COOP 10-Q Quarterly Report Sept. 30, 2019

MR. COOPER GROUP INC.

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10-Q 1 mrcooper0930201910-q.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________________________________________________________________

FORM 10-Q



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

For the quarterly period ended September 30, 2019



¨	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	¨	Accelerated Filer	x
Non-Accelerated Filer	¨	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Number of shares of common stock, $0.01 par value, outstanding as of October 25, 2019 was 91,087,252 .

MR. COOPER GROUP INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS



		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018 (Successor)	3

	Consolidated Statements of Operations (unaudited) for the Successor’s Three and Nine Months Ended September 30, 2019 and Two Months ended September 30, 2018, and the Predecessor’s One and Seven Months Ended July 31, 2018	4

	Consolidated Statements of Stockholders’ Equity (unaudited) for the Successor’s Three and Nine Months Ended September 30, 2019 and Two Months Ended September 30, 2018, and the Predecessor’s One and Seven Months Ended July 31, 2018	5

	Consolidated Statements of Cash Flows (unaudited) for the Successor’s Nine Months Ended September 30, 2019 and Two Months Ended September 30, 2018 and the Predecessor’s Seven Months Ended July 31, 2018	7

	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	70

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	128

Item 4.	Controls and Procedures	129

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	130

Item 1A.	Risk Factors	131

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	131

Item 3.	Defaults Upon Senior Securities	131

Item 4.	Mine Safety Disclosures	131

Item 5.	Other Information	131

Item 6.	Exhibits	132

PART I. Financial Information

Item 1. Financial Statements

MR. COOPER GROUP INC.

CONSOLIDATED BALANCE SHEETS

(millions of dollars, except share data)



	Successor
	September 30, 2019		December 31, 2018
	(unaudited)
Assets
Cash and cash equivalents	$	371	$	242
Restricted cash	271		319
Mortgage servicing rights, $3,339 and $3,665 at fair value, respectively	3,346		3,676
Advances and other receivables, net of reserves of $130 and $47, respectively	967		1,194
Reverse mortgage interests, net of reserves of $13 and $13, respectively	6,662		7,934
Mortgage loans held for sale at fair value	4,267		1,631
Mortgage loans held for investment at fair value	—		119
Property and equipment, net of accumulated depreciation of $45 and $16, respectively	113		96
Deferred tax asset, net	1,032		967
Other assets	1,449		795
Total assets	$	18,478	$	16,973

Liabilities and Stockholders’ Equity
Unsecured senior notes, net	$	2,464	$	2,459
Advance facilities, net	513		595
Warehouse facilities, net	4,802		2,349
Payables and other liabilities	2,002		1,543
MSR related liabilities - nonrecourse at fair value	1,328		1,216
Mortgage servicing liabilities	69		71
Other nonrecourse debt, net	5,533		6,795
Total liabilities	16,711		15,028
Commitments and contingencies (Note 18)
Preferred stock at $0.00001 - 10 million shares authorized, 1 million shares issued and outstanding, respectively; aggregate liquidation preference of ten dollars, respectively	—		—
Common stock at $0.01 par value - 300 million shares authorize d, 91.1 million and 90.8 million shares issued, respectively	1		1
Additional paid-in-capital	1,106		1,093
Retained earnings	659		848
Total Mr. Cooper stockholders’ equity	1,766		1,942
Non-controlling interests	1		3
Total stockholders’ equity	1,767		1,945
Total liabilities and stockholders’ equity	$	18,478	$	16,973

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

MR. COOPER GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

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



	Successor									Predecessor
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Seven Months Ended July 31, 2018
Revenues:
Service related, net	$	258		$	479		$	259		$	120		$	901
Net gain on mortgage loans held for sale	360			788			83			44			295
Total revenues	618			1,267			342			164			1,196
Expenses:
Salaries, wages and benefits	250			703			139			69			426
General and administrative	228			710			136			173			519
Total expenses	478			1,413			275			242			945
Other income (expenses):
Interest income	163			459			90			48			333
Interest expense	(196		)	(572		)	(122		)	(53		)	(388		)
Other income (expenses)	—			16			6			—			6
Total other income (expenses), net	(33		)	(97		)	(26		)	(5		)	(49		)
Income (loss) before income tax expense (benefit)	107			(243		)	41			(83		)	202
Less: Income tax expense (benefit)	24			(52		)	(979		)	(19		)	48
Net income (loss)	83			(191		)	1,020			(64		)	154
Less: Net loss attributable to non-controlling interests	(1		)	(2		)	—			—			—
Net income (loss) attributable to Successor/Predecessor	84			(189		)	1,020			(64		)	154
Less: Undistributed earnings attributable to participating stockholders	1			—			9			—			—
Net income (loss) attributable to common stockholders	$	83		$	(189	)	$	1,011		$	(64	)	$	154

Net income (loss) per common share attributable to Successor/Predecessor:
Basic	$	0.91		$	(2.08	)	$	11.13		$	(0.65	)	$	1.57
Diluted	$	0.90		$	(2.08	)	$	10.99		$	(0.65	)	$	1.55

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

MR. COOPER GROUP INC.

UNAUDITED 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 Nationstar Stockholders’ Equity and Mr. Cooper Stockholders’ Equity, respectively			Non-controlling Interests			Total Equity
Predecessor
Balance at January 1, 2018	—	$	—	97,728	$	1	$	1,131		$	731		$	(148	)	$	1,715		$	7		$	1,722
Shares issued / (surrendered) under incentive compensation plan	—	—		450	—		(6		)	—			(3		)	(9		)	—			(9		)
Share-based compensation	—	—		—	—		17			—			—			17			—			17
Dividends to non-controlling interests	—	—		—	—		5			—			—			5			(6		)	(1		)
Net income	—	—		—	—		—			154			—			154			—			154
Balance at July 31, 2018	—	$	—	98,178	$	1	$	1,147		$	885		$	(151	)	$	1,882		$	1		$	1,883


Successor
Balance at August 1, 2018	1,000	$	—	90,806	$	1	$	1,091		$	(36	)	$	—		$	1,056		$	—		$	1,056
Shares issued under incentive compensation plan	—	—		5	—		—			—			—			—			—			—
Share-based compensation	—	—		—	—		2			—			—			2			—			2
Net income	—	—		—	—		—			1,020			—			1,020			—			1,020
Balance at September 30, 2018	1,000	$	—	90,811	$	1	$	1,093		$	984		$	—		$	2,078		$	—		$	2,078

Balance at January 1, 2019	1,000	$	—	90,821	$	1	$	1,093		$	848		$	—		$	1,942		$	3		$	1,945
Shares issued / (surrendered) under incentive compensation plan	—	—		266	—		(1		)	—			—			(1		)	—			(1		)
Share-based compensation	—	—		—	—		14			—			—			14			—			14
Net loss	—	—		—	—		—			(189		)	—			(189		)	(2		)	(191		)
Balance at September 30, 2019	1,000	$	—	91,087	$	1	$	1,106		$	659		$	—		$	1,766		$	1		$	1,767

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

MR. COOPER GROUP INC.

UNAUDITED 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 Nationstar Stockholders’ Equity and Mr. Cooper Stockholders’ Equity, respectively			Non-controlling Interests			Total Equity
Predecessor
Balance at June 30, 2018	—	$	—	98,163	$	1	$	1,140		$	949		$	(150	)	$	1,940		$	1		$	1,941
Shares issued / (surrendered) under incentive compensation plan	—	—		15	—		(2		)	—			(1		)	(3		)	—			(3		)
Share-based compensation	—	—		—	—		9			—			—			9			—			9
Dividends to non-controlling interests	—	—		—	—		—			—			—			—			—			—
Net loss	—	—		—	—		—			(64		)	—			(64		)	—			(64		)
Balance at July 31, 2018	—	$	—	98,178	$	1	$	1,147		$	885		$	(151	)	$	1,882		$	1		$	1,883


Successor
Balance at August 1, 2018	1,000	$	—	90,806	$	1	$	1,091		$	(36	)	$	—		$	1,056		$	—		$	1,056
Shares issued under incentive compensation plan	—	—		5	—		—			—			—			—			—			—
Share-based compensation	—	—		—	—		2			—			—			2			—			2
Net income	—	—		—	—		—			1,020			—			1,020			—			1,020
Balance at September 30, 2018	1,000	$	—	90,811	$	1	$	1,093		$	984		$	—		$	2,078		$	—		$	2,078

Balance at June 30, 2019	1,000	$	—	91,061	$	1	$	1,100		$	575		$	—		$	1,676		$	2		$	1,678
Shares issued under incentive compensation plan	—	—		26	—		1			—			—			1			—			1
Share-based compensation	—	—		—	—		5			—			—			5			—			5
Net income (loss)	—	—		—	—		—			84			—			84			(1		)	83
Balance at September 30, 2019	1,000	$	—	91,087	$	1	$	1,106		$	659		$	—		$	1,766		$	1		$	1,767

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

MR. COOPER GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions of dollars)



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018
Operating Activities
Net (loss) income attributable to Successor/Predecessor	$	(189	)	$	1,020		$	154
Adjustments to reconcile net (loss) income to net cash attributable to operating activities:
Deferred tax benefit	(53		)	(931		)	—
Net loss attributable to non-controlling interests	(2		)	—			—
Net gain on mortgage loans held for sale	(788		)	(83		)	(295		)
Interest income on reverse mortgage loans	(241		)	(72		)	(274		)
Gain on sale of assets	—			—			(9		)
MSL related increased obligation	—			—			59
Provision for servicing reserves	53			14			70
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities	998			(27		)	(177		)
Fair value changes in excess spread financing	(190		)	26			81
Fair value changes in mortgage servicing rights financing liability	15			—			16
Fair value changes in mortgage loans held for investment	(3		)	—			—
Amortization of premiums, net of discount accretion	(38		)	3			8
Depreciation and amortization for property and equipment and intangible assets	67			15			33
Share-based compensation	14			2			17
Other loss	5			—			3
Repurchases of forward loan assets out of Ginnie Mae securitizations	(1,823		)	(223		)	(544		)
Mortgage loans originated and purchased for sale, net of fees	(27,673		)	(3,458		)	(12,328		)
Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment	27,916			3,546			13,392
Changes in assets and liabilities:
Advances and other receivables	265			76			377
Reverse mortgage interests	1,700			442			1,601
Other assets	8			(15		)	(41		)
Payables and other liabilities	(69		)	(159		)	151
Net cash attributable to operating activities	(28		)	176			2,294

Investing Activities
Acquisitions, net of cash acquired	(85		)	(33		)	—
Property and equipment additions, net of disposals	(38		)	(14		)	(40		)
Purchase of forward mortgage servicing rights, net of liabilities incurred	(454		)	(63		)	(134		)
Net payment related to acquisition of HECM related receivables	—			—			(1		)
Proceeds on sale of forward and reverse mortgage servicing rights	298			60			—
Proceeds on sale of assets	—			—			13
Net cash attributable to investing activities	(279		)	(50		)	(162		)

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

MR. COOPER GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

(millions of dollars)



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018
Financing Activities
Increase (decrease) in warehouse facilities	1,930			186			(585		)
(Decrease) increase in advance facilities	(95		)	46			(305		)
Repayment of notes payable	(294		)	—			—
Proceeds from issuance of HECM securitizations	398			—			759
Proceeds from sale of HECM securitizations	20			—			—
Repayment of HECM securitizations	(568		)	(91		)	(448		)
Proceeds from issuance of participating interest financing in reverse mortgage interests	220			45			208
Repayment of participating interest financing in reverse mortgage interests	(1,472		)	(403		)	(1,599		)
Proceeds from the issuance of excess spread financing	469			84			70
Repayment of excess spread financing	(19		)	(21		)	(3		)
Settlement of excess spread financing	(163		)	(31		)	(105		)
Repayment of nonrecourse debt – legacy assets	(29		)	(3		)	(7		)
Repurchase of unsecured senior notes	—			—			(62		)
Repayment of finance lease liability	(3		)	—			—
Redemption and repayment of unsecured senior notes	—			(1,030		)	—
Surrender of shares relating to stock vesting	(1		)	—			(9		)
Debt financing costs	(5		)	(1		)	(24		)
Dividends to non-controlling interests	—			—			(1		)
Net cash attributable to financing activities	388			(1,219		)	(2,111		)
Net increase (decrease) in cash, cash equivalents, and restricted cash	81			(1,093		)	21
Cash, cash equivalents, and restricted cash - beginning of period	561			1,623			575
Cash, cash equivalents, and restricted cash - end of period ⁽¹⁾	$	642		$	530		$	596

Supplemental Disclosures of Cash Activities
Cash paid for interest expense	$	166		$	135		$	417
Net cash (refunded) paid for income taxes	$	(4	)	$	—		$	36


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



	Successor				Predecessor
	Nine Months Ended September 30, 2019		Two Months Ended September 30, 2018		Seven Months Ended July 31, 2018
Cash and cash equivalents	$	371	$	198	$	166
Restricted cash	271		332		430
Total cash, cash equivalents, and restricted cash	$	642	$	530	$	596

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

MR COOPER GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(millions of dollars, unless otherwise stated)

1. Nature of Business and Basis of Presentation

Nature of Business

Mr. Cooper Group Inc., collectively with its consolidated subsidiaries, (“Mr. Cooper”, 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 real estate data as well as a range of services including real estate brokerage, title, closing, valuation and field services to lenders, investors and consumers. The Company’s corporate website is located at www.mrcoopergroup.com . The Company has provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, in the MD&A section of this Form 10-Q.

Mr. Cooper, which was previously known as WMIH Corp. (“WMIH”), is a corporation duly organized and existing under the laws of the State of Delaware since May 11, 2015. On July 31, 2018, Wand Merger Corporation (“Merger Sub”), a wholly-owned subsidiary of WMIH merged with and into Nationstar Mortgage Holdings Inc. (“Nationstar”), with Nationstar continuing as a wholly-owned subsidiary of WMIH (the “Merger”). Prior to the Merger, WMIH had limited operations other than its reinsurance business that operated in runoff mode. As a result of the Merger, shares of Nationstar common stock were delisted from the New York Stock Exchange. Following the Merger closing, the combined company traded on NASDAQ under the ticker symbol “WMIH” until October 10, 2018, when WMIH changed its name to “Mr. Cooper Group Inc.” and its ticker symbol to “COOP”.

Basis of Presentation

For the purpose of financial statement presentation, Mr. Cooper was determined to be the accounting acquirer in the Merger, and Nationstar’s assets and liabilities were recorded at estimated fair value as of the acquisition date. Mr. Cooper’s interim consolidated financial statements for periods following the Merger closing are labeled “Successor” and reflect the acquired assets and liabilities from Nationstar.

Under Securities and Exchange Commission (“SEC”) rules, when a registrant succeeds to substantially all of the business of another entity and the registrant’s own operations before the succession appear insignificant relative to the operations assumed or acquired, the registrant is required to present financial information for the acquired entity (the “Predecessor”) for all comparable periods being presented before the acquisition. Due to the acquisition, the Predecessor and Successor financial statements have been prepared on different basis of accounting and are therefore not comparable.

Pursuant to the Merger, Nationstar is considered the predecessor company. Therefore, the Company is providing additional information in the accompanying unaudited consolidated financial statements regarding Nationstar’s business for periods prior to July 31, 2018. The predecessor company financial information in this report is labeled “Predecessor” in these consolidated interim financial statements.

The consolidated interim financial statements of the Company and Predecessor have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the SEC. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2018 .

Upon the consummation of the Merger, the Company adopted the significant accounting policies that were implemented by Nationstar and applied to the Predecessor’s financial statements, as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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

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

Basis of Consolidation

The basis of consolidation described below was adopted by Nationstar and applied to the Predecessor financial statements for the periods impacted by the adoption. The Successor’s financial statements reflect the adoption of such standards.

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

Use of Estimates

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

Reclassification

Certain reclassifications have been made in the 2018 consolidated financial statements to conform to 2019 presentation. Such reclassifications did not affect total revenues or net income.

Recent Accounting Guidance Adopted

Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), No. 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”), and No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), primarily impact lessee accounting by requiring the recognition of a right-of-use asset and a corresponding lease liability on the balance sheet for long-term lease agreements. ASU 2016-02 was effective for the Company on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients. The Company has elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and has not restated comparative periods. The Company elected the package of practical expedients, which, among other items, permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the short-term lease recognition exemption for all leases that qualify. Under this practical expedient, for those leases that qualify, the Company does not recognize right-of-use (“ROU”) assets or lease liabilities, which includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all of our leases. The Company did not elect the use-of-hindsight practical expedient. As a result of implementing ASU 2016-02, the Company recognized an operating lease ROU asset of $114 and an operating lease liability of $124 on January 1, 2019, with no impact on its consolidated statement of operations. The ROU asset and operating lease liability are recorded in other assets, and payables and other liabilities, respectively, in the consolidated balance sheets. See Note 7, Leases for additional information.

Accounting Standards Update No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40 - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract " (“ASU 2018-15”) aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 will be effective for the Company on January 1, 2020. Early adoption is permitted, including adoption in any interim period. In the first quarter of 2019, the Company early adopted ASU 2018-15. The standard did not have a material impact to the Company’s consolidated financial statements.

Recent Accounting Guidance Not Yet Adopted

Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), requires expected credit losses for financial instruments held at the reporting date to be measured based on historical experience, current conditions and reasonable and supportable forecasts. The update eliminates the probable initial recognition threshold in current GAAP and instead reflects an entity’s current estimate of all expected credit losses over the life of the asset. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new standard will reflect management’s best estimate of all expected credit losses for the Company’s financial assets that are recognized at amortized cost. As part of the evaluation process, the Company has performed a scoping analysis, developed a detailed project plan, and is currently in process of completing documentation. The Company has also formed an internal committee from various internal departments to assist in the implementation of the new standard. The guidance is effective in first quarter 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Company is currently evaluating the potential impact of ASU 2016-13 on its consolidated financial statements.

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

2. Acquisitions

Acquisition of Pacific Union Financial, LLC

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

The acquisition has been accounted for in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 (“ASC 805”), Business Combinations , using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The determination of fair value estimates requires management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments. The purchase price was estimated to be $116 as of the closing date and such amount was paid by the Company as required by the Unit Purchase Agreement (“UPA”). In accordance with the terms of the UPA, the seller has formally disputed the estimated purchase price. As a result of the dispute, the final purchase price is subject to adjustment until the end of the measurement period (up to one year from the acquisition date), which would result in an increase to cash consideration paid and goodwill. Solely for this purpose, the Company estimates that it is reasonably possible that the adjustment to the final purchase price would range between $0 and $16 . During the second quarter of 2019, the Company finalized its purchase price allocation subject to resolution of the above dispute. Based on the allocation of fair value, goodwill of $40 has been recorded, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily attributable to the assembled workforce and synergies with the Company’s current operations. $28 and $12 of the goodwill is assigned to the Origination and Servicing segments, respectively, based on expected cash flows and is expected to be deductible for tax purposes.



Estimated Fair Value of Net Assets Acquired ⁽¹⁾ :
Cash and cash equivalents	$	37
Restricted cash	2
Mortgage servicing rights	271
Advances and other receivables	84
Mortgage loans held for sale	536
Mortgage loans held for investment	1
Property and equipment	8
Other assets	483
Fair value of assets acquired	1,422
Notes payable ⁽²⁾	294
Advance facilities	13
Warehouse facilities	393
Payables and other liabilities	530
Other nonrecourse debt	129
Fair value of liabilities assumed	1,359
Total fair value of net tangible assets acquired	63
Intangible assets:
Customer relationships ⁽³⁾	13
Goodwill	40
Estimated purchase price	$	116


⁽¹⁾	Estimated Fair Value of Net Assets Acquired is subject to change due to dispute of purchase price.


⁽²⁾	Notes payable was subsequently paid off in February 2019 after the consummation of the acquisition.


⁽³⁾	The estimated fair values for customer relationships were measured using the excess earnings method and were determined to have a remaining useful life of 10 years.

During the second quarter of 2019, the Company obtained additional information that existed as of the acquisition date and updated its estimated accrued liabilities, which resulted in $11 increase to payables and other liabilities. In addition, the third-party valuation specialists finalized their valuation of intangible assets acquired by the Company, which resulted in $2 increase to the fair value of the intangible assets acquired. The Company also wrote off $2 property and equipment acquired as it finalized its valuation of property and equipment. Total adjustments to goodwill in the second quarter of 2019 were $11 . Preliminary goodwill totaled $40 after taking into account these measurement period adjustments.

The Company incurred total acquisition costs of $4 during the nine months ended September 30, 2019 , of which $2 are included in salaries, wages and benefits expense and $2 in general and administrative expense in the Company’s consolidated statements of operations. The acquisition costs were primarily related to legal, accounting and consulting services. There were no acquisition costs incurred by the Company in the three months ended September 30, 2019 .

For the three and nine months ended September 30, 2019 , the operations contributed by this acquisition generated total revenues of $95 and $213 and income before income tax of $58 and $108 , respectively, which are reported in the Company’s consolidated statements of operations.

The following unaudited pro forma financial information presents the combined results of operations for the three and nine months ended September 30, 2019 , as if the acquisition had occurred on January 1, 2019.



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Pro forma total revenues	$	618	$	1,286

Pro forma net income (loss)	$	83	$	(188	)

Acquisition of Nationstar Mortgage Holdings Inc.

Upon the Merger with Nationstar on July 31, 2018, each share of Nationstar’s common stock issued and outstanding immediately prior to the Effective Time was converted into the right to receive, at the election of the holder of such share, (i) $18.00 per share in cash, without interest, or (ii) 12.7793 shares (prior to the 1-for-12 reverse stock split) of validly issued, fully paid and nonassessable shares of WMIH common stock (the “Merger Consideration”). The Merger Consideration was subject to automatic proration and adjustment pursuant to the Merger Agreement to ensure that the total amount of cash paid (excluding cash paid in lieu of fractional shares) equaled approximately $1,226 .

Pursuant to the Merger Agreement, immediately prior to the Effective Time, subject to certain exceptions, (i) each then-outstanding share of Nationstar restricted stock automatically vested in full and was converted into the right to receive the Merger Consideration, as elected by the holder thereof, and (ii) each then-outstanding Nationstar restricted stock unit, whether vested or unvested, was automatically vested in full, assumed by WMIH and converted into a WMIH restricted stock unit entitling the holder thereof to receive upon settlement the Merger Consideration, as elected by the holder.

Upon closing the Merger, all outstanding WMIH Series B Preferred Stock and all outstanding warrants to purchase shares of WMIH common stock were converted into common stock of WMIH.

Total purchase price was approximately $1,777 , consisting of cash paid of $1,226 and transferred stock valued at $551 . The purchase price was funded from available cash on hand and borrowings under senior unsecured notes (see discussion below). Prior to the acquisition, Nationstar was a publicly-held company that earned fees through the delivery of servicing, origination and transaction-based services related primarily to single-family residences throughout the United States. This acquisition marks the Company’s initial entry into the mortgage servicing industry that Nationstar operates in and is consistent with the Company’s business strategy.

On July 13, 2018, Merger Sub closed the offering of $950 aggregate principal amount of 8.125% Notes due 2023 (the “2023 Notes”) and $750 aggregate principal amount of 9.125% Notes due 2026 (the “2026 Notes” and, together with the 2023 Notes, the “New Notes”). The proceeds from the New Notes were used, together with the proceeds from the issuance of the Company’s common stock and the Company’s cash and restricted cash on hand, to consummate the Company’s acquisition of Nationstar and the refinancing of certain of Nationstar’s existing debt and to pay related fees and expenses. At the consummation of the acquisition, Merger Sub merged with and into Nationstar, with Nationstar continuing as a wholly-owned subsidiary of the Company. After the Merger, Nationstar assumed all of Merger Sub’s obligations under the New Notes.

The acquisition has been accounted for in accordance with ASC 805, Business Combinations , using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The Company recorded final goodwill of $65 , which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily attributable to the assembled workforce and synergies from the future growth and strategic advantages in the mortgage industry. The entire goodwill is assigned to the Servicing segment and will not be deductible for tax purposes.

The table below presents the calculation of aggregate purchase price.



Purchase Price:
Converted WMIH common shares (prior to reverse stock split) in millions	394
Price per share, based on price of $1.398 for WMIH stock on July 31, 2018	$	1.398
Purchase price from common stock issued	551
Purchase price from cash payment	1,226
Total purchase price	$	1,777

The allocation of the fair value of the acquired business was based on final valuations of the estimated net fair value of the assets acquired. The determination of fair value estimates required management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments. The Company’s estimates were subject to change as the Company obtained additional information and finalized its review of estimates during the measurement period (up to one year from the acquisition date). The Company recorded any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments were determined. The Company finalized its allocation of fair value of consideration transferred in the three months ended June 30, 2019.

The final allocation of the purchase price to the acquired assets and liabilities is as follows:



Final Estimated Fair Value of Net Assets Acquired:
Cash and cash equivalents	$	166
Restricted cash	430
Mortgage servicing rights	3,422
Advances and other receivables	1,262
Reverse mortgage interests	9,189
Mortgage loans held for sale	1,514
Mortgage loans held for investment	125
Property and equipment	96
Other assets	610
Fair value of assets acquired	16,814
Unsecured senior notes	1,830
Advance facilities	551
Warehouse facilities	2,701
Payables and other liabilities	1,352
MSR related liabilities—nonrecourse	1,065
Mortgage servicing liabilities	123
Other nonrecourse debt	7,583
Fair value of liabilities assumed	15,205
Total fair value of net tangible assets acquired	1,609
Intangible assets ⁽¹⁾	103
Goodwill	65
Purchase price	$	1,777


⁽¹⁾	The following intangible assets were acquired in the Nationstar acquisition.



	Useful Life (Years)	Fair Value
Customer relationships ⁽ⁱ⁾	6	$	61
Tradename ⁽ⁱⁱ⁾	5	8
Technology ⁽ⁱⁱ⁾	3-5	11
Internally developed software ⁽ⁱⁱⁱ⁾	2	23
Total		$	103


⁽ⁱ⁾	The estimated fair values for customer relationships were measured using the excess earnings method.


⁽ⁱⁱ⁾	The estimated fair values for tradename and technology were measured using the relief-from-royalty method. This method assumes the tradename and technology have value to the extent the owner is relieved of the obligation to pay royalties for the benefits received from these assets.


⁽ⁱⁱⁱ⁾	The estimated fair values for internally developed software were measured using the replacement cost method.

The preliminary allocation of fair value as of December 31, 2018 resulted in goodwill of $10 . During the first quarter of 2019, the Company obtained additional information in finalizing its review regarding a market participant view of the cost to service assumption related to the valuation of reverse mortgage assets and liabilities. This additional information was used in finalizing the Company’s review of the fair value of the reverse mortgage assets and liabilities and resulted in a reduction of $24 in reverse mortgage interests, a reduction of $6 in reverse mortgage servicing rights and an increase of $37 in mortgage servicing liabilities. In addition, a reduction of $12 in payables and other liabilities was recorded for the tax impact related to the revised valuation, for a total adjustment to goodwill of $55 . As a result of the revised fair value, the Company recorded $7 to service related, net revenue and $1 to interest income, for a total $8 increase to earnings in the consolidated statement of operations for the first quarter of 2019. During the second quarter of 2019, the Company finalized its allocation of purchase price which did not result in any significant additional measurement period adjustments. There was a total goodwill of $65 as of September 30, 2019 after taking into account these measurement period adjustments.

WMIH incurred total acquisition costs of $92 prior to the consummation of the Merger. The acquisition costs were primarily related to legal, accounting and consulting services and were expensed as incurred through July 31, 2018. Included in the total acquisition costs was a transaction fee of $25 to KKR Capital Markets LLC (“KCM”), an affiliate of KKR Wand Investors Corporation, which is WMIH’s largest stockholder, for acting as a non-exclusive financial advisor to WMIH with respect to the Merger and an arrangement fee of $7 to KCM for acting as a placement agent with respect to a bridge financing facility in connection with the Merger that was not executed. In addition, WMIH incurred $38 of costs related to borrowings under the New Notes, which was capitalized in debt costs.

WMIH also paid KCM a deferred fee of $8 , which initially reduced the carrying value of the Series B Preferred Stock. This fee was payable in connection with the conversion of Series B Preferred Stock to WMIH common stock upon consummation of the Merger.

Included in the Predecessor’s consolidated statements of operations were $27 of acquisition costs incurred by Nationstar for the seven months ended July 31, 2018 .

Included in the Company’s consolidated statements of operations were $7 of acquisition costs related to the compensation arrangements incurred by the Company related to the Merger for the two months ended September 30, 2018 .

The following unaudited pro forma financial information presents the combined results of operations for the three and nine months ended September 30, 2018 , as if the acquisition had occurred on January 1, 2018.



	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Pro forma total revenues	$	506		$	1,538

Pro forma net (loss) income	$	(20	)	$	156

Acquisition of Assurant Mortgage Solutions (“AMS”)

On August 1, 2018, Xome Holdings LLC, a wholly-owned subsidiary of the Company, acquired AMS for $38 in cash with additional contingent consideration dependent on the achievement of certain future performance targets, which was estimated at $15 as of December 31, 2018. Total purchase price was estimated at $53 . The acquisition expands Xome’s product footprint and grows its third-party client portfolio across its valuation, title and field services businesses. The Company finalized its purchase price allocation and recorded intangible assets of $24 and goodwill of $13 in 2018. The Company expects the entire goodwill balance to be deductible for tax purposes. Under ASC 805, Business Combinations , the contingent consideration was remeasured to fair value of $4 at March 31, 2019 and remained unchanged at June 30, 2019. The contingent consideration was remeasured at September 30, 2019 and was determined to have zero fair value. The changes in the fair value of $4 and $15 were included in other income (expenses) within the consolidated statements of operations for the three and nine months ended September 30, 2019 , respectively.

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.



	Successor
MSRs and Related Liabilities	September 30, 2019		December 31, 2018
Forward MSRs - fair value	$	3,339	$	3,665
Reverse MSRs - amortized cost	7		11
Mortgage servicing rights	$	3,346	$	3,676

Mortgage servicing liabilities - amortized cost	$	69	$	71

Excess spread financing - fair value	$	1,281	$	1,184
Mortgage servicing rights financing - fair value	47		32
MSR related liabilities - nonrecourse at fair value	$	1,328	$	1,216

Mortgage Servicing Rights

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

The following table sets forth the activities of forward MSRs.



	Successor						Predecessor
MSRs - Fair Value	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018
Fair value - beginning of period	$	3,665		$	3,413		$	2,937
Additions:
Servicing retained from mortgage loans sold	298			43			162
Purchases of servicing rights ⁽¹⁾	732			72			144
Dispositions:
Sales of servicing assets ⁽²⁾	(317		)	(63		)	4
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model	(716		)	65			330
Other changes in fair value	(323		)	(45		)	(164		)
Fair value - end of period	$	3,339		$	3,485		$	3,413

⁽¹⁾

Purchases of servicing rights during the nine months ended September 30, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 2, Acquisitions for further discussion. In addition, on January 3, 2019, the Company entered into a subservicing contract for $24 billion unpaid principal balance in mortgages. The related servicing rights were subsequently purchased on May 1, 2019, resulting in additional $253 servicing rights during the second quarter of 2019.


⁽²⁾	Amount for the seven months ended July 31, 2018 is related to the sale of MSRs collateralized by nonperforming loans, which have a negative MSR value.

From time to time, the Company sells its ownership interest in certain MSRs and is retained as the subservicer for the sold assets. The Company has evaluated the sale accounting requirements related to these transactions, including the Company’s continued involvement as the subservicer, and concluded that these transactions qualify for sale accounting treatment. During the nine months ended September 30, 2019 and two months ended September 30, 2018 , the Company sold $25,639 and $5,947 in unpaid principal balance (“UPB”) of forward MSRs, of which $20,560 and none were retained by the Company as subservicer, respectively. During the seven months ended July 31, 2018 , the Predecessor sold $1,203 in UPB of forward MSRs, of which $1 in UPB was retained by the Predecessor as subservicer.

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

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

The following table provides a breakdown of credit sensitive and interest sensitive unpaid principal balance (“UPB”) for the Company’s forward MSRs.



	Successor
	September 30, 2019				December 31, 2018
MSRs - Sensitivity Pools	UPB		Fair Value		UPB		Fair Value
Credit sensitive	$	157,898	$	1,661	$	135,752	$	1,495
Interest sensitive	148,783		1,678		159,729		2,170
Total	$	306,681	$	3,339	$	295,481	$	3,665

The Company used the following key weighted-average inputs and assumptions in estimating the fair value of MSRs.



	Successor
	September 30, 2019		December 31, 2018
Credit Sensitive
Discount rate	10.4	%	11.3	%
Prepayment speeds	13.2	%	11.8	%
Average life	5.9 years		6.4 years

Interest Sensitive
Discount rate	9.0	%	9.3	%
Prepayment speeds	14.6	%	10.0	%
Average life	5.4 years		7.0 years

Total MSR Portfolio
Discount rate	9.7	%	10.2	%
Prepayment speeds	13.9	%	10.8	%
Average life	5.6 years		6.7 years

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



	Successor
	Discount Rate						Total Prepayment Speeds
MSRs - Hypothetical Sensitivities	100 bps Adverse Change			200 bps Adverse Change			10% Adverse Change			20% Adverse Change
September 30, 2019
Mortgage servicing rights	$	(117	)	$	(226	)	$	(164	)	$	(316	)

December 31, 2018
Mortgage servicing rights	$	(137	)	$	(265	)	$	(129	)	$	(250	)

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

Reverse Mortgage Servicing Rights and Liabilities - Amortized Cost

The Company services certain HECM reverse mortgage loans with an unpaid principal balance of $23,990 and $28,415 as of September 30, 2019 and December 31, 2018 , respectively. Mortgage servicing liabilities (“MSL”) had an ending balance of $69 and $71 as of September 30, 2019 and December 31, 2018 , respectively. For the nine months ended September 30, 2019 and two months ended September 30, 2018 , the Company accreted $39 and $7 of the MSL, respectively. In addition, the Company recorded an MSL adjustment of $37 during the nine months ended September 30, 2019 . The MSL adjustment recorded by the Company relates to the fair value adjustments for MSL assumed from the Merger resulting from the revised cost to service assumption used in the valuation of MSL during the measurement period. See Note 2, Acquisitions for further information. For the seven months ended July 31, 2018 , the Predecessor accreted $11 of the MSL and recorded an impairment of $56 in general and administrative expenses. Accretion recorded by the Predecessor relates to previous portfolio acquisitions.

Reverse MSR had an ending balance of $7 and $11 as of September 30, 2019 and December 31, 2018 , respectively. For the nine months ended September 30, 2019 , the Company amortized $2 and recorded other MSR adjustments of $6 . The MSR adjustment recorded by the Company relates to the fair value adjustments for MSR assumed from the Merger resulting from the revised cost to service assumption used in the valuation of MSR during the measurement period. See Note 2, Acquisitions for further information. For the two months ended September 30, 2018 , the Company recorded less than $1 of amortization. For the seven months ended July 31, 2018 , the Predecessor recorded an impairment of $4 .

The fair value of the reverse MSR was $7 and $11 as of September 30, 2019 and December 31, 2018 , respectively. The fair value of the MSL was $41 and $53 as of September 30, 2019 and December 31, 2018 , respectively. Management evaluates reverse MSRs and MSLs each reporting period for impairment. Based on management’s assessment at September 30, 2019 , no impairment or increased obligation was needed.

Excess Spread Financing - Fair Value

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

In connection with the above transactions, the Company entered into refinanced loan obligations with third parties that require the Company to transfer the new loan or a replacement loan of similar economic characteristics into the respective portfolio if the Company refinances any loan in the portfolio. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above.

The Company used the following weighted-average assumptions in the Company’s valuation of excess spread financing.



	Successor
	September 30, 2019		December 31, 2018
Excess Spread Financing Assumptions
Discount rate	11.9	%	10.4	%
Prepayment speeds	13.3	%	11.0	%
Recapture rate	22.3	%	18.6	%
Average life	5.7 years		6.5 years

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



	Successor
	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, 2019
Excess spread financing	$	42	$	87	$	44	$	93

December 31, 2018
Excess spread financing	$	47	$	99	$	38	$	81

As the cash flow assumptions utilized in determining the fair value amounts in the excess spread financing are based on the related cash flow assumptions utilized in the financed MSRs, any fair value changes recognized in the financed MSRs attributable to a related cash flow assumption would inherently have an inverse impact on the carrying amount of the related excess spread financing. For example, while an increase in discount rates would negatively impact the value of the Company’s financed MSRs, it would reduce the carrying value of the associated excess spread financing liability.

These hypothetical sensitivities should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing.

Mortgage Servicing Rights Financing - Fair Value

From December 2013 through June 2014, the Predecessor entered into agreements to sell a contractually specified base servicing fee component of certain MSRs and servicing advances under specified terms to a joint venture capitalized by New Residential and certain unaffiliated third-party investors. The purpose of this transaction was to facilitate the financing of advances for private label mortgages. The Company continues to be the named servicer, and, for accounting purposes, ownership of the mortgage servicing rights continues to reside with the Company. Accordingly, the Company records the MSR and an MSR financing liability associated with this transaction in its consolidated balance sheets. The MSR financing liability reflects the incremental costs of this transaction relative to the market participant assumptions contained in the MSR valuation.

The following table sets forth the weighted average assumptions used in the valuation of the mortgage servicing rights financing liability.



	Successor
Mortgage Servicing Rights Financing Assumptions	September 30, 2019		December 31, 2018
Advance financing rates	3.7	%	4.2	%
Annual advance recovery rates	18.7	%	19.0	%

Mortgage Servicing Rights - Revenues

The following table sets forth the items comprising revenues associated with servicing loan portfolios.



	Successor									Predecessor
Servicing Revenue	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Seven Months Ended July 31, 2018
Contractually specified servicing fees ⁽¹⁾	$	305		$	893		$	163		$	79		$	574
Other service-related income ⁽¹⁾⁽²⁾	51			133			18			10			66
Incentive and modification income ⁽¹⁾	12			29			8			4			37
Late fees ⁽¹⁾	30			82			14			7			53
Reverse servicing fees	7			24			13			4			37
Mark-to-market adjustments ⁽³⁾	(83		)	(607		)	24			25			196
Counterparty revenue share ⁽⁴⁾	(86		)	(204		)	(26		)	(16		)	(111		)
Amortization, net of accretion ⁽⁵⁾	(73		)	(152		)	(31		)	(16		)	(112		)
Total servicing revenue	$	163		$	198		$	183		$	97		$	740


⁽¹⁾	Amounts include subservicing related revenues.


⁽²⁾	Amount for the nine months ended September 30, 2019 includes a gain of $21 from the execution of a clean-up call option on a reverse mortgage loan trust, as the Company was the master servicer and holder of clean-up call rights.

⁽³⁾

Mark-to-market (“MTM”) adjustments include fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows for the Company was $18 , $46 , and $13 for the three and nine months ended September 30, 2019 and two months ended September 30, 2018 , respectively. The impact of negative modeled cash flows for the Predecessor totaled $4 and $38 for the one and seven months ended July 31, 2018 , respectively.


⁽⁴⁾	Counterparty revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSRs financing arrangements.

⁽⁵⁾

Amortization for the Company is net of excess spread accretion of $77 and $172 and MSL accretion of $10 and $39 for the three and nine months ended September 30, 2019 , respectively. Amortization for the Company is net of excess spread accretion of $22 for the two months ended September 30, 2018 . Amortization of the Predecessor is net of excess spread of $11 and $78 for the one and seven months ended July 31, 2018 , respectively. The Predecessor recorded MSL accretion within reverse servicing fees, whereas the Successor has elected to record MSL accretion within amortization, net of accretion.

4. Advances and Other Receivables, Net

Advances and other receivables, net consists of the following.



	Successor
	September 30, 2019			December 31, 2018
Servicing advances, net of $148 and $205 discount, respectively	$	865		$	1,000
Receivables from agencies, investors and prior servicers, net of $48 and $48 discount, respectively	232			241
Reserves	(130		)	(47		)
Total advances and other receivables, net	$	967		$	1,194

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

The Company estimates and records an asset for estimated recoveries to be collected from prior servicers for their respective portion of the losses associated with the underlying loans that were not serviced in accordance with established guidelines. Receivables from prior servicers totaled $101 and $94 for the Company’s forward loan portfolio at September 30, 2019 and December 31, 2018 , respectively.

The following table sets forth the activities of the servicing reserves for advances and other receivables.



	Successor								Predecessor
Reserves for Advances and Other Receivables	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018		One Month Ended July 31, 2018			Seven Months Ended July 31, 2018
Balance - beginning of period	$	98		$	47		$	—	$	294		$	284
Provision and other additions ⁽¹⁾	35			102			20		7			69
Write-offs	(3		)	(19		)	—		(4		)	(56		)
Balance - end of period	$	130		$	130		$	20	$	297		$	297

⁽¹⁾

The Company recorded a provision of $18 , $46 , and $13 through the MTM adjustments in service related revenues for the three and nine months ended September 30, 2019 , and two months ended September 30, 2018 , respectively. The Predecessor recorded a provision of $4 and $38 through the MTM adjustments in service related revenues for the one and seven months ended July 31, 2018 , respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.

Purchase Discount for Advances and Other Receivables

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

As of September 30, 2019 , a total of $125 purchase discount has been utilized, with $196 purchase discount remaining.

The following table sets forth the activities of the purchase discounts for advances and other receivables.



	Successor
Purchase Discounts - Servicing Advances	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018
Balance - beginning of period	$	156		$	205		$	246
Addition from acquisition	—			19			—
Utilization of purchase discounts	(8		)	(76		)	(19		)
Balance - end of period	$	148		$	148		$	227



	Successor
Purchase Discounts - Receivables from Agencies, Investors and Prior Servicers	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019		Two Months Ended September 30, 2018
Balance - beginning of period	$	48	$	48	$	56
Addition from acquisition	—		—		—
Utilization of purchase discounts	—		—		—
Balance - end of period	$	48	$	48	$	56

5. Reverse Mortgage Interests, Net

Reverse mortgage interests, net consists of the following:



	Successor
	September 30, 2019			December 31, 2018
Participating interests in HECM mortgage-backed securities (“HMBS”), including $14 and $58 purchase premium, respectively	$	4,592		$	5,664
Other interests securitized, net of $63 and $100 purchase discount, respectively	879			1,064
Unsecuritized interests, net of $75 and $122 purchase discount, respectively	1,204			1,219
Reserves	(13		)	(13		)
Total reverse mortgage interests, net	$	6,662		$	7,934

Participating Interests in HMBS

Participating interests in HMBS consist of the Company’s reverse mortgage interests in HECM loans which have been transferred to GNMA and subsequently securitized through the issuance of HMBS. The Company does not own these loans, but due to HMBS program buyout requirements, such interests are consolidated in Company’s consolidated balance sheets. The Company does not originate reverse mortgages, but during the nine months ended September 30, 2019 and two months ended September 30, 2018 , a total of $211 and $44 in UPB associated with new draws on existing loans was transferred to GNMA and securitized by the Company, respectively. During the seven months ended July 31, 2018 , a total of $198 UPB was transferred to GNMA and securitized by the Predecessor.

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

Other Interests Securitized

Other interests securitized consist of reverse mortgage interests that no longer meet HMBS program eligibility criteria primarily because they have reached 98% of their Max Claim Amount (“MCA”), which is established at origination and in accordance with HMBS program guidelines, requiring a repurchase of loans from the respective HMBS trust. These reverse mortgage interests have subsequently been transferred to private securitization trusts and are accounted for as a secured borrowing. During the nine months ended September 30, 2019 , the Company securitized a total of $398 UPB through Trust 2019-1 and a total of $249 UPB from Trust 2017-2 was called and the related debt was extinguished. See Note 10, Indebtedness for additional information. The Company sold $20 UPB of Trust 2018-3 retained bonds during the nine months ended September 30, 2019 . No such securitizations occurred during the two months ended September 30, 2018 . During the seven months ended July 31, 2018 , the Predecessor securitized a total of $760 UPB through Trust 2018-1 and Trust 2018-2 and a total of $284 UPB from Trust 2016-2 and Trust 2016-3 were called and the related debt was extinguished. Refer to Other Nonrecourse Debt in Note 10, Indebtedness , for additional information.

Unsecuritized Interests

Unsecuritized interests in reverse mortgages consist of the following:



	Successor
	September 30, 2019			December 31, 2018
Repurchased HECM loans (exceeds 98% MCA)	$	874		$	949
HECM related receivables ⁽¹⁾	289			300
Funded borrower draws not yet securitized	92			76
REO-related receivables	24			16
Purchase discount, net	(75		)	(122		)
Total unsecuritized interests	$	1,204		$	1,219


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

Unsecuritized interests include repurchased HECM loans for which the Company is required to repurchase from the HMBS pool when the outstanding principal balance of the HECM loan is equal to or greater than 98% of the MCA established at origination and in accordance with HMBS program guidelines. These unsecuritized interests are primarily financed through available warehouse lines. The Company repurchased a total of $2,132 and $608 of HECM loans out of GNMA HMBS securitizations during the nine months ended September 30, 2019 and two months ended September 30, 2018 , respectively, of which $561 and $138 were subsequently assigned to a third party in accordance with applicable servicing agreements, respectively. The Predecessor repurchased a total of $2,439 of HECM loans out of GNMA HMBS securitizations during the seven months ended July 31, 2018 , of which $512 was subsequently assigned to a third party in accordance with applicable servicing agreements. To the extent a loan is not subject to applicable servicing agreements and assigned to a third party, the loan is either subject to assignment to HUD, per contractual obligations with GNMA, liquidated via a payoff from the borrower or liquidated via a foreclosure according to the terms of the underlying mortgage. The Company assigned a total of $1,458 and $458 of HECM loans to HUD during the nine months ended September 30, 2019 and two months ended September 30, 2018 , respectively. The Predecessor assigned a total of $1,712 of HECM loans to HUD during the seven months ended July 31, 2018 .

As discussed above, the Company estimates and records an asset for probable recoveries from prior servicers for their respective portion of the losses associated with the underlying loans that were not serviced in accordance with established guidelines. Net receivables from prior servicers totaled $8 and $18 for the Company’s reverse loan portfolio at September 30, 2019 and December 31, 2018 , respectively.

Reserves for Reverse Mortgage Interests

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

The following table sets forth the activities of the servicing reserves for reverse mortgage interests.



	Successor							Predecessor
Reserves for reverse mortgage interests	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018		One Month Ended July 31, 2018		Seven Months Ended July 31, 2018
Balance - beginning of period	$	8	$	13		$	—	$	117	$	115
Provision (release), net	5		7			1		12		32
Write-offs	—		(7		)	—		—		(18		)
Balance - end of period	$	13	$	13		$	1	$	129	$	129

Purchase Discount for Reverse Mortgage Interests

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

The following table sets forth the activities of the purchase premiums and discounts for reverse mortgage interests.



	Successor
	Three Months Ended September 30, 2019
Purchase premiums and discounts for reverse mortgage interests	Net Premium for Participating Interests in HMBS ⁽¹⁾			Net Discount for Other Interest Securitized ⁽¹⁾			Net Discount for Unsecuritized Interests ⁽¹⁾
Balance - beginning of period	$	18		$	(84	)	$	(97	)
Utilization of purchase discounts ⁽²⁾	—			11			29
(Amortization)/Accretion	(4		)	9			(6		)
Transfers ⁽³⁾	—			1			(1		)
Balance - end of period	$	14		$	(63	)	$	(75	)



	Successor
	Nine Months Ended September 30, 2019
Purchase premiums and discounts for reverse mortgage interests	Net Premium for Participating Interests in HMBS ⁽¹⁾			Net Discount for Other Interest Securitized ⁽¹⁾			Net Discount for Unsecuritized Interests ⁽¹⁾
Balance - beginning of period	$	58		$	(100	)	$	(122	)
Adjustments ⁽⁴⁾	(16		)	(2		)	(6		)
Utilization of purchase discounts ⁽²⁾	—			24			56
(Amortization)/Accretion	(41		)	22			3
Transfers ⁽³⁾	13			(7		)	(6		)
Balance - end of period	$	14		$	(63	)	$	(75	)



	Successor
	Two Months Ended September 30, 2018
Purchase premiums and discounts for reverse mortgage interests	Net Premium for Participating Interests in HMBS ⁽¹⁾			Net Discount for Other Interest Securitized ⁽¹⁾			Net Discount for Unsecuritized Interests ⁽¹⁾
Balance - beginning of period	$	58		$	(117	)	$	(161	)
(Amortization)/Accretion	(3		)	—			10
Balance - end of period	$	55		$	(117	)	$	(151	)


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


⁽²⁾	Utilization of purchase discounts to mitigate loss on liquidated loans, for which the remaining receivable was written-off.


⁽³⁾	Transfer of premium/(discount) based on the transfer of associated loans between categories consistent with the underlying loan characteristics.


⁽⁴⁾	Adjustments to premium/(discount) due to revised cost to service assumption utilized in the valuation of reverse mortgage assets and liabilities acquired from the Merger. See Note 2, Acquisitions for additional information.

In connection with previous reverse mortgage portfolio acquisitions, the Predecessor recorded a purchase discount within Unsecuritized Interests. The following table sets forth the activities of the purchase discount for reverse mortgage interests.



	Predecessor
Purchase discount for reverse mortgage interests	One Month Ended July 31, 2018			Seven Months Ended July 31, 2018
Balance - beginning of period	$	(84	)	$	(89	)
Additions	—			(7		)
Accretion	2			14
Balance - end of period	$	(82	)	$	(82	)

Reverse Mortgage Interest Income

The Company accrues interest income for its participating interest in reverse mortgages based on the stated rates underlying HECM loans, in accordance with FHA guidelines. Total interest earned on the Company’s reverse mortgage interests was $74 , $241 and $72 for three and nine months ended September 30, 2019 , and two months ended September 30, 2018 , respectively. Total interest earned on the Predecessor’s reverse mortgage interests was $38 and $274 for one and seven months ended July 31, 2018 , respectively.

6. Mortgage Loans Held for Sale and Investment

Mortgage Loans Held for Sale

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

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



	Successor
	September 30, 2019		December 31, 2018
Mortgage loans held for sale – UPB	$	4,110	$	1,568
Mark-to-market adjustment ⁽¹⁾	157		63
Total mortgage loans held for sale	$	4,267	$	1,631


⁽¹⁾	The mark-to-market adjustment is recorded in net gain on mortgage loans held for sale in the consolidated statements of operations.

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

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



	Successor
	September 30, 2019				December 31, 2018
Mortgage Loans Held for Sale - UPB	UPB		Fair Value		UPB		Fair Value
Non-accrual ⁽¹⁾	$	31	$	26	$	45	$	42


⁽¹⁾	Non-accrual includes $26 and $40 of UPB related to Ginnie Mae repurchased loans as of September 30, 2019 and December 31, 2018 , respectively.

The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $21 and $33 as of September 30, 2019 and December 31, 2018 , respectively.

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



	Successor						Predecessor
Mortgage loans held for sale	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018
Balance - beginning of period	$	1,631		$	1,514		$	1,891
Mortgage loans originated and purchased, net of fees ⁽¹⁾	28,199			3,459			12,319
Loans sold	(27,430		)	(3,508		)	(13,255		)
Repurchase of loans out of Ginnie Mae securitizations	1,823			223			544
Net transfers of mortgage loans held for sale to/from REO in other assets and transfer from mortgage loans held for investment ⁽²⁾⁽³⁾	15			4			14
Changes in fair value	19			(8		)	(1		)
Other purchase-related activities ⁽⁴⁾	10			(1		)	9
Transfer of mortgage loans held for sale to advances and other receivables, net related to claims ⁽⁵⁾	—			(2		)	(7		)
Balance - end of period	$	4,267		$	1,681		$	1,514


⁽¹⁾	Mortgage loans originated and purchased during the nine months ended September 30, 2019 includes $536 of loans held for sale that were acquired from Pacific Union. See Note 2, Acquisitions for further discussion.


⁽²⁾	Net amounts are comprised of REO in the sales process, which are transferred to other assets, and certain government insured mortgage REO, which are transferred from other assets upon completion of the sale so that the claims process can begin.


⁽³⁾	Amount for the nine months ended September 30, 2019 includes $12 transfer from mortgage loans held for investment upon collapse of Trust 2009-A, the Company’s legacy portfolio, and sale of the loans held in the trust. See mortgage loans held for investment discussed in section below for additional information.


⁽⁴⁾	Amounts are comprised primarily of non-Ginnie Mae loan purchases and buyouts.


⁽⁵⁾	Amounts are comprised of claims made on certain government insured mortgage loans upon completion of the REO sale.

For the nine months ended September 30, 2019 and two months ended September 30, 2018 , the Company received proceeds of $27,778 and $3,543 respectively, on the sale of mortgage loans held for sale, resulting in gains of $367 and $35 , respectively. For the seven months ended July 31, 2018 , the Predecessor received proceeds of $13,382 on the sale of mortgage loans held for sale, resulting in gains of $127 .

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

Mortgage Loans Held for Investment

In September 2019, the Company collapsed Trust 2009-A, its legacy portfolio, and executed the sale of the loans held in the trust for a total purchase price of $130 . The Company recognized a gain of $32 , which was recorded in the net gain on mortgage loans held for sale in the consolidated statements of operations. $21 and $11 of the gain were recorded in the Servicing and Corporate/Other segments, respectively. In connection with this transaction, $94 UPB of the mortgage loans held for investment was called and the related debt was extinguished. The Company transferred the remaining $12 UPB to mortgage loans held for sale and $5 UPB to real estate owned.

The following table sets forth the activities of mortgage loans held for investment.



	Successor
Mortgage loans held for investment at fair value	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018
Balance - beginning of period	$	119		$	125
Sale of mortgage loans	(94		)	—
Transfers to mortgage loans held for sale	(12		)	—
Payments received from borrowers	(11		)	(2		)
Transfers to real estate owned	(5		)	—
Changes in fair value ⁽¹⁾	3			—
Losses incurred	—			(1		)
Balance - end of period	$	—		$	122


⁽¹⁾	The changes in fair value during the two months ended September 30, 2018 , is less than $1 .

The following sets forth the composition of mortgage loans held for investment as of December 31, 2018 .



	Successor
	December 31, 2018
Mortgage loans held for investment – UPB	$	156
Fair value adjustments	(37		)
Total mortgage loans held for investment at fair value	$	119

The total UPB of mortgage loans held for investment on non-accrual status was as follows.



	Successor
	December 31, 2018
Mortgage Loans Held for Investment - UPB	UPB		Fair Value
Non-accrual	$	27	$	13

The total UPB of mortgage loans held for investment for which the Company has begun formal foreclosure proceedings was $15 as of December 31, 2018 .

7. Leases

Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in other assets and payables and other liabilities, respectively, on its consolidated balance sheets as of September 30, 2019 . The Company does not currently have any significant finance leases in which it is the lessee. Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. ROU assets are further adjusted for lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in general and administrative expenses in the consolidated statements of operations. The Company’s leases relate primarily to office space and equipment, with remaining lease terms of generally 1 to 10 years . Certain lease arrangements contain extension options, which typically range from 3 to 5 years , at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. As of September 30, 2019 , operating lease ROU assets and liabilities were $126 and $137 , respectively.

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



	Successor
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	$	10		$	29
Short-term lease cost ⁽¹⁾	—			1
Sublease income	(1		)	(2		)
Net lease cost	$	9		$	28


⁽¹⁾	Amount for three months ended September 30, 2019 is less than $1 .

The table below summarizes other information related to the Company’s operating leases:



	Successor
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	8		$	21
Leased assets obtained in exchange for new operating lease liabilities ⁽¹⁾	$	(5	)	$	150
Weighted average remaining lease term - operating leases, in years	5.7			5.7
Weighted average discount rate - operating leases	5.0		%	5.0		%


⁽¹⁾	The reduction in the three months ended September 30, 2019 is due to a modification of lease agreements.

Maturities of operating lease liabilities as of September 30, 2019 are as follows:



Year Ending December 31,	Operating Leases
2019 ⁽¹⁾	$	10
2020	39
2021	30
2022	22
2023	16
2024 and thereafter	45
Total future minimum lease payments	162
Less: imputed interest	25
Total operating lease liabilities	$	137


⁽¹⁾	Excluding the nine months ended September 30, 2019 .

Finance lease liability was $3 as of September 30, 2019 , the majority of which matures within a year.

8. Other Assets

Other assets consist of the following:



	Successor
	September 30, 2019		December 31, 2018
Loans subject to repurchase from Ginnie Mae	$	629	$	266
Trade receivables and accrued revenues	142		145
Right-of-use assets	126		—
Goodwill	120		23
Intangible assets	93		117
Other	339		244
Total other assets	$	1,449	$	795

Loans Subject to Repurchase Right from Ginnie Mae

Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. The Company, as the issuer of the mortgage backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its consolidated balance sheets and establishes a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The amount as of September 30, 2019 includes $418 attributable to Pacific Union.

Trade Receivables and Accrued Revenues

Trade receivables and accrued revenues are primarily comprised of trade receivables and service fees earned but not received based upon the terms of the Company’s servicing and subservicing agreements.

Right of Use Assets

Right of use assets are recognized for operating leases as a result of adoption of ASC 842. See Note 7, Leases for additional information.

Goodwill and Intangible Assets

The table below presents changes in the carrying amount of goodwill for the nine months ended September 30, 2019 .



	Successor
	Nine Months Ended September 30, 2019
Balance - beginning of period	$	23
Additions from acquisitions ⁽¹⁾	42
Measurement period adjustment related to Merger ⁽²⁾	55
Balance - end of period	$	120

⁽¹⁾

As discussed in Note 2, Acquisitions , the Company recorded goodwill of $40 in connection with the acquisition of Pacific Union. In addition, on February 28, 2019, the Company completed the acquisition of the Seterus mortgage servicing platform and assumed certain assets related thereto from IBM (“Seterus acquisition”). In connection with the Seterus acquisition, the Company recorded $2 in goodwill.


⁽²⁾	The Company recorded a total measurement period adjustment of $55 to goodwill in 2019 related to the acquisition of Nationstar. See further discussion in Note 2, Acquisitions .

In 2018, the Company recorded goodwill of $10 and $13 in connection with the acquisitions of Nationstar and Assurant Mortgage Solutions, respectively. See further discussion in Note 2, Acquisitions .

In 2019, the Company recorded intangible assets of $13 in connection with the acquisition of Pacific Union. In 2018, the Company recorded intangible assets of $103 and $24 in connection with the acquisitions of Nationstar and Assurant Mortgage Solutions, respectively. See further discussion in Note 2, Acquisitions .

Other

Other primarily includes derivative financial instruments, prepaid expenses, margin call deposits, real estate owned (REO), tax receivables and non-advance related accounts receivable due from investors. See Note 9, Derivative Financial Instruments , for further details on derivative financial instruments.

REO includes $8 and $10 of REO-related receivables with government insurance at September 30, 2019 and December 31, 2018 , respectively, limiting loss exposure to the Company.

9. 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.

Associated with the Company’s derivatives are $0.4 and $12 in collateral deposits on derivative instruments recorded in other assets on the Company’s consolidated balance sheets as of September 30, 2019 and December 31, 2018 , respectively. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the consolidated balance sheets.

The following table provides the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses).



		Successor
		September 30, 2019				Nine Months Ended September 30, 2019
	Expiration Dates	Outstanding Notional		Fair Value		Recorded Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments	2019	$	1,508	$	35.3	$	9.4
Derivative financial instruments
IRLCs	2019	4,964		143.9		84.1
Forward MBS trades	2019	3,054		7.7		5.9
LPCs	2019	1,397		18.2		16.5
Eurodollar futures ⁽¹⁾	2020-2021	6		—		—
Liabilities
Derivative financial instruments
IRLCs ⁽¹⁾	2019	15		—		—
Forward MBS trades	2019	5,667		15.9		(8.0		)
LPCs	2019	547		3.1		2.7
Eurodollar futures ⁽¹⁾	2019-2021	8		—		—



		Successor							Predecessor
		September 30, 2018				Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018
	Expiration Dates	Outstanding Notional		Fair Value		Recorded Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments	2018	$	428	$	6.9	$	(3.7	)	$	10.5
Derivative financial instruments
IRLCs	2018	1,765		57.8		(1.8		)	0.4
Forward MBS trades	2018	3,040		12.2		9.0			0.9
LPCs	2018	228		1.7		0.5			0.3
Treasury futures	2018	65		—		—			(1.8		)
Eurodollar futures ⁽¹⁾	2018-2021	20		—		—			—
Liabilities
Derivative financial instruments
IRLCs ⁽¹⁾	2018	3		—		—			—
Forward MBS trades	2018	413		0.5		(1.4		)	(1.0		)
LPCs	2018	320		1.5		0.9			0.1
Treasury futures ⁽¹⁾	2018	53		0.1		0.1			(1.3		)
Eurodollar futures ⁽¹⁾	2020-2021	6		—		—			—


⁽¹⁾	Fair values or recorded gains/(losses) of derivative instruments are less than $0.1 for the specified dates.

10. Indebtedness

Notes Payable



						Successor
						September 30, 2019				December 31, 2018
Advance Facilities	Interest Rate	Maturity Date	Collateral	Capacity Amount		Outstanding		Collateral Pledged		Outstanding		Collateral pledged
$325 advance facility	LIBOR + 1.5% to 6.5%	August 2021	Servicing advance receivables	$	325	$	233	$	294	$	209	$	284
$250 advance facility	LIBOR + 1.5% to 2.6%	December 2020	Servicing advance receivables	250		142		173		218		255
$200 advance facility	LIBOR + 2.5%	December 2019	Servicing advance receivables	200		64		125		90		149
$125 advance facility	LIBOR + 1.5% to 7.4%	July 2020	Servicing advance receivables	125		74		84		78		89
Advance facilities principal amount						513		$	676	595		$	777
Unamortized debt issuance costs						—				—
Advance facilities, net						$	513			$	595



						Successor
						September 30, 2019					December 31, 2018
Warehouse Facilities	Interest Rate	Maturity Date	Collateral	Capacity Amount		Outstanding			Collateral pledged		Outstanding			Collateral pledged
$1,500 warehouse facility	LIBOR + 1.0%	June 2020	Mortgage loans or MBS	$	1,500	$	970		$	938	$	—		$	—
$1,200 warehouse facility	LIBOR + 1.7% to 3.5%	November 12, 2019	Mortgage loans or MBS	1,200		734			779		560			622
$1,000 warehouse facility	LIBOR + 1.4% to 2.3%	September 2020	Mortgage loans or MBS	1,000		521			536		137			140
$800 warehouse facility ⁽¹⁾	LIBOR + 1.5% to 2.9%	April 2020	Mortgage loans or MBS	800		586			643		464			514
$750 warehouse facility	LIBOR + 1.4% to 2.8%	September 2020	Mortgage loans or MBS	750		511			524		119			122
$600 warehouse facility	LIBOR + 2.3%	February 2020	Mortgage loans or MBS	600		214			251		151			168
$500 warehouse facility	LIBOR + 1.5% to 2.8%	November 14, 2019	Mortgage loans or MBS	500		405			474		220			248
$500 warehouse facility	LIBOR + 1.5% to 3.0%	April 2020	Mortgage loans or MBS	500		391			400		187			200
$200 warehouse facility	LIBOR + 1.5%	December 2019	Mortgage loans or MBS	200		91			92		—			—
$200 warehouse facility	LIBOR + 1.2%	April 2021	Mortgage loans or MBS	200		91			94		18			19
$200 warehouse facility	LIBOR + 2.0%	January 2020	Mortgage loans or MBS	200		67			94		103			132
$200 warehouse facility	LIBOR + 1.5%	October 2020	Mortgage loans or MBS	200		21			21		—			—
$50 warehouse facility	LIBOR + 2.0% to 6.0%	April 2020	Mortgage loans or MBS	50		13			16		—			—
$40 warehouse facility	LIBOR + 3.3%	September 2020	Mortgage loans or MBS	40		27			28		—			—
$40 warehouse facility	LIBOR + 3.0%	November 29, 2019	Mortgage loans or MBS	40		1			2		1			2
$500 warehouse facility ⁽²⁾	LIBOR + 2.0% to 2.3%	September 2020	Mortgage loans or MBS	—		—			—		290			299
Warehouse facilities principal amount						4,643			4,892		2,250			2,466
MSR Facility
$400 warehouse facility	LIBOR + 3.5% to 6.1%	June 2021	MSR	400		150			839		100			928
$400 warehouse facility	LIBOR + 2.3%	December 2020	MSR	400		—			193		—			226
$150 warehouse facility ⁽¹⁾	LIBOR + 2.8%	April 2020	MSR	150		—			121		—			430
$50 warehouse facility	LIBOR + 2.8%	August 2020	MSR	50		10			84		—			102
						160			1,237		100			1,686
Warehouse and MSR facilities principal amount						4,803			$	6,129	2,350			$	4,152

Unamortized debt issuance costs						(1		)			(1		)
Warehouse facilities, net						$	4,802				$	2,349

Pledged Collateral:
Mortgage loans and mortgage loans held for investment						$	3,980		$	4,119	$	1,528		$	1,628
Reverse mortgage interests						663			773		722			838
MSR						160			1,237		100			1,686


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


⁽²⁾	This facility was terminated during August 2019.

Unsecured Senior Notes

Unsecured senior notes consist of the following:



	Successor
	September 30, 2019			December 31, 2018
$950 face value, 8.125% interest rate payable semi-annually, due July 2023	$	950		$	950
$750 face value, 9.125% interest rate payable semi-annually, due July 2026	750			750
$600 face value, 6.500% interest rate payable semi-annually, due July 2021 ⁽¹⁾	592			592
$300 face value, 6.500% interest rate payable semi-annually, due June 2022	206			206
Unsecured senior notes principal amount	2,498			2,498
Unamortized debt issuance costs, premium and discount	(34		)	(39		)
Unsecured senior notes, net	$	2,464		$	2,459


⁽¹⁾	This note was subsequently paid down by $100 in principal balance in October 2019.

The ratios included in the indentures for the unsecured senior notes are incurrence-based compared to the customary ratio covenants that are often found in credit agreements that require a company to maintain a certain ratio. The incurrence-based covenants limit the issuer(s) and restricted subsidiaries ability to incur additional indebtedness, pay dividends, make certain investments, create liens, consolidate, merge or sell substantially all their assets or enter into certain transactions with affiliates. The indentures contain certain events of default, including (subject, in some cases, to customary cure periods and materiality thresholds) defaults based on (i) the failure to make payments under the applicable indenture when due, (ii) breach of covenants, (iii) cross-defaults to certain other indebtedness, (iv) certain bankruptcy or insolvency events, (v) material judgments and (vi) invalidity of material guarantees.

The indentures for the unsecured senior notes provide that the Company may redeem all or a portion of the notes prior to certain fixed dates by paying a make-whole premium plus accrued and unpaid interest, to the redemption dates. In addition, the Company may redeem all or a portion of the unsecured senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest, to the redemption dates. No notes were repurchased or redeemed during the three and nine months ended September 30, 2019 , and two months ended September 30, 2018 . During the two months ended September 30, 2018 , the Company redeemed $658 in principal of outstanding notes. Additionally, the Company repaid $364 in principal of outstanding notes which matured during the two months ended September 30, 2018 . The Predecessor repurchased $60 in principal of outstanding notes during the seven months ended July 31, 2018 resulting in a loss of $2 . No notes were repurchased during the one month ended July 31, 2018 .

Additionally, the indentures provide that on or before certain fixed dates, the Company may redeem (x) in the case of the New Notes, up to 40% , or (y) in the case of the other series of unsecured senior notes, up to 35% 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.

As of September 30, 2019 , the expected maturities of the Company’s unsecured senior notes based on contractual maturities are as follows:



Year Ending December 31,	Amount
2019	$	—
2020	—
2021 ⁽¹⁾	592
2022	206
2023	950
Thereafter	750
Total unsecured senior notes principal amount	$	2,498


⁽¹⁾	This note does not include the subsequent pay down of $100 in principal balance in October 2019.

Other Nonrecourse Debt

Other nonrecourse debt consists of the following:



						Successor
						September 30, 2019		December 31, 2018
	Issue Date	Maturity Date	Class of Note	Securitized Amount		Outstanding		Outstanding
Participating interest financing ⁽¹⁾	—	—	—	$	—	$	4,581	$	5,607
Securitization of nonperforming HECM loans
Trust 2017-2 ⁽²⁾	September 2017	September 2027	A, M1, M2	—		—		231
Trust 2018-1	March 2018	March 2028	A, M1, M2, M3, M4, M5	232		201		284
Trust 2018-2	August 2018	August 2028	A, M1, M2, M3, M4, M5	179		161		250
Trust 2018-3	November 2018	November 2028	A, M1, M2, M3, M4, M5	254		239		326
Trust 2019-1	June 2019	June 2029	A, M1, M2, M3, M4, M5	347		339		—
Nonrecourse Debt - Legacy ⁽³⁾	November 2009	October 2039	A	—		—		29
Other nonrecourse debt principal amount						5,521		6,727
Unamortized debt issuance costs, premium and discount						12		68
Other nonrecourse debt, net						$	5,533	$	6,795


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


⁽²⁾	As discussed in Note 5, Reverse Mortgage Interests, Net , Trust 2017-2 was extinguished.


⁽³⁾	As discussed in Note 6, Mortgage Loans Held for Sale and Investment , Trust 2009-A, the Company’s legacy portfolio, was collapsed and the related debt was extinguished during September 2019.

Participating Interest Financing

Participating interest financing represents the obligation of HMBS pools to third-party security holders. The Company issues HMBS in connection with the securitization of borrower draws and accrues interest on HECM loans. Proceeds are received in exchange for securitized advances on the HECM loan amounts transferred to GNMA, and the Company retains a beneficial interest (referred to as a “participating interest”) in the securitization trust in which the HECM loans and HMBS obligations are held and assume both issuer and servicer responsibilities in accordance with GNMA HMBS program guidelines. Monthly cash flows generated from the HECM loans are used to service the HMBS obligations. The interest rate is based on the underlying HMBS rate with a range of 2.3% to 5.9% .

Securitizations of Nonperforming HECM Loans

From time to time, the Company securitizes its interests in non-performing reverse mortgages. The transactions provide investors with the ability to invest in a pool of both non-performing HECM loans secured by one-to-four-family residential properties and a pool of REO properties acquired through foreclosure of a deed in lieu of foreclosure in connection with HECM loans that are covered by FHA insurance. The transactions provide the Company with access to liquidity for the non-performing HECM loan portfolio, ongoing servicing fees, and potential residual returns. The transactions are structured as secured borrowings with the reverse mortgage loans included in the consolidated financial statements as reverse mortgage interests and the related financing included in other nonrecourse debt. Interest is accrued at a rate of 2.7% to 6.0% on the outstanding securitized notes and recorded as interest expense in consolidated statements of operations. The HECM securitizations are callable with expected weighted average lives of one to four years. The Company may re-securitize the previously called loans from earlier HECM securitizations to achieve a lower cost of funds.

Nonrecourse Debt – Legacy Assets

During November 2009, the Predecessor completed the securitization of approximately $222 of Asset-Backed Securities (“ABS”), which was accounted for as a secured borrowing. This structure resulted in the Predecessor and subsequently the Company carrying the securitized mortgage loans in its consolidated balance sheets and recognizing the asset-backed certificates acquired by third parties. The principal and interest on these notes are paid using the cash flows from the underlying mortgage loans, which serve as collateral for the debt. The interest rate paid on the outstanding securities is 7.5% , which is subject to an available funds cap. The trust was called and related debt was extinguished during September 2019. See Note 6, Mortgage Loans Held for Sale and Investment for further information. The total outstanding principal balance on the underlying mortgage loans serving as collateral for the debt was approximately $160 at December 31, 2018 . The UPB on the outstanding loans was $29 at December 31, 2018 and the carrying value of the nonrecourse debt was $29 .

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, 2019 . The most restrictive tangible net worth covenant required the Company to maintain a minimum tangible net worth of at least $682 .

11. Payables and Other Liabilities

Payables and other liabilities consist of the following:



	Successor
	September 30, 2019		December 31, 2018
Loans subject to repurchase from Ginnie Mae	$	629	$	266
Payables to servicing and subservicing investors	523		494
Operating lease liability	137		—
Payables to GSEs and securitized trusts	126		105
MSR purchases payable including advances	21		182
Other liabilities	566		496
Total payables and other liabilities	$	2,002	$	1,543

Loans Subject to Repurchase from Ginnie Mae

See Note 8, Other Assets for a description of assets and liabilities related to loans subject to repurchase from Ginnie Mae. The amount as of September 30, 2019 includes $418 attributable to Pacific Union.

Payables to Servicing and Subservicing Investors and Payables to GSEs and Securitized Trusts

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

Operating Lease Liabilities

Operating lease liabilities are recognized as a result of adoption of ASC 842 as of January 1, 2019. See Note 7, Leases for additional information.

MSR Purchases Payable Including Advances

MSR purchases payable including advances represent the amounts owed to the seller in connection with the purchase of MSRs.

Other Liabilities

Other liabilities primarily include accrued bonus and payroll, accrued interest, accrued legal expenses, payable to insurance carriers and insurance cancellation reserves, derivative financial instruments, repurchase reserves, accounts payable and other accrued liabilities. Payables to insurance carriers and insurance cancellation reserves consist of insurance premiums received from borrower payments awaiting disbursement to the insurance carrier and/or amounts due to third-party investors on liquidated loans. See Note 9, Derivative Financial Instruments , for further details on derivative financial instruments.

The following table sets forth the activities of repurchase reserves.



	Successor									Predecessor
Repurchase Reserves	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018		Seven Months Ended July 31, 2018
Balance - beginning of period	$	23		$	8		$	9		$	9	$	9
Provisions ⁽¹⁾	5			21			1			—		3
Releases	(4		)	(5		)	(1		)	—		(3		)
Balance - end of period	$	24		$	24		$	9		$	9	$	9


⁽¹⁾	Provision for the three and nine months ended September 30, 2019 is primarily due to repurchase reserve liabilities assumed in connection with the acquisition of Pacific Union. See Note 2, Acquisitions for additional information.

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

In the event of a breach of the representations and warranties, the Predecessor and subsequently the Company may be required to either repurchase the loan or indemnify the purchaser for losses it sustains on the loan. In addition, an investor may request that the Predecessor and subsequently the Company refund a portion of the premium paid on the sale of mortgage loans if a loan is prepaid within a certain amount of time from the date of sale. The Predecessor and the Company record a reserve for estimated losses associated with loan repurchases, purchaser indemnification and premium refunds. The provision for repurchase losses is charged against net gain on mortgage loans held for sale. A release of repurchase reserves is recorded when the Predecessor and Company’s assessment reveals that previously recorded reserves are no longer needed.

A selling representation and warranty framework was introduced by the GSEs in 2013 and enhanced in 2014 that helps address concerns of loan sellers with respect to loan repurchase risk. Under the framework, a GSE will not exercise its remedies, including the issuance of repurchase requests, for breaches of certain selling representations and warranties if a mortgage meets certain eligibility requirements. For loans sold to GSEs on or after January 1, 2013, repurchase risk for Home Affordable Refinance Program (“HARP”) loans is lowered if the borrower stays current on the loan for 12 months and representation and warranty risks are limited for non-HARP loans that stay current for 36 months.

The Company regularly evaluates the adequacy of repurchase reserves based on trends in repurchase and indemnification requests, actual loss experience, settlement negotiation, estimated future loss exposure and other relevant factors including economic conditions. Current loss rates have significantly declined attributable to stronger underwriting standards and due to the falloff of loans underwritten prior to the mortgage loan crisis period prior to 2008. The Company believes its reserve balance as of September 30, 2019 is sufficient to cover loss exposure associated with repurchase contingencies.

12. Securitizations and Financings

Variable Interest Entities (VIE)

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

The Company has determined that the SPEs created in connection with the (i) Nationstar Mortgage Advance Receivables Trust (NMART), (ii) Nationstar Agency Advance Financing Trust (NAAFT) and (iii) Nationstar Advance Agency Receivables Trust (NAART) should be consolidated as the Company is the primary beneficiary of each of these entities. Also, the Company consolidated four reverse mortgage SPEs as it is the primary beneficiary of each of these entities. These SPEs include the Nationstar HECM Loan Trusts.

A summary of the assets and liabilities of the Company’s transactions with VIEs included in the Company’s consolidated financial statements is presented below.



	Successor
	September 30, 2019				December 31, 2018
	Transfers Accounted for as Secured Borrowings		Reverse Secured Borrowings		Transfers Accounted for as Secured Borrowings		Reverse Secured Borrowings
Assets
Restricted cash	$	70	$	46	$	70	$	63
Reverse mortgage interests, net ⁽¹⁾	—		5,471		—		6,728
Advances and other receivables, net	552		—		628		—
Mortgage loans held for investment, net ⁽²⁾	—		—		118		—
Total assets	$	622	$	5,517	$	816	$	6,791

Liabilities
Advance facilities ⁽³⁾	$	449	$	—	$	505	$	—
Payables and other liabilities	1		1		1		1
Participating interest financing	—		4,581		—		5,607
HECM Securitizations (HMBS)
Trust 2017-2	—		—		—		231
Trust 2018-1	—		201		—		284
Trust 2018-2	—		161		—		250
Trust 2018-3	—		239		—		326
Trust 2019-1	—		339		—		—
Nonrecourse debt – legacy assets ⁽²⁾	—		—		29		—
Total liabilities	$	450	$	5,522	$	535	$	6,699


⁽¹⁾	Amounts include net purchase discount of $49 and $42 as of September 30, 2019 and December 31, 2018 , respectively.


⁽²⁾	The Nationstar Home Equity Loan Trust 2009-A was collapsed in September 2019. Refer to Mortgage Loans Held for Investment in Note 6, Mortgage Loans Held for Sale and Investment , for additional information.


⁽³⁾	Amounts include the Nationstar agency advance financing facility and notes payable recorded by the Nationstar Mortgage Advance Receivable Trust, and the Nationstar Agency Advance Receivables Trust. Refer to Notes Payable in Note 10, Indebtedness , for additional information.

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.



	Successor
	September 30, 2019		December 31, 2018
Total collateral balances - UPB	$	1,553	$	1,873
Total certificate balances	$	1,562	$	1,817

The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of September 30, 2019 and December 31, 2018 and therefore 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.



	Successor
Principal Amount of Loans 60 Days or More Past Due	September 30, 2019		December 31, 2018
Unconsolidated securitization trusts	$	204	$	285

13. Stockholders' Equity

Upon the consummation of the Merger, the Company assumed and adopted the Nationstar Mortgage Holdings Inc. Second Amended and Restated 2012 Incentive Compensation Plan (“2012 Plan”), as may be amended, that offers equity-based awards to certain key employees of the Company, consultants, and non-employee directors. Additionally, on May 16, 2019, the Company’s stockholders approved the Mr. Cooper Group Inc. 2019 Omnibus Incentive Plan (the “2019 Plan”) which had previously been approved by the Company’s Board of Directors.

The equity-based awards under the 2012 Plan and the 2019 Plan include restricted stock units (“RSUs”) granted to employees of the Company, consultants, and non-employee directors. These awards are valued at the fair market value of the Company’s or the Predecessor’s common stock on the grant date as defined in the 2012 Plan and the 2019 Plan. During the nine months ended September 30, 2019 and two months ended September 30, 2018 , certain key employees of the Company, consultants, and non-employee directors of the Company were granted 2,525 thousand and 73 thousand RSUs, respectively. During the seven months ended July 31, 2018 , certain employees of the Predecessor were granted 3,297 thousand RSUs. The stock awards for employees generally vest in installments of 33.3% , 33.3% and 33.4% respectively on each of the first three anniversaries of the awards, provided that (i) the participant remains continuously employed with the Company during that time or (ii) the participant’s employment has terminated by reason of retirement. The stock awards for non-employee directors generally vest the earlier of (a) the first anniversary of the grant date or (b) the date of the next annual stockholders meeting following the grant date. In addition, upon death or disability, the unvested shares of an award will vest.

The Company recorded $5 and $14 of expenses related to equity-based awards during the three and nine months ended September 30, 2019 , respectively, and recorded $2 during the two months ended September 30, 2018 . In addition, the Predecessor recorded $9 and $17 of expenses related to share-based awards during the one and seven months ended July 31, 2018 , respectively, including $7 expenses recognized due to a one-time accelerated vesting of equity awards in connection with the Merger.

14. Earnings Per Share

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

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



	Successor							Predecessor
	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018		One Month Ended July 31, 2018			Seven Months Ended July 31, 2018
Net income (loss) attributable to Successor/Predecessor	$	84	$	(189	)	$	1,020	$	(64	)	$	154
Less: Undistributed earnings attributable to participating stockholders	1		—			9		—			—
Net income (loss) attributable to common stockholders	$	83	$	(189	)	$	1,011	$	(64	)	$	154

Net income (loss) per common share attributable to Successor/Predecessor:
Basic	$	0.91	$	(2.08	)	$	11.13	$	(0.65	)	$	1.57
Diluted	$	0.90	$	(2.08	)	$	10.99	$	(0.65	)	$	1.55

Weighted average shares of common stock outstanding (in thousands):
Basic	91,080		91,012			90,808		98,164			98,046
Dilutive effect of stock awards	117		—			345		—			1,091
Dilutive effect of participating securities	839		—			839		—			—
Diluted	92,036		91,012			91,992		98,164			99,137

15. Income Taxes

The components of income tax (benefit) expense were as follows:



	Successor									Predecessor
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Seven Months Ended July 31, 2018
Income (loss) before income tax expense (benefit)	$	107		$	(243	)	$	41		$	(83	)	$	202

Income tax expense (benefit)	$	24		$	(52	)	$	(979	)	$	(19	)	$	48

Effective tax rate ⁽¹⁾	22.3		%	21.5		%	(2,377.1		)%	23.1		%	23.8		%


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

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

For the two months ended September 30, 2018, the effective tax rate differed from the statutory federal rate of 21% primarily due to the reversal of the valuation allowance associated with the net operating loss (“NOL”) carryforwards of WMIH, permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m) and nondeductible meals and entertainment expenses.

For the one and seven months ended July 31, 2018 in the predecessor period, the effective tax rate differed slightly from the statutory federal rate of 21% primarily due to state tax provision, adjustments in connection with the remediation of the Predecessor’s uncertain tax position and various permanent differences, including nondeductible transaction costs in connection with the Merger.

16. Fair Value Measurements

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

The following describes the methods and assumptions used by the Company in estimating fair values:

Cash and Cash Equivalents, Restricted Cash (Level 1) – The carrying amount reported in the consolidated balance sheets approximates fair value.

Mortgage Loans Held for Sale (Level 2) – The Company originates mortgage loans in the U.S. that it intends to sell into Fannie Mae, Freddie Mac and Ginnie Mae (collectively, the “Agencies”) MBS. Additionally, the Company holds mortgage loans that it intends to sell into the secondary markets via whole loan sales or securitizations. The Company measures newly originated prime residential mortgage loans held for sale at fair value.

Mortgage loans held for sale are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate and credit quality. Mortgage loans held for sale are valued on a recurring basis using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Company classifies these valuations as Level 2 in the fair value disclosures.

The Company may acquire mortgage loans held for sale from various securitization trusts for which it acts as servicer through the exercise of various clean-up call options as permitted through the respective pooling and servicing agreements. The Company has elected to account for these loans at the lower of cost or market. The Company classifies these valuations as Level 2 in the fair value disclosures.

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

Mortgage Loans Held for Investment (Level 3) – Mortgage loans held for investment primarily consist of nonconforming or subprime mortgage loans that were transferred in 2009 from mortgage loans held for sale at fair value. The Company intends to hold these loans to their maturities. The Company determines the fair value of loans held for investment, on a recurring basis, based on various underlying attributes such as market participants’ views, loan delinquency, recent observable loan pricing and sales for similar loans, individual loan characteristics and internal market evaluation. These internal market evaluations require the use of judgment by the Company and can have a significant impact on the determination of the loan’s fair value. As these fair values are derived from internally developed valuation models, using observable inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 6, Mortgage Loans Held for Sale and Investment , for more information. As of September 30, 2019 , the Company has no financial instruments classified as mortgage loans held for investment.

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 various factors, with the key assumptions being mortgage prepayment speeds and discount rates. 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.

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

Reverse Mortgage Interests, Net (Level 3) – The Company’s reverse mortgage interests are primarily comprised of HECM loans that are insured by FHA and guaranteed by Ginnie Mae upon securitization. Quarterly, the Company estimates fair value using discounted cash flows, obtained from a third-party and supplemented with historical loss experience on similar assets, with the discount rate approximating that of similar financial instruments, as observed from recent trades within the HMBS. Key assumptions within the model are based on market participant benchmarks and include discount rates, cost to service, weighted average life of the portfolio, and estimated participating income. Discounted cash flows are applied based on collateral stratifications and include loan rate type, loan status (active vs. inactive), and securitization. Prices are also influenced from both internal models and other observable inputs. The Company determined fair value for all loans based on the applicable tranches established during the Merger valuation. Tranches are segregated based on participation percentages, original loan status as of the Merger date, and interest rate types, and loan status (active vs inactive). Prices are also influenced from both internal models and other observable inputs, including applicable forward interest rate curves. Additionally, historical loss factors are considered within the overall valuation. Because of the unobservable nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 5, Reverse Mortgage Interests, Net for more information.

Derivative Financial Instruments (Level 2) – The Company enters into a variety of derivative financial instruments as part of its hedging strategy and measures these instruments at fair value on a recurring basis in the consolidated balance sheets. These derivatives are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 2. In addition, the Company enters into IRLCs and LPCs with prospective borrowers and other loan originators. These commitments are carried at fair value based on the fair value of underlying mortgage loans which are based on observable market data. The Company adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. IRLCs and LPCs are recorded in derivative financial instruments in the consolidated balance sheets. These commitments are classified as Level 2 in the fair value disclosures, as the valuations are based on market observable inputs. The Company has entered into Eurodollar futures contracts as part of its hedging strategy. The futures contracts are measured at fair value on a recurring basis and classified as Level 2 in the fair value disclosures as the valuation is based on market observable data. Derivative financial instruments are recorded in other assets and payables and other liabilities within the consolidated balance sheets. See Note 9, Derivative Financial Instruments , for more information.

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

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

Nonrecourse Debt – Legacy Assets (Level 3) – The Company estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. These prices are derived from a combination of internally developed valuation models and quoted market prices, and are classified as Level 3. See Note 10, Indebtedness , for more information.

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

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

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

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

The following table presents 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.



	Successor
	September 30, 2019
			Recurring Fair Value Measurements
	Total Fair Value		Level 1		Level 2		Level 3
Assets
Mortgage loans held for sale	$	4,267.2	$	—	$	4,267.2	$	—
Forward mortgage servicing rights	3,338.5		—		—		3,338.5
Derivative financial instruments
IRLCs	143.9		—		143.9		—
Forward MBS trades	7.7		—		7.7		—
LPCs	18.2		—		18.2		—
Eurodollar futures ⁽¹⁾	—		—		—		—
Total assets	$	7,775.5	$	—	$	4,437.0	$	3,338.5
Liabilities
Derivative financial instruments
IRLCs ⁽¹⁾	$	—	$	—	$	—	$	—
Forward MBS trades	15.9		—		15.9		—
LPCs	3.1		—		3.1		—
Eurodollar futures ⁽¹⁾	—		—		—		—
Mortgage servicing rights financing	46.9		—		—		46.9
Excess spread financing	1,280.8		—		—		1,280.8
Total liabilities	$	1,346.7	$	—	$	19.0	$	1,327.7



	Successor
	December 31, 2018
			Recurring Fair Value Measurements
	Total Fair Value		Level 1		Level 2		Level 3
Assets
Mortgage loans held for sale	$	1,630.8	$	—	$	1,630.8	$	—
Mortgage loans held for investment	119.1		—		—		119.1
Forward mortgage servicing rights	3,665.4		—		—		3,665.4
Derivative financial instruments
IRLCs	47.6		—		47.6		—
Forward MBS trades	0.1		—		0.1		—
LPCs	1.7		—		1.7		—
Eurodollar futures ⁽¹⁾	—		—		—		—
Total assets	$	5,464.7	$	—	$	1,680.2	$	3,784.5
Liabilities
Derivative financial instruments
Forward MBS trades	$	19.3	$	—	$	19.3	$	—
LPCs	0.4		—		0.4		—
Eurodollar futures ⁽¹⁾	—		—		—		—
Mortgage servicing rights financing	31.7		—		—		31.7
Excess spread financing	1,184.4		—		—		1,184.4
Total liabilities	$	1,235.8	$	—	$	19.7	$	1,216.1


⁽¹⁾	Fair values of the underlying assets and liabilities are less than $0.1 for the specified dates.

The table below presents a reconciliation for all of the Company and Predecessor’s Level 3 assets and liabilities measured at fair value on a recurring basis.



	Successor
	Assets						Liabilities
Nine Months Ended September 30, 2019	Mortgage servicing rights			Mortgage loans held for investment			Excess spread financing			Mortgage servicing rights financing
Balance - beginning of period	$	3,665		$	119		$	1,184		$	32
Total gains or losses included in earnings	(1,039		)	3			(190		)	15
Payments received from borrowers	—			(11		)	—			—
Purchases, issuances, sales, repayments and settlements
Purchases	732			—			—			—
Issuances	298			—			469			—
Sales	(317		)	(94		)	—			—
Repayments	—			—			(19		)	—
Settlements	—			—			(163		)	—
Transfers to mortgage loans held for sale	—			(12		)	—			—
Transfers to real estate owned	—			(5		)	—			—
Balance - end of period	$	3,339		$	—		$	1,281		$	47



	Successor
	Assets						Liabilities
Two Months Ended September 30, 2018	Mortgage servicing rights			Mortgage loans held for investment			Excess spread financing			Mortgage servicing rights financing
Balance - beginning of period	$	3,413		$	125		$	1,039		$	26
Total gains or losses included in earnings	20			(1		)	26			—
Payments received from borrowers	—			(2		)	—			—
Purchases, issuances, sales, repayments and settlements
Purchases	72			—			—			—
Issuances	43			—			84			—
Sales	(63		)	—			—			—
Repayments	—			—			(21		)	—
Settlements	—			—			(31		)	—
Balance - end of period	$	3,485		$	122		$	1,097		$	26



	Predecessor
	Assets		Liabilities
Seven Months Ended July 31, 2018	Mortgage servicing rights		Excess spread financing			Mortgage servicing rights financing
Balance - beginning of period	$	2,937	$	996		$	10
Total gains or losses included in earnings	166		81			16
Purchases, issuances, sales, repayments and settlements
Purchases	144		—			—
Issuances	162		70			—
Sales	4		—			—
Repayments	—		(3		)	—
Settlements	—		(105		)	—
Balance - end of period	$	3,413	$	1,039		$	26

No transfers were made into Level 3 fair value assets and liabilities for the Company for the nine months ended September 30, 2019 , two months ended September 30, 2018 , and the Predecessor for the seven months ended July 31, 2018 . During the nine months ended September 30, 2019 , $12 was transferred from mortgage loans held for investment, a Level 3 fair value asset, to mortgage loans held for sale, a Level 2 fair value asset, in connection with the collapse of Trust 2009-A, the Company’s legacy portfolio, and sale of the loans held in the trust. Refer to Note 6, Mortgage Loans Held for Sale and Investment for further information. No transfers were made out of Level 3 fair value assets and liabilities for the Company for the two months ended September 30, 2018 and the Predecessor for the seven months ended July 31, 2018 .

The table below presents a summary of the estimated carrying amount and fair value of the Company’s financial instruments.



	Successor
	September 30, 2019
	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	371	$	371	$	—	$	—
Restricted cash	271		271		—		—
Advances and other receivables, net	967		—		—		967
Reverse mortgage interests, net	6,662		—		—		6,726
Mortgage loans held for sale	4,267		—		4,267		—
Derivative financial instruments	170		—		170		—
Financial liabilities
Unsecured senior notes	2,464		2,592		—		—
Advance facilities	513		—		513		—
Warehouse facilities	4,802		—		4,802		—
Mortgage servicing rights financing liability	47		—		—		47
Excess spread financing	1,281		—		—		1,281
Derivative financial instruments	19		—		19		—
Participating interest financing	4,593		—		—		4,590
HECM Securitization (HMBS)
Trust 2018-1	201		—		—		201
Trust 2018-2	161		—		—		161
Trust 2018-3	239		—		—		239
Trust 2019-1	339		—		—		339



	Successor
	December 31, 2018
	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	242	$	242	$	—	$	—
Restricted cash	319		319		—		—
Advances and other receivables, net	1,194		—		—		1,194
Reverse mortgage interests, net	7,934		—		—		7,934
Mortgage loans held for sale	1,631		—		1,631		—
Mortgage loans held for investment	119		—		—		119
Derivative financial instruments	49		—		49		—
Financial liabilities
Unsecured senior notes	2,459		2,451		—		—
Advance facilities	595		—		595		—
Warehouse facilities	2,349		—		2,349		—
Mortgage servicing rights financing liability	32		—		—		32
Excess spread financing	1,184		—		—		1,184
Derivative financial instruments	20		—		20		—
Participating interest financing	5,675		—		—		5,672
HECM Securitization (HMBS)
Trust 2017-2	231		—		—		230
Trust 2018-1	284		—		—		284
Trust 2018-2	250		—		—		249
Trust 2018-3	326		—		—		326
Nonrecourse debt - legacy assets	29		—		—		28

17. 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.

Among the Company’s various capital requirements related to its outstanding selling and servicing agreements, which are measured based on the Company’s operating subsidiary, Nationstar Mortgage LLC, the most restrictive of these requires the Company to maintain a minimum adjusted net worth of $823 . As of September 30, 2019 , the Company was in compliance with its selling and servicing capital requirements.

18. Commitments and Contingencies

Litigation and Regulatory

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

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

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

For example, the Company continues to progress towards resolution of certain legacy regulatory matters involving examination findings for alleged violations of certain laws related to the Company’s business practices. The Company has been in discussions with the multi-state committee of mortgage banking regulators and various State Attorneys General concerning a potential resolution of their investigations. The Company is continuing to cooperate with all parties. In connection with these discussions, the Company previously recorded an accrual. These discussions may not result in a settlement of the matter; furthermore, any such settlement may exceed the amount accrued as of September 30, 2019 . Moreover, if the discussions do not result in a settlement, the regulators and State Attorneys General may seek to exercise their enforcement authority through litigation or other proceedings and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on the Company’s business, reputation, financial condition and results of operations.

Further, on April 24, 2018, the CFPB notified Nationstar that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (“NORA”) process, the CFPB’s Office of Enforcement is considering whether to recommend that the CFPB take enforcement action against the Company, alleging violations of the Real Estate Settlement Procedures Act, the Consumer Financial Protection Act, and the Homeowners Protection Act, which stems from a 2014 examination. The purpose of a NORA letter is to provide a party being investigated an opportunity to present its position to the CFPB before an enforcement action may be recommended or commenced. The CFPB may seek to exercise its enforcement authority through settlement, administrative proceedings or litigation and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on the Company’s business, reputation, financial condition and results of operations. The Company has not recorded an accrual related to this matter as of September 30, 2019 because it does not believe that the possible loss or range of loss arising from any such action is estimable. The Company is continuing to cooperate with the CFPB.

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

The Company is a defendant in a proceeding filed on January 2, 2018 in the U.S. District Court for the Northern District of California under the caption Collateral Analytics LLC v. Nationstar Mortgage LLC et al. The plaintiff alleges that the Company misappropriated plaintiff’s intellectual property for the purpose of replicating plaintiff’s products. The case raises federal and state law claims for misappropriation of trade secrets and breach of contract and seeks an award of actual damages, unjust enrichment, lost profits and/or a reasonable royalty, exemplary damages and injunctive relief preventing further misuse or disclosure of plaintiff’s intellectual property. On October 23, 2019, the Company reached an agreement in principle to settle this matter.

The Company is also a defendant in a proceeding filed on October 23, 2015 in the U.S. District Court for the Central District of California under the caption Alfred Zaklit and Jessy Zaklit, individually and on behalf of all others similarly situated v. Nationstar Mortgage LLC et al. The plaintiff alleges that the Company improperly recorded telephone calls without the knowledge or consent of borrowers in violation of the California Penal Code. On July 24, 2017, the court certified a class comprised of California borrowers who, from October 2014 to May 2016, participated in outbound telephone conversations with the Company’s employees who recorded the conversations without first informing the borrowers that the conversations were being recorded. The class seeks statutory damages and attorney’s fees. On September 10, 2018, the Company reached an agreement in principle to settle this matter, and on August 21, 2019, the court approved the settlement agreement.

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 $24 and $56 for the three and nine months ended September 30, 2019 , respectively, and $5 for the two months ended September 30, 2018 , was included in general and administrative expenses on the consolidated statements of operations. Legal-related expense for the Predecessor of $33 and $40 for the one and seven months ended July 31, 2018 , respectively, was included in general and administrative expenses on the consolidated statements of operations.

For a number of matters for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material legal matters on an ongoing basis, in conjunction with any outside counsel handling the matter. For those matters for which an estimate is possible, management currently believes the aggregate range of reasonably possible loss is $20 to $57 in excess of the accrued liability (if any) related to those matters as of September 30, 2019 . This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within the estimated range. Therefore, this estimated range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure and the Company cannot provide assurance that its litigations reserves will not need to be adjusted in the future. Thus, the Company’s exposure and ultimate losses may be higher, possibly significantly so, than the amounts accrued or this aggregate amount.

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

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

Other Loss Contingencies

As part of the Company’s ongoing operations, it acquires servicing rights of forward and reverse mortgage loan portfolios that are subject to indemnification based on the representations and warranties of the seller. From time to time, the Company will seek recovery under these representations and warranties for incurred costs. The Company believes all balances sought from sellers recorded in advances and other receivables and reverse mortgage interests represent valid claims. However, the Company acknowledges that the claims process can be prolonged due to the required time to perfect claims at the loan level. Because of the required time to perfect or remediate these claims, management relies on the sufficiency of documentation supporting the claim, current negotiations with the counterparty and other evidence to evaluate whether a reserve is required for non-recoverable balances. In the absence of successful negotiations with the seller, all amounts claimed may not be recovered. Balances may be written-off and charged against earnings when management identifies amounts where recoverability from the seller is not likely. As of September 30, 2019 , the Company believes all recorded balances for which recovery is sought from the seller are valid claims, and no evidence suggests additional reserves are warranted.

Loan and Other Commitments

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

The Company had certain reverse MSRs, reverse MSLs and reverse mortgage loans related to approximately $23,990 and $28,415 of UPB in reverse mortgage loans as of September 30, 2019 and December 31, 2018 , respectively. As a servicer for these reverse mortgage loans, among other things, the Company is obligated to fund borrowers’ draws to the loan customers as required in accordance with the loan agreement. As of September 30, 2019 and December 31, 2018 , the Company’s maximum unfunded advance obligation to fund borrower draws related to these MSRs and loans was approximately $2,741 and $3,128 , respectively. Upon funding any portion of these draws, the Company expects to securitize and sell the advances in transactions that will be accounted for as secured borrowings.

19. Business Segment Reporting

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

The following tables present financial information by segment.



	Successor
	Three Months Ended September 30, 2019
	Servicing			Originations			Xome		Elimination/ Reclassification ⁽¹⁾			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	163		$	22		$	112	$	(39	)	$	258		$	—		$	258
Net gain on mortgage loans held for sale	—			312			—		37			349			11			360
Total revenues	163			334			112		(2		)	607			11			618
Total Expenses	171			155			101		(2		)	425			53			478
Other income (expenses)
Interest income	137			24			—		—			161			2			163
Interest expense	(120		)	(24		)	—		—			(144		)	(52		)	(196		)
Other	—			(1		)	3		—			2			(2		)	—
Total Other Income (Expenses), Net	17			(1		)	3		—			19			(52		)	(33		)
Income (loss) before income tax expense (benefit)	$	9		$	178		$	14	$	—		$	201		$	(94	)	$	107
Depreciation and amortization for property and equipment and intangible assets	$	5		$	4		$	4	$	—		$	13		$	9		$	22
Total assets	$	12,049		$	8,450		$	515	$	(4,650	)	$	16,364		$	2,114		$	18,478



	Successor
	Two Months Ended September 30, 2018
	Servicing			Originations			Xome			Elimination/ Reclassification ⁽¹⁾			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	183		$	10		$	73		$	(7	)	$	259		$	—		$	259
Net gain on mortgage loans held for sale	—			76			—			7			83			—			83
Total revenues	183			86			73			—			342			—			342
Total Expenses	104			66			71			—			241			34			275
Other income (expenses)
Interest income	78			10			—			—			88			2			90
Interest expense	(74		)	(10		)	(1		)	—			(85		)	(37		)	(122		)
Other	5			1			—			—			6			—			6
Total Other Income (Expenses), Net	9			1			(1		)	—			9			(35		)	(26		)
Income (loss) before income tax expense (benefit)	$	88		$	21		$	1		$	—		$	110		$	(69	)	$	41
Depreciation and amortization for property and equipment and intangible assets	$	4		$	2		$	2		$	—		$	8		$	7		$	15
Total assets	$	14,166		$	4,892		$	457		$	(3,532	)	$	15,983		$	1,745		$	17,728



	Predecessor
	One Month Ended July 31, 2018
	Servicing			Originations			Xome		Elimination/ Reclassification ⁽¹⁾			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	97		$	4		$	22	$	(3	)	$	120		$	—		$	120
Net gain on mortgage loans held for sale	—			41			—		3			44			—			44
Total revenues	97			45			22		—			164			—			164
Total Expenses	126			34			19		—			179			63			242
Other income (expenses)
Interest income	41			6			—		—			47			1			48
Interest expense	(35		)	(6		)	—		—			(41		)	(12		)	(53		)
Other	—			—			—		—			—			—			—
Total Other Income (Expenses), Net	6			—			—		—			6			(11		)	(5		)
Income (loss) before income tax expense (benefit)	$	(23	)	$	11		$	3	$	—		$	(9	)	$	(74	)	$	(83	)
Depreciation and amortization for property and equipment and intangible assets	$	2		$	1		$	1	$	—		$	4		$	—		$	4
Total assets	$	14,578		$	4,701		$	425	$	(3,591	)	$	16,113		$	913		$	17,026



	Successor
	Nine Months Ended September 30, 2019
	Servicing			Originations			Xome		Elimination/ Reclassification ⁽¹⁾			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	198		$	57		$	316	$	(92	)	$	479		$	—		$	479
Net gain on mortgage loans held for sale	—			687			—		90			777			11			788
Total revenues	198			744			316		(2		)	1,256			11			1,267
Total Expenses	555			404			301		(2		)	1,258			155			1,413
Other income (expenses)
Interest income	388			64			—		—			452			7			459
Interest expense	(343		)	(67		)	—		—			(410		)	(162		)	(572		)
Other	—			4			14		—			18			(2		)	16
Total Other Income (Expenses), Net	45			1			14		—			60			(157		)	(97		)
(Loss) income before income tax (benefit) expense	$	(312	)	$	341		$	29	$	—		$	58		$	(301	)	$	(243	)
Depreciation and amortization for property and equipment and intangible assets	$	13		$	13		$	11	$	—		$	37		$	30		$	67
Total assets	$	12,049		$	8,450		$	515	$	(4,650	)	$	16,364		$	2,114		$	18,478



	Predecessor
	Seven Months Ended July 31, 2018
	Servicing			Originations			Xome		Elimination/ Reclassification ⁽¹⁾			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	740		$	36		$	149	$	(25	)	$	900		$	1		$	901
Net gain on mortgage loans held for sale	—			270			—		25			295			—			295
Total revenues	740			306			149		—			1,195			1			1,196
Total Expenses	474			245			123		—			842			103			945
Other income (expenses)
Interest income	288			38			—		—			326			7			333
Interest expense	(268		)	(37		)	—		—			(305		)	(83		)	(388		)
Other	(1		)	—			9		—			8			(2		)	6
Total Other Income (Expenses), Net	19			1			9		—			29			(78		)	(49		)
Income (loss) before income tax expense (benefit)	$	285		$	62		$	35	$	—		$	382		$	(180	)	$	202
Depreciation and amortization for property and equipment and intangible assets	$	15		$	7		$	7	$	—		$	29		$	4		$	33
Total assets	$	14,578		$	4,701		$	425	$	(3,591	)	$	16,113		$	913		$	17,026

⁽¹⁾

For Servicing segment results purposes, all revenue is attributable to servicing portfolio. Therefore, $37 , $7 , $3 , $90 , and $25 of net gain on mortgage loans is moved to service related, net during the three months ended September 30, 2019 , two months ended September 30, 2018 , one month ended July 31, 2018 , nine months ended September 30, 2019 , and seven months ended July 31, 2018 , respectively. For consolidated results purposes, these amounts were reclassed back to net gain on mortgage loans held for sale.

20. Guarantor Financial Statement Information

As of September 30, 2019 , Nationstar Mortgage LLC and Nationstar Capital Corporation ⁽¹⁾ (collectively, the “Issuer”), both wholly-owned subsidiaries of the Company, have issued a 6.500% unsecured senior notes due July 2021 with an outstanding aggregate principal amount of $592 and a 6.500% unsecured senior notes due June 2022 with an outstanding aggregate principal amount of $206 (collectively, the “unsecured senior notes”). The unsecured senior notes are unconditionally guaranteed, jointly and severally, by all of Nationstar Mortgage LLC’s existing and future domestic subsidiaries other than its securitization and certain finance subsidiaries, certain other restricted subsidiaries, excluded restricted subsidiaries and subsidiaries that in the future Nationstar Mortgage LLC designates as unrestricted subsidiaries. All guarantor subsidiaries are 100% owned by Nationstar Mortgage LLC. The Company and its three wholly-owned subsidiaries are guarantors of the unsecured senior notes as well. Presented below are the condensed consolidating financial statements of the Company, Nationstar Mortgage LLC and the guarantor subsidiaries for the periods indicated.

In the condensed consolidating financial statements presented below, the Company allocates income tax expense to Nationstar Mortgage LLC as if it were a separate tax payer entity pursuant to ASC 740, Income Taxes .


⁽¹⁾	Nationstar Capital Corporation has no assets, operations or liabilities other than being a co-obligor of the unsecured senior notes.

MR. COOPER GROUP INC. CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2019

	Successor
	Mr. Cooper		Issuer ⁽¹⁾		Guarantor (Subsidiaries of Issuer)		Non-Guarantor (Subsidiaries of Issuer)		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—	$	331	$	1	$	39	$	—		$	371
Restricted cash	—		155		—		116		—			271
Mortgage servicing rights	—		3,322		—		24		—			3,346
Advances and other receivables, net	—		966		—		1		—			967
Reverse mortgage interests, net	—		5,733		—		929		—			6,662
Mortgage loans held for sale at fair value	—		4,267		—		—		—			4,267
Property and equipment, net	—		94		—		19		—			113
Deferred tax asset, net	984		46		—		2		—			1,032
Other assets	—		1,317		213		814		(895		)	1,449
Investment in subsidiaries	2,612		682		—		—		(3,294		)	—
Total assets	$	3,596	$	16,913	$	214	$	1,944	$	(4,189	)	$	18,478

Liabilities and Stockholders’ Equity
Unsecured senior notes, net	$	1,665	$	799	$	—	$	—	$	—		$	2,464
Advance facilities, net	—		64		—		449		—			513
Warehouse facilities, net	—		4,802		—		—		—			4,802
Payables and other liabilities	23		1,905		2		72		—			2,002
MSR related liabilities - nonrecourse at fair value	—		1,313		—		15		—			1,328
Mortgage servicing liabilities	—		69		—		—		—			69
Other nonrecourse debt, net	—		4,596		—		937		—			5,533
Payables to affiliates	141		753		—		1		(895		)	—
Total liabilities	1,829		14,301		2		1,474		(895		)	16,711
Total stockholders’ equity	1,767		2,612		212		470		(3,294		)	1,767
Total liabilities and stockholders’ equity	$	3,596	$	16,913	$	214	$	1,944	$	(4,189	)	$	18,478


⁽¹⁾	Issuer balances exclude the balances of its guarantor and non-guarantor subsidiaries, as previously described.

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2019

	Successor
	Mr. Cooper			Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)		Non-Guarantor (Subsidiaries of Issuer)			Eliminations			Consolidated
Revenues:
Service related, net	$	—		$	137		$	5	$	116		$	—		$	258
Net gain on mortgage loans held for sale	—			349			—		11			—			360
Total revenues	—			486			5		127			—			618
Expenses:
Salaries, wages benefits	—			209			1		40			—			250
General and administrative	—			185			—		43			—			228
Total expenses	—			394			1		83			—			478
Other income (expenses):
Interest income	—			127			—		36			—			163
Interest expense	(37		)	(143		)	—		(16		)	—			(196		)
Other income (expenses)	—			(3		)	—		3			—			—
Gain (loss) from subsidiaries	121			71			—		—			(192		)	—
Total other income (expenses), net	84			52			—		23			(192		)	(33		)
Income (loss) before income tax benefit	84			144			4		67			(192		)	107
Less: Income tax expense	—			24			—		—			—			24
Net income (loss)	84			120			4		67			(192		)	83
Less: Net loss attributable to non-controlling interests	—			(1		)	—		—			—			(1		)
Net income (loss) attributable to Mr. Cooper	$	84		$	121		$	4	$	67		$	(192	)	$	84


⁽¹⁾	Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2019

	Successor
	Mr. Cooper			Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)		Non-Guarantor (Subsidiaries of Issuer)			Eliminations			Consolidated
Revenues:
Service related, net	$	—		$	139		$	16	$	324		$	—		$	479
Net gain on mortgage loans held for sale	—			777			—		11			—			788
Total revenues	—			916			16		335			—			1,267
Expenses:
Salaries, wages benefits	—			581			3		119			—			703
General and administrative	—			529			2		179			—			710
Total expenses	—			1,110			5		298			—			1,413
Other income (expenses):
Interest income	—			392			—		67			—			459
Interest expense	(114		)	(411		)	—		(47		)	—			(572		)
Other income (expenses)	—			2			—		14			—			16
(Loss) gain from subsidiaries	(75		)	82			—		—			(7		)	—
Total other income (expenses), net	(189		)	65			—		34			(7		)	(97		)
(Loss) income before income tax benefit	(189		)	(129		)	11		71			(7		)	(243		)
Less: Income tax benefit	—			(52		)	—		—			—			(52		)
Net (loss) income	(189		)	(77		)	11		71			(7		)	(191		)
Less: Net loss attributable to non-controlling interests	—			(2		)	—		—			—			(2		)
Net (loss) income attributable to Mr. Cooper	$	(189	)	$	(75	)	$	11	$	71		$	(7	)	$	(189	)


⁽¹⁾	Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2019

	Successor
	Mr. Cooper			Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)			Non-Guarantor (Subsidiaries of Issuer)			Eliminations			Consolidated
Operating Activities
Net (loss) income attributable to Mr. Cooper	$	(189	)	$	(75	)	$	11		$	71		$	(7	)	$	(189	)
Adjustments to reconcile net (loss) income to net cash attributable to operating activities:
Deferred tax benefit	—			(53		)	—			—			—			(53		)
Net loss attributable to non-controlling interests	—			(2		)	—			—			—			(2		)
Loss (gain) from subsidiaries	75			(82		)	—			—			7			—
Net gain on mortgage loans held for sale	—			(777		)	—			(11		)	—			(788		)
Interest income on reverse mortgage loans	—			(208		)	—			(33		)	—			(241		)
Provision for servicing reserves	—			53			—			—			—			53
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities	—			990			—			8			—			998
Fair value changes in excess spread financing	—			(186		)	—			(4		)	—			(190		)
Fair value changes in mortgage servicing rights financing liability	—			15			—			—			—			15
Fair value changes in mortgage loans held for investment	—			—			—			(3		)	—			(3		)
Amortization of premiums, net of discount accretion	5			(21		)	—			(22		)	—			(38		)
Depreciation and amortization for property and equipment and intangible assets	—			55			—			12			—			67
Share-based compensation	—			11			—			3			—			14
Other loss	—			5			—			—			—			5
Repurchases of forward loans assets out of Ginnie Mae securitizations	—			(1,823		)	—			—			—			(1,823		)
Mortgage loans originated and purchased for sale, net of fees	—			(27,685		)	—			12			—			(27,673		)
Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment	—			27,777			—			139			—			27,916
Changes in assets and liabilities:
Advances and other receivables	—			266			—			(1		)	—			265
Reverse mortgage interests	—			1,515			—			185			—			1,700
Other assets	—			141			(12		)	(121		)	—			8
Payables and other liabilities	109			(164		)	1			(15		)	—			(69		)
Net cash attributable to operating activities	—			(248		)	—			220			—			(28		)


⁽¹⁾	Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2019 (Continued)

	Successor
	Mr. Cooper		Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)		Non-Guarantor (Subsidiaries of Issuer)			Eliminations		Consolidated
Investing Activities
Acquisition, net of cash acquired	—		(85		)	—		—			—		(85		)
Property and equipment additions, net of disposals	—		(27		)	—		(11		)	—		(38		)
Purchase of forward mortgage servicing rights, net of liabilities incurred	—		(454		)	—		—			—		(454		)
Proceeds on sale of forward and reverse mortgage servicing rights	—		298			—		—			—		298
Net cash attributable to investing activities	—		(268		)	—		(11		)	—		(279		)
Financing Activities
Increase in warehouse facilities	—		1,930			—		—			—		1,930
Decrease in advance facilities	—		(39		)	—		(56		)	—		(95		)
Repayment of notes payable	—		(294		)	—		—			—		(294		)
Proceeds from issuance of HECM securitizations	—		—			—		398			—		398
Proceeds from sale of HECM securitizations	—		—			—		20			—		20
Repayment of HECM securitizations	—		—			—		(568		)	—		(568		)
Proceeds from issuance of participating interest financing in reverse mortgage interests	—		220			—		—			—		220
Repayment of participating interest financing in reverse mortgage interests	—		(1,472		)	—		—			—		(1,472		)
Proceeds from issuance of excess spread financing	—		469			—		—			—		469
Repayment of excess spread financing	—		(19		)	—		—			—		(19		)
Settlement of excess spread financing	—		(163		)	—		—			—		(163		)
Repayment of nonrecourse debt - legacy assets	—		—			—		(29		)	—		(29		)
Repayment of finance lease liability	—		(3		)	—		—			—		(3		)
Surrender of shares relating to stock vesting	—		(1		)	—		—			—		(1		)
Debt financing costs	—		(5		)	—		—			—		(5		)
Net cash attributable to financing activities	—		623			—		(235		)	—		388
Net increase (decrease) in cash, cash equivalents, and restricted cash	—		107			—		(26		)	—		81
Cash, cash equivalents, and restricted cash - beginning of period	—		379			1		181			—		561
Cash, cash equivalents, and restricted cash - end of period	$	—	$	486		$	1	$	155		$	—	$	642


⁽¹⁾	Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.

MR. COOPER GROUP INC. CONSOLIDATING BALANCE SHEET DECEMBER 31, 2018

	Successor
	Mr. Cooper		Issuer ⁽¹⁾		Guarantor (Subsidiaries of Issuer)		Non-Guarantor (Subsidiaries of Issuer)			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—	$	193	$	1	$	48		$	—		$	242
Restricted cash	—		186		—		133			—			319
Mortgage servicing rights	—		3,644		—		32			—			3,676
Advances and other receivables, net	—		1,194		—		—			—			1,194
Reverse mortgage interests, net	—		6,770		—		1,164			—			7,934
Mortgage loans held for sale at fair value	—		1,631		—		—			—			1,631
Mortgage loans held for investment at fair value	—		1		—		118			—			119
Property and equipment, net	—		84		—		12			—			96
Deferred tax asset, net	973		—		—		(6		)	—			967
Other assets	—		660		202		621			(688		)	795
Investment in subsidiaries	2,820		601		—		—			(3,421		)	—
Total assets	$	3,793	$	14,964	$	203	$	2,122		$	(4,109	)	$	16,973

Liabilities and Stockholders’ Equity
Unsecured senior notes, net	$	1,660	$	799	$	—	$	—		$	—		$	2,459
Advance facilities, net	—		90		—		505			—			595
Warehouse facilities, net	—		2,349		—		—			—			2,349
Payables and other liabilities	49		1,413		1		80			—			1,543
MSR related liabilities - nonrecourse at fair value	—		1,197		—		19			—			1,216
Mortgage servicing liabilities	—		71		—		—			—			71
Other nonrecourse debt, net	—		5,676		—		1,119			—			6,795
Payables to affiliates	139		549		—		—			(688		)	—
Total liabilities	1,848		12,144		1		1,723			(688		)	15,028
Total stockholders’ equity	1,945		2,820		202		399			(3,421		)	1,945
Total liabilities and stockholders’ equity	$	3,793	$	14,964	$	203	$	2,122		$	(4,109	)	$	16,973


⁽¹⁾	Issuer balances exclude the balances of its guarantor and non-guarantor subsidiaries, as previously described.

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF OPERATIONS TWO MONTHS ENDED SEPTEMBER 30, 2018

	Successor
	Nationstar			Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)		Non-Guarantor (Subsidiaries of Issuer)			Eliminations			Consolidated
Revenues:
Service related, net	$	—		$	183		$	4	$	72		$	—		$	259
Net gain on mortgage loans held for sale	—			83			—		—			—			83
Total revenues	—			266			4		72			—			342
Expenses:
Salaries, wages and benefits	—			107			1		31			—			139
General and administrative	1			91			1		43			—			136
Total expenses	1			198			2		74			—			275
Other income (expenses):
Interest income	—			80			—		10			—			90
Interest expense	(26		)	(87		)	—		(9		)	—			(122		)
Other income	1			5			—		—			—			6
Gain (loss) from subsidiaries	56			1			—		—			(57		)	—
Total other income (expenses), net	31			(1		)	—		1			(57		)	(26		)
Income (loss) before income tax expense (benefit)	30			67			2		(1		)	(57		)	41
Less: Income tax (benefit) expense	(990		)	11			—		—			—			(979		)
Net income (loss)	1,020			56			2		(1		)	(57		)	1,020
Less: Net income (loss) attributable to non-controlling interests	—			—			—		—			—			—
Net income (loss) attributable to Nationstar	$	1,020		$	56		$	2	$	(1	)	$	(57	)	$	1,020


⁽¹⁾	Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF OPERATIONS ONE MONTH ENDED JULY 31, 2018

	Predecessor
	Nationstar			Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)		Non-Guarantor (Subsidiaries of Issuer)			Eliminations		Consolidated
Revenues:
Service related, net	$	—		$	95		$	3	$	22		$	—	$	120
Net gain on mortgage loans held for sale	—			44			—		—			—		44
Total revenues	—			139			3		22			—		164
Expenses:
Salaries, wages and benefits	—			59			—		10			—		69
General and administrative	27			136			—		10			—		173
Total expenses	27			195			—		20			—		242
Other income (expenses):
Interest income	—			41			—		7			—		48
Interest expense	—			(49		)	—		(4		)	—		(53		)
Other income (expense)	—			—			—		—			—		—
(Loss) gain from subsidiaries	(37		)	7			—		—			30		—
Total other income (expenses), net	(37		)	(1		)	—		3			30		(5		)
(Loss) income before income tax (benefit) expense	(64		)	(57		)	3		5			30		(83		)
Less: Income tax (benefit) expense	—			(20		)	—		1			—		(19		)
Net loss) income	(64		)	(37		)	3		4			30		(64		)
Less: Net income (loss) attributable to non-controlling interests	—			—			—		—			—		—
Net (loss) income attributable to Nationstar	$	(64	)	$	(37	)	$	3	$	4		$	30	$	(64	)

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF OPERATIONS SEVEN MONTHS ENDED JULY 31, 2018

	Predecessor
	Nationstar		Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)		Non-Guarantor (Subsidiaries of Issuer)			Eliminations			Consolidated
Revenues:
Service related, net	$	—	$	732		$	16	$	153		$	—		$	901
Net gain on mortgage loans held for sale	—		295			—		—			—			295
Total revenues	—		1,027			16		153			—			1,196
Expenses:
Salaries, wages and benefits	—		359			3		64			—			426
General and administrative	27		427			1		64			—			519
Total expenses	27		786			4		128			—			945
Other income (expenses):
Interest income	—		299			—		34			—			333
Interest expense	—		(364		)	—		(24		)	—			(388		)
Other income (expense)	—		(3		)	—		9			—			6
Gain (loss) from subsidiaries	181		56			—		—			(237		)	—
Total other income (expenses), net	181		(12		)	—		19			(237		)	(49		)
Income (loss) before income tax expense	154		229			12		44			(237		)	202
Less: Income tax expense	—		48			—		—			—			48
Net income (loss)	154		181			12		44			(237		)	154
Less: Net income (loss) attributable to non-controlling interests	—		—			—		—			—			—
Net income (loss) attributable to Nationstar	$	154	$	181		$	12	$	44		$	(237	)	$	154


⁽¹⁾	Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS TWO MONTHS ENDED SEPTEMBER 30, 2018

	Successor
	Nationstar			Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)			Non-Guarantor (Subsidiaries of Issuer)			Eliminations			Consolidated
Operating Activities
Net income (loss) attributable to Mr. Cooper	$	1,020		$	56		$	2		$	(1	)	$	(57	)	$	1,020
Adjustments to reconcile net income (loss) to net cash attributable to operating activities:
Deferred income tax (benefit) expense	(990		)	52			—			7			—			(931		)
Net income attributable to non-controlling interests	—			—			—			—			—			—
(Gain) loss from subsidiaries	(56		)	(1		)	—			—			57			—
Net gain on mortgage loans held for sale	—			(83		)	—			—			—			(83		)
Interest income on reverse mortgage loans	—			(72		)	—			—			—			(72		)
Provision for servicing reserves	—			14			—			—			—			14
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities	—			(27		)	—			—			—			(27		)
Fair value changes in excess spread financing	—			26			—			—			—			26
Amortization of premiums, net of discount accretion	1			2			—			—			—			3
Depreciation and amortization for property and equipment and intangible assets	—			13			—			2			—			15
Share-based compensation	—			2			—			—			—			2
Repurchases of forward loans assets out of Ginnie Mae securitizations	—			(223		)	—			—			—			(223		)
Mortgage loans originated and purchased for sale, net of fees	—			(3,458		)	—			—			—			(3,458		)
Sale proceeds and loan payment proceeds for mortgage loans held for sale and held for investment	—			3,537			—			9			—			3,546
Changes in assets and liabilities:
Advances and other receivables	—			76			—			—			—			76
Reverse mortgage interests	—			425			—			17			—			442
Other assets	—			25			(3		)	(37		)	—			(15		)
Payables and other liabilities	19			(179		)	1			—			—			(159		)
Net cash attributable to operating activities	(6		)	185			—			(3		)	—			176


⁽¹⁾	Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS TWO MONTHS ENDED SEPTEMBER 30, 2018 (Continued)

	Successor
	Nationstar			Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)		Non-Guarantor (Subsidiaries of Issuer)			Eliminations		Consolidated
Investing Activities
Acquisition, net of cash acquired	—			—			—		(33		)	—		(33		)
Property and equipment additions, net of disposals	—			(20		)	—		6			—		(14		)
Purchase of forward mortgage servicing rights, net of liabilities incurred	—			(63		)	—		—			—		(63		)
Proceeds on sale of forward and reverse mortgage servicing rights	—			60			—		—			—		60
Net cash attributable to investing activities	—			(23		)	—		(27		)	—		(50		)
Financing Activities
Increase in warehouse facilities	—			186			—		—			—		186
(Decrease) increase in advance facilities	—			(17		)	—		63			—		46
Repayment of HECM securitizations	—			—			—		(91		)	—		(91		)
Proceeds from issuance of participating interest financing in reverse mortgage interests	—			45			—		—			—		45
Repayment of participating interest financing in reverse mortgage interests	—			(403		)	—		—			—		(403		)
Proceeds from issuance of excess spread financing	—			84			—		—			—		84
Repayment of excess spread financing	—			(21		)	—		—			—		(21		)
Settlement of excess spread financing	—			(31		)	—		—			—		(31		)
Repayment of nonrecourse debt - legacy assets	—			—			—		(3		)	—		(3		)
Redemption and repayment of unsecured senior notes	—			(1,030		)	—		—			—		(1,030		)
Debt financing costs	—			(1		)	—		—			—		(1		)
Net cash attributable to financing activities	—			(1,188		)	—		(31		)	—		(1,219		)
Net decrease in cash, cash equivalents, and restricted cash	(6		)	(1,026		)	—		(61		)	—		(1,093		)
Cash, cash equivalents, and restricted cash - beginning of period	11			1,358			1		253			—		1,623
Cash, cash equivalents, and restricted cash - end of period	$	5		$	332		$	1	$	192		$	—	$	530


⁽¹⁾	Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS SEVEN MONTHS ENDED JULY 31, 2018

	Predecessor
	Nationstar			Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)			Non-Guarantor (Subsidiaries of Issuer)			Eliminations			Consolidated
Operating Activities
Net income (loss) attributable to Nationstar	$	154		$	181		$	12		$	44		$	(237	)	$	154
Adjustments to reconcile net income (loss) to net cash attributable to operating activities:
(Gain) loss from subsidiaries	(181		)	(56		)	—			—			237			—
Net gain on mortgage loans held for sale	—			(295		)	—			—			—			(295		)
Interest income on reverse mortgage loans	—			(274		)	—			—			—			(274		)
Gain on sale of assets	—			—			—			(9		)	—			(9		)
MSL related increased obligations	—			59			—			—			—			59
Provision for servicing reserves	—			70			—			—			—			70
Fair value changes and amortization/accretion of mortgage servicing rights/liabilities	—			(178		)	—			1			—			(177		)
Fair value changes in excess spread financing	—			81			—			—			—			81
Fair value changes in mortgage servicing rights financing liability	—			16			—			—			—			16
Amortization of premiums, net of discount accretion	—			11			—			(3		)	—			8
Depreciation and amortization for property and equipment and intangible assets	—			26			—			7			—			33
Share-based compensation	—			16			—			1			—			17
Other loss	—			3			—			—			—			3
Repurchases of forward loans assets out of Ginnie Mae securitizations	—			(544		)	—			—			—			(544		)
Mortgage loans originated and purchased for sale, net of fees	—			(12,328		)	—			—			—			(12,328		)
Sale proceeds and loan payment proceeds for mortgage loans held for sale and held for investment	—			13,381			—			11			—			13,392
Changes in assets and liabilities:
Advances and other receivables	—			377			—			—			—			377
Reverse mortgage interests	—			1,866			—			(265		)	—			1,601
Other assets	9			(293		)	(12		)	255			—			(41		)
Payables and other liabilities	27			128			—			(4		)	—			151
Net cash attributable to operating activities	9			2,247			—			38			—			2,294

MR. COOPER GROUP INC. CONSOLIDATING STATEMENT OF CASH FLOWS SEVEN MONTHS ENDED JULY 31, 2018 (Continued)

	Predecessor
	Nationstar			Issuer ⁽¹⁾			Guarantor (Subsidiaries of Issuer)		Non-Guarantor (Subsidiaries of Issuer)			Eliminations		Consolidated
Investing Activities
Property and equipment additions, net of disposals	—			(35		)	—		(5		)	—		(40		)
Purchase of forward mortgage servicing rights, net of liabilities incurred	—			(127		)	—		(7		)	—		(134		)
Net payment related to acquisition of HECM related receivables	—			(1		)	—		—			—		(1		)
Proceeds on sale of assets	—			—			—		13			—		13
Net cash attributable to investing activities	—			(163		)	—		1			—		(162		)
Financing Activities
Decrease in warehouse facilities	—			(585		)	—		—			—		(585		)
Decrease in advance facilities	—			(55		)	—		(250		)	—		(305		)
Proceeds from issuance of HECM securitizations	—			—			—		759			—		759
Repayment of HECM securitizations	—			—			—		(448		)	—		(448		)
Proceeds from issuance of participating interest financing in reverse mortgage interests	—			208			—		—			—		208
Repayment of participating interest financing in reverse mortgage interests	—			(1,599		)	—		—			—		(1,599		)
Proceeds from issuance of excess spread financing	—			70			—		—			—		70
Repayment of excess spread financing	—			(3		)	—		—			—		(3		)
Settlement of excess spread financing	—			(105		)	—		—			—		(105		)
Repayment of nonrecourse debt - legacy assets	—			—			—		(7		)	—		(7		)
Repurchase of unsecured senior notes	—			(62		)	—		—			—		(62		)
Surrender of shares relating to stock vesting	(9		)	—			—		—			—		(9		)
Debt financing costs	—			(24		)	—		—			—		(24		)
Dividends to non-controlling interests	—			(1		)	—		—			—		(1		)
Net cash attributable to financing activities	(9		)	(2,156		)	—		54			—		(2,111		)
Net (decrease) increase in cash, cash equivalents, and restricted cash	—			(72		)	—		93			—		21
Cash, cash equivalents, and restricted cash - beginning of period	—			423			1		151			—		575
Cash, cash equivalents, and restricted cash - end of period	$	—		$	351		$	1	$	244		$	—	$	596

21. Transactions with Affiliates

Nationstar previously entered into arrangements with Fortress Investment Group (“Fortress”), its subsidiaries managed funds, or affiliates for purposes of financing the Company’s MSR acquisitions and performing services as a subservicer. Prior to the Merger with Nationstar on July 31, 2018, an affiliate of Fortress held a majority of the outstanding common shares of the Predecessor. Subsequent to the Merger, Fortress is no longer an affiliate of the Company. Refer to Note 2, Acquisitions , for additional information. The following summarizes the Predecessor’s transactions with affiliates of Fortress prior to the Merger on July, 31 2018.

New Residential

Excess Spread Financing

The Predecessor has entered into several agreements with certain entities managed by New Residential, in which New Residential and/or certain funds managed by Fortress own an interest (each a “New Residential Entity”). The Predecessor sold to the related New Residential Entity the right to receive a portion of the excess cash flow generated from certain acquired MSRs after a receipt of a fixed base servicing fee per loan. The Predecessor, as the servicer of the loans, retains all ancillary revenues and the remaining portion of the excess cash flow after payment of the fixed base servicing fee and also provides all advancing functions for the portfolio. The related New Residential Entity does not have prior or ongoing obligations associated with these MSR portfolios. Should the Company refinance any loan in such portfolios, subject to certain limitations, the Company will be required to transfer the new loan or a replacement loan of similar economic characteristics into the portfolios. The new or replacement loan will be governed by the same terms set forth in the agreements described above.

The fees paid to New Residential Entity by the Predecessor totaled $17 and $122 during the one and seven months ended July 31, 2018 , respectively, which were recorded as a reduction to servicing fee revenue, net.

Mortgage Servicing Rights Financing

From December 2013 through June 2014, the Predecessor entered into agreements to sell a contractually specified base fee component of certain MSRs and servicing advances under specified terms to a joint venture capitalized by New Residential and certain unaffiliated third-parties. The Company continues to be the named servicer, and, for accounting purposes, ownership of the mortgage servicing rights continues to reside with the Company. Accordingly, the Company accounts for the MSRs and the related MSRs financing liability on its consolidated balance sheets. The Company will continue to sell future servicing advances to New Residential.

The Predecessor did not enter into any additional supplemental agreements with these affiliates in 2018 .

Subservicing and Servicing

In January 2017, the Predecessor entered into a subservicing agreement with a subsidiary of New Residential. The Predecessor earned $6 and $43 of subservicing fees and other subservicing revenues during the one and seven months ended July 31, 2018 , respectively.

In May 2014, the Predecessor entered into a servicing arrangement with New Residential whereby the Predecessor services residential mortgage loans acquired by New Residential and/or its various affiliates and trust entities. For the one and seven months ended July 31, 2018 , the Predecessor recognized approximately $1 and $3 related to these service arrangements, respectively.

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. 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:


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


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


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


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


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


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


•	changes in prevailing interest rates;


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


•	our ability to successfully implement our strategic initiatives;


•	our ability to realize anticipated benefits of our acquisitions, including Pacific Union, AMS, and Seterus;


•	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 Item 1A, Risk Factors, and Item 7, 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, 2018 for further information on these and other risk factors affecting us.

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

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the accompanying unaudited consolidated financial statements and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018 . 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.

Basis of Presentation

“Predecessor” financial information in the MD&A relates to Nationstar, and “Successor” relates to Mr. Cooper.

The below presentation discusses the results of the Company for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018 . The financial results for the three and nine months ended September 30, 2019 reflect the results of the Successor. With respect to the three and nine months ended September 30, 2018 , the Company has separately provided the financial results of the Predecessor for the one month ended July 31, 2018 , and the seven months ended July 31, 2018 , and the financial results of the Successor for the two months ended September 30, 2018 , which, in each case, are presented under GAAP.

The below presentation also includes a “Combined” column that combines the Predecessor and Successor results referenced above with respect to the three and nine months ended September 30, 2018 . Although the separate financial results of the Predecessor and Successor for the one month and seven months ended July 31, 2018 and the two months ended September 31, 2018 are presented under GAAP, the results reported in the “Combined” column reflect non-GAAP financial measures, as a different basis of accounting was used with respect to the financial results for the Predecessor as compared to the financial results of the Successor. The Company has not provided a reconciliation of the financial metrics reflected under the “Combined” column as such reconciliation cannot be provided without unreasonable effort as a result of this accounting variance.

The Company believes that non-GAAP financial measures should be considered in addition to, and not a substitute for, financial information prepared in accordance with GAAP. The Company presents non-GAAP financial measures in reporting its financial results to provide additional and supplemental disclosure to evaluate operating results. In particular, the Company believes that providing this “Combined” information is useful as a supplement to its standard GAAP financial presentation as it significantly enhances the period-over-period comparability of the Company’s financial results. In addition, management of the Company uses this “Combined” presentation to evaluate the Company’s ongoing operations and for internal planning and forecasting purposes.

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

Overview

We are a leading servicer and originator of residential mortgage loans, and a provider of real estate services through our Xome subsidiary. Our purpose is to keep the dream of homeownership alive, and we do this as a servicer by helping mortgage borrowers manage what is typically their largest financial asset, and by helping our investors maximize the returns from their portfolios of residential mortgages. We have a track record of significant growth, having expanded our servicing portfolio from $10 billion in 2009 to $641 billion as of September 30, 2019 . We believe this track record reflects our strong operating capabilities, which include a proprietary low-cost servicing platform, strong loss mitigation skills, a commitment to compliance, a customer-centric culture, a demonstrated ability to retain customers, growing origination capabilities, and significant investment in technology. More information on the Company is available at investors.mrcoopergroup.com. Information contained on our websites is not, and should not be deemed to be, a part of this report.

Our strategy to position the Company for continued, sustainable long-term growth includes initiatives to improve profitability and strengthen the balance sheet. Key strategic initiatives include the following:


•	Complete Project Titan, our servicing transformation initiative, which consists of a series of interrelated technology initiatives designed to streamline processes, improve customer and team member experiences, and drive efficiency;


•	Identify additional opportunities throughout the organization to drive greater efficiency;


•	Strengthen our balance sheet and reduce leverage;

•

Manage the interest rate risk associated with holding MSRs on balance sheet by providing existing customers with attractive refinance options, growing the size and improving the profitability of our Originations segment (whose results are typically counter-cyclical to those of the Servicing segment), expanding the size of our subservicing portfolio through value-added partnerships with MSR owners, and by utilizing excess spread facilities to pass through a portion of the interest rate risk to capital partners; and


•	Maintain strong relationships with agencies, investors, regulators, and other counterparties and a strong reputation for compliance and customer service.

Results of Operations

Table 1. Consolidated Operations



	Successor						Predecessor
	Three Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Revenues - operational	$	701		$	318		$	139		$	457		$	244		53	%
Revenues - Mark-to-market	(83		)	24			25			49			(132		)	(269	)%
Total revenues	618			342			164			506			112			22	%
Expenses	478			275			242			517			(39		)	(8	)%
Other income (expenses), net	(33		)	(26		)	(5		)	(31		)	(2		)	6	%
Income (loss) before income tax expense (benefit)	107			41			(83		)	(42		)	149			(355	)%
Less: Income tax expense (benefit)	24			(979		)	(19		)	(998		)	1,022			(102	)%
Net income (loss)	83			1,020			(64		)	956			(873		)	(91	)%
Less: Net loss attributable to non-controlling interests	(1		)	—			—			—			(1		)	(100	)%
Net income (loss) attributable to Successor/Predecessor	$	84		$	1,020		$	(64	)	$	956		$	(872	)	(91	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

We recorded net income of $83 during the three months ended September 30, 2019 compared to a net income of $956 during the same period in 2018, on a combined basis. The net income in 2018 was higher primarily due to the income tax benefit. Consolidated operational revenues increased primarily due to increased revenue in our Originations segment, driven by higher originations volume in a declining interest rate environment and incremental volumes associated with the acquisition of Pacific Union in February 2019. Partially offsetting the increase in operational revenues was negative mark-to-market (“MTM”) adjustments for the three months ended September 30, 2019 compared to positive MTM adjustments for the same period in 2018, on a combined basis. Expenses were higher in 2018, on a combined basis, primarily due to the Nationstar acquisition.

Table 1.1 Consolidated Operations



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Revenues - operational	$	1,874		$	318		$	1,000		$	1,318		$	556		42	%
Revenues - Mark-to-market	(607		)	24			196			220			(827		)	(376	)%
Total revenues	1,267			342			1,196			1,538			(271		)	(18	)%
Expenses	1,413			275			945			1,220			193			16	%
Other income (expenses), net	(97		)	(26		)	(49		)	(75		)	(22		)	29	%
(Loss) income before income tax (benefit) expense	(243		)	41			202			243			(486		)	(200	)%
Less: Income tax (benefit) expense	(52		)	(979		)	48			(931		)	879			(94	)%
Net (loss) income	(191		)	1,020			154			1,174			(1,365		)	(116	)%
Less: Net (loss) income attributable to non-controlling interests	(2		)	—			—			—			(2		)	(100	)%
Net (loss) income attributable to Successor/Predecessor	$	(189	)	$	1,020		$	154		$	1,174		$	(1,363	)	(116	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

We incurred a net loss of $191 for the nine months ended September 30, 2019 compared to net income of $1,174 during the same period in 2018, on a combined basis. The net loss in 2019 was primarily due to a negative MTM of $607 driven by declining interest rates when compared with a positive MTM of $220 in 2018, on a combined basis. The net income in 2018 was primarily driven by the income tax benefit. Consolidated operational revenue and expenses increased for the nine months ended September 30, 2019 compared to the same period in 2018 , on a combined basis, largely driven by the acquisitions of Pacific Union and Seterus in February 2019, as well as Xome’s acquisition of AMS in August 2018.

Total other income (expenses), net, declined for the nine months ended September 30, 2019 compared to the same period in 2018 , on a combined basis. The decline was primarily due to an increase in interest expense in our Corporate segment in 2019 as a result of a higher debt balance and higher interest rates under the new unsecured senior notes that were executed in July 2018 to fund the Merger with Nationstar.



Table 2. Provision for Income Taxes



	Successor						Predecessor
	Three Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Combined ⁽¹⁾			$ Change		% Change
Income tax expense (benefit)	$	24		$	(979	)	$	(19	)	$	(998	)	$	1,022	(102	)%

Effective tax rate ⁽²⁾	22.3		%	(2,377.1		)%	23.1		%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.


⁽²⁾	Effective tax rate is calculated using whole numbers.

For the three months ended September 30, 2019 , we had an income tax expense. For the same period ended in 2018 , we had an income tax benefit on a combined basis. The effective tax rate for the three months ended September 30, 2019 was 22.3% as compared to the effective tax rate of 23.1% and (2,377.1)% for the one month ended July 31, 2018 and the two months ended September 30, 2018 , respectively. The change in effective tax rate is primarily attributable to the tax effect of permanent differences in the three months ended September 30, 2019 as compared to the one month ended July 31, 2018 as well as the reversal of the valuation allowance associated with the pre-merger net operating loss (“NOL”) carryforwards in the two months ended September 30, 2018 .



Table 2.1. Provision for Income Taxes



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change		% Change
Income tax (benefit) expense	$	(52	)	$	(979	)	$	48		$	(931	)	$	879	(94	)%

Effective tax rate ⁽²⁾	21.5		%	(2,377.1		)%	23.8		%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.


⁽²⁾	Effective tax rate is calculated using whole numbers.

The income tax benefit for the nine months ended September 30, 2019 decreased when compared with the same period in 2018, on a combined basis. The effective tax rate for the nine months ended September 30, 2019 was 21.5% as compared to the effective tax rate of 23.8% and (2,377.1)% for the seven months ended July 31, 2018 and the two months ended September 30, 2018 , respectively. The change in effective tax rate is primarily attributable to the tax effect of permanent differences in the nine months ended September 30, 2019 as compared to the seven months ended July 31, 2018 as well as the reversal of the valuation allowance associated with the pre-merger net operating loss (“NOL”) carryforwards in the two months ended September 30, 2018 .



Segment Results

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


•	The Servicing segment performs operational activities on behalf of investors or owners of the underlying mortgages, including collecting and disbursing borrower payments, investor reporting, customer service, modifying loans where appropriate to help borrowers stay current, and when necessary performing collections, foreclosures, and the sale of REO.


•	The Originations segment originates residential mortgage loans through our direct-to-consumer channel, which provides refinance options for our existing customers, and through our correspondent and wholesale channels which purchase or originate loans from mortgage bankers and brokers.


•	The Xome segment provides a variety of real estate services to mortgage originators, mortgage and real estate investors, and mortgage servicers, including valuation, title, and field services, operates an exchange which facilitates the sale of foreclosed properties, and contains a subsidiary which sells data and technology solutions.


•	The Corporate/Other segment represents unallocated overhead expenses, including the costs of executive management and other corporate functions that are not directly attributable to our operating segments, our senior unsecured notes, and the results of a legacy mortgage investment portfolio.

Table 3. Segment Results



	Successor
	Three Months Ended September 30, 2019
	Servicing			Originations			Xome		Elimination/ Reclassification ⁽¹⁾			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	163		$	22		$	112	$	(39	)	$	258		$	—		$	258
Net gain on mortgage loans held for sale	—			312			—		37			349			11			360
Total revenues	163			334			112		(2		)	607			11			618
Total Expenses	171			155			101		(2		)	425			53			478
Other income (expenses)
Interest income	137			24			—		—			161			2			163
Interest expense	(120		)	(24		)	—		—			(144		)	(52		)	(196		)
Other	—			(1		)	3		—			2			(2		)	—
Total Other Income (Expenses), Net	17			(1		)	3		—			19			(52		)	(33		)
Income (loss) before income tax expense (benefit)	$	9		$	178		$	14	$	—		$	201		$	(94	)	$	107



	Successor
	Two Months Ended September 30, 2018
	Servicing			Originations			Xome			Elimination/ Reclassification ⁽¹⁾			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	183		$	10		$	73		$	(7	)	$	259		$	—		$	259
Net gain on mortgage loans held for sale	—			76			—			7			83			—			83
Total revenues	183			86			73			—			342			—			342
Total Expenses	104			66			71			—			241			34			275
Other income (expenses)
Interest income	78			10			—			—			88			2			90
Interest expense	(74		)	(10		)	(1		)	—			(85		)	(37		)	(122		)
Other	5			1			—			—			6			—			6
Total Other Income (Expenses), Net	9			1			(1		)	—			9			(35		)	(26		)
Income (loss) before income tax expense (benefit)	$	88		$	21		$	1		$	—		$	110		$	(69	)	$	41



	Predecessor
	One Month Ended July 31, 2018
	Servicing			Originations			Xome		Elimination/ Reclassification ⁽¹⁾			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	97		$	4		$	22	$	(3	)	$	120		$	—		$	120
Net gain on mortgage loans held for sale	—			41			—		3			44			—			44
Total revenues	97			45			22		—			164			—			164
Total Expenses	126			34			19		—			179			63			242
Other income (expenses)
Interest income	41			6			—		—			47			1			48
Interest expense	(35		)	(6		)	—		—			(41		)	(12		)	(53		)
Other	—			—			—		—			—			—			—
Total Other Income (Expenses), Net	6			—			—		—			6			(11		)	(5		)
Income (loss) before income tax expense (benefit)	$	(23	)	$	11		$	3	$	—		$	(9	)	$	(74	)	$	(83	)

Table 3.1 Segment Results



	Successor
	Nine Months Ended September 30, 2019
	Servicing			Originations			Xome		Elimination/ Reclassification ⁽¹⁾			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	198		$	57		$	316	$	(92	)	$	479		$	—		$	479
Net gain on mortgage loans held for sale	—			687			—		90			777			11			788
Total revenues	198			744			316		(2		)	1,256			11			1,267
Total Expenses	555			404			301		(2		)	1,258			155			1,413
Other income (expenses)
Interest income	388			64			—		—			452			7			459
Interest expense	(343		)	(67		)	—		—			(410		)	(162		)	(572		)
Other	—			4			14		—			18			(2		)	16
Total Other Income (Expenses), Net	45			1			14		—			60			(157		)	(97		)
(Loss) income before income tax (benefit) expense	$	(312	)	$	341		$	29	$	—		$	58		$	(301	)	$	(243	)



	Predecessor
	Seven Months Ended July 31, 2018
	Servicing			Originations			Xome		Elimination/ Reclassification ⁽¹⁾			Total Operating Segments			Corporate/Other			Consolidated
Revenues
Service related, net	$	740		$	36		$	149	$	(25	)	$	900		$	1		$	901
Net gain on mortgage loans held for sale	—			270			—		25			295			—			295
Total revenues	740			306			149		—			1,195			1			1,196
Total Expenses	474			245			123		—			842			103			945
Other income (expenses)
Interest income	288			38			—		—			326			7			333
Interest expense	(268		)	(37		)	—		—			(305		)	(83		)	(388		)
Other	(1		)	—			9		—			8			(2		)	6
Total Other Income (Expenses), Net	19			1			9		—			29			(78		)	(49		)
Income (loss) before income tax expense (benefit)	$	285		$	62		$	35	$	—		$	382		$	(180	)	$	202

⁽¹⁾

For Servicing segment results purposes, all revenue is attributable to servicing the portfolio. Therefore, $37 , $7 , $3 , $90 , and $25 of net gain on mortgage loans is moved to service related, net during the three months ended September 30, 2019 , two months ended September 30, 2018 , one month ended July 31, 2018 , nine months ended September 30, 2019 , and seven months ended July 31, 2018 , respectively. For consolidated results purposes, these amounts were reclassed to net gain on mortgage loans held for sale.



Servicing Segment

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



Table 4. Servicer Ratings



	Successor
	Fitch ⁽¹⁾	Moody’s ⁽²⁾	S&P ⁽³⁾
Rating date	November 2018	May 2019	May 2019

Residential	RPS2-	Not Rated	Above Average
Master Servicer	RMS2+	SQ2	Above Average
Special Servicer	RSS2-	Not Rated	Above Average
Subprime Servicer	RPS2-	Not Rated	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’s Rating Scale of Strong to Weak

Servicing Portfolio Composition

As of September 30, 2019 , the unpaid principal balance in our servicing portfolio consisted of approximately $617 billion in forward loans, of which $311 billion was subservicing, and $24 billion in reverse mortgage loans.


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


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

•

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

The charts below set forth the portfolio mix between serviced, subserviced and reverse loans, and the composition of our servicing portfolio ending UPB by investor group as of September 30, 2019 and 2018.

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



Table 5. Servicing Segment Results of Operations



	Successor						Predecessor
	Three Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Revenues
Operational	$	319		$	190		$	88		$	278		$	41		15	%
Amortization, net of accretion	(73		)	(31		)	(16		)	(47		)	(26		)	55	%
Mark-to-market	(83		)	24			25			49			(132		)	(269	)%
Total revenues	163			183			97			280			(117		)	(42	)%
Expenses	171			104			126			230			(59		)	(26	)%
Total other income (expenses), net	17			9			6			15			2			13	%
Income (loss) before income tax expense (benefit)	$	9		$	88		$	(23	)	$	65		$	(56	)	(86	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

For the three months ended September 30, 2019 , total revenues decreased compared to the same period in 2018 , on a combined basis, primarily due to negative mark-to-market revenues, partially offset by an increase in operational revenues. The change in the mark-to-market revenue was primarily due to the declining interest rate environment in 2019. The increase in the operational revenues was primarily due to an increase in base servicing and subservicing fees attributable to the increase in the forward and subservicing portfolios, which were largely driven by the acquisitions of Pacific Union and Seterus and the continued growth in subservicing clients’ portfolios. The increase in servicing and subservicing fees was partially offset by an increase in excess spread principal payments and a decrease in reverse servicing fees revenues. Amortization, net of accretion for the three months ended September 30, 2019 increased compared to the same period in 2018 , on a combined basis, primarily due to an increase in amortization of forward MSR as a result of growth in the forward MSR portfolio and elevated prepayments driven by the declining interest rate environment. Partially offsetting the increase in amortization of the forward MSR was the accretion of excess spread, as well as the accretion of our reverse MSL that was recorded in 2018 in connection with the Merger.

Expenses for the three months ended September 30, 2019 decreased compared to the same period in 2018 , on a combined basis, primarily due to a decrease in foreclosure and other liquidation related expenses, partially offset by an increase in salaries, wages and benefits. Foreclosure and other liquidation related expenses was higher in 2018, on a combined basis, as a result of a refined modeling method, which led to increased reserves related to the reverse mortgage portfolio. The increase in salaries, wages and benefits expense was a result of an increase in headcount to service the growth in the servicing portfolio primarily driven by the Pacific Union and Seterus acquisitions. Other income (expense), net increased compared to the same period in 2018 , on a combined basis, primarily due to an increase in interest income driven by rising short-term banking interest rates, coupled with portfolio growth, and a decrease in interest expense due to lower reverse mortgage interest expense.



Table 5.1. Servicing Segment Results of Operations



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Revenues
Operational	$	957		$	190		$	656		$	846		$	111		13	%
Amortization, net of accretion	(152		)	(31		)	(112		)	(143		)	(9		)	6	%
Mark-to-market	(607		)	24			196			220			(827		)	(376	)%
Total revenues	198			183			740			923			(725		)	(79	)%
Expenses	555			104			474			578			(23		)	(4	)%
Total other income (expenses), net	45			9			19			28			17			61	%
(Loss) income before income tax (benefit) expense	$	(312	)	$	88		$	285		$	373		$	(685	)	(184	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

For the nine months ended September 30, 2019 , total revenues decreased compared to the same period in 2018 , on a combined basis, primarily due to negative mark-to-market revenues. The change in the mark-to-market revenue was primarily due to the declining interest rate environment in 2019. Partially offsetting the change in mark-to-market revenue was an increase in operational revenue. The increase in the operational revenues was primarily due to an increase in base servicing and subservicing fees and other ancillary revenues. The increase in base servicing and subservicing fees were primarily attributable to the increase in the forward and subservicing portfolios, which were largely driven by the acquisitions of Pacific Union and Seterus and the continued growth in subservicing clients’ portfolios. The increase in other ancillary revenues on a combined basis was primarily due to a gain from the execution of a clean-up call option on a reverse mortgage loan trust during the first quarter of 2019 . Partially offsetting the increase in servicing and subservicing fees and other ancillary revenues was a decrease in incentive fees, modification fees and reverse servicing fees revenues, as well as an increase in excess spread principal payments. Amortization, net of accretion for the nine months ended September 30, 2019 increased compared to the same period in 2018 , on a combined basis, primarily due to an increase in amortization of forward MSR as a result of growth in the forward MSR portfolio and elevated prepayments driven by the declining interest rate environment. Partially offsetting the increase in amortization of the forward MSR was the accretion of excess spread, as well as the accretion of our reverse MSL that was recorded in 2018 connection with the Merger.

Expenses for the nine months ended September 30, 2019 decreased compared to the same period in 2018 , on a combined basis, primarily due to a decrease in foreclosure and other liquidation related expenses, partially offset an increase in salaries, wages and benefits. Foreclosure and other liquidation related expenses were higher in 2018 , on a combined basis, as a result of a refined modeling method, which led to increased reserves related to the reverse mortgage portfolio. The increase in salaries, wages and benefits expense was a result of an increase in headcount to service the growth in the servicing portfolio primarily driven by the Pacific Union and Seterus acquisitions. Other income (expense), net, on a combined basis increased primarily due to a decrease in interest expense as a result of the accretion of the HMBS bond premium, as well as a decrease in interest expense on financing vehicles.



Table 6. Servicing Portfolio - Unpaid Principal Balances



	Successor						Predecessor
	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019		Two Months Ended September 30, 2018		One Month Ended July 31, 2018		Seven Months Ended July 31, 2018
Average UPB:
Forward MSRs	$	315,897	$	313,405	$	278,362	$	279,605	$	279,520
Subservicing and other ⁽¹⁾	297,081		278,158		192,163		185,871		187,407
Reverse portfolio	24,301		25,933		30,888		31,753		33,380
Total average UPB	$	637,279	$	617,496	$	501,413	$	497,229	$	500,307

							Successor
							September 30, 2019		September 30, 2018
Ending UPB:
Forward MSRs
Agency							$	247,821	$	205,201
Non-agency							58,860		69,285
Total Forward MSRs							306,681		274,486

Subservicing and other ⁽¹⁾
Agency							294,783		195,489
Non-agency							15,748		13,617
Total subservicing and other							310,531		209,106

Reverse loans
MSR							2,761		75
MSL							14,641		21,703
Securitized loans							6,588		8,882
Total reverse portfolio serviced							23,990		30,660
Total ending UPB							$	641,202	$	514,252


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

The following table provides a rollforward of our forward servicing portfolio UPB, including loans subserviced for others.



Table 7. Forward Servicing and Subservicing Portfolio UPB Rollforward



	Successor									Predecessor
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Seven Months Ended July 31, 2018
Balance - beginning of period	$	618,120		$	519,367		$	465,819		$	465,398		$	473,256
Additions:
Originations	11,808			27,023			3,448			1,694			12,327
Acquisitions	33,606			164,204			26,734			5,183			25,987
Deductions:
Dispositions	(12,106		)	(16,271		)	(574		)	(84		)	(1,877		)
Principal reductions and other	(5,626		)	(16,471		)	(3,137		)	(1,581		)	(11,240		)
Voluntary reductions ⁽¹⁾	(27,545		)	(57,595		)	(7,869		)	(4,343		)	(29,172		)
Involuntary reductions ⁽²⁾	(975		)	(2,826		)	(769		)	(418		)	(3,241		)
Net changes in loans serviced by others	(70		)	(219		)	(60		)	(30		)	(221		)
Balance - end of period	$	617,212		$	617,212		$	483,592		$	465,819		$	465,819


⁽¹⁾	Voluntary reductions are related to loan payoffs by customers.


⁽²⁾	Involuntary reductions refer to loans liquidated through default.

During the three and nine months ended September 30, 2019 , our forward servicing and subservicing portfolio UPB increased when compared to 2018, primarily due to increased boarding of loans generated from the acquisitions of Pacific Union and Seterus, and the portfolio growth from our subservicing clients. The increase in dispositions was a result of an increase in our loan sales driven by increased sales volume in our origination channel.

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



Table 8. Key Performance Metrics - Forward Servicing and Subservicing Portfolio ⁽¹⁾



	Successor
	September 30, 2019			September 30, 2018
Loan count	3,601,322			3,009,439
Average loan amount ⁽²⁾	$	171,389		$	159,768
Average coupon - credit sensitive ⁽³⁾	4.8		%	4.8		%
Average coupon - interest sensitive ⁽³⁾	4.2		%	4.2		%
60+ delinquent (% of loans) ⁽⁴⁾	2.2		%	2.5		%
90+ delinquent (% of loans) ⁽⁴⁾	1.9		%	2.1		%
120+ delinquent (% of loans) ⁽⁴⁾	1.6		%	1.9		%
Total prepayment speed (12-month constant prepayment rate)	17.5		%	11.1		%


⁽¹⁾	Characteristics and key performance metrics of our servicing portfolio exclude UPB and loan counts acquired but not yet boarded and currently serviced by others.


⁽²⁾	Average loan amount is presented in whole dollar amounts.


⁽³⁾	The weighted average coupon amounts for our credit and interest sensitive pools presented in the table above are only reflective of our owned forward MSR portfolio that is reported at fair value.


⁽⁴⁾	Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan.

Delinquency is a significant assumption in determining the mark-to-market adjustment and is a key indicator of MSR portfolio performance. Delinquent loans contribute to lower MSR values due to higher costs to service and increased carrying costs of advances. We continue to experience low delinquency rates during the nine months ended September 30, 2019 , which preserves the value of our MSRs.

The tables below present the number of modifications and workout units with our serviced portfolios.



Table 9. Forward Loan Modifications and Workout Units



	Successor		Predecessor
	Three Months Ended September 30, 2019	Two Months Ended September 30, 2018	One Month Ended July 31, 2018	Combined ⁽¹⁾	Amount Change		% Change
HAMP modifications	1	3	7	10	(9	)	(90	)%
Non-HAMP modifications	5,060	6,730	3,446	10,176	(5,116	)	(50	)%
Workouts	3,731	2,813	1,449	4,262	(531	)	(12	)%
Total modification and workout units	8,792	9,546	4,902	14,448	(5,656	)	(39	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Total modifications and workouts during the three months ended September 30, 2019 decreased compared to the same period in 2018 , on a combined basis, primarily due to lower delinquency rates.



Table 9.1 Forward Loan Modifications and Workout Units



	Successor		Predecessor
	Nine Months Ended September 30, 2019	Two Months Ended September 30, 2018	Seven Months Ended July 31, 2018	Combined ⁽¹⁾	Amount Change		% Change
HAMP modifications	10	3	38	41	(31	)	(76	)%
Non-HAMP modifications	15,872	6,730	16,828	23,558	(7,686	)	(33	)%
Workouts	15,132	2,813	22,700	25,513	(10,381	)	(41	)%
Total modification and workout units	31,014	9,546	39,566	49,112	(18,098	)	(37	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Total modifications and workouts during the nine months ended September 30, 2019 decreased compared to the same period in 2018 , on a combined basis, primarily due to lower delinquency rates and lower disaster-related (hurricanes and wildfires) loss mitigation activity.

The following tables provide the composition of revenues for the Servicing segment.



Table 10. Servicing - Revenues



	Successor										Predecessor
	Three Months Ended September 30, 2019					Two Months Ended September 30, 2018					One Month Ended July 31, 2018					Combined ⁽¹⁾					$ Change					% Change
	Amt			bps ⁽²⁾		Amt			bps ⁽²⁾		Amt			bps ⁽²⁾		Amt			bps ⁽²⁾		Amt			bps ⁽²⁾		Amt		bps ⁽²⁾
Forward MSR Operational Revenue
Base servicing fees	$	252		16		$	142		17		$	68		16		$	210		17		$	42		(1	)	20	%	(6	)%
Modification fees ⁽³⁾	4			—		5			1		1			—		6			1		(2		)	(1	)	(33	)%	(100	)%
Incentive fees ⁽³⁾	6			—		2			—		2			1		4			—		2			—		50	%	—	%
Late payment fees ⁽³⁾	23			2		11			1		6			2		17			1		6			1		35	%	100	%
Other ancillary revenues ⁽³⁾	48			3		16			2		10			2		26			2		22			1		85	%	50	%
Total forward MSR operational revenue	333			21		176			21		87			21		263			21		70			—		27	%	—	%
Base subservicing fees and other subservicing revenue ⁽³⁾	65			4		27			4		13			3		40			3		25			1		63	%	33	%
Reverse servicing fees	7			—		13			2		4			1		17			1		(10		)	(1	)	(59	)%	(100	)%
Total servicing fee revenue	405			25		216			27		104			25		320			25		85			—		27	%	—	%
MSR financing liability costs	(9		)	—		(8		)	(1	)	(4		)	(1	)	(12		)	(1	)	3			1		(25	)%	100	%
Excess spread costs - principal	(77		)	(5	)	(18		)	(2	)	(12		)	(3	)	(30		)	(2	)	(47		)	(3	)	157	%	150	%
Total operational revenue	319			20		190			24		88			21		278			22		41			(2	)	15	%	(9	)%
Amortization, net of accretion
Forward MSR amortization	(162		)	(10	)	(53		)	(6	)	(27		)	(6	)	(80		)	(7	)	(82		)	(3	)	103	%	43	%
Excess spread accretion	77			5		22			2		11			3		33			3		44			2		133	%	67	%
Reverse MSL accretion	10			—		—			—		—			—		—			—		10			—		100	%	—	%
Reverse MSR amortization	2			—		—			—		—			—		—			—		2			—		100	%	—	%
Total amortization, net of accretion	(73		)	(5	)	(31		)	(4	)	(16		)	(3	)	(47		)	(4	)	(26		)	(1	)	55	%	25	%
Mark-to-Market Adjustments
MSR MTM ⁽⁴⁾	(195		)	(12	)	49			6		44			11		93			8		(288		)	(20	)	(310	)%	(250	)%
Excess spread / financing MTM	112			7		(25		)	(3	)	(19		)	(5	)	(44		)	(4	)	156			11		(355	)%	(275	)%
Total MTM adjustments	(83		)	(5	)	24			3		25			6		49			4		(132		)	(9	)	(269	)%	(225	)%
Total revenues - Servicing	$	163		10		$	183		23		$	97		24		$	280		22		$	(117	)	(12	)	(42	)%	(55	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.


⁽²⁾	Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.


⁽³⁾	Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.

⁽⁴⁾

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 $18 for the three months ended September 30, 2019 . The impact of negative modeled cash flows, on a combined basis, for the Predecessor was $17 for the three months ended September 30, 2018 .

Forward - Due to the increase of the forward MSR portfolio’s UPB, base servicing fee revenue increased for the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis. Other ancillary revenues increased primarily due to $16 recorded in connection with the collapse of Trust 2009-A.

MSR prepayment and scheduled amortization increased for the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to the increase in the average forward MSR UPB in 2019 compared to 2018, and higher prepayments driven by the lower interest rate environment.

Total MTM adjustments were negative for the three months ended September 30, 2019 as compared to positive MTM adjustments for the same period in 2018 , on a combined basis, primarily due to the declining interest rate environment during 2019.

Subservicing - Subservicing fees increased for the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, due to continued growth in the subservicing portfolio UPB.

Reverse - Servicing fees on reverse mortgage portfolios for the three months ended September 30, 2019 decreased as compared to the same period in 2018 , on a combined basis, primarily due to the decline in the reverse mortgage portfolio.



Table 10.1. Servicing - Revenues



	Successor										Predecessor
	Nine Months Ended September 30, 2019					Two Months Ended September 30, 2018					Seven Months Ended July 31, 2018					Combined ⁽¹⁾					$ Change					% Change
	Amt			bps ⁽²⁾		Amt			bps ⁽²⁾		Amt			bps ⁽²⁾		Amt			bps ⁽²⁾		Amt			bps ⁽²⁾		Amt		bps ⁽²⁾
Forward MSR Operational Revenue
Base servicing fees	$	749		16		$	142		17		$	501		17		$	643		17		$	106		(1	)	16	%	(6	)%
Modification fees ⁽³⁾	13			—		5			1		21			1		26			1		(13		)	(1	)	(50	)%	(100	)%
Incentive fees ⁽³⁾	8			—		2			—		13			—		15			—		(7		)	—		(47	)%	—	%
Late payment fees ⁽³⁾	62			2		11			1		45			2		56			2		6			—		11	%	—	%
Other ancillary revenues ⁽³⁾	126			3		16			2		63			2		79			2		47			1		59	%	50	%
Total forward MSR operational revenue	958			21		176			21		643			22		819			22		139			(1	)	17	%	(5	)%
Base subservicing fees and other subservicing revenue ⁽³⁾	179			4		27			4		87			2		114			3		65			1		57	%	33	%
Reverse servicing fees	24			—		13			2		37			1		50			1		(26		)	(1	)	(52	)%	(100	)%
Total servicing fee revenue	1,161			25		216			27		767			25		983			26		178			(1	)	18	%	(4	)%
MSR financing liability costs	(32		)	(1	)	(8		)	(1	)	(33		)	(1	)	(41		)	(1	)	9			—		(22	)%	—	%
Excess spread costs - principal	(172		)	(4	)	(18		)	(2	)	(78		)	(3	)	(96		)	(2	)	(76		)	(2	)	79	%	100	%
Total operational revenue	957			20		190			24		656			21		846			23		111			(3	)	13	%	(13	)%
Amortization, net of accretion
Forward MSR amortization	(366		)	(8	)	(53		)	(6	)	(190		)	(7	)	(243		)	(7	)	(123		)	(1	)	51	%	14	%
Excess spread accretion	172			4		22			2		78			3		100			3		72			1		72	%	33	%
Reverse MSL accretion	39			1		—			—		—			—		—			—		39			1		100	%	100	%
Reverse MSR amortization	3			—		—			—		—			—		—			—		3			—		100	%	—	%
Total amortization, net of accretion	(152		)	(3	)	(31		)	(4	)	(112		)	(4	)	(143		)	(4	)	(9		)	1		6	%	(25	)%
Mark-to-Market Adjustments
MSR MTM ⁽⁴⁾	(782		)	(17	)	49			6		295			10		344			9		(1,126		)	(26	)	(327	)%	(289	)%
Excess spread / financing MTM	175			4		(25		)	(3	)	(99		)	(3	)	(124		)	(3	)	299			7		(241	)%	(233	)%
Total MTM adjustments	(607		)	(13	)	24			3		196			7		220			6		(827		)	(19	)	(376	)%	(317	)%
Total revenues - Servicing	$	198		4		$	183		23		$	740		24		$	923		25		$	(725	)	(21	)	(79	)%	(84	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.


⁽²⁾	Calculated basis points (“bps”) are as follows: Annualized dollar amount/Total average UPB X 10000.


⁽³⁾	Certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues.

⁽⁴⁾

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 $46 for the nine months ended September 30, 2019 . The impact of negative modeled cash flows, on a combined basis, for the Predecessor was $51 for the nine months ended September 30, 2018 .

Forward - Due to the increase of the forward MSR portfolio’s UPB, base servicing fee revenue increased for the nine months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis. The improvement in delinquency rates as of September 30, 2019 contributed to the decrease in modification fees. Other ancillary revenues increased primarily due to the gain on sale from the securitization of reperforming GNMA loans and the collapse of Trust 2009-A.

MSR prepayment and scheduled amortization increased for the nine months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to the increase in the average forward MSR UPB and higher prepayments driven by the lower interest rate environment.

Total MTM adjustments were negative in the nine months ended September 30, 2019 as compared to positive MTM adjustments in the same period in 2018 , on a combined basis, primarily due to the declining interest rate environment during 2019.

Subservicing - Subservicing fees increased for the nine months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, due to significant growth in the subservicing portfolio UPB.

Reverse - Servicing fees on reverse mortgage portfolios for the nine months ended September 30, 2019 decreased as compared to the same period in 2018 , on a combined basis, primarily due to the decline in the reverse mortgage portfolio.

Servicing Expenses

The tables below summarize expenses in the Servicing segment.



Table 11. Servicing - Expenses



	Successor						Predecessor
	Three Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Combined ⁽¹⁾			Change				% Change
	Amt		bps	Amt		bps	Amt		bps	Amt		bps	Amt			bps	Amt		bps
Salaries, wages and benefits	$	85	5	$	52	6	$	25	6	$	77	6	$	8		(1)	10	%	(17	)%
General and administrative
Servicing support fees	30		2	25		3	9		2	34		3	(4		)	(1)	(12	)%	(33	)%
Corporate and other general and administrative expenses	40		3	21		2	17		4	38		3	2			—	5	%	—	%
Foreclosure and other liquidation related expenses	11		1	2		—	73		18	75		6	(64		)	(5)	(85	)%	(83	)%
Depreciation and amortization	5		—	4		—	2		1	6		—	(1		)	—	(17	)%	—	%
Total general and administrative expenses	86		6	52		5	101		25	153		12	(67		)	(6)	(44	)%	(50	)%
Total expenses - Servicing	$	171	11	$	104	11	$	126	31	$	230	18	$	(59	)	(7)	(26	)%	(39	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Total expenses decreased during the three months ended September 30, 2019 compared to the same period in 2018 , on a combined basis, primarily driven by a decrease in foreclosure and other liquidation expenses, partially offset by increased salaries, wages and benefits. Foreclosure and other liquidation related expenses were higher in 2018 , on a combined basis, as a result of a refined modeling method, which led to increased reserves related to the reverse mortgage portfolio. Salaries, wages and benefits increased as a result of the expansion of the servicing portfolio and an increase in headcount largely driven by the Pacific Union and Seterus acquisitions. Servicing support fees decreased in 2019 compared to the same period in 2018 , on a combined basis, primarily due to lower legal and tax service expenses.



Table 11.1. Servicing - Expenses



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			Change				% Change
	Amt		bps	Amt		bps	Amt		bps	Amt		bps	Amt			bps	Amt		bps
Salaries, wages and benefits	$	261	6	$	52	6	$	175	6	$	227	6	$	34		—	15	%	—	%
General and administrative
Servicing support fees	93		2	25		3	71		2	96		2	(3		)	—	(3	)%	—	%
Corporate and other general and administrative expenses	118		3	21		2	80		3	101		3	17			—	17	%	—	%
Foreclosure and other liquidation related expenses	70		1	2		—	133		4	135		4	(65		)	(3)	(48	)%	(75	)%
Depreciation and amortization	13		—	4		—	15		—	19		—	(6		)	—	(32	)%	—	%
Total general and administrative expenses	294		6	52		5	299		9	351		9	(57		)	(3)	(16	)%	(33	)%
Total expenses - Servicing	$	555	12	$	104	11	$	474	15	$	578	15	$	(23	)	(3)	(4	)%	(20	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Total expenses decreased during the nine months ended September 30, 2019 compared to the same period in 2018 , on a combined basis, primarily due to a decrease in foreclosure and other liquidation related expenses, partially offset by increased salaries, wages and benefits expense and corporate and other general and administrative expenses. Foreclosure and other liquidation related expenses were higher in 2018 , on a combined basis, as a result of a refined modeling method, which led to increased reserves related to the reverse mortgage portfolio. The increase in salaries, wages and benefits is primarily due to the expansion of the servicing portfolio and an increase in headcount largely driven by the Pacific Union and Seterus acquisitions. The increase in corporate and other general and administrative expenses was primarily a result of higher expenses related to our initiatives to increase operational efficiencies and enhance overall customer experience.



Table 12. Servicing - Other Income (Expenses), Net



	Successor										Predecessor
	Three Months Ended September 30, 2019					Two Months Ended September 30, 2018					One Month Ended July 31, 2018					Combined ⁽¹⁾					Change					% Change
	Amt			bps		Amt			bps		Amt			bps		Amt			bps		Amt			bps		Amt		bps
Income earned on Reverse mortgage interest	$	81		5		$	72		8		$	38		9		$	110		9		$	(29	)	(4	)	(26	)%	(44	)%
Other interest income	56			4		6			1		3			1		9			1		47			3		522	%	300	%
Interest income	137			9		78			9		41			10		119			10		18			(1	)	15	%	(10	)%

Reverse mortgage interest expense	(58		)	(4	)	(63		)	(7	)	(30		)	(7	)	(93		)	(7	)	35			3		(38	)%	(43	)%
Advance interest expense	(6		)	—		(5		)	(1	)	(2		)	(1	)	(7		)	(1	)	1			1		(14	)%	(100	)%
Other interest expense	(56		)	(4	)	(6		)	(1	)	(3		)	(1	)	(9		)	(1	)	(47		)	(3	)	522	%	300	%
Interest expense	(120		)	(8	)	(74		)	(9	)	(35		)	(9	)	(109		)	(9	)	(11		)	1		10	%	(11	)%
Other income (expense)	—			—		5			1		—			—		5			—		(5		)	—		(100	)%	—	%
Total other income (expenses), net - Servicing	$	17		1		$	9		1		$	6		1		$	15		1		$	2		—		13	%	—	%

Weighted average cost - advance facilities	3.8		%			4.0		%			4.1		%			4.0		%			(0.2		)%			(5	)%
Weighted average cost - excess spread financing	8.9		%			8.9		%			8.8		%			8.9		%			—		%			—	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Total other income (expenses), net increased during the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to an increase in interest income, partially offset by an increase in interest expense. Other interest income increased due to $28 of earnings credits and bank fee credits the Predecessor previously classified as interest expense, coupled with higher interest income due to higher yields on custodial balances combined with higher balances driven by portfolio growth. In addition, reverse mortgage interest income decreased due to the decline in the reverse mortgage interests balance. Interest expense increased during the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, due to an increase in other interest expense, partially offset by lower reverse mortgage interest expense driven by the decline in the reverse mortgage interest portfolio balance, as well as the accretion of the HMBS bond premium. The increase in other interest expense was primarily due to an increase of $12 in excess spread costs and $28 of earnings credits and bank fee credits the Predecessor previously classified as interest expense and $6 of compensating interest expense driven by higher payoff volume.



Table 12.1. Servicing - Other Income (Expenses), Net



	Successor										Predecessor
	Nine Months Ended September 30, 2019					Two Months Ended September 30, 2018					Seven Months Ended July 31, 2018					Combined ⁽¹⁾					Change					% Change
	Amt			bps		Amt			bps		Amt			bps		Amt			bps		Amt			bps		Amt		bps
Income earned on Reverse mortgage interest	$	249		5		$	72		8		$	274		9		$	346		9		$	(97	)	(4	)	(28	)%	(44	)%
Other interest income	139			3		6			1		14			1		20			1		119			2		595	%	200	%
Interest income	388			8		78			9		288			10		366			10		22			(2	)	6	%	(20	)%

Reverse mortgage interest expense	(175		)	(4	)	(63		)	(7	)	(221		)	(7	)	(284		)	(7	)	109			3		(38	)%	(43	)%
Advance interest expense	(23		)	—		(5		)	(1	)	(19		)	(1	)	(24		)	(1	)	1			1		(4	)%	(100	)%
Other interest expense	(145		)	(3	)	(6		)	(1	)	(28		)	(1	)	(34		)	(1	)	(111		)	(2	)	326	%	200	%
Interest expense	(343		)	(7	)	(74		)	(9	)	(268		)	(9	)	(342		)	(9	)	(1		)	2		—	%	(22	)%
Other income (expense)	—			—		5			1		(1		)	—		4			—		(4		)	—		(100	)%	—	%
Total other income (expenses), net - Servicing	$	45		1		$	9		1		$	19		1		$	28		1		$	17		—		61	%	—	%

Weighted average cost - advance facilities	4.0		%			4.0		%			3.9		%			3.9		%			0.1		%			3	%
Weighted average cost - excess spread financing	8.9		%			8.9		%			8.8		%			8.9		%			—		%			—	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Total other income (expenses), net increased during the nine months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to an increase in interest income. Interest income increased primarily due to an increase in other interest income as a result of $62 of earnings credits and bank fee credits the Predecessor previously classified as interest expense, coupled with higher interest income due to higher yields on custodial balances combined with higher balances driven by portfolio growth. Offsetting the increase in other interest income was a decrease in reverse mortgage interest income, which was related to the decline in the reverse mortgage interests balance. Interest expense as a total remained consistent during the nine months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis. Reverse mortgage interest expense decreased due the decline in the reverse mortgage interest portfolio balance, as well as the accretion of the HMBS bond premium, and was offset by an increase in other interest expense. Other interest expense increased primarily due to an increase of $35 in excess spread costs and $62 of earnings credits and bank fee credits the Predecessor previously classified as interest expense and $11 of compensating interest expense driven by higher payoff volume.

Serviced Portfolio and Liabilities

The tables below summarize the serviced portfolio and liabilities in the Servicing segment.



Table 13. Serviced Portfolios and Related Liabilities



	Successor
	September 30, 2019							December 31, 2018
	UPB		Carrying Amount			Weighted Avg. Coupon		UPB		Carrying Amount			Weighted Avg. Coupon
Forward MSRs - fair value
Agency	$	247,821	$	2,764		4.5	%	$	229,108	$	3,027		4.5	%
Non-agency	58,860		575			4.8	%	66,373		638			4.8	%
Total Forward MSRs - fair value	306,681		3,339			4.6	%	295,481		3,665			4.5	%

Subservicing and other ⁽¹⁾
Agency	294,783		N/A			N/A		208,607		N/A			N/A
Non-agency	15,748		N/A			N/A		15,279		N/A			N/A
Total subservicing and other	310,531		N/A			N/A		223,886		N/A			N/A

Reverse portfolio - amortized cost
MSR	2,761		7			N/A		3,940		11			N/A
MSL	14,641		(69		)	N/A		16,538		(71		)	N/A
Securitized loans	6,588		6,662			N/A		7,937		7,934			N/A
Total reverse portfolio serviced	23,990		6,600			N/A		28,415		7,874			N/A
Total servicing portfolio unpaid principal balance	$	641,202	$	9,939		N/A		$	547,782	$	11,539		N/A


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

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



Table 14. Fair Value MSR Valuation



	Successor
	September 30, 2019					December 31, 2018
	UPB		Carrying Amount		bps	UPB		Carrying Amount		bps
MSRs - fair value
Credit sensitive	$	157,898	$	1,661	105	$	135,752	$	1,495	110
Interest sensitive	148,783		1,678		113	159,729		2,170		136
Total MSRs - fair value	$	306,681	$	3,339	109	$	295,481	$	3,665	124

As of September 30, 2019 , when measuring the fair value of the portfolio as a basis point of the unpaid principal balance, our credit sensitive pool decreased in value by 5 bps and interest sensitive pool decreased in value 23 bps, compared to December 31, 2018 due to higher forecasted prepayment speeds as a result of the declining interest rate environment in 2019.

The following table provides information on the fair value of our owned forward MSR portfolio.



Table 15. MSRs - Fair Value, Roll Forward



	Successor									Predecessor
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Seven Months Ended July 31, 2018
Fair value - beginning of period	$	3,505		$	3,665		$	3,413		$	3,356		$	2,937
Additions:
Servicing retained from mortgage loans sold	129			298			43			22			162
Purchases of servicing rights	43			732			72			12			144
Dispositions:
Sales of servicing rights	(24		)	(317		)	(63		)	—			4
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model:
Credit sensitive	(72		)	(228		)	14			11			203
Interest sensitive	(102		)	(488		)	51			35			127
Other changes in fair value:
Scheduled principal payments	(24		)	(69		)	(20		)	(6		)	(45		)
Disposition of negative MSRs and other ⁽¹⁾	20			43			7			3			27
Prepayments
Voluntary prepayments
Credit sensitive	(27		)	(72		)	(14		)	(10		)	(71		)
Interest sensitive	(103		)	(205		)	(11		)	(8		)	(54		)
Involuntary prepayments
Credit sensitive	(1		)	(6		)	(3		)	(1		)	(12		)
Interest sensitive	(5		)	(14		)	(4		)	(1		)	(9		)
Fair value - end of period	$	3,339		$	3,339		$	3,485		$	3,413		$	3,413


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

The following table sets forth the weighted average assumptions in estimating the fair value of MSRs.



Table 16. MSRs - Fair Value



	Successor
	September 30, 2019		September 30, 2018
Credit Sensitive MSRs
Discount rate	10.4	%	11.2	%
Weighted average prepayment speeds	13.2	%	11.2	%
Weighted average life of loans	5.9 years		6.7 years

Interest Sensitive MSRs
Discount rate	9.0	%	9.2	%
Weighted average prepayment speeds	14.6	%	8.9	%
Weighted average life of loans	5.4 years		7.4 years

Total MSRs Portfolio
Discount rate	9.7	%	10.4	%
Weighted average prepayment speeds	13.9	%	10.3	%
Weighted average life of loans	5.6 years		7.0 years

The discount rate for credit sensitive and interest sensitive MSRs decreased as of September 30, 2019 compared to the same period in 2018 due to the declining interest rate environment in 2019. Weighted average lives decreased for both credit sensitive and interest sensitive MSRs due to the increase in prepayment speeds, which was attributable to the interest rate decline period over period.

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

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

Excess Spread Financing

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

The servicing fees associated with an MSR can be segregated into (i) a base servicing fee and (ii) an excess servicing fee. The base servicing fee, along with ancillary income and other revenues, is designed to cover costs incurred to service the specified pool plus a reasonable margin. The remaining servicing fee is considered excess. We sell a percentage of the excess fee as a method for efficiently financing acquired MSRs. Excess spread financings are presently applicable only to acquired MSRs and originated pools of loans; however, they can be entered into at any time for both acquired and originated MSRs.

Excess spread financings are recorded at fair value, and the impact of fair value adjustments on future revenues and capital resources varies primarily due to changes in (i) prepayment speeds and (ii) our ability to recapture mortgage loan payoffs through the origination platform. In Note 3, Mortgage Servicing Rights and Related Liabilities , we discuss the range of assumptions and sensitivities related to the measurement of the excess spread financing liability as of September 30, 2019 and December 31, 2018 .

The following table sets forth the change in the excess spread financing liability and the related key weighted average assumptions.



Table 17. Excess Spread Financing



	Successor									Predecessor
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Seven Months Ended July 31, 2018
Fair value - beginning of period	$	1,429		$	1,184		$	1,039		$	1,047		$	996
Additions:
New financings	31			469			84			—			70
Deductions:
Repayments of debt	(7		)	(19		)	(21		)	(1		)	(3		)
Settlements of principal balances	(56		)	(163		)	(31		)	(14		)	(105		)
Fair value changes:
Credit Sensitive	(59		)	(74		)	23			7			73
Interest Sensitive	(57		)	(116		)	3			—			8
Fair value - end of period	$	1,281		$	1,281		$	1,097		$	1,039		$	1,039

										Successor
Total Key Weighted Average Assumptions:										September 30, 2019			September 30, 2018
Credit Sensitive
Discount rate										12.5		%	11.1		%
Prepayment speeds										12.9		%	11.0		%
Recapture rate										23.6		%	18.0		%
Average life										5.8 years			6.6 years

Interest Sensitive
Discount rate										10.9		%	9.1		%
Prepayment speeds										13.9		%	9.3		%
Recapture rate										20.0		%	14.7		%
Average life										5.5 years			7.1 years

Total Excess Spread Financing Portfolio
Discount rate										11.9		%	10.6		%
Prepayment speeds										13.3		%	10.6		%
Recapture rate										22.3		%	17.7		%
Average life										5.7 years			6.7 years

During the three months ended September 30, 2019, we updated the discount rate utilized for valuation of excess spread financing liabilities due to market driven events occurring within the quarter to accurately reflect the fair value of excess spread financing liabilities.



Table 18. MSRs Financing Liability - Rollforward



	Successor									Predecessor
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Seven Months Ended July 31, 2018
Fair value - beginning of period	$	43		$	32		$	26		$	16		$	10
Changes in fair value ⁽¹⁾ :
Changes in valuation inputs or assumptions used in the valuation model	9			28			3			11			22
Other changes in fair value	(5		)	(13		)	(3		)	(1		)	(6		)
Fair value - end of period	$	47		$	47		$	26		$	26		$	26

										Successor
										September 30, 2019			September 30, 2018
Weighted Average Assumptions
Advance financing rates										3.7		%	4.9		%
Annual advance recovery rates										18.7		%	18.2		%


⁽¹⁾	The changes in fair value related to our MSRs financing liability primarily relate to both scheduled and unscheduled principal payments reflected in the underlying MSRs and changes in the fair value model assumptions.

We entered into several sale agreements whereby we sold the right to receive servicing advances on private-label servicing advances and the right to receive a portion of the base fee component on the related MSRs, and also transferred the obligations to make future advances. These transactions are treated as a MSR Financing Liability. The balance sheet entry for these financings represents the component of fair value that reflects the excess cost of these transactions relative to the cost of financing advances assumed in the value of the corresponding MSR, and the change in fair value is recorded against servicing revenue and interest imputed on the outstanding liability is recorded as interest expense.

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

The following table provides an overview of our forward servicing portfolio and amounts that have been transferred to our co-invest partners for the periods indicated.



Table 19. Leveraged Portfolio Characteristics



	Successor
	September 30, 2019		September 30, 2018
Owned forward servicing portfolio - unencumbered	$	89,308	$	90,504
Owned forward servicing portfolio - encumbered	217,373		183,982
Subserviced forward servicing portfolio and other	310,531		209,106
Total unpaid principal balance	$	617,212	$	483,592

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

Reverse - MSLs and Participating Interests - Amortized Cost

The table below provides detail of the characteristics and key performance metrics of the reverse servicing portfolio, which is included in MSLs and participating interests in reverse mortgages. Such assets are recorded at amortized cost.



Table 20. Reserve - Mortgage Portfolio Characteristics



	Successor
	September 30, 2019			September 30, 2018
Loan count	170,903			200,904
Ending unpaid principal balance	$	23,990		$	30,660
Average loan amount ⁽¹⁾	$	140,374		$	152,608
Average coupon	3.8		%	4.3		%
Average borrower age	80			79


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

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

Each quarter, we accrete the MSL to service related revenue, net of the respective portfolios run-off. The MSL is assessed for increased obligation based on its fair value, using a variety of assumptions, with the key assumptions being discount rates, prepayment speeds and borrower life expectancy. The MSLs are stratified based on predominant risk characteristics of the underlying serviced loans. Impairment, if any, represents the excess of amortized cost of an individual stratum over its estimated fair value and is recognized through an increase in valuation allowance. Based on our assessment, no impairment was required for reverse MSLs as of September 30, 2019 .



Originations Segment

The strategy of our Originations segment is to originate 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 loans at a more attractive cost than would be the case in bulk MSR acquisitions, the Originations segment improves our overall profitability and cash flow. Growing the Originations segment has been a strategic focus for us for several years.

The Originations segment includes three channels:


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

•

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


•	Our wholesale lending channel works with mortgage brokers to source loans which are underwritten and funded by us and also in our name. Counterparty risk is mitigated through quality and compliance monitoring and all brokers are subject to our eligibility requirements coupled with an annual recertification process.

The charts below set forth the pull through adjusted lock volume and funded volume by channel and channel mix.

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



Table 21. Originations Segment Results of Operations



	Successor						Predecessor
	Three Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Revenues	$	334		$	86		$	45		$	131		$	203		155	%
Expenses	155			66			34			100			55			55	%
Other income (expenses), net	(1		)	1			—			1			(2		)	(200	)%
Income before income tax expense	$	178		$	21		$	11		$	32		$	146		456	%

Originations Margin
Revenue	$	334		$	86		$	45		$	131		$	203		155	%
Pull through adjusted lock volume	$	12,699		$	3,421		$	1,606		$	5,027		$	7,672		153	%
Revenue as a percentage of pull through adjusted lock volume ⁽²⁾	2.63		%	2.51		%	2.80		%	2.61		%	0.02		%	1	%

Expenses	$	155		$	66		$	34		$	100		$	55		55	%
Funded volume	$	11,911		$	3,459		$	1,688		$	5,147		$	6,764		131	%
Expenses as a percentage of funded volume ⁽³⁾	1.30		%	1.91		%	2.01		%	1.94		%	(0.64		)%	(33	)%

Originations Margin	1.33		%	0.60		%	0.79		%	0.67		%	0.66		%	99	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.


⁽²⁾	Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.


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

Income before income tax expense increased for the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to an increase in revenues driven by origination volume growth. The growth in origination volume was primarily due to declining interest rates and incremental volumes associated with the acquisition of Pacific Union. The Originations Margin for the three months ended September 30, 2019 increased as compared to the same period in 2018 , on a combined basis, primarily due to lower expenses as a percentage of funded volume.

100



Table 21.1 Originations Segment Results of Operations



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Revenues	$	744		$	86		$	306		$	392		$	352		90	%
Expenses	404			66			245			311			93			30	%
Other income (expenses), net	1			1			1			2			(1		)	(50	)%
Income before income tax expense	$	341		$	21		$	62		$	83		$	258		311	%

Originations Margin
Revenue	$	744		$	86		$	306		$	392		$	352		90	%
Pull through adjusted lock volume	$	29,856		$	3,421		$	11,907		$	15,328		$	14,528		95	%
Revenue as a percentage of pull through adjusted lock volume ⁽²⁾	2.49		%	2.51		%	2.57		%	2.56		%	(0.07		)%	(3	)%

Expenses	$	404		$	66		$	245		$	311		$	93		30	%
Funded volume	$	27,623		$	3,459		$	12,317		$	15,776		$	11,847		75	%
Expenses as a percentage of funded volume points ⁽³⁾	1.46		%	1.91		%	1.99		%	1.97		%	(0.51		)%	(26	)%

Originations Margin	1.03		%	0.60		%	0.58		%	0.59		%	0.44		%	75	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.


⁽²⁾	Calculated on pull-through adjusted lock volume as revenue is recognized at the time of loan lock.


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

Income before income tax expense increased for the nine months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to an increase in revenues driven by origination volume growth. The growth in originations volume growth was driven by declining interest rates and incremental volumes associated with the acquisition of Pacific Union. The Originations Margin for the nine months ended September 30, 2019 increased as compared to the same period in 2018 , on a combined basis, primarily due to lower expenses as a percentage of funded volume.

Originations Segment Revenues

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

Gain on loans originated and sold represents the cash proceeds from selling loans net of the cost to fund them. Gain on loans originated and sold is affected by the volume, margin and channel mix of our originations activity and is impacted by fluctuations in interest rates.

Fair value adjustment on loans held for sale represents mark-to-market changes in the value of loans which have been funded and are being held on balance sheet prior to sale or securitization. We enter into derivative transactions to hedge the value of these loans, and changes in the value of derivatives are reported in the line of “mark-to-market on derivatives/hedges.”

101

Mark-to-market on locks and commitments represents the recognition of the total estimated revenue from originating and selling a loan, at the time that a direct-to-consumer channel customer elects to “lock” the loan at an agreed-upon interest rate, or when we commit to purchase or fund a loan from a correspondent or wholesale customer. In calculating this revenue estimate, we estimate the percentage of loans that will fall out of pipeline prior to funding, and the total estimated volume is referred to as “Pull-through Adjusted Lock Volume”. The magnitude of this line is a function of the profitability, mix, and trend in locks and commitments during the period relative to funded volumes. For loans funded during the period, the estimated revenue is reported in the line of “fair value adjustment on loans held for sale”. At the time of lock or commitment, we enter into derivative transactions designed to hedge the pipeline of locks and commitments against changes in interest rates. Changes in the value of these derivatives are reported in the line of “mark-to-market on derivatives/hedges.”

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

102

Revenues, including net gain on mortgage loans held for sale, for our Originations segment are set forth in the tables below.



Table 22. Originations - Revenues



	Successor						Predecessor
	Three Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Service related, net - Originations	$	22		$	10		$	4		$	14		$	8		57	%
Net gain on mortgage loans held for sale
Gain on loans originated and sold	156			36			12			48			108			225	%
Fair value adjustment on loans held for sale	3			(8		)	(1		)	(9		)	12			(133	)%
Mark-to-market on locks and commitments ⁽²⁾	34			(2		)	(1		)	(3		)	37			(1,233	)%
Mark-to-market on derivative/hedges	(2		)	10			9			19			(21		)	(111	)%
Capitalized servicing rights	126			41			22			63			63			100	%
Provision for repurchase reserves, net of release	(5		)	(1		)	—			(1		)	(4		)	400	%
Total net gain on mortgage loans held for sale	312			76			41			117			195			167	%
Total revenues - Originations	$	334		$	86		$	45		$	131		$	203		155	%

Key Metrics
Consumer direct lock pull through adjusted volume ⁽³⁾	$	5,488		$	1,524		$	828		$	2,352		$	3,136		133	%
Other locked pull through adjusted volume ⁽³⁾	7,211			1,897			778			2,675			4,536			170	%
Total pull through adjusted volume	$	12,699		$	3,421		$	1,606		$	5,027		$	7,672		153	%
Funded volume	$	11,911		$	3,459		$	1,688		$	5,147		$	6,764		131	%
Volume of loans sold	$	12,150		$	3,454		$	1,805		$	5,259		$	6,891		131	%
Recapture percentage	24.6		%	22.8		%	20.4		%	22.0		%	2.6		%	12	%
Purchase as a percentage of funded volume	39.1		%	52.8		%	52.2		%	52.6		%	(13.5		)%	(26	)%
Value of capitalized servicing on retained settlements	154 bps			140 bps			135 bps			138 bps			16 bps			12	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.


⁽²⁾	Mark-to-market on locks and commitments includes our fair value mark-to-market adjustments on IRLCs.


⁽³⁾	Pull through adjusted volume represents the expected funding from locks taken during the period.

Total revenues increased for the three months ended September 30, 2019 compared to the same period in 2018 , on a combined basis, primarily driven by the higher volumes in a declining interest rate environment and the incremental volumes associated with the Pacific Union acquisition, which occurred in February 2019. Total revenue increased 155% or $203 period over period as pull through adjusted lock volume increased 153% during the same period.

103



Table 22.1. Originations - Revenues



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Service related, net - Originations	$	57		$	10		$	36		$	46		$	11		24	%
Net gain on mortgage loans held for sale
Gain on loans originated and sold	286			36			113			149			137			92	%
Fair value adjustment on loans held for sale	19			(8		)	—			(8		)	27			(338	)%
Mark-to-market on locks and commitments ⁽²⁾	105			(2		)	1			(1		)	106			(10,600	)%
Mark-to-market on derivative/hedges	5			10			1			11			(6		)	(55	)%
Capitalized servicing rights	287			41			156			197			90			46	%
Provision for repurchase reserves, net of release	(15		)	(1		)	(1		)	(2		)	(13		)	650	%
Total net gain on mortgage loans held for sale	687			76			270			346			341			99	%
Total revenues - Originations	$	744		$	86		$	306		$	392		$	352		90	%

Key Metrics
Consumer direct lock pull through adjusted volume ⁽³⁾	$	12,211		$	1,524		$	6,100		$	7,624		$	4,587		60	%
Other locked pull through adjusted volume ⁽³⁾	17,645			1,897			5,807			7,704			9,941			129	%
Total pull through adjusted volume	$	29,856		$	3,421		$	11,907		$	15,328		$	14,528		95	%
Funded volume	$	27,623		$	3,459		$	12,317		$	15,776		$	11,847		75	%
Volume of loans sold	$	27,474		$	3,454		$	12,915		$	16,369		$	11,105		68	%
Recapture percentage	24.8		%	22.8		%	23.8		%	23.6		%	1.2		%	5	%
Purchase as a percentage of funded volume	46.7		%	52.8		%	46.7		%	48.0		%	(1.3		)%	(3	)%
Value of capitalized servicing on retained settlements	149 bps			140 bps			141 bps			140 bps			9 bps			6	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.


⁽²⁾	Mark-to-market on locks and commitments includes our fair value mark-to-market adjustments on IRLCs.


⁽³⁾	Pull through adjusted volume represents the expected funding from locks taken during the period.

Total revenues increased for the nine months ended September 30, 2019 compared to the same period in 2018 , on a combined basis, driven by the higher volumes in a declining interest rate environment and the incremental volumes associated with the Pacific Union acquisition, which occurred in February 2019. Total revenue increased 90% or $352 period over period as pull through adjusted lock volume increased 95% during the same period.

104



Table 23. Originations - Expenses



	Successor				Predecessor
	Three Months Ended September 30, 2019		Two Months Ended September 30, 2018		One Month Ended July 31, 2018		Combined ⁽¹⁾		$ Change			% Change
Salaries, wages and benefits	$	104	$	39	$	21	$	60	$	44		73	%
General and administrative
Loan origination expenses	16		9		5		14		2			14	%
Corporate and other general and administrative expenses	16		7		3		10		6			60	%
Marketing and professional service fees	12		9		4		13		(1		)	(8	)%
Depreciation and amortization	4		2		1		3		1			33	%
Loss on impairment of assets	3		—		—		—		3			100	%
Total general and administrative	51		27		13		40		11			28	%
Total expenses - Originations	$	155	$	66	$	34	$	100	$	55		55	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Total expenses for the three months ended September 30, 2019 increased when compared to the same period in 2018 , on a combined basis, primarily due to growth in originations volumes, which was driven by the low interest rate environment and the incremental volumes associated with the Pacific Union acquisition. The originations volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs, and loan origination expenses, which is volume driven.



Table 23.1. Originations - Expenses



	Successor				Predecessor
	Nine Months Ended September 30, 2019		Two Months Ended September 30, 2018		Seven Months Ended July 31, 2018		Combined ⁽¹⁾		$ Change		% Change
Salaries, wages and benefits	$	261	$	39	$	148	$	187	$	74	40	%
General and administrative
Loan origination expenses	43		9		32		41		2		5	%
Corporate and other general and administrative expenses	43		7		26		33		10		30	%
Marketing and professional service fees	41		9		32		41		—		—	%
Depreciation and amortization	13		2		7		9		4		44	%
Loss on impairment of assets	3		—		—		—		3		100	%
Total general and administrative	143		27		97		124		19		15	%
Total expenses - Originations	$	404	$	66	$	245	$	311	$	93	30	%

105


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Total expenses for the nine months ended September 30, 2019 increased when compared to the same period in 2018 , on a combined basis, primarily due to growth in volumes, which was driven by the low interest rate environment and the incremental volumes associated with the Pacific Union acquisition. The volume growth contributed to the increase in salaries, wages and benefits, due to increased compensation and headcount related costs, and loan origination expenses, which is volume driven. In addition, loan origination expenses were relatively flat period over period as the costs attributable to higher volume were offset by expense reduction initiatives. Corporate expenses increased period over period primarily driven by the Pacific Union acquisition.



Table 24. Originations - Other Income (Expenses), Net



	Successor						Predecessor
	Three Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Interest income	$	24		$	10		$	6		$	16		$	8		50	%
Interest expense	(24		)	(10		)	(6		)	(16		)	(8		)	50	%
Other income	(1		)	1			—			1			(2		)	(200	)%
Total other income, net - Originations	$	(1	)	$	1		$	—		$	1		$	(2	)	(200	)%

Weighted average note rate - mortgage loans held for sale	4.1		%	4.8		%	4.8		%	4.8		%	(0.7		)%	(15	)%
Weighted average cost of funds (excluding facility fees)	3.8		%	4.5		%	4.2		%	4.4		%	(0.6		)%	(14	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

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

Interest income for the three months ended September 30, 2019 increased when compared to the same period in 2018 , on a combined basis, primarily driven by higher funded volume. The increase in interest income was offset by an increase in interest expense due to higher cost of funds from an increase in originations volume.

106



Table 24.1. Originations - Other Income (Expenses), Net



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Interest income	$	64		$	10		$	38		$	48		$	16		33	%
Interest expense	(67		)	(10		)	(37		)	(47		)	(20		)	43	%
Other income	4			1			—			1			3			300	%
Total other income, net - Originations	$	1		$	1		$	1		$	2		$	(1	)	(50	)%

Weighted average note rate - mortgage loans held for sale	4.4		%	4.8		%	4.5		%	4.6		%	(0.2		)%	(4	)%
Weighted average cost of funds (excluding facility fees)	4.3		%	4.5		%	4.2		%	4.3		%	—		%	—	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Interest income for the nine months ended September 30, 2019 increased when compared to the same period in 2018 , on a combined basis, primarily driven by higher funded volume. The increase in interest income was offset by an increase in interest expense due to higher cost of funds from an increase in originations volume. Other income increased in the nine months ended September 30, 2019 when compared to the same period in 2018 , on a combined basis, due to the recognition of incentives we received related to our financing of certain loans satisfying certain consumer relief characteristics. In September 2018, we entered into a master repurchase agreement that provided us with incentives to finance mortgage loans satisfying certain consumer relief characteristics as provided in the agreement. In the nine months ended September 30, 2019 , we recorded $4 in other income related to such incentives. The master purchase agreement expired during the third quarter of 2019.



Xome Segment

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

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


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


•	The Services division includes title, escrow, valuation and field services related to real estate investments or transactions including purchases, sales, refinances and defaults. Services includes the business of AMS, which we acquired in August 2018.

•

The Data/Technology division sells data or software solutions to real estate service providers, MLS organizations, data aggregators, real estate or mortgage investors and mortgage lenders or servicers. Data/Technology contains Affinity Solutions, which provides aggregation, standardization and licensing for MLS organizations, public records, and neighborhood demographic data, Quantarium, which provides artificial intelligence-powered valuation and other real estate data and analytics, and Xome Signings, which provides technology-enabled notary services.

107

The charts below set forth the Xome’s revenue portfolio, units of Exchange property listing sold, and units of Services completed orders.

108

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



Table 25. Xome Segment Results of Operations



	Successor						Predecessor
	Three Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Xome - Operations
Revenues	$	112		$	73		$	22		$	95		$	17		18	%
Expenses	101			71			19			90			11			12	%
Other income (expenses), net	3			(1		)	—			(1		)	4			400	%
Income before income tax expense	$	14		$	1		$	3		$	4		$	10		250	%
Income before taxes margin - Xome	12.5		%	1.4		%	13.6		%	4.2		%	8.3		%	198	%

Xome - Revenues
Exchange	$	19		$	15		$	9		$	24		$	(5	)	(21	)%
Services	87			54			11			65			22			34	%
Data/Technology	6			4			2			6			—			—	%
Total revenues - Xome	$	112		$	73		$	22		$	95		$	17		18	%

Key Metrics
Exchange property listings sold	2,453			1,730			928			2,658			(205		)	(8	)%
Average Exchange property listings	6,688			5,520			5,691			5,577			1,111			20	%
Services completed orders	429,128			276,937			35,599			312,536			116,592			37	%
Percentage of revenue earned from third-party customers	53.4		%	56.4		%	26.0		%	49.3		%	4.1		%	8	%

Xome - Expenses
Salaries, wages and benefits	$	37		$	29		$	9		$	38		$	(1	)	(3	)%
General and administrative
Operational expenses	60			40			9			49			11			22	%
Depreciation and amortization	4			2			1			3			1			33	%
Total general and administrative	64			42			10			52			12			23	%
Total expenses - Xome	$	101		$	71		$	19		$	90		$	11		12	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Income before income tax expense increased for the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to an increase in revenues. The increase in revenues was driven by an increase in Services revenues related to the AMS acquisition completed in August 2018, which contributed to higher volumes of units for valuation and field services. In addition, other income increased primarily due to the $4 change in fair value of the contingent consideration for the acquisition of AMS. Partially offsetting the increase in revenues and other income was an increase in expenses driven by operational expenses related to AMS, which was acquired in August 2018.

109

Exchange revenues for the three months ended September 30, 2019 decreased as compared to the same period in 2018 , on a combined basis, primarily due to the decrease in defaults and foreclosures nationwide. Despite the decline in total property listings sold, revenues from third-party customers for the three months ended September 30, 2019 increased significantly to 26% from 15% in 2018 for the Exchange division.

Services revenues increased for the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to the acquisition of AMS.

O perational expenses increased for the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily driven by the acquisition of AMS.

110



Table 25.1. Xome Segment Results of Operations



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Xome - Operations
Revenues	$	316		$	73		$	149		$	222		$	94		42	%
Expenses	301			71			123			194			107			55	%
Other income (expenses), net	14			(1		)	9			8			6			75	%
Income before income tax expense	$	29		$	1		$	35		$	36		$	(7	)	(19	)%
Income before taxes margin - Xome	9.2		%	1.4		%	23.5		%	16.2		%	(7.0		)%	(43	)%

Xome - Revenue
Exchange	$	59		$	15		$	62		$	77		$	(18	)	(23	)%
Services	240			54			74			128			112			88	%
Data/Technology	17			4			13			17			—			—	%
Total revenues - Xome	$	316		$	73		$	149		$	222		$	94		42	%

Key Metrics
Exchange property listings sold	7,519			1,730			6,920			8,650			(1,131		)	(13	)%
Average Exchange property listings	6,552			5,520			6,567			6,335			217			3	%
Services completed orders	1,226,223			276,937			264,031			540,968			685,255			127	%
Percentage of revenue earned from third-party customers	53.1		%	56.4		%	27.8		%	37.2		%	15.9		%	43	%

Xome - Expenses
Salaries, wages and benefits	$	111		$	29		$	58		$	87		$	24		28	%
General and administrative
Operational expenses	179			40			58			98			81			83	%
Depreciation and amortization	11			2			7			9			2			22	%
Total general and administrative	190			42			65			107			83			78	%
Total expenses - Xome	$	301		$	71		$	123		$	194		$	107		55	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Income before income tax expense decreased for the nine months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily driven by an increase in expenses, partially offset by an increase in revenues and other income (expenses), net. The increase in expenses is primarily related to AMS, which was acquired in August 2018. The increase in revenues is primarily due to the AMS acquisition, which added to higher volumes of units for valuation and field services. Other income (expenses), net increased primarily due to the $15 change in the contingent consideration for the acquisition of AMS for the nine months ended September 30, 2019 .

111

Exchange revenues for the nine months ended September 30, 2019 decreased as compared to the same period in 2018 , on a combined basis, primarily as a result of lower foreclosure sales and inventories across the industry and nation. Although total property listings sold declined in 2019, revenues from third-party customers for the nine months ended September 30, 2019 increased significantly to 24% from 15% in 2018 for the Exchange division.

Services revenues increased for the nine months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily as a result of the August 2018 acquisition of AMS.



Corporate/Other Segment

Our Corporate/Other segment records corporate expenses that are not directly attributable to our operating segments, interest expense on our unsecured senior notes, and income or loss from our legacy portfolio of non-prime and non-conforming residential mortgage loans that were transferred to a securitization trust (Trust 2009-A) in 2009. We collapsed Trust 2009-A and executed the sale of the loans held in the trust in September 2019.

112

The following tables set forth the results of operations for the Corporate/Other segment.



Table 26. Corporate/Other Segment Results of Operations



	Successor						Predecessor
	Three Months Ended September 30, 2019			Two Months Ended September 30, 2018			One Month Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Corporate/Other - Operations
Revenues	$	11		$	—		$	—		$	—		$	11		100	%
Expenses	53			34			63			97			(44		)	(45	)%
Other income (expenses), net	(52		)	(35		)	(11		)	(46		)	(6		)	13	%
Loss before income tax benefit	$	(94	)	$	(69	)	$	(74	)	$	(143	)	$	49		(34	)%

Corporate/Other - Expenses
Salaries, wages and benefits	$	24		$	19		$	14		$	33		$	(9	)	(27	)%
General and administrative
Operational expenses	20			8			49			57			(37		)	(65	)%
Depreciation and amortization	9			7			—			7			2			29	%
Total general and administrative	29			15			49			64			(35		)	(55	)%
Total expenses - Corporate/Other	$	53		$	34		$	63		$	97		$	(44	)	(45	)%

Corporate/Other - Other Income (Expenses), Net
Interest income, legacy portfolio	$	1		$	2		$	1		$	3		$	(2	)	(67	)%
Other interest income	1			—			—			—			1			100	%
Total interest income	2			2			1			3			(1		)	(33	)%

Interest expense, legacy portfolio	—			—			(1		)	(1		)	1			100	%
Interest expense on unsecured senior notes	(51		)	(36		)	(11		)	(47		)	(4		)	9	%
Other interest expense	(1		)	(1		)	—			(1		)	—			—	%
Total interest expense	(52		)	(37		)	(12		)	(49		)	(3		)	6	%
Other income (expense)	(2		)	—			—			—			(2		)	(100	)%
Other income (expenses), net - Corporate/Other	$	(52	)	$	(35	)	$	(11	)	$	(46	)	$	(6	)	13	%

Weighted average cost - unsecured senior notes	7.9		%	7.9		%	7.9		%	7.9		%	—		%	—	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Loss before income tax benefit decreased in the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to a decrease in expenses. Expenses were higher in 2018 , on a combined basis, primarily due to the Nationstar acquisition. Partially offsetting the decrease in expenses, was higher legal reserves recorded in 2019. In addition, revenues increased in the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, due to the gain recognized on the collapse of Trust 2009-A, our legacy portfolio, and sale of the loans held in the trust.

113

Other income (expenses), net for the Corporate/Other segment consists of interest expense on our unsecured senior notes, the interest income and expense from our legacy portfolio, and other interest related to a revolving facility used for general corporate purposes.

Total other income (expenses), net declined in the three months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to an increase in interest expense on unsecured senior notes, as a result of a higher debt balance and higher borrowing rates under the new unsecured senior notes that were executed in July 2018 to fund the Merger with Nationstar.

114



Table 26.1. Corporate/Other Segment Results of Operations



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Corporate/Other - Operations
Revenues	$	11		$	—		$	1		$	1		$	10		1,000	%
Expenses	155			34			103			137			18			13	%
Other income (expenses), net	(157		)	(35		)	(78		)	(113		)	(44		)	39	%
Loss before income tax benefit	$	(301	)	$	(69	)	$	(180	)	$	(249	)	$	(52	)	21	%

Corporate/Other - Expenses
Salaries, wages and benefits	$	70		$	19		$	45		$	64		$	6		9	%
General and administrative
Operational expenses	55			8			54			62			(7		)	(11	)%
Depreciation and amortization	30			7			4			11			19			173	%
Total general and administrative	85			15			58			73			12			16	%
Total expenses - Corporate/Other	$	155		$	34		$	103		$	137		$	18		13	%

Corporate/Other - Other Income (Expenses), Net
Interest income, legacy portfolio	$	6		$	2		$	7		$	9		$	(3	)	(33	)%
Other interest income	1			—			—			—			1			100	%
Total interest income	7			2			7			9			(2		)	(22	)%

Interest expense, legacy portfolio	(1		)	—			(3		)	(3		)	2			(67	)%
Interest expense on unsecured senior notes	(153		)	(36		)	(77		)	(113		)	(40		)	35	%
Other interest expense	(8		)	(1		)	(3		)	(4		)	(4		)	100	%
Total interest expense	(162		)	(37		)	(83		)	(120		)	(42		)	35	%
Other income (expense)	(2		)	—			(2		)	(2		)	—			—	%
Other income (expenses), net - Corporate/Other	$	(157	)	$	(35	)	$	(78	)	$	(113	)	$	(44	)	39	%

Weighted average cost - unsecured senior notes	7.9		%	7.9		%	7.4		%	7.5		%	0.4		%	5	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Loss before income tax benefit increased for the nine months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to a decline in other income (expense), net. Total other income (expenses), net declined primarily due to an increase in interest expense on unsecured senior notes, as a result of a higher debt balance and higher borrowing rates under the new unsecured senior notes that were executed in July 2018 to fund the Merger with Nationstar.

115

In addition, expenses increased during the nine months ended September 30, 2019 as compared to the same period in 2018 , on a combined basis, primarily due to increased expenses related to the Pacific Union and Seterus acquisitions and amortization of intangible assets related to the Merger with Nationstar.

Partially offsetting the decline in other income (expense), net and increase in expenses was an increase in revenues related to the gain recognized on the collapse of Trust 2009-A, our legacy portfolio, and sale of the loans held in the trust.



Table 27. Legacy Portfolio Composition



	Successor
	December 31, 2018
Performing - UPB	$	145
Nonperforming (90+ delinquency) - UPB	27
REO - estimated fair value	4
Total legacy portfolio	$	176



Changes in Financial Position



Table 28. Changes in Assets



	Successor
	September 30, 2019		December 31, 2018		$ Change			% Change
Cash and cash equivalents	$	371	$	242	$	129		53	%
Mortgage servicing rights	3,346		3,676		(330		)	(9	)%
Advances and other receivables, net	967		1,194		(227		)	(19	)%
Reverse mortgage interests, net	6,662		7,934		(1,272		)	(16	)%
Mortgage loans held for sale at fair value	4,267		1,631		2,636			162	%
Deferred tax asset, net	1,032		967		65			7	%
Other	1,833		1,329		504			38	%
Total assets	$	18,478	$	16,973	$	1,505		9	%

Total assets as of September 30, 2019 increased by $1,505 or 9% compared with December 31, 2018 primarily due to the increase in mortgage loans held for sale and other, partially offset by decreases in reverse mortgage interests, mortgage servicing rights, and advances and other receivables. Mortgage loans held for sale increased in 2019 primarily attributable to the higher volumes in a declining interest rate environment and the incremental volumes associated with the Pacific Union acquisition,which occurred in February 2019. Other increased primarily due to $483 of other assets related to the Pacific Union acquisition, as indicated in Note 2, Acquisitions , and $126 of right of use assets recorded in 2019 as a result of adoption of ASU 2016-02. Reverse mortgage interests, net decreased $1,272 primarily due to the collection on participating interests in HMBS. Mortgage servicing rights decreased in 2019 primarily due to a negative mark-to-market adjustment driven by declining interest rates. Advances and other receivables decreased primarily due to recoveries on advances.

116



Table 29. Changes in Liabilities and Stockholder’s Equity



	Successor
	September 30, 2019		December 31, 2018		$ Change			% Change
Unsecured senior notes, net	$	2,464	$	2,459	$	5		—	%
Advance facilities, net	513		595		(82		)	(14	)%
Warehouse facilities, net	4,802		2,349		2,453			104	%
MSR related liabilities - nonrecourse at fair value	1,328		1,216		112			9	%
Other nonrecourse debt, net	5,533		6,795		(1,262		)	(19	)%
Other liabilities	2,071		1,614		457			28	%
Total liabilities	16,711		15,028		1,683			11	%
Total stockholders’ equity	1,767		1,945		(178		)	(9	)%
Total liabilities and stockholders’ equity	$	18,478	$	16,973	$	1,505		9	%

Total stockholders’ equity at September 30, 2019 decreased by $178 or 9% compared with the balance as of December 31, 2018 primarily due to net loss of $191 during the nine months ended September 30, 2019 . Total liabilities at September 30, 2019 increased by $1,683 or 11% compared with the balance as of December 31, 2018 primarily due to an increase in warehouse facilities, MSR related liabilities and other liabilities, which was partially offset by a decrease in other nonrecourse debt. Warehouse facilities increased by $2,453 primarily due to the warehouse facilities acquired as part of the Pacific Union acquisition and higher origination volumes. MSR related liabilities increased by $112 primarily due to increase in excess spread financing related to new excess spread financing deals. The increase in other liabilities was primarily due to $530 of payables and other liabilities related to the Pacific Union acquisition. Other nonrecourse debt decreased by $1,262 primarily due to repayments of reverse mortgage related nonrecourse debt, which was partially offset by proceeds from issuance of HECM securitizations.



Liquidity and Capital Resources

We measure liquidity by unrestricted cash and availability of borrowings on our MSR facilities. We recorded cash and cash equivalents on hand of $371 and total stockholders’ equity of $1,767 as of September 30, 2019 . As of September 30, 2019 , we had $1,237 collateral pledged against the MSR facilities, of which we could borrow up to $840 . During the nine months ended September 30, 2019 , operating activities used cash totaling $28 .

Our operating cash flow is primarily impacted by the receipt of servicing fees, changes in our servicing advance balances, the level of new loan production, the timing of sales and securitizations of forward and reverse mortgage loans, and revenues from our Xome segment.

We have sufficient borrowing capacity to support our operations. As of September 30, 2019 , total available borrowing capacity is $9,530 , of which $4,214 is unused.

Sources and Uses of Cash

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

Our primary uses of funds for liquidity include: (i) funding of servicing advances; (ii) originations of loans; (iii) payment of interest expenses; (iv) payment of operating expenses; (v) repayment of borrowings and repurchases or redemptions of outstanding indebtedness; (vi) payments for acquisitions of MSRs; (vii) scheduled and unscheduled draws on our serviced reverse residential mortgage loans; and (viii) payment of our technology expenses.

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Our business is subject to extensive regulation, investigations and reviews by various federal, state and local regulatory and enforcement agencies. We are also subject to various legal proceedings in the ordinary course of our business. Addressing these regulations, reviews and legal proceedings and implementing any resulting remedial measures may require us to devote substantial resources to legal and regulatory compliance or to make other changes to our business practices, resulting in higher costs which may adversely affect our cash flows.

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.

We service reverse mortgage loan portfolios with a UPB of $23,990 as of September 30, 2019 , which includes $2,761 of reverse MSR, $14,641 of reverse MSLs and $6,588 of reverse mortgage interests. Reverse mortgages provide seniors with the ability to monetize the equity in their homes in a lump sum, line of credit or monthly draws. The unpaid principal balance of the loan is accreted for borrower draws and other costs such as mortgage insurance premiums, property taxes and insurance, as wells as applicable servicing fees earned and the interest applicable to the underlying principal. Recovery of advances and draws related to reverse MSLs is generally recovered over a two to three month period from the investor. However, for reverse assets recorded as a loan, the repayment of loan balances and collection of servicing fees occurs upon the payoff or other liquidation of the loan. We securitize our holdings in reverse mortgage loans in order to finance subsequent borrower draws and loan related costs.

Cash Flows

The table below presents the major sources and uses of cash flow for operating activities.



Table 30. Operating Cash Flow



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Net (loss) income attributable to Successor/Predecessor	$	(189	)	$	1,020		$	154		$	1,174		$	(1,363	)	(116	)%
Fair value changes in MSRs, MSR related liabilities and mortgage loans held for investment	820			(1		)	(80		)	(81		)	901			(1,112	)%
Deferred tax benefit	(53		)	(931		)	—			(931		)	878			(94	)%
Other non-cash adjustments to net loss	(930		)	(121		)	(388		)	(509		)	(421		)	83	%
Originations net sales activities	(1,580		)	(135		)	520			385			(1,965		)	(510	)%
Changes in working capital	1,904			344			2,088			2,432			(528		)	(22	)%
Net cash attributable to operating activities	$	(28	)	$	176		$	2,294		$	2,470		$	(2,498	)	(101	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Our operating activities used cash of $28 during the nine months ended September 30, 2019 compared to $2,470 cash generated in the same period in 2018 , on a combined basis. This is primarily due to the cash used in originations net sales activities and net loss reported in 2019.

Cash used in originations net sales activities was $1,580 during the nine months ended September 30, 2019 compared to $385 cash generated in the same period in 2018 , on a combined basis. The change was primarily due to a higher funding of $11,887 for loan origination activities driven by the declining interest rate environment and an increase in funds used of $1,056 to repurchase forward loan assets out of Ginnie Mae securitizations. The increase in funding was partially offset by an increase in proceeds of $10,978 on the sales of previously originated loans and the sale of loans related to the collapse of Trust 2009-A, our legacy portfolio.

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Cash generated from fair value changes in MSRs, MSR related liabilities and mortgage loans held for investment during the nine months ended September 30, 2019 increased by $901 when compared to the same period in 2018 , on a combined basis. The change was primarily due to an increase in fair value changes and amortization/accretion of mortgage servicing rights/liabilities of $1,202 , primarily due to the negative mark-to-market adjustment for the nine months ended September 30, 2019 .

Cash used from the deferred tax benefit during the nine months ended September 30, 2019 decreased by $878 when compared to the same period in 2018 , on a combined basis, primarily due to the reversal of the valuation allowance associated with the NOL carryforwards of WMIH in the two months ended September 30, 2018 .



Table 31. Investing Cash Flows



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
Acquisitions, net	$	(85	)	$	(33	)	$	—		$	(33	)	$	(52	)	158	%
Purchase of forward mortgage servicing rights, net of liabilities incurred	(454		)	(63		)	(134		)	(197		)	(257		)	130	%
Proceeds on sale of assets	—			—			13			13			(13		)	(100	)%
Proceeds on sale of forward and reverse mortgage servicing rights	298			60			—			60			238			397	%
Other	(38		)	(14		)	(41		)	(55		)	17			(31	)%
Net cash attributable to investing activities	$	(279	)	$	(50	)	$	(162	)	$	(212	)	$	(67	)	32	%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Our investing activities used $279 during the nine months ended September 30, 2019 , which increased from $212 of cash used in the same period in 2018, on a combined basis. The change in investing activities was primarily due to an increase of $257 in the purchase of forward mortgage servicing rights, net of liabilities incurred, and net cash of $85 used in connection with the acquisitions of Pacific Union and Seterus. Partially offsetting these uses of cash was an increase in proceeds on sale of forward mortgage servicing rights of $238 . Although we continue to seek to acquire servicing portfolios at advantageous pricing, the amounts and timing of these opportunities is not of a consistent frequency and can result in cash flow variability between periods.

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Table 32. Financing Cash Flow



	Successor						Predecessor
	Nine Months Ended September 30, 2019			Two Months Ended September 30, 2018			Seven Months Ended July 31, 2018			Combined ⁽¹⁾			$ Change			% Change
(Decrease) increase in advance facilities	$	(95	)	$	46		$	(305	)	$	(259	)	$	164		(63	)%
Increase (decrease) in warehouse facilities	1,930			186			(585		)	(399		)	2,329			(584	)%
Repayment of notes payable	(294		)	—			—			—			(294		)	100	%
Payment of unsecured senior notes and nonrecourse debt	(37		)	(1,034		)	(93		)	(1,127		)	1,090			(97	)%
Issuance of excess spread financing	469			84			70			154			315			205	%
Repayment of excess spread financing	(19		)	(21		)	(3		)	(24		)	5			(21	)%
Settlements of excess spread financing	(163		)	(31		)	(105		)	(136		)	(27		)	20	%
Decrease in participating interest financing in reverse mortgage interests	(1,252		)	(358		)	(1,391		)	(1,749		)	497			(28	)%
Changes in HECM securitizations	(170		)	(91		)	311			220			(390		)	(177	)%
Other	19			(182		)	(10		)	(192		)	211			(110	)%
Net cash attributable to financing activities	$	388		$	(1,219	)	$	(2,111	)	$	(3,330	)	$	3,900		(117	)%


⁽¹⁾	Refer to Basis of Presentation section for discussion on presentation of combined results.

Our financing activities generated $388 cash during the nine months ended September 30, 2019 , whereas the financing activities used cash of $3,330 in the same period in 2018, on a combined basis. The change in cash flows from financing activities was primarily due to an increase of $1,930 in warehouse facilities during the nine months ended September 30, 2019 compared to a pay down on warehouse facilities of $399 during the same period in 2018, on a combined basis. Payment of warehouse facilities was higher in 2018 due to proceeds from HECM securitizations being used to pay down the facilities, which did not occur in the same period in 2019. In addition, the cash used for the pay down of advance facilities during the nine months ended September 30, 2019 decreased by $164 when compared to the same period in 2018, on a combined basis. The issuance of excess spread financing increased by $315 due to new excess spread financing deals. Offsetting these decreases in cash used is an increase in cash used for repayment of notes payable and HECM securitizations when compared to the same period in 2018, on a combined basis. During the nine months ended September 30, 2019 , cash of $294 was used to pay off the notes payable assumed from the Pacific Union acquisition. The cash used in the change in HECM securitizations during the nine months ended September 30, 2019 increased due to scheduled pay downs and amounts incurred to settle the collapsed trusts exceeding proceeds from the securitization, resulting in a net cash outflow of $170 . In addition, during the nine months ended September 30, 2018 , on a combined basis, proceeds from securitizations exceeded scheduled pay downs and amounts incurred to settle the collapsed trusts, resulting in a net cash inflow of $220 .

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.

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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, which are measured at our operating subsidiary, Nationstar Mortgage LLC. We were in compliance with its required financial covenants as of September 30, 2019 . The most restrictive tangible net worth covenant required us to maintain a minimum tangible net worth of at least $682 .

Seller/Servicer Financial Requirements

Seller/Servicer financial requirements for our operating subsidiary, Nationstar Mortgage LLC, as defined by the Federal Housing Finance Agency minimum financial requirements for Fannie Mae and Freddie Mac Seller/Servicers are set forth below.

Minimum Net Worth


▪	Base of $2.5 plus 25 basis points of UPB for total loans serviced.


▪	Tangible Net Worth comprises total equity less goodwill, intangible assets, affiliate receivables and certain pledged assets.

Minimum Capital Ratio


▪	Tangible Net Worth/Total Assets greater than 6%.

Minimum Liquidity


▪	3.5 basis points of total Agency servicing (Fannie Mae, Freddie Mac, Ginnie Mae) plus,


▪	Incremental 200 basis points of total nonperforming Agency, measured as 90+ delinquencies, servicing in excess of 6% of the total Agency servicing UPB,


▪	Allowable assets for liquidity may include: cash and cash equivalents (unrestricted), available for sale or held for trading investment grade securities (e.g., Agency MBS, Obligations of GSEs, US Treasury Obligations); and unused/available portion of committed servicing advance lines.

Effective September 1, 2019, Ginnie Mae amended its MBS Guide to prescribe that issuers with secured debt to gross tangible asset ratios greater than 60%, as described in the MBS Guide, may, at Ginnie Mae’s sole discretion, be subject to additional financial and operational requirements prior to receiving approval for various transactions within the MBS Program, including, but not limited to, requests for commitment authority and approval of Transfers of Issuer Responsibility. We were in compliance with this requirement as of September 30, 2019. In addition, issuers with a Ginnie Mae single-family servicing portfolio that exceeds $75 billion in UPB will be required to obtain an external primary servicer rating and issuer credit ratings from two different rating agencies and receive a minimum rating of a B or its equivalent. Effective for fiscal year 2020, 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. However, the issuers will no longer be permitted to include deferred tax assets when computing the minimum net worth requirement.

In addition, Fannie Mae or Freddie Mac may require capital ratios in excess of stated requirements. Refer to Financial Covenants in Note 10, Indebtedness , and Note 17, Capital Requirements , for additional information. As of September 30, 2019 , we were in compliance with our seller/servicer financial requirements.



Table 33. Debt



	Successor
	September 30, 2019		December 31, 2018
Advance facilities, net	$	513	$	595
Warehouse facilities, net	4,802		2,349
Unsecured senior notes, net	2,464		2,459

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 along with our stop advance policies. 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. Pursuant to the terms of our agreements, New Residential has the obligation to fund future advances on the private-label securitized loans subject to the agreements.

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Warehouse Facilities

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

As a servicer for reverse mortgage loans, among other things, we are required to fund borrower draws on the loans. We typically pool borrower draws for approximately 30 days before including them in a HMBS securitization. At September 30, 2019 , unsecuritized borrower draws totaled $265 , and our maximum unfunded advance obligation related to these reverse mortgage loans was $2,741 .

Unsecured Senior Notes

In 2013 and 2018, we completed offerings of unsecured senior notes, which mature on various dated through July 2026. We pay interest semi-annually to the holders of these notes at interest rates ranging from 6.500% to 9.125% .



Table 34. Contractual Maturities - Unsecured Senior Notes



Year Ending December 31,	Amount
2019	$	—
2020	—
2021 ⁽¹⁾	592
2022	206
2023	950
Thereafter	750
Unsecured senior notes principal amount	2,498
Unamortized debt issuance costs, premium and discount	(34		)
Unsecured senior notes, net	$	2,464


⁽¹⁾	This note does not include the subsequent pay down of $100 in principal balance in October 2019.

Contractual Obligations

As of September 30, 2019 , 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, 2018 .

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Critical Accounting Policies

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified the following policies that, due to the judgment, estimates and assumptions inherent in those policies, are critical to an understanding of our consolidated financial statements. These policies relate to fair value measurements, particularly those determined to be Level 3 as discussed in Note 16, Fair Value Measurements , and valuation and reserves for deferred tax assets. We believe that the judgment, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of these critical accounting policies on our consolidated financial statements, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. Fair value measurements considered to be Level 3 representing estimated values based on significant unobservable inputs include (i) the valuation of MSRs, (ii) the valuation of excess spread financing and (iii) the valuation of the mortgage servicing rights financing liability. For further information on our critical accounting policies, please refer to the Company’s and Predecessor’s Annual Reports on Form 10-K for the year ended December 31, 2018 . There have been no material changes to our critical accounting policies since December 31, 2018 .

Recent Accounting Developments

See Note 1, Nature of Business and Basis of Presentation , in the consolidated financial statements which is incorporated herein for details of recently issued accounting pronouncements and the expected impact on our consolidated financial statements.

Impact of Inflation and Changing Prices

Our consolidated financial statements and notes thereto presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Further, interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Variable Interest Entities and Off-Balance Sheet Arrangements

See Note 12, Securitizations and Financings , in the consolidated financial statements in Item 1, Financial Statements, which is incorporated herein for a summary of our transactions with VIEs and unconsolidated balances details of their impact on our consolidated financial statements.

Derivatives

See Note 9, Derivative Financial Instruments , in the consolidated financial statements in Item 1, Financial Statements, which is incorporated herein for a summary of our derivative transactions.

Income Taxes

See Note 15, Income Taxes , in the consolidated financial statements in Item 1, Financial Statements, which is incorporated herein for a summary of our income tax considerations.

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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 and Government 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.

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.

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.

Direct-to-consumer Originations. 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.

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 Originations. A type of mortgage loan origination pursuant to which a company purchases closed mortgage loans from correspondent lenders, such as community banks, credit unions, mortgage brokers and independent mortgage bankers.

Credit-Sensitive Loan. A mortgage loan with certain characteristics such as low borrower credit quality, relaxed original underwriting standards and high LTV, which we believe indicates that the mortgage loan presents an elevated risk of borrower default versus payoff.

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

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

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 Congress in 1938 to support liquidity, stability, and affordability in the secondary mortgage market, where existing mortgage-related assets are purchased and sold. Fannie Mae buys mortgage loans from lenders and resells them as mortgage-backed securities in the secondary mortgage market.

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

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

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

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

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 Affordable Modification Program (HAMP). A U.S. federal government program designed to help eligible homeowners avoid foreclosure through mortgage loan modifications. Participating servicers may be entitled to receive financial incentives in connection with loan modifications they enter into with eligible borrowers and subsequent success fees to the extent that a borrower remains current in any agreed upon loan modification.

Home Affordable Refinance Program (HARP). A U.S. federal government program designed to help eligible homeowners refinance their existing mortgage loans. The mortgage must be owned or guaranteed by a GSE, originated during a defined time period, and applicants must be up-to-date on their mortgage payments but unable to obtain refinancing because the value of their homes has declined.

Home Equity Conversion Mortgage (HECM). A type of reverse mortgage loan insured by the FHA.

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

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

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

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

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 (MSR). 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 type of 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.

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

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

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

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

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

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

Refinancing. The process of working with existing borrowers to re-originate 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. A reverse mortgage, 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.

126

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 makes servicing advances, which are subsequently reimbursed by the primary servicer. The 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.

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 counterparty, 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.

127

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, 2018 . There have been no material changes in the types of market risks faced by us since December 31, 2018 .

Sensitivity Analysis

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

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

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

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

We used September 30, 2019 market rates on our instruments to perform the sensitivity analysis. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in fair value may not be linear.

The following table summarizes the estimated change in the fair value of our assets and liabilities sensitive to interest rates as of September 30, 2019 given hypothetical instantaneous parallel shifts in the yield curve. Results could differ materially.



Table 35. Change in Fair Value



	September 30, 2019
	Down 25 bps			Up 25 bps
Increase (decrease) in assets
Mortgage servicing rights at fair value	$	(242	)	$	245
Mortgage loans held for sale at fair value	14			(17		)
Derivative financial instruments:
Interest rate lock commitments	21			(28		)
Forward MBS trades	(14		)	17
Total change in assets	(221		)	217
Increase (decrease) in liabilities
Mortgage servicing rights liabilities at fair value	(5		)	5
Excess spread financing at fair value	(49		)	51
Derivative financial instruments:
Interest rate lock commitments	(4		)	5
Forward MBS trades	21			(27		)
Total change in liabilities	(37		)	34
Total, net change	$	(184	)	$	183

128

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, 2019 .

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019 , 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, 2019 , 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.

129

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

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

For example, we continue to progress towards resolution of certain legacy regulatory matters involving examination findings in prior years for alleged violations of certain laws related to our business practices. We have been in discussions with the multi-state committee of mortgage banking regulators and various State Attorneys General concerning a potential resolution of their investigations. We are continuing to cooperate with all parties. In connection with these discussions, we previously recorded an accrual. These discussions may not result in a settlement of the matter; furthermore, any such settlement may exceed the amount accrued as of September 30, 2019 . Moreover, if the discussions do not result in a settlement, the regulators and State Attorneys General may seek to exercise their enforcement authority through litigation or other proceedings and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on our business, reputation, financial condition and results of operations.

Further, on April 24, 2018, the CFPB notified us that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (NORA) process, the CFPB’s Office of Enforcement is considering whether to recommend that the CFPB take enforcement action against us, alleging violations of the Real Estate Settlement Procedures Act, the Consumer Financial Protection Act, and the Homeowners Protection Act, which stems from a 2014 examination. The purpose of a NORA letter is to provide a party being investigated an opportunity to present its position to the CFPB before an enforcement action may be recommended or commenced. The CFPB may seek to exercise its enforcement authority through settlement, administrative proceedings or litigation and seek injunctive relief, damages, restitution and civil monetary penalties, which could have a material adverse effect on our business, reputation, financial condition and results of operations. We have not recorded an accrual related to this matter as of September 30, 2019 as we do not believe that the possible loss or range of loss arising from any such action is estimable. We are continuing to cooperate with the CFPB.

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

130

We are a defendant in a proceeding filed on January 2, 2018 in the U.S. District Court for the Northern District of California under the caption Collateral Analytics LLC v. Nationstar Mortgage LLC et al. The plaintiff alleges that we and certain affiliated entities misappropriated plaintiff’s intellectual property for the purpose of replicating plaintiff’s products. The case raises federal and state law claims for misappropriation of trade secrets and breach of contract and seeks an award of actual damages, unjust enrichment, lost profits and/or a reasonable royalty, exemplary damages and injunctive relief preventing further misuse or disclosure of plaintiff’s intellectual property. On October 23, 2019, we reached an agreement in principle to settle this matter.

We are also a defendant in a proceeding filed on October 23, 2015 in the U.S. District Court for the Central District of California under the caption Alfred Zaklit and Jessy Zaklit, individually and on behalf of all others similarly situated v. Nationstar Mortgage LLC et al. The plaintiff alleges that we improperly recorded telephone calls without the knowledge or consent of borrowers in violation of the California Penal Code. On July 24, 2017, the court certified a class comprised of California borrowers who, from October 2014 to May 2016, participated in outbound telephone conversations with our employees who recorded the conversations without first informing the borrowers that the conversations were being recorded. The class seeks statutory damages and attorney’s fees. On September 10, 2018, we reached an agreement in principle to settle this matter and on August 21, 2019, the court approved the settlement agreement.

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

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, 2018 .

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

We did not make any repurchases of our shares during the three months ended September 30, 2019 .

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

131

Item 6. Exhibits



		Incorporated by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed or Furnished Herewith

4.1	Form of Stock Certificate					X
31.1	Certification by Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification by Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

** Management contract, compensatory plan or arrangement.

132

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.

November 1, 2019		/s/ Jay Bray
Date		Jay Bray Chief Executive Officer (Principal Executive Officer)

November 1, 2019		/s/ Christopher G. Marshall
Date		Christopher G. Marshall Vice Chairman & Chief Financial Officer (Principal Financial and Accounting Officer)

133

TABLE OF CONTENTS

Part I. Financial Informationprint Item 1. Financial Statementsprint Note 7, Leasesprint Note 2, Acquisitionsprint Note 10, Indebtednessprint Note 9, Derivative Financial Instrumentsprint Note 5, Reverse Mortgage Interests, Netprint Note 6, Mortgage Loans Held For Sale and Investmentprint Note 8, Other Assetsprint Note 3, Mortgage Servicing Rights and Related Liabilitiesprint Note 4, Advances and Other Receivables, Netprint Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operationsprint Note 17, Capital Requirementsprint Note 16, Fair Value Measurementsprint Note 1, Nature Of Business and Basis Of Presentationprint Note 12, Securitizations and Financingsprint Note 15, Income Taxesprint Item 3. Quantitative and Qualitative Disclosures About Market Riskprint Item 4. Controls and Proceduresprint Part II Other Informationprint Item 1. Legal Proceedingsprint Item 1A. Risk Factorsprint Item 2. Unregistered Sales Of Equity Securities and Use Of Proceedsprint Item 3. Defaults Upon Senior Securitiesprint Item 4. Mine Safety Disclosuresprint Item 5. Other Informationprint Item 6. Exhibitsprint

Exhibits

4.1 Form of Stock Certificate 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

DIRECTORS	AGE	BIO	OTHER DIRECTOR MEMBERSHIPS
Terry J Lundgren	72	Mr. Lundgren has extensive Marketing experience, including merchandising, digital and in-store execution, as well as Leadership, Strategy, and Risk Management experience, which he garnered from over 35 years working in the retail Consumer Industry, including 20 combined years as CEO of Neiman Marcus and subsequently Federated Department Stores, which was later named Macy’s, Inc. This experience enables him to contribute his deep knowledge of the evolving consumer and Retail landscape, along with his broad experience with dynamic marketing practices, including digital marketing, to the Board. In addition, during his tenure at Macy’s Inc., Mr. Lundgren managed the company’s sustainability committee, which focused on early adoption of solar energy and strategies for carbon-footprint reduction through transportation efficiency. He also oversaw the creation and development of “The Workshop,” a program that helped launch numerous diverse-, women-, LGBTQ- and veteran-owned small businesses and has served as an important aspect of Macy’s strategic plan for supplier diversity for more than a decade. Further, as long-standing Chair of the Company’s Compensation & Leadership Development Committee and through his service on multiple public-company boards during his career, Mr. Lundgren also brings valued Corporate Governance experience, particularly as it relates to policies and practices for executive compensation.
Sheila Bonini	60	Ms. Bonini is Senior Vice President of Private Sector Engagement for World Wildlife Fund (nonprofit conservation organization), a role she has held since 2016. Previously, she served as Chief Executive Officer of The Sustainability Consortium, a global nonprofit organization focused on making consumer products more sustainable, from 2014 to 2016. Prior to this role, Ms. Bonini spent more than fifteen years with McKinsey & Company (consulting) in roles in the United States, Europe, and South America, including serving as a Senior Expert Consultant in the firm’s Sustainability and Resource Productivity Practice, as co-leader of its Sustainability Transformation Service, and as a Senior Expert Consultant in its Strategy Practice focusing on Regulatory and Business in Society. Ms. Bonini holds a degree in Applied Mathematics from Harvard University and an MBA from Stanford University Graduate School of Business and began her career working in investment banking with Goldman Sachs Group and Merrill Lynch. She currently serves on the boards of The Sustainability Consortium and the High Meadows Institute, a policy institute focused on the role of business leadership in creating a sustainable society.
Robert J Portman	68	Mr. Portman is a former United States Senator, having represented the State of Ohio from 2011 until his retirement in 2023. He previously served in cabinet-level positions in the executive branch, first as U.S. Trade Representative from 2005 to 2006 and then as Director of the Office of Management and Budget (“OMB”) from 2006 to 2007. From 1993 to 2005, he served as a Congressman in the U.S. House of Representatives. Mr. Portman, who holds a Juris Doctor from the University of Michigan School of Law, began his career in private legal practice and later worked as Associate Counsel and then Director of Legislative Affairs under President George H. W. Bush from 1989 to 1991. He currently serves as a Distinguished Visiting Fellow in the Practice of Public Policy at the American Enterprise Institute and is the founder of the Portman Center for Policy Solutions within the University of Cincinnati’s School of Public and International Affairs, which focuses on fostering civility and bipartisanship among future public service leaders.
Rajesh Subramaniam	58	Mr. Subramaniam is President and Chief Executive Officer at FedEx Corporation (transportation and business services), a position he has held since June 2022. He previously served as President and Chief Operating Officer of FedEx from March 2019 to May 2022, as President and Chief Executive Officer of Federal Express Corporation (“FedEx Express”) from January 2019 to March 2019, and as Executive Vice President – Chief Marketing & Communications Officer of FedEx from January 2017 to December 2018. Prior to these roles, Mr. Subramaniam held various leadership positions in operations and marketing across the FedEx portfolio of operating companies, including as a Senior Vice President and Vice President in the company’s Canada and Asia Pacific businesses. Originally from India, he holds master’s degrees in chemical engineering and business administration and began his career with FedEx in 1991. He also serves as a board member with the U.S.-India Strategic Partnership Forum, as a member of the U.S.-India CEO Forum, and as Vice Chair of the U.S.-China Business Council. Mr. Subramaniam was appointed to the President’s Export Council, the principal national advisory committee on international trade, in 2023.	FEDEX CORP
Patricia A Woertz	71	Ms. Woertz is the former Chairman of the Board and Chief Executive Officer of Archer Daniels Midland Company (“ADM”) (agricultural origination and processing), where she joined in 2006 as Chief Executive Officer and President and was named Chairman in 2007. Ms. Woertz retired as Chief Executive Officer of ADM in 2015 and as Chairman in 2016. Prior to joining ADM, Ms. Woertz was with Chevron Corp. for 29 years, serving in several executive roles, including President, Chevron International and Executive Vice President, Global Downstream. She began her career as a certified public accountant with Ernst & Ernst. Ms. Woertz is currently a senior advisor to Tanium, a cybersecurity and network operations company, and is a member of the Board of Directors of Northwestern Memorial HealthCare. She previously served as a member of the President’s Export Council, the principal national advisory committee on international trade.
Jon R Moeller	60	Jon R. Moeller Chairman of the Board, President and Chief Executive Officer
Christopher Kempczinski	55	Mr. Kempczinski’s considerable experience in Consumer Industry/Retail, as a leader in both the consumer packaged food and the dynamic quick-service restaurant industries, enable him to bring relevant and actionable insights, including valuable Marketing and brand building perspective, to the Board. As Chairman and CEO of McDonald’s, which has significant Global operations, Mr. Kempczinski brings meaningful insight into the operating, regulatory, and cultural complexities associated with the Company’s global footprint and extensive experience in Corporate Governance. He has further demonstrated his skills and expertise in Technology and Innovation in his leadership of global strategy and innovation at McDonald’s, where business transactions increasingly occur through digital channels, and has played a key role in accelerating growth through innovation at the company by prioritizing these areas within its strategy. Further, Mr. Kempczinski’s recognized Leadership, Strategy, and Risk Management abilities have allowed him to guide McDonald’s through the dynamic challenges and opportunities posed by current global operating conditions, including with respect to key Environmental Sustainability strategies, which have been highly valuable to the Board as it oversees the Company’s long-term growth and operating strategy.
Brett Biggs	56	Mr. Biggs is the former Executive Vice President and Chief Financial Officer of Walmart, Inc. (global retailer), a role he held from 2016 until June 2022, when he assumed the position of Executive Advisor until his retirement in January 2023. Prior to his time as CFO of Walmart, Inc., Mr. Biggs served as Chief Financial Officer of Walmart International from 2014 to 2016 and of Walmart U.S. from 2012 to 2014. He also served as Senior Vice President Operations for Sam’s Club from 2010 to 2012. During his more than 20-year career with Walmart, Mr. Biggs held several other leadership roles, including Chief Financial Officer of Sam’s Club, Senior Vice President-Corporate Finance and Assistant Treasurer, and Senior Vice President-International Strategy and Mergers and Acquisitions. Prior to joining Walmart in 2000, Mr. Biggs worked in roles related to corporate finance and mergers and acquisitions with Leggett & Platt (manufacturing), Phillips Petroleum Co., and Price Waterhouse. He also currently serves as Senior Advisor at Blackstone (asset management). In addition to his private sector work, Mr. Biggs previously served on the American Red Cross Board of Governors, on the Board of Regents at Pepperdine University, and on the Board of Trustees of the National Urban League.
Ashley McEvoy	53	Ms. McEvoy is the former Executive Vice President, Worldwide Chairman of MedTech at Johnson & Johnson (healthcare), a position she held from 2018 to 2023. In this role, Ms. McEvoy had responsibility for the company’s surgery, orthopaedics, interventional solutions, and eye health businesses. She previously served as Company Group Chairman, Consumer Medical Devices from 2014 to 2018 and as Company Group Chairman, Vision Care from 2012 to 2014. Ms. McEvoy also led J&J’s global suture products business as Worldwide President, Ethicon Products from 2009 to 2011, served as President, McNeil Consumer Healthcare from 2006 to 2009, and served as Vice President, Marketing and General Manager, McNeil Labs from 2003 to 2006. She joined J&J in 1996 as an Assistant Brand Manager, having previously worked in advertising at both Grey Advertising and J. Walter Thompson (now Wunderman Thompson). In addition to her professional work, Ms. McEvoy previously served on the Board of Trustees of the Children’s Hospital of Philadelphia.

Supplier name	Ticker
Wells Fargo & Company	WFC
U.S. Bancorp	USB
Citigroup Inc.	C
Bank of America Corporation	BAC
JPMorgan Chase & Co.	JPM
The Bank of New York Mellon Corporation	BK
The Charles Schwab Corporation	SCHW

Owner	Position	Direct Shares	Indirect Shares
Moeller Jon R	-	269,967	22,217
Moeller Jon R	-	263,537	35,422
Pritchard Marc S.	-	172,814	602
Davis Jennifer L.	-	51,965	14,838
Schulten Andre	-	37,208	6,183
Coombe Gary A	-	36,738	1,295
Schulten Andre	-	36,460	5,647
Raman Sundar G.	-	29,915	7,688
Aguilar Moses Victor Javier	-	25,182	429
Keith R. Alexandra	-	24,589	7,410
Coombe Gary A	-	22,051	1,295
Raman Sundar G.	-	19,037	7,063
Keith R. Alexandra	-	13,783	3,488
Purushothaman Balaji	-	13,101	3,928
Aguilar Moses Victor Javier	-	12,800	429
Whaley Susan Street	-	11,742	5,329
Purushothaman Balaji	-	11,595	4,538
Jejurikar Shailesh	-	10,135	12,823
Jejurikar Shailesh	-	9,739	11,171
Allen Bertrand Marc	-	9,281	0
McEvoy Ashley	-	3,434	0
Francisco Ma. Fatima	-	1,486	2,681
Francisco Ma. Fatima	-	962	8,738
Janzaruk Matthew W.	-	883	6,091
Janzaruk Matthew W.	-	720	2,734

COOP 10-Q Quarter ended Sept. 30, 2019

Exhibits