Mr. Cooper Group Inc. - Quarter Report: 2021 September (Form 10-Q)

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, 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	☐
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 22, 2021 was 75,122,633.

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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, 2021 (unaudited) and December 31, 2020	3
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2021 and 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	34
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	60
Item 4.	Controls and Procedures	61

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63

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PART I. Financial Information

Item 1. Financial Statements

MR. COOPER GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars, except share data)


	September 30, 2021		December 31, 2020
	(unaudited)
Assets
Cash and cash equivalents	$	731	$	695
Restricted cash	118		135
Mortgage servicing rights at fair value	3,666		2,703
Advances and other receivables, net of reserves of $172 and $208, respectively	909		940
Mortgage loans held for sale at fair value	7,939		5,720
Property and equipment, net of accumulated depreciation of $115 and $92, respectively	103		113
Deferred tax assets, net	1,011		1,339
Other assets	3,462		7,173
Assets of discontinued operations	3,722		5,347
Total assets	$	21,661	$	24,165

Liabilities and Stockholders’ Equity
Unsecured senior notes, net	$	2,076	$	2,074
Advance and warehouse facilities, net	8,206		6,258
Payables and other liabilities	3,537		7,159
MSR related liabilities - nonrecourse at fair value	842		967
Liabilities of discontinued operations	3,740		5,203
Total liabilities	18,401		21,661
Commitments and contingencies (Note 15)
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 ten dollars, 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	1,108		1,126
Retained earnings	2,724		1,434
Treasury shares at cost - 18.1 million and 2.6 million shares, respectively	(574)		(58)
Total Mr. Cooper stockholders’ equity	3,259		2,503
Non-controlling interests	1		1
Total stockholders’ equity	3,260		2,504
Total liabilities and stockholders’ equity	$	21,661	$	24,165

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

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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,
	2021		2020		2021		2020
Revenues:
Service related, net	$	288	$	218	$	860	$	151
Net gain on mortgage loans held for sale	572		645		1,833		1,594
Total revenues	860		863		2,693		1,745
Expenses:
Salaries, wages and benefits	251		265		805		737
General and administrative	151		190		476		540
Total expenses	402		455		1,281		1,277

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

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

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

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

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

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(millions of dollars, except share data)


	Preferred Stock			Common Stock
	Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
Balance at June 30, 2020	1,000	$	—	92,022	$	1	$	1,114	$	1,034	$	—	$	2,149	$	(4)	$	2,145
Shares issued / (surrendered) under incentive compensation plan	—	—		19	—		—		—		—		—		—		—
Share-based compensation	—	—		—	—		6		—		—		6		—		6
Repurchase of common stock	—	—		(1,187)	—		—		—		(24)		(24)		—		(24)
Net income	—	—		—	—		—		209		—		209		5		214
Balance at September 30, 2020	1,000	$	—	90,854	$	1	$	1,120	$	1,243	$	(24)	$	2,340	$	1	$	2,341

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	—	—		45	—		—		—		—		—		—		—
Share-based compensation	—	—		—	—		7		—		—		7		—		7
Repurchase of common stock	—	—		(11,073)	—		—		—		(368)		(368)		—		(368)
Retirement of preferred stock	(1,000)	—		—	—		(19)		(9)		—		(28)		—		(28)
Net income	—	—		—	—		—		299		—		299		—		299
Balance at September 30, 2021	—	$	—	75,121	$	1	$	1,108	$	2,724	$	(574)	$	3,259	$	1	$	3,260

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

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(millions of dollars, except share data)


	Preferred Stock			Common Stock
	Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
Balance at January 1, 2020	1,000	$	—	91,118	$	1	$	1,109	$	1,122	$	—	$	2,232	$	(1)	$	2,231
Shares issued / (surrendered) under incentive compensation plan	—	—		923	—		(5)		—		—		(5)		—		(5)
Share-based compensation	—	—		—	—		16		—		—		16		—		16
Cumulative effect adjustments pursuant to the adoption of CECL-related accounting guidance	—	—		—	—		—		7		—		7		—		7
Repurchase of common stock	—	—		(1,187)	—		—		—		(24)		(24)		—		(24)
Net income	—	—		—	—		—		114		—		114		2		116
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	1,000	$	—	89,457	$	1	$	1,126	$	1,434	$	(58)	$	2,503	$	1	$	2,504
Shares issued / (surrendered) under incentive compensation plan	—	—		1,242	—		(20)		—		—		(20)		—		(20)
Share-based compensation	—	—		—	—		21		—		—		21		—		21
Repurchase of common stock	—	—		(15,578)	—		—		—		(516)		(516)		—		(516)
Retirement of preferred stock	(1,000)	—		—	—		(19)		(9)		—		(28)		—		(28)
Net income	—	—		—	—		—		1,299		—		1,299		—		1,299
Balance at September 30, 2021	—	$	—	75,121	$	1	$	1,108	$	2,724	$	(574)	$	3,259	$	1	$	3,260

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

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions of dollars)


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


	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 to the 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 agents and 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 Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-Q.

On 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, 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 sale of its Xome Valuations business (the “Valuations Transaction”) to Voxtur Analytics Corp. (“Voxtur”) for a total consideration of 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 third quarter of 2021 upon the closing of the Valuations Transaction and was 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, 2020.

On October 22, 2021, the Company completed the sale of its Xome Field Services business (the “Field Services Transaction”) to Cyprexx Services LLC for a total consideration of approximately $41, consisting of $36 in cash and 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 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 financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K for the year ended December 31, 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.

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.

Use of Estimates

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

Reclassifications

Certain reclassifications have been made in the 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 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”) simplifies accounting for income taxes by removing certain exceptions from the general principles in Topic 740 including elimination of the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items such as other comprehensive income. ASU 2019-12 also clarifies and amends certain guidance in Topic 740. ASU 2019-12 is effective for the Company on January 1, 2021. The adoption of the standard did not have a material impact to the Company’s 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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3. Mortgage Servicing Rights and Related Liabilities

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


MSRs and Related Liabilities	September 30, 2021		December 31, 2020
Forward MSRs - fair value	$	3,666	$	2,703

Excess spread financing - fair value	$	822	$	934
Mortgage servicing rights financing - fair value	20		33
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,
Forward MSRs - Fair Value	2021		2020
Fair value - beginning of period	$	2,703	$	3,496
Additions:
Servicing retained from mortgage loans sold	790		412
Purchases of servicing rights	438		30
Dispositions:
Sales of servicing assets	(13)		—
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM)	476		(727)
Changes in valuation due to amortization	(772)		(605)
Other changes	44		57
Fair value - end of period	$	3,666	$	2,663

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

Forward MSRs are segregated between investor type into agency and non-agency pools (referred to herein as “investor pools”) based upon contractual servicing agreements with investors at the respective balance sheet date to evaluate the MSR portfolio and fair value of the portfolio. Agency investors primarily consist of government sponsored enterprises (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan Mortgage Corp (“Freddie Mac” or “FHLMC”), and the Government National Mortgage Association (“Ginnie Mae” or “GNMA”). Non-agency investors consist of investors in private-label securitizations.

The following table provides a breakdown of UPB and fair value for the Company’s 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.

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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				Cost to Service per Loan
Forward MSRs - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change		10% Adverse Change		20% Adverse Change
September 30, 2021
Mortgage servicing rights	$	(133)	$	(257)	$	(145)	$	(279)	$	(45)	$	(89)

December 31, 2020
Mortgage servicing rights	$	(100)	$	(192)	$	(181)	$	(347)	$	(45)	$	(89)

Excess Spread Financing - Fair Value

The Company had excess spread financing liability of $822 and $934 as of September 30, 2021 and December 31, 2020, respectively. Refer to Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of excess spread financing.

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


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

December 31, 2020
Excess spread financing	$	30	$	62	$	41	$	84

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

Mortgage Servicing Rights Financing - Fair Value

The Company had MSR financing liability of $20 and $33 as of September 30, 2021 and December 31, 2020, respectively. Refer to Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of the MSR financing liability.

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Servicing Segment Revenues

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


	Three Months Ended September 30,				Nine Months Ended September 30,
Total Revenues - Servicing	2021		2020		2021		2020
Contractually specified servicing fees(1)	$	280	$	282	$	831	$	864
Other service-related income(1)	158		60		517		171
Incentive and modification income(1)	10		12		38		30
Late fees(1)	19		18		53		65
Mark-to-market adjustments(2)	151		(16)		376		(618)
Amortization, net of accretion(3)	(202)		(129)		(567)		(362)
Other(4)	(65)		(104)		(224)		(268)
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 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, respectively. For the nine months ended September 30, 2021 and 2020, amortization is net of excess spread accretion of $205 and $243, respectively.

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

4. Advances and Other Receivables

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


Advances and Other Receivables, Net	September 30, 2021		December 31, 2020
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	188		173
Reserves	(172)		(208)
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,
Reserves for Advances and Other Receivables	2021		2020		2021		2020
Balance - beginning of period	$	191	$	216	$	208	$	168
Provision and other additions(1)	18		13		59		72
Write-offs	(37)		(38)		(95)		(49)
Balance - end of period	$	172	$	191	$	172	$	191

(1)The Company recorded a provision of $8 and $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 $28 and $20 during the nine months ended September 30, 2021 and 2020, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.

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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,
	2021				2020
Purchase Discount for Advances and Other Receivables	Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Servicing Advances		Receivables from Agencies, Investors and Prior Servicers
Balance - beginning of period	$	31	$	20	$	117	$	21
Utilization of purchase discounts	(1)		(7)		(25)		—
Balance - end of period	$	30	$	13	$	92	$	21


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

Credit Loss for Advances and Other Receivables

During the three and nine months ended September 30, 2021, the Company increased the current expected credit loss (“CECL”) reserve by $3 and $7, respectively. In addition, the Company wrote off $16 of 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 were recorded in reserves and purchase discount for advances and other receivables, respectively.

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

5. Mortgage Loans Held for Sale

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


Mortgage Loans Held for Sale	September 30, 2021		December 31, 2020
Mortgage loans held for sale – UPB	$	7,664	$	5,438
Mark-to-market adjustment(1)	275		282
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,
Mortgage Loans Held for Sale	2021		2020
Balance - beginning of period	$	5,720	$	4,077
Loans sold	(73,822)		(42,185)
Mortgage loans originated and purchased, net of fees	67,507		38,709
Repurchase of loans out of Ginnie Mae securitizations	8,530		3,173
Net change in unrealized gain on retained loans held for sale	1		36
Net transfers of mortgage loans held for sale(1)	3		7
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, 2021 and 2020, the Company received proceeds of $74,948 and $43,040, respectively, on the sale of mortgage loans held for sale, resulting in gains of $1,126 and $855, respectively.

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


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

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

The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $17 and $20 as of September 30, 2021 and December 31, 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 and $6,159 as of September 30, 2021 and December 31, 2020, respectively, which are included in both other assets and payables and other liabilities in the condensed consolidated balance sheets. Loans subject to repurchase from Ginnie Mae as of September 30, 2021 and December 31, 2020 include $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, 2021 and December 31, 2020. The Company had intangible assets of $18 and $31 as of September 30, 2021 and December 31, 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, 2021				Nine Months Ended September 30, 2021
Derivative Financial Instruments	Expiration Dates	Outstanding Notional		Fair Value		Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments	2021	$	1,435	$	29	$	(73)
Derivative financial instruments
IRLCs	2021	6,167		167		(247)
LPCs	2021	887		6		(32)
Forward MBS trades	2021	12,770		61		24

Total derivative financial instruments - assets		$	19,824	$	234	$	(255)
Liabilities
Derivative financial instruments
IRLCs	2021	$	25	$	—	$	—
LPCs	2021	2,208		13		12
Forward MBS trades	2021	6,553		23		(133)
Swap futures	2021	700		12		12
Total derivative financial instruments - liabilities		$	9,486	$	48	$	(109)

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

Total derivative financial instruments - assets		$	27,636	$	475	$	322
Liabilities
Derivative financial instruments
IRLCs	2020	$	2	$	—	$	—
LPCs	2020	598		2		(1)
Forward MBS trades	2020-2021	15,974		42		30

Total derivative financial instruments - liabilities		$	16,574	$	44	$	29

As of September 30, 2021, the Company held $23 and $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. Collateral deposits and collateral obligations are recorded in other assets and payable and other liabilities, respectively, in the Company’s condensed consolidated balance sheets. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the condensed consolidated balance sheets.

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9. Indebtedness

Advance and Warehouse Facilities


						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

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

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

(3)The capacity amount for this advance facility decreased from $875 to $350 in 2021.

(4)The capacity amount for this warehouse facility increased from $2,000 to $4,000 in 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 facility increased from $1,500 to $2,000, and its related sublimit for MSR financing has increased from $150 to $400 in 2021.

(8)The capacity amount for this warehouse facility decreased from $750 to $550 in 2021.

(9)The capacity amount for this warehouse facility decreased from $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 2021

(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, 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.

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


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

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, 2021.

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10. Securitizations and Financings

Variable Interest Entities

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

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

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


	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)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, 2021		December 31, 2020
Total collateral balances - UPB	$	1,171	$	1,326
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, 2021 and December 31, 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	September 30, 2021		December 31, 2020
Unconsolidated securitization trusts	$	140	$	154

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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.

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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,
Computation of Earnings Per Share	2021		2020		2021		2020
Net income from continuing operations	$	310	$	187	$	1,296	$	105
Less: Net income attributable to non-controlling interests	—		5		—		2
Less: Undistributed earnings from continuing operations attributable to participating stockholders	1		2		9		1
Less: Premium on retirement of preferred stock	28		—		28		—
Net income from continuing operations attributable to Mr. Cooper common stockholders	$	281	$	180	$	1,259	$	102

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

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

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

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

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

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

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12. Income Taxes

For the three and nine months ended September 30, 2021, the effective tax rate for continuing operations was 25.0% and 24.0%, respectively, which differed from the statutory federal rate of 21% primarily due to state income taxes and nondeductible executive compensation. The effective tax rate increased during the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to quarterly discrete tax items related to the completion of the Title Transaction and excess tax benefit from stock-based compensation.

For the three and nine months ended September 30, 2020, the effective tax rate for continuing operations was 23.9% and 23.8%, respectively, which differed from the statutory federal rate of 21% primarily due to state income taxes and nondeductible 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, 2020, with the exception of the following:

Mortgage Servicing Rights – Fair Value (Level 3) – The Company estimates the fair value of its forward MSRs on a recurring basis using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on a discounted cash flow model which incorporates prepayment speeds, 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, 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 and can have a significant impact on the fair value of the MSRs. Quarterly, management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal cash flow model. Because of the nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 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, 2021
			Recurring Fair Value Measurements
Fair Value - Recurring Basis	Total Fair Value		Level 1		Level 2		Level 3
Assets
Mortgage loans held for sale	$	7,939	$	—	$	7,939	$	—
Forward mortgage servicing rights	3,666		—		—		3,666
Equity securities	58		8		—		50
Derivative financial instruments
IRLCs	167		—		—		167
LPCs	6		—		—		6
Forward MBS trades	61		—		61		—

Liabilities
Derivative financial instruments

LPCs	13		—		—		13
Forward MBS trades	23		—		23		—
Swap futures	12		—		12		—
Mortgage servicing rights financing	20		—		—		20
Excess spread financing	822		—		—		822


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

Liabilities
Derivative financial instruments
LPCs	1		—		—		1
Forward MBS trades	156		—		156		—
Mortgage servicing rights financing	33		—		—		33
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, 2021
	Assets								Liabilities
Fair Value - Level 3 Assets and Liabilities	Forward mortgage servicing rights		Equity securities		IRLCs		LPCs		Excess spread financing		Mortgage servicing rights financing		LPCs
Balance - beginning of period	$	2,703	$	—	$	414	$	38	$	934	$	33	$	1
Changes in fair value included in earnings	(296)		—		(247)		(32)		6		(13)		12
Other changes	44		—		—		—		—		—		—
Purchases, issuances, sales, repayments and settlements
Purchases/Additions	438		50		—		—		—		—		—
Issuances	790		—		—		—		—		—		—
Sales	(13)		—		—		—		—		—		—
Settlements and repayments	—		—		—		—		(118)		—		—
Balance - end of period	$	3,666	$	50	$	167	$	6	$	822	$	20	$	13


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

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

Excess spread financing
Discount rate	9.5		%	13.8		%	11.2		%	9.9		%	15.7		%	12.2		%
Prepayment speed	12.8		%	15.1		%	13.4		%	13.9		%	15.0		%	14.4		%
Recapture rate	17.3		%	28.9		%	23.1		%	17.7		%	24.2		%	19.5		%
Average life(2)							5.4 years									5.1 years

Mortgage servicing rights financing
Advance financing and counterparty fee rates	5.2		%	8.0		%	6.7		%	4.6		%	8.5		%	7.5		%
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, 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		—

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

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

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

As a legal matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company will establish an accrued liability and record a corresponding amount to legal-related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Legal-related expense for the Company, which includes legal settlements and the fees paid to external legal service providers, of $10 and $31 for three and nine months ended September 30, 2021, respectively, and $9 and $36 for three and nine months ended September 30, 2020, respectively, was included in general and administrative expenses on the condensed consolidated statements of operations.

For matters for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material legal matters on an ongoing basis, in conjunction with any outside counsel handling the matter. Management currently believes the aggregate range of reasonably possible loss is $8 to $15 in excess of the accrued liability (if any) related to those matters as of September 30, 2021. This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within the estimated range. Therefore, this estimated range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure and the Company cannot provide assurance that its litigations reserves will not need to be adjusted in the future. Thus, the Company’s exposure and ultimate losses may be higher, possibly significantly so, than the amounts accrued or this aggregate amount.

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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 mortgage loan portfolios that are subject to indemnification based on the representations and warranties of the seller. From time to time, the Company will seek recovery under these representations and warranties for incurred costs. The Company believes all balances sought from sellers recorded in advances and other receivables represent valid claims. However, the Company acknowledges that the claims process can be prolonged due to the required time to perfect claims at the loan level. Because of the required time to perfect or remediate these claims, management relies on the sufficiency of documentation supporting the claim, current negotiations with the counterparty and other evidence to evaluate whether a reserve is required for non-recoverable balances. In the absence of successful negotiations with the seller, all amounts claimed may not be recovered. Balances may be written-off and charged against earnings when management identifies amounts where recoverability from the seller is not likely. As of September 30, 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.

In the second quarter of 2021, the Company entered into an agreement, under which the Company committed a total of $83 over a period of 5 years in exchange for cloud platform service.

16. Segment Information

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

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In the third quarter of 2021, the Company updated its presentation of segments to align with a change in the reporting package provided to the Chief Operating Decision Maker. In 2021, the Company sold 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 Title, Valuations and Field Services businesses were previously reported under the Xome segment. With the sale of majority of Xome’s operations and the related changes to business structure and internal reporting, the Xome segment will no longer be considered a reportable segment. Accordingly, beginning in the third quarter of 2021, the Company began reporting Xome’s financial results within Corporate/Other. Prior year financial information has been adjusted retrospectively to reflect the updated presentation.

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, 2021
Financial Information by Segment	Servicing		Originations		Corporate/Other		Consolidated
Revenues
Service related, net	$	209	$	44	$	35	$	288
Net gain on mortgage loans held for sale	142		430		—		572
Total revenues	351		474		35		860
Total expenses	128		208		66		402
Interest income	39		27		—		66
Interest expense	(65)		(22)		(31)		(118)
Other income, net	—		—		8		8
Total other (expenses) income, net	(26)		5		(23)		(44)
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	$	11	$	8	$	(5)	$	14
Total assets	$	14,560	$	4,949	$	2,152	$	21,661

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	Three Months Ended September 30, 2020
Financial Information by Segment	Servicing		Originations		Corporate/Other		Consolidated
Revenues
Service related, net	$	83	$	27	$	108	$	218
Net gain on mortgage loans held for sale	40		605		—		645
Total revenues	123		632		108		863
Total expenses	123		195		137		455
Interest income	1		16		—		17
Interest expense	(68)		(15)		(45)		(128)
Other (expense), net	—		—		(51)		(51)
Total other (expenses) income, net	(67)		1		(96)		(162)
(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	$	6	$	5	$	8	$	19
Total assets	$	14,707	$	4,250	$	2,798	$	21,755


	Nine Months Ended September 30, 2021
Financial Information by Segment	Servicing		Originations		Corporate/Other		Consolidated
Revenues
Service related, net	$	558	$	132	$	170	$	860
Net gain on mortgage loans held for sale	466		1,367		—		1,833
Total revenues	1,024		1,499		170		2,693
Total expenses	359		665		257		1,281
Interest income	87		76		—		163
Interest expense	(201)		(70)		(92)		(363)
Other income, net	—		—		494		494
Total other (expenses) income, net	(114)		6		402		294
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	$	23	$	18	$	4	$	45
Total assets	$	14,560	$	4,949	$	2,152	$	21,661


	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:

•economic, financial and public health disruptions caused by the COVID-19 pandemic and federal, state and local governmental responses to the pandemic;

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

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

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

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

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

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

•changes in prevailing interest rates;

•our ability to 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 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, 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, 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. 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 2009 to $668 billion as of September 30, 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.

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 building capital and liquidity, and managing interest rate and other forms of risk;

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

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

•Achieve a refinance recapture rate of 60%;

•Delight our 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 implemented the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which makes available forbearance plans for up to 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 17, 2021, approximately 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 rights from Ginnie Mae in other assets and payables and other liabilities on a gross basis. The balance was $2,486 as of September 30, 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

In the third quarter of 2021, our forward MSR portfolio continued to grow due to strong execution across all channels, primarily correspondent, direct-to-consumer, and acquisitions. We expect to see 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 2021, although down from third quarter of 2021, after which revenues will begin to taper off because we will be nearing the end of the inventory as loans in forbearance status continue to decrease. Based on the current interest rate environment, we expect prepayment speeds and amortization to remain elevated in the fourth quarter of 2021. On July 1, 2021, we entered into a definitive agreement for the sale of our reverse servicing portfolio, operating under the Champion Mortgage brand. The sale is expected to close in the fourth quarter of 2021. Refer to Note 2, Discontinued Operations, for further details.

Our Originations segment 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 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 continued pricing pressure.

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 has been, and is expected to continue to be, negatively impacted, as the REO exchange continues to be idle while the foreclosure moratoriums remain in effect. We expect the foreclosure moratoriums to expire at the end of the year and the resumption of foreclosure sales in 2022.

Results of Operations


Table 1. Consolidated Operations


	Three Months Ended September 30,
	2021		2020		Change
Revenues - operational	$	709	$	879	$	(170)
Revenues - mark-to-market	151		(16)		167
Total revenues	860		863		(3)
Total expenses	402		455		(53)
Total other expenses, net	44		162		(118)
Income from continuing operations before income tax expense	414		246		168
Less: Income tax expense	104		59		45
Net income from continuing operations	310		187		123
Less: Net earnings attributable to non-controlling interests	—		5		(5)
Net income from continuing operations attributable to Mr. Cooper	$	310	$	182	$	128

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 Note 1, Nature of Business and Basis of Presentation, in the Notes to the Condensed Consolidated Financial Statements and the Segment Results section of the MD&A.

The effective tax rate for continuing operations during the three months ended September 30, 2021 was 25.0% as compared to 23.9% in 2020. The change in effective tax rate for continuing operations is primarily attributable to state income taxes and nondeductible executive compensation expenses during the three months ended September 30, 2021 as compared to 2020.

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Table 1.1 Consolidated Operations


	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

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 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 other income (expenses), net in 2020 included the $53 loss on redemption of the 2023 unsecured senior notes.

The effective tax rate for continuing operations during the nine months ended September 30, 2021 was 24.0% as compared to 23.8% in 2020. The increase in effective tax rate for continuing operations is primarily attributable to the completion of the Title Transaction and excess tax benefit from stock-based compensation expenses during the nine months ended September 30, 2021 as compared to 2020.

Segment Results

Our operations are conducted through two segments: Servicing and 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.

Refer to Note 16, Segment 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

May 2021

February 2021

December 2020

Residential

RPS2

SQ2-

Above Average

Master Servicer

RMS2+

SQ2

Above Average

Special Servicer

RSS2

SQ2-

Above Average

Subprime Servicer

RPS2

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

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,
	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		%		—		%

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

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Table 3.1 Servicing - Revenues


	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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Servicing Segment Other Income (Expenses), net

Total other expenses, net decreased during the three 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 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,
					2021		2020		2021		2020
Average UPB
Forward MSRs					$	302,055	$	277,707	$	291,507	$	290,199
Subservicing and other(1)					351,211		293,014		347,598		301,752
Total average UPB					$	653,266	$	570,721	$	639,105	$	591,951

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

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

Total ending balance	$	668,376	$	3,666			$	567,522	$	2,663

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

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


Table 6. Forward Servicing and Subservicing and Other Portfolio UPB Rollforward


	Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
	Forward MSR		Subservicing and Other		Total		Forward MSR		Subservicing and Other		Total
Balance - beginning of period	$	287,455	$	366,862	$	654,317	$	277,975	$	296,792	$	574,767
Additions:
Originations	18,821		1,175		19,996		14,517		1,232		15,749
Acquisitions / Increase in subservicing(1)	18,308		28,395		46,703		(2,660)		38,082		35,422
Deductions:
Dispositions	(14)		(1,119)		(1,133)		(23)		(3,046)		(3,069)
Principal reductions and other	(2,974)		(3,384)		(6,358)		(2,683)		(2,659)		(5,342)
Voluntary reductions(2)	(18,338)		(26,620)		(44,958)		(20,215)		(29,506)		(49,721)
Involuntary reductions(3)	(87)		(24)		(111)		(177)		(40)		(217)
Net changes in loans serviced by others	(80)		—		(80)		(67)		—		(67)
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, 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 three months ended September 30, 2021, our subservicing and other portfolio UPB increased primarily due to portfolio growth from our subservicing clients, partially offset by voluntary reductions in the low interest rate environment.


Table 6.1 Forward Servicing and Subservicing and Other Portfolio UPB Rollforward


	Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
	Forward MSR		Subservicing and Other		Total		Forward MSR		Subservicing and Other		Total
Balance - beginning of period	$	271,189	$	336,513	$	607,702	$	296,782	$	323,983	$	620,765
Additions:
Originations	63,351		4,053		67,404		35,630		2,918		38,548
Acquisitions / Increase in subservicing(1)	35,369		131,355		166,724		(4,967)		78,342		73,375
Deductions:
Dispositions	(82)		(7,064)		(7,146)		(94)		(23,156)		(23,250)
Principal reductions and other	(8,364)		(10,242)		(18,606)		(8,109)		(7,792)		(15,901)
Voluntary reductions(2)	(57,801)		(89,237)		(147,038)		(51,514)		(73,291)		(124,805)
Involuntary reductions(3)	(343)		(93)		(436)		(815)		(149)		(964)
Net changes in loans serviced by others	(228)		—		(228)		(246)		—		(246)
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.

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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, 2021, our subservicing and other portfolio UPB increased primarily driven by acquisitions, partially offset by voluntary reductions in the low interest rate environment.

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


Table 7. Key Performance Metrics - Forward Servicing and Subservicing Portfolio(1)


					September 30, 2021			September 30, 2020
Loan count(2)					3,488,384			3,283,769
Average loan amount(3)					$	191,602		$	172,828
Average coupon - agency(4)					3.7		%	4.3		%
Average coupon - non-agency(4)					4.4		%	4.6		%
60+ delinquent (% of loans)(5)					4.0		%	5.9		%
90+ delinquent (% of loans)(5)					3.7		%	5.1		%
120+ delinquent (% of loans)(5)					3.5		%	4.3		%

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021			2020
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, 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 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. Delinquency rates have begun to decrease as the COVID-19 pandemic’s effect on the macroeconomic environment declines.


Table 8. Forward Loan Modifications and Workout Units


	Three Months Ended September 30,			Nine Months Ended September 30,
	2021	2020	Change	2021	2020	Change
Modifications(1)	14,540	3,242	11,298	47,720	12,286	35,434
Workouts(2)	14,041	20,483	(6,442)	50,418	25,849	24,569
Total modifications and workout units	28,581	23,725	4,856	98,138	38,135	60,003

(1)Modifications adjust the 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.

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Total modifications during the three and nine months ended September 30, 2021 increased compared to 2020 primarily due to an increase in modifications related to loans impacted by the COVID-19 pandemic which successfully exited their forbearance plans. 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, 2021, total workouts increased when compared to 2020 primarily due to the peak forbearance season related to the COVID- 19 pandemic being in July 2020.

Servicing Portfolio and Related Liabilities

The following table sets forth the activities of forward MSRs:

Table 9. Forward MSRs - Fair Value Rollforward


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Fair value - beginning of period	$	3,307	$	2,757	$	2,703	$	3,496
Additions:
Servicing retained from mortgage loans sold	236		163		790		412
Purchases of servicing rights	220		6		438		30
Dispositions:
Sales and cancellation of servicing assets	(1)		—		(13)		—
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model (MSR fair value MTM):
Agency	150		(49)		108		(679)
Non-agency	5		(3)		368		(48)
Changes in valuation due to amortization:
Scheduled principal payments	(33)		(23)		(82)		(70)
Prepayments
Voluntary prepayments
Agency	(212)		(182)		(625)		(455)
Non-agency	(15)		(17)		(62)		(73)
Involuntary prepayments
Agency	(1)		(2)		(3)		(7)
Non-agency	—		—		—		—
Other changes:
Disposition of negative MSRs and other(1)	10		13		44		57
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 Note 3, Mortgage Servicing Rights and Related Liabilities and 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 fair value measurement of forward MSRs as of September 30, 2021 and December 31, 2020.

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Excess Spread Financing

As further disclosed in Note 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 varies primarily due to (i) prepayment speeds (ii) recapture rates and (iii) discount rates. See Note 3, Mortgage Servicing Rights and Related Liabilities and 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, 2021 and December 31, 2020.

The following table sets forth the change in the excess spread financing:

Table 10. Excess Spread Financing - Rollforward


	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. Our Originations segment 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 total of 58,538 Ginnie Mae loans, which are designed for 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 two channels:

•Our direct-to-consumer (“DTC”) lending channel relies on our call centers, website and mobile apps, specially trained teams of licensed mortgage originators, predictive analytics and modeling utilizing proprietary data from our servicing portfolio to 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 convert leads into loans in a 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.

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


Table 11. Originations Segment Results of Operations


	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)		%

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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.

(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 three months ended September 30, 2021 as compared to 2020 primarily due to a decrease in total revenues driven by a decrease in net gain on loans originated and sold and unfavorable mark-to-market on locks and commitments revenues. The Originations Margin for the three months ended September 30, 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 three months ended September 30, 2021 was 53% compared to 47% in 2020.

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Originations Segment Revenues

Total revenues decreased during the three months ended September 30, 2021 compared to 2020 primarily driven by 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 value of capitalized servicing on retained settlements. There were no material changes for repurchase reserves.

Originations Segment Expenses

Total expenses during the three months ended September 30, 2021 increased when compared to 2020 primarily due to growth in origination volumes. The origination volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs. Despite the increase in expenses, our expenses as a percentage of funded volume decreased during the three months ended September 30, 2021 when compared to 2020, demonstrating an improvement in cost efficiencies and scale.

Originations Segment Other Income (Expenses), Net

Interest income relates primarily to mortgage loans held for sale. Interest expense is associated with the warehouse facilities utilized to finance newly originated loans. There were no material changes in total other income, net, during the three months ended September 30, 2021 as compare to 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 12.1 Originations - Key Metrics


	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)		%

(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, 2021 compared to 2020 primarily driven by decrease in net gain on loans originated and sold in connection with unfavorable mark-to-market on locks and commitments revenue, partially offset by favorable mark-to-market loans related derivatives revenue. There were no material changes for repurchase reserves.

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Originations Segment Expenses

Total expenses during the nine months ended September 30, 2021 increased when compared to 2020 primarily due to growth in origination volumes. The origination volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs. Despite the increase in expenses, our expenses as a percentage of funded volume decreased during the nine months ended September 30, 2021 when compared to 2020, demonstrating an improvement in cost efficiencies and scale.

Originations Segment Other Income (Expenses), Net

Total other income, net, decreased during the nine months ended September 30, 2021 compared to 2020 primarily driven by an increase in interest expense due to originations volume growth, partially off by an increase in 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 table set forth the selected financial results for Corporate/Other:


Table 13. Corporate/Other Selected Financial Results


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

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

Total revenues and total expenses decreased during the three and nine months ended September 30, 2021 as compared to 2020 primarily due to sale of Xome’s Title and Valuations businesses in 2021.

Interest expense decreased in the three and nine months ended September 30, 2021 as compared to 2020 primarily due to repayment and redemption in 2020 of the unsecured senior notes due 2021, 2022, 2023 and 2026 and the issuance in 2020 of the unsecured senior notes due 2027, 2028 and 2030 at lower interest rates.

The change in other income (expense), net, in the three months ended September 30, 2021 as compared to 2020 was primarily due to the $53 loss on redemption of the 2023 unsecured senior notes in 2020. The change in total other income (expense), net, during the nine months ended September 30, 2021 is primarily a result of the gain of $487 that was recorded in the second quarter of 2021 upon the completion of the sale of 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. We held cash and cash equivalents on hand of $731 as of September 30, 2021 compared to $695 as of December 31, 2020. During the three months ended September 30, 2021, we bought back 11.1 million shares of our outstanding common stocks as part of our stock repurchase program. Additionally, during the three months ended September 30, 2021, we repurchased and retired all of our outstanding preferred stock. We have sufficient borrowing capacity to support our operations. As of September 30, 2021, total available borrowing capacity was $17,530, of which $9,213 was unused.

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. Forbearance rates have declined since the peak during the second of quarter of 2020. As of September 30, 2021, our total advance facility capacity was $1,740, of which $1,201 remained unused. For more information on our advance facilities, see Note 9, Indebtedness in the Notes to the Condensed Consolidated Financial Statements.

Sources and Uses of Cash

Our primary sources of funds for liquidity include: (i) servicing fees and ancillary revenues; (ii) advance and warehouse facilities, other secured borrowings and the unsecured senior notes; and (iii) payments received in connection with the sale of excess spread.

Our primary uses of funds for liquidity include: (i) funding of servicing 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; and (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.

In 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 cash flows information:

Table 14. Cash Flows


	Nine Months Ended September 30,
	2021		2020		Change
Net cash attributable to:
Operating activities	$	(770)	$	1,878	$	(2,648)
Investing activities	1,011		(38)		1,049
Financing activities	(240)		(1,277)		1,037
Net increase in cash, cash equivalents, and restricted cash	$	1	$	563	$	(562)

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Operating activities

Our operating activities used cash of $770 during the nine months ended September 30, 2021 compared to cash generated of $1,878 in 2020. The change in cash attributable to operating activities was primarily related to continuing operations, driven by $1,089 in the cash used for originations net sale activities in 2021 compared to $1,164 of cash generated 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 fair values changes in MSRs. In addition, we recorded a total gain of $494 from the sale of the Xome Title and Valuations businesses in 2021.

Investing activities

Our investing activities generated cash of $1,011 during the nine months ended September 30, 2021 compared to cash used of $38 in 2020. The change in cash attributable to investing activities was primarily related to discontinued operations, driven by $1,030 of 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.

Financing activities

Our financing activities used cash of $240 during the nine months ended September 30, 2021 compared to cash used of $1,277 in 2020. The decrease in cash used for financing activities was primarily related to continuing operations, driven by an increase of $1,964 in cash generated from advance and warehouse facilities due to net increased borrowing of $1,950 from advance and warehouse facilities compared to net repayment of $14 in 2020. Additionally, in 2020, $1,686 of cash was used in the redemption and repayment of the 2021, 2022, 2023 and 2026 unsecured senior notes, partially offset by $1,450 related to the issuance of the 2027, 2028 and 2030 unsecured senior notes. There were no such activities in 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, 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 requirements established by the Federal Housing Finance Agency (“FHFA”) for Fannie Mae and Freddie Mac Seller/Servicers, and Ginnie Mae for single family issuers, as summarized below. These requirements apply to our operating subsidiary, Nationstar Mortgage, LLC.

Minimum Net Worth

▪FHFA - a net worth base of $2.5 plus 25 basis points of outstanding UPB for total loans serviced.

▪Ginnie Mae - a net worth 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 obligations.

Minimum Liquidity

•FHFA - 3.5 basis points of total 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 at least 20% of our net worth requirement for Home Equity Conversion Mortgage (“HECM”) mortgage-backed securities (“HMBS”).

Minimum Capital Ratio

▪FHFA and Ginnie Mae - a ratio of Tangible Net Worth to Total Assets (excluding HMBS securitizations) greater than 6%.

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Secured Debt to Gross Tangible Asset Ratio

•Ginnie Mae - 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 15. Debt


	September 30, 2021		December 31, 2020
Advance facilities principal amount	$	539	$	669
Warehouse facilities principal amount	7,375		5,330
MSR facilities principal amount	305		270
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 of September 30, 2021, we had a total borrowing capacity of $15,790 for warehouse and MSR facilities, of which we could borrow an additional $8,012.

Unsecured Senior Notes

In 2020, we completed offerings of unsecured senior notes with maturity dates ranging from 2027 to 2030. We pay interest semi-annually to the holders of these notes at interest rates ranging from 5.125% to 6.000%. For more information regarding our indebtedness, see Note 9, Indebtedness, in the Notes to the Condensed Consolidated Financial Statements.

Contractual Obligations

As of September 30, 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, 2020 except for the following:

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.

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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 the Notes to 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 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, 2020. There have been no material changes to our critical accounting policies and estimates since December 31, 2020.

Other Matters

Recent Accounting Developments

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

Accounting Standards Update 2020-04 and 2021-01, collectively implemented as Accounting Standards Codification Topic 848 (“ASC 848”), Reference Rate Reform 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 and ASU 2021-01 are effective March 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 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.

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.

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 (“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. Voluntarily prepaid loans that are expected to be refinanced by the 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, T&I Advances and Corporate Advances.

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

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

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

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

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

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

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

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

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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, 2020. There have been no material changes in the types of market risks faced by us since December 31, 2020. Our market risks include the broad effects of the COVID-19 pandemic. While the pandemic’s effect on the macroeconomic environment has yet to be fully determined and could continue for months or 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 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 discounted cash flow model incorporates prepayment speeds, discount rate, costs to service, and other assumptions (including delinquencies, ancillary revenues, float earnings 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 determine fair value include prepayment speed, discount rate and 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, 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.

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

Table 16. Change in Fair Value


	September 30, 2021
	Down 25 bps		Up 25 bps
Increase (decrease) in assets
Mortgage servicing rights at fair value	$	(207)	$	225
Mortgage loans held for sale at fair value	33		(44)
Derivative financial instruments:
Interest rate lock commitments	41		(55)
Forward MBS trades	(80)		105
Total change in assets	(213)		231
Increase (decrease) in liabilities
Mortgage servicing rights financing at fair value	(3)		3
Excess spread financing at fair value	(16)		20
Derivative financial instruments:
Interest rate lock commitments	(19)		25
Forward MBS trades	15		(21)
Total change in liabilities	(23)		27
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, 2021.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 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, 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

For a description of our material legal proceedings, see Note 15, Commitments and Contingencies, of the Notes to the Condensed Consolidated Financial Statements within Part I, Item 1. Financial Statements, of 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, 2020.

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

On July 29, 2021, we announced that our Board of Directors authorized the repurchase of up to $500 of our outstanding common stock. The new stock repurchase plan went into effect during the three months ended September 30, 2021 upon the completion of our previous program. During the three months ended September 30, 2021, we repurchased shares of our common stock at a total cost of $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 (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.

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Item 6. Exhibits

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

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