the Company is the lessee are recorded as operating lease right-of-use (“ROU”) assets and operating lease liabilities, included in other assets and payables and other liabilities, respectively, on the consolidated balance sheets as of March 31, 2020. The Company does not currently have any significant finance leases in which it is the lessee. Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. ROU assets are further adjusted for lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in general and administrative expenses in the consolidated statements of operations. The Company’s leases relate primarily to office space and equipment, with remaining lease terms of generally 1 to 9 years. Certain lease arrangements contain extension options, which typically range from 3 to 5 years, at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. As of March 31, 2020, operating lease ROU assets and liabilities were $111 and $125, respectively.

The table below summarizes the Company’s net lease cost:

Net lease costThree Months Ended March 31, 2020 Three Months Ended March 31, 2019
Operating lease cost$10
 $8
Short-term lease cost—
 1
Sublease income(1) —
Net lease cost$9
 $9

The table below summarizes other information related to the Company’s operating leases:
Operating leasesThree Months Ended March 31, 2020 Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:   
Operating cash flows from operating leases$10
 $6
Leased assets obtained in exchange for new operating lease liabilities$—
 $127
Weighted average remaining lease term5.6 years
 5.5 years
Weighted average discount rate5.0% 5.0%


Maturities of operating lease liabilities as of March 31, 2020 are as follows:
Year Ending December 31, Operating Leases
2020(1)
 $37
2021 29
2022 20
2023 16
2024 11
2025 and thereafter 30
Total future minimum lease payments 143
Less: imputed interest 18
Total operating lease liabilities $125

(1)
Excluding the three months ended March 31, 2020.


8. Other Assets

Other assets consist of the following:
Other assetsMarch 31, 2020 December 31, 2019
Loans subject to repurchase right from Ginnie Mae$468
 $560
Derivative financial instruments294
 153
Trade receivables and accrued revenues143
 126
Goodwill120
 120
Right-of-use assets111
 121
Intangible assets61
 74
Other372
 236
Total other assets$1,569
 $1,390

6. Loans Subject to Repurchase Right 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 delinquentreceived from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its consolidated balance sheets and establishes a corresponding repurchaserepurchase liability regardless of the Company’s intention to repurchase the loan.

Derivative Financial Instruments
See Note 9, Derivative Financial Instruments, for further details on derivative financial instruments.

Trade Receivables and Accrued Revenues
Trade receivables and accrued revenues are primarily comprised of trade receivables and service fees earned but not received based upon the terms of the Company’s servicing and subservicing agreements. As described in Note 1, Nature of Business and Basis of Presentation, certain trade receivables and accrued revenues included in other assets are within the scope of ASU 2016-13, requiring an assessment of CECL losses. Upon applying ASU 2016-13, the Company reduced its other assets allowances by $2 as of January 1, 2020. The CECL reserve as of March 31, 2020 was $6.

The credit-risk characteristics of trade receivables included in other assets and within the scope of ASU 2016-13 do not change with time as they are primarily short-term in nature. However, the Company does monitor the financial status of customers to determine if any specific loss considerations are required.

Goodwill and Intangible Assets
In 2019, the Company recorded goodwill and intangible assets of $40 and $13, respectively, in connection with the acquisition of Pacific Union. See further discussion in Note 2, Acquisitions. The Company recorded a $4 impairmenthad loans subject to repurchase from Ginnie Mae of technology intangible assets within Corporate/Other segment during the three months ended March 31, 2020 in connection with an ancillary business. The impairment charges were included in the general $5,395 and administrative expenses in the consolidated statements $560 as of operations. There was no impairment expense for intangible assets during the three months ended March 31, 2019.

Right-of-Use Assets
See Note 7, Leases, for further details on right-of-use assets.

Other
Other primarily includes prepaid expenses, margin call deposits, REO, tax receivables, receivables related to recent loan transfers and various receivables due from investors. REO, net includes $12 and $11 of REO-related receivables with government insurance as of March 31,September 30, 2020 and December 31, 2019, respectively, limiting loss exposurewhich are included in both other assets and payables and other liabilities in the consolidated balance sheets. Loans subject to repurchase from Ginnie Mae as of September 30, 2020 include $5,095 loans in forbearance related to the Company.Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) whereby no payments have been received from borrowers for greater than 90 days.




9.7. Goodwill and Intangible Assets

The Company had goodwill of $120 as of September 30, 2020 and December 31, 2019. The Company had intangible assets of $45 and $74 as of September 30, 2020 and December 31, 2019, respectively. Goodwill and intangible assets are included in other assets within the consolidated balance sheets.


8. Derivative Financial Instruments


Derivative instruments are used as part of the overall strategy to manage exposure to market risks primarily associated with fluctuations in interest rates related to originations. Derivative instruments utilized by the Company primarily include interest rate lock commitments (“IRLCs”), loan purchase commitments (“LPCs”), forward Mortgage Backed Securities (“MBS”) purchase commitments, Eurodollar and Treasury futures and interest rate swap agreements.


The following tables provide the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses) for the derivative financial instruments:
September 30, 2020Nine Months Ended September 30, 2020
Derivative Financial InstrumentsExpiration
Dates		Outstanding
Notional		Fair
Value		Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments2020$1,908 $75 $43 
Derivative financial instruments
IRLCs2020-202110,967 414 279 
LPCs20205,217 38 26 
Forward MBS trades2020-202111,452 23 17 
Total derivative financial instruments - assets$27,636 $475 $322 
Liabilities
Derivative financial instruments
IRLCs2020$2 $0 $0 
LPCs2020598 2 (1)
Forward MBS trades2020-202115,974 42 30 
Total derivative financial instruments - liabilities$16,574 $44 $29 
19

September 30, 2019Nine Months Ended September 30, 2019
Derivative Financial InstrumentsExpiration
Dates		Outstanding
Notional		Fair
Value		Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments2019$1,508 $35 $9 
Derivative financial instruments
IRLCs20194,964 144 84 
LPCs20191,397 18 17 
Forward MBS trades20193,054 8 6 
Eurodollar futures2019-20216 0 0 
Total derivative financial instruments - assets$9,421 $170 $107 
Liabilities
Derivative financial instruments
IRLCs2019$15 $0 $0 
LPCs2019547 3 3 
Forward MBS trades20195,667 16 (8)
Eurodollar futures2019-20218 0 0 
Total derivative financial instruments - liabilities$6,237 $19 $(5)

Associated with the Company’s derivatives are $178$14 and $6 in collateral deposits on derivative instruments recorded in other assets onin the Company’s consolidated balance sheets as of March 31,September 30, 2020 and December 31, 2019, respectively. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the consolidated balance sheets.


The following tables provide the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses) for the derivative financial instruments:
9. Indebtedness

Notes Payable
September 30, 2020December 31, 2019
Interest RateMaturity DateCollateralCapacity AmountOutstandingCollateral PledgedOutstandingCollateral Pledged
Advance Facilities
$875 advance facility(1)
CP+2.5% to 6.5%April 2021Servicing advance receivables$875 $144 $169 $37 $88 
$640 advance facility(2)
LIBOR+3.9%August 2022Servicing advance receivables640 144 196 0 0 
$425 advance facility(3)
LIBOR+2.8% to 6.5%October 2021Servicing advance receivables425 206 261 224 285 
$250 advance facility(4)
LIBOR+1.5% to 2.6%December 2020Servicing advance receivables250 0 0 98 167 
$100 advance facilityLIBOR+2.5%January 2021Servicing advance receivables100 75 102 63 125 
Advance facilities principal amount569 728 422 665 
Warehouse Facilities
$1,500 warehouse facilityLIBOR+1.7%June 2021Mortgage loans or MBS1,500 666 634 759 733 
$1,200 warehouse facilityLIBOR+1.5% to 3.0%November 2020Mortgage loans or MBS1,200 564 610 683 724 
$1,050 warehouse facility(5)
LIBOR+1.8% to 3.9%September 2022Mortgage loans or MBS1,050 627 679 589 656 
20

   March 31, 2020 Three Months Ended March 31, 2020
Derivative Financial Instruments
Expiration
Dates
 
Outstanding
Notional
 
Fair
Value
 Recorded Gains/(Losses)
Assets       
Mortgage loans held for sale       
Loan sale commitments2020 $2,598
 $111
 $79
Derivative financial instruments       
IRLCs2020 6,923
 263
 128
LPCs2020 834
 25
 13
Forward MBS trades2020 886
 6
 —
Eurodollar futures2020-2021 6
 —
 —
Total derivative financial instruments - assets  $8,649
 $294
 $141
Liabilities       
Derivative financial instruments       
IRLCs2020 $22
 $—
 $—
LPCs2020 10
 —
 (3)
Forward MBS trades2020 10,229
 223
 211
Eurodollar futures2020-2021 6
 —
 —
Total derivative financial instruments - liabilities  $10,267
 $223
 $208
September 30, 2020December 31, 2019
Interest RateMaturity DateCollateralCapacity AmountOutstandingCollateral PledgedOutstandingCollateral Pledged
$750 warehouse facilityLIBOR+1.8%August 2021Mortgage loans or MBS750 574 591 0 0 
$750 warehouse facilityLIBOR+1.7% to 2.8%October 2021Mortgage loans or MBS750 472 481 411 425 
$750 warehouse facility(6)
LIBOR+2.3%September 2022Mortgage loans or MBS750 105 135 54 78 
$700 warehouse facility(7)
LIBOR+1.3% to 2.2%November 2020Mortgage loans or MBS700 488 505 469 488 
$600 warehouse facilityLIBOR+2.2%February 2021Mortgage loans or MBS600 156 185 174 202 
$500 warehouse facilityLIBOR+2.5% to 4.0%May 2021Mortgage loans or MBS500 0 0 336 349 
$300 warehouse facilityLIBOR+1.4%January 2021Mortgage loans or MBS300 258 258 136 136 
$250 warehouse facility(8)
LIBOR+1.4% to 2.3%December 2020Mortgage loans or MBS250 0 0 762 783 
$200 warehouse facilityLIBOR+1.8%April 2021Mortgage loans or MBS200 72 74 27 27 
$200 warehouse facilityLIBOR+1.3%November 2020Mortgage loans or MBS200 0 0 0 0 
$50 warehouse facilityLIBOR+1.8% to 4.8%April 2021Mortgage loans or MBS50 43 45 11 15 
$40 warehouse facilityLIBOR+3.3%January 2021Mortgage loans or MBS40 3 4 5 6 
Warehouse facilities principal amount4,028 4,201 4,416 4,622 
MSR Facilities
$450 warehouse facility(9)
LIBOR+5.1%May 2021MSR45000150945
$260 warehouse facility(2)
LIBOR+3.9%August 2022MSR26025665900
$200 warehouse facility(10)
LIBOR+3.5%August 2021MSR20001870200
$150 warehouse facility(5)
LIBOR+3.8%September 2022MSR15001490130
$50 warehouse facilityLIBOR+2.8%November 2020MSR5010801084
MSR facilities principal amount2661,0751601,359
Advance, warehouse and MSR facilities principal amount4,863 $6,0044,998 $6,646 
Unamortized debt issuance costs(12)(1)
Advance and warehouse facilities, net$4,851$4,997
Pledged Collateral for warehouse and MSR facilities:
Mortgage loans held for sale$3,560 $3,637 $3,826 $3,931 
Reverse mortgage interests468 564 590 691 
MSR266 1,075 160 1,359 



(1)The capacity amount for this advance facility increased from $125 to $875 in April 2020.
(2)Total capacity for this facility is $900, of which $640 is internally allocated for Advance financing and $260 is internally allocated for MSR financing; capacity is fully fungible and is not restricted by these allocations.
(3)The capacity amount for this advance facility increased from $325 to $425 in April 2020.
(4)This advance facility was terminated and transferred to another advance facility in April 2020.
(5)Total capacity amount for this facility is $1,200, of which $150 is a sublimit for MSR financing. The capacity amount increased from $800 to $1,200 in September 2020.
(6)The capacity amount for this warehouse facility increased from $200 to $750 in September 2020.
(7)The capacity amount for this warehouse facility was subsequently increased to $1,500 in October 2020 with a maturity date of October 2021.
(8)The capacity amount for this warehouse facility decreased from $1,000 to $250 in May 2020.
(9)This MSR facility was terminated in August 2020.
(10)The capacity amount for this MSR facility decreased from $400 to $200 in August 2020.
21

   March 31, 2019 Three Months Ended March 31, 2019
Derivative Financial InstrumentsExpiration
Dates		 Outstanding
Notional		 Fair
Value		 Recorded Gains/(Losses)
Assets       
Mortgage loans held for sale       
Loan sale commitments2019 $365
 $17
 $(9)
Derivative financial instruments       
IRLCs2019 2,557
 69
 9
LPCs2019 216
 2
 1
Forward MBS trades2019 410
 1
 (1)
Eurodollar futures2019-2021 7
 —
 —
Total derivative financial instruments - assets  $3,190
 $72
 $9
Liabilities       
Derivative financial instruments       
LPCs2019 $52
 $—
 $—
Forward MBS trades2019 3,804
 22
 (3)
Eurodollar futures2019-2021 13
 —
 —
Total derivative financial instruments - liabilities  $3,869
 $22
 $(3)


10. Indebtedness

Notes Payable
          March 31, 2020 December 31, 2019
Advance Facilities Interest Rate Maturity Date Collateral Capacity Amount Outstanding Collateral Pledged Outstanding Collateral pledged
$325 advance facility(1)
 LIBOR+1.5% to 6.5% August 2021 Servicing advance receivables $325
 $223
 $283
 $224
 $285
$250 advance facility(2)
 LIBOR+1.5% to 2.6% December 2020 Servicing advance receivables 250
 118
 138
 98
 167
$200 advance facility LIBOR+2.5% January 2021 Servicing advance receivables 200
 83
 117
 63
 125
$125 advance facility(3)
 LIBOR+1.5% to 7.4% July 2020 Servicing advance receivables 125
 66
 76
 37
 88
Advance facilities principal amount     490
 $614
 422
 $665
Unamortized debt issuance costs     (1)   —
  
Advance facilities, net   $489


 $422
 

(1)
The capacity amount was subsequently increased to $425 in April 2020 with a maturity date of October 2021.
(2)
This advance facility was subsequently terminated and transferred to another advance facility in April 2020.
(3)
The capacity amount was subsequently increased to $875 in April 2020 with a maturity date of April 2021.

          March 31, 2020 December 31, 2019
Warehouse Facilities Interest Rate Maturity Date Collateral Capacity Amount Outstanding Collateral pledged Outstanding Collateral pledged
$1,500 warehouse facility LIBOR+1.0% June 2020 Mortgage loans or MBS $1,500
 $1,214
 $1,160
 $759
 $733
$1,200 warehouse facility LIBOR+1.5% to 3.0% November 2020 Mortgage loans or MBS 1,200
 566
 602
 683
 724
$1,000 warehouse facility LIBOR+1.4% to 2.3% September 2020 Mortgage loans or MBS 1,000
 593
 608
 762
 783
$800 warehouse facility(1)
 LIBOR+2.1% to 3.8% April 2021 Mortgage loans or MBS 800
 528
 639
 589
 656
$750 warehouse facility LIBOR+1.4% to 2.8% September 2020 Mortgage loans or MBS 750
 347
 355
 411
 425
$700 warehouse facility LIBOR+1.3% to 2.2% November 2020 Mortgage loans or MBS 700
 628
 649
 469
 488
$600 warehouse facility LIBOR+2.0% February 2021 Mortgage loans or MBS 600
 169
 203
 174
 202
$500 warehouse facility LIBOR+2.0% to 4.0% May 2020 Mortgage loans or MBS 500
 22
 23
 336
 349
$200 warehouse facility LIBOR+1.4% January 2021 Mortgage loans or MBS 200
 100
 101
 136
 136
$200 warehouse facility LIBOR+1.2% April 2021 Mortgage loans or MBS 200
 21
 21
 27
 27
$200 warehouse facility LIBOR+2.0% May 2020 Mortgage loans or MBS 200
 59
 83
 54
 78
$200 warehouse facility LIBOR+1.3% October 2020 Mortgage loans or MBS 200
 —
 —
 —
 —
$50 warehouse facility LIBOR+2.0% to 6.0% June 2020 Mortgage loans or MBS 50
 4
 6
 11
 15
$40 warehouse facility LIBOR+3.3% September 2020 Mortgage loans or MBS 40
 6
 7
 5
 6
Warehouse facilities principal amount 4,257
 4,457
 4,416
 4,622
MSR Facility                
$400 warehouse facility LIBOR+3.5% or 6.1% January 2023 Mortgage loans or MBS 400
 150
 836
 150
 945
$400 warehouse facility LIBOR+2.3% December 2020 Mortgage loans or MBS 400
 75
 190
 —
 200
$150 warehouse facility(1)
 LIBOR+2.8% April 2021 Mortgage loans or MBS 150
 40
 119
 —
 130
$50 warehouse facility LIBOR+2.8% August 2020 Mortgage loans or MBS 50
 30
 71
 10
 84
MSR facilities principal amount 295
 1,216
 160
 1,359
Warehouse and MSR facilities principal amount 4,552
 $5,673
 4,576
 $5,981
Unamortized debt issuance costs       (1)   (1)  
Warehouse facilities, net $4,551
   $4,575
  
                 
Pledged Collateral:              
Mortgage loans held for sale       $3,659
 $3,748
 $3,826
 $3,931
Reverse mortgage interests       598
 709
 590
 691
MSR       295
 1,216
 160
 1,359

(1)
Total capacity amount for this facility is $800 of which $150 is a sublimit for MSR financing.



Unsecured Senior Notes
Unsecured senior notes consist of the following:
Unsecured senior notesSeptember 30, 2020December 31, 2019
$850 face value, 5.500% interest rate payable semi-annually, due August 2028(1)
$850 $0 
$750 face value, 9.125% interest rate payable semi-annually, due July 2026750 750 
$600 face value, 6.000% interest rate payable semi-annually, due January 2027(2)
600 0 
$600 face value, 6.500% interest rate payable semi-annually, due July 2021(3)
0 492 
$300 face value, 6.500% interest rate payable semi-annually, due June 2022(3)
0 206 
$950 face value, 8.125% interest rate payable semi-annually, due July 2023(4)
0 950 
Unsecured senior notes principal amount2,200 2,398 
Unamortized debt issuance costs, premium and discount(33)(32)
Unsecured senior notes, net$2,167 $2,366 
Unsecured senior notesMarch 31, 2020 December 31, 2019
$950 face value, 8.125% interest rate payable semi-annually, due July 2023$950
 $950
$750 face value, 9.125% interest rate payable semi-annually, due July 2026750
 750
$600 face value, 6.000% interest rate payable semi-annually, due January 2027(1)
600
 —
$600 face value, 6.500% interest rate payable semi-annually, due July 2021(2)
—
 492
$300 face value, 6.500% interest rate payable semi-annually, due June 2022(2)
—
 206
Unsecured senior notes principal amount2,300
 2,398
Unamortized debt issuance costs, premium and discount(41) (32)
Unsecured senior notes, net$2,259
 $2,366


(1)
On January 16, 2020, the Company completed an offering of $600 aggregate principal amount of 6.000% Senior Notes due 2027 (the “2027 notes”).
(2)
This note was redeemed in full on February 15, 2020 using the net proceeds of the 2027 notes offering, together with cash on hand.

(1)On August 6, 2020, the Company completed an offering of $850 aggregate principal amount of 5.500% Senior Notes due 2028 (the “2028 Notes”)
The ratios included(2)On January 16, 2020, the Company completed an offering of $600 aggregate principal amount of 6.000% Senior Notes due 2027 (the “2027 Notes”).
(3)This note was redeemed in full on February 15, 2020 using the indentures fornet proceeds of the unsecured senior notes are incurrence-based compared to2027 Notes offering, together with cash on hand.
(4)This note was redeemed in full on August 13, 2020 using the customary ratio covenants that are often found in credit agreements that require a company to maintain a certain ratio. The incurrence-based covenants limitnet proceeds of the issuer(s) and restricted subsidiaries ability to incur additional indebtedness, pay dividends, make certain investments, create liens, consolidate, merge or sell substantially all of their assets or enter into certain transactions2028 Notes offering, together with affiliates. The indentures contain certain events of default, including (subject, in some cases, to customary cure periods and materiality thresholds) defaults basedcash on (i) the failure to make payments under the applicable indenture when due, (ii) breach of covenants, (iii) cross-defaults to certain other indebtedness, (iv) certain bankruptcy or insolvency events, (v) material judgments and (vi) invalidity of material guarantees.hand.


The indentures provide that on or before certain fixed dates, the Company may redeem up to 40% of the aggregate principal amount of the unsecured senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest, to the redemption dates, subject to compliance with certain conditions. In addition, the Company may redeem all or a portion of the unsecured senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. During the threenine months ended March 31,September 30, 2020, the Company repaid $100 in principal of outstanding notes. Additionally, the Company redeemed $598$950 and $1,548 in principal of outstanding notes during the three and nine months ended March 31,September 30, 2020, resulting in a gainnet loss of $1. No$53 and $52, respectively. No notes were repurchased or redeemed during the three and nine months ended March 31,September 30, 2019.


As of March 31,September 30, 2020, the expected maturities of the Company’s unsecured senior notes based on contractual maturities are as follows:
Year Ending December 31,Amount
2020 through 2024$0
Thereafter2,200
Total unsecured senior notes principal amount$2,200

22
Year Ending December 31, Amount
2020 $—
2021 —
2022 —
2023 950
2024 —
Thereafter 1,350
Total unsecured senior notes principal amount $2,300


Other Nonrecourse Debt
Other nonrecourse debt consists of the following:
September 30, 2020December 31, 2019
Other nonrecourse debtIssue DateMaturity DateInterest RateClass of NoteCollateral AmountOutstandingOutstanding
Participating interest financing(1)
——0.3%-5.6%—$0 $3,664 $4,284 
Securitization of nonperforming HECM loans
Trust 2020-1September 2020September 20301.3%-7.5%A, M1, M2, M3, M4, M5519 516 0 
Trust 2019-2November 2019November 20292.3%-6.0%A, M1, M2, M3, M4, M5275 259 333 
Trust 2019-1June 2019June 20292.7%-6.0%A, M1, M2, M3, M4, M5248 226 302 
Trust 2018-3(2)
November 2018November 20283.6%-6.0%A, M1, M2, M3, M4, M50 0 209 
Trust 2018-2(2)
July 2018July 20283.2%-6.0%A, M1, M2, M3, M4, M50 0 148 
Other nonrecourse debt principal amount4,665 5,276 
Unamortized debt issuance costs, premium and discount6 10 
Other nonrecourse debt, net$4,671 $5,286 
         March 31, 2020 December 31, 2019
Other nonrecourse debtIssue Date Maturity Date Class of Note Collateral Amount Outstanding Outstanding
Participating interest financing(1)
— — — $—
 $4,045
 $4,284
Securitization of nonperforming HECM loans           
Trust 2019-2November 2019 November 2029 A, M1, M2, M3, M4, M5 306
 297
 333
Trust 2019-1June 2019 June 2029 A, M1, M2, M3, M4, M5 286
 269
 302
Trust 2018-3November 2018 November 2028 A, M1, M2, M3, M4, M5 209
 190
 209
Trust 2018-2July 2018 July 2028 A, M1, M2, M3, M4, M5 157
 137
 148
Other nonrecourse debt principal amount        4,938
 5,276
Unamortized debt issuance costs, premium and discount        7
 10
Other nonrecourse debt, net        $4,945
 $5,286


(1)
(1)Amounts represent the Company’s participating interest in GNMA HMBS securitized portfolios.

Participating Interest Financing
Participating interest financing represents the obligation of HMBS pools to third-party security holders. The Company issues HMBS in connection with the securitization of borrower draws and accrues interest on HECM loans. Proceeds are received in exchange for securitized advances on the HECM loan amounts transferred to GNMA, and the Company retains a beneficial interest (referred to as a “participating interest”) in the securitization trust in which the HECM loans and HMBS obligations are held and assume both issuer and servicer responsibilities in accordance with GNMA HMBS program guidelines. Monthly cash flows generated from the HECM loans are used to service the HMBS obligations. The interest rate is based on the underlying HMBS rate with a range of 1.8% to 5.6%.securitized portfolios.

Securitizations of Nonperforming HECM Loans
From time to time, the Company securitizes its interests(2)As discussed in non-performing reverse mortgages. The transactions provide investors with the ability to invest in a pool of both non-performing HECM loans secured by one-to-four-family residential propertiesNote 4, Reverse Mortgage Interests, Net, Trust 2018-3 and a pool of REO properties acquired through foreclosure of a deed in lieu of foreclosure in connection with HECM loans that are covered by FHA insurance. The transactions provide the Company with access to liquidity for the non-performing HECM loan portfolio, ongoing servicing fees, and potential residual returns. The transactions are structured as secured borrowings with the reverse mortgage loans included in the consolidated financial statements as reverse mortgage interestsTrust 2018-2 were collapsed and the related financing included in other nonrecourse debt. Interest is accrued at a rate of 2.3% to 6.0% ondebt was extinguished during the outstanding securitized notes and recorded as interest expense in consolidated statements of operations. The HECM securitizations are callable with expected weighted average lives of less than one to three years. The Company may re-securitize the previously called loans from earlier HECM securitizations to achieve a lower cost of funds.nine months ended September 30, 2020.


Financial Covenants
The Company’s credit facilities contain various financial covenants which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements, which are measured at the Company’s operating subsidiary, Nationstar Mortgage LLC. The Company was in compliance with its required financial covenants as of March 31,September 30, 2020.




11. Payables and Other Liabilities

Payables and other liabilities consist of the following:
23
Payables and other liabilitiesMarch 31, 2020 December 31, 2019
Loans subject to repurchase right from Ginnie Mae$468
 $560
Payables to servicing and subservicing investors407
 423
Derivative financial instruments223
 15
Payable to GSEs and securitized trusts148
 182
Operating lease liabilities125
 135
Other liabilities594
 701
Total payables and other liabilities$1,965
 $2,016

Loans Subject to Repurchase Right from Ginnie Mae
See Note 8, Other Assets, for a description of assets and liabilities related to loans subject to repurchase right from Ginnie Mae.

Payables to Servicing and Subservicing Investors and Payables to GSEs and Securitized Trusts
Payables to servicing and subservicing investors, GSEs and securitized trusts represent amounts due to investors, GSEs and securitized trusts in connection with loans serviced that are paid from collections of the underlying loans, insurance proceeds or proceeds from property disposal.

Derivative Financial Instruments
See Note 9, Derivative Financial Instruments, for further details on derivative financial instruments.

Operating Lease Liabilities
See Note 7, Leases, for further details on operating lease liabilities.

MSR Purchases Payable Including Advances
MSR purchases payable including advances represents the amounts owed to the seller in connection with the purchase of MSRs.

Other Liabilities
Other liabilities primarily include accrued bonus and payroll, accrued interest, accrued legal expenses, payables to insurance carriers and insurance cancellation reserves, repurchase reserves, accounts payable and other accrued liabilities. Payables to insurance carriers and insurance cancellation reserves consist of insurance premiums received from borrower payments awaiting disbursement to the insurance carrier and/or amounts due to third-party investors on liquidated loans.

The following table sets forth the activities of the repurchase reserves:

Repurchase ReservesThree Months Ended March 31, 2020 Three Months Ended March 31, 2019
Balance - beginning of period$25
 $8
Provisions5
 8
Releases(1) —
Balance - end of period$29
 $16

The provision for repurchases represents an estimate of losses to be incurred on the repurchase of loans or indemnification of purchaser’s losses related to forward loans. Certain sale contracts and GSE standards require the Company to repurchase a loan or indemnify the purchaser or insurer for losses if a borrower fails to make initial loan payments or if the accompanying mortgage loan fails to meet certain customary representations and warranties with respect to underwriting standards.

The Company regularly evaluates the adequacy of repurchase reserves based on trends in repurchase and indemnification requests, actual loss experience, settlement negotiation, estimated future loss exposure and other relevant factors including economic conditions. Current loss rates have significantly declined attributable to stronger underwriting standards and due to the falloff of loans underwritten prior to the mortgage loan crisis period prior to 2008. The Company believes its reserve balance as of March 31, 2020 is sufficient to cover loss exposure associated with repurchase contingencies.


12.10. Securitizations and Financings


Variable Interest Entities (VIE)
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 the (i) Nationstar Mortgage Advance Receivables Trust (NMART), (ii) Nationstar Agency Advance Financing Trust (NAAFT) and (iii) Nationstar Advance Agency Receivables Trust (NAART)certain advance facilities trusts should be consolidated as the Company is the primary beneficiary of each of these entities. Also, the Company consolidated fourcertain reverse mortgage SPEs as it is the primary beneficiary of each of these entities. These SPEs include the Nationstar HECM Loan Trusts.


A summary of the assets and liabilities of the Company’s transactions with VIEs included in the Company’s consolidated financial statements is presented below:
September 30, 2020December 31, 2019
Consolidated transactions with VIEsTransfers
Accounted for as
Secured
Borrowings		Reverse Secured BorrowingsTransfers
Accounted for as
Secured
Borrowings		Reverse Secured Borrowings
Assets
Restricted cash$44 $25 $66 $42 
Reverse mortgage interests, net(1)
0 4,603 0 5,230 
Advances and other receivables, net430 0 540 0 
Total assets$474 $4,628 $606 $5,272 
Liabilities
Advance facilities(2)
$347 $0 $359 $0 
Payables and other liabilities0 0 1 1 
Participating interest financing0 3,664 0 4,284 
HECM Securitizations (HMBS)
Trust 2020-10 516 0 0 
Trust 2019-20 259 0 333 
Trust 2019-10 226 0 302 
Trust 2018-30 0 0 209 
Trust 2018-20 0 0 148 
Total liabilities$347 $4,665 $360 $5,277 
 March 31, 2020 December 31, 2019
Consolidated transactions with VIEsTransfers
Accounted for as
Secured
Borrowings		 Reverse Secured Borrowings Transfers
Accounted for as
Secured
Borrowings		 Reverse Secured Borrowings
Assets       
Restricted cash$53
 $43
 $66
 $42
Reverse mortgage interests, net(1)
—
 4,878
 —
 5,230
Advances and other receivables, net498
 —
 540
 —
Total assets$551
 $4,921
 $606
 $5,272
        
Liabilities       
Advance facilities(2)
$407
 $—
 $359
 $—
Payables and other liabilities—
 1
 1
 1
Participating interest financing—
 4,045
 —
 4,284
HECM Securitizations (HMBS)       
Trust 2019-2—
 297
 —
 333
Trust 2019-1—
 269
 —
 302
Trust 2018-3—
 190
 —
 209
Trust 2018-2—
 137
 —
 148
Total liabilities$407
 $4,939
 $360
 $5,277


(1)Amounts include net purchase discount of $62 and $46 as of September 30, 2020 and December 31, 2019, respectively.
(1)
Amounts include net purchase discount of $60 and $46 as of March 31, 2020 and December 31, 2019, respectively.
(2)
Amounts include the Nationstar agency advance financing facility and notes payable recorded by the Nationstar Mortgage Advance Receivable Trust, and the Nationstar Agency Advance Receivables Trust. Refer to Notes Payable in Note 10, Indebtedness, for additional information.

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

The following table shows a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by the Company:
Unconsolidated securitization trustsSeptember 30, 2020December 31, 2019
Total collateral balances - UPB$1,378 $1,503 
Total certificate balances$1,378 $1,512 
Unconsolidated securitization trustsMarch 31, 2020 December 31, 2019
Total collateral balances - UPB$1,460
 $1,503
Total certificate balances$1,467
 $1,512


The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of March 31,September 30, 2020 and December 31, 2019 and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs.


24

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 DueSeptember 30, 2020December 31, 2019
Unconsolidated securitization trusts$179 $193 


Principal Amount of Transferred Loans 60 Days or More Past DueMarch 31, 2020 December 31, 2019
Unconsolidated securitization trusts$184
 $193


13. Stockholders' Equity

Equity-based awards under the 2019 Omnibus Incentive Plan (the “2019 Plan”) include (i) restricted stock units (“RSUs”) granted to employees of the Company, consultants, and non-employee directors and (ii) performance stock units (“PSUs”) granted to certain executive officers. The RSUs are valued at the fair market value of the Company’s common stock on the grant date as defined in the 2019 Plan. The PSUs are valued at the fair market value of the Company’s common stock on the grant date as defined in the 2019 Plan and a Monte Carlo simulation model. During the three months ended March 31, 2020 and 2019, certain key employees of the Company, consultants, and non-employee directors of the Company were granted 1.1 million and 1.9 million RSUs, respectively. The stock awards for employees generally vest in equal installments on each of the first three anniversaries of the awards, provided that (i) the participant remains continuously employed with the Company during that time or (ii) the participant’s employment has terminated by reason of retirement. The stock awards for non-employee directors generally vest the earlier of (a) the first anniversary of the grant date or (b) the date of the next annual stockholders meeting following the grant date. In addition, upon death or disability, the unvested shares of an award will vest. During the three months ended March 31, 2020, certain executives of the Company were granted 0.5 million PSUs. For the 2020 PSU program, PSUs are eligible to vest and be settled into shares of Common Stock in an amount between 0% and 200% of a target award based on achievement of total shareholder return performance vesting criteria over a period of three years beginning March 1, 2020, with one-third of the units also eligible to vest based on performance through March 1, 2021.

The Company recorded $4 and $4 of expenses related to equity-based awards during the three months ended March 31, 2020 and 2019, respectively.


14.11. Earnings Per Share


The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series A Preferred Stock is considered participating securities because it has dividend rights determined on an as-converted basis in the event of Company’s declaration of a dividend or distribution for common shares.



The following table sets forth the computation of basic and diluted net lossincome (loss) per common share (amounts in millions, except per share amounts):
Three Months Ended September 30,Nine Months Ended September 30,
Computation of earnings per share2020201920202019
Net income (loss) attributable to Mr. Cooper$209 $84 $114 $(189)
Less: Undistributed earnings attributable to participating stockholders2 1 1 0 
Net income (loss) attributable to common stockholders$207 $83 $113 $(189)
Net income (loss) per common share attributable to Mr. Cooper:
Basic$2.26 $0.91 $1.23 $(2.08)
Diluted$2.18 $0.90 $1.20 $(2.08)
Weighted average shares of common stock outstanding (in thousands):
Basic91,682 91,080 91,688 91,012 
Dilutive effect of stock awards(1)
2,563 117 1,529 0 
Dilutive effect of participating securities(1)
839 839 839 0 
Diluted95,084 92,036 94,056 91,012 

(1)For periods with net loss, the Company excluded potential common shares from the computation of diluted EPS because inclusion would be antidilutive.


Computation of earnings per shareThree Months Ended March 31, 2020 Three Months Ended March 31, 2019
Net loss attributable to Mr. Cooper$(168) $(186)
Less: Undistributed earnings attributable to participating stockholders—
 —
Net loss attributable to common stockholders$(168) $(186)
    
Net loss per common share attributable to Mr. Cooper:   
Basic$(1.84) $(2.05)
Diluted$(1.84) $(2.05)
    
Weighted average shares of common stock outstanding (in thousands):   
Basic91,385
 90,828
Dilutive effect of stock awards(1)
—
 —
Dilutive effect of participating securities(1)
—
 —
Diluted91,385
 90,828

(1)
Due to year-to-date loss, the Company excluded potential common shares from the computation of diluted EPS because inclusion would be antidilutive.


15.12. Income Taxes

The components of income tax benefit were as follows:
Income taxesThree Months Ended March 31, 2020 Three Months Ended March 31, 2019
Loss before income tax benefit$(239) $(233)
    
Income tax benefit$(68) $(47)
    
Effective tax rate(1)
28.4% 20.3%

(1)
Effective tax rate is calculated using whole numbers.


For the three and nine months ended March 31,September 30, 2020, the effective tax rate was 24.0% and 23.9%, respectively, which differed from the statutory federal rate of 21% primarily due to state income taxes, as well as unfavorable permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m). The increase in the effective tax rate asincreased during the three and nine months ended September 30, 2020 compared to the three months ended March 31,same periods in 2019, is primarily attributabledue to the increased relative unfavorable tax impacts of the permanent differences on the annual effective rate.


For the three and nine months ended March 31,September 30, 2019, the effective tax rate was 22.3% and 21.5%, respectively, which differed from the statutory federal rate of 21% primarily due to permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m) and nondeductible meals and entertainment expenses, as well as other recurring items such as the state tax benefit.




25
16.

13. Fair Value Measurements


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


The following describesThere have been no significant changes to the methodsvaluation techniques and assumptionsinputs used by the Company in estimating fair values:

Cashvalues of Level 2 and Cash Equivalents, Restricted Cash (Level 1) – The carrying amount reportedLevel 3 assets and liabilities as disclosed in the consolidated balance sheets approximates fair value.Company’s Annual Reports on Form 10-K for the year ended December 31, 2019, with the exception of the following:


Mortgage Loans Held for SaleDerivative Financial Instruments (Level 2)2 and Level 3) – The Company originates mortgage loans inDuring the U.S. that it intends to sell into Fannie Mae, Freddie Mac and Ginnie Mae MBS. Additionally,three months ended June 30, 2020, the Company holds mortgage loans that it intends to sell into the secondary markets via whole loan sales or securitizations. The Company measures newly originated prime residential mortgage loans held for sale at fair value.

Mortgage loans held for sale are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate and credit quality. Mortgage loans held for sale are valued on a recurring basis using a market approach by utilizing either: (i)changed the fair value classification of securities backed by similarits IRLCs and LPCs derivatives from Level 2 to Level 3. IRLCs and LPCs are carried at fair value primarily based on secondary market prices for underlying mortgage loans, adjustedwhich is observable data, with adjustments made to such observable data for certain factors to approximate the inherent value of servicing, which is an unobservable input. The fair value is also subject to adjustments for the estimated pull-through rate. The impact of the unobservable input to the overall valuation of IRLCs and LPCs was previously much less significant, resulting in a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Company classifies these valuations asclassification of Level 2 in the fair value disclosures.

The Company may acquire mortgage loans held for sale from various securitization trusts forhierarchy as of December 31, 2019. During the three months ended June 30,2020, market interest rates continued to decline and fell to record lows, which it acts as servicer through the exercise of various clean-up call options as permitted through the respective pooling and servicing agreements. The Company has elected to account for these loans at the lower of cost or market. The Company classifies these valuations as Level 2drove an increase in the fair value disclosures.

The Company may also purchase loans outvolume of a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. The Company has elected to carry these loans at fair value. See Note 6, Mortgage Loans Held for Sale, for more information.

Mortgage Servicing Rights – Fair Value (Level 3) – The Company estimates the fair valueCompany’s IRLCs and LPCs and increased the impact of its forward MSRs on a recurring basis using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, discount rates, ancillary revenues, earnings on escrow and costs to service. These assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency and coupon dispersion. These assumptions require the use of judgment by the Company and can have a significant impactunobservable input on the fair valueoverall valuation of IRLCs and LPCs. Such increased impact of the MSRs. Quarterly, management obtains third-party valuations to assessunobservable input on the reasonablenessoverall valuation resulted in a classification of the fair value calculations provided by the internal cash flow model. Because of the nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 3, Mortgage Servicing Rights and Related Liabilities, for more information.

Advances and Other Receivables, Net (Level 3) - Advances and other receivables, net are valued at their net realizable value after taking into consideration the reserves. Advances have no stated maturity. Their net realizable value approximates fair value as the net present value based on discounted cash flow is not materially different from the net realizable value. See Note 4, Advances and Other Receivables, Net for more information.

Reverse Mortgage Interests, Net (Level 3) – The Company’s reverse mortgage interests are primarily comprised of HECM loans that are insured by FHA and guaranteed by Ginnie Mae upon securitization. Quarterly, the Company estimates fair value using discounted cash flows, obtained from a third-party and supplemented with historical loss experience on similar assets, with the discount rate approximating that of similar financial instruments, as observed from recent trades with the HMBS. Key assumptions within the model are based on market participant benchmarks and include discount rates, cost to service, weighted average life of the portfolio, and estimated participating income. Discounted cash flows are applied based on collateral stratifications and include loan rate type, loan status (active vs. inactive), and securitization. Prices are also influenced from both internal models and other observable inputs. The Company determined fair value for all loans based on the applicable tranches established during the Merger valuation. Tranches are segregated based on participation percentages, original loan statushierarchy as of the Merger date, and interest rate types, and loan status (active vs inactive). Prices are also influenced from both internal models andJune 30, 2020.

For other observable inputs, including applicable forward interest rate curves. Additionally, historical loss factors are considered within the overall valuation. Because of the unobservable nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 5, Reverse Mortgage Interests, Net for more information.


Derivative Financial Instruments (Level 2) – The Company enters into a variety of derivative financial instruments as part of its hedging strategy and measures these instruments at fair value on a recurring basis in the consolidated balance sheets. These derivatives, they are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 2. In addition, the Company enters into IRLCs and LPCs with prospective borrowers and other loan originators. These commitments are carried at fair value based on the fair value of underlying mortgage loans which are based on observable market data. The Company adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised, and the loan will be funded. IRLCs and LPCs are recorded in derivative financial instruments in the consolidated balance sheets. These commitments are classifiedclassifies these contracts as Level 2 in the fair value disclosures, as the valuations are based on market observable inputs. The Company has entered into Eurodollar futures contracts as part of its hedging strategy. The futures contracts are measured at fair value on a recurring basis and classified as Level 2 in the fair value disclosures as the valuation is based on market observable data. disclosure.

Derivative financial instruments are recorded in other assets and payables and other liabilities within the consolidated balance sheets. See Note 9,8, Derivative Financial Instruments, for more information.


Advance Facilities and Warehouse Facilities (Level 2) – As the underlying warehouse and advance finance facilities bear interest at a rate that is periodically adjusted based on a market index, the carrying amount reported at amortized cost on the consolidated balance sheets approximates fair value. See Note 10, Indebtedness, for more information.
26


Unsecured Senior Notes (Level 1) – The fair value of unsecured senior notes, which are carried at amortized cost, is based on quoted market prices and is considered Level 1 from the market observable inputs used to determine fair value. See Note 10, Indebtedness, for more information.

Excess Spread Financing (Level 3) – The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, average life, recapture rates and discount rate. As these prices are derived from a combination of internally developed valuation models and quoted market prices based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. Excess spread financing is recorded in MSR related liabilities within the consolidated balance sheets. See Note 3, Mortgage Servicing Rights and Related Liabilities, for more information.

Mortgage Servicing Rights Financing Liability (Level 3) - The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being advance financing rates and annual advance recovery rates. As these assumptions are derived from internally developed valuation models based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. Mortgage servicing rights financing liability is recorded in MSR related liabilities within the consolidated balance sheets. See Note 3, Mortgage Servicing Rights and Related Liabilities, for more information.

Participating Interest Financing (Level 3) – The Company estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating that of similar financial instruments. As the prices are derived from both internal models and other observable inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. Participating interest financing is recorded in other nonrecourse debt within the consolidated balance sheets. See Note 5, Reverse Mortgage Interests, Net, and Note 10, Indebtedness, for more information.

HECM Securitizations (Level 3) – The Company estimates fair value using a market approach by utilizing the fair value of executed HECM securitizations. Since the executed HECM securitizations are private placements, the Company classifies these valuations as Level 3 in the fair value disclosures. HECM securitizations are recorded at amortized cost in other nonrecourse debt within the consolidated balance sheets. See Note 10, Indebtedness for more information.


The following table presentstables present the estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis:
 September 30, 2020
  Recurring Fair Value Measurements
Fair value - Recurring basisTotal Fair ValueLevel 1Level 2Level 3
Assets
Mortgage loans held for sale$3,817 $0 $3,817 $0 
Forward mortgage servicing rights2,663 0 0 2,663 
Derivative financial instruments
IRLCs414 0 0 414 
Forward MBS trades23 0 23 0 
LPCs38 0 0 38 
Liabilities
Derivative financial instruments
Forward MBS trades$42 $0 $42 $0 
LPCs2 0 0 2 
Mortgage servicing rights financing47 0 0 47 
Excess spread financing1,044 0 0 1,044 
 March 31, 2020
   Recurring Fair Value Measurements
Fair value - Recurring basisTotal Fair Value Level 1 Level 2 Level 3
Assets       
Mortgage loans held for sale$3,922
 $—
 $3,922
 $—
Forward mortgage servicing rights3,109
 —
 —
 3,109
Derivative financial instruments       
IRLCs263
 —
 263
 —
Forward MBS trades6
 —
 6
 —
LPCs25
 —
 25
 —
Total assets$7,325
 $—
 $4,216
 $3,109
Liabilities       
Derivative financial instruments       
Forward MBS trades$223
 $—
 $223
 $—
Mortgage servicing rights financing43
 —
 —
 43
Excess spread financing1,242
 —
 —
 1,242
Total liabilities$1,508
 $—
 $223
 $1,285


 December 31, 2019
  Recurring Fair Value Measurements
Fair value - Recurring basisTotal Fair ValueLevel 1Level 2Level 3
Assets
Mortgage loans held for sale$4,077 $0 $4,077 $0 
Forward mortgage servicing rights3,496 0 0 3,496 
Derivative financial instruments
IRLCs135 0 135 0 
Forward MBS trades7 0 7 0 
LPCs12 0 12 0 
Liabilities
Derivative financial instruments
Forward MBS trades$12 $0 $12 $0 
LPCs3 0 3 0 
Mortgage servicing rights financing37 0 0 37 
Excess spread financing1,311 0 0 1,311 

27
 December 31, 2019
   Recurring Fair Value Measurements
Fair value - Recurring basisTotal Fair Value Level 1 Level 2 Level 3
Assets       
Mortgage loans held for sale$4,077
 $—
 $4,077
 $—
Forward mortgage servicing rights3,496
 —
 —
 3,496
Derivative financial instruments       
IRLCs135
 —
 135
 —
Forward MBS trades7
 —
 7
 —
LPCs12
 —
 12
 —
Total assets$7,727
 $—
 $4,231
 $3,496
Liabilities       
Derivative financial instruments       
Forward MBS trades$12
 $—
 $12
 $—
LPCs3
 —
 3
 —
Mortgage servicing rights financing37
 —
 —
 37
Excess spread financing1,311
 —
 —
 1,311
Total liabilities$1,363
 $—
 $15
 $1,348



The tables below present a reconciliation for all of the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis:
Nine Months Ended September 30, 2020
 AssetsLiabilities
Fair value - Level 3 assets and liabilitiesForward mortgage servicing rightsIRLCsLPCsExcess spread financingMortgage servicing rights financing
Balance - beginning of period$3,496 $135 $12 $1,311 $37 
Total gains or losses included in earnings(1,275)279 26 (132)10 
Purchases, issuances, sales, repayments and settlements
Purchases30 0 0 0 0 
Issuances412 0 0 24 0 
Settlements and repayments0 0 0 (159)0 
Balance - end of period$2,663 $414 $38 $1,044 $47 
 Three Months Ended March 31, 2020
 Assets Liabilities
Fair value - Level 3 assets and liabilitiesMortgage servicing rights Excess spread financing Mortgage servicing rights financing
Balance - beginning of period$3,496
 $1,311
 $37
Total gains or losses included in earnings(534) (35) 6
Purchases, issuances, sales, repayments and settlements     
Purchases24
 —
 —
Issuances123
 24
 —
Settlements and repayments—
 (58) —
Balance - end of period$3,109
 $1,242
 $43


Nine Months Ended September 30, 2019
 AssetsLiabilities
Fair value - Level 3 assets and liabilitiesForward mortgage servicing rightsMortgage loans held for investmentExcess spread financingMortgage servicing rights financing
Balance - beginning of period$3,665 $119 $1,184 $32 
Total gains or losses included in earnings(1,039)3 (190)15 
Payments received from borrowers0 (11)0 0 
Purchases, issuances, sales, repayments and settlements
Purchases732 0 469 0 
Issuances298 0 0 0 
Sales(317)(94)0 0 
Settlements and repayments0 0 (182)0 
Transfers to mortgage loans held for sale0 (12)0 0 
Transfers to real estate owned0 (5)0 0 
Balance - end of period$3,339 $0 $1,281 $47 

 Three Months Ended March 31, 2019
 Assets Liabilities
Fair value - Level 3 assets and liabilitiesMortgage servicing rights Excess spread financing Mortgage servicing rights financing
Balance - beginning of period$3,665
 $1,184
 $32
Total gains or losses included in earnings(399) (69) 2
Purchases, issuances, sales, repayments and settlements     
Purchases409
 —
 —
Issuances66
 245
 —
Sales(260) —
 —
Settlements and repayments—
 (51) —
Balance - end of period$3,481
 $1,309
 $34

AsThe Company had LPCs liabilities of March 31,$2 and $3 as of September 30, 2020 and December 31, 2019, the Company had no financial instruments classified as mortgage loans held for investment as the related portfolio was sold in September 2019.respectively. During the threenine months ended March 31, 2019,September 30, 2020, the Company had an immaterial change in mortgage loans held for investment.LPCs liabilities.


No transfers were made intoin or out of Level 3 fair value assets and liabilities for the Company during the nine months ended September 30, 2020, with the exception of the change in classification for IRLCs and LPCs from Level 2 fair value assets to Level 3 fair value assets as discussed above. No transfers were made into Level 3 fair value assets and liabilities for the threeCompany during the nine months ended March 31, 2020September 30, 2019. During the nine months ended September 30, 2019, $12 was transferred from mortgage loans held for investment, a Level 3 fair value asset, to mortgage loans held for sale, a Level 2 fair value asset, in connection with the collapse of Trust 2009-A, the Company’s legacy portfolio, and 2019, respectively.sale of the loans held in the trust.


28

The tables below present the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities:

September 30, 2020
RangeWeighted Average
Level 3 inputsMinMax
Forward MSR
Discount rate8.3 %12.0 %9.5 %
Prepayment speed12.6 %19.2 %14.4 %
Cost to service per loan(1)
$68 $295 $105 
IRLCs
Value of servicing (basis points per loan)(0.4)2.1 1.2 
Excess spread financing
Discount rate9.8 %15.5 %11.9 %
Prepayment speed13.4 %14.0 %13.6 %
Recapture rate17.1 %23.5 %19.1 %
Average life5.2 years5.5 years5.3 years
Mortgage servicing rights financing
Advance financing and counterparty fee rates6.4 %9.4 %8.2 %
Annual advance recovery rates18.6 %22.6 %20.2 %

(1)Presented in whole dollar amounts.

The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial instruments:instruments not carried at fair value:
 September 30, 2020
 Carrying
Amount		Fair Value
Financial instrumentsLevel 1Level 2Level 3
Financial assets
Cash and cash equivalents$946 $946 $0 $0 
Restricted cash229 229 0 0 
Advances and other receivables, net745 0 0 745 
Reverse mortgage interests, net5,460 0 0 5,574 
Financial liabilities
Unsecured senior notes(1)
2,167 2,237 0 0 
Advance and warehouse facilities(1)
4,851 0 4,851 0 
Participating interest financing(1)
3,676 0 0 3,679 
HECM Securitization (HMBS)(1)
Trust 2020-1513 0 0 513 
Trust 2019-2257 0 0 257 
Trust 2019-1225 0 0 225 

(1)The amounts are presented net of unamortized debt issuance costs, premium and discount.
29

March 31, 2020December 31, 2019
Carrying
Amount
 Fair ValueCarrying
Amount		Fair Value
Financial instrumentsLevel 1 Level 2 Level 3Financial instrumentsLevel 1Level 2Level 3
Financial assets       Financial assets
Cash and cash equivalents$579
 $579
 $—
 $—
Cash and cash equivalents$329 $329 $0 $0 
Restricted cash266
 266
 —
 —
Restricted cash283 283 0 0 
Advances and other receivables, net685
 —
 —
 685
Advances and other receivables, net988 0 0 988 
Reverse mortgage interests, net5,955
 —
 —
 6,015
Reverse mortgage interests, net6,279 0 0 6,318 
Mortgage loans held for sale3,922
 —
 3,922
 —
Derivative financial instruments294
 —
 294
 —
Financial liabilities       Financial liabilities
Unsecured senior notes(1)
2,259
 2,055
 —
 —
Unsecured senior notes(1)
2,366 2,505 0 0 
Advance facilities(1)
489
 —
 489
 —
Warehouse facilities(1)
4,551
 —
 4,551
 —
Mortgage servicing rights financing liability43
 —
 —
 43
Excess spread financing1,242
 —
 —
 1,242
Derivative financial instruments223
 —
 223
 —
Advance and warehouse facilities(1)
Advance and warehouse facilities(1)
4,997 0 4,997 0 
Participating interest financing(1)
4,056
 —
 —
 4,056
Participating interest financing(1)
4,299 0 0 4,299 
HECM Securitization (HMBS)(1)
       
HECM Securitization (HMBS)(1)
Trust 2019-2295
 —
 —
 295
Trust 2019-2331 0 0 331 
Trust 2019-1268
 —
 —
 268
Trust 2019-1300 0 0 300 
Trust 2018-3189
 —
 —
 189
Trust 2018-3208 0 0 208 
Trust 2018-2137
 —
 —
 137
Trust 2018-2148 0 0 148 

(1)
The amounts are presented net of unamortized debt issuance costs, premium and discount.



(1)The amounts are presented net of unamortized debt issuance costs, premium and discount.


 December 31, 2019
 
Carrying
Amount
 Fair Value
Financial instrumentsLevel 1 Level 2 Level 3
Financial assets       
Cash and cash equivalents$329
 $329
 $—
 $—
Restricted cash283
 283
 —
 —
Advances and other receivables, net988
 —
 —
 988
Reverse mortgage interests, net6,279
 —
 —
 6,318
Mortgage loans held for sale4,077
 —
 4,077
 —
Derivative financial instruments153
 —
 153
 —
Financial liabilities       
Unsecured senior notes(1)
2,366
 2,505
 —
 —
Advance facilities422
 —
 422
 —
Warehouse facilities(1)
4,575
 —
 4,575
 —
Mortgage servicing rights financing liability37
 —
 —
 37
Excess spread financing1,311
 —
 —
 1,311
Derivative financial instruments15
 —
 15
 —
Participating interest financing(1)
4,299
 —
 —
 4,299
HECM Securitization (HMBS)(1)
       
Trust 2019-2331
 —
 —
 331
Trust 2019-1300
 —
 —
 300
Trust 2018-3208
 —
 —
 208
Trust 2018-2148
 —
 —
 148

(1)
The amounts are presented net of unamortized debt issuance costs, premium and discount.


17.14. 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,September 30, 2020, the Company was in compliance with its selling and servicing capital requirements.




18.15. 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’s business is also subject to extensive examinations, investigations and reviews by various federal, state and local governmental, regulatory and enforcement agencies. The Company has historically had a number of open investigations with these agencies and that trend continues. The Company is currently the subject of various governmental or regulatory investigations, subpoenas, examinations and inquiries related to its residential loan servicing and origination practices, bankruptcy and collections practices, its financial reporting and other aspects of its businesses. These matters include investigations by the Consumer Financial Protection Bureau (the “CFPB”), the Securities and Exchange Commission, the Executive Office of the United States Trustees, the Department of Justice, the Office of the Special Inspector General for the Troubled Asset Relief Program, the U.S. Department of Housing and Urban Development, the multi-state committee of mortgage banking regulators and various State Attorneys General. These specific matters and other pending or potential future investigations, subpoenas, examinations or inquiries may lead to administrative, civil or criminal proceedings or settlements, and possibly result in remedies including fines, penalties, restitution, or alterations in the Company’s business practices, and additional expenses and collateral costs. The Company is cooperating fully in these matters. Responding to these matters requires the Company to devote substantial resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase the Company’s operating expenses and reduce its revenues, require it to change business practices and limit its ability to grow and otherwise materially and adversely affect its business, reputation, financial condition or results of operation.


For example,In particular, the Company continues to progress towards resolution of certain legacy regulatory matters involvingwith (i) the CFPB, (ii) the multi-state committee of mortgage banking regulators and various State Attorneys General and (iii) the Executive Office of the United States Trustee, all of which involve examination findings in prior years for alleged violations of certain laws related to the Company’s business practices. The Company believes that it has been in discussions with the multi-state committee of mortgage banking regulators and various State Attorneys General concerning a potential resolution of their investigations. The Company is continuing to cooperate with all parties and in connection with these discussions, the Company previously recorded an accrual. These discussions may not result inreached a settlement of the matter; furthermore, any such settlement may exceed the amount accrued as of March 31, 2020. Moreover, if the discussions do not result in a settlement, the regulators and State Attorneys General may seekprinciple to exercise their enforcement authority through litigation or other proceedings and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on the Company’s business, reputation, financial condition and results of operations.

Further, on April 24, 2018, the CFPB notified Nationstar that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (“NORA”) process, the CFPB’s Office of Enforcement is considering whether to recommend that the CFPB take enforcement action against the Company, alleging violations of the Real Estate Settlement Procedures Act, the Consumer Financial Protection Act, and the Homeowners Protection Act, which stems from a 2014 examination. The purpose of a NORA letter is to provide a party being investigated an opportunity to present its position to the CFPB before an enforcement action may be recommended or commenced. The CFPB may seek to exercise its enforcement authority through settlement, administrative proceedings or litigation and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on the Company’s business, reputation, financial condition and results of operations. The Company has not recorded an accrual related to this matter as of March 31, 2020 because it does not believe that the possible loss or range of loss arising from any such action is estimable. The Company is continuing to cooperate with the CFPB.

Similarly, the Company is in discussions with the Executive Office of the United States Trustees concerning certain legacy issues with respect to bankruptcy servicing practices.  In connection with these discussions, the Company is undertaking certain voluntary remediation activities with respect to loans at issue in these matters. While the Company and the Executive Office of the United States Trustees are engaged in discussions to potentially resolve these issues, there is no guarantee a resolution will occur.  Moreover, if the discussions do not result in a resolution, the Executive Officematters with each of the United States Trustees may seek redress through litigation or other proceedings and seek injunctive relief, damages and restitution in addition to the remediation activities, which could have a material adverse effect on the Company’s business, reputation, financial condition and results of operations. However,these parties. Accordingly, the Company believes that it is premature to predict the potential outcome or to estimate the financial impact to the Company in connection with any potential action or settlement arising from this matter, including the voluntary remediation activities undertaken and to be undertaken by the Company. has fully accrued for these matters as of September 30, 2020.


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



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


As a legal matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company will establish an accrued liability and record a corresponding amount to legal-related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Legal-related expense for the Company, which includes legal settlements and the fees paid to external legal service providers, of $15$9 and $11$36 for the three and nine months ended March 31,September 30, 2020, respectively and $24 and $56 for the three and nine months ended September 30, 2019, respectively, was included in general and administrative expenses on the consolidated statements of operations.


For a number of matters for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material legal matters on an ongoing basis, in conjunction with any outside counsel handling the matter. For those matters for which an estimate is possible, management currently believes the aggregate range of reasonably possible loss is $17$3 to $47$20 in excess of the accrued liability (if any) related to those matters as of March 31,September 30, 2020. This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within the estimated range. Therefore, this estimated range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure and the Company cannot provide assurance that its litigations reserves will not need to be adjusted in the future. Thus, the Company’s exposure and ultimate losses may be higher, possibly significantly so, than the amounts accrued or this aggregate amount.


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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 consolidated financial statements.



Other Loss Contingencies
As part of the Company’s ongoing operations, it acquires servicing rights of forward and reverse mortgage loan portfolios that are subject to indemnification based on the representations and warranties of the seller. From time to time, the Company will seek recovery under these representations and warranties for incurred costs. The Company believes all balances sought from sellers recorded in advances and other receivables and reverse mortgage interests represent valid claims. However, the Company acknowledges that the claims process can be prolonged due to the required time to perfect claims at the loan level. Because of the required time to perfect or remediate these claims, management relies on the sufficiency of documentation supporting the claim, current negotiations with the counterparty and other evidence to evaluate whether a reserve is required for non-recoverable balances. In the absence of successful negotiations with the seller, all amounts claimed may not be recovered. Balances may be written-off and charged against earnings when management identifies amounts where recoverability from the seller is not likely. As of March 31,September 30, 2020, the Company believes all recorded balances for which recovery is sought from the seller are valid claims, and no evidence suggests additional reserves are warranted.


Loan and Other Commitments
The Company enters into IRLCs with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rates to the borrower. The Company also enters into LPCs with prospective sellers. These loan commitments are treated as derivatives and are carried at fair value. See Note 9,8, Derivative Financial Instruments, for more information.


The Company had certain reverse MSRs, reverse MSLs and reverse mortgage loans related to approximately $21,590$20,006 and $22,725 of UPB in reverse mortgage loans as of March 31,September 30, 2020 and December 31, 2019, respectively. As a servicer for these reverse mortgage loans, among other things, the Company is obligated to fund borrowers’ draws to the loan customers as required in accordance with the loan agreement. As of March 31,September 30, 2020 and December 31, 2019, the Company’s maximum unfunded advance obligation to fund borrower draws related to these reverse MSRs and loans was approximately $2,504$2,304 and $2,617, respectively. Upon funding any portion of these draws, the Company expects to securitize and sell the advances in transactions that will be accounted for as secured borrowings.




19.16. Business Segment Reporting


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



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In the second quarter of 2020, the Company updated its presentation of segment assets to be aligned with a change in the reporting package provided to the Chief Operating Decision Maker. The presentation change had no impact on the segments' operations. Assets allocated to the Servicing segment include MSRs; advances and other receivables, except for co-issue MSR holdback; Servicing related mortgage loans held for sale; and other assets including property, plant and equipment, lease-related assets, prepaid assets, and goodwill. Assets allocated to Originations segment include co-issue MSR holdback in advances and other receivables; Originations related mortgage loans held for sale; derivative assets; and other assets including property, plant and equipment, lease-related assets, prepaid assets, and goodwill. Assets allocated to the Xome segment include cash and cash equivalents; tax-related assets; receivables; and other assets including property, plant and equipment, lease-related assets, prepaid assets, goodwill, and other intangible assets. All assets that are not specifically identified or allocated to a reporting segment are reported as part of Corporate/Other and include cash and cash equivalents; tax-related assets; and intangibles assets excluding goodwill and assets allocated to Xome. Eliminations are also included in Corporate/Other. Prior year financial information has been adjusted retrospectively to reflect the updated presentation.

The following tables present financial information by segment:
 Three Months Ended September 30, 2020
Financial information by segmentServicingOriginationsXomeCorporate/OtherConsolidated
Revenues
Service related, net(1)
$92 $27 $108 $0 $227 
Net gain on mortgage loans held for sale40 605 0 0 645 
Total revenues132 632 108 0 872 
Total expenses99 195 94 43 431 
Interest income40 16 0 0 56 
Interest expense(105)(15)0 (45)(165)
Other income (expenses), net0 0 1 (52)(51)
Total other (expenses) income, net(65)1 1 (97)(160)
(Loss) income before income tax (benefit) expense$(32)$438 $15 $(140)$281 
Depreciation and amortization for property and equipment and intangible assets$6 $5 $5 $3 $19 
Total assets$14,707 $4,250 $135 $2,663 $21,755 

Three Months Ended September 30, 2019
Financial information by segmentServicingOriginationsXomeCorporate/OtherConsolidated
Revenues
Service related, net(1)
$126 $22 $112 $(2)$258 
Net gain on mortgage loans held for sale37 312 0 11 360 
Total revenues163 334 112 9 618 
Total expenses171 155 101 51 478 
Interest income137 24 0 2 163 
Interest expense(120)(24)0 (52)(196)
Other (expense) income, net0 (1)3 (2)0 
Total other income (expenses), net17 (1)3 (52)(33)
Income (loss) before income tax expense (benefit)$9 $178 $14 $(94)$107 
Depreciation and amortization for property and equipment and intangible assets$5 $4 $4 $9 $22 
Total assets$12,065 $4,386 $172 $1,855 $18,478 

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Three Months Ended March 31, 2020Nine Months Ended September 30, 2020
Financial information by segmentServicing Originations Xome Elimination Total Operating Segments Corporate/Other ConsolidatedFinancial information by segmentServicingOriginationsXomeCorporate/OtherConsolidated
Revenues             Revenues
Service related, net$(180) $20
 $106
 $(1) $(55) $2
 $(53)
Service related, net(1)
Service related, net(1)
$(202)$68 $320 $0 $186 
Net gain on mortgage loans held for sale34
 297
 —
 —
 331
 —
 331
Net gain on mortgage loans held for sale119 1,475 0 0 1,594 
Total revenues(146) 317
 106
 (1) 276
 2
 278
Total revenues(83)1,543 320 0 1,780 
Total expenses149
 166
 96
 (1) 410
 34
 444
Total expenses370 528 285 111 1,294 
Other income (expenses), net:
 
 
 
   
 
Interest income83
 34
 —
 —
 117
 1
 118
Interest income180 69 0 1 250 
Interest expense(113) (27) —
 —
 (140) (52) (192)Interest expense(335)(55)0 (144)(534)
Other income (expenses), net—
 —
 1
 —
 1
 —
 1
Total other income (expenses), net(30) 7
 1
 —
 (22) (51) (73)
Other income (expense), netOther income (expense), net0 0 3 (53)(50)
Total other (expenses) income, netTotal other (expenses) income, net(155)14 3 (196)(334)
(Loss) income before income tax (benefit) expense$(325) $158
 $11
 $—
 $(156) $(83) $(239)(Loss) income before income tax (benefit) expense$(608)$1,029 $38 $(307)$152 
Depreciation and amortization for property and equipment and intangible assets$3
 $3
 $3
 $—
 $9
 $10
 $19
Depreciation and amortization for property and equipment and intangible assets$14 $12 $11 $19 $56 
Total assets$10,142
 $9,608
 $534
 $(5,964) $14,320
 $3,293
 $17,613
Total assets$14,707 $4,250 $135 $2,663 $21,755 


Nine Months Ended September 30, 2019
Financial information by segmentServicingOriginationsXomeCorporate/OtherConsolidated
Revenues
Service related, net(1)
$108 $57 $316 $(2)$479 
Net gain on mortgage loans held for sale90 687 0 11 788 
Total revenues198 744 316 9 1,267 
Total expenses555 404 301 153 1,413 
Interest income388 64 0 7 459 
Interest expense(343)(67)0 (162)(572)
Other income (expense), net0 4 14 (2)16 
Total other income (expenses), net45 1 14 (157)(97)
(Loss) income before income tax (benefit) expense$(312)$341 $29 $(301)$(243)
Depreciation and amortization for property and equipment and intangible assets$13 $13 $11 $30 $67 
Total assets$12,065 $4,386 $172 $1,855 $18,478 

(1)Service related, net revenues for Corporate/Other include intersegment eliminations.

34
 Three Months Ended March 31, 2019
Financial information by segmentServicing Originations Xome Elimination Total Operating Segments Corporate/Other Consolidated
Revenues             
Service related, net$(27) $15
 $96
 $—
 $84
 $—
 $84
Net gain on mortgage loans held for sale35
 131
 —
 —
 166
 —
 166
Total revenues8
 146
 96
 —
 250
 —
 250
Total expenses195
 104
 99
 —
 398
 45
 443
Other income (expenses), net:             
Interest income115
 17
 —
 —
 132
 2
 134
Interest expense(114) (18) —
 —
 (132) (57) (189)
Other income, net—
 4
 11
 —
 15
 —
 15
Total other income (expenses), net1
 3
 11
 —
 15
 (55) (40)
(Loss) income before income tax (benefit) expense$(186) $45
 $8
 $—
 $(133) $(100) $(233)
Depreciation and amortization for property and equipment and intangible assets$4
 $3
 $4
 $—
 $11
 $10
 $21
Total assets$13,642
 $4,865
 $502
 $(4,100) $14,909
 $2,737
 $17,646




CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS


This report contains forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, core initiatives, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts, including the projected impact of COVID-19 on our business, financial performance and operating results. When used in this discussion, the words “anticipate,” “appears,” “believe,” “foresee,” “intend,” “should,” “expect,” “estimate,” “project,” “plan,” “may,” “could,” “will,” “are likely” and similar expressions are intended to identify forward-looking statements. These statements involve predictions of our future financial condition, performance, plans and strategies and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or incorrect. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances, and we are under no obligation to, and express disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.


A number of important factors exist that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to:


•the severity and duration of the COVID-19 pandemic; the pandemic’s impact on the U.S. and global economies; and federal, state and local governmental responses to the pandemic
•our ability to maintain or grow the size of our servicing portfolio;
•our ability to maintain or grow our originations volume and profitability;
•our ability to recapture voluntary prepayments related to our existing servicing portfolio;
•our shift in the mix of our servicing portfolio to subservicing, which is highly concentrated;
•delays in our ability to collect or be reimbursed for servicing advances;
•our ability to obtain sufficient liquidity and capital to operate our business;
•changes in prevailing interest rates;
•our ability to finance and recover costs of our reverse servicing operations;
•our ability to successfully implement our strategic initiatives;
•our ability to realize anticipated benefits of our previous acquisitions;
•our ability to use net operating loss carryforwards and other tax attributes;
•changes in our business relationships or changes in servicing guidelines with Fannie Mae, Freddie Mac and Ginnie Mae;
•Xome’s ability to compete in highly competitive markets;
•our ability to pay down debt;
•our ability to manage legal and regulatory examinations and enforcement investigations and proceedings, compliance requirements and related costs;
•our ability to prevent cyber intrusions and mitigate cyber risks; and
•our ability to maintain our licenses and other regulatory approvals.


All of these factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assess the effect of each such new factor on our business. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and any of these statements included herein may prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Please refer to Risk Factorand Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this report and in our Annual Report on Form 10-K for the year ended December 31, 2019 for further information on these and other risk factors affecting us.



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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the accompanying unaudited consolidated financial statements and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019. The following discussion contains, in addition to the historical information, forward-looking statements that include risks, assumptions and uncertainties that could cause actual results to differ materially from those anticipated by such statements.


Dollar amounts are reported in millions, except per share data and other key metrics, unless otherwise noted.


We have provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, at the end of the MD&A section.

Overview


We are a leading servicer and originator of residential mortgage loans and a provider of real estate services through our Xome subsidiary. Our purpose is to keep the dream of homeownership alive, and we do this as a servicer by helping mortgage borrowers manage what is typically their largest financial asset, and by helping our investors maximize the returns from their portfolios of residential mortgages. We have a track record of significant growth, having expanded our servicing portfolio from $10 billion in 20092006 to $629$588 billion as of March 31,September 30, 2020. We believe this track record reflects our strong operating capabilities, which include a proprietary low-cost servicing platform, strong loss mitigation skills, a commitment to compliance, a customer-centric culture, a demonstrated ability to retain customers, growing origination capabilities, and significant investment in technology. More information on the Company is available at investors.mrcoopergroup.com. Information contained on our websiteswebsite is not, and should not be deemed to be, a part of this report.


Our strategy is to position the Company for sustainable long-term growth, drive improved efficiency and profitability, and generate a return on tangible equity of 12% or higher. Key strategic priorities include the following:


•Strengthen our balance sheet by reducing leverage, building liquidity, and managing interest rate and credit risk;
•Improve efficiency by driving continuous improvement in unit costs for Servicing, Originations, and Xome, as well as by taking corporate actions to eliminate costs throughout the organizationsorganization;
•Grow and strengthen our customer base in each of our segmentssegments;
•Reinvent the customer experience by acting as the customer’s advocate and by harnessing technology to deliver user-friendly digital solutionssolutions;
•Sustain the talent of our people and the culture of our organizationorganization; and
•Maintain strong relationships with agencies, investors, regulators, and other counterparties and a strong reputation for compliance and customer service.


Impact of the COVID-19 Pandemic


The COVID-19 pandemic introduces unprecedented uncertainty in the economy, including the risk of a significant employment shock and recessionary conditions, with implications for the health and safety of our employees, borrower delinquency rates, servicing advances, origination volumes, the availability of financing, and our overall profitability and liquidity. We have taken aggressive steps to address these risks, including moving in excess of 95% of our staff to work-from-home status as well as implementing other practices for mitigating the risk of the pandemic, including restrictions on non-essential travel and face-to-face meetings and enhanced sanitization of our facilities. We have also implemented the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which makes available forbearance plans for up to one year for borrowers under government and government agency mortgage programs, which we have extended to borrowers in our private label mortgage servicing portfolio. As of April 27,October 25, 2020, approximately 194,000 or 5.6%6.1% of our customers were on a forbearance plan. plan, down from a peak of 7.2%. More customers are now exiting forbearance than are entering. We include loans in forbearance related to the CARES Act, whereby no payments have been received from borrowers for greater than 90 days, in loans subject to repurchase right from Ginnie Mae in other assets and payables and other liabilities on a gross basis. The balance was $5,095 as of September 30, 2020 and may increase during the fourth quarter. See liquidity discussion related to the COVID-19 pandemic in Liquidity and Capital Resources section in MD&A.


Depending on how long
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Anticipated Trends

Our Servicing segment continued to experience portfolio run-off from elevated prepayment speeds in the pandemic continueslow interest rate environment, most of which was replenished by strong correspondent volume. We expect to disruptsee servicing portfolio growth in the economyfourth quarter of 2020, primarily from correspondent and employment,flow originations as well as UPB growth from a major new subservicing relationship. During the third quarter of 2020, the servicing margin benefited from a $46 loss recovery related to settlement with a government agency. We don’t expect any additional settlements in the fourth quarter. Looking ahead into 2021, we would expect prepayment speeds to decline from current level and also expect to see some contribution from incentive fees and early-buyout gains as we help customers exit forbearance.

Our Originations segment has experienced volume growth and higher margins as a result of the lower interest rate environment, which more than offset the decline in our Servicing segment could experience our cost-to-service increase as we deal with higher delinquencies and foreclosures. However, we have not seen a deterioration in 30-day or 60-day delinquencies at this time. We expect servicing costs to be moderately elevated for loans on forbearance, offset by servicing fees earned during the period.segment. As the pandemic began to impact the mortgage capital markets, our Originations segment took several steps to rapidly de-risk the pipeline. WeDuring the second quarter of 2020, we slowed down correspondent productions as we evaluated the environment. However, since then, we ramped up our correspondent production and closed our wholesale lending channel, which had onlyrecord correspondent volumes during the third quarter of 2020. We expect to continue growing the correspondent channel.

Our Xome segment’s revenue from the Exchange division has been, marginally profitable and reallocated those resourcesis expected to the direct-to-consumer channel. Ascontinue to be, negatively impacted, as the foreclosure process is currently on hold, with moratoriums in place at the national level and in some local markets,markets. However, Xome’s revenues, particularly revenues of Exchangerevenue from the Services division are expected to be negatively impacted. Inhas benefited from the short term, however oncelower interest rate environment and increase in origination volume and has helped balance out the decrease in Exchange’s revenues. Once the moratoriums are lifted, we expect a surge in activity and Xome to returncontribute meaningfully to profitability. See liquidity discussion related to COVID-19 pandemic in Liquidity and Capital Resources section in MD&A.our consolidated results.     



Results of Operations

Table 1. Consolidated Operations
Three Months Ended September 30,
20202019$ Change% Change
Revenues - operational(1)
$901 $701 $200 29 %
Revenues - Mark-to-market(29)(83)54 (65)%
Total revenues872 618 254 41 %
Total expenses431 478 (47)(10)%
Total other expenses, net(160)(33)(127)385 %
Income before income tax expense281 107 174 163 %
Less: Income tax expense67 24 43 179 %
Net income214 83 131 158 %
Less: Net income (loss) attributable to non-controlling interests5 (1)6 (600)%
Net income attributable to Mr. Cooper$209 $84 $125 149 %
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Revenues - operational$661
 $543
 $118
 22 %
Revenues - Mark-to-market(383) (293) (90) 31 %
Total revenues278
 250
 28
 11 %
Total expenses444
 443
 1
 — %
Total other income (expenses), net(73) (40) (33) 83 %
Loss before income tax expense benefit(239) (233) (6) 3 %
Less: Income tax benefit(68) (47) (21) 45 %
Net loss(171) (186) 15
 (8)%
Less: Net loss attributable to non-controlling interests(3) —
 (3) (100)%
Net loss attributable to Mr. Cooper$(168) $(186) $18
 (10)%


(1)Revenues - operational consists of total revenues, excluding mark-to-market.
We recorded a net loss of $171
Net income increased during the three months ended March 31,September 30, 2020 to $214 compared to a net lossincome of $186$83 during the same period in 2019. The net lossincome in 2020 was lowerhigher primarily due to the income tax benefit. Consolidated operationalan increase in total revenues and a decrease in total expenses, partially offset by an increase in total other expenses, net. Operational revenues increased primarily due to increased revenue in our Originations segment, driven by higher originations volume predominately in the direct-to-consumer (”DTC”) channel, partially offset by a declining interest rate environment and incremental volumes associated with the acquisition of Pacific Union, which was completed in February 2019. Partially offsetting the increase in operational revenues was an increasedecrease in negative mark-to-market (“MTM”) adjustments forduring the three months ended March 31,September 30, 2020 compared to the same period in 2019. Refer to Table 8. Servicing - Revenues and Table 19. Originations - Revenues for further discussion.

37

Total expenses forduring the three months ended March 31,September 30, 2020 were consistent withdecreased compared to the same period in 2019.2019 primarily due to lower foreclosure and other liquidation related expenses and recoveries in our Servicing segment, primarily driven by loss recoveries from settlement with a government agency and operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines. The decrease in total expenses was partially offset by higher total expense in our Originations segment, primarily attributable to higher originations volume in the lower interest rate environment. Refer to Table 9. Servicing - Expenses and Table 20. Originations - Expenses for further discussion.


Total other income (expenses),expenses, net, increased forduring the three months ended March 31,September 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest income and increase in other income (expenses), net.expenses, net, partially offset by a decrease in interest expense. Interest income decreased primarily due to a decrease in other interest income in our Servicing segment due to lower income earned on custodial balances driven by lower LIBOR rates and a decrease in income earned on reverse mortgage interest, as a result of the decline in the reverse mortgage interests balance. Other expenses, net increased primarily due to an increase in other expense, net in our Corporate/Other segment primarily driven by a loss on redemption of the 2023 unsecured senior notes. Refer to Table 10. Servicing - Other (Expenses) Income, Net and Table 23. Corporate/Other Selected Financial Results for further discussion.

During the three months ended September 30, 2020 and 2019, we had an income (expenses)tax expense. The effective tax rate during the three months ended September 30, 2020 was 24.0% as compared to the effective tax rate of 22.3% during the three months ended September 30, 2019. The change in effective tax rate is primarily attributable to the relative unfavorable tax impacts of permanent differences such as nondeductible executive compensation and nondeductible meals and entertainment expenses on the annual effective rate, and discrete tax items during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Table 1.1 Consolidated Operations
Nine Months Ended September 30,
20202019$ Change% Change
Revenues - operational(1)
$2,453 $1,874 $579 31 %
Revenues - Mark-to-market(673)(607)(66)11 %
Total revenues1,780 1,267 513 40 %
Total expenses1,294 1,413 (119)(8)%
Total other expenses, net(334)(97)(237)244 %
Income (loss) before income tax expense (benefit)152 (243)395 (163)%
Less: Income tax expense (benefit)36 (52)88 (169)%
Net income (loss)116 (191)307 (161)%
Less: Net income (loss) attributable to non-controlling interests2 (2)4 (200)%
Net income (loss) attributable to Mr. Cooper$114 $(189)$303 (160)%

(1)Revenues - operational consists of total revenues, excluding mark-to-market.

We recorded net income of $116 during the nine months ended September 30, 2020 compared to a net loss of $191 during the same period in 2019. The net income in 2020 was primarily due to an increase in total revenues and decrease in total expenses. Operational revenues increased primarily due to increased revenue in our Originations segment, driven by higher originations volume predominately in the DTC channel, partially offset by an increase in negative MTM adjustments during the nine months ended September 30, 2020 compared to the same period in 2019. Refer to Table 8.1 Servicing - Revenues and Table 19.1 Originations - Revenues for further discussion.

38

Total expenses during the nine months ended September 30, 2020 decreased compared with the same period in 2019 primarily due to lower foreclosure and other liquidation related expenses in our Servicing segment primarily driven by loss recoveries from settlement with a government agency and operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines. In addition, total expenses in our Corporate/Other segment were higher in the nine months ended September 30, 2019 due to acquisition and integration expenses related to the Pacific Union acquisition and the acquisition of the Seterus mortgage servicing platform and assumption of assets related thereto from IBM (“Seterus acquisition”) in February 2019. Partially offsetting the decrease in total expenses in our Servicing segment and Corporate/Other segment was an increase in total expenses in our Originations segment primarily driven by higher originations volume in a declining interest rate environment. Refer to Table 9.1 Servicing - Expenses,Table 23.1 Corporate/Other Selected Financial Results and Table 20.1 Originations - Expenses for further discussion.

Total other expenses, net, increased during the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest income and an increase in other expenses, net, partially offset by a decrease in interest expense. Interest income decreased primarily due to a decrease in other interest income in our Servicing segment due to lower income earned on custodial balances driven by lower LIBOR rates and a decrease in income earned on reverse mortgage interest, as a result of the decline in the reverse mortgage interests balance. Other expenses, net, was higher in threethe nine months ended March 31, 2019September 30, 2020 primarily due to a loss on redemption of the 2023 unsecured senior notes in our Corporate/Other segment and due to income related to the change in fair value of the contingent consideration recorded in 2019 for the acquisition of Assurant Mortgage Solutions (“AMS”). in our Xome segment. Refer to Table 10.1 Servicing - Other (Expenses) Income, Net, Table 22.1 Xome Segment Results of Operations and Table 23.1 Corporate/Other Selected Financial Results for further discussion



Table 2. Provision for Income Taxes
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Income tax benefit$(68) $(47) $(21) 45%
        
Effective tax rate(1)
28.4% 20.3%    

(1)
Effective tax rate is calculated using whole numbers.

ForDuring the threenine months ended March 31,September 30, 2020 and 2019, we had an income tax benefit.expense and benefit, respectively. The effective tax rate forduring the threenine months ended March 31,September 30, 2020 was 28.4%23.9% as compared to the effective tax rate of 20.3% for21.5% during the threenine months ended March 31,September 30, 2019. The change in effective tax rate is primarily attributable to the increased relative unfavorable tax impacts of permanent differences such as nondeductible executive compensation and nondeductible meals and entertainment expenses on the annual effective rate, and discrete tax items in the threenine months ended March 31,September 30, 2020 as compared to the threenine months ended March 31,September 30, 2019.





Segment Results


Our operations are conducted through four segments: Servicing, Originations, Xome, and Corporate/Other.


•The Servicing segment performs operational activities on behalf of investors or owners of the underlying mortgages, including collecting and disbursing borrower payments, investor reporting, customer service, modifying loans where appropriate to help borrowers stay current, and when necessary performing collections, foreclosures, and the sale of REO.
•The Originations segment originates residential mortgage loans through our direct-to-consumer channel, which provides refinance options for our existing customers, and through our correspondent and wholesale channelschannel, which purchasepurchases or originateoriginates loans from mortgage bankersbankers. Our wholesale channel was shut down during the three months ended June 30, 2020 and brokers.subsequently ceased originating loans and funded out the remaining pipeline.
•The Xome segment provides a variety of real estate services to mortgage originators, mortgage and real estate investors, and mortgage servicers, including valuation, title, and field services, and operates an exchange which facilitates the sale of foreclosed properties.
The •Corporate/Other segment represents unallocated overhead expenses, including the costs of executive management and other corporate functions that are not directly attributable to our operating segments, interest expense on our senior unsecured notes, and the results of a legacy mortgage investment portfolio, which consists of non-prime and non-conforming residential mortgage loans that were transferred to a securitization trust (“Trust 2009-A”) in 2009. We collapsed Trust 2009-A and executed the sale of the loans held in the trust in September 2019. The Corporate/Other segment also includes inter-segment eliminations.


Refer to Note 16, Business Segment Reporting, for a summary of segment results.


39

Table 3. Segment Results
 Three Months Ended March 31, 2020
 Servicing Originations Xome Elimination Total Operating Segments Corporate/Other Consolidated
Revenues             
Service related, net$(180) $20
 $106
 $(1) $(55) $2
 $(53)
Net gain on mortgage loans held for sale34
 297
 —
 —
 331
 —
 331
Total revenues(146) 317
 106
 (1) 276
 2
 278
Total expenses149
 166
 96
 (1) 410
 34
 444
Other income (expenses), net:      
   
  
Interest income83
 34
 —
 —
 117
 1
 118
Interest expense(113) (27) —
 —
 (140) (52) (192)
Other income (expenses), net—
 —
 1
 —
 1
 —
 1
Total other income (expenses), net(30) 7
 1
 —
 (22) (51) (73)
(Loss) income before income tax (benefit) expense$(325) $158
 $11
 $—
 $(156) $(83) $(239)


 Three Months Ended March 31, 2019
 Servicing Originations Xome Elimination Total Operating Segments Corporate/Other Consolidated
Revenues             
Service related, net$(27) $15
 $96
 $—
 $84
 $—
 $84
Net gain on mortgage loans held for sale35
 131
 —
 —
 166
 —
 166
Total revenues8
 146
 96
 —
 250
 —
 250
Total expenses195
 104
 99
 —
 398
 45
 443
Other income (expenses), net:             
Interest income115
 17
 —
 —
 132
 2
 134
Interest expense(114) (18) —
 —
 (132) (57) (189)
Other income, net—
 4
 11
 —
 15
 —
 15
Total other income (expenses), net1
 3
 11
 —
 15
 (55) (40)
(Loss) income before income tax (benefit) expense$(186) $45
 $8
 $—
 $(133) $(100) $(233)



Servicing Segment


The Servicing segment’s strategy is to generate income by growing the portfolio and maximizing the servicing margin. We believe several competitive strengths have been critical to our long-term growth as a servicer, including our low-cost platform, our skill in mitigating losses for investors, our commitment to strong customer service and regulatory compliance, our history of successfully boarding new loans, and the ability to retain existing customers by offering attractive refinance options. We believe that our operational capabilities are reflected in strong servicer ratings.


Table 4.2. Servicer Ratings
Fitch(1)
Moody’s(2)
S&P(3)
Rating dateJanuary 2020September 2020May 2019
Residential
Fitch(1)
RPS2-
Moody’s(2)
Not Rated
S&P(3)
Above Average
Rating dateMaster ServicerJanuary 2020RMS2+May 2019SQ2May 2019Above Average
Special ServicerRSS2-Not RatedAbove Average
ResidentialSubprime ServicerRPS2-Not RatedAbove Average
Master ServicerRMS2+SQ2Above Average
Special ServicerRSS2-Not RatedAbove Average
Subprime ServicerRPS2-Not RatedAbove Average


(1)
Fitch Rating Scale of 1 (Highest Performance) to 5 (Low/No Proficiency)
(2)
Moody’s Rating Scale of SQ1 (Strong Ability/Stability) to SQ5 (Weak Ability/Stability)
(3)
S&P’s Rating Scale of Strong to Weak

(1)Fitch Rating Scale of 1 (Highest Performance) to 5 (Low/No Proficiency)
(2)Moody’s Rating Scale of SQ1 (Strong Ability/Stability) to SQ5 (Weak Ability/Stability)
(3)S&P Rating Scale of Strong to Weak

Servicing Portfolio Composition


As of March 31,September 30, 2020, the unpaid principal balance in our servicing portfolio consisted of approximately $290.6$266.7 billion in forward loans, $316.9$300.9 billion in subservicing and other, and $21.6$20.0 billion in reverse mortgage loans.


•The term “forward” refers to loans we service which are not “reverse mortgages,” as discussed below.


•Our subservicing portfolio consists of loans where we perform the servicing responsibilities for a contractual fee, but do not own the servicing rights and therefore do not record an MSR on our balance sheet.


•Reverse mortgage loans, most commonly HECMs, provide seniors 62 and older with a loan upon which draws can be made periodically. The draws are secured by the equity in the borrower’s home. We have acquired our reverse mortgages in prior years through several transactions and itthe portfolio is now in run-off mode. For a significant portion of our reverse mortgages, we record MSRs on our balance sheet, similar to the accounting for forward mortgages, except in cases where the costs of servicing are expected to exceed revenues, in which case a Mortgage Servicing Liability (“MSL”) is created. Additionally, due to program requirements, we consolidate certain reverse mortgages on our balance sheet and accrue interest income and expense.



40

The charts below set forth the portfolio mix between serviced,forward MSR, subserviced and other, and reverse mortgage loans, and the composition of our servicing portfolio ending UPB by investor group ($ in Millions) as of March 31,September 30, 2020 and 2019:


chart-468a7fc34f565f578aa.jpgnsm-20200930_g2.jpg
servicingbyinvestorv3a01.jpg

nsm-20200930_g3.jpg


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The following tables set forth the results of operations for the Servicing segment:
Table 5.3. Servicing Segment Results of Operations
Three Months Ended September 30,
20202019$ Change% Change
Revenues
Operational$273 $319 $(46)(14)%
Amortization, net of accretion(112)(73)(39)53 %
Mark-to-market(29)(83)54 (65)%
Total revenues132 163 (31)(19)%
Total expenses99 171 (72)(42)%
Total other (expenses) income, net(65)17 (82)(482)%
(Loss) income before income tax (benefit) expense$(32)$9 $(41)(456)%
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Revenues       
Operational$313
 $324
 $(11) (3)%
Amortization, net of accretion(76) (23) (53) 230 %
Mark-to-market(383) (293) (90) 31 %
Total revenues(146) 8
 (154) (1,925)%
Total expenses149
 195
 (46) (24)%
Total other income (expenses), net(30) 1
 (31) (3,100)%
Loss before income tax benefit$(325) $(186) $(139) 75 %


ForDuring the three months ended March 31,September 30, 2020, we incurred a loss before income tax benefit of $325$32 compared to income before income tax expense of $9 for the same period in 2019. The change was primarily due to a change in total other (expenses) income, net and a decrease in total revenues, partially offset by a decrease in total expenses. Total other (expenses) income, net, during the three months ended September 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in interest income. The decrease in interest income was primarily due to lower income earned on custodial balances driven by lower LIBOR rates and a decrease in income earned on reverse mortgage interest, primarily driven by the decline in the reverse mortgage interests balance.

Total revenues decreased during the three months ended September 30, 2020 compared to the same period in 2019, primarily due to a decrease in operational revenues driven by lower base servicing fees on lower portfolio UPB. Additionally, amortization, net of accretion increased primarily due to an increase in amortization of forward MSRs as a result of elevated prepayments driven by the declining interest rate environment. The decrease in total revenues was partially offset by lower negative mark-to-market revenues during the three months ended September 30, 2020 compared to the same period in 2019 due to decreased impact from changes in interest rates and $46 favorable impact from additional modification fee income for loans exiting forbearance program related to the CARES Act. Total expenses decreased during the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a decrease in foreclosure and other liquidation (recoveries) expenses, net and a decrease in salaries, wages and benefits. The decrease in foreclosure and other liquidation (recoveries) expenses, net was mainly driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to $46 on loss recoveries related to a settlement with a government agency. The decrease in salaries, wages and benefits was primarily due to improved operational efficiencies.

Refer to Table 8. Servicing - Revenues, Table 9. Servicing - Expenses and Table 10. Servicing - Other (Expenses) Income, Net, for further discussions on the changes in total revenues, total expenses and total other (expenses) income, net, respectively.

Table 3.1 Servicing Segment Results of Operations
Nine Months Ended September 30,
20202019$ Change% Change
Revenues
Operational$880 $957 $(77)(8)%
Amortization, net of accretion(290)(152)(138)91 %
Mark-to-market(673)(607)(66)11 %
Total revenues(83)198 (281)(142)%
Total expenses370 555 (185)(33)%
Total other (expenses) income, net(155)45 (200)(444)%
Loss before income tax benefit$(608)$(312)$(296)95 %

42

During the nine months ended September 30, 2020, we incurred a loss before income tax benefit of $186$608 compared to $312 for the same period in 2019. The change in loss before income tax benefit was primarily due to a decrease in total revenues and a change in total other (expenses) income, net, partially offset by a decrease in total expenses. Total revenues decreased primarily as a result of elevated negative mark-to-market revenues during the three months ended March 31, 2020 compareddue to the same period in 2019. Amortization,higher amortization, net of accretion, forduring the threenine months ended March 31,September 30, 2020 increased compared to the same period in 2019, primarily due to an increase in amortization of forward MSRs as a result of growth in the forward MSR portfolio and elevated prepayments driven by the declining interest rate environment. Additionally, operational revenues decreased driven by lower base servicing fees on lower portfolio UPB. Further, mark-to-market increased primarily as a result of elevated negative mark-to-market revenues during the nine months ended September 30, 2020 compared to the same period in 2019. Total expenses forduring the threenine months ended March 31,September 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in foreclosure and other liquidation expenses.(recoveries) expenses, net and a decrease in salaries, wages and benefits. The decrease in foreclosure and other liquidation (recoveries) expenses, net was primarily driven by operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines. guidelines, in addition to $46 on loss recoveries related to a settlement with a government agency and improved performance of $15 on loss recoveries related to settlement with a prior servicer. The decrease in salaries, wages and benefits was primarily due to improved operational efficiencies, which included consolidation of one of our servicing centers.

Total other (expenses) income, (expense), net, forduring the threenine months ended March 31,September 30, 2020 decreased compared to the same period in 2019 primarily due to a decrease in interest income. The decrease in interest income was primarily due to a decrease in other interest income due to lower interest income earned on custodial balances driven by lower LIBOR rates and a decrease in income earned on reverse mortgage interest, primarily driven by the decline in the reverse mortgage interests balance and the amortization of a net premium into income.balance. Refer to Table 10.8.1 Servicing - Revenues, Table 11.9.1 Servicing - Expenses and Table 12.10.1 Servicing - Other (Expenses) Income, (Expenses), Net, for further discussions on the changes in total revenues, total expenses and total other (expenses) income, (expenses), net, respectively.



43

Table 6.4. Servicing Portfolio - Unpaid Principal Balances
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Average UPB
Forward MSRs$277,707 $315,897 $290,199 $313,405 
Subservicing and other(1)
293,014 297,081 301,752 278,158 
Reverse loans20,260 24,301 21,126 25,933 
Total average UPB$590,981 $637,279 $613,077 $617,496 
September 30, 2020September 30, 2019
Ending UPB
Forward MSRs
Agency$220,139 $247,821 
Non-agency46,528 58,860 
Total forward MSRs266,667 306,681 
Subservicing and other(1)
Agency285,704 294,783 
Non-agency15,151 15,748 
Total subservicing and other300,855 310,531 
Reverse loans
MSR2,079 2,761 
MSL12,485 14,641 
Securitized loans5,442 6,588 
Total reverse portfolio serviced20,006 23,990 
Total ending UPB$587,528 $641,202 

(1)Subservicing and other includes (i) loans we service for others, (ii) residential mortgage loans originated but have yet to be sold, and (iii) agency REO balances for which we own the mortgage servicing rights.
44
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Average UPB   
Forward MSRs$303,578
 $308,984
Subservicing and other(1)
310,160
 239,468
Reverse loans22,059
 27,472
Total average UPB$635,797
 $575,924
    
 March 31, 2020 March 31, 2019
Ending UPB   
Forward MSRs   
Agency$238,956
 $238,937
Non-agency51,678
 64,755
Total forward MSRs290,634
 303,692
    
Subservicing and other(1)
   
Agency302,060
 273,786
Non-agency14,873
 27,405
Total subservicing and other316,933
 301,191
 
  
Reverse loans   
MSR2,332
 3,559
MSL13,360
 15,928
Securitized loans5,898
 7,527
Total reverse portfolio serviced21,590
 27,014
Total ending UPB$629,157
 $631,897


(1)
Subservicing and other includes (i) loans we service for others, (ii) residential mortgage loans originated but have yet to be sold, and (iii) agency REO balances for which we own the mortgage servicing rights.

The following table providestables provide a rollforward of our forward servicingMSR and subservicing and other portfolio UPB:
Table 7.5. Forward Servicing and Subservicing and Other Portfolio UPB Rollforward
Three Months Ended September 30, 2020Three Months Ended September 30, 2019
Forward MSRSubservicing and OtherTotalForward MSRSubservicing and OtherTotal
Balance - beginning of period$277,975 $296,792 $574,767 $316,012 $302,108 $618,120 
Additions:
Originations14,517 1,232 15,749 11,397 410 11,807 
Acquisitions / Increase in subservicing(1)
(2,660)38,082 35,422 333 33,273 33,606 
Deductions:
Dispositions(23)(3,046)(3,069)(2,707)(9,399)(12,106)
Principal reductions and other(2,683)(2,659)(5,342)(3,029)(2,597)(5,626)
Voluntary reductions(2)
(20,215)(29,506)(49,721)(14,515)(13,030)(27,545)
Involuntary reductions(3)
(177)(40)(217)(740)(234)(974)
Net changes in loans serviced by others(67)— (67)(70)— (70)
Balance - end of period$266,667 $300,855 $567,522 $306,681 $310,531 $617,212 
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
 Forward MSR Subservicing and Other Total Forward MSR Subservicing and Other Total
Balance - beginning of period$296,782
 $323,983
 $620,765
 $295,481
 $223,886
 $519,367
Additions:           
Originations11,635
 662
 12,297
 4,891
 404
 5,295
Acquisitions / Increase in subservicing(673) 23,352
 22,679
 13,404
 84,406
 97,810
Deductions:           
Dispositions(40) (10,359) (10,399) (133) (1,118) (1,251)
Principal reductions and other(2,748) (2,965) (5,713) (2,827) (2,317) (5,144)
Voluntary reductions(1)
(13,864) (17,672) (31,536) (6,297) (3,975) (10,272)
Involuntary reductions(2)
(387) (68) (455) (762) (95) (857)
Net changes in loans serviced by others(71) —
 (71) (65) —
 (65)
Balance - end of period$290,634
 $316,933
 $607,567
 $303,692
 $301,191
 $604,883


(1)
Voluntary reductions are related to loan payoffs by customers.
(2)
Involuntary reductions refer to loan chargeoffs.

(1)Includes transfers to/from Subservicing and Other.
As of March 31,(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.

During the three months ended September 30, 2020, our ending forward servicingMSR UPB decreased when compared to 2019, primarily due to increased voluntary reductions in adriven by the low interest rate environment, partially offset by increased origination volumes. As of March 31,During the three months ended September 30, 2020, our subservicing and other portfolio ending UPB increased when comparedprimarily due to 2019, primarily driven by portfolio growth from our subservicing clients, partially offset by increased voluntary reductions in the low interest rate environment.

Table 5.1 Forward Servicing and Subservicing and Other Portfolio UPB Rollforward
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
Forward MSRSubservicing and OtherTotalForward MSRSubservicing and OtherTotal
Balance - beginning of period$296,782 $323,983 $620,765 $295,481 $223,886 $519,367 
Additions:
Originations35,630 2,918 38,548 25,809 1,213 27,022 
Acquisitions / Increase in subservicing(1)
(4,967)78,342 73,375 33,810 130,394 164,204 
Deductions:
Dispositions(94)(23,156)(23,250)(5,079)(11,192)(16,271)
Principal reductions and other(8,109)(7,792)(15,901)(8,887)(7,583)(16,470)
Voluntary reductions(2)
(51,514)(73,291)(124,805)(31,925)(25,670)(57,595)
Involuntary reductions(3)
(815)(149)(964)(2,309)(517)(2,826)
Net changes in loans serviced by others(246)— (246)(219)— (219)
Balance - end of period$266,667 $300,855 $567,522 $306,681 $310,531 $617,212 

45

(1)Includes transfers to/from Subservicing and Other.
(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.

During the nine months ended September 30, 2020, our ending forward MSR UPB decreased primarily due to increased voluntary reductions in the low interest rate environment, partially offset by increased origination volumes. During the nine months ended September 30, 2020, our subservicing and other portfolio ending UPB decreased primarily driven by increased voluntary reductions in the low interest rate environment and increased dispositions primarily due to various MSR sales.sales from our subservicing clients, partially offset by portfolio growth.


The table below summarizes the overall performance of the forward servicing and subservicing portfolio:
Table 8.6. Key Performance Metrics - Forward Servicing and Subservicing Portfolio(1)
September 30, 2020September 30, 2019
Loan count(2)
3,283,769 3,601,322 
Average loan amount(3)
$172,828 $171,389 
Average coupon - credit sensitive(4)
4.6 %4.8 %
Average coupon - interest sensitive(4)
4.1 %4.2 %
Average coupon - agency(4)
4.3 %4.5 %
Average coupon - non-agency(4)
4.6 %4.8 %
60+ delinquent (% of loans)(5)
5.9 %2.2 %
90+ delinquent (% of loans)(5)
5.1 %1.9 %
120+ delinquent (% of loans)(5)
4.3 %1.6 %
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Total prepayment speed (12-month constant prepayment rate)30.1 %17.5 %25.0 %13.2 %
 March 31, 2020 March 31, 2019
Loan count3,506,998
 3,616,323
Average loan amount(2)
$173,231
 $167,266
Average coupon - credit sensitive(3)
4.7% 4.9%
Average coupon - interest sensitive(3)
4.3% 4.3%
Average coupon - agency(3)
4.4% 4.4%
Average coupon - non-agency(3)
4.7% 4.8%
60+ delinquent (% of loans)(4)
1.9% 2.4%
90+ delinquent (% of loans)(4)
1.6% 2.1%
120+ delinquent (% of loans)(4)
1.4% 1.9%
Total prepayment speed (12-month constant prepayment rate)19.2% 8.2%


(1)Characteristics and key performance metrics of our servicing portfolio exclude UPB and loan counts acquired but not yet boarded and currently serviced by others.
(1)
Characteristics and key performance metrics of our servicing portfolio exclude UPB and loan counts acquired but not yet boarded and currently serviced by others.
(2)
Average loan amount is presented in whole dollar amounts.
(3)
The weighted average coupon amounts presented in the table above are only reflective of our owned forward MSR portfolio that is reported at fair value.
(4)
Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan.

(2)As of September 30, 2020, loan count includes 199,118 loans in forbearance related to the CARES Act.
(3)Average loan amount is presented in whole dollar amounts.
(4)The weighted average coupon amounts presented in the table above are only reflective of our owned forward MSR portfolio that is reported at fair value.
(5)Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan. Loan delinquency includes loans in forbearance.

Delinquency is a significant assumption in determining the mark-to-market adjustment and is a key indicator of MSR portfolio performance. Delinquent loans contribute to lower MSR values due to higher costs to service and increased carrying costs of advances. We continueDue to experience low delinquency rates during the three months ended March 31, 2020 which preserves the value of our MSRs. At this time, it is too early to estimate the potential impact the COVID-19 pandemic willand the implementation of the CARES Act, loans greater than 60 days, 90 days and 120 days delinquent have on future delinquencies.increased as of September 30, 2020 compared to the same period in 2019.


Table 9.7. Forward Loan Modifications and Workout Units
Three Months Ended September 30,
20202019Amount Change% Change
Modifications3,242 5,061 (1,819)(36)%
Workouts(1)
20,483 3,731 16,752 449 %
Total modifications and workout units23,725 8,792 14,933 170 %

(1)During the three months ended September 30, 2020, workouts exclude loans which did not miss a contractual payment during forbearance related to the CARES Act.

46
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 Amount Change % Change
Modifications4,715
 5,189
 (474) (9)%
Workouts3,994
 4,401
 (407) (9)%
Total modifications and workout units8,709
 9,590
 (881) (9)%


Total modifications and workouts during the three months ended March 31,September 30, 2020 decreasedincreased compared to the same period in 2019 primarily due to lower delinquency rates. At this time, it is too earlyan increase in workouts related to estimate the potential impactloans impacted by the COVID-19 pandemic will have on future delinquencieswhich successfully exited their forbearance plans.

Table 7.1 Forward Loan Modifications and Workout Units
Nine Months Ended September 30, 2020
20202019Amount Change% Change
Modifications12,286 15,882 (3,596)(23)%
Workouts(1)
25,849 15,132 10,717 71 %
Total modifications and workout units38,135 31,014 7,121 23 %

(1)During the nine months ended September 30, 2020, workouts exclude loans which did not miss a contractual payment during forbearance related to the CARES Act.

Total modifications and corresponding modification activity.workouts during the nine months ended September 30, 2020 increased compared to the same period in 2019 primarily due to an increase in workouts related to loans impacted by the COVID-19 pandemic which successfully exited their forbearance plans.


The following table providestables provide the composition of revenues for the Servicing segment:
Table 10.8. Servicing - Revenues
Three Months Ended September 30,
20202019$ Change% Change
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Forward MSR Operational Revenue
Base servicing fees$231 16$252 16$(21)—(8)%— %
Modification fees(2)
3 —4 —(1)—(25)%— %
Incentive fees(2)
— —6 —(6)—(100)%— %
Late payment fees(2)
15 123 2(8)(1)(35)%(50)%
Other ancillary revenues(2)
51 348 33 —6 %— %
Total forward MSR operational revenue300 20333 21(33)(1)(10)%(5)%
Base subservicing fees and other subservicing revenue(2)
71 565 46 19 %25 %
Reverse servicing fees6 17 —(1)1(14)%100 %
Total servicing fee revenue377 26405 25(28)1(7)%4 %
MSR financing liability costs(8)(1)(9)—1 (1)(11)%(100)%
Excess spread costs - principal(96)(6)(77)(5)(19)(1)25 %20 %
Total operational revenue273 19319 20(46)(1)(14)%(5)%
Amortization, net of accretion
Forward MSR amortization(212)(14)(162)(10)(50)(4)31 %40 %
Excess spread accretion96 677 519 125 %20 %
Reverse MSL accretion4 —10 —(6)—(60)%— %
Reverse MSR amortization— —2 —(2)—(100)%— %
Total amortization, net of accretion(112)(8)(73)(5)(39)(3)53 %60 %
Mark-to-Market Adjustments
MSR MTM(3)
(63)(4)(195)(12)132 8(68)%(67)%
Excess spread / financing MTM34 2112 7(78)(5)(70)%(71)%
Total MTM adjustments(29)(2)(83)(5)54 3(65)%(60)%
Total revenues - Servicing$132 9$163 10$(31)(1)(19)%(10)%
47

 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
 Amt 
bps(1)
 Amt 
bps(1)
 Amt 
bps(1)
 Amt 
bps(1)
Forward MSR Operational Revenue               
Base servicing fees$250
 16 $240
 17 $10
 (1) 4 % (6)%
Modification fees(2)
3
 — 3
 — —
 — — % — %
Incentive fees(2)
4
 — 1
 — 3
 — 300 % — %
Late payment fees(2)
23
 2 19
 2 4
 — 21 % — %
Other ancillary revenues(2)
38
 2 48
 3 (10) (1) (21)% (33)%
Total forward MSR operational revenue318
 20 311
 22 7
 (2) 2 % (9)%
Base subservicing fees and other subservicing revenue(3)
65
 4 52
 4 13
 — 25 % — %
Reverse servicing fees6
 — 9
 — (3) — (33)% — %
Total servicing fee revenue389
 24 372
 26 17
 (2) 5 % (8)%
MSR financing liability costs(8) — (12) (1) 4
 1 (33)% 100 %
Excess spread costs - principal(68) (4) (36) (2) (32) (2) 89 % 100 %
Total operational revenue313
 20 324
 23 (11) (3) (3)% (13)%
Amortization, net of accretion               
Forward MSR amortization(152) (10) (79) (6) (73) (4) 92 % 67 %
Excess spread accretion68
 4 36
 3 32
 1 89 % 33 %
Reverse MSL accretion8
 1 18
 1 (10) — (56)% — %
Reverse MSR amortization—
 — 2
 — (2) — (100)% — %
Total amortization, net of accretion(76) (5) (23) (2) (53) (3) 230 % 150 %
Mark-to-Market Adjustments               
MSR MTM(3)
(412) (26) (360) (25) (52) (1) 14 % 4 %
Excess spread / financing MTM29
 2 67
 5 (38) (3) (57)% (60)%
Total MTM adjustments(383) (24) (293) (20) (90) (4) 31 % 20 %
Total revenues - Servicing$(146) (9) $8
 1 $(154) (10) (1,925)% (1,000)%


(1)
Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)
Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
(3)
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 $10 and $11 for the three months ended March 31, 2020 and 2019, respectively.

(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
(3)The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $7 and $18 during the three months ended September 30, 2020 and 2019, respectively.

Forward - Due to the shift indecrease of the forward MSR portfolio mix,portfolio’s UPB, base servicing fee revenue increased fordecreased during the three months ended March 31,September 30, 2020 as compared to the same period in 2019. The decrease in BPS is primarily driven by an increase in the average loan sizeLate payment fees and incentive fees decreased due to a shift in portfolio mix.loan forbearance related to the CARES Act.


MSR prepayment and forwardForward MSR amortization increased forduring the three months ended March 31,September 30, 2020 as compared to the same period in 2019, primarily due to higher prepayments driven by the lower interest rate environment.


Total negative MTM adjustments decreased during the three months ended September 30, 2020 as compared to the same period in 2019 primarily due to decreased impact from changes in interest rates and favorable impact from additional modification fee income for loans exiting forbearance program related to the CARES Act.

Subservicing - Subservicing fees increased during the three months ended September 30, 2020 as compared to the same period in 2019, primarily due to higher fees earned on delinquent loans, partially offset by lower average subservicing portfolio UPB.

Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios during the three months ended September 30, 2020 decreased as compared to the same period in 2019, primarily due to the decline in the reverse mortgage portfolio.

Table 8.1 Servicing - Revenues
Nine Months Ended September 30,
20202019$ Change% Change
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Forward MSR Operational Revenue
Base servicing fees$720 16$749 16$(29)—(4)%— %
Modification fees(2)
8 —13 —(5)—(38)%— %
Incentive fees(2)
9 —8 —1 —13 %— %
Late payment fees(2)
54 162 2(8)(1)(13)%(50)%
Other ancillary revenues(2)
133 3126 37 —6 %— %
Total forward MSR operational revenue924 20958 21(34)(1)(4)%(5)%
Base subservicing fees and other subservicing revenue(2)
205 5179 426 115 %25 %
Reverse servicing fees19 —24 —(5)—(21)%— %
Total servicing fee revenue1,148 251,161 25(13)—(1)%— %
MSR financing liability costs(25)(1)(32)(1)7 —(22)%— %
Excess spread costs - principal(243)(5)(172)(4)(71)(1)41 %25 %
Total operational revenue880 19957 20(77)(1)(8)%(5)%
Amortization, net of accretion
Forward MSR amortization(550)(12)(366)(8)(184)(4)50 %50 %
Excess spread accretion243 5172 471 141 %25 %
Reverse MSL accretion17 139 1(22)—(56)%— %
Reverse MSR amortization— —3 —(3)—(100)%— %
Total amortization, net of accretion(290)(6)(152)(3)(138)(3)91 %100 %
Mark-to-Market Adjustments
MSR MTM(3)
(796)(17)(782)(17)(14)—2 %— %
Excess spread / financing MTM123 2175 4(52)(2)(30)%(50)%
Total MTM adjustments(673)(15)(607)(13)(66)(2)11 %15 %
Total revenues - Servicing$(83)(2)$198 4$(281)(6)(142)%(150)%

48

(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.
(3)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 $20 and $46 during the nine months ended September 30, 2020 and 2019, respectively.

Forward - Due to the decrease of the forward MSR portfolio’s UPB, base servicing fee revenue decreased for the nine months ended September 30, 2020 as compared to the same period in 2019. Modification fees decreased primarily due to lower modification volume. Late payment fees decreased primarily driven by loan forbearance related to the CARES Act. Other ancillary revenues increased primarily due to higher sales lead incentives due to increased portfolio recapture activity.

Forward MSR amortization increased during the nine months ended September 30, 2020 as compared to the same period in 2019, primarily due to higher prepayments driven by the lower interest rate environment.

Total negative MTM adjustments increased forduring the threenine months ended March 31,September 30, 2020 as compared to the same period in 2019 primarily due to the declining interest rate environment during 2020.


Subservicing - Subservicing fees increased forduring the threenine months ended March 31,September 30, 2020 as compared to the same period in 2019 primarily due to significant growth in thea higher average subservicing portfolio UPB.UPB and higher fees earned on delinquent loans.


Reverse - Servicing fees and reverse MSL accretion on reverse mortgage portfolios forduring the threenine months ended March 31,September 30, 2020 decreased as compared to the same period in 2019, primarily due to the decline in the reverse mortgage portfolio. Reverse MSL accretion was further impacted by $6 pertaining to accumulated accretion recorded during the three months ended March 31, 2019 related to fair value adjustments for MSL assumed from the Merger. The fair value adjustment resulted from the revised cost to service assumption used in the valuation of MSL during the measurement period.


The tables below summarize expenses for the Servicing segment:
Table 11.9. Servicing - Expenses
Three Months Ended September 30,
20202019Change% Change
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Salaries, wages and benefits$77 5$85 5$(8)—(9)%— %
General and administrative
Servicing support fees28 230 2(2)—(7)%— %
Corporate and other general and administrative expenses33 240 3(7)(1)(18)%(33)%
Foreclosure and other liquidation related (recoveries) expenses, net(45)(3)11 1(56)(4)(509)%(400)%
Depreciation and amortization6 15 —1 120 %100 %
Total general and administrative expenses22 286 6(64)(4)(74)%(67)%
Total expenses - Servicing$99 7$171 11$(72)(4)(42)%(36)%
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019  Change % Change
 Amt 
bps(1)
 Amt 
bps(1)
 Amt 
bps(1)
 Amt 
bps(1)
Salaries, wages and benefits$86
 5 $86
 6 $—
 (1) — % (17)%
General and administrative               
Servicing support fees25
 2 39
 3 (14) (1) (36)% (33)%
Corporate and other general and administrative expenses35
 2 39
 3 (4) (1) (10)% (33)%
Foreclosure and other liquidation related expenses—
 — 27
 2 (27) (2) (100)% (100)%
Depreciation and amortization3
 — 4
 — (1) — (25)% — %
Total general and administrative expenses63
 4 109
 8 (46) (4) (42)% (50)%
Total expenses - Servicing$149
 9 $195
 14 $(46) (5) (24)% (36)%


(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.
(1)
Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.


Total expenses decreased during the three months ended March 31,September 30, 2020 compared to the same period in 2019, primarily driven by a decrease in foreclosure and other liquidation expenses.(recoveries) expenses, net. Foreclosure and other liquidation related (recoveries) expenses, were lower during the three months ended March 31, 2020 as compared to the same period in 2019,net, decreased primarily due to operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to recovery of $5 prior period operating losses from$46 on loss recoveries related to a previous sub-servicersettlement with a government agency. Salaries, wages and benefits decreased in 2020 primarily due to operational efficiencies. The decrease in Corporate and other general and administrative expenses was primarily driven by lower repairs and maintenance expenses and temporary labor costs.
49

Table 9.1 Servicing - Expenses
Nine Months Ended September 30,
20202019Change% Change
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Salaries, wages and benefits$238 5$261 6$(23)(1)(9)%(17)%
General and administrative
Servicing support fees80 293 2(13)—(14)%— %
Corporate and other general and administrative expenses100 2118 3(18)(1)(15)%(33)%
Foreclosure and other liquidation related (recoveries) expenses, net(62)(1)70 1(132)(2)(189)%(200)%
Depreciation and amortization14 —13 —1 —8 %— %
Total general and administrative expenses132 3294 6(162)(3)(55)%(50)%
Total expenses - Servicing$370 8$555 12$(185)(4)(33)%(33)%

(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.

Total expenses decreased during the threenine months ended March 31, 2020.September 30, 2020 compared to the same period in 2019, primarily driven by a decrease in foreclosure and other liquidation (recoveries) expenses, net. Foreclosure and other liquidation related (recoveries) expenses, net decreased primarily due to operational improvements of the reverse portfolio with respect to assignments and adherence to HUD curtailment guidelines, in addition to $46 on loss recoveries related to a settlement with a government agency and improved performance of $15 on loss recoveries related to a settlement with a prior servicer. The decrease in Corporate and other general and administrative expenses in 2020 was primarily driven by lower occupancy expenses and temporary labor costs. Servicing support fees decreased in 2020 compared to the same period in 2019 primarily due to lower legal and tax service expenses.


Table 12. Servicing - Other Income (Expenses), Net
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 Change % Change
 Amt 
bps(1)
 Amt 
bps(1)
 Amt 
bps(1)
 Amt 
bps(1)
Income earned on Reverse mortgage interest$43
 3 $82
 6 $(39) (3) (48)% (50)%
Other interest income40
 2 33
 2 7
 — 21 % — %
Interest income83
 5 115
 8 (32) (3) (28)% (38)%
                
Reverse mortgage interest expense(52) (3) (71) (5) 19
 2 (27)% (40)%
Advance interest expense(5) — (9) (1) 4
 1 (44)% 100 %
Other interest expense(56) (4) (34) (2) (22) (2) 65 % 100 %
Interest expense(113) (7) (114) (8) 1
 1 (1)% (13)%
Total other income (expenses), net - Servicing$(30) (2) $1
 — $(31) (2) (3,100)% (100)%
                
Weighted average cost - advance facilities3.0%   4.7%   (1.7)% 
 (36)% 

Weighted average cost - excess spread financing9.0%   9.0%   — % 
 — % 


(1)
Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.

Total other income (expenses), net Salaries, wages and benefits decreased during the three months ended March 31,in 2020 as compared to the same period in 2019 primarily due to a decreaseimproved operational efficiencies which included consolidation of one of our servicing centers.

Table 10. Servicing - Other (Expenses) Income, Net
Three Months Ended September 30,
20202019Change% Change
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Income earned on Reverse mortgage interest$403$815$(41)(2)(51)%(40)%
Other interest income——564(56)(4)(100)%(100)%
Interest income4031379(97)(6)(71)%(67)%
Reverse mortgage interest expense(37)(3)(58)(4)211(36)%(25)%
Advance interest expense(7)—(6)—(1)—17 %— %
Other interest expense(61)(4)(56)(4)(5)—9 %— %
Interest expense(105)(7)(120)(8)151(13)%(13)%
Total other (expenses) income, net - Servicing$(65)(4)$171$(82)(5)(482)%(500)%
Weighted average cost - advance facilities3.0 %3.8 %(0.8)%(21)%
Weighted average cost - excess spread financing9.0 %8.9 %0.1 %1 %

(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.

50

During the three months ended September 30, 2020, we had total other expenses, net, of $65 compared to total other income, net, of $17 for the same period in interest income.2019. The decrease in interest incomechange was primarily due to a decrease in interest income, mainly driven by lower interest income earned on reverse mortgage interest, partially offset by an increase in other interest income.custodial balances due to lower LIBOR rates. Income earned on reverse mortgage interest decreased due to the decline in the reverse mortgage interests balance and the amortization of a net asset premium into income. Other interest income increased primarily driven by an increase in earnings credits and bank fee credits. Interest expense remained relatively flatdecreased during the three months ended March 31,September 30, 2020 as compared to the same period in 2019, primarily due to an increase in other interest expense primarily driven by higher compensating interest expense and bank fees, partially offset by a decrease in reverse mortgage interest expense primarily driven by the decline in the reverse mortgage interest portfolio.

Table 10.1 Servicing - Other (Expenses) Income, Net
Nine Months Ended September 30,
20202019Change% Change
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Income earned on Reverse mortgage interest$1373$2495$(112)(2)(45)%(40)%
Other interest income4311393(96)(2)(69)%(67)%
Interest income18043888(208)(4)(54)%(50)%
Reverse mortgage interest expense(140)(3)(175)(4)351(20)%(25)%
Advance interest expense(20)—(23)—3—(13)%— %
Other interest expense(175)(4)(145)(3)(30)(1)21 %33 %
Interest expense(335)(7)(343)(7)8—(2)%— %
Total other (expenses) income, net - Servicing$(155)(3)$451$(200)(4)(444)%(400)%
Weighted average cost - advance facilities3.0 %4.0 %(1.0)%(25)%
Weighted average cost - excess spread financing9.0 %8.9 %0.1 %1 %

(1)Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.

During the nine months ended September 30, 2020, we had total other expenses, net, of $155 compared to total other income, net, of $45 for the same period in 2019. The change was primarily due to a decrease in interest income, mainly driven by lower income earned on reverse mortgage interest due to the decline in the reverse mortgage interests balance and the amortization of a net asset premium into income. Other interest portfolio.income decreased due to lower interest income earned on custodial balances due to lower LIBOR rates. Interest expense remained relatively flat during the nine months ended September 30, 2020 as compared to the same period in 2019.



51


Servicing Portfolio and Related Liabilities


The tablestable below summarizesummarizes the servicing portfolio and related liabilities in the Servicing segment:
Table 13.11. Servicing Portfolios and Related Liabilities
September 30, 2020December 31, 2019
UPBCarrying AmountbpsUPBCarrying Amountbps
Forward MSRs - acquisition pool:
Credit sensitive$122,422 $1,206 99$147,895 $1,613 109
Interest sensitive144,245 1,457 101148,887 1,883 126
Total forward MSRs - fair value$266,667 $2,663 100$296,782 $3,496 118
Forward MSRs - investor pool:
Agency$220,139 $2,234 102$240,688 $2,944 122
Non-agency46,528 429 9256,094 552 98
Total forward MSRs - fair value$266,667 $2,663 100$296,782 $3,496 118
Total forward MSRs$266,667 $2,663 $296,782 $3,496 
Subservicing and other(1)
Agency285,704 N/A308,532 N/A
Non-agency15,151 N/A15,451 N/A
Total subservicing and other300,855 N/A323,983 N/A
Reverse portfolio - amortized cost
MSR2,079 6 2,508 6 
MSL12,485 (44)13,994 (61)
Securitized loans5,442 5,460 6,223 6,279 
Total reverse portfolio serviced20,006 5,422 22,725 6,224 
Total servicing portfolio unpaid principal balance$587,528 $8,085 $643,490 $9,720 
 March 31, 2020 December 31, 2019
UPB Carrying Amount bps UPB Carrying Amount bps
Forward MSRs - acquisition pool:           
Credit sensitive$138,726
 $1,386
 100 $147,895
 $1,613
 109
Interest sensitive151,908
 1,723
 113 148,887
 1,883
 126
Total forward MSRs - fair value$290,634
 $3,109
 107 $296,782
 $3,496
 118
            
Forward MSRs - investor pool:           
Agency$238,956
 $2,618
 110 $240,688
 $2,944
 122
Non-agency51,678
 491
 95 56,094
 552
 98
Total forward MSRs - fair value$290,634
 $3,109
 107 $296,782
 $3,496
 118
            
Total forward MSRs$290,634
 $3,109
   $296,782
 $3,496
  
            
Subservicing and other(1)
           
Agency302,060
 N/A
   308,532
 N/A
  
Non-agency14,873
 N/A
   15,451
 N/A
  
Total subservicing and other316,933
 N/A
   323,983
 N/A
  
            
Reverse portfolio - amortized cost           
MSR2,332
 6
   2,508
 6
  
MSL13,360
 (53)   13,994
 (61)  
Securitized loans5,898
 5,955
   6,223
 6,279
  
Total reverse portfolio serviced21,590
 5,908
   22,725
 6,224
  
Total servicing portfolio unpaid principal balance$629,157
 $9,017
   $643,490
 $9,720
  


(1)Subservicing and other amounts include loans we service for others, residential mortgage loans originated but have yet to be sold and agency REO balances for which we own the mortgage servicing rights.
(1)
Subservicing and other amounts include loans we service for others, residential mortgage loans originated but have yet to be sold and agency REO balances for which we own the mortgage servicing rights.


As of March 31,September 30, 2020, when measuring the fair value of the portfolio as a basis point of the unpaid principal balance, our credit sensitive pooltotal forward MSRs decreased in value by 9 bps and interest sensitive pool decreased in value 1318 bps compared to December 31, 2019 primarily due to higher forecasted prepayment speeds as a result of the declining interest rate environment in 2020.


We assess whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition. We consider numerous factors in making this assessment, with the primary factors consisting of the overall portfolio delinquency characteristics, portfolio seasoning and residential mortgage loan composition. Interest rate sensitive portfolios typically consist of single-family conforming residential forward mortgage loans serviced for GSEs or other third-party investors. Credit sensitive portfolios primarily consist of higher delinquency single-family non-conforming residential forward mortgage loans in private-label securitizations.



52

The following table provides information onsets forth the fair valueactivities of our owned forward MSR portfolio:
MSRs:
Table 14.12. Forward MSRs - Fair Value Rollforward
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Fair value - beginning of period$2,757 $3,505 $3,496 $3,665 
Additions:
Servicing retained from mortgage loans sold163 129 412 298 
Purchases of servicing rights6 43 30 732 
Dispositions:
Sales and cancellation of servicing assets— (24)— (317)
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model:
Credit sensitive(41)(72)(262)(228)
Interest sensitive(24)(102)(520)(488)
Other changes in fair value:
Scheduled principal payments(23)(24)(70)(69)
Disposition of negative MSRs and other(1)
12 20 57 43 
Prepayments
Voluntary prepayments
Credit sensitive(31)(27)(81)(72)
Interest sensitive(155)(103)(392)(205)
Involuntary prepayments
Credit sensitive— (1)(1)(6)
Interest sensitive(1)(5)(6)(14)
Fair value - end of period$2,663 $3,339 $2,663 $3,339 

(1)Amounts primarily represent negative fair values reclassified from the MSR asset to reserves as underlying loans are removed from the MSR and other reclassification adjustments.

53
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Fair value - beginning of period$3,496
 $3,665
Additions:   
Servicing retained from mortgage loans sold123
 66
Purchases of servicing rights24
 409
Dispositions:   
Sales and cancellation of servicing assets—
 (260)
Changes in fair value:   
Due to changes in valuation inputs or assumptions used in the valuation model:   
Credit sensitive(181) (121)
Interest sensitive(220) (211)
Other changes in fair value:   
Scheduled principal payments(23) (22)
Disposition of negative MSRs and other(1)
20
 12
Prepayments   
Voluntary prepayments   
Credit sensitive(24) (19)
Interest sensitive(102) (32)
Involuntary prepayments   
Credit sensitive(1) (2)
Interest sensitive(3) (4)
Fair value - end of period$3,109
 $3,481


(1)
Amounts primarily represent negative fair values reclassified from the MSR asset to reserves as underlying loans are removed from the MSR and other reclassification adjustments.


The following table sets forth the weighted-average key inputs and assumptions in estimating the fair value of forward MSRs:
Table 15.13. MSRs - Fair Value
September 30, 2020September 30, 2019
Total MSRs Portfolio
Discount rate9.5 %9.7 %
Prepayment speeds14.4 %13.9 %
Average life5.2 years5.6 years
Acquisition Pools:
Credit Sensitive
Discount rate10.0 %10.4 %
Prepayment speeds12.6 %13.2 %
Average life5.6 years5.9 years
Interest Sensitive
Discount rate9.0 %9.0 %
Prepayment speeds15.9 %14.6 %
Average life4.9 years5.4 years
Investor Pools:
Agency
Discount rate8.9 %9.0 %
Prepayment speeds14.5 %13.7 %
Average life5.1 years5.5 years
Non-Agency
Discount rate12.0 %12.6 %
Prepayment speeds13.9 %14.3 %
Average life5.5 years6.0 years
 March 31, 2020 March 31, 2019
Total MSRs Portfolio   
Discount rate9.7% 10.3%
Prepayment speeds13.4% 13.0%
Average life5.7 years
 6.0 years
    
Acquisition Pools:   
Credit Sensitive   
Discount rate10.2% 11.3%
Prepayment speeds13.0% 13.5%
Average life5.9 years
 6.0 years
    
Interest Sensitive   
Discount rate9.1% 9.4%
Prepayment speeds13.8% 12.5%
Average life5.5 years
 6.1 years
    
Investor Pools:   
Agency   
Discount rate9.0% 9.4%
Prepayment speeds13.2% 12.4%
Average life5.6 years
 6.1 years
    
Non-Agency   
Discount rate12.6% 13.6%
Prepayment speeds14.3% 15.4%
Average life6.1 years
 5.9 years


The weighted-average discount rate for total MSRs portfolio decreased as of March 31,September 30, 2020 compared to the same period in 2019 due to the declining interest rate environment in 2020. Weighted-average life for total MSRs portfolio decreased due to the increase in prepayment speeds, which was attributable to the interest rate decline period over period.


The discount rate, which is used to determine the present value of estimated future net servicing income, is based on the required rate of return market investors would expect for an asset with similar risk characteristics. The discount rate is determined through review of recent market transactions as well as comparing the discount rate to those utilized by third-party valuation specialists.


Total prepayment speeds represent the annual rate at which borrowers are forecasted to repay their mortgage loan principal, which includes estimates for both voluntary and involuntary borrower liquidations. The expected weighted-average life represents the total years we expect to service the MSR.


In determiningThe key assumptions were separately applied to the servicing of loans in estimating fair valueforbearance to account for differences in the underlying estimate of forward MSRs, we took into account the situations created by COVID-19 pandemic.future servicing revenues related to those loans.



54

Excess Spread Financing


As further disclosed in Note 3,2, Mortgage Servicing Rights and Related Liabilities,we have entered into sale and assignment agreements treated as financing arrangements whereby the acquirer has the right to receive a specified percentage of the excess cash flow generated from an MSR.


The servicing fees associated with an MSR can be segregated into (i) a base servicing fee and (ii) an excess servicing fee. The base servicing fee, along with ancillary income and other revenues, is designed to cover costs incurred to service the specified pool plus a reasonable margin. The remaining servicing fee is considered excess. We sell a percentage of the excess fee as a method for efficiently financing acquired MSRs and the purchase of loans.


Excess spread financings are recorded at fair value, and the impact of fair value adjustments on future revenues and capital resources varies primarily due to (i) prepayment speeds and (ii) our ability to recapture mortgage prepayments through the origination platform. See Note 3,2, Mortgage Servicing Rights and Related Liabilities, for additional information regarding the range of assumptions and sensitivities related to the measurement of the excess spread financing liability as of March 31,September 30, 2020 and December 31, 2019.


The following table sets forth the change in the excess spread liabilityfinancing and the related weighted-average key assumptions:
Table 16.14. Excess Spread Financing
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Fair value - beginning of period$1,124 $1,429 $1,311$1,184
Additions:
New financings— 31 24469
Deductions:
Settlements and repayments(49)(63)(159)(182)
Changes in fair value:
Credit Sensitive(14)(59)(38)(74)
Interest Sensitive(17)(57)(94)(116)
Fair value - end of period$1,044 $1,281 $1,044$1,281
Weighted-Average Key AssumptionsSeptember 30, 2020September 30, 2019
Total Excess Spread Portfolio
Discount rate11.9 %11.9 %
Prepayment speeds13.6 %13.3 %
Recapture rate19.1 %22.2 %
Average life5.3 years5.7 years
Credit Sensitive
Discount rate12.6 %12.5 %
Prepayment speeds13.0 %12.9 %
Recapture rate20.6 %23.6 %
Average life5.5 years5.8 years
Interest Sensitive
Discount rate10.6 %10.9 %
Prepayment speeds14.7 %13.9 %
Recapture rate16.4 %20.0 %
Average life5.1 years5.5 years

55
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Fair value - beginning of period$1,311
 $1,184
Additions:   
New financings24
 245
Deductions:   
Settlements and repayments(58) (51)
Changes in fair value:   
Credit Sensitive(2) (32)
Interest Sensitive(33) (37)
Fair value - end of period$1,242
 $1,309
    
Key Weighted-Average Assumptions:March 31, 2020 March 31, 2019
Total Excess Spread Portfolio   
Discount rate11.6% 10.4%
Prepayment speeds12.8% 12.9%
Recapture rate18.6% 20.4%
Average life5.7 years
 5.9 years
    
Credit Sensitive   
Discount rate12.3% 10.9%
Prepayment speeds12.3% 13.2%
Recapture rate18.4% 21.7%
Average life5.9 years
 5.9 years
    
Interest Sensitive   
Discount rate10.3% 9.1%
Prepayment speeds13.5% 12.4%
Recapture rate19.8% 17.3%
Average life5.5 years
 6.1 years



The following table sets forth the change in the MSRs financing liability and the related weighted-average assumptions.
key assumptions:
Table 17.15. MSRs Financing Liability - Rollforward
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Fair value - beginning of period$49 $43 $37$32
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model3 9 2128
Other changes in fair value(5)(5)(11)(13)
Fair value - end of period$47 $47 $47$47
September 30, 2020September 30, 2019
Weighted-Average Key Assumptions
Advance financing and counterparty fee rates8.2 %8.7 %
Annual advance recovery rates20.2 %18.7 %
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
Fair value - beginning of period$37
 $32
Changes in fair value:   
Changes in valuation inputs or assumptions used in the valuation model9
 6
Other changes in fair value(3) (4)
Fair value - end of period$43
 $34
    
 March 31, 2020 March 31, 2019
Weighted-Average Assumptions   
Advance financing rates1.7% 3.9%
Annual advance recovery rates18.4% 19.3%


We entered into several sale agreements whereby we sold the right to receive repayment of servicing advances on private-label servicing advances and the right to receive a portion of the base fee component on the related MSRs, and also transferred the obligations to make future advances. These transactions are recorded as an MSR Financing Liabilityfinancing liability in our consolidated balance sheets and represent the incremental costs relative to the market participant assumptions contained in the MSR valuation. Changes in the value of the MSR financing liability are recorded against servicing revenue and interest imputed on the outstanding liability is recorded as interest expense.


We estimate fair value of the MSR financing liability based on the present value of future expected discounted cash flows with the discount rate approximating current market rate for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being advance financing rates and annual advance recovery rates.


The following table provides an overview of our forward servicing portfolio and amounts that involve excess spread financing with our co-investco-investment partners for the periods indicated.
indicated:
Table 18.16. Leveraged Portfolio Characteristics
September 30, 2020September 30, 2019
Owned forward servicing portfolio - unencumbered$85,937 $89,308 
Owned forward servicing portfolio - encumbered180,730 217,373 
Subserviced forward servicing portfolio and other300,855 310,531 
Total unpaid principal balance$567,522 $617,212 
 March 31, 2020 March 31, 2019
Owned forward servicing portfolio - unencumbered$85,124
 $88,995
Owned forward servicing portfolio - encumbered205,510
 214,697
Subserviced forward servicing portfolio and other316,933
 301,191
Total unpaid principal balance$607,567
 $604,883


The encumbered forward servicing portfolio consists of residential mortgage loans included within our excess spread financing transactions and MSR financing liability. Subserviced and other amounts include (1) loans serviced for others, (2) residential mortgage loans originated but not yet sold and (3) agency REO balances for which we own the mortgage servicing rights.



56

Reverse - MSRs, MSLs and Participating Interests in Reverse Mortgages - Amortized Cost


The table below provides detail of the characteristics and key performance metrics of the reverse servicing portfolio, which is included in reverse MSRs, MSLs and participating interests in reverse mortgages. Such assets are recorded at amortized cost.
Table 19.17. Reverse - Mortgage Portfolio Characteristics
September 30, 2020September 30, 2019
Loan count151,412 170,903 
Ending unpaid principal balance$20,006 $23,990 
Average loan amount(1)
$132,127 $140,374 
Average coupon2.1 %3.8 %
Average borrower age80.7 years80.1 years
 March 31, 2020 March 31, 2019
Loan count158,838
 184,807
Ending unpaid principal balance$21,590
 $27,014
Average loan amount(1)
$135,924
 $146,173
Average coupon3.3% 4.4%
Average borrower age81
 80


(1)Average loan amount is presented in whole dollar amounts.
(1)
Average loan amount is presented in whole dollar amounts.


Historically, the Companywe acquired servicing rights and participating interests in reverse mortgage portfolios. Reverse mortgage loans, most commonly HECMs, provide seniors 62 and older with a loan upon which draws can be made periodically. The draws are secured by the equity in the borrower’s home. For acquired servicing rights, an MSR or MSL is established on the acquisition date at fair value, as applicable, based on the expected discounted cash flow from servicing the reverse portfolio.


Each quarter, we accrete the MSL to revenues - service related, net of the respective portfoliosportfolios’ run-off. The MSL is assessed for increased obligation based on its fair value, using a variety of assumptions, with the key assumptions being discount rates, prepayment speeds and borrower life expectancy. The MSLs are stratified based on predominant risk characteristics of the underlying serviced loans. Impairment, if any, represents the excess of amortized cost of an individual stratum over its estimated fair value and is recognized through an increase in the valuation allowance.


Based on our assessment, no impairment or increased obligation was required to be recorded for reverse MSRs and MSLs as of March 31,September 30, 2020.




Originations Segment


The strategy of our Originations segment is to originate or acquire new loans for the servicing portfolio at a more attractive cost than purchasing MSRs in bulk transactions and to retain our existing customers by providing them with attractive refinance options. The Originations segment plays a strategically important role because its profitability is typically counter cyclical to that of the Servicing segment. Furthermore, by originating or acquiring loans at a more attractive cost than would be the case in bulk MSR acquisitions, the Originations segment improves our overall profitability and cash flow. Growing the Originations segment has been a strategic focus for us for several years.


The Originations segment includes three channels:


•Our direct-to-consumer lending channel relies on our call centers, our website, and mobile apps to interact with customers. Our primary focus is to assist our customers with a refinance or home purchase by providing them with a needs-based approach to understanding their current mortgage options.


•Our correspondent lending channel acquires newly originated residential mortgage loans that have been underwritten to investor guidelines. This includes both conventional and government-insured loans that qualify for inclusion in securitizations that are guaranteed by the GSEs. Our correspondent lending channel enables us to replenish servicing portfolio run-off typically at a better rate of return than traditional bulk or flow acquisitions.


•Our wholesale lending channel works with mortgage brokers to source loans which are underwritten and funded by us in our name. Counterparty risk is mitigated through quality and compliance monitoring and all brokers are subject to our eligibility requirements coupled with an annual recertification process. Subsequent to March 31,Our wholesale channel was shut down during the three months ended June 30, 2020 we closed our wholesale lending channel.and subsequently ceased originating loans and funded out the remaining pipeline.

57



The charts below set forth the pull through adjusted lock volume and funded volume by channel and channel mix:mix ($ in Billions):


pullthroughchartv1.jpgnsm-20200930_g4.jpg



nsm-20200930_g5.jpg
channelmixchartv1.jpg

58

The following tables set forth the results of operations for the Originations segment:
Table 20.18. Originations Segment Results of Operations
Three Months Ended September 30,
20202019$ Change% Change
Total revenues$632 $334 $298 89 %
Total expenses195 155 40 26 %
Total other income (expenses), net1 (1)2 (200)%
Income before income tax expense$438 $178 $260 146 %
Originations Margin
Revenue$632 $334 $298 89 %
Pull through adjusted lock volume$19,794 $12,699 $7,095 56 %
Revenue as a percentage of pull through adjusted lock volume(1)
3.19 %2.63 %0.56 %21 %
Expenses(2)
$194 $156 $40 26 %
Funded volume$15,598 $11,911 $3,687 31 %
Expenses as a percentage of funded volume(3)
1.24 %1.31 %(0.07)%(5)%
Originations Margin1.95 %1.32 %0.63 %48 %
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Total revenues$317
 $146
 $171
 117 %
Total expenses166
 104
 62
 60 %
Total other income (expenses), net7
 3
 4
 133 %
Income before income tax expense$158
 $45
 $113
 251 %
        
Originations Margin       
Revenue$317
 $146
 $171
 117 %
Pull through adjusted lock volume$12,677
 $5,960
 $6,717
 113 %
Revenue as a percentage of pull through adjusted lock volume(1)
2.50% 2.45% 0.05 % 2 %
        
Expenses$166
 $104
 $62
 60 %
Funded volume$12,359
 $5,716
 $6,643
 116 %
Expenses as a percentage of funded volume(2)
1.34% 1.82% (0.48)% (26)%
        
Originations Margin1.16% 0.63% 0.53 % 84 %


(1)Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.
(1)
Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.
(2)
Calculated on funded volume as expenses are incurred based on closing of the loan.

(2)Expenses include total expenses and total other income (expenses), net.
(3)Calculated on funded volume as expenses are incurred based on closing of the loan.

Income before income tax expense increased forduring the three months ended March 31,September 30, 2020 as compared to the same period in 2019 primarily due to an increase in revenues driven by origination volume growth.growth from both the DTC and correspondent channels. The growth in origination volume was primarily due to declining interest rates and incremental volumes associated with the acquisition of Pacific Union.rates. The Originations Margin forduring the three months ended March 31,September 30, 2020 increased as compared to the same period in 2019 primarily due to lower expenseshigher revenue as a percentage of pull through adjusted lock volume driven by an increase in volume from the DTC channel.

59

Table 18.1 Originations Segment Results of Operations
Nine Months Ended September 30,
20202019$ Change% Change
Total revenues$1,543 $744 $799 107 %
Total expenses528 404 124 31 %
Total other income, net14 1 13 1,300 %
Income before income tax expense$1,029 $341 $688 202 %
Originations Margin
Revenue$1,543 $744 $799 107 %
Pull through adjusted lock volume$44,865 $29,856 $15,009 50 %
Revenue as a percentage of pull through adjusted lock volume(1)
3.44 %2.49 %0.95 %38 %
Expenses(2)
$514 $403 $124 31 %
Funded volume$38,686 $27,623 $11,063 40 %
Expenses as a percentage of funded volume(3)
1.33 %1.46 %(0.13)%(9)%
Originations Margin2.11 %1.03 %1.08 %105 %

(1)Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.
(2)Expenses include total expenses and total other income, net.
(3)Calculated on funded volume as expenses are incurred based on closing of the loan.

Income before tax expense increased during the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due to an increase in total expenses was partially offsetrevenues driven by expense reduction initiatives relativeorigination volume growth predominately in the DTC channel. In response to the significantCOVID-19 pandemic, we temporarily slowed operations in the correspondent channel in order to prioritize cash build and de-risk the pipeline. As the market stabilized post pandemic, we returned to normal correspondent activity in the third quarter 2020. The growth in origination volume was due to declining interest rates. The Originations Margin during the nine months ended September 30, 2020 increased as compared to the same period in 2019 due to higher revenue as a percentage of pull through adjusted lock volume driven by an increase in funded volume.volume from the DTC channel.


Originations Segment Revenues


Service related fee, net - Originations refers to fees collected from customers for originated loans and from other lenders for loans purchased through the correspondent channel, and includes loan application, underwriting, and other similar fees.


Net gain on loans originated and sold represents the gains and losses from the origination, purchase, and sale of loans and related derivative instruments. Gains from the origination and sale of loans are affected by the volume and margin of our originations activity and is impacted by fluctuation in interest rates.


Capitalized servicing rights represents the fair value attributed to mortgage servicing rights at the time in which they are retained in connection with the sale of loans during the period.

60

Total revenues including net gain on mortgage loans held for sale, for ourthe Originations segment are set forth in the tables below:
Table 21.19. Originations - Revenues
Three Months Ended September 30,
20202019$ Change% Change
Service related, net - Originations$27 $22 $5 23 %
Net gain on mortgage loans held for sale
Net gain on loans originated and sold449 191 258 135 %
Capitalized servicing rights162 126 36 29 %
Provision for repurchase reserves, net of release(6)(5)(1)20 %
Total net gain on mortgage loans held for sale605 312 293 94 %
Total revenues - Originations$632 $334 $298 89 %
Key Metrics
Consumer direct lock pull through adjusted volume(1)
$10,414 $5,488 $4,926 90 %
Other locked pull through adjusted volume(1)
9,380 7,211 2,169 30 %
Total pull through adjusted volume$19,794 $12,699 $7,095 56 %
Funded volume$15,598 $11,911 $3,687 31 %
Volume of loans sold$15,206 $12,150 $3,056 25 %
Recapture percentage(2)
24.9 %24.6 %0.3 %1 %
Refinance recapture percentage(3)
31.2 %36.9 %(5.7)%(15)%
Purchase as a percentage of funded volume16.4 %39.1 %(22.7)%(58)%
Value of capitalized servicing on retained settlements133  bps154  bps(21) bps(14)%
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Service related, net - Originations$20
 $15
 $5
 33 %
Net gain on mortgage loans held for sale       
Net gain on loans originated and sold183
 72
 111
 154 %
Capitalized servicing rights119
 61
 58
 95 %
Provision for repurchase reserves, net of release(5) (2) (3) 150 %
Total net gain on mortgage loans held for sale297
 131
 166
 127 %
Total revenues - Originations$317
 $146
 $171
 117 %
        
Key Metrics       
Consumer direct lock pull through adjusted volume(1)
$7,423
 $2,333
 $5,090
 218 %
Other locked pull through adjusted volume(1)
5,254
 3,627
 1,627
 45 %
Total pull through adjusted volume$12,677
 $5,960
 $6,717
 113 %
Funded volume$12,359
 $5,716
 $6,643
 116 %
Volume of loans sold$13,255
 $6,235
 $7,020
 113 %
Recapture percentage29.8% 27.5% 2.3 % 7 %
Purchase as a percentage of funded volume26.0% 51.7% (25.7)% (50)%
Value of capitalized servicing on retained settlements137 bps 141 bps (4) bps
 (3)%


(1)Pull through adjusted volume represents the expected funding from locks taken during the period.
(1)
Pull through adjusted volume represents the expected funding from locks taken during the period.

(2)Recapture percentage includes both purchase and refinance origination and payoff activity.
(3)Refinance recapture percentage excludes purchase originations and purchase payoff activity.

Total revenues increased forduring the three months ended March 31,September 30, 2020 compared to the same period in 2019 primarily driven by the higher origination volumes in a declining interest rate environment, andprimarily from the incremental volumes made available with the Pacific Union acquisition and related origination channels, which occurred in February 2019.DTC channel. Total revenue increased $171$298 or 117%89% period over period as consumer direct lock pull through adjusted lock volume increased 113%90% during the same period. There were no material changes for repurchase reserves.


61

Table 19.1 Originations - Revenues
Nine Months Ended September 30,
20202019$ Change% Change
Service related, net - Originations$68 $57 $11 19 %
Net gain on mortgage loans held for sale
Net gain on loans originated and sold1,085 415 670 161 %
Capitalized servicing rights404 287 117 41 %
Provision for repurchase reserves, net of release(14)(15)1 (7)%
Total net gain on mortgage loans held for sale1,475 687 788 115 %
Total revenues - Originations$1,543 $744 $799 107 %
Key Metrics
Consumer direct lock pull through adjusted volume(1)
$27,432 $12,211 $15,221 125 %
Other locked pull through adjusted volume(1)
17,433 17,645 (212)(1)%
Total pull through adjusted volume$44,865 $29,856 $15,009 50 %
Funded volume$38,686 $27,623 $11,063 40 %
Volume of loans sold$39,633 $27,474 $12,159 44 %
Recapture percentage(2)
26.5 %24.8 %1.7 %7 %
Refinance recapture percentage(3)
32.4 %41.2 %(8.8)%(21)%
Purchase as a percentage of funded volume17.8 %46.7 %(28.9)%(62)%
Value of capitalized servicing on retained settlements134  bps149  bps(15) bps(10)%

(1)Pull through adjusted volume represents the expected funding from locks taken during the period.
(2)Recapture percentage includes both purchase and refinance origination and payoff activity.
(3)Refinance recapture percentage excludes purchase originations and purchase payoff activity.

Total revenues increased during the nine months ended September 30, 2020 compared to the same period in 2019 primarily driven by the higher origination volumes in a declining interest rate environment, primarily from the DTC channel. Total revenue increased $799 or 107% period over period as consumer direct lock pull through adjusted volume increased 125% during the same period. There were no material changes for repurchase reserves.

The tabletables below summarizessummarize expenses for the Originations segment:
Table 22.20. Originations - Expenses
Three Months Ended September 30,
20202019$ Change% Change
Salaries, wages and benefits$140 $104 $36 35 %
General and administrative
Loan origination expenses20 16 4 25 %
Corporate and other general and administrative expenses16 16 — — %
Marketing and professional service fees14 12 2 17 %
Depreciation and amortization5 4 1 25 %
Loss on impairment of assets— 3 (3)(100)%
Total general and administrative55 51 4 8 %
Total expenses - Originations$195 $155 $40 26 %

62
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Salaries, wages and benefits$117
 $69
 $48
 70%
General and administrative       
Loan origination expenses16
 10
 6
 60%
Corporate and other general and administrative expenses18
 14
 4
 29%
Marketing and professional service fees12
 8
 4
 50%
Depreciation and amortization3
 3
 —
 —%
Total general and administrative49
 35
 14
 40%
Total expenses - Originations$166
 $104
 $62
 60%



Total expenses forduring the three months ended March 31,September 30, 2020 increased when compared to the same period in 2019 primarily due to growth in origination volumes, which was driven by the low interest rate environmentenvironment. The origination volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs.

Table 20.1 Originations - Expenses
Nine Months Ended September 30,
20202019$ Change% Change
Salaries, wages and benefits$377 $261 $116 44 %
General and administrative
Loan origination expenses52 43 9 21 %
Corporate and other general and administrative expenses50 43 7 16 %
Marketing and professional service fees37 41 (4)(10)%
Depreciation and amortization12 13 (1)(8)%
Loss on impairment of assets— 3 (3)(100)%
Total general and administrative151 143 8 6 %
Total expenses - Originations$528 $404 $124 31 %

Total expenses during the incrementalnine months ended September 30, 2020 increased when compared to the same period in 2019 primarily due to growth in origination volumes, made available withwhich was driven by the Pacific Union acquisition and relatedlow interest rate environment. The origination channels. The volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs, and loan origination expenses. The increase in loan origination expenses attributable to higher volume was partially offset by expense reduction initiatives. In addition, corporate and other general and administrative expenses increased during the threenine months ended March 31,September 30, 2020 primarily driven by higher outsourcing costs.


The tabletables below summarizessummarize other income (expenses), net, for the Originations segment:    
Table 23.21. Originations - Other Income (Expenses), Net
Three Months Ended September 30,
20202019$ Change% Change
Interest income$16 $24 $(8)(33)%
Interest expense(15)(24)9 (38)%
Other expense, net— (1)1 100 %
Total other income (expenses), net - Originations$1 $(1)$2 (200)%
Weighted average note rate - mortgage loans held for sale3.1 %4.1 %(1.0)%(24)%
Weighted average cost of funds (excluding facility fees)2.5 %3.8 %(1.3)%(34)%
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Interest income$34
 $17
 $17
 100 %
Interest expense(27) (18) (9) 50 %
Other income, net—
 4
 (4) (100)%
Total other income (expenses), net - Originations$7
 $3
 $4
 133 %
        
Weighted average note rate - mortgage loans held for sale3.8% 4.9% (1.1)% (22)%
Weighted average cost of funds (excluding facility fees)3.2% 4.7% (1.5)% (32)%


Interest income relates primarily to mortgage loans held for sale. Interest expense is associated with the warehouse facilities utilized to finance newly originated loans.


Interest income forduring the three months ended March 31,September 30, 2020 increaseddecreased when compared to the same period in 2019 primarily driven by a lower average note rate on mortgage loans held for sale, partially offset by higher funded volume. The increasedecrease in interest income was offset by an increasea decrease in interest expense due to an increasea lower cost of funds.

63

Table 21.1 Originations - Other Income, Net
Nine Months Ended September 30,
20202019$ Change% Change
Interest income$69 $64 $5 8 %
Interest expense(55)(67)12 (18)%
Other income, net— 4 (4)(100)%
Total other income, net - Originations$14 $1 $13 1,300 %
Weighted average note rate - mortgage loans held for sale3.4 %4.4 %(1.0)%(23)%
Weighted average cost of funds (excluding facility fees)2.7 %4.3 %(1.6)%(37)%

Interest expense during the nine months ended September 30, 2020 decreased when compared to the same period in originations volume, partially offset2019 primarily driven by a lower cost of funds. The decrease in interest expense was partially offset by a decrease in other income, net. Other income, net, was higher in 2019 due to recognition of incentives we received related to our financing of certain loans satisfying certain customer relief characteristics. In September 2018, we entered into a master repurchase agreement that provided us with incentives to finance mortgage loans satisfying certain consumer relief characteristics as provided in the agreement. We recorded $4 in other income, net, related to such incentives forduring the threenine months ended March 31,September 30, 2019. The master repurchase agreement expired during the third quarter of 2019.




Xome Segment


Xome is a real estate data and services company that provides services for mortgage originators and servicers, including Mr. Cooper, as well as mortgage and real estate investors. Xome is strategically important because it generates fee income that complements our servicing and origination businesses without requiring a significant amount of capital or exposing us to the same level of interest rate or credit risk.


Xome is organized into three divisions: Exchange, Services and Data/Technology.


•The Exchange division consists of the Xome.com auction platform which utilizes proprietary technology designed to provide efficient execution for sales of foreclosed properties.


•The Services division includes title, escrow, collateral valuation and field services related to real estate investments or transactions including purchases, sales, refinances and defaults.


•The Data/Technology division contains a diversified set of businesses that provide technology solutions to real estate service providers, aggregators, and a variety of investors. This includes providing aggregation, standardization and licensing for one of the nation’s largest set of MLS, public records and neighborhood demographic data.



64

The charts below set forth the Xome’s total revenues ($ in Millions), Exchange properties sold, and Services completed orders:
xomesegmenttotalrevenueschar.jpg

nsm-20200930_g6.jpg


chart-daa70f22be805ce9831.jpgchart-4fc619ad9cb75ad7b38.jpg

nsm-20200930_g7.jpgnsm-20200930_g8.jpg
65

The following tables set forth the results of operations for the Xome segment:
Table 24.22. Xome Segment Results of Operations
Three Months Ended September 30,
20202019$ Change% Change
Xome - Operations
Total revenues$108 $112 $(4)(4)%
Total expenses94 101 (7)(7)%
Total other income, net1 3 (2)(67)%
Income before income tax expense$15 $14 $1 7 %
Pre-tax margin13.9 %12.5 %1.4 %11 %
Xome - Revenues
Exchange$6 $19 $(13)(68)%
Services99 87 12 14 %
Data/Technology3 6 (3)(50)%
Total revenues - Xome$108 $112 $(4)(4)%
Key Metrics
Exchange properties sold860 2,453 (1,593)(65)%
Average Exchange properties under management15,067 6,688 8,379 125 %
Services completed orders422,935 429,128 (6,193)(1)%
Percentage of revenue earned from third-party customers50.1 %53.4 %(3.3)%(6)%
Xome - Expenses
Salaries, wages and benefits$32 $37 $(5)(14)%
General and administrative
Operational expenses57 60 (3)(5)%
Depreciation and amortization5 4 1 25 %
Total general and administrative62 64 (2)(3)%
Total expenses - Xome$94 $101 $(7)(7)%
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Xome - Operations       
Total revenues$106
 $96
 $10
 10 %
Total expenses96
 99
 (3) (3)%
Total other income (expenses), net1
 11
 (10) (91)%
Income before income tax expense$11
 $8
 $3
 38 %
Income before taxes margin - Xome10.4% 8.3% 2.1% 25 %
        
Xome - Revenues       
Exchange$16
 $20
 $(4) (20)%
Services85
 71
 14
 20 %
Data/Technology5
 5
 —
 — %
Total revenues - Xome$106
 $96
 $10
 10 %
        
Key Metrics       
Exchange properties sold2,114
 2,421
 (307) (13)%
Average Exchange properties under management17,777
 6,634
 11,143
 168 %
Services completed orders408,734
 379,585
 29,149
 8 %
Percentage of revenue earned from third-party customers54.6% 53.0% 1.6% 3 %
        
Xome - Expenses       
Salaries, wages and benefits$35
 $38
 $(3) (8)%
General and administrative       
Operational expenses58
 57
 1
 2 %
Depreciation and amortization3
 4
 (1) (25)%
Total general and administrative61
 61
 —
 — %
Total expenses - Xome$96
 $99
 $(3) (3)%


Income before income tax expense increased forduring the three months ended March 31,September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in total expenses, partially offset by lower total revenues. The decrease in total expenses was due to a decrease in both salaries, wages and benefits and operational expenses primarily driven by operational efficiencies. Total revenues decreased during the three months ended September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in Exchange revenues attributable to a decrease in defaults and foreclosures nationwide related to the CARES Act, offset by an increase in Services revenues primarily driven by originations volume from title services.

66

Table 22.1 Xome Segment Results of Operations
Nine Months Ended September 30,
20202019$ Change% Change
Xome - Operations
Total revenues$320 $316 $4 1 %
Total expenses285 301 (16)(5)%
Total other income, net3 14 (11)(79)%
Income before income tax expense$38 $29 $9 31 %
Pre-tax margin11.9 %9.2 %2.7 %29 %
Xome - Revenues
Exchange$31 $59 $(28)(47)%
Services278 240 38 16 %
Data/Technology11 17 (6)(35)%
Total revenues - Xome$320 $316 $4 1 %
Key Metrics
Exchange properties sold4,165 7,519 (3,354)(45)%
Average Exchange properties under management16,761 6,552 10,209 156 %
Services completed orders1,255,643 1,226,223 29,420 2 %
Percentage of revenue earned from third-party customers52.7 %53.1 %(0.4)%(1)%
Xome - Expenses
Salaries, wages and benefits$100 $111 $(11)(10)%
General and administrative
Operational expenses174 179 (5)(3)%
Depreciation and amortization11 11 — — %
Total general and administrative185 190 (5)(3)%
Total expenses - Xome$285 $301 $(16)(5)%

Income before income tax expense increased during the nine months ended September 30, 2020 as compared to the same period in 2019 due to a decrease in total expenses, partially offset by a decrease in total other income, net. The decrease in total expenses was primarily due to a decrease in salaries, wages and benefits driven by operational efficiencies. The decrease in total other income, net, was due to the change in fair value of the contingent consideration of $15 recorded in 2019 in connection with the acquisition of AMS. Total revenues remained relatively flat during the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due to an increase in total revenues, offset by a decrease in other income (expense), net. The increase in total revenues was driven by an increase in Services revenues from higher volumes of units for valuationtitle and close, and field services, partially offset by a decrease in Exchange revenues due to the decrease in defaults and foreclosures nationwide. The decrease in other income (expense), net was duenationwide related to $11 for the change in fair value of the contingent consideration in 2019 for the acquisition of AMS.



CARES Act.
67

Corporate/Other Segment


The following table setstables set forth the selected financial results of operations for the Corporate/Other segment:
Other:
Table 25.23. Corporate/Other SegmentSelected Financial Results of Operations
Three Months Ended September 30,
20202019$ Change% Change
Corporate/Other - Operations
Total expenses43 51 (8)(16)%
Interest expense45 52 (7)(13)%
Other expense, net(52)— (52)(100)%
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Corporate/Other - Operations       
Total revenues$2
 $—
 $2
 100 %
Total expenses34
 45
 (11) (24)%
Total other income (expenses), net(51) (55) 4
 (7)%
Loss before income tax benefit - Corporate/Other$(83) $(100) $17
 (17)%
        
Corporate/Other - Expenses       
Salaries, wages and benefits$8
 $22
 $(14) (64)%
General and administrative       
Operational expenses8
 13
 (5) (38)%
Depreciation and amortization10
 10
 —
 — %
Loss on impairment of assets8
 —
 8
 100 %
Total general and administrative26
 23
 3
 13 %
Total expenses - Corporate/Other$34
 $45
 $(11) (24)%
        
Corporate/Other - Other Income (Expenses), Net       
Total interest income$1
 $2
 $(1) (50)%
Interest expense on unsecured senior notes(51) (51) —
 — %
Other interest expense(1) (6) 5
 (83)%
Total interest expense(52) (57) 5
 (9)%
Total other income (expenses), net - Corporate/Other$(51) $(55) $4
 (7)%
        
Weighted average cost - unsecured senior notes7.8% 7.9% (0.1)% (1)%


Loss before income tax benefitTotal expenses decreased in the three months ended March 31,September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in total expenses. Total expenses decreased primarily due to lower salaries, wagesgeneral and benefits, which wereadministrative expense. General and administrative expense was higher in the three months ended March 31,September 30, 2019 due to higher legal reserves. Additionally, depreciation and amortization decreased in the Pacific Union acquisition andthree months ended September 30, 2020 as compared to the acquisition of the Seterus mortgage servicing platform and assumption of certain assets related thereto from IBM (“Seterus acquisition”). Thesame period in 2019 primarily due to a decrease in salaries, wages and benefitsamortization of intangible assets. Partially offsetting the decrease in total expenses was partially offset by an $8a $7 loss on impairment of assets in connection with an ancillary business.technology write-offs.

Other income (expenses), net forInterest expense decreased in the Corporate/Other segment consists ofthree months ended September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in interest expense on our unsecured senior notes as result of the repayment and redemption of the 2021 and 2022 unsecured senior notes in February 2020 and the 2023 unsecured senior notes in August 2020. The decrease in total interest incomeexpense was partially offset by the issuance of the 2027 unsecured senior notes in January 2020 and expense from our legacy portfolio, and other interest related to a revolving facility used for general corporate purposes.issuance of the 2028 unsecured senior notes in August 2020.


The change in total other income (expenses),expense, net, in the three months ended March 31,September 30, 2020 as compared to the same period in 2019 was primarily due to a decrease in other interest expense as a resultthe $53 loss on redemption of lower commitment and facility fees, which were higher in 2019 due to the Pacific Union acquisition.



2023 unsecured senior notes.
Changes in Financial Position

Table 26. Changes in Assets23.1 Corporate/Other Selected Financial Results
Nine Months Ended September 30,
20202019$ Change% Change
Corporate/Other - Operations
Total expenses111 153 (42)(27)%
Interest expense144 162 (18)(11)%
Other (expense) income, net(53)5 (58)(1,160)%

March 31, 2020 December 31, 2019 $ Change % Change
Cash and cash equivalents$579
 $329
 $250
 76 %
Mortgage servicing rights3,115
 3,502
 (387) (11)%
Advances and other receivables, net685
 988
 (303) (31)%
Reverse mortgage interests, net5,955
 6,279
 (324) (5)%
Mortgage loans held for sale at fair value3,922
 4,077
 (155) (4)%
Deferred tax assets, net1,411
 1,345
 66
 5 %
Other1,946
 1,785
 161
 9 %
Total assets$17,613
 $18,305
 $(692) (4)%


Total assetsexpenses decreased in the nine months ended September 30, 2020 as of March 31, 2020 decreased by $692 or 4% compared with December 31, 2019 primarily due to the decreasesame period in mortgage servicing rights, reverse mortgage interests, net and advances and other receivables, net, partially offset by an increase in cash and cash equivalents. Mortgage servicing rights decreased in 2019 primarily due to a negative mark-to-market adjustment of $383 driven by declining interest rates. Reverse mortgage interests, net decreased $324 primarily due to the collection on participating interests in HMBS. Advances and other receivables decreased primarily due to recoveries on advances through claim proceeds, customer payments and servicing transfers. Cash and cash equivalents was higher as of March 31, 2020 compared with December 31, 2019 primarily due to additional funds drawn on our MSR facilities given the market risk at the end of the quarter in relation to COVID-19 pandemic.

Table 27. Changes in Liabilities and Stockholders’ Equity

March 31, 2020 December 31, 2019 $ Change % Change
Unsecured senior notes, net$2,259
 $2,366
 $(107) (5)%
Advance facilities, net489
 422
 67
 16 %
Warehouse facilities, net4,551
 4,575
 (24) (1)%
MSR related liabilities - nonrecourse at fair value1,285
 1,348
 (63) (5)%
Other nonrecourse debt, net4,945
 5,286
 (341) (6)%
Other liabilities2,018
 2,077
 (59) (3)%
Total liabilities15,547
 16,074
 (527) (3)%
Total stockholders’ equity2,066
 2,231
 (165) (7)%
Total liabilities and stockholders’ equity$17,613
 $18,305
 $(692) (4)%

Total stockholders’ equity at March 31, 2020 decreased by $165 or 7% compared with the balance as of December 31, 2019 primarily due to net loss of $171 during the three months ended March 31, 2020. Total liabilities at March 31, 2020 decreased by $527 or 3% compared with the balance as of December 31, 2019 primarily due to a decrease in other nonrecourse debtsalaries, wages and benefits, and general and administrative expense. Both salaries, wages and benefits and general and administrative expense were higher in the nine months ended September 30, 2019 due to acquisition and integration expenses related to the Pacific Union acquisition and the Seterus acquisition in February 2019. The decrease in salaries, wage and benefits and operational expenses were partially offset by a $7 and $8 loss on impairment of assets in connection with technology write-offs and an ancillary business in 2020, respectively.

Interest expense decreased in the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in interest expense on unsecured senior notes net. Other nonrecourse debt decreased by $341 primarily due to repaymentsas result of reverse mortgage related nonrecourse debt. Unsecured senior notes, net, decreased by $107 primarily due to the repayment and redemption of the 2021 and 2022 unsecured senior notes in February 2020 and the 2023 unsecured senior notes in August 2020. The decrease in total interest expense was partially offset by the issuance of the 2027 unsecured senior notes in January 2020 and issuance of the 2028 unsecured senior notes in August 2020.

The change in other (expense) income, net, in the nine months ended September 30, 2020 as compared to the same period in 2019 was primarily due to the $53 loss on redemption of the 2023 unsecured senior notes.

68

Liquidity and Capital Resources


We measure liquidity by unrestricted cash and availability of borrowings on our MSR facilities. Our cash and cash equivalents on hand increased to $579$946 as of March 31,September 30, 2020 from $329 as of December 31, 2019. We benefited from strong operating cash flow and repaid $179 of incremental draws from our MSR facilities that were incurred at the start of the COVID-19 pandemic. During the three months ended September 30, 2020, we bought back 1.2 million shares of our outstanding common stocks as part of the $100 stock repurchase program.

During the nine months ended September 30, 2020, operating activities generated cash totaling $1,878. As of March 31,September 30, 2020, total available borrowing capacity was $11,540, of which $6,677 was unused. As of September 30, 2020, we had $1,216$1,075 collateral pledged against the MSR facilities, of which we could borrow an additional $705. During the three months ended March 31, 2020, operating activities used cash totaling $710. As of March 31, 2020, total available borrowing capacity is $9,690, of which $4,648 is unused.$394.


We expect theThe economic impact of the COVID-19 pandemic tocould result in a significantan increase in servicing advances and liquidity demands related to the utilization of forbearance programs offered by the CARES Act. We did see an increase in forbearance plans during the second quarter of 2020, but the forbearance rate has subsequently declined. Based on current modeling of expected forbearance rates within our portfolio, we believe that we are well-positioned to manage a significantan increase in advances. In April 2020, we expanded our committed advance facility capacity by $850, including an expansion of capacity for private label advances for $200,$200. In addition, in August 2020, we entered into a new financing facility for GNMA MSRs and advances with a capacity of $900, of which $640 was allocated to advances as of September 30, 2020. With this addition, we expanded our total advance facility capacity to $2,040 and total unused advance capacity to $1,471 as of September 30, 2020. We believe our facilities will be adequate for our needs.needs, as we expect increases in advances in the coming quarter due to typical seasonal trends. We plan to financehave begun financing GNMA advances with existingthis new financing facility. For more information on our MSR lines and corporate cash flow, along with GNMA’s Pass-Through Assistance Program as a backup.advance facilities, see Note 9, Indebtedness. For non-agency servicing, we are reimbursed for advances relatively quickly, which should limit growth in balances with even with higher forbearance rates.


In August 2020, we redeemed $950 of our unsecured senior notes, using the net proceeds of the 2028 Notes offering, together with $100 cash on hand. As a result, not only did we bring down funding costs, we extended our liquidity runway until 2026 and have no senior note maturities for almost six years.

Sources and Uses of Cash
Our primary sources of funds for liquidity include: (i) servicing fees and ancillary revenues; (ii) payments received from sale or securitization of loans; (iii) payments from the liquidation or securitization of our outstanding participating interests in reverse mortgage loans; (iv) advance and warehouse facilities, other secured borrowings and the unsecured senior notes; and (v) payments received in connection with the sale of advance receivables and excess spread.


Our primary uses of funds for liquidity include: (i) funding of servicing advances, which are expectedcontinue to increase in the near future due to the COVID-19 pandemic; (ii) originations of loans; (iii) payment of interest expenses; (iv) payment of operating expenses; (v) repayment of borrowings and repurchases or redemptions of outstanding indebtedness; (vi) payments for acquisitions of MSRs; (vii) scheduled and unscheduled draws on our serviced reverse residential mortgage loans; and (viii) payment of our technology expenses.


We believe that our cash flows from operating activities, as well as capacity through existing facilities, provide adequate resources to fund our anticipated ongoing cash requirements. We rely on these facilities to fund operating activities. As the facilities mature, we anticipate renewal of these facilities will be achieved. Future debt maturities will be funded with cash and cash equivalents, cash flow from operating activities and, if necessary, future access to capital markets. We continue to optimize the use of balance sheet cash to avoid unnecessary interest carrying costs. Reverse mortgage loans provide seniors with the ability to monetize the equity in their homes in a lump sum, line of credit or monthly draws. We securitize our holdings in reverse mortgage loans in order to finance subsequent borrower draws and loan related costs.


69

Cash Flows
The table below presents the major sources and uses of cash flow for operating activities:
flows:
Table 28. Operating24. Cash FlowFlows
Nine Months Ended September 30,
20202019$ Change% Change
Net cash attributable to:
Operating activities$1,878 $(28)$1,906 (6,807)%
Investing activities(38)(279)241 (86)%
Financing activities(1,277)388 (1,665)(429)%
Net increase in cash, cash equivalents, and restricted cash$563 $81 $482 595 %
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Net loss$(171) $(186) $15
 (8)%
Fair value changes in MSRs, MSR related liabilities and mortgage loans held for investment497
 311
 186
 60 %
Deferred tax benefit(68) (47) (21) 45 %
Other non-cash adjustments to net loss(332) (210) (122) 58 %
Originations net sales activities430
 116
 314
 271 %
Changes in working capital354
 301
 53
 18 %
Net cash attributable to operating activities$710
 $285
 $425
 149 %


Operating activities
Our operating activities generated cash of $710$1,878 during the threenine months ended March 31,September 30, 2020 compared to $285 cash generated in the same period in 2019. The increase was primarily due to the cash generated in originations net sales activities.


Cash generated in originations net sales activities was $430 during the three months ended March 31, 2020 compared to $116used of $28 in the same period in 2019. The change was primarily due to an increase in proceeds of $7,527 on the sales of previously originated loans, partially offset by higher funding of $6,658 for loan origination activities driven by the declining interest rate environment and an increase in funds used of $555 to repurchase forward loan assets out of Ginnie Mae securitizations.

Cashcash generated from fair value changes in MSRs, MSR related liabilities and mortgage loans held for investment during the three months ended March 31, 2020 increased by $186 when compared to the same period in 2019. The change was primarily due to an increase in fair value changes and amortization/accretion of mortgage servicing rights/liabilities of $147, primarily due to the negative mark-to-market adjustment for the three months ended March 31, 2020.

Cash used from the other non-cash adjustments to net loss during the three months ended March 31, 2020 increased by $122 when compared to the same period in 2019 primarily due to the $165 increase in net gain on mortgage loans held for saleoriginations activities primarily driven by the higher origination volumes in a declininglow interest rate environment and the incremental volumes made available with the February 2019 Pacific Union acquisition and related origination channels.environment.


The table below presents the major sources and uses of cash flow for investing activities:
Table 29. Investing Cash Flows
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
Acquisitions, net$—
 $(85) $85
 (100)%
Purchase of forward mortgage servicing rights, net of liabilities incurred(27) (130) 103
 (79)%
Proceeds on sale of forward and reverse mortgage servicing rights43
 243
 (200) (82)%
Other(12) (10) (2) 20 %
Net cash attributable to investing activities$4
 $18
 $(14) (78)%

Investing activities
Our investing activities generated $4used cash of $38 during the threenine months ended March 31,September 30, 2020 compared to $18$279 during the same period in 2019. The decrease in cash generated fromused in investing activities was primarily due to a decrease of $200 in proceeds on sale of forward mortgage servicing rights. Partially offsetting the decrease in cash generated was a $103 decrease$415 in cash used infor the purchase of forward mortgage servicing rights, net of liabilities incurred, and anincurred. In addition, during the nine months ended September 30, 2019, we used $85 decrease in cash used in connection with the Pacific Union and Seterus acquisitions, which were acquired during the three months ended March 31, 2019. Although we continue to seek to acquire servicing portfolios at advantageous pricing, the amounts and timing of these opportunities is not of a consistent frequency and can resultacquisitions. The decrease in cash flow variability between periods.used was partially offset by a decrease in cash generated of $254 from proceeds on sale of forward mortgage servicing rights.



The table below presents the major sources and uses of cash flow for financing activities:
Table 30. Financing Cash Flow
 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 $ Change % Change
(Decrease) increase in warehouse facilities$(25) $307
 $(332) (108)%
Increase (decrease) in advance facilities68
 (30) 98
 (327)%
Repayment of notes payable—
 (294) 294
 (100)%
Redemption and repayment of unsecured senior notes and nonrecourse debt(698) (3) (695) 23,167 %
Issuance of unsecured senior debt600
 —
 600
 100 %
Issuance of excess spread financing24
 245
 (221) (90)%
Settlements and repayments of excess spread financing(58) (50) (8) 16 %
Decrease of participating interest financing(275) (408) 133
 (33)%
Changes in HECM securitizations(99) (107) 8
 (7)%
Other(18) (4) (14) 350 %
Net cash attributable to financing activities$(481) $(344) $(137) 40 %

Financing activities
Our financing activities used $481 cash of $1,277 during the threenine months ended March 31,September 30, 2020 compared to $344 cash usedgenerated of $388 in the same period in 2019. Contributing to the increase in cash used was the $1,970 change in advance and warehouse facilities due to a net pay down of $135 in advance and warehouse facilities during the nine months ended September 30, 2020 compared to a net increased borrowing of $1,835 in the same period in 2019. Additionally, cash used in the redemption and repayment of unsecured senior debt and nonrecourse debt of $698 during the threenine months ended March 31,September 30, 2020 increased $1,657 compared to $3 in the same period in 2019. The $695 increase in cash used for the payment of unsecured senior debt and nonrecourse debt is primarily2019 due to the repayment and redemption of the 2021 and 2022 unsecured senior notes in February 2020 and the 2023 unsecured senior notes in August 2020. CashThe change in cash used also increasedwas partially offset by an increase in cash generated of $1,450 due to a net pay downthe issuance of $25the 2027 unsecured senior notes in warehouse facilities duringJanuary 2020 and issuance of the three months ended March 31, 2020 compared to a net increase of $3072028 unsecured senior notes in the same period in 2019. August 2020.

The cash generated from the issuance of excess spread financing decreased by $221 due to a decline in excess spread financing deals in$445 during the threenine months ended March 31,September 30, 2020 compared to the same period in 2019.

Offsetting these increases in2019, as we did not enter into any new excess spread financing deals during 2020. In addition, cash used wasin participating interest financing decreased $546 in 2020 primarily due to a decrease in cash used for thelower repayment of notes payable. Duringparticipating interest financing in 2020 compared to the threesame period in 2019. Further, during the nine months ended March 31,September 30, 2019, cash of $294 was used to pay off the notes payable assumed from the Pacific Union acquisition. In addition, there was an increase in cash generated of $600 due to the issuance of the 2027 unsecured senior notes in January 2020.




Capital Resources


Capital Structure and Debt
We require access to external financing resources from time to time depending on our cash requirements, assessments of current and anticipated market conditions and after-tax cost of capital. If needed, we believe additional capital could be raised through a combination of issuances of equity, corporate indebtedness, asset-backed acquisition financing and/or cash from operations. Our access to capital markets can be impacted by factors outside our control, including economic conditions. In April 2020, we expanded our committed advance capacity by $850.


Financial Covenants
Our credit facilities contain various financial covenants, which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements. These covenants are measured at our operating subsidiary, Nationstar Mortgage LLC. As of March 31,September 30, 2020, we were in compliance with our required financial covenants.


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Seller/Servicer Financial Requirements
We are also subject to net worth, capital ratio and liquidity requirements established by the Federal Housing Finance Agency (“FHFA”) for Fannie Mae and Freddie Mac Seller/Servicers, and Ginnie Mae for single family issuers. In both cases, these requirements apply to our operating subsidiary, Nationstar Mortgage LLC. As of March 31,September 30, 2020, we were in compliance with our seller/servicer financial requirements for FHFA and Ginnie Mae.



Minimum Net Worth


The minimum net worth requirement for Fannie Mae and Freddie Mac is defined as follows:


▪Base of $2.5 plus 25 basis points of outstanding UPB for total loans serviced.
▪Tangible Net Worth comprises of total equity less goodwill, intangible assets, affiliate receivables and certain pledged assets.

▪Base of $2.5 plus 25 basis points of outstanding UPB for total loans serviced.
▪Tangible Net Worth comprises of total equity less goodwill, intangible assets, affiliate receivables and certain pledged assets.

The minimum net worth requirement for Ginnie Mae is defined as follows:


▪The sum of (i) base of $2.5 plus 35 basis points of the issuer’s total single-family effective outstanding obligations, and (ii) base of $5 plus 1% of the total effective HMBS outstanding obligations.
▪Tangible Net Worth is defined as total equity less goodwill, intangible assets, affiliate receivables and certain pledged assets. Effective for fiscal year 2020, under the Ginnie Mae MBS Guide, the issuers will no longer be permitted to include deferred tax assets when computing the minimum net worth requirement.
▪The sum of (i) base of $2.5 plus 35 basis points of the issuer’s total single-family effective outstanding obligations, and (ii) base of $5 plus 1% of the total effective HMBS outstanding obligations.
▪Tangible Net Worth is defined as total equity less deferred tax assets, goodwill, intangible assets, affiliate receivables and certain pledged assets.

Minimum Capital Ratio


▪In addition to the minimum net worth requirement, we are also required to hold a ratio of Tangible Net Worth to Total Assets (excluding HMBS securitizations) greater than 6%.

▪In addition to the minimum net worth requirement, we are also required to hold a ratio of Tangible Net Worth to Total Assets (excluding HMBS securitizations) greater than 6%.

Minimum Liquidity


The minimum liquidity requirement for Fannie Mae and Freddie Mac is defined as follows:


▪3.5 basis points of total Agency servicing.
▪Incremental 200 basis points of total nonperforming Agency, measured as 90+ delinquencies, servicing in excess of 6% of the total Agency servicing UPB.
▪Allowable assets for liquidity may include: cash and cash equivalents (unrestricted), available for sale or held for trading investment grade securities (e.g., Agency MBS, Obligations of GSEs, US Treasury Obligations); and unused/available portion of committed servicing advance lines.

▪3.5 basis points of total Agency Mortgage Servicing, plus
▪Incremental 200 basis points times the sum of the following:
•The total UPB of nonperforming (90 or more days delinquent) Agency Mortgage Servicing that is not in forbearance, plus
•The total UPB of nonperforming (90 or more days delinquent) Agency Mortgage Servicing that is in forbearance and which were delinquent at the time it entered forbearance, plus
•30% of the UPB of nonperforming (90 or more days delinquent) Agency Mortgage Servicing that is in forbearance and which were current at the time it entered forbearance
▪This liquidity must only be maintained to the extent this sum exceeds 6% of the total Agency Mortgage Servicing UPB.
▪Allowable assets for liquidity may include: cash and cash equivalents (unrestricted), available for sale or held for trading investment grade securities (e.g., Agency MBS, Obligations of GSEs, US Treasury Obligations); and unused/available portion of committed servicing advance lines.

The minimum liquidity requirement for Ginnie Mae is defined as follows:


▪Maintain liquid assets equal to the greater of $1 or 10 basis points of our outstanding single-family MBS.
▪Maintain liquid assets equal to at least 20% of our net worth requirement for HECM MBS.

▪Maintain liquid assets equal to the greater of $1 or 10 basis points of our outstanding single-family MBS.
▪Maintain liquid assets equal to at least 20% of our net worth requirement for HECM MBS.

Secured Debt to Gross Tangible Asset Ratio


Under the Ginnie Mae guide, we are also required to maintain a secured debt to gross tangible asset ratios no greater than 60%.

Since we have a Ginnie Mae single-family servicing portfolio that exceeds $75 billion in UPB, we are also required to obtain an external primary servicer rating and issuer credit ratings from two different rating agencies and receive a minimum rating of a B or its equivalent. Effective for fiscal year 2020, weWe are permitted to satisfy minimum liquidity requirements using a combination of AAA rated government securities that are marked to market in addition to cash and certain cash equivalents.


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In addition, Fannie Mae or Freddie Mac may require capital ratios in excess of stated requirements. Refer to Note 17,14, Capital Requirements,, in the notes to consolidated financial statements for additional information.



Table 31.25. Debt
September 30, 2020December 31, 2019
Advance facilities principal amount$569 $422 
Warehouse facilities principal amount4,028 4,416 
MSR facilities principal amount266 160 
Unsecured senior principal amount2,200 2,398 
 March 31, 2020 December 31, 2019
Advance facilities, net$489
 $422
Warehouse facilities, net4,551
 4,575
Unsecured senior notes, net2,259
 2,366


Advance Facilities
As part of our normal course of business, we borrow money to fund servicing advances. Our servicing agreements require that we advance our own funds to meet contractual principal and interest payments for certain investors, and to pay taxes, insurance, foreclosure costs and various other items that are required to preserve the assets being serviced. Delinquency rates and prepayment speeds affect the size of servicing advance balances, and we exercise our ability to stop advancing principal and interest where the pooling and servicing agreements permit, where the advance is deemed to be non-recoverable from future proceeds. These servicing requirements affect our liquidity. We rely upon several counterparties to provide us with financing facilities to fund a portion of our servicing advances.


Warehouse and MSR Facilities
Loan origination activities generally require short-term liquidity in excess of amounts generated by our operations. The loans we originate are financed through several warehouse lines on a short-term basis. We typically hold the loans for approximately 30 days and then sell or place the loans in government securitizations in order to repay the borrowings under the warehouse lines. Our ability to fund current operations depends upon our ability to secure these types of short-term financings on acceptable terms and to renew or replace the financings as they expire.


As a servicer for reverse mortgage loans, among other things, we are required to fund borrower draws on the loans. We typically pool borrower draws for approximately 30 days before including them in a HMBS securitization. As of March 31,September 30, 2020, unsecuritized borrower draws totaled $64,$56, and our maximum unfunded advance obligation related to these reverse mortgage loans was $2,504.$2,304.


Unsecured Senior Notes
In 2018 and 2020, we completed offerings of unsecured senior notes, which maturemature on various dateddates through January 2027.August 2028. We pay interest semi-annually to the holders of these notes at interest rates ranging from 6.000%5.500% to 9.125%. Refer to Note 9, Indebtedness, for the contractual maturities of unsecured senior notes.


Contractual Obligations

As of March 31, 2020, the expected maturities of our unsecured senior notes based on contractual maturities are presented below:
Table 32. Contractual Maturities - Unsecured Senior Notes
Year Ending December 31, Amount
2020 $—
2021 —
2022 —
2023 950
2024 —
Thereafter 1,350
Unsecured senior notes principal amount 2,300
Unamortized debt issuance costs, premium and discount (41)
Unsecured senior notes, net $2,259



As of March 31,September 30, 2020, no material changes to our outstanding contractual obligations were made from the amounts previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 except for the following, in connection with the issuance of the 2027 notesand 2028 Notes and redemption of the 2021, 2022 and 2022 notes2023 Notes during the threenine months ended March 31,September 30, 2020:

Table 33.26. Contractual Obligations
Less than 1 Year1-3 Years3-5 YearsMore than 5 YearsTotal
Unsecured senior notes$— $— $— $2,200 $2,200 
Interest payment from unsecured senior notes151 304 304 267 1,026 
Total$151 $304 $304 $2,467 $3,226 


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 Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Total
Unsecured senior notes$—
 $—
 $950
 $1,350
 $2,300
Interest payment from unsecured senior notes182
 363
 248
 175
 968
Total$182
 $363
 $1,198
 $1,525
 $3,268




Critical Accounting Policies


Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified the following policies that, due to the judgment, estimates and assumptions inherent in those policies, are critical to an understanding of our consolidated financial statements. These policies relate to fair value measurements, particularly those determined to be Level 3 as discussed in Note 16,13, Fair Value Measurements, in notes to consolidated financial statements, business combinations and goodwill, and valuation and realization of deferred tax assets. We believe that the judgment, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of these critical accounting policies on our consolidated financial statements, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. Fair value measurements considered to be Level 3 representing estimated values based on significant unobservable inputs include (i) the valuation of MSRs, (ii) the valuation of excess spread financing, and (iii) the valuation of the mortgage servicing rights financing liability.liability and (iv) the valuation of IRLCs and LPCs. For further information on our critical accounting policies, please refer to the Company’s Annual Reports on Form 10-K for the year ended December 31, 2019. There have been no material changes to our critical accounting policies since December 31, 2019. During the three months ended March 31, 2020, we updated the policies for reserves related to certain financial assets that are subject to CECL accounting in connection with adoption of ASU 2016-13. The update did not have material impact on the consolidated financial statements. See Note 1, Nature of Business and Basis of Presentation, in the consolidated financial statements which is incorporated herein for details.


Recent Accounting Developments


Below lists recently issued accounting pronouncements applicable to us but not yet effective.


Accounting Standards Update 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”) simplifies accounting for income taxes by removing certain exceptions from the general principles in Topic 740 including elimination of the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items such as other comprehensive income. ASU 2019-12 also clarifies and amends certain guidance in Topic 740. ASU 2019-12 is effective for public companies for fiscal years beginning after December 15, 2020, including interim periods, with early adoption of all amendments in the same period permitted. The Company isWe are currently assessing the impact of ASU 2019-12, but doesdo not believe it will have a material impact on itsour consolidated financial statements.


ImpactAccounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of Inflationthe Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) provides temporary optional expedients and Changing Prices

Ourexceptions for applying generally accepted accounting principles to contract modifications, hedge accounting and other transactions affected by the transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. If LIBOR ceases to exist or if the methods of calculating LIBOR change from current methods for any reasons, interest rates on our floating rate loans, obligation derivatives, and other financial instruments tied to LIBOR rates, may be affected and need renegotiation with its lenders. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. We are currently assessing the impact of ASU 2020-04 on our consolidated financial statements and notes thereto presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Further, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.statements.





GLOSSARY OF TERMS


This Glossary of Terms defines some of the terms that are used throughout this report and does not represent a complete list of all defined terms used.

Advance Facility.A secured financing facility to fund advance receivables which is backed by a pool of mortgage servicing advance receivables made by a servicer to a certain pool of mortgage loans.


Agency. Government entities guaranteeing the mortgage investors that the principal amount of the loan will be repaid; the Federal Housing Administration, the Department of Veterans Affairs, the US Department of Agriculture and Ginnie Mae (and collectively, the “Agencies”)


Agency Conforming Loan.  A mortgage loan that meets all requirements (loan type, maximum amount, LTV ratio and credit quality) for purchase by Fannie Mae, Freddie Mac, or insured by the FHA, USDA or guaranteed by the VA or sold into Ginnie Mae.

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Asset-Backed Securities (“ABS”).  A financial security whose income payments and value is derived from and collateralized (or “backed”) by a specified pool of underlying receivables or other financial assets.


Bulk acquisitions or purchases. MSR portfolio acquired on non-retained basis through an open market bidding process.


Base Servicing Fee.  The servicing fee retained by the servicer, expressed in basis points, in an excess MSR arrangement in exchange for the provision of servicing functions on a portfolio of mortgage loans, after which the servicer and the co-investment partner share the excess fees on a pro rata basis.


Conventional Mortgage Loans.Loan.  A mortgage loan that is not guaranteed or insured by the FHA, the VA or any other government agency. Although a conventional loan is not insured or guaranteed by the government, it can still follow the guidelines of GSEs and be sold to the GSEs.


Correspondent lender, lending channel or relationship.  A correspondent lender is a lender that funds loans in their own name and then sells them off to larger mortgage lenders. A correspondent lender underwrites the loans to the standards of an investor and provides the funds at close.
Credit-Sensitive Loan.  A mortgage loan with certain characteristics such as low borrower credit quality, relaxed original underwriting standards and high LTV, which we believe indicates that the mortgage loan presents an elevated credit risk of borrower default versus payoff.


Delinquent Loan.  A mortgage loan that is 30 or more days past due from its contractual due date.


Department of Veterans Affairs (“VA”).  The VA is a cabinet-level department of the U.S. federal government, which guarantees certain home loans for qualified borrowers eligible for securitization with GNMA.


Direct-to-consumer originations.originations (“DTC”).  A type of mortgage loan origination pursuant to which a lender markets refinancing and purchase money mortgage loans directly to selected consumers through telephone call centers, the Internet or other means.


Excess Servicing Fees.  In an excess MSR arrangement, the servicing fee cash flows on a portfolio of mortgage loans after payment of the base servicing fee.


Excess Spread.  MSRs with a co-investment partner where the servicer receives a base servicing fee and the servicer and co-investment partner share the excess servicing fees. This co-investment strategy reduces the required upfront capital from the servicer when purchasing or investing in MSRs.


Federal National Mortgage Association (“Fannie Mae” or “FNMA”).  FNMA was federally chartered by the U.S. Congress in 1938 to support liquidity, stability, and affordability in the secondary mortgage market, where existing mortgage-related assets are purchased and sold. Fannie Mae buys mortgage loans from lenders and resells them as mortgage-backed securities in the secondary mortgage market.


Federal Housing Administration (“FHA”).  The FHA is a U.S. federal government agency within the Department of Housing and Urban Development (HUD). It provides mortgage insurance on loans made by FHA-approved lenders in compliance with FHA guidelines throughout the United States.


Federal Housing Finance Agency (“FHFA”).  A U.S. federal government agency that is the regulator and conservator of Fannie Mae and Freddie Mac and the regulator of the 12 Federal Home Loan Banks.


Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”).  Freddie Mac was chartered by Congress in 1970 to stabilize the nation’s residential mortgage markets and expand opportunities for homeownership and affordable rental housing. Freddie Mac participates in the secondary mortgage market by purchasing mortgage loans and mortgage-related securities for investment and by issuing guaranteed mortgage-related securities.




Government National Mortgage Association (“Ginnie Mae” or “GNMA”).  GNMA is a self-financing, wholly owned U.S. Government corporation within HUD. Ginnie Mae guarantees the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans - mainly loans insured by the FHA or guaranteed by the VA. Ginnie Mae securities are the only MBS to carry the full faith and credit guarantee of the U.S. federal government.


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Government-Sponsored Enterprise (“GSE”).  Certain entities established by the U.S. Congress to provide liquidity, stability and affordability in residential housing. These agencies are Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks.


Home Equity Conversion Mortgage (“HECM”).  Reverse mortgage loans issued by FHA. HECMs provide seniors aged 62 and older with a loan secured by their home which can be taken as a lump sum, line of credit, or scheduled payments. HECM loan balances grow over the loan term through borrower draws of scheduled payments or line of credit draws as well as through the accrual of interest and FHA mortgage insurance premiums. In accordance with FHA guidelines, HECMs are designed to repay through foreclosure and subsequent liquidation of loan collateral after the loan becomes due and payable. Shortfalls experienced by the servicer of the HECM through the foreclosure and liquidation process can be claimed to FHA in accordance with applicable guidelines.


HECM mortgage-backed securities (“HMBS”). A type of asset-backed security that is secured by a group of HECM loans.


Interest Rate Lock Commitments (“IRLC”).  Agreements under which the interest rate and the maximum amount of the mortgage loan are set prior to funding the mortgage loan.


Interest-Sensitive Loan.  A mortgage loan which is primarily impacted by changes in forecasted interest rates, which in turn impacts voluntary prepayment speed. Interest-sensitive loans typically consist of single-family conforming residential forward mortgage loans serviced for GSEs or other third-party investors.


Loan Modification.  Temporary or permanent modifications to loan terms with the borrower, including the interest rate, amortization period and term of the borrower’s original mortgage loan. Loan modifications are usually made to loans that are in default, or in imminent danger of defaulting.


Loan-to-Value Ratio (“LTV”).  The unpaid principal balance of a mortgage loan as a percentage of the total appraised or market value of the property that secures the loan. An LTV over 100% indicates that the UPB of the mortgage loan exceeds the value of the property.


Lock period. A set of periods of time that a lender will guarantee a specific rate is set prior to funding the mortgage loan.


Loss Mitigation.  The range of servicing activities provided by a servicer in an attempt to minimize the losses suffered by the owner of a defaulted mortgage loan. Loss mitigation techniques include short-sales, deed-in-lieu of foreclosures and loan modifications, among other options.


Mortgage-Backed Securities (“MBS”). A type of asset-backed security that is secured by a group of mortgage loans.


Mortgage Servicing Right (“MSRs”).  The right and obligation to service a loan or pool of loans and to receive a servicing fee as well as certain ancillary income. MSRs may be bought and sold, resulting in the transfer of loan servicing obligations. MSRs are designated as such when the benefits of servicing the loans are expected to adequately compensate the servicer for performing the servicing.


MSR Facility.  A line of credit backed by mortgage servicing rights that is used for financing purposes. In certain cases, these lines may be a sub-limit of another warehouse facility or alternatively exist on a stand-alone basis. These facilities allow for same or next day draws at the request of the borrower.


Mortgage Servicing Liability (“MSL”MSLs”).The right and obligation to service a loan or pool of loans and to receive a servicing fee as well as certain ancillary income. MSLs may be bought and sold, resulting in the transfer of loan servicing obligations. MSLs are designated as such when the benefits of servicing the loans are not expected to adequately compensate the servicer for performing the servicing.


Non-Conforming Loan.  A mortgage loan that does not meet the standards of eligibility for purchase or securitization by Fannie Mae, Freddie Mac or Ginnie Mae.


Originations.  The process through which a lender provides a mortgage loan to a borrower.


Pull through adjusted lock volume. Represents the expected funding from locks taken during the period.


Prepayment Speed.  The rate at which voluntary mortgage prepayments occur or are projected to occur. The statistic is calculated on an annualized basis and expressed as a percentage of the outstanding principal balance.

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Primary Servicer.  The servicer that owns the right to service a mortgage loan or pool of mortgage loans. This differs from a subservicer, which has a contractual agreement with the primary servicer to service a mortgage loan or pool of mortgage loans in exchange for a subservicing fee based upon portfolio volume and characteristics.

Prime Mortgage Loan.  Generally, a high-quality mortgage loan that meets the underwriting standards set by Fannie Mae or Freddie Mac and is eligible for purchase or securitization in the secondary mortgage market. Prime Mortgage loans generally have lower default risk and are made to borrowers with excellent credit records and a monthly income at least three to four times greater than their monthly housing expenses (mortgage payments plus taxes and other debt payments) as well as significant other assets. Mortgages not classified as prime mortgage loans are generally called either sub-prime or Alt-A.


Private Label Securitizations. Securitizations that do not meet the criteria set by Fannie Mae, Freddie Mac or Ginnie Mae.


         
Real Estate Owned (”REO”).  Property acquired by the servicer on behalf of the owner of a mortgage loan or pool of mortgage loans, usually through foreclosure or a deed-in-lieu of foreclosure on a defaulted loan. The servicer or a third-party real estate management firm is responsible for selling the REO. Net proceeds of the sale are returned to the owner of the related loan or loans. In most cases, the sale of REO does not generate enough to pay off the balance of the loan underlying the REO, causing a loss to the owner of the related mortgage loan.


Recapture.  The refinancing of a loan currently in the portfolio, or the financing of a customer’s new purchase which resulted in the payoff of an existing loan.


Refinancing.  The process of working with existing borrowers to refinance their mortgage loans. By refinancing loans for borrowers we currently service, we retain the servicing rights, thereby extending the longevity of the servicing cash flows.


Reverse Mortgage Loan.  A reverse mortgage loan, most commonly a Home Equity Conversion Mortgage, enables seniors to borrow against the value of their home, and no payment of principal or interest is required until the death of the borrower or the sale of the home. These loans are designed to go through the foreclosure and claim process to recover loan balance.


Servicing.  The performance of contractually specified administrative functions with respect to a mortgage loan or pool of mortgage loans. Duties of a servicer typically include, among other things, collecting monthly payments, maintaining escrow accounts, providing periodic monthly statements to the borrower and monthly reports to the loan owners or their agents, managing insurance, monitoring delinquencies, executing foreclosures (as necessary), and remitting fees to guarantors, trustees and service providers. A servicer is generally compensated with a specific fee outlined in the contract established prior to the commencement of the servicing activities.



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Servicing Advances.  In the course of servicing loans, servicers are required to make advances that are reimbursable from collections on the related mortgage loan or pool of loans. There are typically three types of servicing advances: P&I advances, T&I Advances and Corporate Advances.


(i) P&I advances cover scheduled payments of principal and interest that have not been timely paid by borrowers. P&I Advances serve to facilitate the cash flows paid to holders of securities issued by the residential MBS trust. The servicer is not the insurer or guarantor of the MBS and thus has the right to cease the advancing of P&I, when the servicer deems the next advance nonrecoverable. 


(ii) T&I advances pay specified expenses associated with the preservation of a mortgaged property or the liquidation of defaulted mortgage loans, including but not limited to property taxes, insurance premiums or other property-related expenses that have not been timely paid by borrowers in order for the lien holder to maintain its interest in the property. 


(iii) Corporate advances pay costs, fees and expenses incurred in foreclosing upon, preserving defaulted loans and selling REO, including attorneys’ and other professional fees and expenses incurred in connection with foreclosure and liquidation or other legal proceedings arising in the course of servicing the defaulted mortgage loans. 


Servicing advances are reimbursed to the servicer if and when the borrower makes a payment on the underlying mortgage loan at the time the loan is modified or upon liquidation of the underlying mortgage loan but are primarily the responsibility of the investor/owner of the loan. The types of servicing advances that a servicer must make are set forth in its servicing agreement with the owner of the mortgage loan or pool of mortgage loans. In some instances, a servicer is allowed to cease Servicing Advances, if those advances will not be recoverable from the property securing the loan.


Subservicing.  Subservicing is the process of outsourcing the duties of the primary servicer to a third-party servicer. The third-party servicer performs the servicing responsibilities for a fee and is typically not responsible for making servicing advances, which are subsequently reimbursed by the primary servicer. The primary servicer is contractually liable to the owner of the loans for the activities of the subservicer.


Unpaid Principal Balance (“UPB”).  The amount of principal outstanding on a mortgage loan or a pool of mortgage loans. UPB is used together with the servicing fees and ancillary incomes as a means of estimating the future revenue stream for a servicer.


U.S. Department of Agriculture (“USDA”). The USDA is a cabinet-level department of the U.S. federal government, which guarantees certain home loans for qualified borrowers.


Warehouse Facility.  A type of line of credit facility used to temporarily finance mortgage loan originations to be sold in the secondary market. Pursuant to a warehouse facility, a loan originator typically agrees to transfer to a counterparty certain mortgage loans against the transfer of funds by the counterpart, with a simultaneous agreement by the counterpart to transfer the loans back to the originator at a date certain, or on demand, against the transfer of funds from the originator.


Wholesale Originations. A type of mortgage loan origination pursuant to which a lender acquires refinancing and purchase money mortgage loans from third party correspondent lenders where the lender funds the loan.



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Item 3. Quantitative and Qualitative Disclosures about Market Risk


Refer to the discussion included in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes in the types of market risks faced by us since December 31, 2019 except for the broad effects of the COVID-19 pandemic. As we cannot predict the duration or scope of the COVID-19 pandemic, the negative financial impact to our results cannot be reasonably estimated at this time.


Sensitivity Analysis
We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on fair values based on hypothetical changes (increases and decreases) in interest rates.


We use a duration-based model in determining the impact of interest rate shifts on our loan portfolio, certain other interest-bearing liabilities measured at fair value and interest rate derivatives portfolios. The primary assumption used in these models is that an increase or decrease in the benchmark interest rate produces a parallel shift in the yield curve across all maturities.


We utilize a discounted cash flow analysis to determine the fair value of MSRs and the impact of parallel interest rate shifts on MSRs. The primary assumptions in this model are prepayment speeds, earnings related to float and market discount rates. However, this analysis ignores the impact of interest rate changes on certain material variables, such as the benefit or detriment on the value of future loan originations, non-parallel shifts in the spread relationships between MBS, swaps and U.S. Treasury rates and changes in primary and secondary mortgage market spreads. For mortgage loans, IRLCs and forward delivery commitments on MBS, we rely on a model in determining the impact of interest rate shifts. In addition, the primary assumption used for IRLCs, is the borrower’s propensity to close their mortgage loans under the commitment.


Our total market risk is influenced by a wide variety of factors including market volatility and the liquidity of the markets. There are certain limitations inherent in the sensitivity analysis presented, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled.


We used March 31,September 30, 2020 market rates on our instruments to perform the sensitivity analysis. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in fair value may not be linear.


The following table summarizes the estimated change in the fair value of our assets and liabilities sensitive to interest rates as of March 31,September 30, 2020 given hypothetical instantaneous parallel shifts in the yield curve. Results could differ materially.


Table 34.27. Change in Fair Value
September 30, 2020
Down 25 bpsUp 25 bps
Increase (decrease) in assets
Mortgage servicing rights at fair value$(127)$136 
Mortgage loans held for sale at fair value17 (22)
Derivative financial instruments:
Interest rate lock commitments74 (98)
Forward MBS trades(23)32 
Total change in assets(59)48 
Increase (decrease) in liabilities
Mortgage servicing rights financing at fair value(4)4 
Excess spread financing at fair value(17)20 
Derivative financial instruments:
Interest rate lock commitments(3)5 
Forward MBS trades70 (92)
Total change in liabilities46 (63)
Total, net change$(105)$111 

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 March 31, 2020
Down 25 bps Up 25 bps
Increase (decrease) in assets   
Mortgage servicing rights at fair value$(229) $235
Mortgage loans held for sale at fair value10
 (12)
Derivative financial instruments:   
Interest rate lock commitments31
 (37)
Total change in assets(188) 186
Increase (decrease) in liabilities   
Mortgage servicing rights liabilities at fair value(5) 4
Excess spread financing at fair value(46) 51
Derivative financial instruments:   
Forward MBS trades36
 (44)
Total change in liabilities(15) 11
Total, net change$(173) $175



Item 4.Controls and Procedures


Evaluation of Disclosure Controls and Procedures


Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of March 31,September 30, 2020.


Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31,September 30, 2020, our disclosure controls and procedures are effective. Disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting


During the three months ended March 31,September 30, 2020, no changes in our internal control over financial reporting occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Limitations on Effectiveness of Controls and Procedures


In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.





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PART II – OTHER INFORMATION
Item 1.Legal Proceedings


We are a state licensed, non-bank mortgage lender, servicer and ancillary services provider. From time to time, we and our subsidiaries are involved in a number of legal proceedings, including, but not limited to, judicial, arbitration, regulatory and governmental proceedings relating to matters that arise in connection with the conduct of our business. These legal proceedings are generally based on alleged violations of federal, state and local laws and regulations governing our mortgage servicing and lending activities including, without limitation, consumer protection laws, but may also include alleged violations of securities, employment, contract, tort, common law fraud and other laws. Legal proceedings include open and pending examinations, information gathering requests and investigations by governmental, regulatory and enforcement agencies as well as litigation in judicial forums and arbitration proceedings.


Our business is subject to extensive examinations, investigations and reviews by various federal, state and local governmental, regulatory and enforcement agencies. We have historically had and continue to have a number of open investigations with these agencies. We continue to receive governmental and regulatory requests for information, subpoenas, examinations and other inquiries. We are currently the subject of various governmental or regulatory investigations, subpoenas, examinations and inquiries related to our residential loan servicing and origination practices, bankruptcy and collections practices, financial reporting and other aspects of our businesses. These matters include investigations by the Consumer Financial Protection Bureau (the “CFPB”), the Securities and Exchange Commission, the Executive Office of the United States Trustees, the Department of Justice, the Office of the Special Inspector General for the Troubled Asset Relief Program, the U.S. Department of Housing and Urban Development, the multi-state coalition of mortgage banking regulators and various State Attorneys General. These specific matters and other pending or potential future investigations, subpoenas, examinations or inquiries may lead to administrative, civil or criminal proceedings or settlements and possibly result in remedies including fines, penalties, restitution, or alterations in our business practices and in additional expenses and collateral costs. We are cooperating fully in these matters.

For example, we continue to progress towards resolution of certain legacy regulatory matters involving examination findings in prior years for alleged violations of certain laws related to our business practices. We have been in discussions with the multi-state committee of mortgage banking regulators and various State Attorneys General concerning a potential resolution of their investigations. We are continuing to cooperate with all parties. In connection with these discussions, we previously recorded an accrual. These discussions may not result in a settlement of the matter; furthermore, any such settlement may exceed the amount accrued as of March 31, 2020. Moreover, if the discussions do not result in a settlement, the regulators and State Attorneys General may seek to exercise their enforcement authority through litigation or other proceedings and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on our business, reputation, financial condition and results of operations.

Further, on April 24, 2018, the CFPB notified us that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (NORA) process, the CFPB’s Office of Enforcement is considering whether to recommend that the CFPB take enforcement action against us, alleging violations of the Real Estate Settlement Procedures Act, the Consumer Financial Protection Act, and the Homeowners Protection Act, which stems from a 2014 examination. The purpose of a NORA letter is to provide a party being investigated an opportunity to present its position to the CFPB before an enforcement action may be recommended or commenced. The CFPB may seek to exercise its enforcement authority through settlement, administrative proceedings or litigation and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on our business, reputation, financial condition and results of operations. We have not recorded an accrual related to this matter as of March 31, 2020 as we do not believe that the possible loss or range of loss arising from any such action is estimable. We are continuing to cooperate with the CFPB. 

Similarly, we are in discussions with the Executive Office of the United States Trustees concerning certain legacy issues with respect to bankruptcy servicing practices.  In connection with these discussions, we are undertaking certain voluntary remediation activities with respect to loans at issue in these matters. While we and the Executive Office of the United States Trustees are engaged in discussions to potentially resolve these issues, there is no guarantee a resolution will occur.  Moreover, if the discussions do not result in a resolution, the Executive Office of the United States Trustees may seek redress through litigation or other proceedings and seek injunctive relief, damages and restitution in addition to the remediation activities, which could have a material adverse effect on our business, reputation, financial condition and results of operations. However, we believe it is premature to predict the potential outcome or to estimate the financial impact to us in connection with any potential action or settlement arising from this matter, including the voluntary remediation activities undertaken and to be undertaken by us.


Responding to these matters requires us to devote substantial resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase our operating expenses and reduce our revenues, require us to change business practices and limit our ability to grow and otherwise materially and adversely affect our business, reputation, financial condition or results of operation.



In particular, as previously disclosed, we continue to progress towards resolution of certain legacy regulatory matters with (i) the CFPB, (ii) the multi-state committee of mortgage banking regulators and various State Attorneys General and (iii) the Executive Office of the United States Trustee, all of which involve examination findings in prior years for alleged violations of certain laws related to our business practices. We believe that we have reached a settlement in principle to resolve these matters with each of these parties. We believe that we have fully accrued for these matters as of September 30, 2020.


Item 1A.Risk Factors


There have been no material changes or additions to the risk factors previously disclosed under “Risk Factors” included in our Annual Report on Form 10-K filed for the year ended December 31, 2019, exceptand our Quarterly Report on Form 10-Q for the following:quarter ended March 31, 2020.


The COVID-19 pandemic may adversely impact our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.
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The COVID-19 pandemic introduces unprecedented uncertainty in the economy, including the risk of a significant employment shock and recessionary conditions, with implications for the health and safety of our employees, borrower delinquency rates, forbearance take-up rates under the forbearance program included in the CARES Act and the related funding for the P&I and T&I servicing advances, the sources, adequacy and availability of financing to fund advances, origination volumes and our overall profitability and liquidity. 

The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.


Item 2.Unregistered Sales of Equity Securities and Use of Proceeds


We did not make any repurchasesOn July 30, 2020, we announced that our Board of Directors authorized the repurchase of up to $100 of our shares duringoutstanding common stock. The stock repurchase program may be suspended, modified or discontinued at any time at our discretion. During the three months ended March 31, 2020.September 30, 2020, we have repurchased shares of our common stock at a cost of $24 under our share repurchase program. The number and average price of shares purchased are set forth in the table below:



Period(a) Total Number of Shares Purchased (in thousands)(b) Average Price Paid per Share(c) Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (in thousands)(d) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program (in millions)
July 2020— $— — $— 
August 2020334 $18.04 334 $94 
September 2020853 $20.30 853 $76 
Total1,187 1,187 


Item 3. Defaults Upon Senior Securities


None.



Item 4.Mine Safety Disclosures


Not applicable.



Item 5.Other Information


None.

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Item 6.Exhibits
Incorporated by Reference
Exhibit 
Number		DescriptionFormFile No.ExhibitFiling DateFiled or Furnished Herewith
4.18-K001-146674.18/6/2020
10.1X
10.2X
10.3**X
10.4**X
31.1X
31.2X
32.1X
32.2X
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.X
101.SCHInline XBRL Taxonomy Extension Schema DocumentX
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentX
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101.)X
Incorporated by Reference
Exhibit NumberDescriptionFormFile No.ExhibitFiling DateFiled or Furnished Herewith
10.1**
Form of Performance Stock Unit Agreement - Employee
X
10.2**
Form of Performance Stock Unit Agreement - Special Retirement Provisions
X
10.3
Amendment Number Thirteen to the Second Amended and Restated Master Repurchase Agreement Dated as of January 29, 2016 between Barclays Bank PLC, as Agent and Nationstar Mortgage LLC, as Seller, dated March 30, 2020
X
31.1
Certification by Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002




X
31.2
Certification by Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1
Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




X
32.2
Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INSXBRL Instance Document



X
101.SCHXBRL Taxonomy Extension Schema DocumentX
101.CALXBRL Taxonomy Extension Calculation Linkbase Document



X
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABXBRL Taxonomy Extension Label Linkbase Document



X
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentX


**    Management, contract, compensatory plan or arrangement.



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


MR. COOPER GROUP INC.
October 29, 2020MR. COOPER GROUP INC.
April 30, 2020/s/ Jay Bray
DateJay Bray

Chief Executive Officer

(Principal Executive Officer)
April 30,October 29, 2020/s/ Christopher G. Marshall
Date
Christopher G. Marshall

Vice Chairman & Chief Financial Officer

(Principal Financial and Accounting Officer)



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