UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~2021


☐ 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

Mr. Cooper Group Inc.

(Exact name of registrant as specified in its charter)


Delaware						91-1653725
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

8950 Cypress Waters Blvd, Coppell, TX						75019
(Address of principal executive offices)						(Zip Code)

(469) 549-2000
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	COOP	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.


Large Accelerated Filer	¨x	Accelerated Filer	x☐
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 October ~~23, 2020~~22, 2021 was 75,122,633 ~~90,853,569.~~.

Table of Contents

MR. COOPER GROUP INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of September 30, ~~2020~~2021 (unaudited) and December 31, ~~2019~~2020	3

	Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	4

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	5

	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	9
	1. Nature of Business and Basis of Presentation	9
	2. Discontinued Operations	11
	3. Mortgage Servicing Rights and Related Liabilities	12
	4. Advances and Other Receivables	14
	5. Mortgage Loans Held for Sale	15
	6. Loans Subject to Repurchase from Ginnie Mae	16
	7. Goodwill and Intangible Assets	16
	8. Derivative Financial Instruments	17
	9. Indebtedness	19
	10. Securitizations and Financings	21
	11. Earnings Per Share	22
	12. Income Taxes	24
	13. Fair Value Measurements	24
	14. Capital Requirements	28
	15. Commitments and Contingencies	28
	16. Segment Information	30
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3634

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7860

Item 4.	Controls and Procedures	7961



PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	8062

Item 1A.	Risk Factors	8062

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8162

Item 3.	Defaults Upon Senior Securities	8162

Item 4.	Mine Safety Disclosures	8162

Item 5.	Other Information	8162

Item 6.	Exhibits	8263

Table of Contents

PART I. Financial Information

Item 1. Financial Statements

MR. COOPER GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars, except share data)


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
		(unaudited)					(unaudited)
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	946	$	329	Cash and cash equivalents	$	731	$	695
Restricted cash	Restricted cash	229		283		Restricted cash	118		135
Mortgage servicing rights, $2,663 and $3,496 at fair value, respectively		2,669		3,502
Advances and other receivables, net of reserves of $191 and $175, respectively		745		988
Reverse mortgage interests, net of purchase discount of $125 and $114, respectively		5,460		6,279
Mortgage servicing rights at fair value						Mortgage servicing rights at fair value	3,666		2,703
Advances and other receivables, net of reserves of $172 and $208, respectively						Advances and other receivables, net of reserves of $172 and $208, respectively	909		940
Mortgage loans held for sale at fair value	Mortgage loans held for sale at fair value	3,817		4,077		Mortgage loans held for sale at fair value	7,939		5,720
Property and equipment, net of accumulated depreciation of $84 and $55, respectively		114		112
Property and equipment, net of accumulated depreciation of $115 and $92, respectively						Property and equipment, net of accumulated depreciation of $115 and $92, respectively	103		113
Deferred tax assets, net	Deferred tax assets, net	1,344		1,345		Deferred tax assets, net	1,011		1,339
Other assets	Other assets	6,431		1,390		Other assets	3,462		7,173
Assets of discontinued operations						Assets of discontinued operations	3,722		5,347
Total assets	Total assets	$	21,755	$	18,305	Total assets	$	21,661	$	24,165

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Unsecured senior notes, net	Unsecured senior notes, net	$	2,167	$	2,366	Unsecured senior notes, net	$	2,076	$	2,074
Advance and warehouse facilities, net	Advance and warehouse facilities, net	4,851		4,997		Advance and warehouse facilities, net	8,206		6,258
Payables and other liabilities	Payables and other liabilities	6,590		2,016		Payables and other liabilities	3,537		7,159
MSR related liabilities - nonrecourse at fair value	MSR related liabilities - nonrecourse at fair value	1,091		1,348		MSR related liabilities - nonrecourse at fair value	842		967
Mortgage servicing liabilities		44		61
Other nonrecourse debt, net		4,671		5,286
Liabilities of discontinued operations						Liabilities of discontinued operations	3,740		5,203
Total liabilities	Total liabilities	19,414		16,074		Total liabilities	18,401		21,661
Commitments and contingencies (Note 15)	Commitments and contingencies (Note 15)					Commitments and contingencies (Note 15)	0		0
Preferred stock at $0.00001 - 10 million shares authorized, 1.0 million shares issued and outstanding, respectively; aggregate liquidation preference of 10 dollars, respectively		0		0
Common stock at $0.01 par value - 300 million shares authorized, 92.0 million and 91.1 million shares issued, respectively		1		1
Preferred stock at $0.00001 - 10 million shares authorized, zero and 1.0 million shares issued, zero and 1.0 million shares outstanding, respectively; aggregate liquidation preference of zero and 10 dollars, respectively						Preferred stock at $0.00001 - 10 million shares authorized, zero and 1.0 million shares issued, zero and 1.0 million shares outstanding, respectively; aggregate liquidation preference of zero and 10 dollars, respectively	—		—
Common stock at $0.01 par value - 300 million shares authorized, 93.2 million and 92.0 million shares issued, respectively						Common stock at $0.01 par value - 300 million shares authorized, 93.2 million and 92.0 million shares issued, respectively	1		1
Additional paid-in-capital	Additional paid-in-capital	1,120		1,109		Additional paid-in-capital	1,108		1,126
Retained earnings	Retained earnings	1,243		1,122		Retained earnings	2,724		1,434
Treasury shares at cost - 1.2 million and 0 shares, respectively		(24)		0
Treasury shares at cost - 18.1 million and 2.6 million shares, respectively						Treasury shares at cost - 18.1 million and 2.6 million shares, respectively	(574)		(58)
Total Mr. Cooper stockholders’ equity	Total Mr. Cooper stockholders’ equity	2,340		2,232		Total Mr. Cooper stockholders’ equity	3,259		2,503
Non-controlling interests	Non-controlling interests	1		(1)		Non-controlling interests	1		1
Total stockholders’ equity	Total stockholders’ equity	2,341		2,231		Total stockholders’ equity	3,260		2,504
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	21,755	$	18,305	Total liabilities and stockholders’ equity	$	21,661	$	24,165

See accompanying ~~notes~~Notes to the ~~consolidated financial statements~~Condensed Consolidated Financial Statements (unaudited).

Table of Contents

MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(millions of dollars, except for earnings per share data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues:	Revenues:									Revenues:
Service related, net	Service related, net	$	227	$	258	$	186	$	479	Service related, net	$	288	$	218	$	860	$	151
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale	645		360		1,594		788		Net gain on mortgage loans held for sale	572		645		1,833		1,594
Total revenues	Total revenues	872		618		1,780		1,267		Total revenues	860		863		2,693		1,745
Expenses:	Expenses:									Expenses:
Salaries, wages and benefits	Salaries, wages and benefits	275		250		769		703		Salaries, wages and benefits	251		265		805		737
General and administrative	General and administrative	156		228		525		710		General and administrative	151		190		476		540
Total expenses	Total expenses	431		478		1,294		1,413		Total expenses	402		455		1,281		1,277

Interest income	Interest income	56		163		250		459		Interest income	66		17		163		114
Interest expense	Interest expense	(165)		(196)		(534)		(572)		Interest expense	(118)		(128)		(363)		(394)
Other income (expense), net	Other income (expense), net	(51)		0		(50)		16		Other income (expense), net	8		(51)		494		(50)
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 interests		5		(1)		2		(2)
Net income (loss) attributable to Mr. Cooper		209		84		114		(189)
Total other (expense) income, net										Total other (expense) income, net	(44)		(162)		294		(330)
Income from continuing operations before income tax expense										Income from continuing operations before income tax expense	414		246		1,706		138
Less: Income tax expense										Less: Income tax expense	104		59		410		33
Net income from continuing operations										Net income from continuing operations	310		187		1,296		105
Net (loss) income from discontinued operations										Net (loss) income from discontinued operations	(11)		27		3		11
Net income										Net income	299		214		1,299		116
Less: Net earnings attributable to non-controlling interests										Less: Net earnings attributable to non-controlling interests	—		5		—		2
Net income attributable to Mr. Cooper										Net income attributable to Mr. Cooper	299		209		1,299		114
Less: Undistributed earnings attributable to participating stockholders	Less: Undistributed earnings attributable to participating stockholders	2		1		1		0		Less: Undistributed earnings attributable to participating stockholders	1		2		9		1
Net income (loss) attributable to common stockholders		$	207	$	83	$	113	$	(189)
Less: Premium on retirement of preferred stock										Less: Premium on retirement of preferred stock	28		—		28		—
Net income attributable to common stockholders										Net income attributable to common stockholders	$	270	$	207	$	1,262	$	113

Net income (loss) per common share attributable to Mr. Cooper:
Earnings from continuing operations per common share attributable to Mr. Cooper:										Earnings from continuing operations per common share attributable to Mr. Cooper:
Basic	Basic	$	2.26	$	0.91	$	1.23	$	(2.08)	Basic	$	3.56	$	1.98	$	14.85	$	1.12
Diluted	Diluted	$	2.18	$	0.90	$	1.20	$	(2.08)	Diluted	$	3.42	$	1.91	$	14.20	$	1.09

Earnings from discontinued operations per common share attributable to Mr. Cooper:										Earnings from discontinued operations per common share attributable to Mr. Cooper:
Basic										Basic	$	(0.14)	$	0.28	$	0.04	$	0.11
Diluted										Diluted	$	(0.13)	$	0.27	$	0.03	$	0.11

Earnings per common share attributable to Mr. Cooper:										Earnings per common share attributable to Mr. Cooper:
Basic										Basic	$	3.42	$	2.26	$	14.89	$	1.23
Diluted										Diluted	$	3.29	$	2.18	$	14.23	$	1.20

See accompanying ~~notes~~Notes to the ~~consolidated financial statements~~Condensed Consolidated Financial Statements (unaudited).

Table of Contents

MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(millions of dollars, except share data)


		Preferred Stock			Common Stock																Preferred Stock			Common Stock
		Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity			Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
Balance at June 30, 2019		1,000	$	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, 2019		1,000	$	0	91,087	$	1	$	1,106	$	659	$	0	$	1,766	$	1	$	1,767

Balance at June 30, 2020	Balance at June 30, 2020	1,000	$	0	92,022	$	1	$	1,114	$	1,034	$	0	$	2,149	$	(4)	$	2,145	Balance at June 30, 2020	1,000	$	—	92,022	$	1	$	1,114	$	1,034	$	—	$	2,149	$	(4)	$	2,145
Shares issued under incentive compensation plan		—	—		19	—		—		—		—		—		—		—
Shares issued / (surrendered) under incentive compensation plan																				Shares issued / (surrendered) under incentive compensation plan	—	—		19	—		—		—		—		—		—		—
Share-based compensation	Share-based compensation	—	—		—	—		6		—		—		6		—		6		Share-based compensation	—	—		—	—		6		—		—		6		—		6
Repurchase of common stock	Repurchase of common stock	—	—		(1,187)	—		—		—		(24)		(24)		—		(24)		Repurchase of common stock	—	—		(1,187)	—		—		—		(24)		(24)		—		(24)
Net income	Net income	—	—		—	—		—		209		—		209		5		214		Net income	—	—		—	—		—		209		—		209		5		214
Balance at September 30, 2020	Balance at September 30, 2020	1,000	$	0	90,854	$	1	$	1,120	$	1,243	$	(24)	$	2,340	$	1	$	2,341	Balance at September 30, 2020	1,000	$	—	90,854	$	1	$	1,120	$	1,243	$	(24)	$	2,340	$	1	$	2,341

Balance at June 30, 2021																				Balance at June 30, 2021	1,000	$	—	86,149	$	1	$	1,120	$	2,434	$	(206)	$	3,349	$	1	$	3,350
Shares issued / (surrendered) under incentive compensation plan																				Shares issued / (surrendered) under incentive compensation plan	—	—		45	—		—		—		—		—		—		—
Share-based compensation																				Share-based compensation	—	—		—	—		7		—		—		7		—		7
Repurchase of common stock																				Repurchase of common stock	—	—		(11,073)	—		—		—		(368)		(368)		—		(368)
Retirement of preferred stock																				Retirement of preferred stock	(1,000)	—		—	—		(19)		(9)		—		(28)		—		(28)
Net income																				Net income	—	—		—	—		—		299		—		299		—		299
Balance at September 30, 2021																				Balance at September 30, 2021	—	$	—	75,121	$	1	$	1,108	$	2,724	$	(574)	$	3,259	$	1	$	3,260

See accompanying ~~notes~~Notes to the ~~consolidated financial statements~~Condensed Consolidated Financial Statements (unaudited).

Table of Contents

MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(millions of dollars, except share data)


		Preferred Stock			Common Stock																Preferred Stock			Common Stock
		Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
Balance at January 1, 2019		1,000	$	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, 2019		1,000	$	0	91,087	$	1	$	1,106	$	659	$	0	$	1,766	$	1	$	1,767
																					Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
Balance at January 1, 2020	Balance at January 1, 2020	1,000	$	0	91,118	$	1	$	1,109	$	1,122	$	0	$	2,232	$	(1)	$	2,231	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	Shares issued / (surrendered) under incentive compensation plan	—	—		923	—		(5)		—		—		(5)		—		(5)		Shares issued / (surrendered) under incentive compensation plan	—	—		923	—		(5)		—		—		(5)		—		(5)
Share-based compensation	Share-based compensation	—	—		—	—		16		—		—		16		—		16		Share-based compensation	—	—		—	—		16		—		—		16		—		16
Cumulative effect adjustments pursuant to the adoption of ASU 2016-13		—	—		—	—		—		7		—		7		—		7
Cumulative effect adjustments pursuant to the adoption of CECL-related accounting guidance																				Cumulative effect adjustments pursuant to the adoption of CECL-related accounting guidance	—	—		—	—		—		7		—		7		—		7
Repurchase of common stock	Repurchase of common stock	—	—		(1,187)	—		—		—		(24)		(24)		—		(24)		Repurchase of common stock	—	—		(1,187)	—		—		—		(24)		(24)		—		(24)
Net income	Net income	—	—		—	—		—		114		—		114		2		116		Net income	—	—		—	—		—		114		—		114		2		116
Balance at September 30, 2020	Balance at September 30, 2020	1,000	$	0	90,854	$	1	$	1,120	$	1,243	$	(24)	$	2,340	$	1	$	2,341	Balance at September 30, 2020	1,000	$	—	90,854	$	1	$	1,120	$	1,243	$	(24)	$	2,340	$	1	$	2,341

Balance at January 1, 2021																				Balance at January 1, 2021	1,000	$	—	89,457	$	1	$	1,126	$	1,434	$	(58)	$	2,503	$	1	$	2,504
Shares issued / (surrendered) under incentive compensation plan																				Shares issued / (surrendered) under incentive compensation plan	—	—		1,242	—		(20)		—		—		(20)		—		(20)
Share-based compensation																				Share-based compensation	—	—		—	—		21		—		—		21		—		21
Repurchase of common stock																				Repurchase of common stock	—	—		(15,578)	—		—		—		(516)		(516)		—		(516)
Retirement of preferred stock																				Retirement of preferred stock	(1,000)	—		—	—		(19)		(9)		—		(28)		—		(28)
Net income																				Net income	—	—		—	—		—		1,299		—		1,299		—		1,299
Balance at September 30, 2021																				Balance at September 30, 2021	—	$	—	75,121	$	1	$	1,108	$	2,724	$	(574)	$	3,259	$	1	$	3,260

See accompanying ~~notes~~Notes to the ~~consolidated financial statements~~Condensed Consolidated Financial Statements (unaudited).

Table of Contents

MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions of dollars)

Nine Months Ended September 30,
2020 2019
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 reserves 18 53
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities 1,258 998
Fair value changes in excess spread financing (132) (190)
Fair value changes in mortgage servicing rights financing liability 10 15
Fair value changes in mortgage loans held for investment 0 (3)
Amortization of premiums, net of discount accretion 45 (38)
Depreciation and amortization for property and equipment and intangible assets 56 67
Share-based compensation 16 14
Loss on redemption of unsecured senior notes 52 0
Other loss 17 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 investment 43,040 27,916
Changes in assets and liabilities:
Advances and other receivables 228 264
Reverse mortgage interests 1,031 1,700
Other assets (4,797) 9
Payables and other liabilities 4,555 (69)
Net cash attributable to operating activities 1,878 (28)
Investing Activities
Acquisitions, net of cash acquired 0 (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 rights 44 298
Net cash attributable to investing activities (38) (279)

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


	Nine Months Ended September 30,
	2021		2020
Operating Activities
Net income	$	1,299	$	116
Less: Net income from discontinued operations	3		11
Net income from continuing operations	1,296		105
Adjustments to reconcile net income from continuing operations to net cash attributable to operating activities:
Deferred tax expense (benefit)	327		(1)
Net gain on mortgage loans held for sale	(1,833)		(1,594)
Provision for servicing and non-servicing reserves	28		18
Fair value changes and amortization of mortgage servicing rights	296		1,332
Fair value changes in MSR related liabilities	(7)		(122)
Depreciation and amortization for property and equipment and intangible assets	45		55
Gain on sale of business	(494)		—
Loss on redemption of unsecured senior notes	—		52
Other operating activities	36		45
Repurchases of forward loan assets out of Ginnie Mae securitizations	(8,530)		(3,173)
Mortgage loans originated and purchased for sale, net of fees	(67,507)		(38,709)
Sales proceeds and loan payment proceeds for mortgage loans held for sale	74,948		43,046
Changes in assets and liabilities:
Advances and other receivables	(41)		172
Other assets	46		31
Payables and other liabilities	7		(157)
Net cash attributable to operating activities - continuing operations	(1,383)		1,100
Net cash attributable to operating activities - discontinued operations	613		778
Net cash attributable to operating activities	(770)		1,878

Investing Activities
Sale of business, net of cash divested	432		—
Property and equipment additions, net of disposals	(33)		(43)
Purchase of forward mortgage servicing rights	(431)		(39)
Proceeds on sale of forward mortgage servicing rights	13		44
Other investing activities	1		—
Net cash attributable to investing activities - continuing operations	(18)		(38)
Net cash attributable to investing activities - discontinued operations	1,029		—
Net cash attributable to investing activities	1,011		(38)

Financing Activities
Increase (decrease) in advance and warehouse facilities	1,950		(14)
Settlements and repayments of excess spread financing	(118)		(159)
Issuance of unsecured senior notes	—		1,450
Redemption and repayment of unsecured senior notes	—		(1,686)
Repurchase of common stock	(516)		(24)
Retirement of preferred stock	(28)		—
Other financing activities	(33)		(21)
Net cash attributable to financing activities - continuing operations	1,255		(454)
Net cash attributable to financing activities - discontinued operations	(1,495)		(823)
Net cash attributable to financing activities	(240)		(1,277)
Net increase in cash, cash equivalents, and restricted cash	1		563
Cash, cash equivalents, and restricted cash - beginning of period	913		612
Cash, cash equivalents, and restricted cash - end of period(1)	$	914	$	1,175

Supplemental Disclosures of Non-cash Investing Activities
Equity consideration received from sale of business	$	53	$	—
Purchase of forward mortgage servicing rights	$	12	$	—
Forward mortgage servicing rights sales price holdback	$	2	$	—

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~~MR. COOPER GROUP INC.~~

~~UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Continued)~~

~~(millions of dollars)~~

Nine Months Ended September 30,
2020 2019
Financing Activities
(Decrease) increase in advance and warehouse facilities (135) 1,835
Repayment of notes payable 0 (294)
Proceeds from HECM securitizations 516 398
Proceeds from sale of HECM securitizations 0 20
Repayment of HECM securitizations (508) (568)
Proceeds from issuance of participating interest financing in reverse mortgage interests 139 220
Repayment of participating interest financing in reverse mortgage interests (845) (1,472)
Proceeds from the issuance of excess spread financing 24 469
Settlements and repayments of excess spread financing (159) (182)
Issuance of unsecured senior debt 1,450 0
Repayment of nonrecourse debt – legacy assets 0 (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 cash 563 81
Cash, cash equivalents, and restricted cash - beginning of period 612 561
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)

(1)The following table provides a reconciliation of cash, cash equivalents and restricted cash to ~~amount~~amounts reported within the condensed consolidated balance sheets.

September 30, 2020 September 30, 2019
Cash and cash equivalents $ 946 $ 371
Restricted cash 229 271
Total cash, cash equivalents, and restricted cash $ 1,175 $ 642


	September 30, 2021		September 30, 2020
Cash and cash equivalents	$	731	$	946
Restricted cash	118		152
Restricted cash within assets of discontinued operations	65		77
Total cash, cash equivalents, and restricted cash	$	914	$	1,175

See accompanying ~~notes~~Notes to the ~~consolidated financial statements~~Condensed Consolidated Financial Statements (unaudited).

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MR COOPER GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(millions of dollars, unless otherwise stated)

1. Nature of Business and Basis of Presentation

Nature of Business

Mr. Cooper Group Inc., collectively with its consolidated subsidiaries, (“Mr. Cooper,” the “Company,” “we,” “us” or “our”) provides servicing, origination and transaction-based services related to single family residences throughout the United States with operations under its primary brands: Mr. Cooper® and Xome®. Mr. Cooper is one of the largest home loan originators and servicers in the country focused on delivering a variety of servicing and lending products, services and technologies. Xome provides technology and data enhanced solutions to homebuyers, home sellers, real estate ~~services including real estate brokerage, title, closing, valuation~~agents and ~~field services to lenders, investors and consumers.~~mortgage companies. 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~~Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-Q.

On ~~February~~March 12, 2021, the Company entered into a Stock Purchase Agreement to sell its Xome Title business to Blend Labs, Inc. (“Blend Labs”) for a total consideration of approximately $500, consisting of approximately $450 in cash, subject to certain adjustments specified therein, and a retained interest of 9.9% for the Company (the “Title Transaction”). The Title Transaction was completed on June 30, 2021. Pursuant to the Stock Purchase Agreement, all cash generated, subject to certain adjustments, between March 13, 2021 and the closing date of the Title Transaction, were held for the benefit of Blend Labs. A $487 gain was recorded in the second quarter of 2021 upon closing of the Title Transaction, which was included in other income, net within the condensed consolidated statements of operations. In addition, the Company recorded total transaction costs of $2 and$7 for the three and nine months ended September 30, 2021, respectively. The results of the Title business are reported under Corporate/Other in Note 16, Segment Information. The carrying amounts of assets and liabilities associated with the Title business were not material to the condensed consolidated balance sheets as of December 31, 2020.

On July 1, ~~2019,~~2021, the Company entered into a definitive agreement for the sale of its reverse servicing portfolio, operating under the Champion Mortgage brand (“Champion”), to Mortgage Assets Management, LLC and its affiliates (“MAM”). The reverse servicing operation was previously reported in the Company’s Servicing segment. The Company determined the sale of the reverse servicing portfolio qualified for reporting as discontinued operations as of June 30, 2021, and for the unsold portion, the operations continue to meet the criteria. As a result, the reverse servicing operation is presented as discontinued operations in the Company’s condensed consolidated statements of operations and the assets and liabilities of the reverse servicing operation are presented as discontinued operations in the Company’s condensed consolidated balance sheets for all periods presented. Unless otherwise indicated, information in this report relates to the Company’s continuing operations. Refer to Note 2, Discontinued Operations for further details.

On August 31, 2021, the Company completed the ~~acquisition~~sale of ~~all the limited liability units~~its Xome Valuations business (the “Valuations Transaction”) to Voxtur Analytics Corp. (“Voxtur”) for a total consideration of ~~Pacific Union Financial, LLC (“Pacific Union”), a California limited liability company. The final purchase price was $116, paid~~approximately $16, consisting of approximately $9 in cash and a number of Voxtur common stock with an aggregate value of $7. A $7 gain was recorded in the ~~purchase price allocation~~third quarter of 2021 upon the closing of the Valuations Transaction and was ~~finalized~~included in other income, net within the condensed consolidated statements of operations. There were no transaction costs recorded for the three and nine months ended September 30, 2021. The results of the Valuations business are reported under Corporate/Other in Note 16, Segment Information. The carrying amounts of assets and liabilities associated with the Valuations business were not material to the condensed consolidated balance sheets as of December 31, 2019. 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 allows2020.

On October 22, 2021, the Company completed the sale of its Xome Field Services business (the “Field Services Transaction”) to ~~expand its servicing portfolio~~Cyprexx Services LLC for a total consideration of approximately $41, consisting of $36 in cash and ~~increase its mortgage lending volume~~a retained interest of 10% for the Company. The sale is expected to generate a $33 gain. There were no transaction costs recorded for the three and ~~capabilities.~~nine months ended September 30, 2021. The results of the Field Services business are reported under Corporate/Other in Note 16, Segment Information. The carrying amounts of assets and liabilities associated with the Field Services business were not material to the condensed consolidated balance sheets as of December 31, 2020.

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Basis of Presentation

The interim condensed 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.~~Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K for the year ended December 31, ~~2019.~~2020.

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

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

Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, other entities in which the Company has a controlling financial interest and those variable interest entities (“VIE”) where the Company’s wholly-owned subsidiaries are the primary beneficiaries. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that the Company became the primary beneficiary through the date the Company ceases to be the primary beneficiary. The Company applies the equity method of accounting to investments where it is able to exercise significant influence, but not control, over the policies and procedures of the entity and owns less than 50% of the voting interests. 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 condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates due to factors such as adverse changes in the economy, changes in interest rates, secondary market pricing for loans held for sale and derivatives, strength of underwriting and servicing practices, changes in prepayment assumptions, declines in home prices or discrete events adversely affecting specific borrowers, uncertainties in the economy from the COVID-19 pandemic, and such differences could be material.

Reclassifications

9Certain reclassifications have been made in the 2020 condensed consolidated financial statements to conform to 2021 presentation. Such reclassifications did not affect total revenues or net income.

Recent Accounting Guidance Adopted

Accounting Standards Update ~~No. 2016-13, Financial Instruments~~2019-12, Income Taxes (Topic 740) - ~~Credit Losses (Topic 326),~~Simplifying the Accounting for Income Taxes (“ASU ~~2016-13”~~2019-12”) ~~requires expected credit losses~~simplifies accounting for ~~financial instruments held at~~income taxes by removing certain exceptions from 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 basisgeneral principles in ~~current GAAP and instead reflects an entity’s current estimate of all expected credit losses over the life~~Topic 740 including elimination of the ~~asset. Previously,~~exception to the incremental approach for intraperiod tax allocation when ~~credit losses were measured under GAAP, an entity generally only considered past events~~there is a loss from continuing operations and ~~current conditions~~income or a gain from other items such as other comprehensive income. ASU 2019-12 also clarifies and amends certain guidance 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 wasTopic 740. ASU 2019-12 is 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”) 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 3, Advances and Other Receivables, Net, and~~ ~~Note 4, Reverse Mortgage Interests, Net,~~ ~~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.~~2021. The ~~guidance does~~adoption of the standard did not have a material impact to the ~~disclosures currently provided by the Company.~~Company’s condensed consolidated financial statements.

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2. Discontinued Operations

On July 1, 2021, the Company entered into a definitive agreement for the sale of its reverse servicing portfolio, operating under Champion, to MAM. Pursuant to the agreement, total consideration for the sale is dependent on the value of the respective assets and liabilities sold on the closing date. Upon close of the transaction, which is subject to regulatory approvals and other closing conditions, MAM will assume Champion’s reverse portfolio and related operations. The sale is expected to close in the fourth quarter of 2021. The Company recorded total transaction costs of $5 for the nine months ended September 30, 2021. There were no transaction costs for the three months ended September 30, 2021.The carrying amounts of assets and liabilities associated with the reverse servicing operation are reported under the Servicing segment. The Company determined the reverse servicing operations met the criteria for classification as held for sale as of June 30, 2021, and for the unsold portion, the operations continue to meet the criteria. The sale of business represents a strategic shift in the Company’s operations. Therefore, the sale of the reverse servicing portfolio qualifies for reporting as discontinued operations, and the assets and liabilities of the reverse servicing portfolio are reported as discontinued operations in the condensed consolidated balance sheets and related results of operations are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented. In August 2021, net assets of $1,039 were transferred to MAM. The balances as of September 30, 2021 represent the remaining balances to be transferred.

As part of the transaction, the Company entered into a servicing agreement with MAM, under which the Company will be compensated for continuing to service these reverse loans through the date that the loans are transferred out of Company’s servicing system, which will be the date of transfer. In addition, the Company will retain certain loans related to the reverse servicing portfolio, primarily related to previously liquidated loans, with total assets of $95 and total liabilities of $91 as of September 30, 2021.

The following table sets forth the assets and liabilities included in discontinued operations:


	September 30, 2021		December 31, 2020
Carrying amounts of assets of discontinued operations
Restricted cash	$	65	$	83

Reverse mortgage interests, net	3,705		5,253

Other	5		11
Loss recognized on classification as discontinued operations	(53)		—
Total assets of discontinued operations	$	3,722	$	5,347

Carrying amounts of liabilities of discontinued operations
Advances and warehouse facilities, net	$	98	$	505
Payables and other liabilities	208		233
Mortgage servicing liabilities	41		41
Other nonrecourse debt, net	3,393		4,424
Total liabilities of discontinued operations	$	3,740	$	5,203

The following table sets forth the condensed consolidated statements of operations data for discontinued operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue - service related, net	$	4	$	9	$	13	$	35
Salaries, wages and benefits expense	(7)		(10)		(23)		(32)
General and administrative expense	(14)		33		50		15
Interest income	31		40		118		136
Interest expense	(26)		(37)		(90)		(140)
Loss on classification as discontinued operations	(3)		—		(64)		—
(Loss) income from discontinued operations before income tax (benefit) expense	(15)		35		4		14
Less: Income tax (benefit) expense	(4)		8		1		3
Net (loss) income from discontinued operations	$	(11)	$	27	$	3	$	11

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2.3. Mortgage Servicing Rights and Related Liabilities

The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities. In estimating the fair value of all mortgage servicing rights and related liabilities, the impact of the ~~COVID-19 pandemic~~current environment was considered in the determination of key assumptions.


MSRs and Related Liabilities	MSRs and Related Liabilities	September 30, 2020		December 31, 2019		MSRs and Related Liabilities	September 30, 2021		December 31, 2020
Forward MSRs - fair value	Forward MSRs - fair value	$	2,663	$	3,496	Forward MSRs - fair value	$	3,666	$	2,703
Reverse MSRs - amortized cost		6		6
Mortgage servicing rights		$	2,669	$	3,502

Mortgage servicing liabilities - amortized cost		$	44	$	61

Excess spread financing - fair value	Excess spread financing - fair value	$	1,044	$	1,311	Excess spread financing - fair value	$	822	$	934
Mortgage servicing rights financing - fair value	Mortgage servicing rights financing - fair value	47		37		Mortgage servicing rights financing - fair value	20		33
MSR related liabilities - nonrecourse at fair value	MSR related liabilities - nonrecourse at fair value	$	1,091	$	1,348	MSR related liabilities - nonrecourse at fair value	$	842	$	967

Forward Mortgage Servicing Rights

The following table sets forth the activities of forward MSRs:


		Nine Months Ended September 30,					Nine Months Ended September 30,
Forward MSRs - Fair Value	Forward MSRs - Fair Value	2020		2019		Forward MSRs - Fair Value	2021		2020
Fair value - beginning of period	Fair value - beginning of period	$	3,496	$	3,665	Fair value - beginning of period	$	2,703	$	3,496
Additions:	Additions:					Additions:
Servicing retained from mortgage loans sold	Servicing retained from mortgage loans sold	412		298		Servicing retained from mortgage loans sold	790		412
Purchases of servicing rights~~(1)~~	Purchases of servicing rights~~(1)~~	30		732		Purchases of servicing rights~~(1)~~	438		30
Dispositions:	Dispositions:					Dispositions:
Sales of servicing assets	Sales of servicing assets	0		(317)		Sales of servicing assets	(13)		—
Changes in fair value:	Changes in fair value:					Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model		(782)		(716)
Other changes in fair value		(493)		(323)
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM)						Changes in valuation inputs or assumptions used in the valuation model (MSR MTM)	476		(727)
Changes in valuation due to amortization						Changes in valuation due to amortization	(772)		(605)
Other changes						Other changes	44		57
Fair value - end of period	Fair value - end of period	$	2,663	$	3,339	Fair value - end of period	$	3,666	$	2,663

~~(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, the Company entered into a subservicing contract, resulting in additional $253 servicing rights in the second quarter of 2019.~~

During the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, the Company sold ~~$94~~$1,226 and ~~$25,639~~$94 in unpaid principal balance (“UPB”) of forward MSRs, of which ~~NaN~~$1,144 and ~~$20,560~~none were retained by the Company as subservicer, respectively.

Forward 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.

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

~~The following table provides a breakdown of UPB and fair value for the Company’s forward MSRs:~~

September 30, 2020 December 31, 2019
Forward MSRs - UPB and fair value breakdown UPB Fair Value UPB Fair Value
Acquisition Pools
Credit sensitive $ 122,422 $ 1,206 $ 147,895 $ 1,613
Interest sensitive 144,245 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

~~(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~~following table provides a breakdown of UPB and fair value for the ~~following~~Company’s forward MSRs:


	September 30, 2021				December 31, 2020
Forward MSRs - UPB and Fair Value Breakdown	UPB		Fair Value		UPB		Fair Value
Investor Pools
Agency	$	266,588	$	3,329	$	227,136	$	2,305
Non-agency	36,503		337		44,053		398
Total	$	303,091	$	3,666	$	271,189	$	2,703

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

Forward MSRs - Key inputs and assumptions September 30, 2020 December 31, 2019
Total MSR Portfolio
Discount rate 9.5 % 9.7 %
Prepayment speeds 14.4 % 13.1 %
Average life 5.2 years 5.8 years
Acquisition Pools
Credit Sensitive
Discount rate 10.0 % 10.4 %
Prepayment speeds 12.6 % 12.7 %
Average life 5.6 years 6.0 years
Interest Sensitive
Discount rate 9.0 % 9.1 %
Prepayment speeds 15.9 % 13.5 %
Average life 4.9 years 5.7 years
Investor Pools
Agency
Discount rate 8.9 % 9.0 %
Prepayment speeds 14.5 % 13.0 %
Average life 5.1 years 5.8 years
Non-agency
Discount rate 12.0 % 12.6 %
Prepayment speeds 13.9 % 13.8 %
Average life 5.5 years 6.2 years
MSRs.

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The following table shows the hypothetical effect on the fair value of the Company’s forward MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated:


		Discount Rate				Total Prepayment Speeds					Discount Rate				Total Prepayment Speeds				Cost to Service per Loan
Forward MSRs - Hypothetical Sensitivities	Forward MSRs - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change		Forward MSRs - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change		10% Adverse Change		20% Adverse Change
September 30, 2020
September 30, 2021										September 30, 2021
Mortgage servicing rights	Mortgage servicing rights	$	(87)	$	(179)	$	(157)	$	(321)	Mortgage servicing rights	$	(133)	$	(257)	$	(145)	$	(279)	$	(45)	$	(89)

December 31, 2019
December 31, 2020										December 31, 2020
Mortgage servicing rights	Mortgage servicing rights	$	(127)	$	(245)	$	(165)	$	(317)	Mortgage servicing rights	$	(100)	$	(192)	$	(181)	$	(347)	$	(45)	$	(89)

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

~~Reverse Mortgage Servicing Rights and Liabilities - Amortized Cost~~

The Company services certain HECM reverse mortgage loans with an unpaid principal balance of $20,006 and $22,725 as of September 30, 2020 and December 31, 2019, respectively. The following table sets forth the activities of reverse MSRs and mortgage servicing liabilities (“MSL”):

Nine Months Ended September 30,
2020 2019
Reverse MSRs and Liabilities - Amortized Cost Assets Liabilities Assets Liabilities
Balance - beginning of period $ 6 $ 61 $ 11 $ 71
Amortization/accretion 0 (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 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”).

~~Management evaluates reverse MSRs and MSLs each reporting period for impairment. Based on management’s assessment at September 30, 2020, 0 impairment or increased obligation was needed.~~

Excess Spread Financing - Fair Value

The Company had excess spread financing liability of ~~$1,044~~$822 and ~~$1,311~~$934 as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Refer to
Note 13, Fair Value Measurements

~~The Company used the following~~, for key weighted-average inputs and assumptions used in the ~~Company’s~~ valuation of excess spread ~~financing:~~financing.

Excess Spread Financing Key Assumptions September 30, 2020 December 31, 2019
Discount rate 11.9 % 11.6 %
Prepayment speeds 13.6 % 12.6 %
Recapture rate 19.1 % 20.1 %
Average life 5.3 years 5.8 years

The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated:


		Discount Rate				Prepayment Speeds					Discount Rate				Prepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities	Excess Spread Financing - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change		Excess Spread Financing - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change
September 30, 2020
September 30, 2021										September 30, 2021
Excess spread financing	Excess spread financing	$	35	$	72	$	44	$	92	Excess spread financing	$	28	$	58	$	30	$	63

December 31, 2019
December 31, 2020										December 31, 2020
Excess spread financing	Excess spread financing	$	46	$	95	$	46	$	96	Excess spread financing	$	30	$	62	$	41	$	84

These hypothetical sensitivities should be evaluated with care. The effect on fair value of ~~a 10% variation~~an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing. Excess spread financing’s cash flow assumptions that are utilized in determining fair value are based on the related cash flow assumptions used in the financed MSRs. Any fair value change recognized in the financed MSRs attributable to related cash flows assumptions would inherently have an inverse impact on the carrying amount of the related excess spread financing.

Mortgage Servicing Rights Financing - Fair Value

The Company had MSR financing liability of ~~$47~~$20 and ~~$37~~$33 as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Refer to
Note 13, Fair Value Measurements

~~The following table sets forth the~~, for key weighted-average inputs and assumptions used in the valuation of the MSR financing ~~liability:~~

Mortgage Servicing Rights Financing Key Assumptions September 30, 2020 December 31, 2019
Advance financing and counterparty fee rates 8.2 % 8.9 %
Annual advance recovery rates 20.2 % 18.8 %

liability.

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Servicing Segment Revenues

The following table sets forth the items comprising total revenues for the Servicing segment:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Total Revenues - Servicing	Total Revenues - Servicing	2020		2019		2020		2019		Total Revenues - Servicing	2021		2020		2021		2020
Contractually specified servicing fees(1)	Contractually specified servicing fees(1)	$	282	$	305	$	864	$	893	Contractually specified servicing fees(1)	$	280	$	282	$	831	$	864
Other service-related income(1)	Other service-related income(1)	59		51		170		133		Other service-related income(1)	158		60		517		171
Incentive and modification income(1)	Incentive and modification income(1)	12		12		30		29		Incentive and modification income(1)	10		12		38		30
Late fees(1)	Late fees(1)	18		30		65		82		Late fees(1)	19		18		53		65
Reverse servicing fees		6		7		19		24
Mark-to-market adjustments(2)	Mark-to-market adjustments(2)	(29)		(83)		(673)		(607)		Mark-to-market adjustments(2)	151		(16)		376		(618)
Counterparty revenue share(3)		(104)		(86)		(268)		(204)
Amortization, net of accretion(4)		(112)		(73)		(290)		(152)
Amortization, net of accretion(3)										Amortization, net of accretion(3)	(202)		(129)		(567)		(362)
Other(4)										Other(4)	(65)		(104)		(224)		(268)
Total revenues - Servicing	Total revenues - Servicing	$	132	$	163	$	(83)	$	198	Total revenues - Servicing	$	351	$	123	$	1,024	$	(118)

(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 $8 and $7 for the three months ended September 30, 2021 and ~~$18~~2020 and $28 and $20 for the nine months ended September 30, 2021 and 2020, respectively.

(3)Amortization is net of excess spread accretion of $59 and $96 during the three months ended September 30, 2021 and 2020, ~~and 2019, and $20 and $46 during~~respectively. For the nine months ended September 30, 2021 and 2020, amortization is net of excess spread accretion of $205 and ~~2019,~~$243, respectively.

~~(3)~~(4)~~Counterparty revenue share~~Other represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements, portfolio runoff and the payments made associated with MSR financing arrangements.

~~(4)~~Amortization is net of excess spread accretion of $96 and $77 and MSL accretion of $4 and $10 during the three months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, amortization is net of excess spread accretion of $243 and $172 and MSL accretion of $17 and $39, respectively.

3.4. Advances and Other Receivables ~~Net~~

Advances and other receivables, net, consists of the following:


Advances and Other Receivables, Net	Advances and Other Receivables, Net	September 30, 2020		December 31, 2019		Advances and Other Receivables, Net	September 30, 2021		December 31, 2020
Servicing advances, net of $92 and $131 purchase discount, respectively		$	746	$	970
Receivables from agencies, investors and prior servicers, net of $21 and $21 purchase discount, respectively		190		193
Servicing advances, net of $30 and $72 purchase discount, respectively						Servicing advances, net of $30 and $72 purchase discount, respectively	$	893	$	975
Receivables from agencies, investors and prior servicers, net of $13 and $21 purchase discount, respectively						Receivables from agencies, investors and prior servicers, net of $13 and $21 purchase discount, respectively	188		173
Reserves	Reserves	(191)		(175)		Reserves	(172)		(208)
Total advances and other receivables, net	Total advances and other receivables, net	$	745	$	988	Total advances and other receivables, net	$	909	$	940

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,					Three Months Ended September 30,						Nine Months Ended September 30,
Reserves for Advances and Other Receivables	Reserves for Advances and Other Receivables	2020		2019			2020		2019			Reserves for Advances and Other Receivables	2021		2020			2021		2020
Balance - beginning of period	Balance - beginning of period	$	216	$	98		$	168	$	47		Balance - beginning of period	$	191	$	216		$	208	$	168
Provision and other additions(1)	Provision and other additions(1)	13		35			72		102			Provision and other additions(1)	18		13			59		72
Write-offs	Write-offs	(38)		(3)			(49)		(19)			Write-offs	(37)		(38)			(95)		(49)
Balance - end of period	Balance - end of period	$	191	$	130		$	191	$	130		Balance - end of period	$	172	$	191		$	172	$	191

(1)The Company recorded a ~~provision~~ provision of $7$8 and ~~$18~~$7 through the MTM adjustments in revenues - service related, net, in the condensed consolidated statements of operations during the three months ended September 30, 2021 and 2020, and ~~2019, respectively,~~$28 and $20 ~~and $46~~ during the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.

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Purchase Discount for Advances and Other Receivables

The following tables set forth the activities of the purchase discounts for advances and other receivables:


											Three Months Ended September 30,
		Three Months Ended September 30, 2020				Three Months Ended September 30, 2019					2021				2020
Purchase Discount for Advances and Other Receivables	Purchase Discount for Advances and Other Receivables	Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Purchase Discount for Advances and Other Receivables	Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Servicing Advances		Receivables from Agencies, Investors and Prior Servicers
Balance - beginning of period	Balance - beginning of period	$	117	$	21	$	156	$	48	Balance - beginning of period	$	31	$	20	$	117	$	21
Utilization of purchase discounts	Utilization of purchase discounts	(25)		0		(8)		0		Utilization of purchase discounts	(1)		(7)		(25)		—
Balance - end of period	Balance - end of period	$	92	$	21	$	148	$	48	Balance - end of period	$	30	$	13	$	92	$	21


											Nine Months Ended September 30,
		Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019					2021				2020
Purchase Discount for Advances and Other Receivables	Purchase Discount for Advances and Other Receivables	Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Purchase Discount for Advances and Other Receivables	Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Servicing Advances		Receivables from Agencies, Investors and Prior Servicers
Balance - beginning of period	Balance - beginning of period	$	131	$	21	$	205	$	48	Balance - beginning of period	$	72	$	21	$	131	$	21
Addition from acquisition		0		0		19		0
Utilization of purchase discounts	Utilization of purchase discounts	(39)		0		(76)		0		Utilization of purchase discounts	(42)		(8)		(39)		—
Balance - end of period	Balance - end of period	$	92	$	21	$	148	$	48	Balance - end of period	$	30	$	13	$	92	$	21

Credit Loss for Advances and Other Receivables

~~As described in~~ ~~Note 1, Nature of Business~~During the three and ~~Basis of Presentation, advances and other receivables are within the scope of~~ ~~ASU 2016-13, and~~nine months ended September 30, 2021, the Company ~~modified its accounting policy regarding its assessment~~increased the current expected credit loss (“CECL”) reserve by $3 and $7, respectively. In addition, the Company wrote off $16 of ~~reserves for credit-related losses in accordance with CECL framework.~~the CECL reserve during the three months and nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, the Company increased the CECL reserve by $13 and $27, respectively. As of September 30, 2021, the total CECL reserve was $29, of which $19 and $10 were recorded in reserves and purchase discount for advances and other receivables, respectively. As of September 30, 2020, the total CECL reserve was $44, of which $27 and $17 ~~was~~were recorded in reserves and purchase discount for advances and other receivables, respectively.

~~Based upon the Company’s application of ASU 2016-13, the~~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.

~~4. Reverse Mortgage Interests, Net~~

~~Reverse mortgage interests, net, consists of the following:~~

Reverse Mortgage Interests, Net September 30, 2020 December 31, 2019
Participating interests in HECM mortgage-backed securities (“HMBS”) $ 3,663 $ 4,282
Other interests securitized 1,002 994
Unsecuritized interests 920 1,117
Purchase discount, net (125) (114)
Total reverse mortgage interests, net $ 5,460 $ 6,279

~~Participating Interests in HMBS~~

~~The Company does not originate reverse mortgages, but during the nine months ended September 30, 2020 and 2019, a total of~~ ~~$134~~ ~~and $211 in UPB associated with new draws on existing loans was transferred to GNMA and securitized by the Company, respectively.~~

In March 2019, the Company entered into an agreement with Fannie Mae for the transfer of reverse mortgage loans. As a result, $61 was transferred from Fannie Mae and securitized into GNMA HMBS during the nine months ended September 30, 2019. There was 0 such activity during the nine months ended September 30, 2020.

~~Other Interests Securitized~~

~~The reverse mort~~gage interests under other interest securitized have been transferred to private securitization trusts and are accounted for as a secured borrowing. During the nine months ended September 30, 2020, the Company securitized a total of $516 UPB through Trust 2020-1 and a total of $337 UPB from Trust 2018-2 and Trust 2018-3 was called and the related debt was extinguished. During the nine months ended September 30, 2019, the Company securitized a total of $398 UPB through Trust 2019-1 and a total of $249 UPB from Trust 2017-2 was called and the related debt was extinguished. The Company sold $20 UPB of Trust 2018-3 during the nine months ended September 30, 2019. Refer to Other Nonrecourse Debt in ~~Note 9, Indebtedness~~ ~~for additional information.~~

~~Unsecuritized Interests~~

~~Unsecuritized interests in reverse mortgages consist of the following:~~

Unsecuritized interests September 30, 2020 December 31, 2019
Repurchased HECM loans (exceeds 98% of their Max Claim Amount (“MCA”)) $ 634 $ 789
HECM related receivables(1)
213 250
Funded borrower draws not yet securitized 56 64
Real estate owned (“REO”) related receivables 17 14
Total unsecuritized interests $ 920 $ 1,117

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

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

~~Purchase Discount, net, for Reverse Mortgage Interests~~

~~The following table sets forth the activities of the purchase discounts, net, for reverse mortgage interests:~~

Three Months Ended September 30, Nine Months Ended September 30,
Purchase discount, net, for reverse mortgage interests(1)
2020 2019 2020 2019
Balance - beginning of period $ (127) $ (163) $ (114) $ (164)
Adjustments(2)
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)

~~(1)Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans.~~

~~(2)Adjustments during the nine months ended September 30, 2019 due to revised cost to service assumption utilized in the valuation of reverse mortgage assets and liabilities acquired from the Merger.~~

~~(3)Utilization of purchase discounts on liquidated loans, for which the remaining receivable was written off.~~

~~Credit Loss for Reverse Mortgage Interests~~

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

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

~~Reverse Mortgage Interest Income~~

~~Total interest earned on the Company’s reverse mortgage interests was $41 and $74 during the three months ended September 30, 2020 and 2019, respectively, and~~ ~~$158~~ ~~and $241 during the nine months ended September 30, 2020 and 2019, respectively.~~

5. Mortgage Loans Held for Sale

Mortgage loans held for sale are recorded at fair value as set forth below:


Mortgage Loans Held for Sale	Mortgage Loans Held for Sale	September 30, 2020		December 31, 2019		Mortgage Loans Held for Sale	September 30, 2021		December 31, 2020
Mortgage loans held for sale – UPB	Mortgage loans held for sale – UPB	$	3,642	$	3,949	Mortgage loans held for sale – UPB	$	7,664	$	5,438
Mark-to-market adjustment(1)	Mark-to-market adjustment(1)	175		128		Mark-to-market adjustment(1)	275		282
Total mortgage loans held for sale	Total mortgage loans held for sale	$	3,817	$	4,077	Total mortgage loans held for sale	$	7,939	$	5,720

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

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The following table sets forth the activities of mortgage loans held for sale:


		Nine Months Ended September 30,					Nine Months Ended September 30,
Mortgage Loans Held for Sale	Mortgage Loans Held for Sale	2020		2019		Mortgage Loans Held for Sale	2021		2020
Balance - beginning of period	Balance - beginning of period	$	4,077	$	1,631	Balance - beginning of period	$	5,720	$	4,077
Loans sold	Loans sold	(42,185)		(27,413)		Loans sold	(73,822)		(42,185)
Mortgage loans originated and purchased, net of fees	Mortgage loans originated and purchased, net of fees	38,709		28,209		Mortgage loans originated and purchased, net of fees	67,507		38,709
Repurchase of loans out of Ginnie Mae securitizations	Repurchase of loans out of Ginnie Mae securitizations	3,173		1,823		Repurchase of loans out of Ginnie Mae securitizations	8,530		3,173
Net change in unrealized gain (loss) of loans held for sale		36		2
Net change in unrealized gain on retained loans held for sale						Net change in unrealized gain on retained loans held for sale	1		36
Net transfers of mortgage loans held for sale(1)	Net transfers of mortgage loans held for sale(1)	7		15		Net transfers of mortgage loans held for sale(1)	3		7
Balance - end of period	Balance - end of period	$	3,817	$	4,267	Balance - end of period	$	7,939	$	3,817

(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~~2021 and ~~2019,~~2020, the Company received proceeds of ~~$43,040~~$74,948 and ~~$27,778,~~$43,040, respectively, on the sale of mortgage loans held for sale, resulting in gains of ~~$855~~$1,126 and ~~$365,~~$855, respectively.

The total UPB and fair value of mortgage loans held for sale on non-accrual status was as follows:


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
Mortgage Loans Held for Sale	Mortgage Loans Held for Sale	UPB		Fair Value		UPB		Fair Value		Mortgage Loans Held for Sale	UPB		Fair Value		UPB		Fair Value
Non-accrual(1)	Non-accrual(1)	$	49	$	39	$	29	$	22	Non-accrual(1)	$	1,924	$	2,002	$	64	$	54

(1)Non-accrual UPB includes ~~$37~~$1,906 and ~~$25~~$48 of UPB related to Ginnie Mae repurchased loans as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was ~~$20~~$17 and ~~$21~~$20 as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

6. Loans Subject to Repurchase from Ginnie Mae

Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. The Company, as the issuer of the mortgage backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including payments not being received from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its condensed consolidated balance sheets and establishes a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The Company had loans subject to repurchase from Ginnie Mae of$2,703 ~~$5,395~~ and ~~$560~~$6,159 as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, which are included in both other assets and payables and other liabilities in the condensed consolidated balance ~~sheets.~~sheets. Loans subject to repurchase from Ginnie Mae as of September 30, 2021 and December 31, 2020 include ~~$5,095~~ $2,486 and $5,879 loans in forbearance related to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), respectively, whereby no payments have been received from borrowers for greater than 90 days.

7. Goodwill and Intangible Assets

The Company had goodwill of $120 as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The Company had intangible assets of $4518 and ~~$74~~$31 as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Goodwill and intangible assets are included in other assets within the condensed consolidated balance sheets.

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8. Derivative Financial Instruments

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

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


			September 30, 2020				Nine Months Ended September 30, 2020				September 30, 2021				Nine Months Ended September 30, 2021
Derivative Financial Instruments	Derivative Financial Instruments	Expiration Dates	Outstanding Notional		Fair Value		Gains/(Losses)		Derivative Financial Instruments	Expiration Dates	Outstanding Notional		Fair Value		Gains/(Losses)
Assets	Assets								Assets
Mortgage loans held for sale	Mortgage loans held for sale								Mortgage loans held for sale
Loan sale commitments	Loan sale commitments	2020	$	1,908	$	75	$	43	Loan sale commitments	2021	$	1,435	$	29	$	(73)
Derivative financial instruments	Derivative financial instruments								Derivative financial instruments
IRLCs	IRLCs	2020-2021	10,967		414		279		IRLCs	2021	6,167		167		(247)
LPCs	LPCs	2020	5,217		38		26		LPCs	2021	887		6		(32)
Forward MBS trades	Forward MBS trades	2020-2021	11,452		23		17		Forward MBS trades	2021	12,770		61		24

Total derivative financial instruments - assets	Total derivative financial instruments - assets		$	27,636	$	475	$	322	Total derivative financial instruments - assets		$	19,824	$	234	$	(255)
Liabilities	Liabilities								Liabilities
Derivative financial instruments	Derivative financial instruments								Derivative financial instruments
IRLCs	IRLCs	2020	$	2	$	0	$	0	IRLCs	2021	$	25	$	—	$	—
LPCs	LPCs	2020	598		2		(1)		LPCs	2021	2,208		13		12
Forward MBS trades	Forward MBS trades	2020-2021	15,974		42		30		Forward MBS trades	2021	6,553		23		(133)
Swap futures									Swap futures	2021	700		12		12
Total derivative financial instruments - liabilities	Total derivative financial instruments - liabilities		$	16,574	$	44	$	29	Total derivative financial instruments - liabilities		$	9,486	$	48	$	(109)

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			September 30, 2019				Nine Months Ended September 30, 2019				September 30, 2020				Nine Months Ended September 30, 2020
Derivative Financial Instruments	Derivative Financial Instruments	Expiration Dates	Outstanding Notional		Fair Value		Gains/(Losses)		Derivative Financial Instruments	Expiration Dates	Outstanding Notional		Fair Value		Gains/(Losses)
Assets	Assets								Assets
Mortgage loans held for sale	Mortgage loans held for sale								Mortgage loans held for sale
Loan sale commitments	Loan sale commitments	2019	$	1,508	$	35	$	9	Loan sale commitments	2020	$	1,908	$	75	$	43
Derivative financial instruments	Derivative financial instruments								Derivative financial instruments
IRLCs	IRLCs	2019	4,964		144		84		IRLCs	2020-2021	10,967		414		279
LPCs	LPCs	2019	1,397		18		17		LPCs	2020	5,217		38		26
Forward MBS trades	Forward MBS trades	2019	3,054		8		6		Forward MBS trades	2020-2021	11,452		23		17
Eurodollar futures		2019-2021	6		0		0

Total derivative financial instruments - assets	Total derivative financial instruments - assets		$	9,421	$	170	$	107	Total derivative financial instruments - assets		$	27,636	$	475	$	322
Liabilities	Liabilities								Liabilities
Derivative financial instruments	Derivative financial instruments								Derivative financial instruments
IRLCs	IRLCs	2019	$	15	$	0	$	0	IRLCs	2020	$	2	$	—	$	—
LPCs	LPCs	2019	547		3		3		LPCs	2020	598		2		(1)
Forward MBS trades	Forward MBS trades	2019	5,667		16		(8)		Forward MBS trades	2020-2021	15,974		42		30
Eurodollar futures		2019-2021	8		0		0

Total derivative financial instruments - liabilities	Total derivative financial instruments - liabilities		$	6,237	$	19	$	(5)	Total derivative financial instruments - liabilities		$	16,574	$	44	$	29

~~Associated with~~As of September 30, 2021, the ~~Company’s derivatives are~~ ~~$14~~Company held $23 and $6$36 in collateral deposits and collateral obligations on derivative instruments, respectively. As of December 31, 2020 the Company held $61 in collateral deposits on derivative ~~instruments~~instruments. Collateral deposits and collateral obligations are recorded in other assets and payable and other liabilities, respectively, in the Company’s condensed consolidated balance ~~sheets as of September 30, 2020 and December 31, 2019, respectively.~~sheets. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the condensed consolidated balance sheets.

Table of Contents

9. Indebtedness

~~Notes Payable~~Advance and Warehouse Facilities

September 30, 2020 December 31, 2019
Interest Rate Maturity Date Collateral Capacity Amount Outstanding Collateral Pledged Outstanding Collateral Pledged
Advance Facilities
$875 advance facility(1)
CP+2.5% to 6.5% April 2021 Servicing advance receivables $ 875 $ 144 $ 169 $ 37 $ 88
$640 advance facility(2)
LIBOR+3.9% August 2022 Servicing advance receivables 640 144 196 0 0
$425 advance facility(3)
LIBOR+2.8% to 6.5% October 2021 Servicing advance receivables 425 206 261 224 285
$250 advance facility(4)
LIBOR+1.5% to 2.6% December 2020 Servicing advance receivables 250 0 0 98 167
$100 advance facility LIBOR+2.5% January 2021 Servicing advance receivables 100 75 102 63 125
Advance facilities principal amount 569 728 422 665
Warehouse Facilities
$1,500 warehouse facility LIBOR+1.7% June 2021 Mortgage loans or MBS 1,500 666 634 759 733
$1,200 warehouse facility LIBOR+1.5% to 3.0% November 2020 Mortgage loans or MBS 1,200 564 610 683 724
$1,050 warehouse facility(5)
LIBOR+1.8% to 3.9% September 2022 Mortgage loans or MBS 1,050 627 679 589 656


						September 30, 2021				December 31, 2020
	Interest Rate	Maturity Date	Collateral	Capacity Amount		Outstanding		Collateral Pledged		Outstanding		Collateral Pledged
Advance Facilities
$940 advance facility(1)	LIBOR+3.5%	August 2023	Servicing advance receivables	$	940	$	170	$	228	$	235	$	305
$350 advance facility(2)	LIBOR+1.1% to 6.5%	October 2022	Servicing advance receivables	350		168		211		192		246
$350 advance facility(3)	CP+2.0% to 6.5%	January 2022	Servicing advance receivables	350		136		159		168		195
$100 advance facility	LIBOR+2.5%	January 2022	Servicing advance receivables	100		65		86		74		98
Advance facilities principal amount						539		684		669		844

Warehouse Facilities
$4,000 warehouse facility(4)	LIBOR+1.6% to 2.2%	February 2023	Mortgage loans or MBS	4,000		3,117		3,352		339		392
$2,500 warehouse facility(5)	LIBOR+1.6% to 1.9%	October 2022	Mortgage loans or MBS	2,500		1,225		1,276		1,003		1,037
$1,600 warehouse facility(6)(7)	LIBOR+1.5% to 3.0%	September 2023	Mortgage loans or MBS	1,600		906		945		951		977
$1,500 warehouse facility	LIBOR+1.5%	June 2022	Mortgage loans or MBS	1,500		546		529		1,081		1,028
$1,200 warehouse facility(6)	LIBOR+1.8% to 3.0%	November 2021	Mortgage loans or MBS	1,200		473		492		586		607
$600 warehouse facility(6)	LIBOR+2.5%	February 2022	Mortgage loans or MBS	600		37		38		—		—
$550 warehouse facility(8)	LIBOR+1.5%	August 2022	Mortgage loans or MBS	550		84		86		477		492
$500 warehouse facility	LIBOR+1.5% to 3.0%	June 2023	Mortgage loans or MBS	500		439		452		—		—
$500 warehouse facility(9)	LIBOR+1.5% to 1.8%	September 2022	Mortgage loans or MBS	500		231		238		562		574
$500 warehouse facility(6)	LIBOR+1.5% to 4.0%	June 2022	Mortgage loans or MBS	500		125		125		—		—
$500 warehouse facility	LIBOR+1.7%	August 2023	Mortgage loans or MBS	500		48		49		—		—
$300 warehouse facility	LIBOR+1.4%	January 2022	Mortgage loans or MBS	300		94		96		163		164
$200 warehouse facility(10)	LIBOR+1.8%	October 2021	Mortgage loans or MBS	200		3		3		131		134
$200 warehouse facility(11)	LIBOR+1.6% to 4.9%	April 2022	Mortgage loans or MBS	200		47		54		37		42
$30 warehouse facility(6)(12)	LIBOR+3.3%	January 2022	Mortgage loans or MBS	30		—		—		—		—
Warehouse facilities principal amount						7,375		7,735		5,330		5,447

MSR Facilities
$400 warehouse facility(13)	LIBOR+3.0%	August 2022	MSR	400		35		685		—		247
$400 warehouse facility(7)	LIBOR+3.0%	September 2023	MSR	400		—		601		—		228
$260 warehouse facility(1)	LIBOR+3.5%	August 2023	MSR	260		260		940		260		668
$50 warehouse facility	LIBOR+3.3%	November 2022	MSR	50		10		69		10		74
MSR facilities principal amount						305		2,295		270		1,217

Advance, warehouse and MSR facilities principal amount						8,219		$	10,714	6,269		$	7,508
Unamortized debt issuance costs						(13)				(11)
Advance and warehouse facilities, net						$	8,206			$	6,258

2019

Table of Contents

September 30, 2020 December 31, 2019
Interest Rate Maturity Date Collateral Capacity Amount Outstanding Collateral Pledged Outstanding Collateral Pledged
$750 warehouse facility LIBOR+1.8% August 2021 Mortgage loans or MBS 750 574 591 0 0
$750 warehouse facility LIBOR+1.7% to 2.8% October 2021 Mortgage loans or MBS 750 472 481 411 425
$750 warehouse facility(6)
LIBOR+2.3% September 2022 Mortgage loans or MBS 750 105 135 54 78
$700 warehouse facility(7)
LIBOR+1.3% to 2.2% November 2020 Mortgage loans or MBS 700 488 505 469 488
$600 warehouse facility LIBOR+2.2% February 2021 Mortgage loans or MBS 600 156 185 174 202
$500 warehouse facility LIBOR+2.5% to 4.0% May 2021 Mortgage loans or MBS 500 0 0 336 349
$300 warehouse facility LIBOR+1.4% January 2021 Mortgage loans or MBS 300 258 258 136 136
$250 warehouse facility(8)
LIBOR+1.4% to 2.3% December 2020 Mortgage loans or MBS 250 0 0 762 783
$200 warehouse facility LIBOR+1.8% April 2021 Mortgage loans or MBS 200 72 74 27 27
$200 warehouse facility LIBOR+1.3% November 2020 Mortgage loans or MBS 200 0 0 0 0
$50 warehouse facility LIBOR+1.8% to 4.8% April 2021 Mortgage loans or MBS 50 43 45 11 15
$40 warehouse facility LIBOR+3.3% January 2021 Mortgage loans or MBS 40 3 4 5 6
Warehouse facilities principal amount 4,028 4,201 4,416 4,622
MSR Facilities
$450 warehouse facility(9)
LIBOR+5.1% May 2021 MSR 450 0 0 150 945
$260 warehouse facility(2)
LIBOR+3.9% August 2022 MSR 260 256 659 0 0
$200 warehouse facility(10)
LIBOR+3.5% August 2021 MSR 200 0 187 0 200
$150 warehouse facility(5)
LIBOR+3.8% September 2022 MSR 150 0 149 0 130
$50 warehouse facility LIBOR+2.8% November 2020 MSR 50 10 80 10 84
MSR facilities principal amount 266 1,075 160 1,359
Advance, warehouse and MSR facilities principal amount 4,863 $ 6,004 4,998 $ 6,646
Unamortized debt issuance costs (12) (1)
Advance and warehouse facilities, net $ 4,851 $ 4,997
Pledged Collateral for warehouse and MSR facilities:
Mortgage loans held for sale $ 3,560 $ 3,637 $ 3,826 $ 3,931
Reverse mortgage interests 468 564 590 691
MSR 266 1,075 160 1,359

(1)~~The capacity amount for this advance facility increased from $125 to $875 in April 2020.~~

~~(2)~~Total capacity for this facility is ~~$900,~~$1,200, of which ~~$640~~$940 is internally allocated for ~~Advance~~advance financing and $260 is internally allocated for MSR financing; capacity is fully fungible and is not restricted by these ~~allocations.~~allocations, in comparison to $900, $640, and $260 respectively in 2020.

(2)The capacity amount for this advance facility decreased from $425 to $350 in 2021.

(3)The capacity amount for this advance facility ~~increased~~decreased from ~~$325~~$875 to ~~$425~~$350 in ~~April 2020.~~2021.

(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~~$2,000 to ~~$750~~$4,000 in ~~September 2020.~~2021.

(5)The capacity amount for this warehouse facility increased from $1,500 to $2,500 in 2021.

(6)The outstanding and collateral pledged amounts excluded balances related to reverse mortgage interests, which are included in liabilities of discontinued operations. Refer to Note 2, Discontinued Operations for further details on liabilities of discontinued operations.

(7)The capacity amount for this ~~warehouse~~ facility ~~was subsequently~~ increased from $1,500 to ~~$1,500~~$2,000, and its related sublimit for MSR financing has increased from $150 to $400 in ~~October 2020 with a maturity date of October~~ 2021.

(8)The capacity amount for this warehouse facility decreased from ~~$1,000~~$750 to ~~$250~~$550 in ~~May 2020.~~2021.

(9)~~This MSR facility was terminated in August 2020.~~

~~(10)~~The capacity amount for this ~~MSR~~warehouse facility decreased from ~~$400~~$750 to $500 in 2021.

(10)This facility was subsequently terminated in October 2021.

(11)The capacity amount for this warehouse facility increased from $50 to $200 in ~~August 2020.~~2021

21(12)The capacity amount for this warehouse facility decreased from $40 to $30 in 2021.

(13)

The capacity amount for this warehouse facility increased from $200 to $400 in 2021.

Unsecured Senior Notes

Unsecured senior notes consist of the following:

Unsecured senior notes September 30, 2020 December 31, 2019
$850 face value, 5.500% interest rate payable semi-annually, due August 2028(1)
$ 850 $ 0
$750 face value, 9.125% interest rate payable semi-annually, due July 2026 750 750
$600 face value, 6.000% interest rate payable semi-annually, due January 2027(2)
600 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 amount 2,200 2,398
Unamortized debt issuance costs, premium and discount (33) (32)
Unsecured senior notes, net $ 2,167 $ 2,366

~~(1)On August 6, 2020, the Company completed an offering of $850 aggregate principal amount of 5.500% Senior Notes due 2028 (the “2028 Notes”)~~

~~(2)On January 16, 2020, the Company completed an offering of $600 aggregate principal amount of 6.000% Senior Notes due 2027 (the “2027 Notes”).~~

~~(3)This note was redeemed in full on February 15, 2020 using the net proceeds of the 2027 Notes offering, together with cash on hand.~~

~~(4)This note was redeemed in full on August 13, 2020 using the net proceeds of the 2028 Notes offering, together with cash on hand.~~


Unsecured Senior Notes	September 30, 2021		December 31, 2020
$850 face value, 5.500% interest rate payable semi-annually, due August 2028	$	850	$	850
$650 face value, 5.125% interest rate payable semi-annually, due December 2030	650		650
$600 face value, 6.000% interest rate payable semi-annually, due January 2027	600		600
Unsecured senior notes principal amount	2,100		2,100
Unamortized debt issuance costs	(24)		(26)
Unsecured senior notes, net	$	2,076	$	2,074

The indentures provide that on or before certain fixed dates, the Company may redeem up to 40% of the aggregate principal amount of the unsecured senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest, to the redemption dates, subject to compliance with certain conditions. In addition, the Company may redeem all or a portion of the unsecured senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. No notes were repurchased or redeemed during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, the Company repaid $100 in principal of outstanding notes. Additionally, the Company redeemed $950 and $1,548 in principal of outstanding notes during the three and nine months ended September 30, 2020, resulting in a net loss of $53 and $52, respectively. N~~o notes were repurchased or redeemed during the three and nine months ended September 30, 2019.~~

As of September 30, ~~2020,~~2021, the expected maturities of the Company’s unsecured senior notes based on contractual maturities are as follows:


Year Ending December 31,	Amount
~~2020~~2021 through ~~2024~~2025	$	0—
Thereafter	~~2,200~~2,100
Total unsecured senior notes principal amount	$	~~2,200~~2,100

~~Other Nonrecourse Debt~~

~~Other nonrecourse debt consists of the following:~~

September 30, 2020 December 31, 2019
Other nonrecourse debt Issue Date Maturity Date Interest Rate Class of Note Collateral Amount Outstanding Outstanding
Participating interest financing(1)
— — 0.3%-5.6% — $ 0 $ 3,664 $ 4,284
Securitization of nonperforming HECM loans
Trust 2020-1 September 2020 September 2030 1.3%-7.5% A, M1, M2, M3, M4, M5 519 516 0
Trust 2019-2 November 2019 November 2029 2.3%-6.0% A, M1, M2, M3, M4, M5 275 259 333
Trust 2019-1 June 2019 June 2029 2.7%-6.0% A, M1, M2, M3, M4, M5 248 226 302
Trust 2018-3(2)
November 2018 November 2028 3.6%-6.0% A, M1, M2, M3, M4, M5 0 0 209
Trust 2018-2(2)
July 2018 July 2028 3.2%-6.0% A, M1, M2, M3, M4, M5 0 0 148
Other nonrecourse debt principal amount 4,665 5,276
Unamortized debt issuance costs, premium and discount 6 10
Other nonrecourse debt, net $ 4,671 $ 5,286

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

~~(2)As discussed in~~ ~~Note 4, Reverse Mortgage Interests, Net, Trust 2018-3 and Trust 2018-2 were collapsed and the related debt was extinguished during the nine months ended September 30, 2020.~~

Financial Covenants

The Company’s credit facilities contain various financial covenants which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements, which are measured at the Company’s operating subsidiary, Nationstar Mortgage LLC. The Company was in compliance with its required financial covenants as of September 30, ~~2020.~~2021.

2320

Table of Contents

10. Securitizations and Financings

Variable Interest Entities

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

The Company has determined that the SPEs created in connection with certain advance facilities trusts should be consolidated as the Company is the primary beneficiary of each of these entities. ~~Also, the Company consolidated certain reverse mortgage SPEs as it is the primary beneficiary of each of these entities. These SPEs include the Nationstar HECM Loan Trusts.~~

A summary of the assets and liabilities of the Company’s transactions with VIEs included in the Company’s condensed consolidated ~~financial statements~~balance sheets is presented below:

September 30, 2020 December 31, 2019
Consolidated transactions with VIEs Transfers
Accounted for as
Secured
Borrowings Reverse Secured Borrowings Transfers
Accounted for as
Secured
Borrowings Reverse Secured Borrowings
Assets
Restricted cash $ 44 $ 25 $ 66 $ 42
Reverse mortgage interests, net(1)
0 4,603 0 5,230
Advances and other receivables, net 430 0 540 0
Total assets $ 474 $ 4,628 $ 606 $ 5,272
Liabilities
Advance facilities(2)
$ 347 $ 0 $ 359 $ 0
Payables and other liabilities 0 0 1 1
Participating interest financing 0 3,664 0 4,284
HECM Securitizations (HMBS)
Trust 2020-1 0 516 0 0
Trust 2019-2 0 259 0 333
Trust 2019-1 0 226 0 302
Trust 2018-3 0 0 0 209
Trust 2018-2 0 0 0 148
Total liabilities $ 347 $ 4,665 $ 360 $ 5,277


	September 30, 2021		December 31, 2020
Consolidated Transactions with VIEs	Transfers Accounted for as Secured Borrowings		Transfers Accounted for as Secured Borrowings
Assets
Restricted cash	$	40	$	47
Advances and other receivables, net	370		441
Total assets	$	410	$	488

Liabilities
Advance facilities, net(1)	$	304	$	358
Payables and other liabilities	—		1
Total liabilities	$	304	$	359

(1)~~Amounts include net purchase discount of~~ ~~$62 and $46 as of September 30, 2020 and December 31, 2019, respectively.~~

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

The following table shows a summary of the outstanding collateral and certificate balances for securitization trusts for which the Company was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by the Company:


Unconsolidated securitization trusts		September 30, 2020		December 31, 2019
Unconsolidated Securitization Trusts						Unconsolidated Securitization Trusts	September 30, 2021		December 31, 2020
Total collateral balances - UPB	Total collateral balances - UPB	$	1,378	$	1,503	Total collateral balances - UPB	$	1,171	$	1,326
Total certificate balances	Total certificate balances	$	1,378	$	1,512	Total certificate balances	$	1,172	$	1,329

The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of September 30, ~~2020~~2021 and December 31, ~~2019 and therefore~~2020. Therefore, it does not have a significant maximum exposure to loss related to these unconsolidated VIEs.

A summary of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 60 days or more past due are presented below:


Principal Amount of Transferred Loans 60 Days or More Past Due	Principal Amount of Transferred Loans 60 Days or More Past Due	September 30, 2020		December 31, 2019		Principal Amount of Transferred Loans 60 Days or More Past Due	September 30, 2021		December 31, 2020
Unconsolidated securitization trusts	Unconsolidated securitization trusts	$	179	$	193	Unconsolidated securitization trusts	$	140	$	154

Table of Contents

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.On March 26, 2021, the Company repurchased 3,700 thousand shares of its common stock from affiliates of Kohlberg Kravis Roberts & Co. L.P., (“KKR”) a related party of the Company, for a total cost of $119. In August 2021, the Company repurchased 11,073 thousand shares of its common stock and 1,000 thousand shares of its preferred stock from affiliates of KKR for a total cost of $396. After giving effect to the transaction, KKR no longer held any equity interests in the Company.

Table of Contents

The following table sets forth the computation of basic and diluted net income (loss) per common share (amounts in millions, except per share amounts):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Computation of earnings per share		2020		2019		2020		2019
Net income (loss) attributable to Mr. Cooper		$	209	$	84	$	114	$	(189)
Computation of Earnings Per Share										Computation of Earnings Per Share	2021		2020		2021		2020
Net income from continuing operations										Net income from continuing operations	$	310	$	187	$	1,296	$	105
Less: Net income attributable to non-controlling interests										Less: Net income attributable to non-controlling interests	—		5		—		2
Less: Undistributed earnings from continuing operations attributable to participating stockholders										Less: Undistributed earnings from continuing operations attributable to participating stockholders	1		2		9		1
Less: Premium on retirement of preferred stock										Less: Premium on retirement of preferred stock	28		—		28		—
Net income from continuing operations attributable to Mr. Cooper common stockholders										Net income from continuing operations attributable to Mr. Cooper common stockholders	$	281	$	180	$	1,259	$	102

Net (loss) income from discontinued operations										Net (loss) income from discontinued operations	$	(11)	$	27	$	3	$	11
Less: Undistributed earnings from discontinued operations attributable to participating stockholders										Less: Undistributed earnings from discontinued operations attributable to participating stockholders	—		—		—		—
Net (loss) income from discontinued operations attributable to Mr. Cooper common stockholders										Net (loss) income from discontinued operations attributable to Mr. Cooper common stockholders	$	(11)	$	27	$	3	$	11

Net income										Net income	$	299	$	214	$	1,299	$	116
Less: Net income attributable to non-controlling interests										Less: Net income attributable to non-controlling interests	—		5		—		2
Net income attributable to Mr. Cooper										Net income attributable to Mr. Cooper	299		209		1,299		114
Less: Undistributed earnings attributable to participating stockholders	Less: Undistributed earnings attributable to participating stockholders	2		1		1		0		Less: Undistributed earnings attributable to participating stockholders	1		2		9		1
Net income (loss) attributable to common stockholders		$	207	$	83	$	113	$	(189)
Less: Premium on retirement of preferred stock										Less: Premium on retirement of preferred stock	28		—		28		—
Net income attributable to common stockholders										Net income attributable to common stockholders	$	270	$	207	$	1,262	$	113

Net income (loss) per common share attributable to Mr. Cooper:
Earnings from continuing operations per common share attributable to Mr. Cooper:										Earnings from continuing operations per common share attributable to Mr. Cooper:
Basic										Basic	$	3.56	$	1.98	$	14.85	$	1.12
Diluted										Diluted	$	3.42	$	1.91	$	14.20	$	1.09

Earnings from discontinued operations per common share attributable to Mr. Cooper:										Earnings from discontinued operations per common share attributable to Mr. Cooper:
Basic										Basic	$	(0.14)	$	0.28	$	0.04	$	0.11
Diluted										Diluted	$	(0.13)	$	0.27	$	0.03	$	0.11

Earnings per common share attributable to Mr. Cooper:										Earnings per common share attributable to Mr. Cooper:
Basic	Basic	$	2.26	$	0.91	$	1.23	$	(2.08)	Basic	$	3.42	$	2.26	$	14.89	$	1.23
Diluted	Diluted	$	2.18	$	0.90	$	1.20	$	(2.08)	Diluted	$	3.29	$	2.18	$	14.23	$	1.20

Weighted average shares of common stock outstanding (in thousands):	Weighted average shares of common stock outstanding (in thousands):									Weighted average shares of common stock outstanding (in thousands):
Basic	Basic	91,682		91,080		91,688		91,012		Basic	78,944		91,682		84,809		91,688
Dilutive effect of stock awards(1)		2,563		117		1,529		0
Dilutive effect of participating securities(1)		839		839		839		0
Dilutive effect of stock awards										Dilutive effect of stock awards	2,826		2,563		3,176		1,529
Dilutive effect of participating securities										Dilutive effect of participating securities	301		839		658		839
Diluted	Diluted	95,084		92,036		94,056		91,012		Diluted	82,071		95,084		88,643		94,056

~~(1)~~

~~For periods with net loss, the Company excluded potential common shares from the computation~~Table of ~~diluted EPS because inclusion would be antidilutive.~~Contents

12. Income Taxes

For the three and nine months ended September 30, ~~2020,~~2021, the effective tax rate for continuing operations was ~~24.0%~~25.0% and ~~23.9%~~24.0%, respectively, which differed from the statutory federal rate of 21% primarily due to state income taxes ~~as well as unfavorable permanent differences including~~and nondeductible executive ~~compensation disallowed under Internal Revenue Code Section 162(m).~~compensation. The effective tax rate increased during the ~~three and~~ nine months ended September 30, ~~2020~~2021 compared to the same ~~periods~~period in ~~2019,~~2020, primarily due to quarterly discrete tax items related to the ~~relative unfavorable tax impacts~~completion of the ~~permanent differences on the annual effective rate.~~Title Transaction and excess tax benefit from stock-based compensation.

For the three and nine months ended September 30, ~~2019,~~2020, the effective tax rate for continuing operations was ~~22.3%~~23.9% and ~~21.5%~~23.8%, 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)~~state income taxes and nondeductible ~~meals and entertainment expenses, as well as other recurring items such as the state tax benefit.~~executive compensation.

13. Fair Value Measurements

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

There have been no significant changes to the valuation techniques and inputs used by the Company in estimating fair values of Level 2 and Level 3 assets and liabilities as disclosed in the Company’s Annual Reports on Form 10-K for the year ended December 31, ~~2019,~~2020, with the exception of the following:

~~Derivative Financial Instruments~~Mortgage Servicing Rights – Fair Value (Level 23) – The Company estimates the fair value of its forward MSRs on a recurring basis using a process that combines the use of a discounted cash flow model and ~~Level 3) –~~ ~~During~~analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on a discounted cash flow model which incorporates prepayment speeds, delinquencies, discount rate, ancillary revenues, float earnings and other assumptions (including costs to service, recapture rates and forbearance rates), with the key assumptions being mortgage prepayment speeds, discount rates, and cost to service. In the second quarter of 2021, the Company refined its estimate of the fair value of forward MSRs by incorporating an estimate of future cash flows from loans that are expected to be recaptured. The estimate of future cash flows related to recapture is consistent with recent pricing observed from various market participants, including the Company’s independent third-party valuation firms. As a result of considering the recapture rate, the Company adjusted its discount rate assumption in order to ensure that the fair value of forward MSRs remains consistent with current market participant pricing and is reflective of an exit price. The estimated fair value was also corroborated with valuations provided by independent third parties. The net impact on the overall forward MSRs fair value was not significant during the three and six months ended June 30, ~~2020,~~2021. 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 ~~changed~~and can have a significant impact on the fair value classification of its IRLCs and LPCs derivatives from Level 2 to Level 3. IRLCs and LPCs are carried at fair value primarily based on secondary market prices for underlying mortgage loans, which is observable data, with adjustments made to such observable data for the inherent value of servicing, which is an unobservable input. The fair value is also subject to adjustments for the estimated pull-through rate. The impact of the ~~unobservable input~~MSRs. Quarterly, management obtains third-party valuations to assess the ~~overall valuation~~reasonableness of ~~IRLCs and LPCs was previously much less significant, resulting in a classification of Level 2 in~~ the fair value ~~hierarchy as of December 31, 2019. During~~calculations provided by the ~~three months ended June 30,2020, market interest rates continued to decline and fell to record lows, which drove an increase in the volume~~internal cash flow model. Because of the ~~Company’s IRLCs and LPCs and increased the impact~~nature of the ~~unobservable input on~~valuation inputs, the ~~overall valuation of IRLCs and LPCs. Such increased impact of the unobservable input on the overall valuation resulted in a classification of~~Company classifies these valuations as Level 3 in the fair value ~~hierarchy as of June 30, 2020.~~

For other derivatives, they are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, the Company classifies these contracts as Level 2 in the fair value disclosure.

~~Derivative financial instruments are recorded in other assets and payables and other liabilities within the consolidated balance sheets.~~disclosures. See Note ~~8, Derivative Financial Instruments~~3, Mortgage Servicing Rights and Related Liabilities, for more information.

Equity Securities (Level 1 and Level 3) – In the second quarter of 2021, the Company sold its Xome Title business and retained 9.9% interest in the form of common stock. The fair value of these common stock is measured quarterly based on an independent third-party valuation, which utilizes unobservable inputs, in addition to observable market indicators. Because of the nature of the unobservable inputs, the Company classifies these valuations as Level 3 in the fair value disclosures.

In the third quarter of 2021, the Company received equity securities in the form of common stock in connection with the sale of Xome Valuations business. The fair value of these common stock is measured using the closing price reported on an active market in which the securities are traded. As the fair value is based on market observable inputs, the Company classifies these valuations as Level 1 in the fair value disclosures. See Note 1, Nature of Business and Basis of Presentation for further details on sale of businesses.

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The following tables present the estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis:


		September 30, 2020									September 30, 2021
				Recurring Fair Value Measurements									Recurring Fair Value Measurements
Fair value - Recurring basis		Total Fair Value		Level 1		Level 2		Level 3
Fair Value - Recurring Basis										Fair Value - Recurring Basis	Total Fair Value		Level 1		Level 2		Level 3
Assets	Assets									Assets
Mortgage loans held for sale	Mortgage loans held for sale	$	3,817	$	0	$	3,817	$	0	Mortgage loans held for sale	$	7,939	$	—	$	7,939	$	—
Forward mortgage servicing rights	Forward mortgage servicing rights	2,663		0		0		2,663		Forward mortgage servicing rights	3,666		—		—		3,666
Equity securities										Equity securities	58		8		—		50
Derivative financial instruments	Derivative financial instruments									Derivative financial instruments
IRLCs	IRLCs	414		0		0		414		IRLCs	167		—		—		167
LPCs										LPCs	6		—		—		6
Forward MBS trades	Forward MBS trades	23		0		23		0		Forward MBS trades	61		—		61		—
LPCs		38		0		0		38

Liabilities	Liabilities									Liabilities
Derivative financial instruments	Derivative financial instruments									Derivative financial instruments

LPCs										LPCs	13		—		—		13
Forward MBS trades	Forward MBS trades	$	42	$	0	$	42	$	0	Forward MBS trades	23		—		23		—
LPCs		2		0		0		2
Swap futures										Swap futures	12		—		12		—
Mortgage servicing rights financing	Mortgage servicing rights financing	47		0		0		47		Mortgage servicing rights financing	20		—		—		20
Excess spread financing	Excess spread financing	1,044		0		0		1,044		Excess spread financing	822		—		—		822


		December 31, 2019									December 31, 2020
				Recurring Fair Value Measurements									Recurring Fair Value Measurements
Fair value - Recurring basis		Total Fair Value		Level 1		Level 2		Level 3
Fair Value - Recurring Basis										Fair Value - Recurring Basis	Total Fair Value		Level 1		Level 2		Level 3
Assets	Assets									Assets
Mortgage loans held for sale	Mortgage loans held for sale	$	4,077	$	0	$	4,077	$	0	Mortgage loans held for sale	$	5,720	$	—	$	5,720	$	—
Forward mortgage servicing rights	Forward mortgage servicing rights	3,496		0		0		3,496		Forward mortgage servicing rights	2,703		—		—		2,703
Derivative financial instruments	Derivative financial instruments									Derivative financial instruments
IRLCs	IRLCs	135		0		135		0		IRLCs	414		—		—		414
LPCs										LPCs	38		—		—		38
Forward MBS trades	Forward MBS trades	7		0		7		0		Forward MBS trades	37		—		37		—
LPCs		12		0		12		0

Liabilities	Liabilities									Liabilities
Derivative financial instruments	Derivative financial instruments									Derivative financial instruments
LPCs										LPCs	1		—		—		1
Forward MBS trades	Forward MBS trades	$	12	$	0	$	12	$	0	Forward MBS trades	156		—		156		—
LPCs		3		0		3		0
Mortgage servicing rights financing	Mortgage servicing rights financing	37		0		0		37		Mortgage servicing rights financing	33		—		—		33
Excess spread financing	Excess spread financing	1,311		0		0		1,311		Excess spread financing	934		—		—		934

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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											Nine Months Ended September 30, 2021
		Assets						Liabilities					Assets								Liabilities
Fair value - Level 3 assets and liabilities		Forward mortgage servicing rights		IRLCs		LPCs		Excess spread financing		Mortgage servicing rights financing
Fair Value - Level 3 Assets and Liabilities												Fair Value - Level 3 Assets and Liabilities	Forward mortgage servicing rights		Equity securities		IRLCs		LPCs		Excess spread financing		Mortgage servicing rights financing		LPCs
Balance - beginning of period	Balance - beginning of period	$	3,496	$	135	$	12	$	1,311	$	37	Balance - beginning of period	$	2,703	$	—	$	414	$	38	$	934	$	33	$	1
Total gains or losses included in earnings		(1,275)		279		26		(132)		10

Changes in fair value included in earnings												Changes in fair value included in earnings	(296)		—		(247)		(32)		6		(13)		12
Other changes												Other changes	44		—		—		—		—		—		—
Purchases, issuances, sales, repayments and settlements	Purchases, issuances, sales, repayments and settlements											Purchases, issuances, sales, repayments and settlements
Purchases		30		0		0		0		0
Purchases/Additions												Purchases/Additions	438		50		—		—		—		—		—
Issuances	Issuances	412		0		0		24		0		Issuances	790		—		—		—		—		—		—

Sales												Sales	(13)		—		—		—		—		—		—
Settlements and repayments	Settlements and repayments	0		0		0		(159)		0		Settlements and repayments	—		—		—		—		(118)		—		—
Balance - end of period	Balance - end of period	$	2,663	$	414	$	38	$	1,044	$	47	Balance - end of period	$	3,666	$	50	$	167	$	6	$	822	$	20	$	13

Nine Months Ended September 30, 2019
Assets Liabilities
Fair value - Level 3 assets and liabilities Forward mortgage servicing rights Mortgage loans held for investment Excess spread financing Mortgage servicing rights financing
Balance - beginning of period $ 3,665 $ 119 $ 1,184 $ 32
Total gains or losses included in earnings (1,039) 3 (190) 15
Payments received from borrowers 0 (11) 0 0
Purchases, issuances, sales, repayments and settlements
Purchases 732 0 469 0
Issuances 298 0 0 0
Sales (317) (94) 0 0
Settlements and repayments 0 0 (182) 0
Transfers to mortgage loans held for sale 0 (12) 0 0
Transfers to real estate owned 0 (5) 0 0
Balance - end of period $ 3,339 $ 0 $ 1,281 $ 47

The Company had LPCs liabilities of $2 and $3 as of September 30, 2020 and December 31, 2019, respectively. During the nine months ended September 30, 2020, the Company had an immaterial change in LPCs liabilities.


	Nine Months Ended September 30, 2020
	Assets						Liabilities
Fair Value - Level 3 Assets and Liabilities	Forward mortgage servicing rights		IRLCs		LPCs		Excess spread financing		Mortgage servicing rights financing
Balance - beginning of period	$	3,496	$	135	$	12	$	1,311	$	37
Changes in fair value included in earnings	(1,332)		279		26		(132)		10
Other changes	57		—		—		—		—
Purchases, issuances, sales, repayments and settlements
Purchases	30		—		—		—		—
Issuances	412		—		—		24		—
Settlements and repayments	—		—		—		(159)		—
Balance - end of period	$	2,663	$	414	$	38	$	1,044	$	47

No transfers were made in or out of Level 3 fair value assets and liabilities for the Company during the nine months ended September 30, ~~2020, with the exception of the change in classification for IRLCs~~2021 and LPCs from Level 2 fair value assets to Level 3 fair value assets as discussed above. No transfers were made into Level 3 fair value assets and liabilities for the Company during the nine months ended September 30, 2019. During the nine months ended September 30, 2019, $12 was transferred from mortgage loans held for investment, a Level 3 fair value asset, to mortgage loans held for sale, a Level 2 fair value asset, in connection with the collapse of Trust 2009-A, the Company’s legacy portfolio, and sale of the loans held in the trust.2020.

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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										September 30, 2021										December 31, 2020
		Range						Weighted Average				Range						Weighted Average				Range								Weighted Average
Level 3 inputs		Min			Max
Level 3 Inputs											Level 3 Inputs	Min			Max						Weighted Average				Min				Max				Weighted Average
Forward MSR	Forward MSR										Forward MSR
Discount rate	Discount rate	8.3		%	12.0		%	9.5		%	Discount rate	9.5		%	13.8		%	10.9		%		8.2		%		12.0		%		9.4		%
Prepayment speed	Prepayment speed	12.6		%	19.2		%	14.4		%	Prepayment speed	11.8		%	16.5		%	12.9		%		14.2		%		21.3		%		15.4		%
Cost to service per loan(1)	Cost to service per loan(1)	$	68		$	295		$	105		Cost to service per loan(1)	$	61		$	180		$	79			$	66			$	257			$	98
Average life(2)											Average life(2)							5.8 years												5.0 years

IRLCs	IRLCs										IRLCs
Value of servicing (basis points per loan)	Value of servicing (basis points per loan)	(0.4)			2.1			1.2			Value of servicing (basis points per loan)	(1.3)			2.4			1.3				(1.0)				2.2				1.2

Excess spread financing	Excess spread financing										Excess spread financing
Discount rate	Discount rate	9.8		%	15.5		%	11.9		%	Discount rate	9.5		%	13.8		%	11.2		%		9.9		%		15.7		%		12.2		%
Prepayment speed	Prepayment speed	13.4		%	14.0		%	13.6		%	Prepayment speed	12.8		%	15.1		%	13.4		%		13.9		%		15.0		%		14.4		%
Recapture rate	Recapture rate	17.1		%	23.5		%	19.1		%	Recapture rate	17.3		%	28.9		%	23.1		%		17.7		%		24.2		%		19.5		%
Average life		5.2 years			5.5 years			5.3 years
Average life(2)											Average life(2)							5.4 years												5.1 years

Mortgage servicing rights financing	Mortgage servicing rights financing										Mortgage servicing rights financing
Advance financing and counterparty fee rates	Advance financing and counterparty fee rates	6.4		%	9.4		%	8.2		%	Advance financing and counterparty fee rates	5.2		%	8.0		%	6.7		%		4.6		%		8.5		%		7.5		%
Annual advance recovery rates	Annual advance recovery rates	18.6		%	22.6		%	20.2		%	Annual advance recovery rates	18.8		%	22.6		%	20.7		%		18.3		%		22.0		%		19.9		%

(1)Presented in whole dollar amounts.

(2)Average life is included for informational purposes.

The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial instruments not carried at fair value:

September 30, 2020
Carrying
Amount Fair Value
Financial instruments Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 946 $ 946 $ 0 $ 0
Restricted cash 229 229 0 0
Advances and other receivables, net 745 0 0 745
Reverse mortgage interests, net 5,460 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 2020-1 513 0 0 513
Trust 2019-2 257 0 0 257
Trust 2019-1 225 0 0 225


	September 30, 2021
	Carrying Amount		Fair Value
Financial Instruments			Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	731	$	731	$	—	$	—
Restricted cash	118		118		—		—
Advances and other receivables, net	909		—		—		909
Loans subject to repurchase from Ginnie Mae	2,703		—		2,703		—
Financial liabilities
Unsecured senior notes, net	2,076		2,168		—		—
Advance and warehouse facilities, net	8,206		—		8,219		—
Liability for loans subject to repurchase from Ginnie Mae	2,703		—		2,703		—

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

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December 31, 2019
Carrying
Amount Fair Value
Financial instruments Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 329 $ 329 $ 0 $ 0
Restricted cash 283 283 0 0
Advances and other receivables, net 988 0 0 988
Reverse mortgage interests, net 6,279 0 0 6,318
Financial liabilities
Unsecured senior notes(1)
2,366 2,505 0 0
Advance and warehouse facilities(1)
4,997 0 4,997 0
Participating interest financing(1)
4,299 0 0 4,299
HECM Securitization (HMBS)(1)
Trust 2019-2 331 0 0 331
Trust 2019-1 300 0 0 300
Trust 2018-3 208 0 0 208
Trust 2018-2 148 0 0 148

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


	December 31, 2020
	Carrying Amount		Fair Value
Financial Instruments			Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	695	$	695	$	—	$	—
Restricted cash	135		135		—		—
Advances and other receivables, net	940		—		—		940
Loans subject to repurchase from Ginnie Mae	6,159		—		6,159		—
Financial liabilities
Unsecured senior notes, net	2,074		2,208		—		—
Advance and warehouse facilities, net	6,258		—		6,269		—
Liability for loans subject to repurchase from Ginnie Mae	6,159		—		6,159		—

14. Capital Requirements

Certain of the Company’s secondary market investors require minimum net worth (“capital”) requirements, as specified in the respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated requirements to approve large servicing transfers. To the extent that these requirements are not met, the Company’s secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of the Company’s selling and servicing agreements, which would prohibit the Company from further originating or securitizing these specific types of mortgage loans or being an approved servicer. The Company’s various capital requirements related to its outstanding selling and servicing agreements are measured based on the Company’s operating subsidiary, Nationstar Mortgage LLC. As of September 30, ~~2020,~~2021, the Company was in compliance with its selling and servicing capital requirements.

15. Commitments and Contingencies

Litigation and Regulatory

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

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

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The ~~Company’s~~Company operates within highly regulated industries on a federal, state and local level. In the normal and ordinary course of its business, the Company is ~~also~~routinely subject to extensive examinations, investigations, subpoenas, inquiries 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 byincluding 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~~various State mortgage banking regulators and various State Attorneys ~~General. These specific matters~~General, related to the Company’s residential loan servicing and origination practices, its financial reporting and other aspects of its businesses. Any pending or potential future investigations, subpoenas, examinations or inquiries may lead to administrative, civil or criminal proceedings or settlements, and possibly result in remedies including fines, penalties, restitution, or alterations in the Company’s business practices, and additional expenses and collateral costs. The Company is cooperating fully in these matters. Responding to these matters requires the Company to devote substantial resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase the Company’s operating expenses and reduce its revenues, require it to change business practices and limit its ability to grow and otherwise materially and adversely affect its business, reputation, financial condition orand results of operation.

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

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

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

As a legal matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company will establish an accrued liability and record a corresponding amount to legal-related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Legal-related expense for the Company, which includes legal settlements and the fees paid to external legal service providers, of $9$10 and ~~$36~~$31 for ~~the~~ three and nine months ended September 30, ~~2020,~~2021, respectively, and ~~$24~~$9 and ~~$56~~$36 for ~~the~~ three and nine months ended September 30, ~~2019,~~2020, respectively, was included in general and administrative expenses on the condensed 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~~Management currently believes the aggregate range of reasonably possible loss is $3$8 to ~~$20~~$15 in ~~excess~~excess of the accrued liability (if any) related to those matters as of September 30, ~~2020.~~2021. This estimated range of possible loss isis based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within the estimated range. Therefore, this estimated range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure and the Company cannot provide assurance that its litigations reserves will not need to be adjusted in the future. Thus, the Company’s exposure and ultimate losses may be higher, possibly significantly so, than the amounts accrued or this aggregate amount.

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

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

Other Loss Contingencies

As part of the Company’s ongoing operations, it acquires servicing rights of forward ~~and reverse~~ mortgage loan portfolios that are subject to indemnification based on the representations and warranties of the seller. From time to time, the Company will seek recovery under these representations and warranties for incurred costs. The Company believes all balances sought from sellers recorded in advances and other receivables ~~and reverse mortgage interests~~ represent valid claims. However, the Company acknowledges that the claims process can be prolonged due to the required time to perfect claims at the loan level. Because of the required time to perfect or remediate these claims, management relies on the sufficiency of documentation supporting the claim, current negotiations with the counterparty and other evidence to evaluate whether a reserve is required for non-recoverable balances. In the absence of successful negotiations with the seller, all amounts claimed may not be recovered. Balances may be written-off and charged against earnings when management identifies amounts where recoverability from the seller is not likely. As of September 30, ~~2020,~~2021, the Company believes all recorded balances for which recovery is sought from the seller are valid claims, and no evidence suggests additional reserves are warranted.

Loan and Other Commitments

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

~~The Company had certain reverse MSRs, reverse MSLs and reverse mortgage loans related to approximately $20,006 and $22,725~~In the second quarter of ~~UPB in reverse mortgage loans as of September 30, 2020 and December 31, 2019, respectively. As a servicer for these reverse mortgage loans, among other things,~~2021, the Company is obligated to fund borrowers’ draws to the loan customers as required in accordance with the loan agreement. As of September 30, 2020 and December 31, 2019, the Company’s maximum unfunded advance obligation to fund borrower draws related to these reverse MSRs and loans was approximately $2,304 and $2,617, respectively. Upon funding any portion of these draws,entered into an agreement, under which the Company ~~expects to securitize and sell the advances~~committed a total of $83 over a period of 5 years in ~~transactions that will be accounted~~exchange for ~~as secured borrowings.~~cloud platform service.

16. ~~Business~~ Segment ~~Reporting~~Information

The Company’s segments are based upon the Company’s organizational structure, which focuses primarily on the services offered. Corporate functional expenses are allocated to individual segments based on the actual cost of services performed, ~~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~~third quarter of ~~2020,~~2021, the Company updated its presentation of ~~segment assets~~segments to ~~be aligned~~align with a change in the reporting package provided to the Chief Operating Decision Maker. In 2021, the Company sold the Xome Title business and Valuations business and entered into a definitive agreement to sell the Xome Field Services business. See Note 1, Nature of Business and Basis of Presentation for further details. The ~~presentation change had no impact on~~Title, Valuations and Field Services businesses were previously reported under the ~~segments' operations. Assets allocated~~Xome segment. With the sale of majority of Xome’s operations and the related changes to ~~the Servicing segment include MSRs; advances~~business structure 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 tointernal reporting, 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 towill no longer be considered a reportable segment. Accordingly, beginning in the third quarter of 2021, the Company began 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 inXome’s financial results within Corporate/Other. Prior year financial information has been adjusted retrospectively to reflect the updated presentation.

On July 1, 2021, the Company entered into a definitive agreement for the sale of its reverse servicing portfolio, operating under the Champion Mortgage brand, to Mortgage Assets Management, LLC and its affiliates. The reverse servicing operation was previously reported in the Company’s Servicing segment. The reverse servicing operation is presented as discontinued operations in Company’s condensed consolidated financial statements for all periods presented and as such is not included in the continuing operations of the Servicing segment. Refer to Note 2, Discontinued Operations for further details. As of September 30, 2021 and December 31, 2020, total assets of discontinued operations was $3,722 and $5,347, respectively.

In June and August 2021, the Company closed the sale of Xome Title and Valuations businesses, respectively. The Xome Title and Valuations businesses were reported within Corporate/Other. The Company recorded a $487 and $7 gain in the second and third quarter of 2021 upon closing of the Title Transaction and Valuations Transaction, respectively. The gain was included in other income, net in the condensed statements of operations and reported under Corporate/Other.

The following tables present financial information by segment:

Three Months Ended September 30, 2020
Financial information by segment Servicing Originations Xome Corporate/Other Consolidated
Revenues
Service related, net(1)
$ 92 $ 27 $ 108 $ 0 $ 227
Net gain on mortgage loans held for sale 40 605 0 0 645
Total revenues 132 632 108 0 872
Total expenses 99 195 94 43 431
Interest income 40 16 0 0 56
Interest expense (105) (15) 0 (45) (165)
Other income (expenses), net 0 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											Three Months Ended September 30, 2021
Financial information by segment		Servicing		Originations		Xome		Corporate/Other		Consolidated
Financial Information by Segment												Financial Information by Segment	Servicing		Originations		Corporate/Other		Consolidated
Revenues	Revenues											Revenues
Service related, net~~(1)~~	Service related, net~~(1)~~	$	126	$	22	$	112	$	(2)	$	258	Service related, net~~(1)~~	$	209	$	44	$	35	$	288
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale	37		312		0		11		360		Net gain on mortgage loans held for sale	142		430		—		572
Total revenues	Total revenues	163		334		112		9		618		Total revenues	351		474		35		860
Total expenses	Total expenses	171		155		101		51		478		Total expenses	128		208		66		402
Interest income	Interest income	137		24		0		2		163		Interest income	39		27		—		66
Interest expense	Interest expense	(120)		(24)		0		(52)		(196)		Interest expense	(65)		(22)		(31)		(118)
Other (expense) income, net		0		(1)		3		(2)		0
Total other income (expenses), net		17		(1)		3		(52)		(33)
Income (loss) before income tax expense (benefit)		$	9	$	178	$	14	$	(94)	$	107
Depreciation and amortization for property and equipment and intangible assets		$	5	$	4	$	4	$	9	$	22
Other income, net												Other income, net	—		—		8		8
Total other (expenses) income, net												Total other (expenses) income, net	(26)		5		(23)		(44)
Income (loss) from continuing operations before income tax expense (benefit)												Income (loss) from continuing operations before income tax expense (benefit)	$	197	$	271	$	(54)	$	414
Depreciation and amortization for property and equipment and intangible assets from continuing operations												Depreciation and amortization for property and equipment and intangible assets from continuing operations	$	11	$	8	$	(5)	$	14
Total assets	Total assets	$	12,065	$	4,386	$	172	$	1,855	$	18,478	Total assets	$	14,560	$	4,949	$	2,152	$	21,661

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		Nine Months Ended September 30, 2020											Three Months Ended September 30, 2020
Financial information by segment		Servicing		Originations		Xome		Corporate/Other		Consolidated
Financial Information by Segment												Financial Information by Segment	Servicing		Originations		Corporate/Other		Consolidated
Revenues	Revenues											Revenues
Service related, net~~(1)~~	Service related, net~~(1)~~	$	(202)	$	68	$	320	$	0	$	186	Service related, net~~(1)~~	$	83	$	27	$	108	$	218
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale	119		1,475		0		0		1,594		Net gain on mortgage loans held for sale	40		605		—		645
Total revenues	Total revenues	(83)		1,543		320		0		1,780		Total revenues	123		632		108		863
Total expenses	Total expenses	370		528		285		111		1,294		Total expenses	123		195		137		455
Interest income	Interest income	180		69		0		1		250		Interest income	1		16		—		17
Interest expense	Interest expense	(335)		(55)		0		(144)		(534)		Interest expense	(68)		(15)		(45)		(128)
Other income (expense), net		0		0		3		(53)		(50)
Other (expense), net												Other (expense), net	—		—		(51)		(51)
Total other (expenses) income, net	Total other (expenses) income, net	(155)		14		3		(196)		(334)		Total other (expenses) income, net	(67)		1		(96)		(162)
(Loss) income before income tax (benefit) expense		$	(608)	$	1,029	$	38	$	(307)	$	152
Depreciation and amortization for property and equipment and intangible assets		$	14	$	12	$	11	$	19	$	56
(Loss) income from continuing operations before income tax (benefit) expense												(Loss) income from continuing operations before income tax (benefit) expense	$	(67)	$	438	$	(125)	$	246
Depreciation and amortization for property and equipment and intangible assets from continuing operations												Depreciation and amortization for property and equipment and intangible assets from continuing operations	$	6	$	5	$	8	$	19
Total assets	Total assets	$	14,707	$	4,250	$	135	$	2,663	$	21,755	Total assets	$	14,707	$	4,250	$	2,798	$	21,755


		Nine Months Ended September 30, 2019											Nine Months Ended September 30, 2021
Financial information by segment		Servicing		Originations		Xome		Corporate/Other		Consolidated
Financial Information by Segment												Financial Information by Segment	Servicing		Originations		Corporate/Other		Consolidated
Revenues	Revenues											Revenues
Service related, net~~(1)~~	Service related, net~~(1)~~	$	108	$	57	$	316	$	(2)	$	479	Service related, net~~(1)~~	$	558	$	132	$	170	$	860
Net gain on mortgage loans held for sale	Net gain on mortgage loans held for sale	90		687		0		11		788		Net gain on mortgage loans held for sale	466		1,367		—		1,833
Total revenues	Total revenues	198		744		316		9		1,267		Total revenues	1,024		1,499		170		2,693
Total expenses	Total expenses	555		404		301		153		1,413		Total expenses	359		665		257		1,281
Interest income	Interest income	388		64		0		7		459		Interest income	87		76		—		163
Interest expense	Interest expense	(343)		(67)		0		(162)		(572)		Interest expense	(201)		(70)		(92)		(363)
Other income (expense), net		0		4		14		(2)		16
Total other income (expenses), net		45		1		14		(157)		(97)
(Loss) income before income tax (benefit) expense		$	(312)	$	341	$	29	$	(301)	$	(243)
Depreciation and amortization for property and equipment and intangible assets		$	13	$	13	$	11	$	30	$	67
Other income, net												Other income, net	—		—		494		494
Total other (expenses) income, net												Total other (expenses) income, net	(114)		6		402		294
Income from continuing operations before income tax expense												Income from continuing operations before income tax expense	$	551	$	840	$	315	$	1,706
Depreciation and amortization for property and equipment and intangible assets from continuing operations												Depreciation and amortization for property and equipment and intangible assets from continuing operations	$	23	$	18	$	4	$	45
Total assets	Total assets	$	12,065	$	4,386	$	172	$	1,855	$	18,478	Total assets	$	14,560	$	4,949	$	2,152	$	21,661

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


	Nine Months Ended September 30, 2020
Financial Information by Segment	Servicing		Originations		Corporate/Other		Consolidated
Revenues
Service related, net	$	(237)	$	68	$	320	$	151
Net gain on mortgage loans held for sale	119		1,475		—		1,594
Total revenues	(118)		1,543		320		1,745
Total expenses	354		528		395		1,277
Interest income	44		69		1		114
Interest expense	(195)		(55)		(144)		(394)
Other (expense), net	—		—		(50)		(50)
Total other (expenses) income, net	(151)		14		(193)		(330)
(Loss) income from continuing operations before income tax (benefit) expenses	$	(623)	$	1,029	$	(268)	$	138
Depreciation and amortization for property and equipment and intangible assets from continuing operations	$	14	$	12	$	29	$	55
Total assets	$	14,707	$	4,250	$	2,798	$	21,755

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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~~economic, financial and ~~duration of~~public health disruptions caused by the COVID-19 ~~pandemic; the pandemic’s impact on the U.S. and global economies;~~pandemic and federal, state and local governmental responses to the ~~pandemic~~pandemic;

•our ability to maintain or grow the size of our servicing portfolio;

•our ability to maintain or grow our originations volume and profitability;

•our ability to recapture voluntary prepayments related to our existing servicing portfolio;

•our shift in the mix of our servicing portfolio to subservicing, which is highly concentrated;

•delays in our ability to collect or be reimbursed for servicing advances;

•our ability to obtain sufficient liquidity and capital to operate our business;

•changes in prevailing interest rates;

•~~our ability to finance and recover costs of our reverse servicing operations;~~

•our ability to successfully implement our strategic initiatives;

•our ability to realize anticipated benefits of our previous acquisitions;

•our ability to use net operating loss carryforwards and other tax attributes;

•changes in our business relationships or changes in servicing guidelines with Fannie Mae, Freddie Mac and Ginnie Mae;

•Xome’s ability to compete in highly competitive markets;

•our ability to pay down debt;

•our ability to manage legal and regulatory examinations and enforcement investigations and proceedings, compliance requirements and related costs;

•our ability to prevent cyber intrusions and mitigate cyber risks; and

•our ability to maintain our licenses and other regulatory approvals.

All of these factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assess the effect of each such new factor on our business. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and any of these statements included herein may prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Please refer to Risk ~~Factor~~Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this report and in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 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 condensed consolidated financial statements and in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. 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.~~loans. 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 ~~2006~~2009 to ~~$588~~$668 billion as of September 30, ~~2020.~~2021. 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 website 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 capital and liquidity, and managing interest rate and ~~credit~~other forms of risk;

•Improve efficiency by driving continuous improvement in unit costs for Servicing and Originations ~~and Xome,~~segments, as well as by taking corporate actions to eliminate costs throughout the organization;

•Grow our servicing portfolio to $1 trillion in UPB and ~~strengthen~~grow our customer base ~~in each~~by acquiring new customers and retaining existing customers;

•Achieve a refinance recapture rate of 60%;

•Delight our ~~segments;~~customers and keep Mr. Cooper a great place for our team members to work;

•Reinvent the customer experience by acting as the customer’s advocate and by harnessing technology to deliver user-friendly digital solutions;

•Sustain the talent of our people and the culture of our organization; 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~~eighteen months for borrowers under government and government agency mortgage programs, which we have extended to borrowers in our private label mortgage servicing portfolio. As of October ~~25, 2020,~~17, 2021, approximately ~~6.1%~~2.4% of our customers were on a forbearance plan, down from a peak of 7.2%. in July 2020. 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~~rights from Ginnie Mae in other assets and payables and other liabilities on a gross basis. The balance was ~~$5,095~~$2,486 as of September 30, ~~2020 and may increase during the fourth quarter.~~2021. See liquidity discussion related to the COVID-19 pandemic in Liquidity and Capital Resources section in MD&A.

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Anticipated Trends

~~Our Servicing segment~~In the third quarter of 2021, our forward MSR portfolio continued to ~~experience portfolio run-off from elevated prepayment speeds in the low interest rate environment, most of which was replenished by~~grow due to strong execution across all channels, primarily correspondent, ~~volume.~~direct-to-consumer, and acquisitions. We expect to see ~~servicing~~continued portfolio growth in the remainder of 2021 as the bulk market is starting to present us with more sizable opportunities. We closed on $21.6 billion in acquisitions this quarter, and anticipate closing on $32 billion in acquisitions subsequent to the third quarter of 2021. We have continued to benefit from early-buyout gains in 2021, which have driven strong operating income for our servicing segment, as we helped customers exit forbearance. We expect another quarter of solid early-buyout revenues in the fourth quarter of ~~2020, primarily~~2021, although down from ~~correspondent and flow originations as well as UPB growth from a major new subservicing relationship. During the~~ third quarter of ~~2020,~~2021, after which revenues will begin to taper off because we will be nearing the ~~servicing margin benefited from a $46 loss recovery related~~end of the inventory as loans in forbearance status continue to ~~settlement with a government agency. We don’t~~decrease. Based on the current interest rate environment, we expect ~~any additional settlements~~prepayment speeds and amortization to remain elevated in the fourth ~~quarter. Looking ahead into~~quarter of 2021. On July 1, 2021, we ~~would expect prepayment speeds~~entered into a definitive agreement for the sale of our reverse servicing portfolio, operating under the Champion Mortgage brand. The sale is expected to ~~decline from current level and also expect~~close in the fourth quarter of 2021. Refer to ~~see some contribution from incentive fees and early-buyout gains as we help customers exit forbearance.~~Note 2, Discontinued Operations, for further details.

Our Originations segment ~~has experienced~~continued to generate strong funded volumes from both the correspondent and direct-to-consumer channels in the third quarter of 2021 despite competitive pricing pressure. Additionally, our pull through adjusted lock volume ~~growth and higher~~grew by 9%, as we took advantage of the drop in mortgage rates during the quarter. We expect the originations profit margins to compress quarter-over-quarter in the fourth quarter of 2021 as a result of the lower interest rate environment, which more than offset the decline in our Servicing segment. As the pandemic began to impact the mortgage capital markets, our Originations segment took several steps to rapidly de-risk the pipeline. During 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 had record correspondent volumes during the third quarter of 2020. We expect to continue growing the correspondent channel.continued pricing pressure.

~~Our Xome segment’s~~In addition, we completed the sale of the Field Services business in October 2021. The sale of the Field Services business and the reverse servicing portfolio allow us to focus on our core business. Xome’s revenue ~~from the Exchange division~~ has been, and is expected to continue to be, negatively impacted, as the REO exchange continues to be idle while the foreclosure ~~process is currently on hold, with~~ moratoriums remain in ~~place~~effect. We expect the foreclosure moratoriums to expire at the ~~national level~~end of the year and the resumption of foreclosure sales in some local markets. However, Xome’s revenue from the Services division has benefited from the lower 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 contribute meaningfully to our consolidated results. 2022.

Results of Operations


Table 1. Consolidated Operations


		Three Months Ended September 30,									Three Months Ended September 30,
		2020		2019		$ Change		% Change			2021		2020		Change
Revenues - operational~~(1)~~	Revenues - operational~~(1)~~	$	901	$	701	$	200	29	%	Revenues - operational~~(1)~~	$	709	$	879	$	(170)
Revenues - Mark-to-market		(29)		(83)		54		(65)	%
Revenues - mark-to-market										Revenues - mark-to-market	151		(16)		167
Total revenues	Total revenues	872		618		254		41	%	Total revenues	860		863		(3)
Total expenses	Total expenses	431		478		(47)		(10)	%	Total expenses	402		455		(53)
Total other expenses, net	Total other expenses, net	(160)		(33)		(127)		385	%	Total other expenses, net	44		162		(118)
Income before income tax expense		281		107		174		163	%
Income from continuing operations before income tax expense										Income from continuing operations before income tax expense	414		246		168
Less: Income tax expense	Less: Income tax expense	67		24		43		179	%	Less: Income tax expense	104		59		45
Net income		214		83		131		158	%
Less: Net income (loss) attributable to non-controlling interests		5		(1)		6		(600)	%
Net income attributable to Mr. Cooper		$	209	$	84	$	125	149	%
Net income from continuing operations										Net income from continuing operations	310		187		123
Less: Net earnings attributable to non-controlling interests										Less: Net earnings attributable to non-controlling interests	—		5		(5)
Net income from continuing operations attributable to Mr. Cooper										Net income from continuing operations attributable to Mr. Cooper	$	310	$	182	$	128

~~(1)~~During the three months ended September 30, 2021, income from continuing operations before income tax expense increased to $414 from $246 in 2020. The increase was driven by a decrease in total other expenses, net and total expenses. Total other expenses, net decreased primarily due to the $53 loss in 2020 on redemption of the 2023 unsecured senior notes and increase in interest income related to higher pandemic related buyouts in 2021, whereas, the decrease in total expenses was related to the sale of Xome’s Title and Valuations businesses in 2021. See further discussions in ~~Revenues - operational consists~~Note 1, Nature of ~~total revenues, excluding mark-to-market.~~Business and Basis of Presentation, in the Notes to the Condensed Consolidated Financial Statements and the Segment Results section of the MD&A.

~~Net income increased~~The effective tax rate for continuing operations during the three months ended September 30, ~~2020 to $214~~2021 was 25.0% as compared to ~~net~~23.9% in 2020. The change in effective tax rate for continuing operations is primarily attributable to state income ~~of $83 during the same period in 2019. The net income in 2020 was higher primarily due to an increase in total revenues~~taxes 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 decrease in negative mark-to-market (“MTM”) adjustments during the three months ended September 30, 2020 compared to the same period in 2019. Refer to ~~Table 8. Servicing - Revenues~~ ~~and~~ ~~Table 19. Originations - Revenues~~ ~~for further discussion.~~

~~Total~~nondeductible executive compensation expenses during the three months ended September 30, ~~2020 decreased~~2021 as compared to the same period in 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.~~2020.

Total other expenses, net, increased during the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest income and 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 resultTable 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.~~Contents

During the three months ended September 30, 2020 and 2019, we had an income 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,
2020 2019 $ Change % Change
Revenues - operational(1)
$ 2,453 $ 1,874 $ 579 31 %
Revenues - Mark-to-market (673) (607) (66) 11 %
Total revenues 1,780 1,267 513 40 %
Total expenses 1,294 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 interests 2 (2) 4 (200) %
Net income (loss) attributable to Mr. Cooper $ 114 $ (189) $ 303 (160) %


	Nine Months Ended September 30,
	2021		2020		Change
Revenues - operational	$	2,317	$	2,363	$	(46)
Revenues - mark-to-market	376		(618)		994
Total revenues	2,693		1,745		948
Total expenses	1,281		1,277		4
Total other income (expenses), net	294		(330)		624
Income from continuing operations before income tax expense	1,706		138		1,568
Less: Income tax expense	410		33		377
Net income from continuing operations	1,296		105		1,191
Less: Net earnings attributable to non-controlling interests	—		2		(2)
Net income from continuing operations attributable to Mr. Cooper	$	1,296	$	103	$	1,193

~~(1)~~During the nine months ended September 30, 2021, income from continuing operations before income tax expense increased to $1,706 from $138 in 2020. The change was primarily driven by a favorable MTM adjustments in 2021 compared to negative MTM adjustments in 2020 due to the interest rate environment. The change was also attributable to the completion of the sale of Xome’s Title and Valuations businesses in 2021, which resulted in a $494 gain recorded in total other income (expenses), net. See further discussions in ~~Revenues - operational consists~~Note 1, Nature of Business and Basis of Presentation, in the Notes to the Condensed Consolidated Financial Statements and Segment Results section of the MD&A. In addition, total ~~revenues, excluding mark-to-market.~~other income (expenses), net in 2020 included the $53 loss on redemption of the 2023 unsecured senior notes.

~~We recorded net income of $116~~The effective tax rate for continuing operations during the nine months ended September 30, ~~2020~~2021 was 24.0% as compared to ~~a net loss of $191 during the same period~~23.8% in ~~2019.~~2020. The ~~net income in 2020 was primarily due to an~~ increase in ~~total revenues and decrease in total expenses. Operational revenues increased~~effective tax rate for continuing operations is 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 comparedattributable to the ~~same period in 2019. Refer to~~ ~~Table 8.1 Servicing - Revenues~~completion of the Title Transaction and ~~Table 19.1 Originations - Revenues~~ ~~for further discussion.~~

~~Total~~excess tax benefit from stock-based compensation 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 the nine months ended September 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~~

~~During the nine months ended September 30, 2020 and 2019, we had an income tax expense and benefit, respectively. The effective tax rate during the nine months ended September 30, 2020 was 23.9%~~2021 as compared to the effective tax rate of 21.5% during the nine 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 in the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

2020.

Segment Results

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

•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 channel, which purchases or originates loans from mortgage bankers. ~~Our wholesale channel was shut down during the three months ended June 30, 2020 and 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.

•Corporate/Other 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~~Information, in the Notes to the Condensed Consolidated Financial Statements for a summary of segment results.

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 our strong servicer ratings.

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Table 2. Servicer Ratings

Fitch(1)

Moody’s(2)

S&P(3)

Rating date

~~January 2020~~May 2021

~~September 2020~~February 2021

~~May 2019~~December 2020

Residential

~~RPS2-~~RPS2

~~Not Rated~~SQ2-

Above Average

Master Servicer

RMS2+

SQ2

Above Average

Special Servicer

~~RSS2-~~RSS2

~~Not Rated~~SQ2-

Above Average

Subprime Servicer

~~RPS2-~~RPS2

~~Not Rated~~SQ2-

Above 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 Rating Scale of Strong to Weak

~~Servicing Portfolio Composition~~

As of September 30, 2020, the unpaid principal balance in our servicing portfolio consisted of approximately $266.7 billion in forward loans, $300.9 billion in subservicing and other, and $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 the 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.

The charts below set forth the portfolio mix between 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 September 30, 2020 and 2019:

The following tables set forth the results of operations for the Servicing segment:

Table 3. Servicing Segment Results of Operations

Three Months Ended September 30,
2020 2019 $ Change % Change
Revenues
Operational $ 273 $ 319 $ (46) (14) %
Amortization, net of accretion (112) (73) (39) 53 %
Mark-to-market (29) (83) 54 (65) %
Total revenues 132 163 (31) (19) %
Total expenses 99 171 (72) (42) %
Total other (expenses) income, net (65) 17 (82) (482) %
(Loss) income before income tax (benefit) expense $ (32) $ 9 $ (41) (456) %

During the three months ended September 30, 2020, we incurred a loss before income tax benefit of $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.


	Three Months Ended September 30,
	2021				2020				Change
	Amt			bps(1)	Amt			bps(1)	Amt			bps
Revenues
Operational	$	402		25	$	268		19	$	134		6
Amortization, net of accretion	(202)			(12)	(129)			(9)	(73)			(3)
Mark-to-market	151			9	(16)			(1)	167			10
Total revenues	351			22	123			9	228			13
Expenses
Salaries, wages and benefits	69			4	66			5	3			(1)
General and administrative
Servicing support fees	19			1	26			2	(7)			(1)
Corporate and other general and administrative expenses	28			2	31			2	(3)			—
Foreclosure and other liquidation related (recoveries) expenses, net	1			—	(6)			—	7			—
Depreciation and amortization	11			1	6			—	5			1
Total general and administrative expenses	59			4	57			4	2			—
Total expenses	128			8	123			9	5			(1)
Other income (expense)

Other interest income	39			2	1			—	38			2
Interest income	39			2	1			—	38			2

Advance interest expense	(4)			—	(7)			(1)	3			1
Other interest expense	(61)			(4)	(61)			(4)	—			—
Interest expense	(65)			(4)	(68)			(5)	3			1

Total other expenses, net	(26)			(2)	(67)			(5)	41			3
Income (loss) from continuing operations before income tax expense (benefit)	$	197		12	$	(67)		(5)	$	264		17

Weighted average cost - advance facilities	2.7		%		3.0		%		(0.3)		%
Weighted average cost - excess spread financing	9.0		%		9.0		%		—		%

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

Table ~~8. Servicing - Revenues~~of Contents, ~~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~~- Revenues

Nine Months Ended September 30,
2020 2019 $ 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 expenses 370 555 (185) (33) %
Total other (expenses) income, net (155) 45 (200) (444) %
Loss before income tax benefit $ (608) $ (312) $ (296) 95 %


	Three Months Ended September 30,
	2021			2020			Change
	Amt		bps(1)	Amt		bps(1)	Amt		bps
Forward MSR Operational Revenue
Base servicing fees	$	230	14	$	231	16	$	(1)	(2)
Modification fees(2)	6		—	3		—	3		—

Late payment fees(2)	15		1	15		1	—		—
Other ancillary revenues(2)	155		10	52		4	103		6
Total forward MSR operational revenue	406		25	301		21	105		4
Base subservicing fees and other subservicing revenue(2)	61		4	71		5	(10)		(1)

Total servicing fee revenue	467		29	372		26	95		3
MSR financing liability costs	(6)		—	(8)		—	2		—
Excess spread payments and portfolio runoff	(59)		(4)	(96)		(7)	37		3
Total operational revenue	402		25	268		19	134		6
Amortization, Net of Accretion
Forward MSR amortization	(261)		(16)	(225)		(16)	(36)		—
Excess spread accretion	59		4	96		7	(37)		(3)


Total amortization, net of accretion	(202)		(12)	(129)		(9)	(73)		(3)
Mark-to-Market Adjustments
MSR MTM	155		10	(52)		(3)	207		13
MTM Adjustments(3)	(13)		(1)	2		—	(15)		(1)
Excess spread / financing MTM	9		—	34		2	(25)		(2)
Total MTM adjustments	151		9	(16)		(1)	167		10
Total revenues - Servicing	$	351	22	$	123	9	$	228	13

(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)MTM Adjustments 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 $8 and $7 during the three months ended September 30, 2021 and 2020, respectively. In addition, MTM Adjustments included a negative $8 impact from MSR hedging activities during the three months ended September 30, 2021.

Servicing Segment Revenues

The following provides the changes in revenues for the Servicing segment:

Forward - Other ancillary revenue increased during the three months ended September 30, 2021 as compared to 2020 primarily due to the $131 gain on sale associated with loans bought out of GNMA securitization, modified and redelivered following GNMA guidelines.

Forward MSR amortization increased during the three months ended September 30, 2021 as compared to 2020, primarily due to higher runoff values in 2021 due to favorable discount rates.

MTM adjustments increased during the three months ended September 30, 2021 compared to 2020, primarily due to favorable impact from changes in interest rates.

Subservicing - There were no material changes for Subservicing fees during the three months ended September 30, 2021 as compared to 2020.

Servicing Segment Expenses

There were no material changes for total expenses during the three months ended September 30, 2021 as compared to 2020.

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~~During~~Servicing Segment Other Income (Expenses), net

Total other expenses, net decreased during the ~~nine~~three months ended September 30, ~~2020, we incurred a loss before income tax benefit of $608~~2021 as 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 due to higher amortization, net of accretion, during the nine months ended September 30, 2020, ~~compared to the same period in 2019,~~ primarily due to an increase in amortization of forward MSRs as a result of 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 during the nine months ended September 30, 2020 decreased 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 primarily 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 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, net, during the nine 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 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. Refer to ~~Table 8.1 Servicing - Revenues~~, ~~Table 9.1 Servicing - Expenses~~ ~~and~~ ~~Table 10.1 Servicing - Other (Expenses) Income, Net,~~ ~~for further discussions on the changes in total revenues, total expenses and total other (expenses) income, net, respectively.~~higher pandemic related buyouts.

Table 4. Servicing Segment Results of Operations


	Nine Months Ended September 30,
	2021				2020				Change
	Amt			bps(1)	Amt			bps(1)	Amt			bps
Revenues
Operational	$	1,215		26	$	862		19	$	353		7
Amortization, net of accretion	(567)			(12)	(362)			(8)	(205)			(4)
Mark-to-market	376			7	(618)			(14)	994			21
Total revenues	1,024			21	(118)			(3)	1,142			24
Expenses
Salaries, wages and benefits	205			4	205			5	—			(1)
General and administrative
Servicing support fees	62			1	71			2	(9)			(1)
Corporate and other general and administrative expenses	88			2	93			2	(5)			—
Foreclosure and other liquidation related (recoveries) expenses, net	(19)			—	(29)			(1)	10			1
Depreciation and amortization	23			—	14			—	9			—
Total general and administrative expenses	154			3	149			3	5			—
Total expenses	359			7	354			8	5			(1)
Other income (expense)

Other interest income	87			2	44			1	43			1
Interest income	87			2	44			1	43			1

Advance interest expense	(14)			—	(20)			—	6			—
Other interest expense	(187)			(4)	(175)			(4)	(12)			—
Interest expense	(201)			(4)	(195)			(4)	(6)			—

Total other expenses, net	(114)			(2)	(151)			(3)	37			1
Income (loss) from continuing operations before income tax expense (benefit)	$	551		12	$	(623)		(14)	$	1,174		26

Weighted average cost - advance facilities	2.9		%		3.0		%		(0.1)		%
Weighted average cost - excess spread financing	9.0		%		9.0		%		—		%

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

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Table 4.1 Servicing - Revenues


	Nine Months Ended September 30,
	2021			2020			Change
	Amt		bps(1)	Amt		bps(1)	Amt		bps
Forward MSR Operational Revenue
Base servicing fees	$	677	14	$	720	17	$	(43)	(3)
Modification fees(2)	19		—	8		—	11		—
Incentive fees(2)	1		—	9		—	(8)		—
Late payment fees(2)	44		1	54		1	(10)		—
Other ancillary revenues(2)	507		11	134		3	373		8
Total forward MSR operational revenue	1,248		26	925		21	323		5
Base subservicing fees and other subservicing revenue(2)	191		4	205		4	(14)		—

Total servicing fee revenue	1,439		30	1,130		25	309		5
MSR financing liability costs	(19)		—	(25)		(1)	6		1
Excess spread payments and portfolio runoff	(205)		(4)	(243)		(5)	38		1
Total operational revenue	1,215		26	862		19	353		7
Amortization, Net of Accretion
Forward MSR amortization	(772)		(16)	(605)		(13)	(167)		(3)
Excess spread accretion	205		4	243		5	(38)		(1)


Total amortization, net of accretion	(567)		(12)	(362)		(8)	(205)		(4)
Mark-to-Market Adjustments
MSR MTM	476		10	(727)		(17)	1,203		27
MTM Adjustments(3)	(107)		(3)	(14)		—	(93)		(3)
Excess spread / financing MTM	7		—	123		3	(116)		(3)
Total MTM adjustments	376		7	(618)		(14)	994		21
Total revenues - Servicing	$	1,024	21	$	(118)	(3)	$	1,142	24

(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)MTM Adjustments 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 $28 and $20 during the nine months ended September 30, 2021 and 2020, respectively. In addition, MTM Adjustments included a negative $82 impact from MSR hedging activities during the nine months ended September 30, 2021.

Servicing Segment Revenues

The following provides the changes in revenues for the Servicing segment:

Forward - Base servicing fee revenue decreased during the nine months ended September 30, 2021 as compared to 2020 primarily due to an increase in loan modifications and a shift in portfolio mix from GNMA to FNMA and FHLMC in 2021, which generate lower servicing fees. Other ancillary revenues increased primarily due to the $421 gain on sale associated with loans bought out of GNMA securitization, modified and redelivered following GNMA guidelines.

Forward MSR amortization increased during the nine months ended September 30, 2021 as compared to 2020, primarily due to higher prepayments driven by the low interest rate environment.

Total MTM adjustments increased during the nine months ended September 30, 2021 compared to 2020, primarily due to favorable impact from changes in interest rates. MTM adjustments increased during the nine months ended September 30, 2021 compared to 2020 primarily due to the growth of loan-related derivative activities.

Subservicing - There were no material changes for Subservicing fees during the nine months ended September 30, 2021 as compared to 2020.

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Servicing Segment Expenses

There were no material changes for total expenses during the nine months ended September 30, 2021 as compared to 2020.

Servicing Segment Other Income (Expenses), net

Total other expenses, net decreased during the nine months ended September 30, 2021 as compared to 2020, primarily due to an increase in other interest income due to higher pandemic related buyouts.

Table 5. Servicing Portfolio - Unpaid Principal Balances


		Three Months Ended September 30,				Nine Months Ended September 30,									Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019							2021		2020		2021		2020
Average UPB	Average UPB									Average UPB
Forward MSRs	Forward MSRs	$	277,707	$	315,897	$	290,199	$	313,405	Forward MSRs					$	302,055	$	277,707	$	291,507	$	290,199
Subservicing and other(1)	Subservicing and other(1)	293,014		297,081		301,752		278,158		Subservicing and other(1)					351,211		293,014		347,598		301,752
Reverse loans		20,260		24,301		21,126		25,933
Total average UPB	Total average UPB	$	590,981	$	637,279	$	613,077	$	617,496	Total average UPB					$	653,266	$	570,721	$	639,105	$	591,951

						September 30, 2020		September 30, 2019			September 30, 2021						September 30, 2020
Ending UPB
											UPB		Carrying Amount		bps		UPB		Carrying Amount		bps
Forward MSRs	Forward MSRs									Forward MSRs
Agency	Agency					$	220,139	$	247,821	Agency	$	266,588	$	3,329	125		$	220,139	$	2,234	101
Non-agency	Non-agency					46,528		58,860		Non-agency	36,503		337		92		46,528		429		92
Total forward MSRs	Total forward MSRs					266,667		306,681		Total forward MSRs	303,091		3,666		121		266,667		2,663		100

Subservicing and other(1)	Subservicing and other(1)									Subservicing and other(1)
Agency	Agency					285,704		294,783		Agency	347,806		N/A				285,704		N/A
Non-agency	Non-agency					15,151		15,748		Non-agency	17,479		N/A				15,151		N/A
Total subservicing and other	Total subservicing and other					300,855		310,531		Total subservicing and other	365,285		N/A				300,855		N/A

Reverse loans
MSR						2,079		2,761
MSL						12,485		14,641
Securitized loans						5,442		6,588
Total reverse portfolio serviced						20,006		23,990
Total ending UPB						$	587,528	$	641,202
Total ending balance										Total ending balance	$	668,376	$	3,666			$	567,522	$	2,663

Forward MSRs UPB Encumbrance										Forward MSRs UPB Encumbrance									September 30, 2021		September 30, 2020
Forward MSRs - unencumbered										Forward MSRs - unencumbered									$	167,993	$	85,937
Forward MSRs - encumbered(2)										Forward MSRs - encumbered(2)									135,098		180,730
Total Forward MSRs UPB										Total Forward MSRs UPB									$	303,091	$	266,667

(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.

(2)The encumbered forward MSRs consist of residential mortgage loans included within our excess spread financing transactions and MSR financing liability.

Table of Contents

The following tables provide a rollforward of our forward MSR and subservicing and other portfolio UPB:


Table 5.6. Forward Servicing and Subservicing and Other Portfolio UPB Rollforward


		Three Months Ended September 30, 2020						Three Months Ended September 30, 2019							Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
		Forward MSR		Subservicing and Other		Total		Forward MSR		Subservicing and Other		Total			Forward MSR		Subservicing and Other		Total		Forward MSR		Subservicing and Other		Total
Balance - beginning of period	Balance - beginning of period	$	277,975	$	296,792	$	574,767	$	316,012	$	302,108	$	618,120	Balance - beginning of period	$	287,455	$	366,862	$	654,317	$	277,975	$	296,792	$	574,767
Additions:	Additions:													Additions:
Originations	Originations	14,517		1,232		15,749		11,397		410		11,807		Originations	18,821		1,175		19,996		14,517		1,232		15,749
Acquisitions / Increase in subservicing(1)	Acquisitions / Increase in subservicing(1)	(2,660)		38,082		35,422		333		33,273		33,606		Acquisitions / Increase in subservicing(1)	18,308		28,395		46,703		(2,660)		38,082		35,422
Deductions:	Deductions:													Deductions:
Dispositions	Dispositions	(23)		(3,046)		(3,069)		(2,707)		(9,399)		(12,106)		Dispositions	(14)		(1,119)		(1,133)		(23)		(3,046)		(3,069)
Principal reductions and other	Principal reductions and other	(2,683)		(2,659)		(5,342)		(3,029)		(2,597)		(5,626)		Principal reductions and other	(2,974)		(3,384)		(6,358)		(2,683)		(2,659)		(5,342)
Voluntary reductions(2)	Voluntary reductions(2)	(20,215)		(29,506)		(49,721)		(14,515)		(13,030)		(27,545)		Voluntary reductions(2)	(18,338)		(26,620)		(44,958)		(20,215)		(29,506)		(49,721)
Involuntary reductions(3)	Involuntary reductions(3)	(177)		(40)		(217)		(740)		(234)		(974)		Involuntary reductions(3)	(87)		(24)		(111)		(177)		(40)		(217)
Net changes in loans serviced by others	Net changes in loans serviced by others	(67)		—		(67)		(70)		—		(70)		Net changes in loans serviced by others	(80)		—		(80)		(67)		—		(67)
Balance - end of period	Balance - end of period	$	266,667	$	300,855	$	567,522	$	306,681	$	310,531	$	617,212	Balance - end of period	$	303,091	$	365,285	$	668,376	$	266,667	$	300,855	$	567,522

(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 three months ended September 30, ~~2020,~~2021, our ~~ending~~ forward MSR UPB ~~decreased~~increased primarily due to ~~increased~~originations volumes and acquisitions, partially offset by voluntary reductions ~~driven by~~in the low interest rate ~~environment, partially offset by increased origination volumes.~~environment. During the three months ended September 30, ~~2020,~~2021, our subservicing and other portfolio ~~ending~~ UPB increased primarily due to portfolio growth from our subservicing clients, partially offset by ~~increased~~ voluntary reductions in the low interest rate environment.


Table ~~5.1~~6.1 Forward Servicing and Subservicing and Other Portfolio UPB Rollforward


		Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019							Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
		Forward MSR		Subservicing and Other		Total		Forward MSR		Subservicing and Other		Total			Forward MSR		Subservicing and Other		Total		Forward MSR		Subservicing and Other		Total
Balance - beginning of period	Balance - beginning of period	$	296,782	$	323,983	$	620,765	$	295,481	$	223,886	$	519,367	Balance - beginning of period	$	271,189	$	336,513	$	607,702	$	296,782	$	323,983	$	620,765
Additions:	Additions:													Additions:
Originations	Originations	35,630		2,918		38,548		25,809		1,213		27,022		Originations	63,351		4,053		67,404		35,630		2,918		38,548
Acquisitions / Increase in subservicing(1)	Acquisitions / Increase in subservicing(1)	(4,967)		78,342		73,375		33,810		130,394		164,204		Acquisitions / Increase in subservicing(1)	35,369		131,355		166,724		(4,967)		78,342		73,375
Deductions:	Deductions:													Deductions:
Dispositions	Dispositions	(94)		(23,156)		(23,250)		(5,079)		(11,192)		(16,271)		Dispositions	(82)		(7,064)		(7,146)		(94)		(23,156)		(23,250)
Principal reductions and other	Principal reductions and other	(8,109)		(7,792)		(15,901)		(8,887)		(7,583)		(16,470)		Principal reductions and other	(8,364)		(10,242)		(18,606)		(8,109)		(7,792)		(15,901)
Voluntary reductions(2)	Voluntary reductions(2)	(51,514)		(73,291)		(124,805)		(31,925)		(25,670)		(57,595)		Voluntary reductions(2)	(57,801)		(89,237)		(147,038)		(51,514)		(73,291)		(124,805)
Involuntary reductions(3)	Involuntary reductions(3)	(815)		(149)		(964)		(2,309)		(517)		(2,826)		Involuntary reductions(3)	(343)		(93)		(436)		(815)		(149)		(964)
Net changes in loans serviced by others	Net changes in loans serviced by others	(246)		—		(246)		(219)		—		(219)		Net changes in loans serviced by others	(228)		—		(228)		(246)		—		(246)
Balance - end of period	Balance - end of period	$	266,667	$	300,855	$	567,522	$	306,681	$	310,531	$	617,212	Balance - end of period	$	303,091	$	365,285	$	668,376	$	266,667	$	300,855	$	567,522

(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.

Table of Contents

During the nine months ended September 30, 2021, our forward MSR UPB increased primarily due to originations volumes and acquisitions, partially offset by voluntary reductions in the low interest rate environment. During the nine months ended September 30, ~~2020,~~2021, our ~~ending forward MSR~~subservicing and other portfolio UPB ~~decreased~~increased primarily ~~due to increased~~driven by acquisitions, partially offset by 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 due to various MSR sales from our subservicing clients, partially offset by portfolio growth.environment.

The table below summarizes the overall performance of the forward servicing and subservicing portfolio:


Table 6.7. Key Performance Metrics - Forward Servicing and Subservicing Portfolio(1)


						September 30, 2020			September 30, 2019								September 30, 2021			September 30, 2020
Loan count(2)	Loan count(2)					3,283,769			3,601,322			Loan count(2)					3,488,384			3,283,769
Average loan amount(3)	Average loan amount(3)					$	172,828		$	171,389		Average loan amount(3)					$	191,602		$	172,828
Average coupon - credit sensitive(4)						4.6		%	4.8		%
Average coupon - interest sensitive(4)						4.1		%	4.2		%
Average coupon - agency(4)	Average coupon - agency(4)					4.3		%	4.5		%	Average coupon - agency(4)					3.7		%	4.3		%
Average coupon - non-agency(4)	Average coupon - non-agency(4)					4.6		%	4.8		%	Average coupon - non-agency(4)					4.4		%	4.6		%
60+ delinquent (% of loans)(5)	60+ delinquent (% of loans)(5)					5.9		%	2.2		%	60+ delinquent (% of loans)(5)					4.0		%	5.9		%
90+ delinquent (% of loans)(5)	90+ delinquent (% of loans)(5)					5.1		%	1.9		%	90+ delinquent (% of loans)(5)					3.7		%	5.1		%
120+ delinquent (% of loans)(5)	120+ delinquent (% of loans)(5)					4.3		%	1.6		%	120+ delinquent (% of loans)(5)					3.5		%	4.3		%

		Three Months Ended September 30,				Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020			2019				2021		2020		2021			2020
Total prepayment speed (12-month constant prepayment rate)	Total prepayment speed (12-month constant prepayment rate)	30.1	%	17.5	%	25.0		%	13.2		%	Total prepayment speed (12-month constant prepayment rate)	24.6	%	30.1	%	27.1		%	25.0		%

(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)As of September 30, 2021 and 2020, loan count includes 84,939 and 199,118 loans in forbearance related to the CARES ~~Act.~~Act, respectively.

(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~~an 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. ~~Due~~Delinquency rates have begun to decrease as the COVID-19 ~~pandemic and~~pandemic’s effect on the ~~implementation of the CARES Act, loans greater than 60 days, 90 days and 120 days delinquent have increased as of September 30, 2020 compared to the same period in 2019.~~macroeconomic environment declines.


Table 7.8. Forward Loan Modifications and Workout Units


		Three Months Ended September 30,						Three Months Ended September 30,			Nine Months Ended September 30,
		2020	2019	Amount Change	% Change			2021	2020	Change	2021	2020	Change
Modifications(1)	Modifications(1)	3,242	5,061	(1,819)	(36)	%	Modifications(1)	14,540	3,242	11,298	47,720	12,286	35,434
Workouts~~(1)~~(2)	Workouts~~(1)~~(2)	20,483	3,731	16,752	449	%	Workouts~~(1)~~(2)	14,041	20,483	(6,442)	50,418	25,849	24,569
Total modifications and workout units	Total modifications and workout units	23,725	8,792	14,933	170	%	Total modifications and workout units	28,581	23,725	4,856	98,138	38,135	60,003

(1)~~During~~Modifications adjust the ~~three months ended September 30, 2020, workouts~~terms of the loan.

(2)Workouts are other loss mitigation options which do not adjust the terms of the loan. Workouts exclude loans which did not miss a contractual payment during forbearance related to the CARES Act.

Modifications consist of agency programs, including forbearance options under the CARES Act, designed to help borrowers manage financial stress and remain in their homes by providing them with new loan terms, which often include reduced interest rates. Workouts consist of other loss mitigation options designed to assist borrowers and keep them in their homes.

Table of Contents

Total modifications ~~and workouts~~ during the three and nine months ended September 30, ~~2020~~2021 increased compared to ~~the same period in 2019~~2020 primarily due to an increase in ~~workouts~~modifications related to loans impacted by the COVID-19 pandemic which successfully exited their forbearance plans.


~~Table 7.1 Forward Loan Modifications and Workout Units~~

Nine Months Ended September 30, 2020
2020 2019 Amount Change % Change
Modifications 12,286 15,882 (3,596) (23) %
Workouts(1)
25,849 15,132 10,717 71 %
Total modifications and workout units 38,135 31,014 7,121 23 %

~~(1)~~ Total workouts during the three months ended September 30, 2021 decreased compared to 2020 primarily due to a decrease in customers who were exiting forbearance plans, as there were fewer customers in forbearance. During the nine months ended September 30, ~~2020,~~2021, total workouts ~~exclude loans which did not miss a contractual payment during forbearance related to the CARES Act.~~

~~Total modifications and workouts during the nine months ended September 30, 2020~~ increased when 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 tables provide the composition of revenues for the Servicing segment:~~


~~Table 8. Servicing - Revenues~~

Three Months Ended September 30,
2020 2019 $ 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 1 23 2 (8) (1) (35) % (50) %
Other ancillary revenues(2)
51 3 48 3 3 — 6 % — %
Total forward MSR operational revenue 300 20 333 21 (33) (1) (10) % (5) %
Base subservicing fees and other subservicing revenue(2)
71 5 65 4 6 1 9 % 25 %
Reverse servicing fees 6 1 7 — (1) 1 (14) % 100 %
Total servicing fee revenue 377 26 405 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 revenue 273 19 319 20 (46) (1) (14) % (5) %
Amortization, net of accretion
Forward MSR amortization (212) (14) (162) (10) (50) (4) 31 % 40 %
Excess spread accretion 96 6 77 5 19 1 25 % 20 %
Reverse MSL accretion 4 — 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 MTM 34 2 112 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) %

~~(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 decrease of the forward MSR portfolio’s UPB, base servicing fee revenue decreased during the three months ended September 30, 2020 as compared to the same period in 2019. Late payment fees and incentive fees decreased due to loan forbearance related to the CARES Act.

Forward MSR amortization increased during the three 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 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,
2020 2019 $ 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 1 62 2 (8) (1) (13) % (50) %
Other ancillary revenues(2)
133 3 126 3 7 — 6 % — %
Total forward MSR operational revenue 924 20 958 21 (34) (1) (4) % (5) %
Base subservicing fees and other subservicing revenue(2)
205 5 179 4 26 1 15 % 25 %
Reverse servicing fees 19 — 24 — (5) — (21) % — %
Total servicing fee revenue 1,148 25 1,161 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 revenue 880 19 957 20 (77) (1) (8) % (5) %
Amortization, net of accretion
Forward MSR amortization (550) (12) (366) (8) (184) (4) 50 % 50 %
Excess spread accretion 243 5 172 4 71 1 41 % 25 %
Reverse MSL accretion 17 1 39 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 MTM 123 2 175 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) %

~~(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 loanpeak forbearance season 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~~COVID- 19 pandemic being in ~~2019, primarily due to higher prepayments driven by the lower interest rate environment.~~

~~Total negative MTM adjustments increased during the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due to the declining interest rate environment during~~July 2020.

~~Subservicing~~ - Subservicing fees increased during the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due to a higher average subservicing portfolio UPB and higher fees earned on delinquent loans.

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

~~The tables below summarize expenses for the Servicing segment:~~

~~Table 9. Servicing - Expenses~~

Three Months Ended September 30,
2020 2019 Change % 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 fees 28 2 30 2 (2) — (7) % — %
Corporate and other general and administrative expenses 33 2 40 3 (7) (1) (18) % (33) %
Foreclosure and other liquidation related (recoveries) expenses, net (45) (3) 11 1 (56) (4) (509) % (400) %
Depreciation and amortization 6 1 5 — 1 1 20 % 100 %
Total general and administrative expenses 22 2 86 6 (64) (4) (74) % (67) %
Total expenses - Servicing $ 99 7 $ 171 11 $ (72) (4) (42) % (36) %

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

Total expenses decreased during the three months ended 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. 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.


~~Table 9.1 Servicing - Expenses~~

Nine Months Ended September 30,
2020 2019 Change % 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 fees 80 2 93 2 (13) — (14) % — %
Corporate and other general and administrative expenses 100 2 118 3 (18) (1) (15) % (33) %
Foreclosure and other liquidation related (recoveries) expenses, net (62) (1) 70 1 (132) (2) (189) % (200) %
Depreciation and amortization 14 — 13 — 1 — 8 % — %
Total general and administrative expenses 132 3 294 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 nine months ended 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. Salaries, wages and benefits decreased in 2020 compared to the same period in 2019 primarily due to improved operational efficiencies which included consolidation of one of our servicing centers.

~~Table 10. Servicing - Other (Expenses) Income, Net~~

Three Months Ended September 30,
2020 2019 Change % Change
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Income earned on Reverse mortgage interest $ 40 3 $ 81 5 $ (41) (2) (51) % (40) %
Other interest income — — 56 4 (56) (4) (100) % (100) %
Interest income 40 3 137 9 (97) (6) (71) % (67) %
Reverse mortgage interest expense (37) (3) (58) (4) 21 1 (36) % (25) %
Advance interest expense (7) — (6) — (1) — 17 % — %
Other interest expense (61) (4) (56) (4) (5) — 9 % — %
Interest expense (105) (7) (120) (8) 15 1 (13) % (13) %
Total other (expenses) income, net - Servicing $ (65) (4) $ 17 1 $ (82) (5) (482) % (500) %
Weighted average cost - advance facilities 3.0 % 3.8 % (0.8) % (21) %
Weighted average cost - excess spread financing 9.0 % 8.9 % 0.1 % 1 %

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

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 2019. The change was primarily due to a decrease in interest income, mainly driven by lower interest income earned on 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. Interest expense decreased during the three months ended September 30, 2020 as compared to the same period in 2019, primarily due to 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,
2020 2019 Change % Change
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Amt
bps(1)
Income earned on Reverse mortgage interest $ 137 3 $ 249 5 $ (112) (2) (45) % (40) %
Other interest income 43 1 139 3 (96) (2) (69) % (67) %
Interest income 180 4 388 8 (208) (4) (54) % (50) %
Reverse mortgage interest expense (140) (3) (175) (4) 35 1 (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) $ 45 1 $ (200) (4) (444) % (400) %
Weighted average cost - advance facilities 3.0 % 4.0 % (1.0) % (25) %
Weighted average cost - excess spread financing 9.0 % 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 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.

Servicing Portfolio and Related Liabilities

~~The table below summarizes the servicing portfolio and related liabilities in the Servicing segment:~~

~~Table 11. Servicing Portfolios and Related Liabilities~~

September 30, 2020 December 31, 2019
UPB Carrying Amount bps UPB Carrying Amount bps
Forward MSRs - acquisition pool:
Credit sensitive $ 122,422 $ 1,206 99 $ 147,895 $ 1,613 109
Interest sensitive 144,245 1,457 101 148,887 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-agency 46,528 429 92 56,094 552 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)
Agency 285,704 N/A 308,532 N/A
Non-agency 15,151 N/A 15,451 N/A
Total subservicing and other 300,855 N/A 323,983 N/A
Reverse portfolio - amortized cost
MSR 2,079 6 2,508 6
MSL 12,485 (44) 13,994 (61)
Securitized loans 5,442 5,460 6,223 6,279
Total reverse portfolio serviced 20,006 5,422 22,725 6,224
Total servicing portfolio unpaid principal balance $ 587,528 $ 8,085 $ 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.

As of September 30, 2020, when measuring the fair value of the portfolio as a basis point of the unpaid principal balance, our total forward MSRs decreased in value by 18 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.

The following table sets forth the activities of forward MSRs:

Table ~~12.~~9. Forward MSRs - Fair Value Rollforward


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Fair value - beginning of period	Fair value - beginning of period	$	2,757	$	3,505	$	3,496	$	3,665	Fair value - beginning of period	$	3,307	$	2,757	$	2,703	$	3,496
Additions:	Additions:									Additions:
Servicing retained from mortgage loans sold	Servicing retained from mortgage loans sold	163		129		412		298		Servicing retained from mortgage loans sold	236		163		790		412
Purchases of servicing rights	Purchases of servicing rights	6		43		30		732		Purchases of servicing rights	220		6		438		30
Dispositions:	Dispositions:									Dispositions:
Sales and cancellation of servicing assets	Sales and cancellation of servicing assets	—		(24)		—		(317)		Sales and cancellation of servicing assets	(1)		—		(13)		—
Changes in fair value:	Changes in fair value:									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:
Due to changes in valuation inputs or assumptions used in the valuation model (MSR fair value MTM):										Due to changes in valuation inputs or assumptions used in the valuation model (MSR fair value MTM):
Agency										Agency	150		(49)		108		(679)
Non-agency										Non-agency	5		(3)		368		(48)
Changes in valuation due to amortization:										Changes in valuation due to amortization:
Scheduled principal payments	Scheduled principal payments	(23)		(24)		(70)		(69)		Scheduled principal payments	(33)		(23)		(82)		(70)
Disposition of negative MSRs and other(1)		12		20		57		43
Prepayments	Prepayments									Prepayments
Voluntary prepayments	Voluntary prepayments									Voluntary prepayments
Credit sensitive		(31)		(27)		(81)		(72)
Interest sensitive		(155)		(103)		(392)		(205)
Agency										Agency	(212)		(182)		(625)		(455)
Non-agency										Non-agency	(15)		(17)		(62)		(73)
Involuntary prepayments	Involuntary prepayments									Involuntary prepayments
Credit sensitive		—		(1)		(1)		(6)
Interest sensitive		(1)		(5)		(6)		(14)
Agency										Agency	(1)		(2)		(3)		(7)
Non-agency										Non-agency	—		—		—		—
Other changes:										Other changes:
Disposition of negative MSRs and other(1)										Disposition of negative MSRs and other(1)	10		13		44		57
Fair value - end of period	Fair value - end of period	$	2,663	$	3,339	$	2,663	$	3,339	Fair value - end of period	$	3,666	$	2,663	$	3,666	$	2,663

(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.

See

~~The following table sets forth~~Note 3, Mortgage Servicing Rights and Related Liabilities and Note 13, Fair Value Measurements, in the ~~weighted-average key inputs~~Notes to the Condensed Consolidated Financial Statements, for additional information regarding the range of assumptions and ~~assumptions in estimating~~sensitivities related to the fair value measurement of forward ~~MSRs:~~

~~Table 13.~~ MSRs ~~- Fair Value~~

September 30, 2020 September 30, 2019
Total MSRs Portfolio
Discount rate 9.5 % 9.7 %
Prepayment speeds 14.4 % 13.9 %
Average life 5.2 years 5.6 years
Acquisition Pools:
Credit Sensitive
Discount rate 10.0 % 10.4 %
Prepayment speeds 12.6 % 13.2 %
Average life 5.6 years 5.9 years
Interest Sensitive
Discount rate 9.0 % 9.0 %
Prepayment speeds 15.9 % 14.6 %
Average life 4.9 years 5.4 years
Investor Pools:
Agency
Discount rate 8.9 % 9.0 %
Prepayment speeds 14.5 % 13.7 %
Average life 5.1 years 5.5 years
Non-Agency
Discount rate 12.0 % 12.6 %
Prepayment speeds 13.9 % 14.3 %
Average life 5.5 years 6.0 years

~~The weighted-average discount rate for total MSRs portfolio decreased~~ as of September 30, ~~2020 compared to the same period in 2019 due to the declining interest rate environment in~~2021 and December 31, 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.

~~The key assumptions were separately applied to the servicing of loans in forbearance to account for differences in the underlying estimate of future servicing revenues related to those loans.~~

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Excess Spread Financing

As further disclosed in Note 2,3, Mortgage Servicing Rights and Related Liabilities, in the Notes to the Condensed Consolidated Financial Statements, 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. We do not currently utilize these transactions as a primary source of financing due to the availability of lower cost sources of funding.

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 (ii) recapture rates and ~~(ii) our ability to recapture mortgage prepayments through the origination platform.~~(iii) discount rates. See Note 2,3, Mortgage Servicing Rights and Related Liabilitiesand Note 13, Fair Value Measurements, in the Notes to the Condensed Consolidated Financial Statements, for additional information regarding the range of assumptions and sensitivities related to the measurement of the excess spread financing liability as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

The following table sets forth the change in the excess spread ~~financing and the related weighted-average key assumptions:~~financing:

Table ~~14.~~10. Excess Spread Financing

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Fair value - beginning of period $ 1,124 $ 1,429 $ 1,311 $ 1,184
Additions:
New financings — 31 24 469
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 Assumptions September 30, 2020 September 30, 2019
Total Excess Spread Portfolio
Discount rate 11.9 % 11.9 %
Prepayment speeds 13.6 % 13.3 %
Recapture rate 19.1 % 22.2 %
Average life 5.3 years 5.7 years
Credit Sensitive
Discount rate 12.6 % 12.5 %
Prepayment speeds 13.0 % 12.9 %
Recapture rate 20.6 % 23.6 %
Average life 5.5 years 5.8 years
Interest Sensitive
Discount rate 10.6 % 10.9 %
Prepayment speeds 14.7 % 13.9 %
Recapture rate 16.4 % 20.0 %
Average life 5.1 years 5.5 years

~~The following table sets forth the change in the MSRs financing liability and the related weighted-average key assumptions:~~

- Rollforward

~~Table 15. MSRs Financing Liability - Rollforward~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Fair value - beginning of period $ 49 $ 43 $ 37 $ 32
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model 3 9 21 28
Other changes in fair value (5) (5) (11) (13)
Fair value - end of period $ 47 $ 47 $ 47 $ 47
September 30, 2020 September 30, 2019
Weighted-Average Key Assumptions
Advance financing and counterparty fee rates 8.2 % 8.7 %
Annual advance recovery rates 20.2 % 18.7 %

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 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-investment partners for the periods indicated:~~

~~Table 16. Leveraged Portfolio Characteristics~~

September 30, 2020 September 30, 2019
Owned forward servicing portfolio - unencumbered $ 85,937 $ 89,308
Owned forward servicing portfolio - encumbered 180,730 217,373
Subserviced forward servicing portfolio and other 300,855 310,531
Total unpaid principal balance $ 567,522 $ 617,212

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.

~~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 17. Reverse Mortgage Portfolio Characteristics~~

September 30, 2020 September 30, 2019
Loan count 151,412 170,903
Ending unpaid principal balance $ 20,006 $ 23,990
Average loan amount(1)
$ 132,127 $ 140,374
Average coupon 2.1 % 3.8 %
Average borrower age 80.7 years 80.1 years

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

Historically, we 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 portfolios’ 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 September 30, 2020.~~


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Fair value - beginning of period	$	867	$	1,124	$	934	$	1,311
Additions:
New financings	—		—		—		24
Deductions:
Settlements and repayments	(37)		(49)		(118)		(159)
Changes in fair value:
Agency	(12)		(31)		(3)		(134)
Non-agency	4		—		9		2
Fair value - end of period	$	822	$	1,044	$	822	$	1,044

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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~~Our Originations segment ~~has been~~is one way that we help underserved consumers access the financial markets. In the nine months ended September 30, 2021, our total originations included loans for 34,374 customers with low FICOs (<660), 51,163 customers with income below the U.S. median household income, 28,621 first-time homebuyers, and 18,754 veterans. During this time period, we originated a ~~strategic focus~~total of 58,538 Ginnie Mae loans, which are designed for ~~us for several years.~~first-time homebuyers and low- and moderate-income borrowers, comprising $14 billion in total proceeds. Once these loans are originated, these underserved borrowers become our servicing customers.

The Originations segment includes ~~three~~two channels:

•Our direct-to-consumer (“DTC”) lending channel relies on our call centers, ~~our~~ website and mobile apps, specially trained teams of licensed mortgage originators, predictive analytics and modeling utilizing proprietary data from our servicing portfolio to ~~interact with customers. Our primary focus is~~reach our existing customers who may benefit from a new mortgage. Depending on borrower eligibility, we will refinance existing loans into conventional, government or non-agency products. Through lead campaigns and direct marketing, the direct-to-consumer channel seeks to ~~assist our customers with~~convert leads into loans in a ~~refinance or home purchase by providing them with a needs-based approach to understanding their current mortgage options.~~cost-efficient manner.

•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. Our wholesale channel was shut down during the three months ended June 30, 2020 and subsequently ceased originating loans and funded out the remaining pipeline.

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

Table of Contents

The following tables set forth the results of operations for the Originations segment:


Table ~~18.~~11. Originations Segment Results of Operations

Three Months Ended September 30,
2020 2019 $ Change % Change
Total revenues $ 632 $ 334 $ 298 89 %
Total expenses 195 155 40 26 %
Total other income (expenses), net 1 (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 Margin 1.95 % 1.32 % 0.63 % 48 %


	Three Months Ended September 30,
	2021			2020			Change
Revenues
Service related, net	$	44		$	27		$	17
Net gain on mortgage loans held for sale
Net gain on loans originated and sold	213			449			(236)
Capitalized servicing rights	221			162			59
Provision for repurchase reserves, net of release	(4)			(6)			2
Total net gain on mortgage loans held for sale	430			605			(175)
Total revenues	474			632			(158)
Expenses
Salaries, wages and benefits	147			140			7
General and administrative
Loan origination expenses	25			20			5
Corporate and other general administrative expenses	15			16			(1)
Marketing and professional service fees	13			14			(1)
Depreciation and amortization	8			5			3
Total general and administrative	61			55			6
Total expenses	208			195			13
Other income (expenses)
Interest income	27			16			11
Interest expense	(22)			(15)			(7)

Total other income, net	5			1			4
Income from continuing operations before income tax expense	$	271		$	438		$	(167)

Weighted average note rate - mortgage loans held for sale	3.0		%	3.1		%	(0.1)		%
Weighted average cost of funds (excluding facility fees)	1.9		%	2.5		%	(0.6)		%

Table of Contents


Table 11.1 Originations - Key Metrics


	Three Months Ended September 30,
	2021			2020			Change
Key Metrics
Consumer direct lock pull through adjusted volume(1)	$	9,419		$	10,414		$	(995)
Other locked pull through adjusted volume(1)	10,654			9,380			1,274
Total pull through adjusted lock volume	$	20,073		$	19,794		$	279
Funded volume	$	19,938		$	15,598		$	4,340
Volume of loans sold	$	21,463		$	15,206		$	6,257
Recapture percentage(2)	29.9		%	24.9		%	5.0		%
Refinance recapture percentage(3)	40.3		%	31.2		%	9.1		%
Purchase as a percentage of funded volume	30.9		%	16.4		%	14.5		%
Value of capitalized servicing on retained settlements	138		bps	133		bps	5		bps

Originations Margin
Revenue	$	474		$	632		$	(158)
Pull through adjusted lock volume	$	20,073		$	19,794		$	279
Revenue as a percentage of pull through adjusted lock volume(4)	2.36		%	3.19		%	(0.83)		%

Expenses(5)	$	203		$	194		$	9
Funded volume	$	19,938		$	15,598		$	4,340
Expenses as a percentage of funded volume(6)	1.02		%	1.24		%	(0.22)		%

Originations Margin	1.34		%	1.95		%	(0.61)		%

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

(2)Recapture percentage includes new loan originations for both purchase and refinance transactions where borrower retention and/or property retention occurs as a result of a loan payoff from our servicing portfolio. Excludes loans we are contractually unable to solicit.

(3)Refinance recapture percentage includes new loan originations for refinance transactions where borrower retention and property retention occurs as a result of a loan payoff from our servicing portfolio. Excludes loans we are contractually unable to solicit.

(4)Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.

~~(2)~~(5)Expenses include total expenses and total other income (expenses), net.

~~(3)~~(6)Calculated on funded volume as expenses are incurred based on closing of the loan.

Income from continuing operations before income tax expense ~~increased during~~decreased for the three months ended September 30, ~~2020~~2021 as compared to ~~the same period in 2019~~2020 primarily due to ~~an increase~~a decrease in total revenues driven by ~~origination volume growth from both the DTC~~a decrease in net gain on loans originated and ~~correspondent channels. The growth in origination volume was primarily due to declining interest rates.~~sold and unfavorable mark-to-market on locks and commitments revenues. The Originations Margin ~~during~~for the three months ended September 30, ~~2020 increased~~2021 decreased as compared to ~~the same period in 2019~~2020 primarily due to ~~higher~~a lower revenue ratio as a percentage of pull through adjusted lock volume driven by ~~an increase~~lower margins from a shift in ~~volume~~channel mix from DTC to higher correspondent channel mix. Correspondent channel mix for the ~~DTC channel.~~three months ended September 30, 2021 was 53% compared to 47% in 2020.

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~~Table 18.1 Originations Segment Results of Operations~~

Nine Months Ended September 30,
2020 2019 $ Change % Change
Total revenues $ 1,543 $ 744 $ 799 107 %
Total expenses 528 404 124 31 %
Total other income, net 14 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 Margin 2.11 % 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 revenues driven by origination volume growth predominately in the DTC channel. In response to the COVID-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 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.~~

Total revenues ~~for the Originations segment are set forth in the tables below:~~


~~Table 19. Originations - Revenues~~

Three Months Ended September 30,
2020 2019 $ Change % Change
Service related, net - Originations $ 27 $ 22 $ 5 23 %
Net gain on mortgage loans held for sale
Net gain on loans originated and sold 449 191 258 135 %
Capitalized servicing rights 162 126 36 29 %
Provision for repurchase reserves, net of release (6) (5) (1) 20 %
Total net gain on mortgage loans held for sale 605 312 293 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 volume 16.4 % 39.1 % (22.7) % (58) %
Value of capitalized servicing on retained settlements 133 bps 154 bps (21) bps (14) %

~~(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~~decreased during the three months ended September 30, ~~2020~~2021 compared to ~~the same period in 2019~~2020 primarily driven by ~~the~~a decrease in net gain on loans originated and sold as a result of a decrease in gain on loans originated and sold and unfavorable mark-to-market on locks and commitments revenue, partially offset by higher origination volumes in a declining interest rate environment, primarily from the DTC channel. Total revenue increased $298 or 89% period over period as consumer direct lock pull through adjusted volume increased 90% during the same period.value of capitalized servicing on retained settlements. There were no material changes for repurchase reserves.


~~Table 19.1 Originations - Revenues~~

Nine Months Ended September 30,
2020 2019 $ Change % Change
Service related, net - Originations $ 68 $ 57 $ 11 19 %
Net gain on mortgage loans held for sale
Net gain on loans originated and sold 1,085 415 670 161 %
Capitalized servicing rights 404 287 117 41 %
Provision for repurchase reserves, net of release (14) (15) 1 (7) %
Total net gain on mortgage loans held for sale 1,475 687 788 115 %
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 volume 17.8 % 46.7 % (28.9) % (62) %
Value of capitalized servicing on retained settlements 134 bps 149 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 tables below summarize expenses for the~~ Originations ~~segment:~~


~~Table 20. Originations -~~Segment Expenses

Three Months Ended September 30,
2020 2019 $ Change % Change
Salaries, wages and benefits $ 140 $ 104 $ 36 35 %
General and administrative
Loan origination expenses 20 16 4 25 %
Corporate and other general and administrative expenses 16 16 — — %
Marketing and professional service fees 14 12 2 17 %
Depreciation and amortization 5 4 1 25 %
Loss on impairment of assets — 3 (3) (100) %
Total general and administrative 55 51 4 8 %
Total expenses - Originations $ 195 $ 155 $ 40 26 %

Total expenses during the three months ended September 30, ~~2020~~2021 increased when compared to ~~the same period in 2019~~2020 primarily due to growth in origination ~~volumes, which was driven by the low interest rate environment.~~volumes. 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,
2020 2019 $ Change % Change
Salaries, wages and benefits $ 377 $ 261 $ 116 44 %
General and administrative
Loan origination expenses 52 43 9 21 %
Corporate and other general and administrative expenses 50 43 7 16 %
Marketing and professional service fees 37 41 (4) (10) %
Depreciation and amortization 12 13 (1) (8) %
Loss on impairment of assets — 3 (3) (100) %
Total general and administrative 151 143 8 6 %
Total expenses - Originations $ 528 $ 404 $ 124 31 %

~~Total~~ Despite the increase in expenses, our expenses as a percentage of funded volume decreased during the ~~nine~~three months ended September 30, ~~2020 increased~~2021 when compared to ~~the same period~~2020, demonstrating an improvement in ~~2019 primarily due to growth in origination volumes, which was driven by the low interest rate environment. The origination volume growth contributed to the increase in salaries, wages~~cost efficiencies and benefits, due to increased compensation and headcount related costs, and loan origination expenses. In addition, corporate and other general and administrative expenses increased during the nine months ended September 30, 2020 primarily driven by higher outsourcing costs.scale.

~~The tables below summarize other income (expenses), net, for the~~ Originations ~~segment:~~


~~Table 21. Originations -~~Segment Other Income (Expenses), Net

Three Months Ended September 30,
2020 2019 $ 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 sale 3.1 % 4.1 % (1.0) % (24) %
Weighted average cost of funds (excluding facility fees) 2.5 % 3.8 % (1.3) % (34) %

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~~ There were no material changes in total other income, net, during the three months ended September 30, ~~2020 decreased when compared~~2021 as compare 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 decrease in interest income was offset by a decrease in interest expense due to a lower cost of funds.2020.


Table 12. Originations Segment Results of Operations


	Nine Months Ended September 30,
	2021			2020			Change
Revenues
Service related, net	$	132		$	68		$	64
Net gain on mortgage loans held for sale
Net gain on loans originated and sold	642			1,085			(443)
Capitalized servicing rights	741			404			337
Provision for repurchase reserves, net of release	(16)			(14)			(2)
Total net gain on mortgage loans held for sale	1,367			1,475			(108)
Total revenues	1,499			1,543			(44)
Expenses
Salaries, wages and benefits	478			377			101
General and administrative
Loan origination expenses	78			52			26
Corporate and other general administrative expenses	52			50			2
Marketing and professional service fees	39			37			2
Depreciation and amortization	18			12			6
Total general and administrative	187			151			36
Total expenses	665			528			137
Other income (expenses)
Interest income	76			69			7
Interest expense	(70)			(55)			(15)

Total other income, net	6			14			(8)
Income from continuing operations before income tax expense	$	840		$	1,029		$	(189)

Weighted average note rate - mortgage loans held for sale	3.0		%	3.4		%	(0.4)		%
Weighted average cost of funds (excluding facility fees)	2.0		%	2.7		%	(0.7)		%

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Table ~~21.1~~12.1 Originations - ~~Other Income, Net~~Key Metrics

Nine Months Ended September 30,
2020 2019 $ 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 sale 3.4 % 4.4 % (1.0) % (23) %
Weighted average cost of funds (excluding facility fees) 2.7 % 4.3 % (1.6) % (37) %


	Nine Months Ended September 30,
	2021			2020			Change
Key Metrics
Consumer direct lock pull through adjusted volume(1)	$	28,375		$	27,432		$	943
Other locked pull through adjusted volume(1)	33,323			17,433			15,890
Total pull through adjusted lock volume	$	61,698		$	44,865		$	16,833
Funded volume	$	67,298		$	38,686		$	28,612
Volume of loans sold	$	72,724		$	39,633		$	33,091
Recapture percentage(2)	31.1		%	26.5		%	4.6		%
Refinance recapture percentage(3)	39.2		%	32.4		%	6.8		%
Purchase as a percentage of funded volume	21.7		%	17.8		%	3.9		%
Value of capitalized servicing on retained settlements	131		bps	134		bps	(3)		bps

Originations Margin
Revenue	$	1,499		$	1,543		$	(44)
Pull through adjusted lock volume	$	61,698		$	44,865		$	16,833
Revenue as a percentage of pull through adjusted lock volume(4)	2.43		%	3.44		%	(1.01)		%

Expenses(5)	$	659		$	514		$	145
Funded volume	$	67,298		$	38,686		$	28,612
Expenses as a percentage of funded volume(6)	0.98		%	1.33		%	(0.35)		%

Originations Margin	1.45		%	2.11		%	(0.66)		%

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

(2) Recapture percentage includes new loan originations for both purchase and refinance transactions where borrower retention and/or property retention occurs as a result of a loan payoff from our servicing portfolio. Excludes loans we are contractually unable to solicit.

(3) Refinance recapture percentage includes new loan originations for refinance transactions where borrower retention and property retention occurs as a result of a loan payoff from our servicing portfolio. Excludes loans we are contractually unable to solicit.

(4) Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.

(5) Expenses include total expenses and total other income (expenses), net.

(6) Calculated on funded volume as expenses are incurred based on closing of the loan.

Income from continuing operations before income tax expense decreased for the nine months ended September 30, 2021 as compared to 2020 primarily due to an increase in total expenses driven by higher salaries, wages and benefits and loan originations expenses as a result of higher origination volume due to the low interest rate environment and funding out the pipeline. The Originations Margin for 2021 decreased as compared to 2020 primarily due to a lower revenue ratio as a percentage of pull through adjusted lock volume driven by lower margins from a shift in channel mix from DTC to higher correspondent channel mix. Correspondent channel mix for the nine months ended September 30, 2021 was 54% compared to 39% in 2020

Originations Segment Revenues

Total revenues decreased during the nine months ended September 30, ~~2020 decreased when~~2021 compared to ~~the same period in 2019~~2020 primarily driven by ~~a lower cost of funds. The~~ decrease in ~~interest expense was~~net gain on loans originated and sold in connection with unfavorable mark-to-market on locks and commitments revenue, partially offset by ~~a decrease in other income, net. Other income, net, was higher in 2019 due to recognition~~favorable mark-to-market loans related derivatives revenue. There were no material changes for repurchase reserves.

Table 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 incentivesContents

Originations Segment Expenses

Total expenses during the nine months ended September 30, ~~2019. The master repurchase agreement expired during the third quarter of 2019.~~

~~Xome Segment~~

Xome is a real estate 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.

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

~~The following tables set forth the results of operations for the Xome segment:~~


~~Table 22. Xome Segment Results of Operations~~

Three Months Ended September 30,
2020 2019 $ Change % Change
Xome - Operations
Total revenues $ 108 $ 112 $ (4) (4) %
Total expenses 94 101 (7) (7) %
Total other income, net 1 3 (2) (67) %
Income before income tax expense $ 15 $ 14 $ 1 7 %
Pre-tax margin 13.9 % 12.5 % 1.4 % 11 %
Xome - Revenues
Exchange $ 6 $ 19 $ (13) (68) %
Services 99 87 12 14 %
Data/Technology 3 6 (3) (50) %
Total revenues - Xome $ 108 $ 112 $ (4) (4) %
Key Metrics
Exchange properties sold 860 2,453 (1,593) (65) %
Average Exchange properties under management 15,067 6,688 8,379 125 %
Services completed orders 422,935 429,128 (6,193) (1) %
Percentage of revenue earned from third-party customers 50.1 % 53.4 % (3.3) % (6) %
Xome - Expenses
Salaries, wages and benefits $ 32 $ 37 $ (5) (14) %
General and administrative
Operational expenses 57 60 (3) (5) %
Depreciation and amortization 5 4 1 25 %
Total general and administrative 62 64 (2) (3) %
Total expenses - Xome $ 94 $ 101 $ (7) (7) %

~~Income before income tax expense~~2021 increased ~~during the three months ended September 30, 2020 as~~when compared to ~~the same period in 2019~~2020 primarily due to ~~a decrease~~growth in ~~total expenses, partially offset by lower total revenues.~~origination volumes. The ~~decrease~~origination volume growth contributed to the increase 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~~increased compensation and ~~foreclosures nationwide~~headcount related tocosts. Despite the ~~CARES Act, offset by an~~ increase in ~~Services revenues primarily driven by originations~~expenses, our expenses as a percentage of funded volume ~~from title services.~~


~~Table 22.1 Xome Segment Results of Operations~~

Nine Months Ended September 30,
2020 2019 $ Change % Change
Xome - Operations
Total revenues $ 320 $ 316 $ 4 1 %
Total expenses 285 301 (16) (5) %
Total other income, net 3 14 (11) (79) %
Income before income tax expense $ 38 $ 29 $ 9 31 %
Pre-tax margin 11.9 % 9.2 % 2.7 % 29 %
Xome - Revenues
Exchange $ 31 $ 59 $ (28) (47) %
Services 278 240 38 16 %
Data/Technology 11 17 (6) (35) %
Total revenues - Xome $ 320 $ 316 $ 4 1 %
Key Metrics
Exchange properties sold 4,165 7,519 (3,354) (45) %
Average Exchange properties under management 16,761 6,552 10,209 156 %
Services completed orders 1,255,643 1,226,223 29,420 2 %
Percentage of revenue earned from third-party customers 52.7 % 53.1 % (0.4) % (1) %
Xome - Expenses
Salaries, wages and benefits $ 100 $ 111 $ (11) (10) %
General and administrative
Operational expenses 174 179 (5) (3) %
Depreciation and amortization 11 11 — — %
Total general and administrative 185 190 (5) (3) %
Total expenses - Xome $ 285 $ 301 $ (16) (5) %

~~Income before income tax expense increased~~decreased during the nine months ended September 30, ~~2020 as~~2021 when compared to ~~the same period~~2020, demonstrating an improvement 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~~cost efficiencies and ~~benefits driven by operational efficiencies. The decrease in total~~scale.

Originations Segment Other Income (Expenses), Net

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~~decreased during the nine months ended September 30, ~~2020 as~~2021 compared to ~~the same period in 2019~~2020 primarily ~~due to~~driven by an increase in ~~Services revenues from higher volumes of units for title and close, and field services, partially offset by a decrease in Exchange revenues~~interest expense due to ~~the decrease~~originations volume growth, partially off by an increase in ~~defaults and foreclosures nationwide related to the CARES Act.~~interest income in connection with higher originations volume.

Corporate/Other

Corporate/Other represents unallocated overhead expenses, including the costs of executive management and other corporate functions that are not directly attributable to our operating segments, and interest expense on our unsecured senior notes. In the third quarter of 2021, we began presenting the Xome financial results under Corporate/Other. See Note 16, Segment Information, for further details on change in reportable segments. Previously, Xome financial results were reported under Xome segment, which ceased to be a reportable segment in the third quarter of 2021. Xome operates an exchange which facilitates the sale of foreclosed properties. On June 30, 2021 and August 31 2021, we completed the sale of Xome’s Title and Valuations business, respectively. In addition, during the third quarter of 2021, the Company entered into a definitive agreement to sell its Xome Field Services business. For more information, see Note 1, Nature of Business and Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements.

The following ~~tables~~table set forth the selected financial results for Corporate/Other:


Table ~~23.~~13. Corporate/Other Selected Financial Results


		Three Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
		2020	2019	$ Change	% Change			2021		2020		Change		2021		2020		Change
Corporate/Other - Operations	Corporate/Other - Operations						Corporate/Other - Operations
Total revenues							Total revenues	$	35	$	108	$	(73)	$	170	$	320	$	(150)
Total expenses	Total expenses	43	51	(8)	(16)	%	Total expenses	66		137		(71)		257		395		(138)
Interest expense	Interest expense	45	52	(7)	(13)	%	Interest expense	31		45		(14)		92		144		(52)
Other expense, net		(52)	—	(52)	(100)	%
Other income (expense), net							Other income (expense), net	8		(51)		59		494		(50)		544

Key Metrics							Key Metrics
Average exchange properties under management							Average exchange properties under management	14,907		15,067		(160)		14,438		16,761		(2,323)

Total revenues and total expenses decreased induring the three and nine months ended September 30, ~~2020~~2021 as compared to ~~the same period in 2019~~2020 primarily due to ~~a decrease~~sale of Xome’s Title and Valuations businesses in general and administrative expense. General and administrative expense was higher in the three months ended September 30, 2019 due to higher legal reserves. Additionally, depreciation and amortization decreased in the three months ended September 30, 2020 as compared to the same period in 2019 primarily due to a decrease in amortization of intangible assets. Partially offsetting the decrease in total expenses was a $7 loss on impairment of assets in connection with technology write-offs.2021.

Interest expense decreased in the three and nine months ended September 30, ~~2020~~2021 as compared to ~~the same period in 2019~~2020 primarily due to ~~a decrease~~repayment and redemption in ~~interest expense on~~2020 of the unsecured senior notes ~~as result~~due 2021, 2022, 2023 and 2026 and the issuance in 2020 of the ~~repayment and redemption of the 2021 and 2022~~ unsecured senior notes ~~in February 2020~~due 2027, 2028 and ~~the 2023 unsecured senior notes in August 2020. The decrease in total~~2030 at lower 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.~~rates.

The change in other ~~expense,~~income (expense), net, in the three months ended September 30, ~~2020~~2021 as compared to ~~the same period in 2019~~2020 was primarily due to the $53 loss on redemption of the 2023 unsecured senior ~~notes.~~


~~Table 23.1 Corporate/Other Selected Financial Results~~

Nine Months Ended September 30,
2020 2019 $ Change % Change
Corporate/Other - Operations
Total expenses 111 153 (42) (27) %
Interest expense 144 162 (18) (11) %
Other (expense) income, net (53) 5 (58) (1,160) %

~~Total expenses decreased~~notes in 2020. The change in total other income (expense), net, during the nine months ended September 30, ~~2020 as compared to the same period in 2019~~2021 is primarily ~~due to~~ a decrease in salaries, 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 as~~ result of the ~~repayment and redemption~~gain of $487 that was recorded in the second quarter of 2021 upon the completion 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~~sale 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.Xome’s Title business.

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Liquidity and Capital Resources

We measure liquidity by unrestricted cash and availability of borrowings on our MSR facilities and other facilities. ~~Our~~We held cash and cash equivalents on hand ~~increased to $946~~of $731 as of September 30, ~~2020 from $329~~2021 compared to $695 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.~~2020. During the three months ended September 30, ~~2020,~~2021, we bought back ~~1.2~~11.1 million shares of our outstanding common stocks as part of ~~the $100~~our stock repurchase program.

~~During~~ Additionally, during the ~~nine~~three months ended September 30, ~~2020, operating activities generated cash totaling $1,878.~~2021, we repurchased and retired all of our outstanding preferred stock. We have sufficient borrowing capacity to support our operations. As of September 30, ~~2020,~~2021, total available borrowing capacity was ~~$11,540,~~$17,530, of which ~~$6,677~~$9,213 was unused. ~~As of September 30, 2020, we had $1,075 collateral pledged against the MSR facilities, of which we could borrow an additional $394~~.

The economic impact of the COVID-19 pandemic could continue to result in an 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~~Forbearance rates have declined since the peak during the second of 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 an 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. 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 as2020. As of September 30, ~~2020. With this addition, we expanded~~2021, our total advance facility capacity ~~to $2,040 and total unused advance capacity to $1,471 as~~was $1,740, of September 30, 2020. We believe our facilities will be adequate for our needs, as we expect increases in advances in the coming quarter due to typical seasonal trends. We have begun financing GNMA advances with this new financing facility.which $1,201 remained unused. For more information on our ~~MSR and~~ 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 higher forbearance rates.~~the Notes to the Condensed Consolidated Financial Statements.

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)~~(iii) 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 continue to increase due to the COVID-19 pandemic;~~advances; (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)~~(vii) 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.

69In addition, 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. See Note 8, Derivative Financial Instruments, in the Notes to the Condensed Consolidated Financial Statements in Item 1, Financial Statements and Supplementary Data, which is incorporated herein for a summary of our derivative transactions.

In the normal course of business, we enter into various types of on- and off-balance sheet transactions with special purpose entities (“SPEs”) determined to be variable interest entities (“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 we transfer assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets. In these securitization transactions, we typically receive cash and/or other interests in the SPE as proceeds for the transferred assets. See Note 10, Securitizations and Financings, in the Notes to the Condensed Consolidated Financial Statements in Item 1, Financial Statements and Supplementary Data, which is incorporated herein for a summary of our transactions with VIEs and unconsolidated balances, and details of their impact on our condensed consolidated financial statements.

Cash Flows

The table below presents ~~the major sources and uses of~~ cash ~~flows:~~flows information:

Table ~~24.~~14. Cash Flows


		Nine Months Ended September 30,									Nine Months Ended September 30,
		2020		2019		$ Change		% Change			2021		2020		Change
Net cash attributable to:	Net cash attributable to:									Net cash attributable to:
Operating activities	Operating activities	$	1,878	$	(28)	$	1,906	(6,807)	%	Operating activities	$	(770)	$	1,878	$	(2,648)
Investing activities	Investing activities	(38)		(279)		241		(86)	%	Investing activities	1,011		(38)		1,049
Financing activities	Financing activities	(1,277)		388		(1,665)		(429)	%	Financing activities	(240)		(1,277)		1,037
Net increase in cash, cash equivalents, and restricted cash	Net increase in cash, cash equivalents, and restricted cash	$	563	$	81	$	482	595	%	Net increase in cash, cash equivalents, and restricted cash	$	1	$	563	$	(562)

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Operating activities

Our operating activities ~~generated~~used cash of ~~$1,878~~$770 during the nine months ended September 30, ~~2020~~2021 compared to cash ~~used~~generated of ~~$28~~$1,878 in 2020. The change in cash attributable to operating activities was primarily related to continuing operations, driven by $1,089 in the ~~same period~~cash used for originations net sale activities in ~~2019. The change was primarily due~~2021 compared to ~~the~~$1,164 of cash generated ~~from originations activities primarily~~in 2020, as a result of an increase in repurchases of forward loan assets out of Ginnie Mae securitizations, and a decrease of $1,036 driven by ~~higher origination volumes~~fair values changes in MSRs. In addition, we recorded a ~~low interest rate environment.~~total gain of $494 from the sale of the Xome Title and Valuations businesses in 2021.

Investing activities

Our investing activities ~~used~~generated cash of ~~$38~~$1,011 during the nine months ended September 30, ~~2020~~2021 compared to ~~$279 during the same period~~cash used of $38 in ~~2019.~~2020. The ~~decrease~~change in cash ~~used in~~attributable to investing activities was primarily ~~due~~related to ~~a decrease~~discontinued operations, driven by $1,030 of ~~$415~~proceeds from sale of the reverse servicing portfolio. Additionally, investing activities from continuing operations included $432 of proceeds from sale of the Xome Title and Valuation businesses, net of cash divested, in 2021, offset by an increase of $392 in cash used for the purchase of forward mortgage servicing rights, net of liabilities incurred. In addition, during the nine months ended September 30, 2019, we used $85 cash in connection with the Pacific Union and Seterus acquisitions. The decrease in cash used was partially offset by a decrease in cash generated of $254 from proceeds on sale of forward mortgage servicing rights.

Financing activities

Our financing activities used cash of ~~$1,277~~$240 during the nine months ended September 30, ~~2020~~2021 compared to cash ~~generated~~used of ~~$388~~$1,277 in ~~the same period~~2020. The decrease in ~~2019. Contributing to the~~ cash used for financing activities was ~~the $1,970 change~~primarily related to continuing operations, driven by an increase of $1,964 in cash generated from advance and warehouse facilities due to a net ~~pay down~~increased borrowing of ~~$135 in~~$1,950 from advance and warehouse facilities ~~during the nine months ended September 30, 2020~~ compared to a net ~~increased borrowing~~repayment of ~~$1,835~~$14 in ~~the same period~~2020. Additionally, in ~~2019. Additionally,~~2020, $1,686 of cash was used in the redemption and repayment of ~~unsecured senior debt and nonrecourse debt during the nine months ended September 30, 2020 increased $1,657 compared to the same period in 2019 due to the repayment and redemption of~~ the 2021, 2022, 2023 and ~~2022~~2026 unsecured senior notes, ~~in February 2020 and the 2023 unsecured senior notes in August 2020. The change in cash used was~~ partially offset by ~~an increase in cash generated of~~ $1,450 ~~due~~related to the issuance of the 2027, 2028 and 2030 unsecured senior ~~notes~~notes. There were no such activities in ~~January 2020 and issuance of the 2028 unsecured senior notes in August 2020.~~

The cash generated from the issuance of excess spread financing decreased $445 during the nine months ended September 30, 2020 compared to the same period in 2019, as we did not enter into any new excess spread financing deals during 2020. In addition, cash used in participating interest financing decreased $546 in 2020 primarily due to a lower repayment of participating interest financing in 2020 compared to the same period in 2019. Further, during the nine months ended September 30, 2019, cash of $294 was used to pay off the notes payable assumed from the Pacific Union acquisition.2021.

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.

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 September 30, ~~2020,~~2021, we were in compliance with our required financial covenants.

Seller/Servicer Financial Requirements

We are also subject to net worth, liquidity and 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~~issuers, as summarized below. These requirements apply to our operating subsidiary, Nationstar Mortgage, LLC. ~~As of September 30, 2020, we were in compliance with our seller/servicer financial requirements for FHFA and Ginnie Mae.~~

Minimum Net Worth

▪

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

▪~~Base~~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~~Ginnie Mae - a net worth ~~requirement for Ginnie Mae is defined as follows:~~

▪~~The~~equal to 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 outstanding HMBS ~~outstanding~~ obligations.

▪

Minimum Liquidity

•~~Tangible Net Worth is defined as~~FHFA - 3.5 basis points of total ~~equity less deferred tax assets, goodwill, intangible assets, affiliate receivables~~Agency Mortgage Servicing UPB plus incremental 200 basis points of total nonperforming Agency, measured at 90+ delinquencies, servicing in excess of 6% total Agency servicing UPB.

•Ginnie Mae - the greater of $1 or 10 basis points of our outstanding single-family MBS and ~~certain pledged assets.~~at least 20% of our net worth requirement for Home Equity Conversion Mortgage (“HECM”) mortgage-backed securities (“HMBS”).

Minimum Capital Ratio

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

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~~Minimum Liquidity~~

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

▪~~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.~~

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%.

As of September 30, 2021, we were in compliance with our seller/servicer financial requirements for FHFA and Ginnie Mae.

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. We 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.

In addition, Fannie Mae or Freddie Mac may require capital ratios in excess of stated requirements. Refer to Note 14, Capital Requirements, in the Notes to the Condensed Consolidated Financial Statements for additional information.

Table ~~25.~~15. Debt


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Advance facilities principal amount	Advance facilities principal amount	$	569	$	422	Advance facilities principal amount	$	539	$	669
Warehouse facilities principal amount	Warehouse facilities principal amount	4,028		4,416		Warehouse facilities principal amount	7,375		5,330
MSR facilities principal amount	MSR facilities principal amount	266		160		MSR facilities principal amount	305		270
Unsecured senior principal amount		2,200		2,398
Unsecured senior notes principal amount						Unsecured senior notes principal amount	2,100		2,100

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. As of September 30, 2021, we had a total borrowing capacity of $1,740, of which we could borrow an additional $1,201.

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 September 30, ~~2020, unsecuritized borrower draws totaled $56,~~2021, we had a total borrowing capacity of $15,790 for warehouse and ~~our maximum unfunded advance obligation related to these reverse mortgage loans was $2,304.~~MSR facilities, of which we could borrow an additional $8,012.

Unsecured Senior Notes

In ~~2018 and~~ 2020, we completed offerings of unsecured senior notes ~~which mature on various~~with maturity dates ~~through August 2028.~~ranging from 2027 to 2030. We pay interest semi-annually to the holders of these notes at interest rates ranging from ~~5.500%~~5.125% to ~~9.125%~~6.000%. ~~Refer to~~For more information regarding our indebtedness, see Note 9, Indebtedness, ~~for~~in the ~~contractual maturities of unsecured senior notes.~~Notes to the Condensed Consolidated Financial Statements.

Contractual Obligations

As of September 30, ~~2020,~~2021, 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~~2020 except for the ~~following, in connection with the issuance of the 2027 and 2028 Notes and redemption of the 2021, 2022 and 2023 Notes during the nine months ended September 30, 2020:~~following:

~~Table 26. Contractual Obligations~~

Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Total
Unsecured senior notes $ — $ — $ — $ 2,200 $ 2,200
Interest payment from unsecured senior notes 151 304 304 267 1,026
Total $ 151 $ 304 $ 304 $ 2,467 $ 3,226
In the second quarter of 2021, we entered into an agreement, under which we committed a total of $83 over a period of 5 years in exchange for cloud platform service.

7254

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Critical Accounting Policies and Estimates

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 condensed consolidated financial statements. These policies relate to fair value measurements, particularly those determined to be Level 3 as discussed in Note 13, Fair Value Measurements, in ~~notes~~the Notes to ~~consolidated financial statements, business combinations and~~the Condensed Consolidated Financial Statements, goodwill, and valuation and realization of deferred tax assets. We believe that the judgment, estimates and assumptions used in the preparation of our condensed consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of these critical accounting policies on our condensed 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 primarily include (i) the valuation of MSRs, (ii) the valuation of excess spread financing, and (iii) the valuation of ~~the mortgage servicing rights financing liability and (iv) the valuation of IRLCs and LPCs.~~IRLCs. For further information on our critical accounting policies and estimates, please refer to the Company’s Annual Reports on Form 10-K for the year ended December 31, ~~2019.~~2020. There have been no material changes to our critical accounting policies and estimates 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 2020.

~~Note 1, Nature of Business and Basis of Presentation~~

~~, in the consolidated financial statements which is incorporated herein for details.~~

Other Matters

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. We are currently assessing the impact of ASU 2019-12, but do not believe it will have a material impact on our consolidated financial statements.adopted.

Accounting Standards Update 2020-04 and 2021-01, collectively implemented as Accounting Standards Codification Topic 848 (“ASC 848”), Reference Rate Reform ~~(Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~ ~~(“ASU 2020-04”) provides~~provide temporary optional expedients and exceptions 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. In January 2021, ASU 2021-01 was issued to clarify that all derivatives instruments affected by changes to the interests rates used for discounting, margining alignment due to reference rate reform are in scope of ASC 848. ASU 2020-04 isand ASU 2021-01 are effective March ~~12,~~ 2020 and January 2021, respectively, through December 31, 2022. The guidance in ASU 2020-04 and ASU 2021-01 is optional and may be elected over time as reference rate reform activities occur. We are currently assessing the impact of ASU 2020-04 and ASU 2021-01 on our consolidated financial statements.

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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.

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 ~~Loan.~~Loans. 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 (“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.

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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.

Forbearance.An agreement between the mortgage servicer or lender and borrower for a temporary postponement of mortgage payments. It is a form of repayment relief granted by the lender or creditor in lieu of forcing a property into foreclosure.

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.

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.

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Mortgage Servicing Liability (“~~MSLs”~~MSL”). 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.

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~~Voluntarily prepaid loans that are expected to be refinanced by the ~~portfolio, or the financing of a customer’s new purchase which resulted in the payoff of an existing loan.~~related servicer.

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,~~Advances, T&I Advances and Corporate Advances.

(i) P&I ~~advances~~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~~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~~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~~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.~~2020. There have been no material changes in the types of market risks faced by us since December 31, ~~2019 except for~~2020. Our market risks include the broad effects of the COVID-19 pandemic. ~~As we cannot predict~~While the ~~duration~~pandemic’s effect on the macroeconomic environment has yet to be fully determined and could continue for months or ~~scope~~years, the pandemic and governmental programs created as a response to the pandemic, has affected and will continue to affect our business, financial conditions and results of ~~the COVID-19 pandemic, the negative financial impact to our results cannot be reasonably estimated at this time.~~operations.

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~~discounted cash flow model ~~are~~incorporates prepayment speeds, discount rate, costs to service, and other assumptions (including delinquencies, ancillary revenues, float earnings ~~related~~and forbearance rates) that management believes are consistent with the assumptions that other similar market participants use in valuing the MSRs. The key assumptions to ~~float~~determine fair value include prepayment speed, discount rate and ~~market discount rates.~~cost to service. 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 September 30, ~~2020~~2021 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.

Table of Contents

The following table summarizes the estimated change in the fair value of our assets and liabilities sensitive to interest rates as of September 30, ~~2020~~2021 given hypothetical instantaneous parallel shifts in the yield curve. ~~Results~~Actual results could differ materially.

Table ~~27.~~16. Change in Fair Value


		September 30, 2020					September 30, 2021
		Down 25 bps		Up 25 bps			Down 25 bps		Up 25 bps
Increase (decrease) in assets	Increase (decrease) in assets					Increase (decrease) in assets
Mortgage servicing rights at fair value	Mortgage servicing rights at fair value	$	(127)	$	136	Mortgage servicing rights at fair value	$	(207)	$	225
Mortgage loans held for sale at fair value	Mortgage loans held for sale at fair value	17		(22)		Mortgage loans held for sale at fair value	33		(44)
Derivative financial instruments:	Derivative financial instruments:					Derivative financial instruments:
Interest rate lock commitments	Interest rate lock commitments	74		(98)		Interest rate lock commitments	41		(55)
Forward MBS trades	Forward MBS trades	(23)		32		Forward MBS trades	(80)		105
Total change in assets	Total change in assets	(59)		48		Total change in assets	(213)		231
Increase (decrease) in liabilities	Increase (decrease) in liabilities					Increase (decrease) in liabilities
Mortgage servicing rights financing at fair value	Mortgage servicing rights financing at fair value	(4)		4		Mortgage servicing rights financing at fair value	(3)		3
Excess spread financing at fair value	Excess spread financing at fair value	(17)		20		Excess spread financing at fair value	(16)		20
Derivative financial instruments:	Derivative financial instruments:					Derivative financial instruments:
Interest rate lock commitments	Interest rate lock commitments	(3)		5		Interest rate lock commitments	(19)		25
Forward MBS trades	Forward MBS trades	70		(92)		Forward MBS trades	15		(21)
Total change in liabilities	Total change in liabilities	46		(63)		Total change in liabilities	(23)		27
Total, net change	Total, net change	$	(105)	$	111	Total, net change	$	(190)	$	204

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 September 30, ~~2020.~~2021.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, ~~2020,~~2021, 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 September 30, ~~2020,~~2021, 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~~For a ~~state licensed, non-bank mortgage lender, servicer and ancillary services provider. From time to time, we and~~description of our ~~subsidiaries are involved in a number of~~material legal proceedings, ~~including, but not limited to, judicial, arbitration, regulatory~~see Note 15, Commitments 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.

Contingencies

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,~~Notes to the ~~Department~~Condensed Consolidated Financial Statements within Part I, Item 1. Financial Statements, 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. 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.

this Form 10-Q.

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, and our Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2020.

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

On July ~~30, 2020,~~29, 2021, we announced that our Board of Directors authorized the repurchase of up to ~~$100~~$500 of our outstanding common stock. The new stock repurchase ~~program may be suspended, modified or discontinued at any time at our discretion. During~~plan went into effect during the three months ended September 30, ~~2020,~~2021 upon the completion of our previous program. During the three months ended September 30, 2021, we ~~have~~ repurchased shares of our common stock at a total cost of ~~$24~~$368 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 2020 334 $ 18.04 334 $ 94
September 2020 853 $ 20.30 853 $ 76
Total 1,187 1,187


Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Appropriate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Program
July 2021	—	$	—	—	$	504
August 2021(1)	11,073	$	33.25	11,073	$	136
September 2021	—	$	—	—	$	136
Total	11,073			11,073

(1)In August 2021, we repurchased 11,073 thousand shares of our common stock from affiliates of KKR. In addition, we repurchased 1,000 thousand shares of our preferred stock for $28. After giving effect to the transaction, KKR no longer held any equity interests in the Company.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Table of Contents

Item 6. Exhibits

Incorporated by Reference
Exhibit
Number Description Form File No. Exhibit Filing Date Filed or Furnished Herewith
4.1
Indenture, dated as of August 6, 2020, among Mr. Cooper Group Inc., Nationstar Mortgage Holdings Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee
8-K 001-14667 4.1 8/6/2020
10.1
Amendment Number Fourteen to the Second Amended and Restated Master Repurchase Agreement Dated as of January 29, 2016 between Barclays Bank PLC, as Purcha s er and Agent and Nationstar Mortgage LLC, as Seller, dated September 1 1 , 2020
X
10.2
Amendment Number Twenty to the Mortgage Loan Purchase and Sale Agreement dated as of March 25, 2011 between Barclays Bank PLC, as Purchaser and Agent and Nationstar Mortgage LLC, as Seller, dated September 11, 2020
X
10.3**
Offer Letter and Acceptance, by and between Mr. Cooper Group Inc. and Michael Rawls
X
10.4**
Offer Letter and Acceptance, by and between Mr. Cooper Group Inc. and Eldridge A. Burns
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.INS Inline 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.SCH Inline XBRL Taxonomy Extension Schema Document X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101.) X

Incorporated by Reference

Exhibit
Number

Description

Form

File No.

Exhibit

Filing Date

Filed or Furnished Herewith

10.1

Amendment Number Seventeen 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 July 9, 2021

10.2

Amendment Number Ei gh teen 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 September 30 , 2021

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

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

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

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

101.INS

Inline 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.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101.)

** 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, 2020~~28, 2021						/s/ Jay Bray
Date						Jay Bray Chief Executive Officer (Principal Executive Officer)

October ~~29, 2020~~28, 2021						/s/ Christopher G. Marshall
Date						Christopher G. Marshall Vice Chairman, President & Chief Financial Officer (Principal Financial and Accounting Officer)

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Excess Spread Financing Key Assumptions	September 30, 2020		December 31, 2019
Discount rate	11.9	%	11.6	%
Prepayment speeds	13.6	%	12.6	%
Recapture rate	19.1	%	20.1	%
Average life	5.3 years		5.8 years


Unsecuritized interests	September 30, 2020		December 31, 2019
Repurchased HECM loans (exceeds 98% of their Max Claim Amount (“MCA”))	$	634	$	789
HECM related receivables(1)	213		250
Funded borrower draws not yet securitized	56		64
Real estate owned (“REO”) related receivables	17		14
Total unsecuritized interests	$	920	$	1,117


	Three Months Ended September 30,				Nine Months Ended September 30,
Purchase discount, net, for reverse mortgage interests(1)	2020		2019		2020		2019
Balance - beginning of period	$	(127)	$	(163)	$	(114)	$	(164)
Adjustments(2)	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)


							September 30, 2020		December 31, 2019
Other nonrecourse debt	Issue Date	Maturity Date	Interest Rate	Class of Note	Collateral Amount		Outstanding		Outstanding
Participating interest financing(1)	—	—	0.3%-5.6%	—	$	0	$	3,664	$	4,284
Securitization of nonperforming HECM loans
Trust 2020-1	September 2020	September 2030	1.3%-7.5%	A, M1, M2, M3, M4, M5	519		516		0
Trust 2019-2	November 2019	November 2029	2.3%-6.0%	A, M1, M2, M3, M4, M5	275		259		333
Trust 2019-1	June 2019	June 2029	2.7%-6.0%	A, M1, M2, M3, M4, M5	248		226		302
Trust 2018-3(2)	November 2018	November 2028	3.6%-6.0%	A, M1, M2, M3, M4, M5	0		0		209
Trust 2018-2(2)	July 2018	July 2028	3.2%-6.0%	A, M1, M2, M3, M4, M5	0		0		148
Other nonrecourse debt principal amount							4,665		5,276
Unamortized debt issuance costs, premium and discount							6		10
Other nonrecourse debt, net							$	4,671	$	5,286


	September 30, 2020		September 30, 2019
Total MSRs Portfolio
Discount rate	9.5	%	9.7	%
Prepayment speeds	14.4	%	13.9	%
Average life	5.2 years		5.6 years

Acquisition Pools:
Credit Sensitive
Discount rate	10.0	%	10.4	%
Prepayment speeds	12.6	%	13.2	%
Average life	5.6 years		5.9 years

Interest Sensitive
Discount rate	9.0	%	9.0	%
Prepayment speeds	15.9	%	14.6	%
Average life	4.9 years		5.4 years

Investor Pools:
Agency
Discount rate	8.9	%	9.0	%
Prepayment speeds	14.5	%	13.7	%
Average life	5.1 years		5.5 years

Non-Agency
Discount rate	12.0	%	12.6	%
Prepayment speeds	13.9	%	14.3	%
Average life	5.5 years		6.0 years


	September 30, 2020		September 30, 2019
Owned forward servicing portfolio - unencumbered	$	85,937	$	89,308
Owned forward servicing portfolio - encumbered	180,730		217,373
Subserviced forward servicing portfolio and other	300,855		310,531
Total unpaid principal balance	$	567,522	$	617,212


	September 30, 2020			September 30, 2019
Loan count	151,412			170,903
Ending unpaid principal balance	$	20,006		$	23,990
Average loan amount(1)	$	132,127		$	140,374
Average coupon	2.1		%	3.8		%
Average borrower age	80.7 years			80.1 years


	Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total
Unsecured senior notes	$	—	$	—	$	—	$	2,200	$	2,200
Interest payment from unsecured senior notes	151		304		304		267		1,026
Total	$	151	$	304	$	304	$	2,467	$	3,226


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 2020	334	$	18.04	334	$	94
September 2020	853	$	20.30	853	$	76
Total	1,187			1,187