2019ANNUAL REPORT CORPORATE HEADQUARTERS
8950 Cypress Waters Boulevard
Dallas, Texas 75019
(469) 549‐2000
www.mrcooper.com
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
One Victory Park, Suite 2000
2323 Victory Avenue
Dallas, Texas 75219
(214) 969‐8000
STOCKHOLDER SERVICES,
TRANSFER AGENT AND REGISTRAR
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY, 40202
Toll free: 866‐436‐2125
STOCK EXCHANGE LISTING
Mr. Cooper Group Inc.
common shares are listed on
NASDAQ
(Symbol: COOP)
INVESTOR RELATIONS
Shareholders@mrcooper.com
8950 Cypress Waters Boulevard
Dallas, Texas 75019
(469) 549‐2000
BOARD OF DIRECTORS
Jay Bray
President, Chief Executive Officer,
and Chairman of the Board
Busy Burr
Director
Robert Gidel
Director
Roy Guthrie
Lead Director
Christopher Harrington
Director
Michael Malone
Director
Shveta Mujumdar
Director
Tagar Olson
Director
Steven Scheiwe
Director
EXECUTIVE OFFICERS
Jay Bray
President, Chief Executive Officer,
and Chairman of the Board
Christopher Marshall
Vice Chairman and Chief Financial Officer
Anthony Ebers
Executive Vice President, Chief Operating Officer
Michael Rawls
Executive Vice President, Chief Executive Officer‐‐Xome
Forward Looking Statements
Any statements in this annual report that are not historical or current facts are forward looking statements. These forward looking statements, estimates
and projections include, but are not limited to, our expectations or predictions of future financial or business performance or conditions. Forward looking
statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be
materially different from any future results, performance or achievements expressed or implied by the forward looking statements. Certain of these risks
and uncertainties are described in the “Risk Factors” section of our most recent annual report and other required documents as filed with the SEC which
are available at the SEC’s website at http://www.sec.gov. Forward‐looking statements speak only as of the date they are made, and Mr. Cooper Group is
not under any obligation, and expressly disclaims any obligation, to update, alter or otherwise revise any forward‐looking statement, except as required by
law.
MR. COOPER GROUP INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
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PART I.
Item 1. Business
The disclosures set forth in this item are qualified by Item 1A. Risk Factors and the section within Item 1, captioned “Caution
Regarding Forward-Looking Statements”. Management’s Discussion and Analysis of Financial Condition and Results of
Operations of this report and other cautionary statements set forth elsewhere in this report.
OVERVIEW
Mr. Cooper Group Inc., including our consolidated subsidiaries (collectively, “Mr. Cooper”, the “Company”, “we”, “us” or “our”),
earns fees through the delivery of servicing, origination and transaction-based services related primarily to single-family residences
throughout the United States. We have provided a glossary of terms, which defines certain industry-specific and other terms that
are used herein, in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”),
of this Form 10-K.
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, a wholly owned subsidiary of
WMIH (“Merger Sub”), 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 and focused on identifying and consummating an accretive acquisition transaction across
a broad array of industries, with a primary focus on the financial institutions sector. 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.”
We are one of the largest residential loan servicers in the United States. In addition, we operate an integrated residential loan
origination platform with a primary focus on customer retention and an array of complementary services related to the purchase
and disposition of residential real estate.
Our success ultimately depends on working with customers, investors and regulators to deliver quality, compliant solutions that
foster and preserve home ownership. Customers include most residential real estate market participants, including homeowners,
homebuyers, home sellers, investors and real estate agents. Investors primarily include government sponsored entities (“GSE”)
such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan Mortgage Corp
(“Freddie Mac” or “FHLMC”), investors in private-label securitizations, the Government National Mortgage Association (“Ginnie
Mae” or “GNMA”), as well as organizations owning mortgage servicing rights (“MSR”) which engage us to subservice. We are
regulated both at the Federal and individual state levels.
BUSINESS SEGMENTS
We conduct our operations through three operating segments: Servicing, Originations and Xome®.
“Predecessor” financial information in the Business Segments section relates to Nationstar, and “Successor” financial information
relates to Mr. Cooper. With respect to the year ended December 31, 2018, we have presented our results on a “combined” basis
by combining the results of the Predecessor for the seven months ended July 31, 2018 with the results of the Successor for the
five months ended December 31, 2018. Although the separate financial results of the Predecessor for the seven months ended July
31, 2018 and the Successor for the five months ended December 31, 2018 are each separately presented under generally accepted
accounting principles (“GAAP”) in the United States, the combined results reported reflect non-GAAP financial measures, because
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. We have not provided a reconciliation of the financial metrics reflected under the “combined” basis as such
reconciliation cannot be provided without unreasonable effort as a result of this accounting variance. The financial results for the
year ended December 31, 2019 reflects the results of the Successor.
Servicing
As of December 31, 2019, we served approximately 3.8 million customers with an aggregate unpaid principal balance (“UPB”)
of approximately $643 billion. According to Inside Mortgage Finance, we were the largest non-bank servicer and third largest
residential mortgage servicer in the United States in the fourth quarter of 2019. During 2019, we boarded $258 billion UPB of
loans, with $165 billion of UPB related to subservicing.
2 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K We service loans on behalf of investors or owners of the underlying mortgages and, because we do not generally hold loans for
investment purposes, our loss exposure is limited to investor guidelines regarding the servicing of delinquent loans. We have
exposure to risk to the extent we are required to make servicing advances for investors, or, in certain circumstances, with Federal
Housing Administration (“FHA”), U.S. Department of Agriculture (“USDA”) or Department of Veterans Affairs (“VA”) loans.
Servicing consists of collecting loan payments, remitting principal and interest payments to investors, managing escrow funds for
the payment of mortgage-related expenses, such as taxes and insurance, performing loss mitigation activities on behalf of investors
and otherwise administering our mortgage loan servicing portfolio.
Forward servicing
We own the right to service loans owned by investors, which typically result from bulk acquisitions, flow agreements, or the sale
and securitization of loans we originate. Where we own the right to service loans, we recognize an MSR asset in our consolidated
financial statements and have elected to mark this portfolio to fair value each quarter. Servicing activities for owned MSRs include
the collection and recording of mortgage payments, the administration of mortgage escrow accounts, negotiations of workouts
and modifications and, if necessary, conducting or managing the foreclosure (real estate owned or “REO”) on behalf of investors
or other servicers. We primarily generate recurring revenue through contractual fees earned from our MSRs, which are a stated
percentage of the UPB of current performing loans earning interest income on float related to collecting and remitting payments,
and ancillary revenues (e.g., modification fees, late fees, incentive fees). As the MSR owner, we are, in several instances, obligated
to make servicing advances to fund scheduled principal, interest, tax and insurance payments when the mortgage loan borrower
has failed to make the scheduled payments and to cover foreclosure costs and various other items that are required to preserve the
assets being serviced. These servicer advance obligations require significant capital and liquidity in order to fund the advances
until we are contractually authorized to reimburse ourselves for the advances from the loan investor.
Servicing revenues are intended to cover the costs and operating risks associated with MSR ownership, which include carrying
costs associated with advances to pay taxes, insurance and foreclosure costs and also include costs incurred as a result of potential
operational errors.
Subservicing
We service loans on behalf of our clients who own the underlying servicing rights. In these cases, since we do not own the right
to service the loan, we do not recognize an asset in our consolidated financial statements. We primarily generate revenue based
upon a stated fee per loan that varies based on the loan’s delinquency status. Subservicing fee revenue is generally less than the
servicing fee received by the owner of the MSR; however, subservicing loans reduces the interest rate exposure and related revenue
volatility from MSR fair value changes and eliminates compensating interest expense and payoff-related costs. As a subservicer,
we may be obligated to make servicing advances; however, advances and other incurred costs are generally lower compared to
owned MSR portfolios, and recovery times are substantially faster, often within the following month. Capital requirements for
subservicing arrangements are lower than for owned MSRs. Additionally, our exposure to foreclosure-related costs and losses is
generally limited in our subservicing relationships as those risks are retained by the owner of the MSR.
In 2019, we continued to expand our subservicing portfolio by boarding $165 billion UPB of subservicing, which contributed
approximately 64% of the total UPB boarded during 2019. We believe the expansion of subservicing operations allows us to
leverage the scale of our technology and labor capital to provide cost effective servicing to customers while limiting the use of
cash resources, thereby producing a higher return on equity. Certain subservicing agreements also provide a flow of new loans to
help replenish and grow our own serviced portfolio.
Reverse servicing
Included within owned MSRs are the rights to service reverse residential mortgage loans acquired from third parties through our
Champion Mortgage® brand. Our reverse portfolio includes loans in Ginnie Mae and private-label securitizations, as well as
unsecuritized reverse loans held by investors, such as Fannie Mae. A servicing fee is earned based on the stated service fee rate
or net interest margin of home equity conversion mortgage (“HECM”) backed securities of the reverse portfolio. As a servicer,
we are required to fund advances on the reverse loans up to the maximum claim amount. These advances include borrower draws
and advances to cover taxes, insurance, mortgage insurance premiums and interest payments. Recovery of advances and collection
of servicing fees generally occurs upon a transfer of ownership in the underlying collateral. Due to the structure of reverse mortgages,
we securitize substantially all draws on reverse mortgage loans through the Ginnie Mae II MBS program or through private-label
securitizations. Our reverse portfolio accounted for 3.5% of our total servicing UPB as of December 31, 2019.
3Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The majority of loans we service are for GSEs, followed by Ginnie Mae and private-label investors in mortgage securitization
transactions.
Our servicing portfolio includes both conventional residential mortgage loans and home equity conversion loans, referred to as
“forward” and “reverse mortgage” loans, respectively. Although we own the mortgage servicing rights for the majority of these
loans, we also act as master servicer on certain portfolios and subservicer on certain portfolios for which the servicing rights are
owned by a third party.
Focus on the Customer
We are focused on providing quality service to our customers and building strong, lasting relationships. For each loan we service,
we utilize a customer-centric model designed to increase borrower performance and to decrease borrower delinquencies. Keys to
this model include frequent borrower interactions and utilization of multiple loss mitigation strategies, particularly in the early
stages of default. We train our customer service representatives to find solutions that work for homeowners when circumstances
allow. We believe this commitment to continued home ownership helps preserve neighborhoods and home values and improves
asset performance for our investors.
We are highly experienced in loan modifications and aim to avoid foreclosures. Between 2010 and 2013, the Predecessor acquired
distressed portfolios from banks who were not equipped to service such highly delinquent portfolios. The unprecedented levels
of delinquencies and defaults of residential real estate loans after the financial crisis at that time required varying degrees of loss
mitigation activities. We have made, and continue to make, significant efforts to help borrowers remain in their homes and view
foreclosure typically as a last resort. These initiatives contributed to low loan delinquency rates exceeding 60 days of 2.0% in
2019. Our special servicing capabilities, coupled with our acquisition and transfer of conventional MSRs and subservicing, have
resulted in a decline in delinquency rates in our portfolio.
The mortgage experience is often complex, but we aim to take a leadership role in the industry by putting customers first and
preserving homeownership. We have strengthened the composition of our leadership team and altered incentive programs over
the past five years to emphasize the importance of teamwork, compliance and a customer-centric approach.
Originations
Our Originations segment provides refinance opportunities to our existing servicing customers through our direct-to-consumer
and wholesale lending channels, and purchases loans from originators through our correspondent channel. According to Inside
Mortgage Finance, we were the 14th largest overall mortgage loan originator, funding $40 billion for the year ended December 31,
2019. We generate revenue through gain-on-sale and fees associated with originating and selling mortgage loans sourced through
our direct-to-consumer, wholesale and correspondent channels. We originate and purchase conventional mortgage loans conforming
to the underwriting standards of the GSEs. We also originate and purchase government-insured mortgage loans, which are insured
by the FHA, VA and USDA.
We believe our integrated origination platform provides us with competitive advantages, including an organic source of servicing
assets at attractive returns. The platform also serves as a loss mitigation solution for servicing clients and customers by offering
refinancing options to borrowers thereby allowing them to lower their monthly payments which in turn may lower their risk of
defaulting.
We utilize warehouse facilities to fund originated loans. After we sell originated mortgage loans to secondary market investors,
we generally retain the servicing rights on mortgage loans sold. The mortgage loans are typically sold within 30 days of origination
in order to both mitigate credit risk and minimize the capital required. The majority of our mortgage loans were sold to, or were
sold pursuant to, programs sponsored by Fannie Mae, Freddie Mac or Ginnie Mae.
We are committed to providing our customers with the tools and resources they need to be successful in today’s marketplace. We
are focused on increasing conversion rates (i.e., recapture) on our existing servicing portfolio and growing our third-party origination
businesses. We have continued to diversify our origination business in order to be successful in multiple market scenarios by
offering different products. We believe we can originate these products profitably and with acceptable levels of risk. We expect
to continue to make investments towards acquiring new customers through various outbound marketing initiatives and expanding
the purchase recapture business by focusing on existing customers who are looking to purchase a new home.
4 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Direct-to-Consumer Channel
We originate loans directly with borrowers through our direct-to-consumer channel. This channel utilizes our call centers, website
and mobile apps to reach our existing 3.8 million servicing customers who may benefit from a new mortgage. Depending on
borrower eligibility, we will refinance existing loans into conventional, government or non-Agency products. Through lead
campaigns and direct marketing, the direct-to-consumer channel seeks to convert leads into loans in a cost-efficient manner. We
earn an upfront fee for processing the loan application which covers the costs of securing the loan application and underwriting.
Our direct-to-consumer channel represented 40.6% and 48.1% of our mortgage originations for the years ended December 31,
2019 and 2018, on a combined basis, respectively, based on funded volume. Pull through adjusted lock volume for this channel
increased to $18.2 billion in 2019 from $9.7 billion in 2018, on a combined basis.
Correspondent Channel
We purchase closed mortgage loans from community banks, credit unions, mortgage brokers and independent mortgage bankers.
We primarily generate revenue from the receipt of underwriting fees from correspondents earned on a per-unit loan basis, as well
as the gain on sale of loans sold into the secondary market.
Our correspondent channel represented 53.4% and 51.9% of our mortgage originations for the years ended December 31, 2019
and 2018, on a combined basis, respectively, based on funded volume. Pull through adjusted lock volume for this channel increased
to $24.2 billion in 2019 from $10.5 billion in 2018, on a combined basis.
Wholesale Lending Channel
We originate mortgage loans through mortgage brokers. Loans sourced by mortgage brokers are underwritten and funded by us
in our name. We mitigate the counterparty risk through quality and compliance monitoring. In addition, all brokers are subject to
our eligibility requirements coupled with an annual recertification process. Our wholesale lending channel was added in 2019
through the acquisition of Pacific Union Financial, LLC (“Pacific Union”) and represented 6.0% of our mortgage originations for
the year ended December 31, 2019, based on funded volume.
Xome
The Xome segment is a leading provider of technology and data-enhanced solutions to banks, non-banks, investment companies,
and GSEs engaged in the origination, investment, and/or servicing of mortgage loans, as well as to home buyers, home sellers,
real estate professionals, mortgage professionals, and real estate investors. Today our business is primarily generated through
clients in the mortgage refinance and servicing sectors; however, we plan to grow non-default and non-refinance transactions
through a variety of strategies and offerings tailored to the needs of clients outside these core segments.
Xome’s operations are comprised of three divisions: Exchange, Services and Data/Technology.
Exchange is a national technology-enabled platform that manages and sells residential properties through our Xome.com website.
This platform leverages our proprietary auction technology and was designed to increase transparency, reduce fraud risk and
provide better execution for property sales as evidenced by generally higher sales price and lower average days to sell compared
to traditional sales. Core services include traditional non-distressed sales, REO auctions, short sales and foreclosure trustee sales.
Services connects the major touch points of the real estate transactions process by providing title, escrow, collateral valuation and
field services for purchase, refinance and default transactions. We continue to serve existing third-party customers and capture
refinance and default transactions generated by our Servicing and Originations segments. In 2019, Services completed
approximately 764,000 title and close orders, 724,000 collateral valuation orders and 142,000 property reports, for total Services
completed orders of approximately 1,630,000. Total Services completed orders in 2018, on a combined basis, was approximately
1,073,000. Assurant Mortgage Solutions (“AMS”) drove significant growth in Xome’s third-party revenues to 52.5% in 2019 from
43.3% in 2018, on a combined basis.
Data/Technology contains a diversified set of businesses, including Xome Analytics (primarily multiple listing service (“MLS”)
data and analytics). Xome Analytics provides aggregation, standardization and licensing for one of the nation’s largest set of MLS,
public records and neighborhood demographic data.
5Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Competition
Our Servicing segment primarily competes against large financial institutions and non-bank servicers. The subservicing market
in which we operate is also highly competitive and we face competition related to subservicing pricing and service delivery. Our
competitive position is also dependent on our continued ability to demonstrate compliance with local, state, federal and investor
regulations or requirements and to improve technology and processes while controlling our costs to maintain competitive pricing.
Finally, we manage the risk of declining subservicing units due to payoffs by entering into new arrangements and executing our
portfolio retention initiatives to grow our subservicing portfolio.
Our Originations segment competes based on product offerings, rates, fees and customer service. In recent years, more restrictive
loan underwriting standards and the widespread elimination of certain non-conforming mortgage products throughout the industry
have resulted in a more homogeneous product offering, which has increased competition across the industry for mortgage
originations. The industry is also presented with heightened challenges and costs associated with the increasingly complex
regulatory compliance environment.
Many of our Originations competitors are commercial banks or savings institutions. These financial institutions typically have
access to greater financial resources, have more diverse funding sources with lower funding costs, are less reliant on the sale of
mortgage loans into the secondary markets to maintain their liquidity, and may be able to participate in government programs in
which we are unable to participate because we are not a state or federally chartered depository institution, all of which places us
at a competitive disadvantage.
Our primary competitive strength flows from our ability to market our products to our existing servicing portfolio. Our origination
capabilities also provide a significant advantage compared to other subservicers. Our Originations segment is highly dependent
on our customer relationships. Many smaller and mid-sized financial institutions may find it difficult to compete in the mortgage
industry due to the significant market share of the largest competitors, along with the continual need to invest in technology in
order to reduce operating costs while maintaining compliance with more restrictive underwriting standards and dynamic regulatory
requirements. Our ability to win new clients and maintain existing customers is largely driven by the level of customer service
we provide and our ability to comply and adapt to an increasingly complex regulatory environment.
Competitive factors in the Xome segment include the quality and timeliness of our services, the size and competence of our network
of vendors, the breadth of the services we offer, the quality of the technology-based application or service and pricing. Based on
our knowledge of the industry and competitors, we also believe that no single competitor offers the range of solutions we are able
to offer.
The industry verticals in which the Xome segment engages are highly competitive and generally consist of a few national companies,
as well as a large number of regional, local and in-house providers, resulting in a fragmented market with disparate service offerings.
Our Exchange unit competes with national and regional third-party service providers and in-house servicing operations of large
mortgage lenders and servicers. We also compete with companies providing online real estate auction services and real estate
brokerage firms. Our Data/Technology unit competes with data processing and software development companies and in-house
technology and software operations of other loan servicers. In addition, our customers retain multiple providers and continuously
evaluate our performance against various other competitors.
Employees
As of December 31, 2019, we had approximately 9,100 employees, none of which were subject to a collective bargaining agreement.
We believe our future success will depend, in part, on our continuing ability to attract, hire and retain skilled and experienced
personnel. During 2019, we were certified as a Great Place to Work.
Additional Information
To learn more about Mr. Cooper Group Inc., please visit our website at www.mrcoopergroup.com. From time to time, we use our
website as a channel of distribution of material company information. We make our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13
(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) available free of charge under the Investor Information
section of our website as soon as reasonably practicable after we electronically file the reports with, or furnish them to, the Securities
and Exchange Commission (“SEC”). Our reports, proxy and information statements and other information filed electronically
with the SEC can also be accessed at www.sec.gov.
Our website also provides access to reports filed by our directors, executive officers and certain significant stockholders pursuant
to Section 16 of the Exchange Act. In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics,
Code of Ethics, and charters for the standing committees of our Board of Directors are available on our website. Any information
on our website is not incorporated by reference into this Annual Report on Form 10-K.
6 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 expressly 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:
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our ability to maintain or grow the size of our servicing portfolio;
our ability to maintain or grow our originations volume and profitability;
our ability to recapture voluntary prepayments related to our existing servicing portfolio;
our shift in the mix of our servicing portfolio to subservicing, which is highly concentrated;
delays in our ability to collect or be reimbursed for servicing advances;
our ability to obtain sufficient liquidity and capital to operate our business;
changes in prevailing interest rates;
our ability to finance and recover costs of our reverse servicing operations;
our ability to successfully implement our strategic initiatives;
our ability to realize anticipated benefits of our previous acquisitions;
our ability to use net operating loss carryforwards and other tax attributes;
changes in our business relationships or changes in servicing guidelines with Fannie Mae, Freddie Mac and Ginnie Mae;
Xome’s ability to compete in highly competitive markets;
our ability to pay down debt;
our ability to manage legal and regulatory examinations and enforcement investigations and proceedings, compliance
requirements and related costs;
our ability to prevent cyber intrusions and mitigate cyber risks; and
our ability to maintain our licenses and other regulatory approvals.
All of these factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our
control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assess
the effect of each such new factor on our business. Although we believe that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be inaccurate, and any of these statements included
herein may prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included herein,
the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions
described in such statements or our objectives and plans will be achieved. Please refer to Item 1A, Risk Factors, and Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, sections of this report for further
information on these and other factors affecting our business.
7Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Item 1A. Risk Factors
You should carefully consider the following risk factors together with all of the other information included in this report, including
the financial statements and related notes, when deciding to invest in us. The risks and uncertainties described below could materially
adversely affect our business, financial condition and results of operations in future periods and are not the only risks facing our
Company. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition or results of operations in future periods.
Financial Reporting, Credit and Liquidity Risks
We may be unable to obtain sufficient capital to operate our business.
Our financing strategy includes the use of significant leverage because, in order to make servicing advances and fund originations,
we require liquidity in excess of our equity, capital and that generated by our operations. Accordingly, our ability to finance our
operations depends on our ability to secure financing on acceptable terms and to renew and/or replace existing financings as they
expire. These financings may not be available on acceptable terms or at all. If we are unable to obtain these financings, we may
need to raise the funds we require in the capital markets or through other means, any of which may increase our cost of funds.
We are generally required to renew a significant portion of our debt financing arrangements each year, which exposes us to
refinancing and interest rate risks. Our ability to refinance existing debt and borrow additional funds is affected by a variety of
factors including:
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the available liquidity in the credit markets;
prevailing interest rates;
an event of default, a negative ratings action by a rating agency and limitations imposed on us under the indentures
governing our current debt that contain restrictive covenants and borrowing conditions that may limit our ability to raise
additional debt;
the strength of the lenders from which we borrow; and
limitations on borrowings on advance facilities imposed by the amount of eligible collateral pledged, which may be less
than the borrowing capacity of the advance facility.
If we are unable to obtain sufficient capital on acceptable terms for any of the foregoing reasons, this could adversely affect our
business, financial condition and results of operations.
Our substantial indebtedness may limit our financial and operating activities and our ability to incur additional debt to fund
future needs.
As of December 31, 2019, the aggregate principal amount of our unsecured senior notes was $2,398. Although we and our
subsidiaries have substantial indebtedness, we believe we have the ability to incur additional indebtedness in the future, subject
to the limitations contained in the agreements governing our indebtedness. These agreements generally restrict us and our restricted
subsidiaries from incurring additional indebtedness; however, these restrictions are subject to important exceptions and
qualifications. If we incur additional debt, the related risks could be magnified and could limit our financial and operating activities.
Our current and any future indebtedness could:
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require us to dedicate a substantial portion of cash flow from operations to the payment of principal and interest on our
current indebtedness and any indebtedness we may incur in the future, thereby reducing the funds available for other
purposes;
• make it more difficult for us to satisfy and comply with our obligations with respect to the unsecured senior notes;
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subject us to increased sensitivity to increases in prevailing interest rates;
place us at a competitive disadvantage to competitors with relatively less debt in economic downturns, adverse industry
conditions or catastrophic external events; or
reduce our flexibility in planning for or responding to changing business, industry and economic conditions.
8 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K In addition, our substantial level of indebtedness could limit our ability to obtain financing or additional financing on acceptable
terms to fund future acquisitions, working capital, capital expenditures, debt service requirements, general corporate and other
purposes, which could have a material adverse effect on our business and financial condition. Our liquidity needs could vary
significantly and may be affected by general economic conditions, industry trends, performance and many other factors outside
of our control. Our substantial obligations could have other important consequences. For example, our failure to comply with the
restrictive covenants in the agreements governing our indebtedness, which limit our ability to incur liens, to incur debt and to sell
assets, could result in an event of default that, if not cured or waived, could harm our business or prospects and could result in our
bankruptcy.
Our earnings may decrease because of changes in prevailing interest rates.
Our profitability is directly affected by changes in prevailing interest rates. The following are certain material risks we face related
to changes in interest rates:
Servicing:
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a decrease in interest rates may increase prepayment speeds which may lead to (i) increased amortization expense; (ii)
decrease in servicing fees; and (iii) decrease in the value of our MSRs;
an increase in interest rates, together with an increase in monthly payments when an adjustable mortgage loan’s interest
rate adjusts upward from an initial fixed rate or a low introductory rate, may cause increased delinquency, default and
foreclosure. Increased mortgage defaults and foreclosures may adversely affect our business as they increase our expenses
and reduce the number of mortgages we service;
Originations:
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Xome:
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Other:
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an increase in interest rates could adversely affect our loan originations volume because refinancing an existing loan
would be less attractive for homeowners and qualifying for a purchase money loan may be more difficult for consumers;
an increase in interest rates could also adversely affect our production margins due to increased competition among
originators;
a substantial and sustained increase in prevailing interest rates could adversely affect the loan origination volumes of
Xome’s clients since refinancing and purchase loans would be less attractive to borrowers, which would in turn adversely
impact Xome Services’ valuation and title order volume;
an increase in interest rates could adversely affect Xome Exchange’s property sales, particularly non-distressed sales, as
financing may become less attractive to borrowers;
an increase in interest rates would increase the cost of servicing our outstanding debt, including our ability to finance
servicing advances and loan originations and for borrowing for acquisitions; and
a decrease in interest rates could reduce our earnings from our custodial deposit accounts.
Any of the foregoing could adversely affect our business, financial condition and results of operations.
9Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K We use financial models that rely heavily on estimates in determining the fair value of certain assets and liabilities, such as
MSRs and excess spread, and if our estimates or assumptions prove to be incorrect, it may affect our earnings.
We use internal financial models that utilize, wherever possible, market participant data to value certain of our assets, including
our MSRs, and MSR financing liabilities, newly originated loans held for sale and for purposes of financial reporting. These models
are complex and use asset-specific collateral data and market inputs for interest and discount rates. In addition, the modeling
requirements of MSRs are complex because of the high number of variables that drive cash flows associated with MSRs. Even if
the general accuracy of our valuation models is validated, valuations are highly dependent upon the reasonableness of our
assumptions and the predictability of the relationships that drive the results of the models. In determining value for MSRs we make
certain assumptions, many of which are beyond our control, including, among other things:
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the rates of prepayment and repayment within the underlying pools of mortgage loans;
projected rates of delinquencies, defaults and liquidations;
future interest rates;
cost to service the loans;
ancillary revenues; and
amounts of future servicing advances.
If these assumptions or relationships prove to be inaccurate, if market conditions change or if errors are found in our models, the
value of certain assets may decrease or the value of certain liabilities could increase, which could impact our ability to satisfy
minimum net worth covenants and borrowing conditions in our debt agreements and adversely affect our business, financial
condition or results of operations.
We may not realize all of the anticipated benefits of previous or potential acquisitions and dispositions.
Our ability to realize the anticipated benefits of previous or potential acquisitions, including the acquisition of assets, will depend,
in part, on our ability to scale-up to appropriately service these assets and integrate the businesses of the acquired companies with
our business.
The risks associated with acquisitions include, among others:
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unknown or contingent liabilities;
unanticipated issues in integrating information, management style, controls and procedures, servicing practices,
communications and other systems including information technology systems;
unanticipated incompatibility of purchasing, logistics, marketing and administration methods;
not retaining key employees or clients; and
inaccuracy of valuation and/or operating assumptions supporting our purchase price.
In the event that we acquire a platform, we may elect to operate this platform in addition to our current platform for a period of
time or indefinitely. Individually or collectively, these transactions could substantially increase the UPB, or alter the composition
of our portfolio of mortgage loans that we service or have an otherwise significant impact on our business. Additionally, we may
make potentially significant acquisitions which could expose us to greater risks than we currently experience in servicing our
current portfolio and adversely affect our business, financial condition and results of operations.
The risks associated with disposition include, among other things:
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difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner;
destabilization of the applicable operations;
loss of key personnel;
10 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K •
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ability to obtain necessary governmental or regulatory approvals;
post-disposal disputes and indemnification obligations;
access by purchasers to certain of our systems and tools during transition periods;
the migration of data and separation of systems; and
data privacy matters.
We can provide no assurances that we will enter into any such agreements or as to the timing of any potential strategic transactions.
The strategic transaction process may disrupt our business including diverting management’s attention from ongoing business
concerns. We also may not realize all of the anticipated benefits of potential future strategic transactions, which could adversely
affect our business, financial condition and results of operations.
We may not be able to fully utilize our net operating loss (“NOL”) and other tax carry forwards.
As of December 31, 2012, we had U.S. federal NOLs of approximately $7.5 billion, of which approximately $6.0 billion was
allocated to the portion of 2012 after the ownership change described below, that, if unused, will begin to expire in 2031. We
believe that, as of December 31, 2019, we had federal NOLs of approximately $4.7 billion, of which $4.6 billion were not subject
to limitation under Section 382 of the United States Internal Revenue Code of 1986, as amended (the “Code”). Our ability to utilize
NOLs and other tax carry forwards to reduce taxable income in future years could be limited for various reasons, including if
projected future taxable income is insufficient to recognize the full benefit of such NOL carry forwards prior to their expiration
and/or the Internal Revenue Service (“IRS”) challenges that a transaction or transactions were concluded with the principal purpose
of evasion or avoidance of Federal income tax. There can be no assurance that we will have sufficient taxable income in later years
to enable us to use the NOLs before they expire, or that the IRS will not challenge the use of all or any portion of the NOLs.
Although we have certain transfer restrictions in place under our Certificate of Incorporation, our Board could issue additional
shares of stock or permit or effect future conversions, amendments or redemptions of our stock, which, depending on their magnitude,
could result in ownership changes that would trigger the imposition of additional limitations on the utilization of our NOLs under
Sections 382 and 383 of the Code. In an attempt to minimize the likelihood of an additional ownership change occurring, our
Certificate of Incorporation contains transfer restrictions limiting the acquisition (and disposition) of our stock or any other
instrument treated as stock for purposes of Section 382 by persons or group of persons treated as a single entity under Treasury
Regulation Section 1.382-3 owning (actually or constructively), or who would own as a result of the transaction, 4.75% of the
total value of our stock (including any other interests treated as stock for purposes of Section 382). Nevertheless, it is possible that
we could undergo an ownership change, either by events within or outside of the control of our Board, e.g., indirect changes in
the ownership of persons owning 5% of our stock. Moreover, approximately 130,000 shares of our common stock are held in
escrow in an account created for the benefit of holders of disputed equity interests in connection with WMIH’s emergence from
bankruptcy. A subsequent release or transfer of the stock potentially could result in an ownership change at that time. In the event
of a subsequent ownership change, all or part of the NOLs from 2012 and subsequent years that were not previously subject to
limitations under Section 382 could also become subject to an annual limitation. Section 384 may also apply in the event of an
ownership change resulting from an acquisition, which would limit the utilization of our NOLs to only certain income or gains
generated from assets owned subsequent to the acquisition.
The IRS could challenge the amount, timing and/or use of our NOL carry forwards.
The amount of our NOL carry forwards has not been audited or otherwise validated by the IRS. Among other things, the IRS could
challenge whether an ownership change occurred with the Merger, as well as the amount, the timing and/or our use of our NOLs.
Any such challenge, if successful, could significantly limit our ability to utilize a portion or all of our NOL carry forwards. In
addition, calculating whether an ownership change has occurred within the meaning of Section 382 is subject to inherent uncertainty,
both because of the complexity of applying Section 382 and because of limitations on a publicly traded company’s knowledge as
to the ownership of, and transactions in, its securities. Therefore, the calculation of the amount of our utilizable NOL carry forwards
could be changed as a result of a successful challenge by the IRS or as a result of new information about the ownership of, and
transactions in, our securities.
Possible changes in legislation could negatively affect our ability to use the tax benefits associated with our NOL carry forwards.
The rules relating to U.S. federal income taxation are periodically under review by persons involved in the legislative and
administrative rulemaking processes, by the IRS and by the U.S. Department of the Treasury, resulting in revisions of regulations
and revised interpretations of established concepts as well as statutory changes, including decreases in the tax rate. Future revisions
in U.S. federal tax laws and interpretations thereof could adversely impact our ability to use some or all of the tax benefits associated
with our NOL carry forwards.
11Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Our hedging strategies may not be successful in mitigating our risks associated with interest rates.
In our Originations segment, we use various derivative financial instruments to provide a level of protection against interest rate
risks, but no hedging strategy can protect us completely. We may hedge MSRs in certain rate environments. The nature and timing
of hedging transactions influence the effectiveness of these strategies. Poorly designed strategies, improperly executed and
documented transactions or inaccurate assumptions could increase our risks and losses. In addition, hedging strategies involve
transaction and other costs. Our hedging strategies and the derivatives that we use may not be able to adequately offset the risks
of interest rate volatility, and our hedging transactions may result in or magnify losses. Furthermore, interest rate derivatives may
not be available on favorable terms or at all, particularly during economic downturns. Any of the foregoing risks could adversely
affect our business, financial condition and results of operations.
We have third-party credit and servicer risks which could have a material adverse effect on our business, liquidity, financial
condition and results of operation.
Consumer Credit Risk: We provide representations and warranties to purchasers and insurers of the loans that we sell that typically
are in place for the life of the loan. In the event of a breach of these representations and warranties, we may be required to repurchase
a mortgage loan or indemnify the purchaser, and any subsequent loss on the mortgage loan may be borne by us. Our loss estimates
are affected by factors both internal and external in nature, including, level of loan sales, as well as to whom the loans are sold,
the expectation of credit loss on repurchases and indemnifications, our success rate at appealing repurchase demands, our ability
to recover any losses from third parties, the overall economic condition in the housing market, the economic condition of borrowers,
the political environment at investor agencies and the overall U.S. and world economies. Many of the factors are beyond our
control and may lead to judgments that are susceptible to change. In adverse market conditions, loans may decrease in value due
to an increase in delinquencies, borrower defaults and non-payments. In addition, property values may experience losses at
liquidation due to extensions in foreclosure and REO sales timelines as well as home price depreciation.
Counterparty Credit Risk: We are exposed to counterparty credit risk in the event of non-performance by counterparties to various
agreements. Although certain credit facilities and warehouse lines are committed, we may experience a disruption in operations
due to a lender withholding a funding of a borrowing requested on the respective credit facility.
Prior Servicer Risk: We service mortgage loans under guidelines set forth by regulatory agencies and GSEs. Failure to meet
stipulations of the servicing guidelines can result in the assessment of fines and loss of reimbursement of loan related advances,
expenses, interest and servicing fees. When the servicing of a portfolio is assumed either through purchase of servicing rights or
through a subservicing arrangement, various loans in the acquired portfolio may have been previously serviced in a manner that
will contribute towards our not meeting certain servicing guidelines. If not recovered from a prior servicer, such events frequently
lead to the eventual realization of a loss to us. The recovery process against a prior servicer can be prolonged based upon the time
required by us to meet minimum loss deductibles under the indemnification provisions in our agreements with the prior servicer
and for the time requirements by the prior servicer to review underlying loss events and our request for indemnification. The
amounts ultimately recovered from prior servicers may differ from our estimated recoveries recorded based on the prior servicer’s
interpretation of responsibility for loss, which could lead to our realization of additional losses.
Correspondent Risk: With our acquisition of Pacific Union Financial LLC, we have increased our Correspondent Lending Channel
whereby we purchase closed loans from Correspondent Lenders. The failure of these Correspondent Lenders to comply with any
applicable laws, regulations and rules may subject us to monetary penalties or other losses. Although we have controls and
procedures designed to assess areas of risk with respect to these acquired loans, including, without limitation, diligence regarding
compliance with underwriting guidelines and applicable laws or regulations, we may not detect every violation of law by these
Correspondent Lenders.
Any of the above could adversely affect our business, liquidity, financial condition and results of operations.
12 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Changes in the method of determining the London Inter-Bank Offered Rate (LIBOR), or the replacement of LIBOR with an
alternative reference rate, may adversely affect interest income or expense.
On July 27, 2017, the United Kingdom Financial Conduct Authority, which oversees LIBOR, formally announced that it could
not assure the continued existence of LIBOR in its current form beyond the end of 2021, and that an orderly transition process to
one or more alternative benchmarks should begin. In June 2017, the Alternative Reference Rates Committee, a steering committee
comprised of large U.S. financial institutions organized by the Federal Reserve, announced that it had selected a modified version
of the unpublished Broad Treasuries Financing Rate as the preferred alternative reference rate for U.S. dollar obligations. This
rate, now referred to as the Secured Overnight Financing Rate (SOFR), is based on actual transactions in certain portions of
overnight repurchase agreement markets for certain U.S. Treasury obligations, and was first published during the first half of 2018.
It is unclear whether, or in what form, LIBOR will continue to exist after 2021. If LIBOR ceases to exist or if the methods of
calculating LIBOR change from current methods for any reason, interest rates on our floating rate loans, deposits, obligations,
derivatives, and other financial instruments tied to LIBOR rates, as well as the revenue and expenses associated with those financial
instruments, may be adversely affected. Additionally, whether or not SOFR attains market traction as a replacement to LIBOR
remains in question and it remains uncertain at this time what the impact of a possible transition to SOFR may have on our business,
financial result and operations.
Operational Risks
Servicing
A significant increase in delinquencies for the loans we own and service could have a material impact on our revenues, expenses
and liquidity and on the valuation of our MSRs.
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Revenue. An increase in delinquencies will result in lower revenue for loans we service for GSEs and Ginnie Mae because
we only collect servicing fees from GSEs and Ginnie Mae for performing loans. Additionally, while increased
delinquencies generate higher ancillary revenues, including late fees, these fees do not offset the higher cost to service a
delinquent loan and are not likely to be recoverable in the event that the loan is liquidated. In addition, an increase in
delinquencies reduces cash held in collections and other accounts and lowers the interest income we receive.
Expenses. An increase in delinquencies will result in a higher cost to service due to the increased time and effort required
to collect payments from delinquent borrowers and an increase in interest expense as a result of an increase in our advancing
obligations.
Liquidity. An increase in delinquencies could also negatively impact our liquidity because of an increase in servicing
advances resulting in an increase in borrowings under advance facilities and/or insufficient financing capacity to fund
increases in advances.
Valuation of MSRs. We base the price we pay for MSRs on, among other things, our projections of the cash flows from
the related pool of mortgage loans. Our expectation of delinquencies is a significant assumption underlying those cash
flow projections. If delinquencies were significantly greater than expected, the estimated fair value of our MSRs could
be diminished. If the estimated fair value of MSRs is reduced, we would record a loss which would adversely impact our
ability to satisfy minimum net worth covenants and borrowing conditions in our debt agreements which could have a
negative impact on our financial results.
An increase in delinquency rates could therefore adversely affect our business, financial condition and results of operations.
We may not be able to maintain or grow our business if we do not acquire MSRs or enter into additional subservicing agreements
on favorable terms.
Our servicing portfolio is subject to “run off,” meaning that mortgage loans serviced by us may be prepaid prior to maturity or
repaid through standard amortization of principal. As a result, our ability to maintain the size of our servicing portfolio depends
on our ability to acquire the right to service additional pools of residential mortgages, enter into additional subservicing agreements
or to originate additional mortgages. We have also shifted the mix of our servicing portfolio to a greater mix of subserviced loans.
While we expect this strategy to have longer-term benefits, in the short-term, since subservicing revenues are earned on a fee per
loan basis, this shift in our servicing portfolio to subservicing could reduce our revenue and earnings. In addition, we may not be
able to maintain our pipeline of subservicing opportunities.
The Federal Housing Finance Agency (“FHFA”) could enact more stringent requirements on the GSEs, or other federal or state
agencies may enact additional requirements that are more stringent regarding the purchase or sale of MSRs. Additionally, if we
do not comply with our seller/servicer obligations, the investors may not consent to approve future transfers of MSRs.
13Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K If we do not acquire MSRs or enter into additional subservicing agreements on terms favorable to us, our business, financial
condition and results of operations could be adversely affected.
Some of the loans we service are higher risk loans, which are more expensive to service than conventional mortgage loans and
may lead to liquidity challenges.
Some of the mortgage loans we service are higher risk loans, meaning that the loans are to less credit worthy borrowers, delinquent
or for properties the value of which has decreased. These loans are more expensive to service because they require more frequent
interaction with customers and greater monitoring and oversight. Additionally, in connection with the ongoing mortgage market
reform and regulatory developments, servicers of higher risk loans are subject to increased scrutiny by state and federal regulators
and will experience higher compliance and regulatory costs, which could result in a further increase in servicing costs. We may
not be able to pass along any of the additional expenses we incur in servicing higher risk loans to our servicing clients. The greater
cost of servicing higher risk loans, which may be further increased through regulatory reform, consent decrees or enforcement,
could adversely affect our business, financial condition and results of operations. With our acquisition of Pacific Union, our portfolio
of higher-risk loans guaranteed by Ginnie Mae has increased. In an adverse economic scenario where defaults rise rapidly and
unexpectedly, we may have funding challenges since Ginnie Mae does not allow the separate utilization of advances as a form of
collateral, and we may not be able to secure financing for advances on acceptable terms or at all. If we are unable to obtain these
financings, we may need to raise the funds we require in the capital markets or through other means, any of which may increase
our cost of funds.
We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain
circumstances.
Forward Mortgage Servicing Rights: During any period in which a borrower is not making payments, we are required under most
of our servicing agreements to advance our own funds to meet contractual principal and interest remittance requirements for
investors, pay property taxes and insurance premiums, legal expenses and other protective advances. We also advance funds to
maintain, repair and market real estate properties on behalf of investors. As home values change, we may have to reconsider certain
of the assumptions underlying our decisions to make advances, and in certain situations our contractual obligations may require
us to make certain advances for which we may not be reimbursed. In addition, when a mortgage loan serviced by us defaults or
becomes delinquent, the repayment to us of the advance may be delayed until the mortgage loan is repaid or refinanced or liquidation
occurs.
We have sold to a joint venture capitalized by certain entities formed and managed by New Residential Investment Corp. (“New
Residential”) and certain third-party investors the rights to mortgage servicing rights and servicer advances related to certain loan
pools. In connection with these transactions, New Residential purchased the equity of wholly owned special purpose subsidiaries
of Mr. Cooper Group that issued limited recourse funding to finance the advances. We continue to service these loans. In the event
that New Residential receives requests for advances in excess of amounts that they or their co-investors are willing or able to fund,
we are obligated to fund these advance requests. Since we have transferred the related advance facilities to New Residential, we
may have to obtain other sources of financing which may not be available. Our inability to fund these advances could result in a
termination event under the applicable servicing agreement, an event of default under the advance facilities and a breach of our
purchase agreement with New Residential. Our inability to fund these advance requests could adversely affect our business,
financial condition and results of operations.
Reverse Mortgages: As a reverse mortgage servicer, we are also responsible for funding draws due to borrowers in a timely manner,
remitting to investors interest accrued and paying for interest shortfalls. Advances on reverse mortgages are typically greater than
advances on forward residential mortgages. They are typically recovered upon weekly or monthly reimbursement or from
securitizations in the market. In the event we receive requests for advances in excess of amounts we are able to fund, we may not
be able to fund these advance requests, which could materially and adversely affect our business operations. A delay in our ability
to collect an advance may adversely affect our liquidity, and our inability to be reimbursed for an advance could adversely affect
our business, financial condition and results of operations.
Our counterparties may terminate our servicing rights and subservicing contracts.
The owners of the loans we service and the primary servicers of the loans we subservice may, under certain circumstances, terminate
our MSRs or subservicing contracts, respectively.
Agency Servicing: We are party to seller/servicer agreements and/or subject to guidelines and regulations (collectively, seller/
servicer obligations) with both of the GSEs, FHA and Ginnie Mae. As is standard in the industry, under the terms of these seller/
servicer agreements, the agencies have the right to terminate us as servicer of the loans we service on their behalf at any time and
also have the right to cause us to sell the MSRs to a third party.
14 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K We are subject to minimum financial eligibility requirements established by the Agencies. These minimum financial requirements,
include net worth, capital ratio and/or liquidity criteria in order to set a minimum level of capital needed to adequately absorb
potential losses and a minimum amount of liquidly needed to service Agency mortgage loans and MBS and cover the associated
financial obligations and risks. To meet these minimum financial requirements, we are required to maintain cash and cash equivalents
in amounts that could impede us from growing our business and place us at a competitive disadvantage in relation to federally
chartered banks and certain other financial institutions. These seller/servicer obligations include financial covenants that include
capital requirements related to tangible net worth. Additionally, 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. 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.
To the extent that these capital and liquidity requirements are not met, the applicable agency may suspend or terminate these
agreements, which would prohibit us from further servicing these specific types of mortgage loans or being an approved servicer.
If we are unable to meet these capital and liquidity requirements, this could adversely affect our business, financial condition and
results of operations.
Subservicing: Our subservicing portfolio is highly concentrated with a small number of parties who may elect to transfer their
subservicing relationship to other counterparties or may go out of business. As of December 31, 2019, 97% of our subservicing
portfolio is with six counterparties. Under our subservicing contracts, the primary servicers for which we conduct subservicing
activities have the right to terminate our subservicing contracts with or without cause, with limited notice and with no termination
fee upon a change of control. Entering into additional subservicing contracts will expose us to similar risks with new counterparties.
If our servicing rights or subservicing contracts are terminated on a material portion of our servicing portfolio, this could adversely
affect our business, financial condition and results of operations.
We service reverse mortgages, which subjects us to additional risks and could have a material adverse effect on our business,
liquidity, financial condition and results of operations.
The reverse mortgage business is subject to substantial risks, including market, interest rate, liquidity, operational, reputational
and legal risks. Loan defaults on reverse mortgages leading to foreclosures may occur if borrowers fail to maintain their property,
fail to pay taxes or home insurance premiums, die or fail to occupy their property for 12 consecutive months. Higher than anticipated
foreclosures could result in increased losses primarily related to operational deficiencies and transactional costs incurred as a result
of REO sale. We use financial models that rely heavily on estimates to forecast loss exposure related to certain reverse mortgage
assets and liabilities. These models are complex and use asset specific collateral data and market inputs for mortality, interest rates
and prepayments. In addition, the models use investor and state required time lines for certain default related activities. Even if
the general accuracy of our loss models is validated, loss estimates are highly dependent upon the reasonableness of our assumptions
and the predictability of the relationships that drive the results of the models. If these assumptions or relationships prove to be
inaccurate or if market conditions change, the actual loss experience could be higher than modeled. Additionally, we could become
subject to negative reputational risk in the event that loan defaults on reverse mortgages lead to foreclosures or evictions of elderly
homeowners.
We could have a downgrade in our servicer ratings.
Standard & Poor’s and Fitch rate us as a residential loan servicer. Favorable ratings from these agencies are important to the
conduct of our loan servicing business. Downgrades in servicer ratings could:
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adversely affect our ability to finance servicing advances and maintain our status as an approved servicer by Fannie Mae,
Freddie Mac, Ginnie Mae, and other investors;
lead to the early termination of existing advance facilities and affect the terms and availability of advance facilities that
we may seek in the future;
cause our termination as servicer in our servicing agreements that require that we maintain specified servicer ratings; and
further impair our ability to consummate future servicing transactions.
Any of the above could adversely affect our business, financial condition and results of operations.
15Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Originations
We may not be able to maintain the volumes in our loan originations business, which would adversely affect our ability to
replenish our servicing business.
The volume of loans funded within our loan originations business is subject to multiple factors, including changes in interest rates
and availability of government programs. Volume in our originations business is based in large part on the refinancing of existing
mortgage loans that we service, which is highly dependent on interest rates and other macroeconomic factors. Our loan origination
volume may decline if interest rates increase, if government programs terminate and are not replaced with similar programs or if
we cannot replace this volume with other loan origination channels such as Correspondent, new customer acquisitions or purchase
money loans. If we are unable to maintain our loan originations volume, our business, financial condition and results of operations
could be adversely affected.
We may be required to indemnify or repurchase loans we sold, or will sell, if these loans fail to meet certain criteria or
characteristics or under other circumstances.
The indentures governing our securitized pools of loans and our contracts with purchasers of our whole loans contain provisions
that require us to indemnify or repurchase the related loans under certain circumstances. While our contracts vary, they contain
provisions that require us to repurchase loans if:
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our representations and warranties concerning loan quality and loan circumstances are inaccurate, including
representations concerning the licensing of a mortgage broker;
we fail to secure adequate mortgage insurance within a certain period after closing;
a mortgage insurance provider denies coverage;
we fail to comply, at the individual loan level or otherwise, with regulatory requirements in the current dynamic regulatory
environment; or
the borrower fails to make certain initial loan payments due to the purchaser.
We are subject to repurchase claims and may continue to receive claims in the future. If we are required to indemnify or repurchase
loans that we originate or have previously originated and sell or securitize that result in losses that exceed our reserve, this could
adversely affect our business, financial condition and results of operations.
We are highly dependent upon loan programs administered by Fannie Mae, Freddie Mac, the Federal Housing Administration,
the Department of Veterans Affairs, the US Department of Agriculture and Ginnie Mae (collectively, the “Agencies”) to generate
revenues through mortgage loan sales to institutional investors.
There are various legislative and Trump administration proposals which deal with GSE reform, including winding down the GSEs
and reducing or eliminating over time the role of the GSEs in guaranteeing mortgages and providing funding for mortgage loans,
as well as proposals to implement reforms relating to borrowers, lenders and investors in the mortgage market, including reducing
the maximum size of loans that the GSEs can guarantee, phasing in a minimum down payment requirement for borrowers, improving
underwriting standards and increasing accountability and transparency in the securitization process. In September 2019, the Trump
Administration’s Treasury Department released its report on mortgage finance reform that commits to move the GSEs out of
conservatorship and shrink their role and that of any possible additional chartered guarantors in the overall housing finance market.
Thus, the long-term future of the GSEs is still in doubt.
Our ability to generate revenues through mortgage loan sales to institutional investors depends to a significant degree on programs
administered by the Agencies that facilitate the issuance of mortgage-backed securities in the secondary market. These Agencies
play a critical role in the residential mortgage industry, and we have significant business relationships with many of them. Almost
all of the conforming loans we originate qualify under existing standards for inclusion in guaranteed mortgage securities backed
by one of these Agencies. We also derive other material financial benefits from these relationships, including the assumption of
credit risk on loans included in such mortgage securities in exchange for our payment of guarantee fees and the ability to avoid
certain loan inventory finance costs through streamlined loan funding and sale procedures. If it is not possible for us to complete
the sale or securitization of certain of our mortgage loans due to changes in Agency programs, we may lack liquidity under our
mortgage financing facilities to continue to fund mortgage loans, and our revenues and margins on new loan originations would
be materially and negatively impacted.
Any discontinuation of, or significant reduction in, the operation of these Agencies or any significant adverse change in the level
of activity in the secondary mortgage market or the underwriting criteria of these Agencies could materially and adversely affect
our business, liquidity, financial position and results of operations.
16 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
Xome
Xome participates in highly competitive markets and pressure from existing and new companies could adversely affect Xome’s
businesses.
The markets for Xome’s services are very competitive, and Xome’s success depends on its ability to continue to attract additional
customers, consumers and real estate professionals to its offerings including exchange, services, and data/technology. Any of
Xome’s future or existing competitors may introduce different products that provide solutions similar to our own but with either
better user interfaces, branding and marketing resources, or at a lower price. In addition, the time and expense associated with
switching from Xome’s competitors’ services and technologies to ours, and the reluctance of loan servicers or originators to add
new vendors in light of declining revenues or economics in their sectors may limit Xome’s growth. If we are unable to continue
to innovate and grow our market share or the number of end-users of Xome’s offerings, we may not remain competitive or may
face downward pricing pressures, and our business and financial performance could suffer. Furthermore, in the Business to Business
area, Xome may not be able to attract and retain clients who view themselves as Mr. Cooper’s competitors due to perceived conflict
of interest concerns.
Xome may be accused of infringing intellectual property rights of third parties.
Third parties may assert claims against Xome, asserting that Xome’s content, website processes or software applications infringe
their intellectual property rights. For example, Xome recently settled a proceeding where the plaintiff alleged that Xome
misappropriated plaintiff’s intellectual property for the purpose of replicating plaintiff’s products. If any infringement claim is
successful, Xome may be required to pay substantial damages, obtain a license from the third party or be prohibited from using
content that incorporates the challenged intellectual property, which could materially and adversely affect our business, liquidity,
financial position and results of operations.
Xome is subject to extensive government regulation at the federal, state and local levels, and any failure to comply with existing
or new regulations may adversely impact us, our clients and our results of operations.
Xome is subject to licensing and regulation as a real estate broker, auctioneer, appraisal management company, title agent and/or
insurance agent in a number of states and may be subject to new licensing and regulation as it expands service offerings. Xome
is subject to audits and examinations that are conducted by federal and state regulatory authorities and, as a vendor, is also subject
to similar audit requirements imposed on its clients, including us. Our employees and subsidiaries may be required to be licensed
by various state licensing authorities for the particular type of service provided and to participate in regular background checks,
fingerprinting requirements and continuing education programs. We may incur significant ongoing costs to comply with
governmental regulations, and new laws and regulations may be adopted that prohibit us from engaging Xome as a vendor, which
could adversely affect our business, financial condition and results of operations.
Xome’s revenue from clients in the mortgage and real estate industries is affected by the strength of the economy and the
housing market generally, including the volume of real estate transactions.
Real estate markets are subject to fluctuations, due to factors such as the relative relationship of supply to demand, the availability
of alternative investment products, the unemployment rate, real wage increases, inflation and the general economic environment.
An economic slowdown or recession, in addition to other non-economic factors such as an excess supply in properties, a change
in consumer preferences towards rental properties or declining consumer confidence in the economy, could have a material adverse
effect on values of residential real estate properties. The volume of mortgage origination, mortgage refinancing and residential
real estate transactions is highly variable. The level of real estate transactions is primarily affected by the average price of real
estate sales, the availability of funds to finance purchases, mortgage interest rates, consumer confidence in the economy and general
economic factors affecting the real estate markets. Reductions in these transaction volumes could have a material adverse effect
on Xome’s business, financial condition and results of operations.
We could have, appear to have or be alleged to have conflicts of interest with Xome.
Xome provides services to us which could create, appear to create or be alleged to create conflicts of interest. By obtaining services
from a subsidiary, there is risk of possible claims of collusion or claims that such services are not provided by Xome upon market
terms. We have adopted policies, procedures and practices that are designed to identify and address conflicts of interest. In addition,
we undertake practices to identify and deal with potential conflicts. Further, we have engaged an independent third party to conduct
a pricing study in an attempt to ensure that the fees charged are customary and reasonable. However, there can be no assurance
that such measures will be effective in eliminating all conflicts of interest or that third parties will refrain from making such
allegations. Appropriately identifying and dealing with conflicts of interest is complex and difficult, and our reputation, which is
one of our most important assets, could be damaged and the willingness of counterparties to enter into transactions with us may
be affected if we fail, or appear to fail, to identify, disclose and deal appropriately with conflicts of interest. In addition, potential
or perceived conflicts could give rise to litigation or regulatory enforcement actions.
17Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Strategic
We may not be successful in implementing certain strategic initiatives.
Certain strategic initiatives, which are designed to improve our results of operations and drive long-term stockholder value, include:
•
•
•
•
strengthen our balance sheet by building capital and liquidity, reducing leverage, taking advantage of market conditions
to refinance existing senior notes, and implementing derivative hedging strategies;
drive stronger profitability through a variety of efficiency initiatives, including ongoing improvement in unit cost
economics in servicing, originations, and Xome, as well as finalizing our Project Titan servicing transformation initiative
and identifying and realizing other opportunities for cost savings throughout the organization;
improve results at Xome by winning new third-party customers and gaining wallet share with existing customers by cross-
selling multiple services and by delivering strong performance and excellent customer service;
continue to focus on improving the customer experience in all of our segments, as well as sustaining the culture and talent
of our workforce; and
• maintain strong relationships with agencies, investors, regulators, and other constituencies and a strong reputation for
compliance and customer service.
There is no assurance that we will be able to successfully implement these strategic initiatives, that we will be able to realize all
of the projected benefits of our plans or that we will be able to compete successfully in new markets and our efforts may be more
expensive and time consuming than we expect, which could adversely affect our business, financial condition and results of
operations.
Other Risks
Technology failures or cyber-attacks against us or our vendors could damage our business operations, and new laws and
regulations could increase our costs.
The financial services industry as a whole is characterized by rapidly changing technologies, and system disruptions and failures
caused by fire, power loss, telecommunications failures, system misuse, unauthorized intrusion (cyber-attack), computer viruses
and disabling devices, natural disasters and other similar events may interrupt or delay our ability to provide services to our
borrowers. As a part of conducting business, we receive, transmit and store a large volume of personally identifiable information
and other user data. Additionally, Xome is highly dependent on information technology networks and systems to securely process,
transmit and store sensitive electronic information. Cybersecurity risks for the financial services industry have increased
significantly in recent years due to new technologies, the reliance on technology to conduct financial transactions and the increased
sophistication of organized crime and hackers. Those parties also may attempt to misrepresent personal or financial information
to obtain loans or other financial products from us or attempt to fraudulently induce employees, customers, or other users of our
systems to disclose confidential information in order to gain access to our data or that of our customers. We and others in our
industry are regularly the subject of attempts by attackers to gain unauthorized access to our networks, systems, and data, or to
obtain, change, or destroy confidential data (including personal identifying information of individuals) through a variety of means,
including computer viruses, malware, phishing and other attack vectors. These attacks may result in unauthorized individuals
obtaining access to our confidential information or that of our customers, or otherwise accessing, damaging, or disrupting our
systems or infrastructure. In addition, to access our products and services, including our Home Intelligence app, our customers
may use personal smartphones, tablet PCs, and other mobile devices that are beyond our control systems. Third parties with which
we do business or that facilitate our business activities or vendors that provide services or security solutions for our operations
could also be sources of operational risk and information security risk to us, including from cyber-attacks, information breaches
or loss, breakdowns, disruptions or failures of their own systems or infrastructure, or any deficiencies in the performance of their
responsibilities. Security breaches, acts of vandalism and developments in computer intrusion capabilities could cause our financial,
accounting, data processing or other operating systems and facilities to fail to operate properly or become disabled and could result
in a compromise or breach of the technology that we or our vendors use to protect our borrowers’ personal information and
transaction data.
Despite our efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate or implement effective
preventive measures against all internal and external security breaches, especially because the techniques used change frequently,
are becoming more sophisticated and are not recognized until launched, and because security attacks can originate from a wide
variety of sources. These risks may increase in the future as we continue to increase our reliance on telecommunication technologies
(including mobile devices), the internet and use of web-based product offerings.
18 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K While we have implemented policies and procedures designed to help mitigate cybersecurity risks and cyber intrusions, there can
be no assurance that any such cyber intrusions, whether external or internal, will not occur or, if they do occur, that they will be
adequately addressed. A successful penetration or circumvention of the security of our or our vendors’ systems or a defect in the
integrity of our or our vendors’ systems or cybersecurity could cause serious negative consequences for our business, including
significant disruption of our operations, misappropriation of our confidential information or that of our customers, or damage to
our computers or operating systems and to those of our customers and counterparties. Any of the foregoing events could result in
violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures,
customer dissatisfaction, significant litigation exposure and harm to our reputation, all of which could adversely affect our business,
financial condition and results of operations. This risk is enhanced in certain jurisdictions with stringent data privacy laws. For
example, the California Consumer Privacy Act of 2018 (“CCPA”), which went into effect in January, provides new data privacy
rights for consumers and new operational requirements for us. The CCPA includes a statutory damages framework and private
rights of action against businesses that fail to comply with certain CCPA terms or implement reasonable security procedures and
practices to prevent data breaches. Several other states have enacted or are considering similar legislation. Additionally, while we
have obtained insurance to cover us against certain cybersecurity risks and information theft, there can be no guarantee that all
losses will be covered or that the insurance limits will be sufficient to cover such losses.
In addition, increasing attention is being paid by the media, regulators and legislators to matters relating to cybersecurity, and
regulators and legislators may enact laws or regulations regarding cybersecurity. For example, the New York Department of
Financial Services has adopted regulations that are far-ranging in scope, including not only specific technical safeguards but also
requirements regarding governance, incident planning, data management and system testing. New laws and regulations could
result in significant compliance costs, which may adversely affect our cash flows and net income.
Our capital investments in technology may not achieve anticipated returns.
Our business is becoming increasingly reliant on technology investments, and the returns on these investments are less predictable.
We are currently making, and will continue to make, significant technology investments to support our service offering, implement
improvements to our customer-facing technology and evolve our information processes, and computer systems to more efficiently
run our business and remain competitive and relevant to our customers. These technology initiatives might not provide the
anticipated benefits or may provide them on a delayed schedule or at a higher cost. We must monitor and choose the right investments
and implement them at the right pace. Failing to make the best investments, or making an investment commitment significantly
above or below our needs, could result in the loss of our competitive position and adversely impact our financial condition or
results of operations.
We and our vendors have operations in India that could be adversely affected by changes in political or economic stability or
by government policies.
We currently have operations located in India, which is subject to relatively higher degrees of political and social instability and
may lack the infrastructure to withstand political unrest or natural disasters. The political or regulatory climate in the United States,
or elsewhere, also could change so that it would not be lawful or practical for us to use international operations in the manner in
which we currently use them. If we or our vendors had to curtail or cease operations in these countries and transfer some or all of
these operations to another geographic area, we would incur significant transition costs as well as higher future overhead costs
that could materially and adversely affect our results of operations. In many foreign countries, particularly in those with developing
economies, it may be common to engage in business practices that are prohibited by laws and regulations applicable to us, such
as The Foreign Corrupt Practices Act of 1977, as amended (“FCPA”). Any violations of the FCPA or local anti-corruption laws
by us, our subsidiaries or our local agents could have an adverse effect on our business and reputation and result in substantial
financial penalties or other sanctions.
Our vendor relationships subject us to a variety of risks.
We have significant vendors that, among other things, provide us with financial, technology and other services to support our
businesses. With respect to vendors engaged to perform activities required by the applicable servicing criteria, we assess compliance
with the applicable servicing criteria for the applicable vendor (or in certain cases require vendors to provide their own assessments
and attestations) and are required to have procedures in place to provide reasonable assurance that the vendor’s activities comply
in all material respects with servicing criteria applicable to the vendor. In the event that a vendor’s activities do not comply with
the servicing criteria, it could negatively impact our servicing agreements. In addition, if our current vendors were to stop providing
services to us on acceptable terms, including as a result of one or more vendor bankruptcies, we may be unable to procure alternatives
from other vendors in a timely and efficient manner and on acceptable terms, or at all. Further, we may incur significant costs to
resolve any such disruptions in service and this could adversely affect our business, financial condition and results of operations.
19Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Our risk management policies and procedures may not be effective.
Our risk management framework seeks to mitigate risk and appropriately balance risk and return. We have established policies
and procedures intended to identify, monitor and manage the types of risk to which we are subject, including credit risk, market
and interest rate risk, liquidity risk, cyber risk, regulatory, legal and reputational risk. Although we have devoted significant
resources to develop our risk management policies and procedures and expect to continue to do so in the future, these policies and
procedures, as well as our risk management techniques such as our hedging strategies, may not be fully effective. There may also
be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated. As regulations
and markets in which we operate continue to evolve, our risk management framework may not always keep sufficient pace with
those changes. If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected
losses and could be materially adversely affected.
Our business could suffer if we fail to attract, or retain, highly skilled employees and changes in our executive management
team may be disruptive to our business.
Our future success will depend on our ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas
of our organization. Trained and experienced personnel in the mortgage industry are in high demand and may be in short supply.
Many of the companies with which we compete for experienced employees are large banks who have greater resources than we
have and may be able to offer more attractive terms of employment. In addition, we invest significant time and expense in training
our employees, which increases their value to competitors who may seek to recruit them. We may not be able to attract, develop
and maintain an adequate skilled workforce necessary to operate our businesses and labor expenses may increase as a result of a
shortage in the supply of qualified personnel. If we are unable to attract and retain such personnel, we may not be able to take
advantage of acquisitions and other growth opportunities that may be presented to us and this could materially affect our business,
financial condition and results of operations.
Additionally, the experience of our executive management team is a valuable asset to us. Our executive management team has
significant experience in the residential loan originations and servicing industry and would be difficult to replace. Disruptions
in management continuity could result in operational or administrative inefficiencies and added costs, which could adversely
impact our results of operations and stock price, and may make recruiting for future management positions more difficult or
costly.
Negative public opinion could damage our reputation and adversely affect our business.
Reputational risk, or the risk to our business, earnings and capital from negative public opinion, is inherent in our business. Negative
public opinion can result from our actual or alleged conduct in any number of activities, including lending and debt collection
practices, foreclosures or evictions of elderly homeowners who default on reverse mortgages, technology failures, corporate
governance, and actions taken by government regulators and community organizations in response to those activities. Negative
public opinion can also result from media coverage, whether accurate or not. Additionally, the proliferation of social media websites
as well as the personal use of social media by our employees and others, including personal blogs and social network profiles, also
may increase the risk that negative, inappropriate or unauthorized information may be posted or released publicly that could harm
our reputation or have other negative consequences, including as a result of our employees interacting with our customers in an
unauthorized manner in various social media outlets. Negative public opinion can adversely affect our ability to attract and retain
customers, trading counterparties and employees and can expose us to litigation and regulatory action.
Lapses in disclosure controls and procedures or internal control over financial reporting could materially and adversely affect
our operations, profitability or reputation.
Our disclosure controls and procedures may not be effective in every circumstance. Similarly, we may experience a material
weakness or significant deficiency in internal control over financial reporting. Any lapses or deficiencies may materially and
adversely affect our business and results of operations or financial condition, restrict our ability to access the capital markets,
require us to spend significant resources to correct the lapses or deficiencies, expose us to regulatory or legal proceedings, subject
us to fines, penalties or judgments, harm our reputation, or otherwise cause a decline in investor confidence.
Regulatory and Legal Risks
We operate within a highly regulated industry on federal, state and local levels and our business results are significantly
impacted by the laws and regulations to which we are subject, as well as scrutiny from governmental or regulatory agencies.
As a national mortgage services firm, we are subject to extensive, complex and comprehensive regulation under federal, state and
local laws in the United States, as well as governmental scrutiny from regulators and law enforcement agencies. These laws,
regulations and governmental inquiries can significantly affect the way that we do business, can restrict the scope of our existing
businesses, limit our ability to expand our product offerings or to pursue acquisitions, or can make our costs to service or originate
loans higher, which could impact our financial results.
20 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Regulatory requirements or changes to existing requirements that the Consumer Financial Protections Bureau (“CFPB”) or other
federal or state agencies, including HUD and the FCC, may promulgate could require changes in our business, result in increased
compliance and operational costs and impair the profitability of such business. For example, Regulation C of the Home Mortgage
Disclosure Act (“HMDA”) requires us to collect and report certain mortgage data for every loan application. These requirements
for gathering and submitting large amounts of data regarding loan applications to regulators and the public is complex. Thus, any
inadvertent errors in our gathering or reporting the data could result in fines or penalties being levied by the CFPB or other regulators
against us. In addition, the authority of state attorneys general to bring actions to enforce federal consumer protection legislation,
as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), could be expanded
and we could be subject to additional state lawsuits and enforcement actions, thereby further increasing our legal and compliance
costs. The cumulative effect of these changes could result in a material impact on our earnings. The implementation of the
originations and servicing rules by the CFPB and the CFPB’s continuing examinations of our business, including Xome, could
increase our regulatory compliance burden and associated costs and place restrictions on our operations, which could in turn
adversely affect our business, financial condition and results of operations.
We could be subject to additional regulatory requirements or changes under the Dodd-Frank Act beyond those currently proposed,
adopted or contemplated. There also continues to be discussion of potential GSE reform which would likely affect markets for
mortgages and mortgage securities in ways that cannot be predicted. In addition, FHFA initiatives may be implemented by the
GSEs that could materially affect the market for conventional and/or government insured loans.
Individual states have also been active, as have other regulatory organizations such as the Multi-State Mortgage Committee, as
well as various state Attorneys General. We also believe there has been a shift among certain regulators towards a broader view
of the scope of regulatory oversight responsibilities with respect to mortgage originators and servicers. In addition to their traditional
focus on consumer protection laws, licensing and examination matters, certain regulators have begun to make observations,
recommendations or demands with respect to such areas as corporate governance, safety and soundness, and risk and compliance
management.
Certain regulators took steps to block the acquisition of MSRs by one of our competitors. It is possible that we could become
subject to similar actions with respect to our acquisition of MSRs or other key business operations such as entering into subservicing
contracts, which could adversely affect our business, financial condition and results of operations.
We are subject to numerous legal proceedings, federal, state or local governmental examinations and enforcement investigations.
Some of these matters are highly complex and slow to develop, and results are difficult to predict or estimate.
Legal Proceedings: We are routinely and currently involved in a significant number of legal proceedings concerning matters that
arise in the ordinary course of our business. There is no assurance that the number of legal proceedings will not increase in the
future, including certified class or mass actions. These legal proceedings range from actions involving a single plaintiff to putative
class action lawsuits with potentially tens of thousands of class members. These actions and proceedings are generally based on
alleged violations of consumer protection, securities, employment, contract, tort, common law fraud and numerous other laws,
including, but not limited to, 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, Servicemember’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, the Bankruptcy Code, False Claims Act and Making Home Affordable loan
modification programs (while MHA programs have ended, claims may continue to arise). Additionally, along with others in our
industry, we are 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. We are also subject to legal actions or proceedings related
to loss sharing and indemnification provisions of our 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.
Litigation and other proceedings may require that we pay settlement costs, legal fees, damages, including punitive damages,
penalties or other charges, or be subject to injunctive relief affecting our business practices, any or all of which could adversely
affect our financial results. In particular, ongoing and other legal proceedings brought under federal or state consumer protection
statutes may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could
result in damages substantially in excess of the amounts we earned from the underlying activities and that could have a material
adverse effect on our liquidity, financial position and results of operations. The costs of responding to the investigations can be
substantial.
21Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Regulatory Matters: 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 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,
our financial reporting and other aspects of our businesses. These matters include investigations by the CFPB, the SEC, the
Executive Office of the United States Trustees, the Office of the Special Inspector General for the Troubled Asset Relief Program,
the Department of Justice, the U.S. Department of Housing and Urban Development, the multistate coalition of mortgage banking
regulators, and various State Attorneys General. Several large mortgage originators or servicers have been subject to similar matters,
which have resulted in the payment of fines and penalties, changes to business practices and the entry of consent decrees or
settlements. The trend of large settlements with governmental entities may adversely affect the outcomes for other financial
institutions, including us. We continue to manage our response to each matter, but it is not possible for us to confidently or reliably
predict the outcome of any of them, including predicting any possible losses resulting from any judgments or fines, which can
lead to substantial disparities between legal reserves and subsequent settlements or penalties.
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 investigation. We are
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
December 31, 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. Similarly, while we are in discussions with
regard to the status and various issues arising in the investigation by the Executive Office of the United States Trustees, we cannot
predict the outcome of this investigation or whether they will exercise their enforcement authority through a settlement or other
proceeding in which they seek to impose additional remedial measures or other financial sanctions, which could have a material
adverse effect on our business, reputation, financial condition and results of operation.
Responding to these matters requires us to devote substantial legal and regulatory 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, limit our ability to grow and otherwise materially and adversely affect our business,
reputation, financial condition or results of operation. To the extent that an examination or other regulatory engagement reveals a
failure by us to comply with applicable law, regulation or licensing requirement this could lead to (i) loss of our licenses and
approvals to engage in our businesses, (ii) damage to our reputation in the industry and loss of client relationships, (iii) governmental
investigations and enforcement actions, (iv) administrative fines and penalties and litigation, (v) civil and criminal liability,
including class action lawsuits, and actions to recover incentive and other payments made by governmental entities, (vi) enhanced
compliance requirements, (vii) breaches of covenants and representations under our servicing, debt or other agreements,
(viii) inability to raise capital and (ix) inability to execute on our business strategy. Any of these occurrences could further increase
our operating expenses and reduce our revenues, require us to change business practices and procedures and limit our ability to
grow or otherwise materially and adversely affect our business, reputation, financial condition or results of operation.
Moreover, regulatory changes resulting from the Dodd-Frank Act, other regulatory changes such as the CFPB having its own
examination and enforcement authority and the “whistleblower” provisions of the Dodd-Frank Act and guidance on whistleblowing
programs issued by the NYDFS could further increase the number of legal and regulatory enforcement proceedings against us. In
addition, while we take numerous steps to prevent and detect employee misconduct, such as fraud, employee misconduct cannot
always be deterred or prevented and could subject us to additional liability.
22 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K We establish reserves for pending or threatened legal proceedings when it is probable that a liability has been incurred and the
amount of such loss can be reasonably estimated. Legal proceedings are inherently uncertain, and our estimates of loss are based
on judgments and information available at that time. Our estimates may change from time to time for various reasons, including
factual or legal developments in these matters. There cannot be any assurance that the ultimate resolution of our litigation and
regulatory matters will not involve losses, which may be material, in excess of our recorded accruals or estimates of reasonably
probable losses.
There are numerous federal, state and local laws and regulations in the mortgage industry.
Federal, state and local governments have recently proposed or enacted numerous laws, regulations and rules related to mortgage
loans. Due to the highly regulated nature of the residential mortgage industry, we are required to comply with a wide array of
federal, state and local laws and regulations that regulate, among other things, the manner in which we conduct our servicing,
originations and ancillary business and the fees we may charge. These regulations directly impact our business and require constant
compliance, which includes enhancing our compliance program, procedures and controls, monitoring and internal and external
audits. A failure in maintaining an effective compliance program or a material failure to comply with any of these laws or regulations
could subject us to lawsuits or governmental actions, which could materially adversely affect our business, financial condition and
results of operations.
In addition, there continue to be changes in legislation and licensing, which require technology changes and additional
implementation costs for loan originators. We expect legislative changes will continue in the foreseeable future, which may increase
our operating expenses.
Furthermore, there continue to be changes in state laws that are adverse to mortgage servicers that increase costs and operational
complexity of our business and impose significant penalties for violation. Any of these changes in law could adversely affect our
business, financial condition and results of operations.
Unlike competitors that are national banks, we are subject to state licensing and operational requirements that result in
substantial compliance costs.
Because we are not a depository institution, we do not benefit from a federal exemption to state mortgage banking, loan servicing
or debt collection licensing and regulatory requirements. We must comply with state licensing requirements and varying compliance
requirements in all 50 states and the District of Columbia, and we are sensitive to regulatory changes that may increase our costs
through stricter licensing laws, disclosure laws or increased fees or that may impose conditions to licensing that we or our personnel
are unable to meet. In addition, we are subject to periodic examinations by state regulators, which can result in refunds to borrowers
of certain fees earned by us, and we may be required to pay substantial penalties imposed by state regulators due to compliance
errors. Future state legislation and changes in existing regulation may significantly increase our compliance costs or reduce the
amount of ancillary revenues, including late fees that we may charge to borrowers. This could make our business cost-prohibitive
in the affected state or states and could materially affect our business.
Our business would be adversely affected if we lose our licenses.
Our operations are subject to regulation, supervision and licensing under numerous federal, state and local statutes, ordinances
and regulations. In most states in which we operate, a regulatory agency regulates and enforces laws relating to mortgage servicing
companies and mortgage originations companies such as us as well as regulating our ancillary service providers. These rules and
regulations generally provide for licensing as a mortgage servicing company, mortgage originations company or third-party debt
default specialist, title insurance agency, appraisal management company, licensed auctioneer, and other similar types of
requirements as to the form and content of contracts and other documentation, licensing of our employees and employee hiring
background checks, licensing of independent contractors with which we contract, restrictions on certain practices, disclosure and
record-keeping requirements and enforcement of borrowers’ rights. We are subject to periodic examination by state regulatory
authorities.
We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance
with all applicable federal, state and local laws, rules, regulations and ordinances. We may not be able to maintain all requisite
licenses and permits, and the failure to satisfy those and other regulatory requirements could result in a default under our servicing
or other agreements and have a material adverse effect on our operations. The states that currently do not provide extensive
regulation of our businesses may later choose to do so, and if such states so act, we may not be able to obtain or maintain all
requisite licenses and permits. The failure to satisfy those and other regulatory requirements could result in a default under our
servicing agreements and have a material adverse effect on our operations. Furthermore, the adoption of additional, or the revision
of existing, rules and regulations could adversely affect our business, financial condition and results of operations.
23Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K We may incur increased litigation costs and related losses if a court overturns a foreclosure or if a loan we are servicing becomes
subordinate to a Home Owners Association lien.
We may incur costs if we are required to, or if we elect to, execute or re-file documents or take other action in our capacity as a
servicer in connection with pending or completed foreclosures. In addition, if a court rules that the lien of a Homeowners Association
takes priority over the lien we service, we may incur legal liabilities and costs to defend such actions. If a court dismisses or
overturns a foreclosure because of errors or deficiencies in the foreclosure process, we may have liability to the loan owner, a
borrower, title insurer or the purchaser of the property sold in foreclosure. These costs and liabilities may not be legally or otherwise
reimbursable to us, particularly to the extent they relate to securitized mortgage loans. A significant increase in litigation costs
could adversely affect our liquidity, and our inability to be reimbursed for an advance could adversely affect our business, financial
condition and results of operations.
Residential mortgage foreclosure proceedings in certain states have been delayed due to lack of judicial resources and legislation,
all of which could have a negative effect on our ability to liquidate loans timely and slow the recovery of advances and thus
impact our earnings or liquidity.
In some states, such as New York, our industry has faced, and may continue to face, increased delays and costs caused by state
law and local court rules and processes. In addition, California and Nevada have enacted Homeowner’s Bill of Rights legislation
to establish complex mandatory loss mitigation practices for homeowners which cause delays in foreclosure proceedings. Delays
in foreclosure proceedings could also require us to make additional servicing advances by drawing on our servicing advance
facilities, or delay the recovery of advances, all or any of which could materially affect our earnings and liquidity and increase our
need for capital.
Risks Related to the Owning our Stock
Our common stock, and any other instruments treated as stock for purposes of Section 382, including the Series A Preferred
Stock, are subject to transfer restrictions under our Certificate of Incorporation which, if not complied with, could result in
the forfeiture of such stock and related distributions.
Our Certificate of Incorporation contains significant transfer restrictions in relation to the transfer of our common stock and any
other instruments treated as stock for purposes of Section 382 (including the Series A Preferred Stock). These transfer restrictions
have been adopted in order to minimize the likelihood that we will be deemed to have an “ownership change” within the meaning
of Section 382 that could limit our ability to utilize our NOLs under and in accordance with regulations promulgated by the IRS.
In particular, without the approval of our Board, (i) no person or group of persons treated as a single entity under Treasury Regulation
Section 1.382-3 will be permitted to acquire, whether directly or indirectly, and whether in one transaction or a series of related
transactions, any of our common stock or any other instrument treated as stock for purposes of Section 382, to the extent that after
giving effect to such purported acquisition (a) the purported acquirer or any other person by reason of the purported acquirer’s
acquisition would become a Substantial Holder (as defined below), or (b) the percentage stock ownership of a person that, prior
to giving effect to the purported acquisition, is already a Substantial Holder would be increased; and (ii) no Substantial Holder
may dispose, directly or indirectly, of any class of stock or any other instrument treated as stock for purposes of Section 382. A
“Substantial Holder” is a person that owns (as determined for purposes of Section 382) at least 4.75% of the total value of our
stock, including any instrument treated as stock for purposes of Section 382.
Because of the complexity of applying Section 382, and because the determination of ownership for purposes of Section 382 does
not correspond to SEC beneficial ownership reporting on Schedules 13D and 13G, holders and potential acquirers of our securities
should consult with their legal and tax advisors prior to making any acquisition or disposition of our securities. Pursuant to Article
VIII of our Certificate of Incorporation, the Board has the sole power to determine compliance with the transfer restrictions, and
we cannot assure you that the Board will concur with any conclusions reached by any holder of our securities or their respective
advisors, and/or approve or ratify any proposed acquisitions or dispositions of our securities. Under Article VIII, Section 3(b), of
our Certificate of Incorporation, if the Board determines that a Prohibited Transfer (as defined in our Certificate of Incorporation)
has occurred, such Prohibited Transfer shall, to the fullest extent permitted by law, be void ab initio and have no legal effect, and
upon written demand by us, the Purported Transferee (as defined in our Certificate of Incorporation) shall disgorge or cause to be
disgorged our securities, together with any dividends or distributions received, with respect to such securities.
Anti-takeover provisions in our Certificate of Incorporation and Amended and Restated Bylaws (“Bylaws”) and under Delaware
law, as well as certain existing contractual arrangements, make a third-party acquisition of us difficult.
Our Certificate of Incorporation, including Article VIII thereof, and Bylaws, as well as certain contractual arrangements with KKR,
contain provisions that make it difficult for a third party to acquire us, even if doing so might be deemed beneficial by or stockholders.
These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.
24 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Affiliates of KKR own a substantial amount of equity interests in us, and have other substantial interests in us and agreements
with us, and may have conflicts of interest with us or the other holders of our capital stock.
As of February 14, 2020, affiliates of KKR held shares of our stock representing approximately 17% of our voting power on an
as-converted basis. Affiliates of KKR are parties to the Investment Agreement and the Investor Rights Agreement. As a result,
affiliates of KKR may have substantial influence over our decisions to enter into any corporate transaction, including with respect
to any acquisition, and may have the ability to prevent any transaction that requires the approval of stockholders regardless of
whether other holders of our capital stock believe that any such transactions are in their own best interests. KKR will not provide
oversight of or have control over or be involved with the investment activities or other operations of the Company.
Neither KKR nor its director appointees are required to present us with investment opportunities and may pursue them separately
or otherwise compete with us.
Our Certificate of Incorporation provides that we renounce our interest or expectancy in any corporate opportunity in which KKR
or its director appointees seek to participate unless such opportunity (i) was first presented to KKR’s director appointees solely in
their capacity as directors of the Company or (ii) is identified by KKR or its director appointees solely through the disclosure of
information by or on behalf of us.
Additionally, KKR is in the business of making investments in companies and may from time to time acquire and hold interests
in businesses that compete directly or indirectly with us or that compete with us for acquisitions. KKR may also pursue acquisition
opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to
us. In addition, KKR’s interest in its portfolio companies could impact our ability to pursue acquisition opportunities.
The market price of our common stock may decrease, and you may lose all or part of your investment.
The market price of our common stock could decrease, and you may not be able to resell your shares at or above the price at which
your shares were acquired. Those fluctuations could be based on various factors, including:
•
our operating performance and the performance of our competitors and fluctuations in our operating results;
• macro-economic trends, including changes in interest rates and economic growth and unemployment;
•
•
•
•
•
•
•
•
•
•
•
•
the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
changes in earnings estimates or recommendations by research analysts who follow us or other companies in our industry;
global, national or local economic, legal and regulatory factors unrelated to our performance;
announcements of negative news by us or our competitors, such as announcements of poorer than expected results of
operations, data breaches or significant litigation;
actual or anticipated variations in our or our competitors’ operating results, and our or our competitors’ growth rates;
failure by us or our competitors to meet analysts’ projections or guidance we or our competitors may give the market;
changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to our
business;
changes in accounting standards, policies, guidance, interpretations or principles;
the departure of key personnel;
the number of shares publicly traded;
the converted Series B preferred stockholders selling their shares; and
other developments affecting us, our industry or our competitors.
25Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K In addition, in recent years the stock market has experienced significant price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or
disproportionate to the operating performance of those companies. These broad market fluctuations, as well as general economic,
political and market conditions such as recessions or interest rate changes, may cause declines in the market price of our common
stock, and you may not realize any return on your investment in us and may lose some or all of your investment.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease and maintain our principal executive office in one building totaling approximately 176,000 square feet in Coppell, Texas.
Our business operations and support offices are in leased facilities in various other locations in the United States, including Texas,
Arizona, California, Pennsylvania, Nebraska and Colorado, as well as locations in India. We believe that our facilities are adequate
for our current requirements and are being appropriately utilized. We periodically review our space requirements, and we believe
we will be able to acquire new space and facilities as and when needed on reasonable terms. We also look to consolidate and
dispose of facilities we no longer need, as and when appropriate.
Item 3. 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 December 31, 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.
26 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 December 31, 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.
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 4. Mine Safety Disclosures
Not applicable.
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Stockholders
Our common stock has been traded on the Nasdaq Stock Market under the ticker symbol “COOP” since October 10, 2018. From
September 28, 2015 until October 9, 2018, WMIH’s common stock had traded under the ticker symbol “WMIH”.
As of February 21, 2020, there were 2,747 stockholders of record of our common stock. A substantially greater number of holders
of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions.
Dividends
We have not declared or paid cash dividends on our common stock, and we currently do not expect to declare or pay any cash
dividends in the foreseeable future. The timing and amount of any future dividends, if any, will be determined by the Board of
Directors and will depend, among other factors, upon our earnings, financial condition, cash requirements, the capital requirements
of subsidiaries and investment opportunities at the time any such transaction is considered.
Issuer Purchases of Equity Securities
We did not make any repurchases of our shares during the fourth quarter of 2019.
27Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Performance Graph
The following graph shows a comparison of the cumulative total stockholder return for our common stock, as adjusted for the 1-
for-12 reverse stock split that occurred in October 2018, and the S&P 500 Index from December 31, 2014 through December 31,
2019. In addition, the following graph shows the cumulative returns of an index of two peer companies selected by us for the
period from December 31, 2014 through December 31, 2017 and the S&P SmallCap 600 Financials Index for the period from
January 1, 2018 through December 31, 2019. The peer group is comprised of the following companies: MGIC Investment
Corporation and Radian Group Inc. We changed to the S&P SmallCap 600 Financials Index for the period from January 1, 2018
through December 31, 2019 because our business significantly changed upon the completion of the Merger with Nationstar on
July 31, 2018. This data assumes an investment of $100 on December 31, 2014.
Comparison of Cumulative Total Return (December 31, 2014 to December 31, 2019)
$180
$160
$140
$120
$100
$80
$60
$40
$20
4
1
0
2
c
e
D
5
1
0
2
c
e
D
6
1
0
2
c
e
D
7
1
0
2
c
e
D
8
1
0
2
c
e
D
9
1
0
2
c
e
D
Mr. Cooper (formerly WMIH)
S&P 500 Index
Peer Group (2014 through 2017) and S&P Small Cap 600 Financials Index (2018 through 2019)
Comparative results for Mr. Cooper (formerly WMIH) common stock, the S&P 500 Index, the peer group (from 2014 through
2017) and the S&P SmallCap 600 Financials Index (from 2018 through 2019) are presented below:
Mr. Cooper (formerly WMIH)
S&P 500 Index
Peer Group (2014 through 2017) and S&P Small Cap 600
Financials Index (2018 through 2019)
December 31,
2014
2015
2016
2017
2018
2019
$
100
100
100
$
126
$
76
$
41
$
47
$
99
85
109
108
130
133
122
127
51
157
153
28 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
Item 6. Selected Financial Data
The table below presents, as of and for the dates indicated, our selected historical consolidated financial information. Note that
the selected consolidated statement of operations data for the Successor’s year ended December 31, 2019 and five months ended
December 31, 2018, and the Predecessor’s seven months ended July 31, 2018 and year ended December 31, 2017, and the
Successor’s selected consolidated balance sheet data at December 31, 2019 and December 31, 2018 have been derived from our
audited consolidated financial statements included elsewhere in this Annual Report. The Predecessor’s selected consolidated
statement of operations data and other financial data for the years ended December 31, 2016 and 2015 and the selected consolidated
balance sheet data at December 31, 2017, 2016 and 2015 have been derived from the Predecessor’s audited consolidated financial
statements that are not included in this Annual Report. The Successor’s and Predecessor’s historical results are not necessarily
indicative of future performance or results of operations. The following financial data should be read in conjunction with Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and
Supplementary Data.
Consolidated Balance Sheet Data: (amounts in millions)
Cash and cash equivalents
Mortgage servicing rights
Advances and other receivables, net
Reverse mortgage interests, net
Mortgage loans held for sale
Total assets(2)
Unsecured senior notes, net
Advance facilities, net
Warehouse facilities, net
Other nonrecourse debt, net
Total liabilities(2)
Total stockholders’ equity(2)
Successor
As of December 31,
Predecessor
As of December 31,
2019(1)
2018
2017
2016
2015
$
329
$
242
$
215
$
489
$
3,502
988
6,279
4,077
18,305
2,366
422
4,575
5,286
16,074
2,231
3,676
1,194
7,934
1,631
16,973
2,459
595
2,349
6,795
15,028
1,945
2,941
1,706
9,984
1,891
18,036
1,874
855
3,285
8,014
16,314
1,722
3,166
1,749
11,033
1,788
19,593
1,990
1,096
2,421
9,631
17,910
1,683
613
3,367
2,412
7,514
1,430
16,617
2,026
1,640
1,890
6,666
14,850
1,767
29Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
Successor
Year Ended
December 31,
2019(1)
Five Months
Ended
December 31,
2018
Predecessor
Seven Months
Ended July
31, 2018
Year Ended
December 31,
2017
Year Ended
December 31,
2016
Year Ended
December 31,
2015
Consolidated Statement of Operations and
Comprehensive Income Data: (amounts in
millions, except for earnings per share data)
Total revenues
Total expenses
Total other income (expenses), net
(Loss) income before income tax
(benefit) expense
Less: Income tax (benefit) expense
Net income
Less: Net (loss) income attributable
to non-controlling interests
Net income attributable to Successor/
Predecessor
Less: Undistributed earnings
attributable to participating
stockholders
Net income attributable to common
stockholders
Earnings per share data:
Basic
Diluted
Other Financial Data:
Net cash provided by / (used in):
Operating activities
Investing activities
Financing activities
$
2,007
$
1,851
(159)
(3)
(273)
270
(4)
274
2
272
2.99
2.95
702
(338)
(313)
$
$
$
$
$
$
594
707
(24)
(137)
(1,021)
884
—
884
8
876
9.65
9.54
1,251
(250)
(2,063)
$
1,196
$
1,650
$
1,915
$
945
(49)
1,475
(131)
1,644
(242)
202
48
154
—
154
—
154
1.57
1.55
2,294
(162)
(2,111)
$
$
$
44
13
31
1
30
—
30
0.31
0.30
1,359
(6)
(1,655)
$
$
$
29
13
16
(3)
19
—
19
0.19
0.19
972
(3,738)
2,698
$
$
$
$
$
$
1,989
1,688
(247)
54
11
43
4
39
—
39
0.38
0.37
398
(5,567)
5,483
(1)
(2)
Includes the impact of the acquisition of Pacific Union Financial, LLC. See Note 3, Acquisitions, in the notes to consolidated
financial statements for further details.
Includes impact of the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842) on January 1, 2019. See
Note 1, Nature of Business and Basis of Presentation, and Note 9, Leases, in the notes to consolidated financial statements
for further details.
30 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the information contained in our consolidated financial statements,
including the notes thereto. The following discussion contains, in addition to the historical information, forward-looking statements
that include risks and uncertainties (see discussion of “Forward-Looking Statements” included elsewhere in this Annual Report
on Form 10-K). Our actual results may differ materially from those anticipated in these forward-looking statements as a result of
certain factors, including those factors set forth under Item 1A. Risk Factors and elsewhere in this Annual Report on Form 10-K.
All dollar amounts presented herein are in millions, except per share data and other key metrics, unless otherwise noted.
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 operations for the year ended December 31, 2019 compared to the year ended
December 31, 2018. The financial results for the year ended December 31, 2019 and five months ended December 31, 2018 reflect
the results of the Successor. With respect to the year ended December 31, 2018, we have separately provided the financial results
of the Predecessor for the seven months ended July 31, 2018, and the financial results of the Successor for the five months ended
December 31, 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 year ended December 31, 2018. Although the separate financial results of the Predecessor and Successor for
the seven months ended July 31, 2018 and the five months ended December 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. We have 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.
We believe that non-GAAP financial measures should be considered in addition to, and not a substitute for, financial information
prepared in accordance with GAAP. We present non-GAAP financial measures in reporting its financial results to provide additional
and supplemental disclosure to evaluate operating results. In particular, we believe that providing this “Combined” information
is useful as a supplement to our standard GAAP financial presentation as it significantly enhances the period-over-period
comparability of our financial results. In addition, our management uses this “Combined” presentation to evaluate our ongoing
operations and for internal planning and forecasting purposes.
For a discussion of results of operations for the year ended December 31, 2018, on a combined basis, compared to the year ended
December 31, 2017 (the Predecessor), please refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2018.
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 $643 billion as of December 31, 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.
31Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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:
•
•
•
•
Strengthen our balance sheet by building capital and liquidity, reducing leverage, taking advantage of market conditions
to refinance existing senior notes, and implementing derivative hedging strategies;
Drive stronger profitability through a variety of efficiency initiatives, including ongoing improvement in unit cost
economics in Servicing, Originations, and Xome, as well as finalizing our Project Titan servicing transformation initiative
and identifying and realizing other opportunities for cost savings throughout the organization;
Improve results at Xome by winning new third-party customers and gaining wallet share with existing customers by
cross-selling multiple services and by delivering strong performance and excellent customer service;
Continue to focus on improving the customer experience in all of our segments, as well as sustaining the culture and
talent of our workforce; and
• Maintain strong relationships with agencies, investors, regulators, and other constituencies and a strong reputation for
compliance and customer service.
Results of Operations
Table 1. Consolidated Operations
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
Combined(1)
$ Change
% Change
Revenues - operational
$
Revenues - Mark-to-market
Total revenues
Total expenses
Total other income
(expenses), net
(Loss) income before income
tax (benefit) expense
Less: Income tax (benefit)
expense
Net income
Less: Net loss attributable to
non-controlling interests
Net income attributable to
Successor/Predecessor
$
2,512
(505)
2,007
1,851
(159)
(3)
(273)
270
(4)
758
(164)
594
707
(24)
(137)
(1,021)
884
—
$
1,000
$
1,758
$
196
1,196
945
(49)
202
48
154
—
32
1,790
1,652
(73)
65
(973)
1,038
—
754
(537)
217
199
(86)
(68)
700
(768)
43 %
(1,678)%
12 %
12 %
118 %
(105)%
(72)%
(74)%
(4)
(100)%
$
274
$
884
$
154
$
1,038
$
(764)
(74)%
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
Net income decreased for the year ended December 31, 2019 compared to the same period in 2018, on a combined basis. Net
income was higher in 2018, on a combined basis, primarily due to $973 income tax benefit recognized compared to $273 income
tax benefit recognized in 2019. In addition, mark-to-market (“MTM”) revenues decreased due to a negative MTM of $505 in
2019, primarily driven by declining interest rates, compared to a positive MTM of $32 in 2018, on a combined basis. Operational
revenues and total expenses increased for the year ended December 31, 2019 compared to the same period in 2018, on a combined
basis, largely due to growth in originations volume driven by declining interest rates and incremental volumes made available
with the acquisition of Pacific Union and related origination channels. In addition, in February 2019, we acquired Seterus mortgage
servicing platform and assumed certain assets related thereto from IBM (“Seterus acquisition”) for a total purchase price of $8,
which also contributed to the increase in operational revenue and total expenses.
Total other income (expenses), net, increased for the year ended December 31, 2019 compared to the same period in 2018, on a
combined basis. The increase was primarily due to an increase in interest expense in our Corporate/Other segment in 2019 as a
result of a higher debt balance and higher interest rates under the new unsecured senior notes that were issued in July 2018 to fund
the Merger with Nationstar.
32 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Table 2. Provision for Income Taxes
Successor
Predecessor
Year Ended
December 31,
2019
Income tax (benefit) expense
$
(273)
Five Months
Ended
December 31,
2018
(1,021)
$
Seven Months
Ended July 31,
2018
$
48
Effective tax rate(2)
7718.8%
742.4 %
23.8%
Combined(1)
(973)
$
$ Change
% Change
$
700
(72)%
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
(2) Effective tax rate is calculated using whole numbers.
Income tax benefit decreased for the year ended December 31, 2019 as compared to the same period in 2018, on a combined basis,
primarily driven by a decrease in the release of the valuation allowance associated with the pre-Merger net operating loss (“NOL”)
carryforwards, as well as state adjustments and permanent differences. The release of the valuation allowance decreased from
$990 for the five months ended December 31, 2018 to $285 for the year ended December 31, 2019. The effective tax rate for the
year ended December 31, 2019 was 7718.8% as compared to the effective tax rate of 742.4% and 23.8% for the five months ended
December 31, 2018 and the seven months ended July 31, 2018, respectively. The increase in the effective tax rate in 2019 as
compared to the five months ended December 31, 2018 resulted from adjustments having a relatively higher impact on the effective
tax rate due to a significantly lower loss before income tax benefit of $3 in 2019 as compared to loss before income tax benefit
of $137 in the five months ended December 31, 2018. The relative impact of adjustments to the effective tax rate will significantly
increase as the income (loss) before income tax expense (benefit) approaches zero.
Segment Results
We have four reportable 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, and operates an exchange which facilitates the sale
of foreclosed properties.
The Corporate/Other segment represents unallocated overhead expenses, including the costs of executive management
and other corporate functions that are not directly attributable to our operating segments, our senior unsecured notes, and
the results of a legacy mortgage investment portfolio, which consists of non-prime and non-conforming residential
mortgage loans that were transferred to a securitization trust (“Trust 2009-A”) in 2009. We collapsed Trust 2009-A and
executed the sale of the loans held in the trust in September 2019.
33Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Table 3. Segment Results
Successor
Year Ended December 31, 2019
Servicing
Originations
Xome
Elimination
Total
Operating
Segments
Corporate/
Other
Consolidated
Revenues
Service related, net
$
408
$
80
$
422
$
(3) $
907
$
2
$
909
Net gain on mortgage loans
held for sale
Total revenues
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other income (expenses), net
Total other income (expenses), net
Income (loss) before income tax
expense (benefit)
124
532
690
500
(469)
4
35
963
1,043
568
98
(98)
4
4
—
422
398
—
—
14
14
—
(3)
(3)
—
—
—
—
1,087
1,994
1,653
598
(567)
22
53
11
13
198
7
(212)
(7)
(212)
1,098
2,007
1,851
605
(779)
15
(159)
$
(123) $
479
$
38
$
— $
394
$
(397) $
(3)
Successor
Five Months Ended December 31, 2018
Servicing
Originations
Xome
Elimination
Total
Operating
Segments
Corporate/
Other
Consolidated
Revenues
Service related, net
$
217
$
24
$
177
$
— $
418
$
— $
Net gain on mortgage loans
held for sale
Total revenues
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other income, net
Total other income (expenses), net
Income (loss) before income tax
expense (benefit)
19
236
303
222
(173)
6
55
157
181
155
27
(26)
5
6
—
177
178
—
(1)
1
—
—
—
—
—
—
—
—
176
594
636
249
(200)
12
61
—
—
71
7
(93)
1
(85)
418
176
594
707
256
(293)
13
(24)
$
(12) $
32
$
(1) $
— $
19
$
(156) $
(137)
34 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Predecessor
Seven Months Ended July 31, 2018
Servicing(1)
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
Total revenues
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other (expenses)
income, net
Total other income
(expenses), net
Income (loss) before income
tax expense (benefit)
—
740
474
288
(268)
(1)
19
270
306
245
38
(37)
—
1
—
149
123
—
—
9
9
25
—
—
—
—
—
—
295
1,195
842
326
(305)
8
29
—
1
103
7
(83)
(2)
(78)
295
1,196
945
333
(388)
6
(49)
$
285
$
62
$
35
$
— $
382
$
(180) $
202
(1) For the Predecessor’s Servicing segment results purposes, all revenues are attributable to servicing the portfolio. Therefore,
$25 of net gain on mortgage loans was moved to revenues - service related, net during the seven months ended July 31, 2018.
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 expertise
in mitigating losses for investors, our commitment to strong customer service and regulatory compliance, our history of successfully
boarding new loans, and the ability to retain existing customers by offering attractive refinance options. We believe that our
operational capabilities are reflected in strong servicer ratings.
Table 4. Servicer Ratings
Rating date
Residential
Master Servicer
Special Servicer
Subprime Servicer
Fitch(1)
January 2020
RPS2-
RMS2+
RSS2-
RPS2-
Successor
Moody’s(2)
May 2019
Not Rated
SQ2
Not Rated
Not Rated
S&P(3)
May 2019
Above Average
Above Average
Above Average
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
35Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Servicing Portfolio Composition
As of December 31, 2019, the unpaid principal balance in our servicing portfolio consisted of approximately $621 billion in
forward loans, of which $324 billion was subservicing, and $23 billion in reverse mortgage loans.
•
•
•
The term “forward” refers to loans we service which are not “reverse mortgage loans,” as discussed below.
Our subservicing portfolio consists of loans where we perform the servicing responsibilities for a contractual fee, but do
not own the servicing rights and therefore do not record an MSR on balance sheet.
Reverse mortgage loans, most commonly HECMs, provide seniors 62 and older with a loan upon which draws can be
made periodically. The draws are secured by the equity in the borrower’s home. We have acquired our reverse mortgages
in prior years through several transitions and it is now in run-off mode. For a significant portion of our reverse mortgages,
we record 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,
due to program requirements, we consolidate certain reverse mortgages on our balance sheet and accrue interest income
and expense.
36 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The charts below set forth the portfolio mix between serviced, subserviced and reverse mortgage loans, and the composition of
our servicing portfolio ending UPB by investor group as of December 31, 2019 and 2018.
100%
80%
60%
40%
20%
0%
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$-
Servicing Portfolio Composition
5.2%
40.9%
53.9%
3.5%
50.4%
46.1%
12/31/2018
(Successor)
Forward Servicing
Subservicing
12/31/2019
(Successor)
Reverse Servicing
Servicing Portfolio by Investor Group
$547,782
24.2%
14.4%
61.4%
$643,490
30.0%
10.4%
59.6%
12/31/2018
(Successor)
12/31/2019
(Successor)
GSE
Private label servicing
Ginnie Mae
37Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following tables set forth the results of operations from the Servicing segment:
Table 5. Servicing Segment Results of Operations
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
Combined(1)
$ Change
% Change
$
$
1,273
(236)
(505)
532
690
35
$
464
(64)
(164)
236
303
55
$
656
(112)
196
740
474
19
$
1,120
(176)
32
976
777
74
153
(60)
(537)
(444)
(87)
(39)
14 %
34 %
(1,678)%
(45)%
(11)%
(53)%
$
(123) $
(12)
$
285
$
273
$
(396)
(145)%
Revenues
Operational
Amortization
Mark-to-market
Total revenues
Total expenses
Total other income
(expenses), net
(Loss) income before
income tax (benefit)
expense
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
For the year ended December 31, 2019, we incurred a loss before income tax benefit of $123 compared to an income before income
tax expense of $273 for the same period in 2018, on a combined basis. The change in (loss) income before income tax (benefit)
expense was primarily due to a decrease in total revenues, partially offset by a decrease in total expenses. Total revenues decreased
primarily as a result of negative mark-to-market revenues in 2019 compared to positive mark-to-market revenues in 2018, on a
combined basis, partially offset by an increase in operational revenues. In addition, total other income (expenses), net decreased
for the year ended December 31, 2019 compared to the same period in 2018, on a combined basis. Refer to Table 10. Servicing -
Revenues, Table 11. Servicing - Expenses, and Table 12. Servicing - Other Income (Expenses), Net, for further discussions on the
changes in total revenues, total expenses and total other income (expenses), net, respectively.
38 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Table 6. Servicing Portfolio - Unpaid Principal Balances
Average UPB
Forward MSRs - fair value
Subservicing and other(1)
Reverse loans - amortized cost
Total average UPB
Ending UPB
Forward MSRs - fair value
Agency
Non-agency
Total MSRs - fair value
Subservicing and other(1)
Agency
Non-agency
Total subservicing and other
Reverse loans - amortized cost
MSR
MSL
Securitized loans
Total reverse portfolio serviced
Total ending UPB
Successor
Predecessor
Year Ended
December 31, 2019
Five Months Ended
December 31, 2018
Seven Months Ended
July 31, 2018
$
$
311,601
$
282,806
$
283,743
25,270
203,341
29,837
620,614
$
515,984
$
279,520
187,407
33,380
500,307
Successor
December 31, 2019
December 31, 2018
$
240,688
$
56,094
296,782
308,532
15,451
323,983
2,508
13,994
6,223
22,725
229,108
66,373
295,481
208,607
15,279
223,886
3,940
16,538
7,937
28,415
$
643,490
$
547,782
(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.
39Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following table provides a rollforward of our forward servicing and subservicing portfolio UPB:
Table 7. Forward Servicing and Subservicing Portfolio UPB Rollforward
Balance - beginning of period
Additions:
Originations
Acquisitions
Deductions:
Dispositions
Principal reductions and other
Voluntary reductions(1)
Involuntary reductions(2)
Net changes in loans serviced by others
Balance - end of period
$
(1) Voluntary reductions are related to loan payoffs by customers.
(2)
Involuntary reductions refer to loan chargeoffs.
Successor
Predecessor
Year Ended
December 31, 2019
$
519,367
Five Months Ended
December 31, 2018
465,819
$
Seven Months Ended
July 31, 2018
$
473,256
39,355
210,638
(35,004)
(21,792)
(87,683)
(3,816)
(300)
620,765
$
8,936
82,559
(10,140)
(7,837)
(18,131)
(1,689)
(150)
519,367
$
12,327
25,987
(1,877)
(11,240)
(29,172)
(3,241)
(221)
465,819
During the year ended December 31, 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 primarily due to various MSR sales.
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)
Loan count
Average loan amount(2)
Average coupon - credit sensitive(3)
Average coupon - interest sensitive(3)
60+ delinquent (% of loans)(4)
90+ delinquent (% of loans)(4)
120+ delinquent (% of loans)(4)
Total prepayment speed (12-month constant prepayment rate)
Successor
December 31, 2019
3,588,162
December 31, 2018
3,133,784
$
172,980
$
165,748
4.7%
4.3%
2.0%
1.7%
1.5%
14.7%
4.9%
4.2%
2.2%
1.9%
1.7%
9.1%
(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 continued to experience low delinquency rates during the year ended December 31, 2019, which preserves the value
of our MSRs.
40 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Table 9. Forward Loan Modifications and Workout Units
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
11
20,683
19,669
5
13,120
7,066
38
16,828
22,700
Combined(1)
43
29,948
29,766
Amount
Change
(32)
(9,265)
(10,097)
40,363
20,191
39,566
59,757
(19,394)
% Change
(74)%
(31)%
(34)%
(32)%
HAMP modifications
Non-HAMP modifications
Workouts
Total modification and
workout units
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
Total modifications and workouts during the year ended December 31, 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.
41Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following table provides the composition of revenues for the Servicing segment:
Table 10. Servicing - Revenues
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
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)
$ 999
16
$ 367
17
15
84
172
—
—
2
3
8
5
29
40
17
—
—
2
2
$ 501
17
$ 868
17
$ 131
21
13
45
63
1
—
2
2
29
18
74
103
1
—
2
2
(12)
(3)
10
69
(1)
(1)
—
—
1
15 %
(6)%
(41)% (100)%
(17)% — %
14 % — %
67 %
50 %
1,287
21
449
21
643
22
1,092
22
195
(1)
18 %
(5)%
239
31
1,557
(41)
4
—
25
—
67
16
3
1
87
37
2
1
154
53
3
1
85
(22)
532
25
767
25
1,299
26
258
(243)
(4)
(48)
(20)
(1)
(2)
(33)
(78)
(1)
(53)
(1)
12
(3)
(126)
(2)
(117)
1,273
21
464
22
656
21
1,120
23
153
1
(1)
(1)
1
(2)
(2)
55 %
33 %
(42)% (100)%
20 %
(4)%
(23)% 100 %
93 % 100 %
14 %
(9)%
(527)
(9)
(128)
(6)
(190)
(7)
(318)
(6)
(209)
(3)
66 %
50 %
243
47
1
4
1
53
15
2
1
—
(4)
—
78
—
—
3
—
—
131
15
(4)
3
—
—
112
32
5
1
1
85 %
33 %
213 % 100 %
—
(125)% — %
(236)
(4)
(64)
(3)
(112)
(4)
(176)
(3)
(60)
(1)
34 %
33 %
(669)
(11)
(153)
164
3
(11)
(505)
(8)
(164)
(7)
(1)
(8)
295
10
142
3
(811)
(14)
(571)% (467)%
(99)
(3)
(110)
(2)
274
5
(249)% (250)%
196
7
32
1
(537)
(9)
(1,678)% (900)%
$ 532
9
$ 236
11
$ 740
24
$ 976
21
$ (444)
(12)
(45)% (57)%
Forward MSR
Operational Revenue
Base servicing
fees
Modification fees
(3)
Incentive fees(3)
Late payment fees
(3)
Other ancillary
revenues(3)
Total forward MSR
operational revenue
Base subservicing
fees and other
subservicing
revenue(3)
Reverse servicing
fees
Total servicing fee
revenue
MSR financing
liability costs
Excess spread
costs - principal
Total operational
revenue
Amortization, net of
accretion
Forward MSR
amortization
Excess spread
accretion
Reverse MSL
accretion(4)
Reverse MSR
amortization
Total amortization, net
of accretion
Mark-to-Market
Adjustments
MSR MTM(5)
Excess spread /
financing MTM
Total MTM
adjustments
Total revenues -
Servicing
42 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K (1) Refer to Basis of Presentation section for discussion on presentation of combined results.
(2) Calculated basis points (“bps”) are as follows: Annual $ 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 Predecessor recorded MSL accretion within reverse servicing fees, whereas the Successor has elected to record MSL
accretion within Amortization, net of accretion.
(5) 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
$62 and $25 for the year ended December 31, 2019 and five months ended December 31, 2018, respectively. The impact of
negative modeled cash flows for the Predecessor was $38 for the seven months ended July 31, 2018.
Forward - Due to the increase of the forward MSR portfolio’s UPB, base servicing fee revenue increased for the year ended
December 31, 2019 as compared to the same period in 2018, on a combined basis. The improvement in delinquency rates in 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.
Forward MSR amortization increased for the year ended December 31, 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 year ended December 31, 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 year ended December 31, 2019 as compared to the same period in 2018, on a
combined basis, due to significant growth in the subservicing portfolio UPB.
Reverse - Reverse servicing fees for the year ended December 31, 2019 decreased as compared to the same period in 2018, on a
combined basis, primarily due to the decline in the reverse mortgage portfolio. In addition, the Predecessor recorded MSL accretion
within reverse servicing fees, whereas the Successor has elected to record MSL accretion within Amortization, net of accretion.
43Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The table below summarizes expenses for the Servicing segment:
Table 11. Servicing - Expenses
Successor
Year Ended
December 31,
2019
Five Months
Ended December
31, 2018
Predecessor
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)
5
2
3
1
—
$ 131
59
66
38
9
6
3
3
2
$ 175
71
80
133
6
2
3
4
$ 306
130
146
171
6
3
3
3
$
40
(1)
13 % (17)%
(9)
(1)
(7)% (33)%
16
—
11 % — %
(129)
(2)
(75)% (67)%
—
15
—
24
—
(5) —
(21)% — %
121
162
42
19
Salaries, wages and
benefits
$ 346
General and
administrative
Servicing
support fees
Corporate and
other general
and
administrative
expenses
Foreclosure and
other liquidation
related expenses
Depreciation and
amortization
Total general
and
administrative
expenses
Total
expenses -
Servicing
344
6
172
8
299
9
471
9
(127)
(3)
(27)% (33)%
$ 690
11
$ 303
14
$ 474
15
$ 777
15
$
(87)
(4)
(11)% (27)%
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
(2) Calculated basis points (“bps”) are as follows: Annual $ amount/Total Average UPB X 10000.
Total expenses decreased during the year ended December 31, 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 driven by a change in estimate recorded in
connection with the Merger and associated with the refinement of loss expectations on the FNMA reverse mortgage portfolio,
which led to increased reserves. 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 Project Titan, which is expected
to increase operational efficiencies and enhance overall customer experience.
44 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The table below summarizes other income (expenses), net for the Servicing segment:
Table 12. Servicing - Other Income (Expenses), Net
Successor
Year Ended
December 31,
2019
Five Months
Ended December
31, 2018
Predecessor
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)
Income earned on
reverse mortgage
interest
Other interest
income
Interest income
$ 313
187
500
5
3
8
$ 206
16
222
(236)
(4)
(147)
(29)
—
(13)
(204)
(469)
4
(3)
(7)
—
(13)
(173)
Reverse mortgage
interest expense
Advance interest
expense
Other interest
expense
Interest expense
Other income
(expenses), net
Total other
income
(expenses), net -
Servicing
10
1
11
(6)
(1)
(1)
(8)
$ 274
14
288
(221)
(19)
(28)
(268)
9
1
10
(7)
(1)
(1)
(9)
$ 480
30
510
(368)
(32)
(41)
(441)
9
1
10
(7)
(1)
(1)
(9)
$(167)
157
(10)
132
3
(163)
(28)
(4)
2
(2)
3
1
(2)
2
(35)% (44)%
523 % 200 %
(2)% (20)%
(36)% (43)%
(9)% (100)%
398 % 200 %
(6)% (22)%
6
—
(1)
—
5
—
(1)
—
(20)% — %
$ 35
1
$ 55
3
$ 19
1
$ 74
1
$ (39)
—
(53)% — %
Weighted average
cost - advance
facilities
Weighted average
cost - excess spread
financing
3.9%
8.9%
4.1%
8.8%
3.9%
8.8%
4.0%
8.8%
(0.1)%
0.1 %
(3)%
1 %
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
(2) Calculated basis points (“bps”) are as follows: Annual $ amount/Total Average UPB X 10000.
Total other income (expenses), net decreased during the year ended December 31, 2019 as compared to the same period in 2018,
on a combined basis, primarily due to an increase in interest expense. The increase in interest expense was primarily due to an
increase in other interest expense as a result of an increase of $45 in excess spread costs and $92 of earnings credits and bank fee
credits which the Predecessor previously classified as interest expense, and $21 of compensating interest expense driven by higher
payoff volume. Partially offsetting the increase in other interest expense was a decrease in reverse mortgage interest expense,
primarily due to the decline in the reverse mortgage interest portfolio balance, as well as the accretion of the HMBS bond premium
due to a decline in the quarterly revaluation of the original mark-to-market premium on HMBS bonds, which was estimated in
connection with the Merger. In addition, interest income decreased due to a decrease in income earned on reverse mortgage interest,
partially offset by an increase in other interest income. Income earned on reverse mortgage interest decreased due to the decline
in the reverse mortgage interests balance and the amortization of a net asset premium into income. Other interest income increased
primarily as a result of aforementioned $92 of earnings credits and bank fee credits which 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.
45Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Servicing Portfolio and Liabilities
The tables below summarize the servicing portfolio and related liabilities in the Servicing segment:
Table 13. Servicing Portfolios and Related Liabilities
December 31, 2019
December 31, 2018
UPB
Carrying
Amount
Weighted Avg.
Coupon
UPB
Carrying
Amount
Weighted Avg.
Coupon
Successor
Forward MSRs - fair value
Agency
Non-agency
Total forward MSRs - fair
value
Subservicing and other(1)
Agency
Non-agency
Total subservicing and
other
Reverse portfolio - amortized
cost
MSR
MSL
Securitized loans
Total reverse portfolio
serviced
Total servicing portfolio unpaid
principal balance
$
240,688
$
56,094
296,782
308,532
15,451
323,983
2,508
13,994
6,223
22,725
2,944
552
3,496
N/A
N/A
N/A
6
(61)
6,279
6,224
4.5% $
4.7%
229,108
$
66,373
4.5%
295,481
208,607
15,279
223,886
3,940
16,538
7,937
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3,027
638
3,665
N/A
N/A
N/A
11
(71)
7,934
4.5%
4.8%
4.5%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$
643,490
$
9,720
N/A $
547,782
$
11,539
28,415
7,874
(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.
46 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K We assess whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition. We consider
numerous factors in making this assessment, with the primary factors consisting of the overall portfolio delinquency characteristics,
portfolio seasoning and residential mortgage loan composition. Interest rate sensitive portfolios typically consist of single-family
conforming residential forward mortgage loans serviced for GSEs or other third-party investors. Credit sensitive portfolios primarily
consist of higher delinquency single-family non-conforming residential forward mortgage loans in private-label securitizations.
Table 14. Fair Value MSR Valuation
Successor
December 31, 2019
December 31, 2018
UPB
Carrying
Amount
$
$
147,895
$
148,887
1,613
1,883
296,782
$
3,496
bps
109
126
118
UPB
Carrying
Amount
$
$
135,752
$
159,729
1,495
2,170
295,481
$
3,665
bps
110
136
124
Forward MSRs - fair value
Credit sensitive
Interest sensitive
Total forward MSRs -
fair value
As of December 31, 2019, when measuring the fair value of the portfolio as a basis point of the unpaid principal balance, our
credit and interest sensitive pools decreased in value compared to December 31, 2018 primarily due to higher forecasted prepayment
speeds as a result of the declining interest rate environment in 2019.
47Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following table provides information on the fair value of our owned forward MSR portfolio.
Table 15. MSRs - Fair Value, Rollforward
Fair value - beginning of period
Additions:
Servicing resulting from mortgage loans sold
Purchases of servicing rights
Dispositions:
Sales and cancellation of servicing assets(1)
Changes in fair value:
Due to changes in valuation inputs or assumptions used in
the valuation model:
Credit sensitive
Interest sensitive
Other changes in fair value:
Scheduled principal payments
Disposition of negative MSRs and other(2)
Prepayments
Voluntary prepayments
Credit sensitive
Interest sensitive
Involuntary prepayments
Credit sensitive
Interest sensitive
Fair value - end of period
$
Successor
Predecessor
Year Ended
December 31, 2019
$
3,665
Five Months Ended
December 31, 2018
3,413
$
Seven Months Ended
July 31, 2018
$
2,937
434
858
(408)
(205)
(384)
(94)
64
(99)
(309)
120
479
(111)
(78)
(45)
(39)
14
(36)
(37)
162
144
4
203
127
(45)
27
(71)
(54)
(7)
(19)
3,496
$
(7)
(8)
3,665
$
(12)
(9)
3,413
(1) Amount for the seven months ended July 31, 2018 was related to the sale of nonperforming loans, which had a negative MSR
value.
(2) Amounts primarily represent negative fair values reclassified from the MSR asset to reserves as underlying loans are removed
from the MSR and other reclassification adjustments.
48 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following table sets forth the weighted-average assumptions in estimating the fair value of forward MSRs.
Table 16. MSRs - Fair Value
Total MSRs Portfolio
Discount rate
Prepayment speeds
Average life
Credit Sensitive
Discount rate
Prepayment speeds
Average life
Interest Sensitive
Discount rate
Prepayment speeds
Average life
Successor
December 31, 2019
December 31, 2018
9.7%
13.1%
5.8 years
10.4%
12.7%
6.0 years
9.1%
13.5%
5.7 years
10.2%
10.8%
6.7 years
11.3%
11.8%
6.4 years
9.3%
10.0%
7.0 years
The discount rate for credit sensitive and interest sensitive MSRs as of December 31, 2019 remained consistent compared to
December 31, 2018. The weighted average life of loans for both credit and interest sensitive MSRs decreased as a result of increased
weighted average prepayment speeds, which were attributable to lower average interest rates period over period.
The discount rate, which is used to determine the present value of estimated future net servicing income, is based on the required
rate of return market investors would expect for an asset with similar risk characteristics. The discount rate is determined through
review of recent market transactions as well as comparing the discount rate to those utilized by third-party valuation specialists.
Total prepayment speeds represent the annual rate at which borrowers are forecasted to repay their mortgage loan principal, which
includes estimates for both voluntary and involuntary borrower liquidations. The expected weighted-average life represents the
total years we expect to service the MSR.
Excess Spread Financing
As further disclosed in Note 4, Mortgage Servicing Rights and Related Liabilities, in the notes to consolidated financial statements,
we have entered into sale and assignment agreements treated as financing arrangements whereby the acquirer has the right to
receive a specified percentage of the excess cash flow generated from an MSR.
The servicing fees associated with an MSR can be segregated into (i) a base servicing fee and (ii) an excess servicing fee. The
base servicing fee, along with ancillary income and other revenues, is designed to cover costs incurred to service the specified
pool plus a reasonable margin. The remaining servicing fee is considered excess. We sell a percentage of the excess fee, as a
method for efficiently financing acquired MSRs and the purchase of loans.
Excess spread financings are recorded at fair value, and the impact of fair value adjustments on future revenues and capital resources
varies primarily due to (i) prepayment speeds and (ii) our ability to recapture prepayments through the origination platform. See
Note 4, Mortgage Servicing Rights and Related Liabilities, in the notes to consolidated financial statements, for additional
information regarding the range of assumptions and sensitivities related to the measurement of the excess spread financing liability
as of December 31, 2019 and 2018.
49Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following table sets forth the change in the excess spread liability and the related weighted average assumptions.
Table 17. Excess Spread Financing
Fair value - beginning of period
Additions:
New financings
Deductions:
Repayments of debt
Settlements of principal balances
Changes in fair value:
Credit sensitive
Interest sensitive
Fair value - end of period
Key Weighted-Average Assumptions:
Total Excess Spread Portfolio
Discount rate
Prepayment speeds
Recapture rate
Average life
Credit Sensitive
Discount rate
Prepayment speeds
Recapture rate
Average life
Interest Sensitive
Discount rate
Prepayment speed
Recapture rate
Average life
Successor
Predecessor
Year Ended
December 31, 2019
$
1,184
Five Months Ended
December 31, 2018
1,039
$
542
(27)
(219)
(61)
(108)
1,311
$
$
255
(38)
(77)
23
(18)
1,184
Seven Months Ended
July 31, 2018
$
996
70
(3)
(105)
73
8
$
1,039
Successor
December 31, 2019
December 31, 2018
11.6%
12.6%
20.1%
5.8 years
12.3%
12.5%
21.6%
5.9 years
10.5%
12.8%
17.6%
5.8 years
10.4%
11.0%
18.6%
6.5 years
11.1%
11.6%
18.0%
6.3 years
9.0%
9.9%
16.0%
7.0 years
Due to market driven events occurring within the year ended December 31, 2019, we updated the discount rate utilized for
valuation of excess spread financing liabilities to accurately reflect the fair value.
50 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following table sets forth the change in the MSRs financing liability and the related weighted average assumptions.
Table 18. MSRs Financing Liability - Rollforward
Fair value - beginning of period
Changes in fair value:
Changes in valuation inputs or assumptions used in the
valuation model
Other changes in fair value
Fair value - end of period
Weighted-Average Assumptions
Advance financing rates
Annual advance recovery rates
Successor
Predecessor
Year Ended
December 31, 2019
$
32
Five Months Ended
December 31, 2018
26
$
23
(18)
37
$
11
(5)
32
$
Seven Months Ended
July 31, 2018
$
$
10
22
(6)
26
Successor
December 31, 2019
December 31, 2018
3.5%
18.8%
4.2%
19.0%
We entered into several sale agreements whereby we sold the right to receive repayment of servicing advances on private-label
servicing advances and the right to receive a portion of the base fee component on the related MSRs, and also transferred the
obligations to make future advances. These transactions are recorded as an MSR Financing Liability in our consolidated balance
sheets and represent the incremental costs relative to the market participant assumptions contained in the MSR valuation. Changes
in the value of the MSR financing liability are recorded against servicing revenue and interest imputed on the outstanding liability
is recorded as interest expense.
We estimate fair value of the MSR financing liability based on the present value of future expected discounted cash flows with
the discount rate approximating current market rate for similar financial instruments. The cash flow assumptions and prepayment
assumptions used in the model are based on various factors, with the key assumptions at December 31, 2019 and 2018 being
advance financing rates and annual advance recovery rates. The liability value increased in 2019 primarily due to the increase in
the UPB of the underlying MSR, which resulted in an increase in the amounts owed to the counterparty over 2019.
The following table provides an overview of our forward servicing portfolio and amounts that involve excess spread financing
with our co-invest partners for the periods indicated.
Table 19. Leveraged Portfolio Characteristics
Owned forward servicing portfolio - unencumbered
Owned forward servicing portfolio - encumbered
Subserviced forward servicing portfolio and other
Total unpaid principal balance
Successor
December 31, 2019
$
83,557
213,225
323,983
$
620,765
$
December 31, 2018
103,644
$
191,837
223,886
519,367
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.
51Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Reverse - MSRs 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 reverse MSRs, MSLs and participating interests in reverse mortgages. Such assets are recorded at amortized cost.
Table 20. Reverse - Mortgage Portfolio Characteristics
Loan count
Ending unpaid principal balance
Average loan amount(1)
Average coupon
Average borrower age
Successor
December 31, 2019
165,364
December 31, 2018
192,810
$
$
22,725
137,426
$
$
28,415
147,374
3.6%
80
4.5%
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, most commonly HECMs, provide seniors 62 and older with a loan upon which draws can be made periodically. The draws
are secured by the equity in the borrower’s home. For acquired servicing rights, an MSR or MSL is established on the acquisition
date at fair value, as applicable, based on the expected discounted cash flow from servicing the reverse portfolio.
Each quarter, we accrete the MSL to revenues - service related, net, of the respective portfolios run-off. The MSL is assessed for
increased obligation based on its fair value, using a variety of assumptions, with the key assumption being discount rates, prepayment
speeds and the borrower life expectancy. The MSLs are stratified based on predominant risk characteristics of the underlying
serviced loans. Impairment, if any, represents the excess of amortized cost of an individual stratum over its estimated fair value
and is recognized through an increase in the valuation allowance.
Based on our assessment, no impairment or increased obligation was required to be recorded for reverse MSRs and MSLs,
respectively, as of December 31, 2019 and 2018.
Originations Segment
The strategy of our Originations segment is to originate or acquire new loans for the servicing portfolio at a more attractive cost
than purchasing MSRs in bulk transactions and to retain our existing customers by providing them with attractive refinance options.
The Originations segment plays a strategically important role because its profitability is typically counter cyclical to that of the
Servicing segment. Furthermore, by originating or acquiring loans at a more attractive cost than would be the case in bulk MSR
acquisitions, the Originations segment improves our overall profitability and cash flow. Growing the Originations segment has
been a strategic focus for us for several years.
The Originations segment includes three channels:
•
•
•
Our direct-to-consumer lending channel relies on our call centers, 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
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.
52 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The charts below set forth the pull through adjusted lock volume and funded volume by channel and channel mix.
$ Billions
Pull through adjusted lock vol. ("PTA") & Funded Volume ("FN")
$45.0
$40.0
$35.0
$30.0
$25.0
$20.0
$15.0
$10.0
$5.0
$0.0
120%
100%
80%
60%
40%
20%
0%
$42.4
$2.3
$21.9
$18.2
$40.2
$2.4
$21.5
$16.3
$20.2
$10.5
$9.7
$21.2
$11.0
$10.2
2018 PTA Vol
(Combined basis)
2018 FN Vol
(Combined basis)
2019 PTA Vol
(Successor)
2019 FN Vol
(Successor)
DTC
Correspondent Wholesale
Channel Mix
52%
52%
5%
52%
6%
53%
48%
48%
43%
41%
2018 PTA Vol
(Combined basis)
2018 FN Vol
(Combined basis)
2019 PTA Vol
(Successor)
2019 FN Vol
(Successor)
DTC
Correspondent Wholesale
$45.0
$40.0
$35.0
$30.0
$25.0
$20.0
$15.0
$10.0
$5.0
$0.0
$$45.045.0
$$40.040.0
$$35.035.0
$$30.030.0
$$25.025.0
$$20.020.0
$$15.015.0
$$10.010.0
$5$5..00
$0$0..00
53Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following tables set forth the results of operations for the Originations segment:
Table 21. Originations Segment Results of Operations
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
$
1,043
$
568
4
479
$
181
155
6
32
Combined(1)
487
$
$ Change
556
$
$
$
$
$
$
$
306
245
1
62
306
11,907
2.57%
245
12,317
400
7
94
487
20,202
2.41%
400
21,201
$
$
$
$
$
$
$
$
$
$
% Change
114 %
42 %
(43)%
410 %
114 %
110 %
168
(3)
385
556
22,191
0.05 %
2 %
168
18,981
42 %
90 %
1,043
42,393
2.46%
568
40,182
$
$
$
$
181
8,295
2.18 %
155
8,884
Total revenues
Total expenses
Total other income
(expenses), net
Income before income tax
expense
Originations Margin
Revenue
Pull through adjusted lock
volume
Revenue as a percentage of
pull through adjusted lock
volume(2)
Expenses
Funded volume
Expenses as a percentage of
funded volume(3)
$
$
$
$
$
1.41%
1.74 %
1.99%
1.89%
(0.48)%
(25)%
Originations Margin
1.05%
0.44 %
0.58%
0.52%
0.53 %
102 %
(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 year ended December 31, 2019 as compared to the same period in 2018, on
a combined basis, primarily due to an increase in total revenues driven by origination volume growth. The growth in originations
volume was driven by declining interest rates, and incremental volumes made available with the acquisition of Pacific Union and
related origination channels. The Originations Margin for the year ended December 31, 2019 increased as compared to the same
period in 2018, on a combined basis, primarily due to the lower interest rate environment and growth in the direct-to-consumer
channel, along with lower expenses as a percentage of funded volume.
Originations Segment Revenues
Service related fee, net - Originations refers to fees collected from customers for originated loans and from other lenders for loans
purchased through the correspondent channel, and includes loan application, underwriting, and other similar fees.
Net gain on loans originated and sold represents the gains and losses from the origination, purchase, and sale of loans and related
derivative instruments. Gains from the origination and sale of loans are affected by the volume and margin of our originations
activity and is impacted by fluctuations in interest rates.
Capitalized servicing rights represents the fair value attributed to mortgage servicing rights at the time in which they are retained
in connection with the sale of loans during the period.
54 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Total 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
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
Combined(1)
$ Change
% Change
$
80
$
24
$
36
$
60
$
20
33 %
562
420
(19)
963
46
114
(3)
157
115
156
(1)
161
270
(4)
270
427
$
1,043
$
181
$
306
$
487
$
401
150
(15)
536
556
$
18,151
$
3,588
$
6,100
$
9,688
$
8,463
24,242
42,393
40,182
40,092
26.2%
$
$
$
$
$
$
4,707
8,295
8,884
9,183
24.8%
5,807
10,514
13,728
$
$
$
11,907
12,317
12,915
$
$
$
20,202
21,201
22,098
$
$
$
22,191
18,981
17,994
23.8%
24.6%
1.6 %
249 %
56 %
375 %
126 %
114 %
87 %
131 %
110 %
90 %
81 %
7 %
41.5%
55.8%
46.7%
64.7%
(23.2)%
(36)%
147 bps
144 bps
141 bps
142 bps
5 bps
4 %
Service related, net -
Originations
Net gain on mortgage loans
held for sale
Net gain on loans
originated and sold
Capitalized servicing rights
Provision for repurchase
reserves, net of release
Total net gain on
mortgage loans held for
sale
Total revenues -
Originations
Key Metrics
Consumer direct lock pull
through adjusted volume(2)
Other locked pull through
adjusted volume(2)
Total pull through adjusted
lock volume
Funded volume
Volume of loans sold
Recapture percentage
Purchase as a percentage of
funded volume
Value of capitalized servicing
on retained settlements
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
(2) Pull through adjusted volume represents the expected funding from locks taken during the period.
Total revenues increased for the year ended December 31, 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 made available with
the acquisition of Pacific Union and related origination channels, which occurred in February 2019. Total revenues increased 114%
or $556 period over period as pull through adjusted lock volume increased 110% during the same period.
55Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The table below summarizes expenses for the Originations segment:
Table 23. Originations - Expenses
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
Combined(1)
$ Change
% Change
Salaries, wages and benefits
$
375
$
95
$
148
$
243
$
132
General and administrative
Loan origination expenses
Corporate and other
general and administrative
expenses
Marketing and professional
service fees
Depreciation and
amortization
Loss on impairment of
assets
Total general and
administrative
Total expenses -
Originations
58
61
53
18
3
193
19
18
18
5
—
60
32
26
32
7
—
97
51
44
50
12
—
157
$
568
$
155
$
245
$
400
$
7
17
3
6
3
36
168
54%
14%
39%
6%
50%
100%
23%
42%
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
Total expenses for the year ended December 31, 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 made
available with the Pacific Union acquisition and related origination channels. The volume growth contributed to the increase in
salaries, wages and benefits, due to increased compensation and headcount related costs, and loan origination expenses. The
increase in loan origination expenses attributable to higher volume was partially offset by expense reduction initiatives. In addition,
corporate and other general and administrative expenses increased during the year ended December 31, 2019 primarily driven by
the Pacific Union acquisition.
The table below summarizes other income (expenses), net for the Originations segment:
Table 24. Originations - Other Income (Expenses), Net
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
$
98
(98)
4
$
27
(26)
5
38
(37)
—
$
Combined(1)
65
(63)
5
$
$ Change
33
(35)
(1)
% Change
51 %
56 %
(20)%
4
$
6
$
1
$
7
$
(3)
(43)%
4.3%
4.1%
4.9%
4.5%
4.5%
4.2%
4.7%
4.4%
(0.4)%
(0.3)%
(9)%
(7)%
Interest income
Interest expense
Other income, net
Total other income
(expenses), net -
Originations
$
$
Weighted average note rate -
mortgage loans held for sale
Weighted average cost of
funds (excluding facility fees)
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
56 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 year ended December 31, 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, net remained relatively flat in the year ended December
31, 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. We recorded $4 and $5 in other income, net related to such incentives in the year ended December
31, 2019 and 2018, on a combined basis, respectively. The master repurchase agreement expired during the third quarter of 2019.
Xome Segment
Xome is a real estate data and services company that provides services for mortgage originators and servicers, including Mr.
Cooper, as well as mortgage and real estate investors. Xome is strategically important because it generates fee income that
complements our servicing and origination businesses without requiring a significant amount of capital or exposing us to the same
level of interest rate or credit risk.
Xome is organized into three divisions: Exchange, Services and Data/Technology.
•
•
•
The Exchange division consists of the Xome.com auction platform which utilizes proprietary technology designed to
provide efficient execution for sales of foreclosed properties.
The Services division includes title, escrow, collateral valuation and field services related to real estate investments or
transactions including purchases, sales, refinances and defaults. Services includes the business of AMS, which we acquired
in August 2018.
The Data/Technology division contains a diversified set of businesses that provide technology solutions to real estate
service providers, aggregators and a variety of investors. This includes providing aggregation, standardization and
licensing for one of the nation’s largest set of MLS, public records and neighborhood demographic data.
57Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The charts below set forth Xome’s total revenues, Exchange properties sold, and Services completed orders.
Xome Segment - Total Revenues
$422
$326
43.3%
2018
(Combined basis)
52.5%
2019
(Successor)
Revenue earned from third-party customers
Exchange Properties Sold
Services Completed Orders
10,872
9,851
1,630,002
1,072,534
2018
(Combined basis)
2019
(Successor)
2018
(Combined basis)
2019
(Successor)
58 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Table 25. Xome Segment Results of Operations
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
Combined(1)
$ Change
% Change
Xome - Operations
Total revenues
Total expenses
Total other income
(expenses), net
Income (loss) before
income tax expense
(benefit)
Income (loss) before taxes
margin - Xome
Xome - Revenues
Exchange
Services
Data/Technology
Total revenues - Xome
Key Metrics
Exchange properties sold
Average Exchange properties
under management
Services completed orders
Percentage of revenue earned
from third-party customers
Xome - Expenses
Salaries, wages and benefits
General and administrative
Operational expenses
Depreciation and
amortization
Total general and
administrative
Total expenses -
Xome
$
$
$
$
$
422
398
14
177
178
—
$
$
149
123
9
$
326
301
9
38
$
(1)
$
35
$
34
$
96
97
5
4
9.0%
(0.6)%
23.5%
10.4%
(1.4)%
79
323
20
422
$
$
34
135
8
177
$
$
62
74
13
149
$
$
96
209
21
326
$
$
(17)
114
(1)
96
9,851
3,952
6,920
10,872
(1,021)
7,893
1,630,002
5,660
808,503
6,567
264,031
6,189
1,072,534
1,704
557,468
52.5%
56.2 %
28.0%
43.3%
9.2 %
$
148
$
73
$
58
$
131
$
236
14
250
$
398
$
100
5
105
178
58
7
65
158
12
170
$
123
$
301
$
17
78
2
80
97
29 %
32 %
56 %
12 %
(13)%
(18)%
55 %
(5)%
29 %
(9)%
28 %
52 %
21 %
13 %
49 %
17 %
47 %
32 %
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
Income before income tax expense increased for the year ended December 31, 2019 as compared to the same period in 2018, on
a combined basis, primarily driven by an increase in total revenues and other income (expenses), net, partially offset by an increase
in total expenses.
Total revenues increased for the year ended December 31, 2019 as compared to the same period in 2018, on a combined basis,
primarily due to an increase in Services revenues as a result of the August 2018 acquisition of AMS, which added higher volumes
of units for valuation and field services. Partially offsetting the increase in Services revenues was a decrease in Exchange revenues,
primarily as a result of lower foreclosure sales and inventories across the industry and nation.
Total expenses increased for the year ended December 31, 2019 as compared to the same period in 2018, on a combined basis,
primarily due to an increase in operational expenses, primarily related to the acquisition of AMS. Total other income (expenses),
net increased primarily due to the $15 change in the contingent consideration for the acquisition of AMS for the year ended
December 31, 2019.
59Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Corporate/Other Segment
The following tables set forth the results of operations for the Corporate/Other segment:
Table 26. Corporate/Other Segment Results of Operations
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
Combined(1)
$ Change
% Change
$
$
$
$
$
$
13
198
(212)
— $
71
(85)
$
1
103
(78)
$
1
174
(163)
$
$
$
$
(397)
$
(156)
$
88
62
40
8
110
198
$
$
6
1
7
(1)
(203)
(8)
(212)
(7)
38
13
20
—
33
71
5
2
7
(1)
(90)
(2)
(93)
1
(180)
$
(336)
$
45
$
83
$
54
4
—
58
67
24
—
91
103
$
174
$
7
—
7
(3)
(77)
(3)
(83)
(2)
$
$
12
2
14
(4)
(167)
(5)
(176)
(1)
12
24
(49)
(61)
5
(5)
16
8
19
24
(6)
(1)
(7)
3
(36)
(3)
(36)
(6)
1,200 %
14 %
30 %
18 %
6 %
(7)%
67 %
100 %
21 %
14 %
(50)%
(50)%
(50)%
(75)%
22 %
60 %
20 %
600 %
$
(212)
$
(85)
$
(78)
$
(163)
$
(49)
30 %
7.9%
7.1%
7.4%
7.2%
0.7%
10 %
Corporate/Other -
Operations
Total revenues
Total expenses
Total other income
(expenses), net
Loss before income tax
benefit - Corporate/Other
Corporate/Other - Expenses
Salaries, wages and benefits
General and administrative
Operational expenses
Depreciation and
amortization
Loss on impairment of
assets
Total general and
administrative
Total expenses -
Corporate/Other
Corporate/Other - Other
Income (Expenses), Net
Interest income, legacy
portfolio
Other interest income
Total interest income
Interest expense, legacy
portfolio
Interest expense on unsecured
senior notes
Other interest expense
Total interest expense
Other (expense) income, net
Total other income
(expenses), net -
Corporate/Other
Weighted average cost -
unsecured senior notes
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
60 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Loss before income tax benefit increased in the year ended December 31, 2019 as compared to 2018, on a combined basis, primarily
due to an increase in total expenses and the change in total other income (expenses), net. Total expenses increased primarily due
to amortization of intangible assets related to the Merger with Nationstar. In addition, during the fourth quarter of 2019, we recorded
an $8 impairment of assets in connection with an ancillary business.
Total 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.
The change in total other income (expenses), net in the year ended December 31, 2019 as compared to 2018, on a combined basis,
was 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 issued in July 2018 to fund the Merger with Nationstar. In addition,
net interest income related to the legacy portfolio declined due to the collapse of Trust 2009-A and the sale of loans held in the
trust. Other income (expenses), net declined in the year ended December 31, 2019 as compared to 2018, on a combined basis,
primarily due to a $5 impairment on an equity investment.
Partially offsetting the increase in total expenses and the change in total other income (expenses), net was an increase in total
revenues in the year ended December 31, 2019 as compared to 2018, on a combined basis, due to the gain recognized on the
collapse of Trust 2009-A, our legacy portfolio, and the sale of the loans held in the trust.
As a result of the collapse of Trust 2009-A and the sale of the loans held in the trust in September 2019, there was no legacy
portfolio as of December 31, 2019.
Table 27. Legacy Portfolio Composition
Performing - UPB
Nonperforming (90+ delinquency) - UPB
REO - estimated fair value
Total legacy portfolio
Successor
December 31, 2018
145
$
27
4
176
$
61Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Changes in Financial Position
Table 28. Changes in Assets
Cash and cash equivalents
Mortgage servicing rights
Advances and other receivables, net
Reverse mortgage interests, net
Mortgage loans held for sale at fair value
Deferred tax asset, net
Other
Total assets
Successor
December 31, 2019
$
329
December 31, 2018
242
$
$
3,502
988
6,279
4,077
1,345
1,785
3,676
1,194
7,934
1,631
967
1,329
$
18,305
$
16,973
$
$ Change
% Change
87
(174)
(206)
(1,655)
2,446
378
456
1,332
36.0 %
(4.7)%
(17.3)%
(20.9)%
150.0 %
39.1 %
34.3 %
7.8 %
Total assets as of December 31, 2019 increased by $1,332 or 7.8% 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 due to higher origination volumes
in a declining interest rate environment, and the incremental volumes made available with the acquisition of Pacific Union and
related origination channels, which occurred in February 2019. Other increased primarily due to $483 of other assets related to
the Pacific Union acquisition, as indicated in Note 3, Acquisitions, in the notes to consolidated financial statements, and $121 of
right of use assets recorded in 2019 as a result of adoption of ASU 2016-02. Reverse mortgage interests, net decreased $1,655
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.
Table 29. Changes in Liabilities and Stockholder’s Equity
Unsecured senior notes, net
Advance facilities, net
Warehouse facilities, net
MSR related liabilities - nonrecourse at fair
value
Other nonrecourse debt, net
Other liabilities
Total liabilities
Total stockholders’ equity
Successor
December 31, 2019
$
2,366
December 31, 2018
2,459
$
$
422
4,575
1,348
5,286
2,077
16,074
2,231
595
2,349
1,216
6,795
1,614
15,028
1,945
Total liabilities and stockholders’ equity $
18,305
$
16,973
$
$ Change
% Change
(93)
(173)
2,226
132
(1,509)
463
1,046
286
1,332
(3.8)%
(29.1)%
94.8 %
10.9 %
(22.2)%
28.7 %
7.0 %
14.7 %
7.8 %
Total stockholders’ equity at December 31, 2019 increased by $286 or 14.7% compared with the balance as of December 31, 2018
primarily due to net income of $270 during the year ended December 31, 2019. Total liabilities at December 31, 2019 increased
by $1,046 or 7.0% compared with the balance as of December 31, 2018 primarily due to an increase in warehouse facilities and
other liabilities, which was partially offset by a decrease in other nonrecourse debt. Warehouse facilities increased by $2,226
primarily due to the warehouse facilities acquired as part of the Pacific Union acquisition and higher origination volumes. 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 $1,509 primarily due to repayments of reverse mortgage related nonrecourse debt, which
was partially offset by proceeds from issuance of HECM securitizations.
62 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Liquidity and Capital Resources
We measure liquidity by unrestricted cash and availability of borrowings on our MSR and other facilities. We recorded cash and
cash equivalents on hand of $329 and total stockholders’ equity of $2,231 as of December 31, 2019. As of December 31, 2019,
we had $1,359 collateral pledged against the MSR facilities, of which we could borrow up to $840. During the year ended December
31, 2019, operating activities generated cash totaling $702.
We have sufficient borrowing capacity to support our operations. As of December 31, 2019, total available borrowing capacity
was $9,690, of which $4,672 was 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.
We service reverse mortgage loan portfolios with a UPB of $22,725 as of December 31, 2019, which includes $2,508 of reverse
MSRs, $13,994 of reverse MSLs and $6,223 of reverse mortgage interests. Reverse mortgages provide seniors aged 62 and older
with the ability to monetize the equity in their homes in a lump sum, line of credit or annualized 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. Recovery of advances and draws related to reverse MSRs is generally recovered over a two to three-month period from
the investor. However, for reverse mortgage portfolio 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. Draws on reverse mortgage loans totaled $242 in 2019, $316 in 2018,
on a combined basis, and $403 in 2017.
We believe that our cash flows from operating activities, as well as capacity with 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.
During 2019, we expanded our subservicing portfolios in order to grow our operations without the capital required for acquisition
costs and carrying costs of advances that is associated with ownership of mortgage servicing rights. We completed boardings of
$258 billion UPB in connection with new and existing subservicing agreements.
On January 16, 2020, we completed an offering of $600 aggregate principal amount of 6.000% Senior Notes due 2027 (the “Notes”).
The Notes will bear interest at 6.000% per annum and will mature on January 15, 2027. Interest on the Notes will be payable semi-
annually on January 15 and July 15 of each year, beginning on July 15, 2020. In February 2020, the net proceeds of the offering,
together with cash on hand, were used to redeem in full the outstanding 6.500% Senior Notes due 2021 and 6.500% Senior Notes
due 2022.
63Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Cash Flows
The table below presents the major sources and uses of cash flow for operating activities:
Table 30. Operating Cash Flow
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
Combined(1)
$ Change
% Change
$
270
$
884
$
154
$
1,038
$
(768)
(74)%
838
(366)
(1,249)
(1,204)
2,413
234
(1,021)
(294)
(10)
1,458
(80)
63
(388)
520
2,025
154
(958)
(682)
510
3,483
684
592
(567)
(1,714)
(1,070)
444 %
(62)%
83 %
(336)%
(31)%
$
702
$
1,251
$
2,294
$
3,545
$
(2,843)
(80)%
Net income
Fair value changes in MSRs,
MSR related liabilities and
mortgage
for
investment
Deferred tax (benefit) expense
loans held
Other non-cash adjustments to
net income
Originations net sales activities
Changes in working capital
Net cash attributable to
operating activities
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
Our operating activities generated cash of $702 during the year ended December 31, 2019 compared to $3,545 in 2018, on a
combined basis. The decrease in cash generated from operating activities was primarily due to the cash used in originations net
sales activities and the changes in working capital.
Cash used in originations net sales activities was $1,204 during the year ended December 31, 2019 compared to $510 cash generated
in 2018, on a combined basis. The change was primarily due to a higher funding of $19,041 for loan origination activities driven
by the declining interest rate environment, and an increase in funds used of $1,824 to repurchase forward loan assets out of Ginnie
Mae securitizations. The increase in funding was partially offset by an increase in proceeds of $19,151 on the sales of previously
originated loans and the sale of loans related to the collapse of Trust 2009-A, our legacy portfolio.
Cash generated from the changes in working capital was $2,413 during the year ended December 31, 2019 compared to $3,483
cash generated in 2018, on a combined basis. The change was primarily due to less collections on reverse mortgage interests driven
by normal portfolio run-off.
Cash generated from fair value changes in MSRs, MSR related liabilities and mortgage loans held for investment during the year
ended December 31, 2019 increased by $684 when compared to 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 $957, primarily due to the
negative mark-to-market adjustment for the year ended December 31, 2019.
Cash used from the deferred tax benefit during the year ended December 31, 2019 decreased by $592 when compared to 2018,
on a combined basis, primarily due to the reversal of the valuation allowance associated with the NOL carryforwards of WMIH
in the five months ended December 31, 2018.
64 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The table below presents the major sources and uses of cash flow for investing activities:
Table 31. Investing Cash Flows
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
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
Proceeds on sale of assets
Proceeds on sale of forward
and reverse mortgage
servicing rights
Other
Net cash attributable to
investing activities
(547)
—
343
(49)
(307)
—
105
(15)
(134)
13
—
(41)
(441)
13
105
(56)
$
(338) $
(250)
$
(162) $
(412) $
(106)
(13)
24 %
(100)%
238
7
74
227 %
(13)%
(18)%
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
Our investing activities used $338 during the year ended December 31, 2019, which decreased from $412 of cash used in 2018,
on a combined basis. The decrease in cash attributable to investing activities was primarily due to 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. Partially offsetting the increase in proceeds was an increase in cash used of $106 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.
65Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The table below presents the major sources and uses of cash flow for financing activities:
Table 32. Financing Cash Flow
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
Combined(1)
$ Change
% Change
$
1,704
$
(351)
$
(585) $
(936) $
2,640
(282)%
(186)
(294)
(129)
542
(27)
(219)
45
—
(305)
—
(260)
—
(1,036)
(69)
(1,105)
255
(38)
(77)
70
(3)
325
(41)
(105)
(182)
(1,591)
(831)
(1,391)
(2,222)
(99)
(14)
(31)
1
311
(34)
280
(33)
74
(294)
976
217
14
(37)
631
(379)
19
(28)%
(100)%
(88)%
67 %
(34)%
20 %
(28)%
(135)%
(58)%
$
(313) $
(2,063)
$
(2,111) $
(4,174) $
3,861
(93)%
Increase (decrease) in
warehouse facilities
(Decrease) increase in
advance facilities
Repayment of notes payable
Payment of unsecured senior
notes and nonrecourse debt
Issuance of excess spread
financing
Repayment of excess spread
financing
Settlement of excess spread
financing
Decrease of participating
interest financing
Changes in HECM
securitizations
Other
Net cash attributable to
financing activities
(1) Refer to Basis of Presentation section for discussion on presentation of combined results.
Our financing activities used $313 cash during the year ended December 31, 2019, which decreased from $4,174 of cash used in
2018, on a combined basis. The decrease in cash attributable to financing activities was primarily due to an increase of $1,704 in
warehouse facilities during the year ended December 31, 2019 compared to a pay down on warehouse facilities of $936 in 2018,
on a combined basis. Payment of warehouse facilities was higher in 2018, on a combined basis, 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 payment of unsecured senior notes and nonrecourse debt decreased by $976 primarily due to the redemption and repayment
of unsecured senior notes in 2018, on a combined basis. Cash used for participating interest financing decreased in 2019 primarily
due to a lower repayment of participating interest financing in 2019 compared to the same period in 2018, on a combined basis.
Partially 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 year ended December 31, 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 year ended December 31, 2019 increased due to scheduled pay downs and amounts incurred to settle the collapsed
trusts exceeding proceeds from the securitization of new trusts, resulting in a net cash outflow of $99. In addition, during 2018,
on a combined basis, proceeds from securitizations of new trusts exceeded scheduled pay downs and amounts incurred to settle
the collapsed trusts, resulting in a net cash inflow of $280.
Capital Resources
Capital Structure and Debt
We require access to external financing resources from time to time depending on our cash requirements, assessments of current
and anticipated market conditions and after-tax cost of capital. If needed, we believe additional capital could be raised through a
combination of issuances of equity, corporate indebtedness, asset-backed acquisition financing and/or cash from operations. Our
access to capital markets can be impacted by factors outside our control, including economic conditions.
66 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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. As of December 31, 2019, we were in compliance with our required financial covenants.
Seller/Servicer Financial Requirements
We are also subject to net worth, capital ratio and liquidity requirements established by the Federal Housing Finance Agency
(“FHFA”) for Fannie Mae and Freddie Mac Seller/Servicers, and Ginnie Mae for single family issuers. In both cases, these
requirements apply to our operating subsidiary, Nationstar Mortgage LLC.
Minimum Net Worth
The minimum net worth requirement for Fannie Mae and Freddie Mac is defined as follows:
▪
▪
Base of $2.5 plus 25 basis points of outstanding UPB for total loans serviced.
Tangible Net Worth comprises of total equity less goodwill, intangible assets, affiliate receivables and certain pledged
assets.
The minimum net worth requirement for Ginnie Mae is defined as follows:
▪
▪
The sum of (i) base of $2.5 plus 35 basis points of the issuer’s total single-family effective outstanding obligations, and
(ii) base of $5 plus 1% of the total effective HMBS outstanding obligations.
Tangible Net Worth is defined as total equity less goodwill, intangible assets, affiliate receivables and certain pledged
assets. Effective for fiscal year 2020, under the Ginnie Mae MBS Guide, the issuers will no longer be permitted to include
deferred tax assets when computing the minimum net worth requirement.
Minimum Capital Ratio
▪
In addition to the minimum net worth requirement, we are also required to hold a ratio of Tangible Net Worth to Total
Assets (excluding HMBS securitizations) greater than 6%.
Minimum Liquidity
The minimum liquidity requirement for Fannie Mae and Freddie Mac is defined as follows:
▪
▪
▪
3.5 basis points of total Agency servicing.
Incremental 200 basis points of total nonperforming Agency, measured as 90+ delinquencies, servicing in excess of 6%
of the total Agency servicing UPB.
Allowable assets for liquidity may include: cash and cash equivalents (unrestricted), available for sale or held for trading
investment grade securities (e.g., Agency MBS, Obligations of GSEs, US Treasury Obligations); and unused/available
portion of committed servicing advance lines.
The minimum liquidity requirement for Ginnie Mae is defined as follows:
▪ Maintain liquid assets equal to the greater of $1 or 10 basis points of our outstanding single-family MBS.
▪ Maintain liquid assets equal to at least 20% of our net worth requirement for HECM MBS.
Secured Debt to Gross Tangible Asset Ratio
Under Ginnie Mae guide, effective September 1, 2019, we are also required to maintain a secured debt to gross tangible asset
ratios greater than 60%.
Effective September 1, 2019, since we have a Ginnie Mae single-family servicing portfolio that exceeds $75 billion in UPB, we
are also required to obtain an external primary servicer rating and issuer credit ratings from two different rating agencies and
receive a minimum rating of a B or its equivalent. Effective for fiscal year 2020, 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.
67Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
In addition, Fannie Mae or Freddie Mac may require capital ratios in excess of stated requirements. Refer to Note 20, Capital
Requirements, in the notes to consolidated financial statements for additional information. As of December 31, 2019, we were in
compliance with our seller/servicer financial requirements for FHFA and Ginnie Mae.
Table 33. Debt
Advance facilities, net
Warehouse facilities, net
Unsecured senior notes, net
Successor
December 31, 2019
$
422
December 31, 2018
595
$
4,575
2,366
2,349
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.
Warehouse Facilities
Loan origination activities generally require short-term liquidity in excess of amounts generated by our operations. The loans we
originate are financed through several warehouse lines on a short-term basis. We typically hold the loans for approximately 30
days and then sell or place the loans in government securitizations in order to repay the borrowings under the warehouse lines.
Our ability to fund current operations depends upon our ability to secure these types of short-term financings on acceptable terms
and to renew or replace the financings as they expire.
As servicer for reverse mortgage loans, among other things, we are required to fund borrower draws on the loans. We typically
pool borrower draws for approximately 30 days before including them in a HMBS securitization. As of December 31, 2019,
unsecuritized borrower draws totaled $67, and our maximum unfunded advance obligation related to these reverse mortgage loans
was $2,617.
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%.
As of December 31, 2019, the expected maturities of our unsecured senior notes based on contractual maturities are presented
below:
Table 34. Contractual Maturities - Unsecured Senior Notes
Year Ending December 31,
2020
2021(1)
2022(1)
2023
2024
Thereafter
Unsecured senior notes principal amount
Unamortized debt issuance costs, premium and discount
Unsecured senior notes, net
Amount
—
492
206
950
—
750
2,398
(32)
2,366
$
$
(1) This note was subsequently redeemed in full in February 2020. See Note 26, Subsequent Events, in the notes to consolidated
financial statements for further information.
68 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The table below sets forth our contractual obligations, excluding our excess spread financing, MSR financing and participating
interest financing at December 31, 2019:
Table 35. Contractual Obligations
Unsecured senior notes(1)
Interest payment from unsecured senior notes
(2)
Advance facilities
Warehouse facilities
Finance lease obligations
Operating lease obligations
Total
Less than 1
Year
1 - 3 Years
3-5 Years
More than 5
Years
Total
$
— $
698
$
950
$
750
$
2,398
191
135
4,263
2
40
343
287
313
—
55
214
—
—
—
29
137
—
—
—
32
885
422
4,576
2
156
$
4,631
$
1,696
$
1,193
$
919
$
8,439
(1) On January 16, 2020, we completed an offering of $600 aggregate principal amount of 6.000% Senior Notes due 2027. In
February 2020, the net proceeds of the offering, together with cash on hand, were used to redeem in full the outstanding
6.500% Senior Notes due 2021 and 6.500% Senior notes due 2022. See Note 26, Subsequent Events, in the notes to consolidated
financial statements for additional information.
Interest expense on advance and warehouse facilities is not presented in this table due to the short-term nature of these facilities.
(2)
In addition to the above contractual obligations, we have also been involved with several securitizations, which were structured
as secured borrowings. These structures resulted in us carrying the securitized loans as mortgages on our consolidated balance
sheets and recognizing the asset-backed certificates acquired by third parties as nonrecourse debt. The timing of the principal
payments on this nonrecourse debt is dependent on the payments received on the underlying mortgage loans and liquidation of
REO. For more information regarding our indebtedness, see Note 12, Indebtedness, in the notes to consolidated financial statements.
69Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 18, Fair Value Measurements,
in notes to consolidated financial statements, business combinations and goodwill, and valuation and realization of deferred tax
assets. We believe that the judgment, estimates and assumptions used in the preparation of our consolidated financial statements
are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements
to these critical accounting policies, 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 mortgage servicing rights financing liability.
MSRs at Fair Value
We generally retain the servicing rights for existing forward residential mortgage loans transferred to a third party. We recognize
MSRs in such transfers that meet the requirements for sale accounting. Additionally, we may acquire the rights to service forward
residential mortgage loans from third parties. We apply fair value accounting to this class of MSRs, with all changes in fair value
recorded within revenues - service related, net in the consolidated statements of operations. We estimate the fair value of these
MSRs using a process that combines the use of a discounted cash flow model and analysis of current market data. The cash flow
assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage
prepayment speeds, discount rates and average life of loan.
We use internal financial models that use market participant data to value MSRs. These models are complex and use asset specific
collateral data and market inputs for interest and discount rates. In addition, the modeling requirements of MSRs are complex
because of the high number of variables that drive cash flows associated with MSRs. Although the general accuracy of our valuation
models is validated, valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the
relationships that drive the results of the models. On a quarterly basis, we obtain external market valuations from independent
third-party MSR valuation experts in order to validate the reasonableness of our internal valuation.
Excess Spread Financing
In conjunction with the acquisition of certain MSRs, we have entered into sale and assignment agreements, which we account for
as financings with third parties associated with funds and accounts under management of New Residential, BlackRock Financial
Management, Inc. and Värde Partners, Inc., whereby we sell the right to receive a portion of the excess cash flow generated from
certain underlying MSR portfolios after receipt of a fixed base servicing fee per loan. We retain all ancillary revenues associated
with servicing the portfolio and the remaining portion of the excess cash flow after receipt of the fixed base servicing fee. We
measure these financing arrangements at fair value to more accurately represent the future economic performance of the acquired
MSRs and related excess servicing financing, with all changes in fair value recorded as a charge or credit to servicing related
revenue, net in the consolidated statements of operations. We estimate the fair value of these financings using a process that
combines the use of a discounted cash flow model and analysis of current market data based on the value of the underlying MSRs.
In addition, should we refinance any loan in the portfolios, subject to certain limitations, we are 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 sale and assignment agreement described above. This is referred to collectively as recapture
component of excess spread financing liability. The cash flow assumptions and prepayment assumptions used in the model are
based on various factors with the key assumptions being mortgage prepayment speeds, discount rates, average life and recapture
rate.
Mortgage Servicing Rights Financing Liability
From time to time, we will enter into certain transactions with third parties to sell certain mortgage servicer rights and servicer
advances under specified terms. When these transfers qualify for sale treatment, we derecognize the transferred assets on our
consolidated balance sheets. We have determined that for a portion of these transactions, the related mortgage servicing rights
sales are contingent upon the receipt of consents from various third parties. Until these required consents are obtained, legal
ownership of the mortgage servicing rights continues to reside with us. We continue to account for the mortgage servicing rights
on our consolidated balance sheets. Consequently, we record a mortgage servicing rights financing liability associated with this
financing transaction.
70 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K We have elected to measure MSR financing agreements at fair value, with all changes in fair value recorded within revenues -
service related, net in the consolidated statements of operations. The fair value of MSR financing is based on the present value of
future expected discounted cash flows with the discount rate approximating current market rate for similar financial instruments.
The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions
being advance financing rates and advance recovery rates.
Business Combinations and Goodwill
Acquisitions that qualify as a business combination are accounted for using the acquisition method of accounting. The fair value
of consideration transferred for an acquisition is allocated to the assets acquired and liabilities assumed based on their fair value
as of the acquisition date. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition
and the fair value of the net tangible and identified intangible assets acquired under a business combination.
Under the acquisition method of accounting, we complete valuation procedures for an acquisition to determine the fair value of
the assets acquired and liabilities assumed. These valuation procedures require management to make assumptions and apply
significant judgment to estimate the fair value of the assets acquired and liabilities assumed. If the estimates or assumptions used
should significantly change, the resulting differences could materially affect the fair value of net assets. We estimate the fair value
of the intangible assets acquired generally through a combination of a discounted cash flow analysis (the income approach) and
an analysis of comparable market transactions (the market approach). For the income approach, we base the inputs and assumptions
used to develop these estimates on a market participant perspective which include estimates of projected revenues, discount rates,
economic lives and income tax rates, among others, all of which require significant management judgment. For the market approach,
we apply judgment to identify the most comparable market transactions to the transaction. Finite lived intangible assets, which
are primarily comprised of customer relationships and technology, are amortized over their estimated useful lives using the straight-
line method, or on a basis more representative of the time pattern over which the benefit is derived, and are assessed for impairment
whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable.
Goodwill is not amortized, but is reviewed for impairment annually as of October 1 and monitored for interim triggering events
on an ongoing basis. Goodwill is reviewed for impairment utilizing either a qualitative assessment or a quantitative goodwill
impairment test. If we choose to perform a qualitative assessment and determines the fair value more likely than not exceeds the
carrying value, no further evaluation is necessary. For reporting units where we perform the quantitative goodwill impairment test,
we compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present
value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit
exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference
would be recognized as an impairment loss.
Realization of Deferred Tax Assets
Our provision for income taxes is calculated using the balance sheet method, which requires the recognition of deferred income
taxes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes and certain changes in the valuation allowance.
We provide a valuation allowance against deferred tax assets if, based on available evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. In determining the adequacy of the valuation allowance, we consider
all forms of evidence, including: (1) historic earnings or losses; (2) anticipated taxable income resulting from the reversal of taxable
temporary differences; (3) tax planning strategies; and (4) anticipated future earnings exclusive of the reversal of taxable temporary
differences. Of all of the sources of taxable income, we generally rely upon reversals of existing deferred tax liabilities, tax planning
strategies, and future taxable income excluding reversing differences. In determining the appropriate amount of valuation allowance
required, we consider (1) internal forecasts of our future pre-tax income exclusive of reversing temporary differences and
carryforwards, (2) the nature and timing of future reversals of existing deferred tax assets and liabilities, (3) future originating
temporary and permanent differences, and (4) NOL carryforward expiration dates, among others.
71Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Other Matters
Recent Accounting Developments
Below provides recently issued accounting pronouncements applicable to us but not yet effective.
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 requires the estimated loss amount to reflect management’s best estimate of all expected credit losses for
the Company’s financial assets that are measured at amortized cost. The guidance became effective on January 1, 2020 for the
Company. The standard requires a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.
To implement and adopt this standard, management developed a detailed project plan, formed an internal committee from various
internal departments, and performed a scoping analysis. As a result, the Company determined that Reverse Mortgage Interests,
net of reserves, Advances and Other Receivables, net of reserves, and certain financial assets included in Other Assets are within
the scope of ASU 2016-13. For each of these financial instruments carried at amortized cost, the Company enhanced its processes
to consider and include the requirements of ASU 2016-13, as applicable, into the determination of credit-related losses. Specifically,
the Company considered that the guarantee from HUD on Reverse Mortgage Interests limits the credit losses on this product
primarily to those caused by operational errors from servicing; credit losses from adopting ASU 2016-13 are not material. For
Advances and Other Receivables, the Company considered that the majority of estimated losses are due to servicing operational
errors, while credit-related losses have historically been minimal and accordingly are estimated to not be material over the life of
the receivable. For Other Assets, certain financial assets (i.e. trade receivables and other receivables) the Company considered
that these are short-term in nature (less than one year), and the estimated credit-related losses over the life of these receivables are
similar to those resulting from the Company’s existing loss reserve process. After considering and implementing the requirements
of ASU 2016-13 as applicable, the Company does not expect a material impact of adopting ASU 2016-13 to the 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.
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 14, Securitizations and Financings, in the notes to consolidated financial statements in Item 8, Financial Statements and
Supplementary Data, which is incorporated herein for a summary of our transactions with VIEs and unconsolidated balances, and
details of their impact on our consolidated financial statements.
72 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Derivatives
See Note 11, Derivative Financial Instruments, in the notes to consolidated financial statements in Item 8, Financial Statements
and Supplementary Data, which is incorporated herein for a summary of our derivative transactions.
73Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K GLOSSARY OF TERMS
This Glossary of Terms defines some of the terms that are used throughout this report and does not represent a complete list of all
defined terms used.
Advance Facility. A secured financing facility to fund advance receivables which is backed by a pool of mortgage servicing
advance receivables made by a servicer to a certain pool of mortgage loans.
Agency. Government entities guaranteeing the mortgage investors that the principal amount of the loan will be repaid; the Federal
Housing Administration, the Department of Veterans Affairs, the US Department of Agriculture and Ginnie Mae (and collectively,
the “Agencies”)
Agency Conforming Loan. A mortgage loan that meets all requirements (loan type, maximum amount, LTV ratio and credit quality)
for purchase by Fannie Mae, Freddie Mac, or insured by the FHA, USDA or guaranteed by the VA or sold into Ginnie Mae.
Asset-Backed Securities (“ABS”). A financial security whose income payments and value is derived from and collateralized (or
“backed”) by a specified pool of underlying receivables or other financial assets.
Bulk acquisitions or purchases. MSR portfolio acquired on non-retained basis through an open market bidding process.
Base Servicing Fee. The servicing fee retained by the servicer, expressed in basis points, in an excess MSR arrangement in
exchange for the provision of servicing functions on a portfolio of mortgage loans, after which the servicer and the co-investment
partner share the excess fees on a pro rata basis.
Conventional Mortgage Loans. A mortgage loan that is not guaranteed or insured by the FHA, the VA or any other government
agency. Although a conventional loan is not insured or guaranteed by the government, it can still follow the guidelines of GSEs
and be sold to the GSEs.
Correspondent lender, lending channel or relationship. A correspondent lender is a lender that funds loans in their own name and
then sells them off to larger mortgage lenders. A correspondent lender underwrites the loans to the standards of an investor and
provides the funds at close.
Credit-Sensitive Loan. A mortgage loan with certain characteristics such as low borrower credit quality, relaxed original
underwriting standards and high LTV, which we believe indicates that the mortgage loan presents an elevated credit risk of borrower
default versus payoff.
Delinquent Loan. A mortgage loan that is 30 or more days past due from its contractual due date.
Department of Veterans Affairs (“VA”). The VA is a cabinet-level department of the U.S. federal government, which guarantees
certain home loans for qualified borrowers eligible for securitization with GNMA.
Direct-to-consumer originations. A type of mortgage loan origination pursuant to which a lender markets refinancing and purchase
money mortgage loans directly to selected consumers through telephone call centers, the Internet or other means.
Excess Servicing Fees. In an excess MSR arrangement, the servicing fee cash flows on a portfolio of mortgage loans after payment
of the base servicing fee.
Excess Spread. MSRs with a co-investment partner where the servicer receives a base servicing fee and the servicer and co-
investment partner share the excess servicing fees. This co-investment strategy reduces the required upfront capital from the
servicer when purchasing or investing in MSRs.
Federal National Mortgage Association (“Fannie Mae” or “FNMA”). FNMA was federally chartered by the U.S. Congress in
1938 to support liquidity, stability, and affordability in the secondary mortgage market, where existing mortgage-related assets
are purchased and sold. Fannie Mae buys mortgage loans from lenders and resells them as mortgage-backed securities in the
secondary mortgage market.
Federal Housing Administration (“FHA”). The FHA is a U.S. federal government agency within the Department of Housing and
Urban Development (HUD). It provides mortgage insurance on loans made by FHA-approved lenders in compliance with FHA
guidelines throughout the United States.
74 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
Federal Housing Finance Agency (“FHFA”). A U.S. federal government agency that is the regulator and conservator of Fannie
Mae and Freddie Mac and the regulator of the 12 Federal Home Loan Banks.
Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”). Freddie Mac was chartered by Congress in 1970
to stabilize the nation’s residential mortgage markets and expand opportunities for homeownership and affordable rental housing.
Freddie Mac participates in the secondary mortgage market by purchasing mortgage loans and mortgage-related securities for
investment and by issuing guaranteed mortgage-related securities.
Government National Mortgage Association (“Ginnie Mae” or “GNMA”). GNMA is a self-financing, wholly owned
U.S. Government corporation within HUD. Ginnie Mae guarantees the timely payment of principal and interest on MBS backed
by federally insured or guaranteed loans - mainly loans insured by the FHA or guaranteed by the VA. Ginnie Mae securities are
the only MBS to carry the full faith and credit guarantee of the U.S. federal government.
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”). Reverse mortgage loans issued by FHA. HECMs provide seniors aged 62 and
older with a loan secured by their home which can be taken as a lump sum, line of credit, or scheduled payments. HECM loan
balances grow over the loan term through borrower draws of scheduled payments or line of credit draws as well as through the
accrual of interest and FHA mortgage insurance premiums. In accordance with FHA guidelines, HECMs are designed to repay
through foreclosure and subsequent liquidation of loan collateral after the loan becomes due and payable. Shortfalls experienced
by the servicer of the HECM through the foreclosure and liquidation process can be claimed to FHA in accordance with applicable
guidelines.
HECM mortgage-backed securities (“HMBS”). A type of asset-backed security that is secured by a group of HECM loans.
Interest Rate Lock Commitments (“IRLC”). Agreements under which the interest rate and the maximum amount of the mortgage
loan are set prior to funding the mortgage loan.
Interest-Sensitive Loan. A mortgage loan which is primarily impacted by changes in forecasted interest rates, which in turn impacts
voluntary prepayment speed. Interest-sensitive loans typically consist of single-family conforming residential forward mortgage
loans serviced for GSEs or other third-party investors.
Loan Modification. Temporary or permanent modifications to loan terms with the borrower, including the interest rate, amortization
period and term of the borrower’s original mortgage loan. Loan modifications are usually made to loans that are in default, or in
imminent danger of defaulting.
Loan-to-Value Ratio (“LTV”). The unpaid principal balance of a mortgage loan as a percentage of the total appraised or market
value of the property that secures the loan. An LTV over 100% indicates that the UPB of the mortgage loan exceeds the value of
the property.
Lock period. A set of periods of time that a lender will guarantee a specific rate is set prior to funding the mortgage loan.
Loss Mitigation. The range of servicing activities provided by a servicer in an attempt to minimize the losses suffered by the
owner of a defaulted mortgage loan. Loss mitigation techniques include short-sales, deed-in-lieu of foreclosures and loan
modifications, among other options.
75Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Mortgage-Backed Securities (“MBS”). A type of asset-backed security that is secured by a group of mortgage loans.
Mortgage Servicing Right (“MSRs”). The right and obligation to service a loan or pool of loans and to receive a servicing fee as
well as certain ancillary income. MSRs may be bought and sold, resulting in the transfer of loan servicing obligations. MSRs are
designated as such when the benefits of servicing the loans are expected to adequately compensate the servicer for performing the
servicing.
MSR Facility. A line of credit backed by mortgage servicing rights that is used for financing purposes. In certain cases, these
lines may be a sub-limit of another warehouse facility or alternatively exist on a stand-alone basis. These facilities allow for same
or next day draws at the request of the borrower.
Mortgage Servicing Liability (“MSL”). The right and obligation to service a loan or pool of loans and to receive a servicing fee
as well as certain ancillary income. MSLs may be bought and sold, resulting in the transfer of loan servicing obligations. MSLs
are designated as such when the benefits of servicing the loans are not expected to adequately compensate the servicer for performing
the servicing.
Non-Conforming Loan. A mortgage loan that does not meet the standards of eligibility for purchase or securitization by Fannie
Mae, Freddie Mac or Ginnie Mae.
Originations. The process through which a lender provides a mortgage loan to a borrower.
Pull through adjusted lock volume. Represents the expected funding from locks taken during the period.
Prepayment Speed. The rate at which voluntary mortgage prepayments occur or are projected to occur. The statistic is calculated
on an annualized basis and expressed as a percentage of the outstanding principal balance.
Primary Servicer. The servicer that owns the right to service a mortgage loan or pool of mortgage loans. This differs from a
subservicer, which has a contractual agreement with the primary servicer to service a mortgage loan or pool of mortgage loans in
exchange for a subservicing fee based upon portfolio volume and characteristics.
Prime Mortgage Loan. Generally, a high-quality mortgage loan that meets the underwriting standards set by Fannie Mae or Freddie
Mac and is eligible for purchase or securitization in the secondary mortgage market. Prime Mortgage loans generally have lower
default risk and are made to borrowers with excellent credit records and a monthly income at least three to four times greater than
their monthly housing expenses (mortgage payments plus taxes and other debt payments) as well as significant other assets.
Mortgages not classified as prime mortgage loans are generally called either sub-prime or Alt-A.
Private Label Securitizations. Securitizations that do not meet the criteria set by Fannie Mae, Freddie Mac or Ginnie Mae.
Real Estate Owned (”REO”). Property acquired by the servicer on behalf of the owner of a mortgage loan or pool of mortgage
loans, usually through foreclosure or a deed-in-lieu of foreclosure on a defaulted loan. The servicer or a third-party real estate
management firm is responsible for selling the REO. Net proceeds of the sale are returned to the owner of the related loan or loans.
In most cases, the sale of REO does not generate enough to pay off the balance of the loan underlying the REO, causing a loss to
the owner of the related mortgage loan.
Recapture. The refinancing of a loan currently in the portfolio, or the financing of a customer’s new purchase which resulted in
the payoff of an existing loan.
Refinancing. The process of working with existing borrowers to refinance their mortgage loans. By refinancing loans for borrowers
we currently service, we retain the servicing rights, thereby extending the longevity of the servicing cash flows.
Reverse Mortgage Loan. A reverse mortgage loan, most commonly a Home Equity Conversion Mortgage, enables seniors to
borrow against the value of their home, and no payment of principal or interest is required until the death of the borrower or the
sale of the home. These loans are designed to go through the foreclosure and claim process to recover loan balance.
76 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
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.
Servicing Advances. In the course of servicing loans, servicers are required to make advances that are reimbursable from collections
on the related mortgage loan or pool of loans. There are typically three types of servicing advances: P&I advances, T&I Advances
and Corporate Advances.
(i) P&I advances cover scheduled payments of principal and interest that have not been timely paid by borrowers. P&I
Advances serve to facilitate the cash flows paid to holders of securities issued by the residential MBS trust. The servicer
is not the insurer or guarantor of the MBS and thus has the right to cease the advancing of P&I, when the servicer deems
the next advance nonrecoverable.
(ii) T&I advances pay specified expenses associated with the preservation of a mortgaged property or the liquidation of
defaulted mortgage loans, including but not limited to property taxes, insurance premiums or other property-related
expenses that have not been timely paid by borrowers in order for the lien holder to maintain its interest in the property.
(iii) Corporate advances pay costs, fees and expenses incurred in foreclosing upon, preserving defaulted loans and selling
REO, including attorneys’ and other professional fees and expenses incurred in connection with foreclosure and liquidation
or other legal proceedings arising in the course of servicing the defaulted mortgage loans.
Servicing advances are reimbursed to the servicer if and when the borrower makes a payment on the underlying mortgage
loan at the time the loan is modified or upon liquidation of the underlying mortgage loan but are primarily the responsibility
of the investor/owner of the loan. The types of servicing advances that a servicer must make are set forth in its servicing
agreement with the owner of the mortgage loan or pool of mortgage loans. In some instances, a servicer is allowed to
cease Servicing Advances, if those advances will not be recoverable from the property securing the loan.
Subservicing. Subservicing is the process of outsourcing the duties of the primary servicer to a third-party servicer. The third-
party servicer performs the servicing responsibilities for a fee and is typically not responsible for making servicing advances,
which are subsequently reimbursed by the primary servicer. The primary servicer is contractually liable to the owner of the loans
for the activities of the subservicer.
Unpaid Principal Balance (“UPB”). The amount of principal outstanding on a mortgage loan or a pool of mortgage loans. UPB
is used together with the servicing fees and ancillary incomes as a means of estimating the future revenue stream for a servicer.
U.S. Department of Agriculture (“USDA”). The USDA is a cabinet-level department of the U.S. federal government, which
guarantees certain home loans for qualified borrowers.
Warehouse Facility. A type of line of credit facility used to temporarily finance mortgage loan originations to be sold in the
secondary market. Pursuant to a warehouse facility, a loan originator typically agrees to transfer to a counterparty certain mortgage
loans against the transfer of funds by the counterpart, with a simultaneous agreement by the counterpart to transfer the loans back
to the originator at a date certain, or on demand, against the transfer of funds from the originator.
Wholesale Originations. A type of mortgage loan origination pursuant to which a lender acquires refinancing and purchase money
mortgage loans from third party correspondent lenders where the lender funds the loan.
77Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Our principal market exposure is to interest rate risk due to the impact on our mortgage-related assets and commitments.
Interest Rate Risk
Changes in interest rates affect our operations primarily as follows:
Servicing Segment
•
•
•
•
a decrease in interest rates may increase prepayment speeds which may lead to (i) increased amortization expense; (ii)
decrease in servicing fees; and (iii) decrease in the value of our MSRs;
a decrease in interest rates could reduce our earnings from our custodial deposit accounts;
an increase in interest rates would increase the cost of servicing our outstanding debt, including our ability to finance
servicing advances and for borrowing for acquisitions;
an increase in interest rates, together with an increase in monthly payments when an adjustable mortgage loan’s interest
rate adjusts upward from an initial fixed rate or a low introductory rate, may cause increased delinquency, default and
foreclosure. Increased mortgage defaults and foreclosures may adversely affect our business as they increase our expenses
and reduce the number of mortgages we service;
Originations Segment
•
•
an increase in interest rates could adversely affect our loan originations volume because refinancing an existing loan
would be less attractive for homeowners and qualifying for a purchase money loan may be more difficult for consumers;
an increase in interest rates could also adversely affect our production margins due to increased competition among
originators;
Xome Segment
•
•
an increase in interest rates could adversely affect Xome Exchange’s property sales, particularly non-distressed sales, as
financing may become less attractive to borrowers; and
a substantial and sustained increase in prevailing interest rates could adversely affect the loan origination volumes of
Xome’s clients since refinancing and purchase loans would be less attractive to borrowers, which would in turn adversely
impact Xome Services’ valuation and title order volume.
We actively manage the risk profiles of interest rate lock commitments (“IRLCs”) and mortgage loans held for sale on a daily
basis and enter into forward sales of MBS in an amount equal to the portion of the IRLC expected to close, assuming no change
in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, we enter into
forward sales of MBS to deliver mortgage loan inventory to investors.
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.
78 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
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 December 31, 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
December 31, 2019 given hypothetical instantaneous parallel shifts in the yield curve. Results could differ materially.
Table 36. Change in Fair Value
Increase (decrease) in assets
Mortgage servicing rights at fair value
Mortgage loans held for sale at fair value
Derivative financial instruments:
Interest rate lock commitments
Forward MBS trades
Total change in assets
Increase (decrease) in liabilities
Mortgage servicing rights liabilities at fair value
Excess spread financing at fair value
Derivative financial instruments:
Interest rate lock commitments
Forward MBS trades
Total change in liabilities
Total, net change
December 31, 2019
Down 25 bps
Up 25 bps
$
$
(248) $
20
25
(11)
(214)
(4)
(50)
(4)
33
(25)
(189) $
244
(24)
(32)
13
201
4
52
5
(41)
20
181
79Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Data:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the Year Ended December 31, 2019 and the Five Months
Ended December 31, 2018 (Successor) and for the Seven Months Ended July 31, 2018 and the Year
Ended December 31, 2017 (Predecessor)
Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2019 and the Five
Months Ended December 31, 2018 (Successor) and for the Seven Months Ended July 31, 2018 and the
Year Ended December 31, 2017 (Predecessor)
Consolidated Statements of Cash Flows for the Year Ended December 31, 2019 and the Five Months
Ended December 31, 2018 (Successor) and for the Seven Months Ended July 31, 2018 and the Year
Ended December 31, 2017 (Predecessor)
Notes to Consolidated Financial Statements
81
82
83
84
85
87
80 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Mr. Cooper Group Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Mr. Cooper Group Inc. (the Company) as of December 31,
2019 and 2018 (Successor), the related consolidated statements of operations, stockholders' equity and cash flows for the year
ended December 31, 2019 (Successor) and for the five months ended December 31, 2018 (Successor), and the related notes. We
have also audited the related consolidated statements of operations, stockholders’ equity and cash flows of Nationstar Mortgage
Holdings Inc. (Nationstar) for the seven months ended July 31, 2018 (Predecessor) and for the year ended December 31, 2017
(Predecessor), and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2019 and 2018 (Successor), the results of its operations and its cash flows for the year ended December 31,
2019 (Successor) and for the five months ended December 31, 2018 (Successor), in conformity with U.S. generally accepted
accounting principles. It is also our opinion that the consolidated financial statements referred to above present fairly, in all material
respects, the results of operations and cash flows of Nationstar for the seven months ended July 31, 2018 (Predecessor) and for
the year ended December 31, 2017 (Predecessor), in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated February 28, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Dallas, Texas
February 28, 2020
81Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Consolidated Financial Statements
MR. COOPER GROUP INC.
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except share data)
Assets
Cash and cash equivalents
Restricted cash
Mortgage servicing rights, $3,496 and $3,665 at fair value, respectively
Advances and other receivables, net of reserves of $175 and $47, respectively
Reverse mortgage interests, net of reserves of $3 and $13, respectively
Mortgage loans held for sale at fair value
Mortgage loans held for investment at fair value
Property and equipment, net of accumulated depreciation of $55 and $16,
respectively
Deferred tax assets, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Unsecured senior notes, net
Advance facilities, net
Warehouse facilities, net
Payables and other liabilities
MSR related liabilities - nonrecourse at fair value
Mortgage servicing liabilities
Other nonrecourse debt, net
Total liabilities
Commitments and contingencies (Note 21)
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 authorized, 91.1 million and 90.8
million shares issued, respectively
Additional paid-in-capital
Retained earnings
Total Mr. Cooper stockholders’ equity
Non-controlling interests
Total stockholders’ equity
Successor
December 31, 2019
December 31, 2018
$
$
$
$
329
283
3,502
988
6,279
4,077
—
112
1,345
1,390
242
319
3,676
1,194
7,934
1,631
119
96
967
795
18,305
$
16,973
2,366
$
422
4,575
2,016
1,348
61
5,286
16,074
—
1
1,109
1,122
2,232
(1)
2,231
2,459
595
2,349
1,543
1,216
71
6,795
15,028
—
1
1,093
848
1,942
3
1,945
Total liabilities and stockholders’ equity
$
18,305
$
16,973
See accompanying Notes to Consolidated Financial Statements.
82 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(millions of dollars, except for earnings per share data)
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July
31, 2018
Year Ended
December 31,
2017
Revenues:
Service related, net
Net gain on mortgage loans held for sale
Total revenues
Expenses:
Salaries, wages and benefits
General and administrative
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other income, net
Total other income (expenses), net
(Loss) income before income tax (benefit) expense
Less: Income tax (benefit) expense
Net income
Less: Net (loss) income attributable to non-controlling interests
Net income attributable to Successor/Predecessor
Less: Undistributed earnings attributable to participating
stockholders
Net income attributable to common stockholders
Net income per common share attributable to Successor/
Predecessor common stockholders:
Basic
Diluted
See accompanying Notes to Consolidated Financial Statements.
$
$
$
$
909
$
1,098
2,007
957
894
1,851
605
(779)
15
(159)
(3)
(273)
270
(4)
274
2
418
176
594
337
370
707
256
(293)
13
(24)
(137)
(1,021)
884
—
884
8
$
$
901
295
1,196
426
519
945
333
(388)
6
(49)
202
48
154
—
154
—
1,043
607
1,650
742
733
1,475
597
(731)
3
(131)
44
13
31
1
30
—
30
272
$
876
$
154
$
2.99
2.95
$
$
9.65
9.54
$
$
1.57
1.55
$
$
0.31
0.30
83Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K r
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84 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
MR. COOPER GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
Operating Activities
Net income
Adjustments to reconcile net income to net cash attributable to
operating activities:
Deferred tax (benefit) expense
Net gain on mortgage loans held for sale
Interest income on reverse mortgage loans
Loss (gain) on sale of assets
MSL related increased obligation
Provision for servicing reserves
Fair value changes and amortization/accretion of
mortgage servicing rights/liabilities
Fair value changes in excess spread financing
Fair value changes in mortgage servicing rights financing
liability
Fair value changes in mortgage loans held for investment
Amortization of premiums, net of discount accretion
Depreciation and amortization for property and
equipment and intangible assets
Share-based compensation
Other loss
Repurchases of forward loan assets out of Ginnie Mae
securitizations
Mortgage loans originated and purchased for sale, net of fees
Sales proceeds and loan payment proceeds for mortgage loans
held for sale and held for investment
Changes in assets and liabilities:
Advances and other receivables
Reverse mortgage interests
Other assets
Payables and other liabilities
Net cash attributable to operating activities
Investing Activities
Acquisitions, net of cash acquired
Property and equipment additions, net of disposals
Purchase of forward mortgage servicing rights, net of
liabilities incurred
Net payment related to acquisition of HECM related
receivables
Net proceeds from acquisition of reverse mortgage servicing
portfolio and HECM-related receivables
Proceeds on sale of forward and reverse mortgage servicing
rights
Proceeds on sale of assets
Purchase of cost-method investments
Net cash attributable to investing activities
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
Year Ended
December 31,
2017
$
270
$
884
$
154
$
31
(366)
(1,098)
(307)
2
—
66
1,005
(169)
5
(3)
(32)
91
18
11
(1,021)
(176)
(206)
—
—
38
225
5
6
(2)
9
39
2
—
63
(295)
(274)
(9)
59
70
(177)
81
16
—
8
33
17
3
(46)
(607)
(490)
(8)
—
148
430
12
(17)
—
82
59
17
6
(2,895)
(40,257)
(527)
(8,888)
(544)
(12,328)
(1,249)
(19,159)
41,948
9,405
13,392
20,776
228
2,192
78
(85)
702
(85)
(49)
(547)
—
—
343
—
—
(338)
43
1,544
(61)
(68)
1,251
(33)
(15)
(307)
—
—
105
—
—
(250)
377
1,601
(41)
88
2,294
—
(40)
(134)
(1)
—
—
13
—
(162)
(30)
1,672
(75)
(193)
1,359
—
(42)
(63)
—
16
71
16
(4)
(6)
Continued on following page. See accompanying Notes to Consolidated Financial Statements.
85Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(millions of dollars)
Successor
Predecessor
Year Ended
December 31,
2019
Five Months
Ended
December 31,
2018
Seven Months
Ended July 31,
2018
Year Ended
December 31,
2017
Financing Activities
Increase (decrease) in warehouse facilities
(Decrease) increase in advance facilities
Repayment of notes payable
Proceeds from issuance of HECM securitizations
Proceeds from sale of HECM securitizations
Repayment of HECM securitizations
Proceeds from issuance of participating interest financing
Repayment of participating interest financing
Proceeds from issuance of excess spread financing
Repayment of excess spread financing
Settlement of excess spread financing
Repayment of nonrecourse debt - legacy assets
Redemption and repayment of unsecured senior notes
Repayment of finance lease liability
Proceeds from non-controlling interests
Surrender of shares relating to stock vesting
Debt financing costs
Dividends to non-controlling interests
Net cash attributable to financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents - beginning of period
Cash and cash equivalents - end of period(1)
Supplemental Disclosures of Cash Activities
Cash paid for interest expense
Net cash paid (refunded) for income taxes
Supplemental Disclosures of Non-cash Investing Activities
Forward mortgage servicing rights sales price holdback
Purchase of forward mortgage servicing rights
$
$
$
$
$
1,704
(186)
(294)
751
20
(870)
277
(1,868)
542
(27)
(219)
(29)
(100)
(4)
—
(2)
(8)
—
(313)
51
561
612
174
42
49
28
$
$
$
$
$
(351)
45
—
343
—
(374)
112
(943)
255
(38)
(77)
(6)
(1,030)
—
3
—
(2)
—
(2,063)
(1,062)
1,623
561
283
(37)
$
$
$
(585)
(305)
—
759
—
(448)
208
(1,599)
70
(3)
(105)
(7)
(62)
—
—
(9)
(24)
(1)
(2,111)
21
575
596
417
36
$
$
$
— $
— $
— $
— $
863
(241)
—
707
—
(572)
575
(2,597)
—
(23)
(207)
(15)
(123)
—
—
(4)
(13)
(5)
(1,655)
(302)
877
575
765
102
—
—
(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amount reported within the
consolidated balance sheets.
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
Successor
Predecessor
December 31,
2019
December 31,
2018
July 31,
2018
December 31,
2017
$
$
329
283
612
$
$
242
319
561
$
$
166
430
596
$
$
215
360
575
See accompanying Notes to Consolidated Financial Statements.
86 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 servicers in the country focused
on delivering a variety of servicing and lending products, services and technologies. Xome provides technology and data enhanced
solutions to homebuyers, home sellers, real estate agents and mortgage companies. The Company’s corporate website is located
at www.mrcoopergroup.com.
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, 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 and focused on identifying and consummating an accretive acquisition transaction across a broad array
of industries, with a primary focus on the financial institutions sector. 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 assumed
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 consolidated financial statements regarding Nationstar’s business for periods prior to July 31,
2018. The predecessor’s company financial information is labeled “Predecessor” in these consolidated financial statements.
The consolidated financial statements of the Company and Predecessor have been prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”). The significant accounting policies described below, together with the other notes that
follow, are an integral part of the consolidated financial statements.
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.
87Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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, increases 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.
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 9, 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 was 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.
2. Significant Accounting Policies
The significant accounting policies described below were implemented by Nationstar and applied to the Predecessor’s financial
statements, unless otherwise noted. Upon the consummation of the Merger, the Company adopted these significant accounting
policies, which are applicable to the Successor’s financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include unrestricted cash on hand and other interest-bearing investments with original maturity dates
of 90 days or less.
Restricted Cash
Restricted cash includes collected funds pledged to certain advance and warehouse facilities, collected fees payable to third parties,
and contractual escrow funds.
Mortgage Servicing Rights (“MSR”)
The Company recognizes the rights to service mortgage loans for others, or MSRs, whether acquired or as a result of the sale of
loans the Company originates with servicing retained, as assets. The Company initially records all MSRs at fair value. MSRs
related to reverse mortgages are subsequently recorded at amortized cost. The Company has elected to subsequently measure
forward MSRs at fair value.
88 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K For MSRs initially recorded and subsequently measured at fair value, the fair value of the MSRs is based upon the present value
of the expected future net cash flows related to servicing the underlying loans. The Company determines the fair value of the
MSRs by the use of a discounted cash flow model which incorporates prepayment speeds, delinquencies, discount rate, ancillary
revenues, float earnings and other assumptions (including costs to service) that management believes are consistent with the
assumptions that other similar market participants use in valuing the MSRs. The credit quality and stated interest rates of the
forward loans underlying the MSRs affects the assumptions used in the cash flow models. The Company obtains third-party
valuations quarterly to assess the reasonableness of the fair value calculated by the cash flow model. Fair value adjustments are
recorded within revenues - service related, net in the consolidated statements of operations. The Company receives a base servicing
fee annually on the outstanding principal balances of the loans, which is collected from investors.
Additionally, the Company owns servicing rights for certain reverse mortgage loans. For this separate class of servicing rights,
the Company initially records an MSR or mortgage servicing liability (“MSL”) on the acquisition date based on the fair value of
the future cash flows associated with the pool and whether adequate compensation is to be received for servicing. The Company
applies the amortized cost method for subsequent measurement of the loan pools with the capitalized cost of the MSRs amortized
in proportion and over the period of the estimated net future servicing income and the MSL accreted ratably over the expected
life of the portfolio. The expected period of the estimated net servicing income is based, in part, on the expected prepayment period
of the underlying mortgages. The Company adjusts MSR amortization and MSL accretion prospectively in response to changes
in estimated projections of future cash flows. Reverse MSRs and MSLs are stratified and evaluated each reporting period for
impairment or increased obligation, as applicable, based on predominant risk characteristics of the underlying serviced loans.
These stratification characteristics include investor, loan type (fixed or adjustable rate), term and interest rate. Impairment of the
MSR or additional obligation associated with the MSL are recorded through a valuation allowance, unless considered other-than-
temporary, and are recognized as a charge to general and administrative expense. Amounts amortized or accreted are recognized
as an adjustment to revenues - service related, net, along with monthly servicing fees received, generally stated at a fixed rate per
loan.
Advances and Other Receivables, Net
The Company advances funds to or on behalf of the investors when the borrower fails to meet contractual payments (e.g., principal,
interest, property taxes, insurance) in accordance with terms of its servicing agreements. Other receivables consist of advances
funded to maintain and market underlying loan collateral through foreclosure and ultimate liquidation on behalf of the investors.
Advances are recovered from borrowers for performing loans and from the investors and loan proceeds for non-performing loans.
The Company may also acquire servicer advances in connection with the acquisition of MSRs through asset acquisitions or business
combinations. These advances are recorded at their relative fair value amounts upon acquisition. The Company records receivables
upon determining that collection of amounts due from loan proceeds, investors, mortgage insurers, or prior servicers is probable.
Reserves related to recoverability of advances and other receivables are discussed below in Reserves for Forward Servicing
Activity.
As a result of the Merger and the acquisition of Pacific Union, the Advances and Other Receivables assets were recorded at their
estimated fair value as of the acquisition date. In both transactions, recording the estimated fair value resulted in a discount within
Advances and Other Receivables. Subsequently, this discount will be utilized as the advance balances associated with the discount
are recovered or written off.
89Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Reverse Mortgage Interests, Net
Reverse mortgage interests are comprised of the Company’s interest in reverse mortgage loans that consists of participating interests
in Home Equity Conversion Mortgages (“HECMs”) mortgage-backed securities (“HMBS”), other interests securitized and
unsecuritized interests, as well as related claims receivables and real estate owned (“REO”) related receivables. The Company
acquires and services interests in reverse mortgage loans insured by the Federal Housing Administration (“FHA”) known as
HECMs. HECMs provide seniors aged 62 and older with a loan secured by their home which can be taken as a lump sum, line of
credit, or scheduled payments. HECM loan balances grow over the loan term through borrower draws of scheduled payments or
line of credit draws, funded by the Company, as well as through the accrual of interest, servicing fees and FHA mortgage insurance
premiums. Growth in the loan balances are capitalized and recorded as reverse mortgage interests within the Company’s
consolidated balance sheet. Additionally, loan balances including borrower draws, mortgage insurance premiums, and servicing
fees may be eligible for securitization through Ginnie Mae’s HMBS program. In accordance with FHA guidelines, the HECM’s
recovery is through assignment to the Department of Housing and Urban Development (“HUD”) under the FHA guide or foreclosure
and subsequent liquidation of loan collateral after the loan becomes due and payable. Shortfalls experienced by the servicer of the
HECM through the foreclosure and liquidation process can be claimed to FHA in accordance with applicable guidelines. Other
interests securitized consist of reverse mortgage interests that no longer meet HMBS program eligibility criteria and have been
repurchased out of HMBS. These reverse mortgage interests have subsequently been transferred to private securitization trusts
and are accounted for as a secured borrowing. 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 maximum claim amount (“MCA”) established at origination in accordance with HMBS program guidelines.
As the HECM loan moves through the foreclosure and claims process, the Company classifies reverse mortgage interests as REO
related receivables and HECM related receivables, respectively. Interest income is accrued monthly based upon the borrower
interest rates within interest income on the consolidated statements of operations. The Company includes the cash outflow from
funding these amounts as operating activities in the consolidated statements of cash flows as a component of reverse mortgage
interests.
The Company is an authorized Ginnie Mae (“GNMA”) HMBS program issuer and servicer. In accordance with GNMA HMBS
program guidelines, borrower draws of scheduled payments or line of credit draws, servicing fee and interest accruals and mortgage
insurance premium accruals are eligible for HMBS participation securitizations as each of these items increases underlying HECM
loan balances. The Company pools and securitizes such eligible items into GNMA HMBS as issuer and servicer. In accordance
with the HMBS program, issuers are responsible for purchasing HECM loans out of the HMBS pool when the outstanding principal
balance of the related HECM loan is equal or greater than 98% of the maximum claim amount at which point the HECM loans
are no longer eligible to remain in the HMBS pool. Upon purchase from the HMBS pool, the Company will assign active HECM
loans to HUD or a prior servicer (as applicable and permitted by acquisition agreements) or service inactive HECM loans through
foreclosure and liquidation. Based upon the structure of the GNMA HMBS program, the Company has determined that the
securitizations of the HECM loans into HMBS pools do not meet all requirements for sale accounting. Accordingly, these
transactions are accounted for as secured borrowings.
If the Company has repurchased an inactive HECM loan that cannot be assigned to HUD, the Company may pool and securitize
these loans into a private HECM securitization. These securitizations are also recorded as secured borrowings in the consolidated
balance sheets. Interest expense on the participating interest financing is accrued monthly based upon the underlying HMBS rates
and is recorded to interest expense in the consolidated statements of operations. Both the acquisition and assumption of HECM
loans and related GNMA HMBS debt are presented as investing and financing activities, respectively, in the consolidated statements
of cash flows. Subsequent proceeds received from securitizations, and subsequent repayments on the securitized debt are presented
as financing activities in the consolidated statements of cash flows. Reserves related to recoverability of reverse mortgage interests
are discussed below in Reserves for Reverse Mortgage Interests.
As a result of the Merger, the reverse mortgage interest assets were recorded at their estimated fair value as of the acquisition date.
Recording the estimated fair value resulted in a premium on the participating interests in HMBS loans and a discount on the
unsecuritized interests and other interests securitized within reverse mortgage interests. Subsequently, the premium and the discount
will be amortized and accreted, respectively, to other income, based on the effective yield method whereby the Company will
update its prepayment assumptions for actual prepayments on a quarterly basis. In addition, the discount will be adjusted as the
reverse mortgage interest balances associated with the discount are utilized through recoveries or write-offs.
90 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Mortgage Loans Held for Sale
The Company originates prime residential mortgage loans with the intention of selling such loans on a servicing-retained basis in
the secondary market. As these loans are originated with intent to sell, the loans are classified as held for sale and the Company
has elected to measure these loans held for sale at fair value. The Company estimates fair value of mortgage loans held for sale
by 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 individual
loan characteristics. In connection with the Company’s election to measure originated mortgage loans held for sale at fair value,
the Company records the loan originations fees when earned, net of direct loan originations costs associated with these loans.
Loan origination fees, gains or losses recognized upon sale of loans, and fair value adjustments are recorded in net gain on sale
of mortgage loans held for sale in the consolidated statements of operations.
The Company may repurchase loans that were previously transferred to GNMA if those loans meet certain criteria, including being
delinquent greater than 90 days. It is the Company’s intention to sell such loans; therefore, the Company classifies such loans as
loans held for sale and has elected to measure these repurchased loans at fair value.
Mortgage Loans Held for Investment
Mortgage loans held for investment consisted of nonconforming or subprime mortgage loans that were transferred in 2009 from
mortgage loans held for sale at fair value. In connection with the Merger, the Company elected the fair value option for mortgage
loans held for investment effective August 1, 2018. 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. The Predecessor recorded mortgage loans held for investment at amortized cost. In September 2019, the Company collapsed
Trust 2009-A and executed the sale of the loans held in the trust. As of December 31, 2019, the Company has no financial instruments
classified as mortgage loans held for investment.
MSR Related Liabilities - Nonrecourse
Excess Spread Financing
In conjunction with the acquisition of certain MSRs on various pools of residential mortgage loans (the “Portfolios”), the Company
has entered into sale and assignment agreements related to its right to servicing fees, under which the Company sells to third
parties the right to receive a portion of the excess cash flow generated from the Portfolios after receipt of a fixed base servicing
fee per loan. The agreements consist of two components - current excess spread, or remittance of a percentage of excess spread
on currently serviced loans, and future excess spread, or the obligation to transfer currently serviced loans that have been refinanced
into current excess spread 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 sale and assignment agreement described above. The sale of these rights
is accounted for as secured borrowings, with the total proceeds received being recorded as a component of MSR related liabilities
- nonrecourse at fair value in the consolidated balance sheets. The Company determines the effective interest rate on these liabilities
and allocates total repayments between interest expense and the outstanding liability.
The Company has elected to measure the outstanding financings related to the excess spread financing agreements at fair value
with all changes in fair value recorded to revenues - service related, net in the consolidated statements of operations. The fair value
on excess spread financing is based on the present value of future expected discounted cash flows with the discount rate
approximating current market value.
Mortgage Servicing Rights Financing
The Company has entered into certain transactions with third parties to sell a contractually specified base fee component of certain
MSRs and servicer advances under specified terms. The Company evaluated these transactions to determine if they are sales or
secured borrowings. When these transfers qualify for sale treatment, the Company derecognizes the transferred assets in its
consolidated balance sheets. The Company has determined that for a portion of these transactions, the related MSRs sales are
contingent on the receipt of consents from various third parties. Until these required consents are obtained, for accounting purposes,
legal ownership of the MSR’s continues to reside with the Company. The Company continues to account for the MSRs in its
consolidated balance sheets. In addition, the Company records a mortgage servicing rights financing liability associated with this
financing transaction. Counterparty payments related to this financing arrangement are recorded as an adjustment to the Company’s
revenues - service related, net in the consolidated statement of operations.
91Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The Company has elected to measure the mortgage servicing rights financing liabilities at fair value with all changes in fair value
recorded to revenues - service related, net in the consolidated statements of operations. The fair value on mortgage servicing right
financings is based on the present value of future expected discounted cash flows with the discount rate approximating current
market value for similar financial instruments.
Revenue Recognition
Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with
Customers, establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash
flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize
revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be
entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of
the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments,
such as the Company’s loans and derivatives, as well as revenue related to the Company’s mortgage servicing activities, as these
activities are subject to other GAAP discussed elsewhere within the Company’s disclosures. All revenues from Xome fall within
the scope of ASC 606.
Revenues from Servicing Activities
•
•
Revenues from Forward Servicing Activities - Service related revenues primarily include contractually specified servicing
fees, late charges, prepayment penalties and other ancillary revenues. The servicing fees are based on a contractual
percentage of the outstanding principal balance and recognized as revenue as earned, which is generally upon collection
of the payments from the borrower. Corresponding loan servicing costs are charged to expense as incurred. The Company
recognizes ancillary revenues and earnings on float as they are earned, which is generally upon collection of the payments
from the borrower.
In addition, the Company receives various fees in the course of providing servicing on its various portfolios. These fees
include modification fees for modifications performed outside of government programs, modification fees for
modifications pursuant to various government programs, and incentive fees for servicing performance on specific
government-sponsored entities (“GSE”) portfolios. Fees recorded on modifications of mortgage loans serviced by the
Company for others are recognized on collection and are recorded as a component of revenues - service related, net. Fees
recorded on modifications pursuant to various government programs are recognized based upon completion of all
necessary steps by the Company and the minimum loan performance time frame to establish eligibility for the fee. Revenue
earned on modifications pursuant to various government programs is included as a component of revenues - service
related, net. Incentive fees for servicing performance on specific GSE portfolios are recognized as various incentive
standards are achieved and are recorded as a component of revenues - service related, net.
The Company also acts as a subservicer for certain parties that own the underlying servicing rights and receives
subservicing fees, which are typically a stated monthly fee per loan that varies based on types of loans. Fees related to
the subserviced portfolio are accrued in the period the services are performed.
Revenues from Reverse Mortgage Servicing and Reverse Mortgage Interests - The Company performs servicing of reverse
mortgage loans, similar to its forward servicing business, and receives servicing fees from investors, which are recorded
in revenues - service related, net in the consolidated statements of operations. For reverse mortgage interests, where the
Company records entire participating interest in HECM loans, the Company accrues interest in accordance with FHA
guidelines and records interest income on the consolidated statements of operations.
Revenues from Origination Activities
•
•
Revenues from Origination and other loan fees - Loan origination and other loan fees generally represent flat, per-loan
fee amounts and are recognized as revenue, net of loan origination costs, at the time the loans are funded.
Net gain on mortgage loans held for sale - Net gain on loans held for sale includes the realized and unrealized gains and
losses on sales of mortgage loans, as well as the changes in fair value of all loan-related derivatives, including interest
rate lock commitments.
92 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Revenues from Xome
Xome’s operations are comprised of Exchange, Services and Data/Technology, as follows:
•
•
•
Exchange is a national technology-enabled platform that manages and sells residential properties through its Xome.com
platform. Revenue-generating activities include commission and buyer’s premium of winning bids on auctioned real
estate owned (“REO”) and short sale properties. Revenue is recognized when the performance obligation is completed,
which is at the closing of real estate transactions and there is transfer of ownership to the buyer.
Services connects the major touch points of the real estate transactions process by providing title, escrow, collateral
valuation and field services for purchase, refinance and default transactions. Major revenue-generating activities include
title and escrow services and valuation services. Revenue is recognized when the performance obligation is completed,
which is when services are rendered to customers.
Data/Technology includes the Company’s software as a service platform which provides integrated technology, media
and data solutions to mortgage servicers, originators and multiple listing service (“MLS”) organizations and associations.
Revenue-generating activities include software and platform system access and use, system implementation, software
maintenance and support, data services and any additional customized enhancement. Revenue is recognized when the
performance obligation is completed, which is generally recognized on a straight-line basis over the contractual terms.
Additionally, any additional fees owed due to usage metrics in excess of the monthly minimum will be recognized each
month under the usage-based royalties guidance of ASC 606.
Reserves for Origination Activity
The Company provides for reserves, included within payables and accrued liabilities, in connection with loan origination activities.
Reserves on loan origination activities primarily include reserves for the repurchase of loans from GSEs, GNMA, and third-party
investors primarily due to delinquency or foreclosure and are initially recorded upon sale of the loan to a third party with subsequent
reserves recorded based on repurchase demands. The provision for reserves associated with loan origination activities is a
component of net gain on mortgage loans held for sale on the consolidated statements of operations.
The Company utilizes internal models to estimate reserves for loan origination activities based upon its expectation of future
defaults and the historical defect rate for government insured loans and is based upon judgments and assumptions which can be
influenced by many factors and may change over the life of the underlying loans, including: (i) historical loss rate, (ii) secondary
market pricing of loans; (iii) home prices and the levels of home equity; (iv) the quality of Company’s underwriting procedures;
(v) borrower delinquency and default patterns; and (vi) other Company-specific and macro-economic factors. On a quarterly basis,
management corroborates these assumptions using third-party data, where applicable.
Reserves for Forward Servicing Activity
In connection with forward loan servicing activities, the Company records reserves primarily for the recoverability of advances
from investors, interest claims, and mortgage insurance claims. Reserves for advances and other receivables associated with loans
in the MSR portfolio are considered within the MSR valuation, and the provision expense for such advances is recorded in the
mark-to-market adjustment in revenues - service related, net in the consolidated statement of operations. Such valuation gives
consideration to the expected cash outflows and inflows for advances and other receivables in accordance with the fair value
framework. Reserves for advances and other receivables on loans transferred out of the MSR portfolio are established within
advances and other receivables, net. As loans serviced transfer out of the MSR portfolio, any negative MSR value associated with
the loans transferred is reclassified from the MSR to the reserve within advances and other receivables, net, to the extent such
reserves continue to be required for balances remaining on the consolidated balance sheets. Management evaluates reserves for
sufficiency each reporting period and any additional reserve requirements are recorded as a provision in general and administrative
expense, as needed.
The Company records reserves for advances and other receivables and evaluates the sufficiency of such reserves through internal
models considering both historical and expected recovery rates on claims filed with government agencies, government sponsored
enterprises, vendors, prior servicer and other counterparties. Key assumptions used in the model include but are not limited to
expected recovery rates by loan types and aging of the receivable. Recovery of advances and other receivables is subject to judgment
based on the Company’s assessment of its compliance with servicing guidelines, its ability to produce the necessary documentation
to support claims, its ability to support amounts from prior servicers and to effectively negotiate settlements, as needed. Management
reviews recorded advances and other receivables and upon determination that no further recourse for recovery is available from
all means known to management, the recorded balances associated with these receivables are written-off against the reserve.
93Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Reserves for Reverse Mortgage Interests
The Company records a reserve for reverse mortgage interests based on unrecoverable costs and estimates of probable loss
exposures. The Company estimates reserve requirements upon the realization of a triggering event indicating a probable loss
exposure. Internal models are utilized to estimate loss exposures at the loan level associated with the Company’s ability to meet
servicing guidelines set forth by regulatory agencies and GSEs. Key assumptions within the models include but are not limited to
expected recovery rates by loan and borrower characteristics, foreclosure timelines, value of underlying collateral, future carrying
and foreclosure costs, and other macro-economic factors. If the calculated reserve requirements exceed the recorded allowance
for reserves and discounts, a provision is recorded to general and administrative expense, as needed. Releases to reserves are also
recorded against provision in general and administrative expenses. Reserve requirements are subject to significant judgment and
estimates based on the Company’s assessment of its compliance with servicing guidelines, its ability to produce the necessary
documentation to support claims, its ability to support amounts from prior servicers and to effectively negotiate settlements, as
needed. Each period, management reviews recorded reverse mortgage interests and upon determination that no further recourse
for recovery is available from all means known to management, the recorded balances associated with these receivables are written-
off against the reserve at the loan level.
Amounts Due from Prior Servicers
The Company services its loan portfolios under guidelines set forth by regulatory agencies and investor guidelines. Operational
losses can be incurred if the underlying loans are not serviced in accordance with established guidelines, resulting in the assessment
of fines and the inability to recover interest and costs incurred. Prior servicers associated with the underlying loans may have
contributed to the losses if their prior servicing practices did not allow for timely compliance with servicing guidelines set forth.
To mitigate the risk of loss to the Company, indemnification provisions are incorporated into the executed acquisition and servicing
agreements that allow for the recovery of realized losses which can be attributed to prior servicers. As part of its servicing operations,
the Company estimates and records an asset in advances and other receivables on the consolidated balance sheet for probable
recoveries from prior servicers for their respective portion of these losses. Estimated recoveries from prior servicers are based on
management’s best estimate of allocated losses among servicing parties, terms of the indemnification provisions, prior recovery
experience, current negotiations and the servicer’s ability to pay requested amounts. The Company updates its estimate of recovery
each reporting period based on the facts and circumstances known at the time. Recovery of amounts due from prior servicers is
subject to judgment based on the Company’s assessment of the prior servicer’s responsibility for losses incurred, its ability to
provide related support for such amounts and its ability to effectively negotiate settlement of amounts due from prior servicers if
needed.
Property and Equipment, Net
Property and equipment, net is comprised of building, furniture, fixtures, leasehold improvements, computer software, and computer
hardware. These assets are stated at cost less accumulated depreciation. Repairs and maintenance are expensed as incurred which
is included in general and administrative expenses in the consolidated statements of operations. Depreciation, which includes
depreciation and amortization on capital leases, is recorded using the straight-line method over the estimated useful lives of the
related assets. Cost and accumulated depreciation applicable to assets retired or sold are eliminated from the accounts, and any
resulting gains or losses are recognized at such time through a charge or credit to general and administrative expenses. Costs to
internally develop computer software are capitalized during the development stage and include external direct costs of materials
and services as well as employee costs related to time spent on the project.
The Company periodically reviews its property and equipment when events or changes in circumstances indicate that the carrying
amount of its property and equipment might not be recoverable under the recoverability test, whereby the expected future
undiscounted cash flows from the assets are estimated and compared with the carrying amount of the assets. If the sum of the
estimated undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recorded to general and
administrative expense, as needed. The impairment loss is measured by comparing the fair value of the assets with their carrying
amounts. Fair value is determined based on discounted cash flow.
Leases
If the Company determines an arrangement contains a lease or lease components, then the lease will be accounted for under ASU
2016-02 and classified as either finance or operating. At the lease commencement date, the Company recognizes a leased ROU
asset and corresponding lease liability based on the present value of the lease payments over the lease term. Leased ROU assets
are tested for impairment in accordance with ASC 360, Property, Plant, and Equipment.
94 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Leases primarily consist of various corporate and other office facilities. 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 the consolidated balance sheets. 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, as most of the Company’s leases do not provide an implicit rate. 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.
A finance lease is recorded as a leased property or equipment asset with a corresponding finance lease liability at an amount equal
to the present value of minimum lease payments at the commencement date. Assets acquired under a finance lease are depreciated
on a straight-line basis based on the shorter of the Company’s depreciation policy for owned assets (i.e. useful life) or the lease
term. Lease payments are allocated between a reduction of the lease liability and interest expense to produce a constant periodic
interest rate on the remaining balance of the lease liability. Interest expense on the lease liability is recognized separately from the
amortization of the leased ROU asset in the consolidated statements of operations. Finance lease assets and liabilities are included
in property and equipment, net, and payables and other liabilities on the consolidated balance sheets, respectively.
Variable Interest Entities
In the normal course of business, the Company enters into various types of on- and off-balance sheet transactions with special
purpose entities (“SPEs”), 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. In these securitization transactions, the Company typically
receives cash and/or other interests in the SPE as proceeds for the transferred assets. The Company will typically retain the right
to service the transferred receivables and to repurchase the transferred receivables from the SPE if the outstanding balance of the
receivables falls to a level where the cost exceeds the benefits of servicing the transferred receivables.
The Company evaluates its interests in each SPE for classification as a Variable Interest Entity (“VIE”). When an SPE meets the
definition of a VIE and the Company determines that the Company is the primary beneficiary, the Company includes the SPE in
its consolidated financial statements.
The Company consolidates SPEs connected with both forward and reverse mortgage activities. See Note 14, Securitizations and
Financings, for more information on Company SPEs, and Note 12, Indebtedness, for certain debt activity connected with SPEs.
Securitizations and Asset-Backed Financing Arrangements
The Company and its subsidiaries have been a transferor in connection with a number of securitizations and asset-backed financing
arrangements. The Company has continuing involvement with the financial assets of the securitizations and the asset-backed
financing arrangements. The Company has aggregated these transactions into two groups: (1) securitizations of residential mortgage
loans accounted for as sales and (2) financings of advances on loans serviced for others accounted for as secured borrowings.
Securitizations Treated as Sales
The Company’s continuing involvement typically includes acting as servicer for the mortgage loans held by the trust and holding
beneficial interests in the trust. The Company’s responsibilities as servicer include, among other things, collecting monthly
payments, maintaining escrow accounts, providing periodic reports and managing insurance in exchange for a contractually
specified servicing fee. The beneficial interests held consist of both subordinate and residual securities that were retained at the
time of securitization. These securitizations generally do not result in consolidation of the VIE as the beneficial interests that are
held in the unconsolidated securitization trusts have no value and no potential for significant cash flows in the future. In addition,
at December 31, 2019, the Company had no other significant assets in its consolidated financial statements related to these trusts.
The Company has no obligation to provide financial support to unconsolidated securitization trusts and has provided no such
support. The creditors of the trusts can look only to the assets of the trusts themselves for satisfaction of the debt issued by the
trusts and have no recourse against the assets of the Company. The general creditors of the Company have no claim on the assets
of the trusts. The Company’s exposure to loss as a result of its continuing involvement with the trusts is limited to the carrying
values, if any, of its investments in the residual and subordinate securities of the trusts, the MSRs that are related to the trusts and
the advances to the trusts. The Company considers the probability of loss arising from its advances to be remote because of their
position ahead of most of the other liabilities of the trusts. See Note 5, Advances and Other Receivables, Net, and Note 4, Mortgage
Servicing Rights and Related Liabilities, for additional information regarding advances and MSRs.
95Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
Financings
The Company transfers advances on loans serviced for others to SPEs in exchange for cash. The Company consolidates these
SPEs because the Company is the primary beneficiary of the VIE.
These VIEs issue debt supported by collections on the transferred advances. The Company made these transfers under the terms
of its advance facility agreements. The Company classifies the transferred advances on its consolidated balance sheets as advances
and classifies the related liabilities as advance facilities and other nonrecourse debt. The SPEs use collections of the pledged
advances to repay principal and interest and to pay the expenses of the entity. Holders of the debt issued by these entities can look
only to the assets of the entities themselves for satisfaction of the debt and have no recourse against the Company.
Financings include the HMBS and private securitization trusts as previously discussed.
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. The Company recognizes all derivatives on its consolidated balance sheets at
fair value on a recurring basis. The Company treats all of its derivative instruments as economic hedges, therefore none of its
derivative instruments are designated as accounting hedges.
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 futures, Treasury
futures, interest rate swap agreements and interest rate caps.
IRLCs represent an agreement to extend credit to a mortgage loan applicant, or an agreement to purchase a loan from a third-party
originator, whereby the interest rate on the loan is set prior to funding. The fair values of mortgage loans held for sale, which are
held in inventory awaiting sale into the secondary market, and interest rate lock commitments, are subject to changes in mortgage
interest rates from the date of the commitment through the sale of the loan into the secondary market. As a result, the Company
is exposed to interest rate risk during the period from the date of the lock commitment through (i) the lock commitment cancellation
or expiration date; or (ii) the date of sale into the secondary mortgage market. IRLCs are considered freestanding derivatives and
are recorded at fair value at inception. Loan commitments generally range between 30 days and 90 days, and the Company typically
sells mortgage loans within 30 days of origination. Changes in fair value subsequent to inception are based on changes in the fair
value of the underlying loan, and changes in the probability that the loan will fund within the terms of the commitment. Any
changes in fair value are recorded in earnings as a component of net gain on mortgage loans held for sale on the consolidated
statement of operations and consolidated statement of cash flows.
The Company uses other derivative financial instruments, primarily forward sales commitments, to manage exposure to interest
rate risk and changes in the fair value of IRLCs and mortgage loans held for sale. These commitments are recorded at fair value
based on the dealer’s market. The forward sales commitments fix the forward sales price that will be realized in the secondary
market and thereby reduce the interest rate and price risk to the Company. The Company’s expectation of the amount of its interest
rate lock commitments that will ultimately close is a key factor in determining the notional amount of derivatives used in
economically hedging the position. The Company may also enter into commitments to purchase MBS as part of its overall hedging
strategy. The estimated fair values of forward MBS are based on the exchange prices. The changes in value on the forward sales
commitments and forward sales of MBS are recorded as a charge or credit to net gain on mortgage loans held for sale on the
consolidated statement of operations and consolidated statement of cash flows.
The Company also purchases interest rate swaps, Eurodollar futures and Treasury futures to mitigate exposure to interest rate risk
related to cash flows on securitized mortgage borrowings.
Intangible Assets
Intangible assets primarily consist of customer relationships and technology acquired through the acquisition of Nationstar and
the acquisition of Assurant Mortgage Solutions (“AMS”). Those intangible assets are deemed to have finite useful lives and are
amortized either on a straight-line basis over their estimated useful lives (trade name, technology and internally developed software),
or on a basis more representative of the time pattern over which the benefit is derived (customer relationships).
Intangible assets with finite useful lives are tested for impairment on an annual basis or whenever events or circumstances indicate
that their carrying amount may not be recoverable. If the carrying value of the asset cannot be recovered from estimated future
undiscounted cash flows, the fair value of the asset is calculated using the present value of net future cash flows. If the carrying
amount of the asset exceeds its fair value, an impairment is recorded.
96 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
Goodwill
Goodwill is initially recorded as the excess of the purchase price over the fair value of net assets acquired in a business combination
and is subsequently evaluated for impairment at least annually or when events or circumstances make it more likely than not that
an impairment may have occurred. Goodwill impairment testing is performed at the reporting unit level, equivalent to a business
segment or one level below. The Company has determined that each of its operating segments (Servicing, Originations and Xome)
represents a reporting unit, resulting in three total reporting units.
The Company performs its annual goodwill impairment test as of October 1 and monitored for interim triggering events on an
ongoing basis. Goodwill is reviewed for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment
test. If the Company chooses to perform a qualitative assessment and determines the fair value more likely than not exceeds the
carrying value, no
the
quantitative goodwill impairment test, the Company compares the fair value of each reporting unit, which the Company primarily
determines using an income approach based on the present value of discounted cash flows, to the respective carrying value, which
includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If
the carrying value is higher than the fair value, the difference would be recognized as an impairment loss.
the Company performs
reporting units where
further evaluation
is necessary. For
Loans Subject to Repurchase Rights from Ginnie Mae
For certain forward loans sold to GNMA, the Company as the issuer has the unilateral right to repurchase, without GNMA’s prior
authorization, any individual loan in a GNMA 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, the Company has effectively
regained control over the loan, and under GAAP, must recognize the right to the loan in its consolidated balance sheets and establish
a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The Company recognizes the
right to purchase these mortgage loans in other assets at their unpaid principal balances and records a corresponding liability in
payables and other liabilities for mortgage loans eligible for repurchase in its consolidated balance sheets.
Interest Income
Interest income is recognized on loans held for sale for the period from loan funding to sale, which is typically within 30 days.
Loans are placed on non-accrual status when any portion of the principal or interest is greater than 90 days past due. Loans return
to accrual status when the principal and interest become current and it is probable that the amounts are fully collectible. For
individual loans that have been modified, a period of six timely payments is required before the loan is returned to an accrual
basis.
Interest income also includes interest earned on custodial cash deposits associated with the mortgage loans serviced, and interest
earned on reverse mortgage interests. Reverse mortgage interests accrue interest income in accordance with FHA guidelines.
Share-Based Compensation
Share-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an
expense over the requisite employee service period (generally the vesting period of the grant) on a straight-line basis in salaries,
wages and benefits within the consolidated statements of operations.
Advertising Costs
Advertising costs are expensed as incurred and are included as part of general and administrative expenses. The Company incurred
advertising costs of $33 and $17 for the year ended December 31, 2019 and five months ended December 31, 2018, respectively.
The Predecessor incurred advertising costs of $33 and $57 for the seven months ended July 31, 2018 and the year ended December
31, 2017, respectively.
Income Taxes
The Company is subject to the income tax laws of the U.S., its states and municipalities. These tax laws are complex and subject
to different interpretations by the taxpayer and the relevant governmental taxing authorities.
Deferred income taxes are determined using the balance sheet method. Deferred taxes are recognized for the future tax consequences
attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date.
97Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The Company regularly reviews the carrying amount of its deferred tax assets to determine if the establishment of a valuation
allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred
tax assets will not be realized in future periods, a deferred tax valuation allowance is established. Consideration is given to various
positive and negative factors that could affect the realization of the deferred tax assets. In evaluating this available evidence,
management considers, among other things, historical financial performance, expectation of future earnings, length of statutory
carryforward periods, experience with operating tax loss and tax credit carryforwards which may expire unused, tax planning
strategies and timing of reversals of temporary differences. The Company’s evaluation is based on current tax laws as well as
management’s expectations of future performance.
The Company initially recognizes tax positions in the consolidated financial statements when it is more likely than not that the
position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as
the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority
assuming full knowledge of the position and all relevant facts. In establishing a provision for income tax expense, the Company
makes judgments and interpretations about the application of these inherently complex tax laws within the framework of existing
GAAP. The Company recognizes interest and penalties related to uncertain tax positions as a component of provision for income
taxes.
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.
Basic net income per common share is computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing net
income available to common stockholders by the sum of the weighted average number of common shares outstanding and any
dilutive securities for the period.
3. 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 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 final purchase price was $116, paid
in cash. Based on the allocation of fair value, goodwill of $40 was recorded, which represents the excess of the purchase price
over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily
attributable to the assembled workforce and synergies with the Company’s current operations. $28 and $12 of the goodwill is
assigned to the Originations and Servicing segments, respectively, based on expected cash flows, and is expected to be deductible
for tax purposes.
98 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Final Estimated Fair Value of Net Assets Acquired:
Cash and cash equivalents
Restricted cash
Mortgage servicing rights
Advances and other receivables
Mortgage loans held for sale
Mortgage loans held for investment
Property and equipment
Other assets
Fair value of assets acquired
Notes payable(1)
Advance facilities
Warehouse facilities
Payables and other liabilities
Other nonrecourse debt
Fair value of liabilities assumed
Total fair value of net tangible assets acquired
Intangible assets:
Customer relationships(2)
Goodwill
Final purchase price
$
$
37
2
271
84
536
1
8
483
1,422
294
13
393
530
129
1,359
63
13
40
116
(1) Notes payable was subsequently paid off in February 2019 after the consummation of the acquisition.
(2) The estimated fair values for customer relationships were measured using the excess earnings method and were determined
to have a remaining useful life of 10 years.
The Company incurred total acquisition costs of $4 during the year ended December 31, 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.
For the year ended December 31, 2019, the operations contributed by this acquisition generated total revenues of $280 and income
before income tax of $140, 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 year ended December
31, 2019, as if the acquisition had occurred on January 1, 2019.
Pro forma total revenues
Pro forma net income
Year Ended
December 31, 2019
(unaudited)
$
$
2,026
273
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.
99Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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, 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 WMIH common stock.
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 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 in millions (prior to the 1-for-12 reverse stock split)
Price per share, based on price of $1.398 for WMIH stock on July 31, 2018
Purchase price from common stock issued
Purchase price from cash payment
Total purchase price
$
$
394
1.398
551
1,226
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.
100 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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
Restricted cash
Mortgage servicing rights
Advances and other receivables
Reverse mortgage interests
Mortgage loans held for sale
Mortgage loans held for investment
Property and equipment
Other assets
Fair value of assets acquired
Unsecured senior notes
Advance facilities
Warehouse facilities
Payables and accrued liabilities
MSR related liabilities—nonrecourse
Mortgage servicing liabilities
Other nonrecourse debt
Fair value of liabilities assumed
Total fair value of net tangible assets acquired
Intangible assets(1)
Goodwill
Purchase price
(1) The following intangible assets were acquired in the Nationstar acquisition:
Customer relationships (i)
Tradename (ii)
Technology (ii)
Internally developed software(iii)
Total
Useful Life (Years)
6
5
3-5
2
$
$
$
$
166
430
3,422
1,262
9,189
1,514
125
96
610
16,814
1,830
551
2,701
1,352
1,065
123
7,583
15,205
1,609
103
65
1,777
Fair Value
61
8
11
23
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. 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. Based on the adjustments recorded during
the period, there was recorded total goodwill of $65 as of December 31, 2019 after taking into account these measurement period
adjustments.
101Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K WMIH incurred total acquisition costs of $92 prior to the consummation of the Merger. No significant additional acquisition costs
were recorded during the remainder of fiscal 2018. 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 Notes, which were 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’s 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. The acquisition costs were primarily related to legal, accounting and consulting services.
Included in the Successor’s consolidated statements of operations were $10 of acquisition costs related to the compensation
arrangements incurred by the Company related to the merger for the five months ended December 31, 2018.
The following unaudited pro forma financial information presents the combined results of operations for the year ended December
31, 2018 as if the transaction had occurred on January 1, 2018:
Pro forma total revenues
Pro forma net income
Year Ended
December 31, 2018
(unaudited)
$
$
1,790
16
The unaudited pro forma financial information above does not include the pro forma effects of the Company’s acquisition of
Assurant Mortgage Solutions as presented below. The above unaudited pro forma financial information is presented for illustrative
purposes only and is not indicative of the results of operations that would have actually occurred had the Merger occurred on
January 1, 2018. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the
future operating results of the Company. Further, the unaudited financial information excludes acquisition and integration costs
and does not give effect to any estimated and potential cost savings or other operating efficiencies, if any, that might result from
the acquisition.
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 for a total estimated purchase price of $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 does not expect the entire goodwill
balance to be deductible for tax purposes. Under ASC 805, Business Combinations, the contingent consideration was remeasured
to fair value on a quarterly basis. As of September 30, 2019, the contingent consideration was remeasured and determined to have
zero fair value. The change in the fair value of $15 was included in other income (expenses), net within the consolidated statements
of operations for the year ended December 31, 2019.
102 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 4. 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:
MSRs and Related Liabilities
Forward MSRs - fair value
Reverse MSRs - amortized cost
Mortgage servicing rights
Mortgage servicing liabilities - amortized cost
Excess spread financing - fair value
Mortgage servicing rights financing - fair value
MSR related liabilities - nonrecourse at fair value
Successor
December 31, 2019
$
3,496
December 31, 2018
3,665
$
$
$
$
$
6
3,502
61
1,311
37
1,348
$
$
$
$
11
3,676
71
1,184
32
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 of both agency and non-agency loans.
The following table sets forth the activities of forward MSRs:
Forward MSRs - Fair Value
Fair value - beginning of period
Additions:
Servicing retained from mortgage loans sold
Purchases of servicing rights(1)
Dispositions:
Sales of servicing assets(2)
Changes in fair value:
Successor
Predecessor
Year Ended
December 31, 2019
$
3,665
Five Months Ended
December 31, 2018
3,413
$
Seven Months Ended
July 31, 2018
$
2,937
434
858
(408)
120
479
(111)
162
144
4
330
(164)
3,413
Changes in valuation inputs or assumptions used in the
valuation model
Other changes in fair value
Fair value - end of period
(589)
(464)
3,496
$
(123)
(113)
3,665
$
$
(1) Purchases of servicing rights during the year ended December 31, 2019 include $271 of mortgage servicing rights that were
acquired from Pacific Union. See Note 3, 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 year ended
December 31, 2019 and five months ended December 31, 2018, the Company sold $35,152 and $10,746 in unpaid principal balance
(“UPB”) of forward MSRs, of which $20,560 and none was 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 was retained by the
Predecessor as subservicer.
103Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MSRs measured at fair value are segregated between credit sensitive and interest sensitive pools. Credit sensitive pools are primarily
impacted by borrower performance under specified repayment terms, which most directly impacts involuntary prepayments and
delinquency rates. Interest sensitive pools are primarily impacted by changes in forecasted interest rates, which in turn impact
voluntary prepayment speeds. The Company assesses whether acquired portfolios are more credit sensitive or interest sensitive
in nature on the date of acquisition. Numerous factors are considered in making this assessment, including loan-to-value ratios,
FICO scores, percentage of portfolio previously modified, portfolio seasoning and similar criteria. The determination between
credit sensitive and interest sensitive for a pool is made at the date of acquisition, and no subsequent changes are made.
Credit sensitive portfolios generally consist of higher delinquency, single-family non-conforming residential forward mortgage
loans serviced for agency and non-agency investors. Due to the Company’s focus on recapture and modifications, significant
amounts of the credit sensitive portfolio have been re-underwritten and, therefore, behave more like the interest sensitive portfolio.
Interest sensitive portfolios generally consist of lower delinquency, single-family conforming residential forward mortgage loans
for agency investors.
The following table provides a breakdown of credit sensitive and interest sensitive UPB for the Company’s forward MSRs:
Forward MSRs - Sensitivity Pools
Credit sensitive
Interest sensitive
Total
Successor
December 31, 2019
December 31, 2018
UPB
Fair Value
UPB
Fair Value
$
$
147,895
148,887
296,782
$
$
1,613
1,883
3,496
$
$
135,752
159,729
295,481
$
$
1,495
2,170
3,665
The Company used the following key weighted-average inputs and assumptions in estimating the fair value of forward MSRs:
Total MSR Portfolio
Discount rate
Prepayment speeds
Average life
Credit Sensitive
Discount rate
Prepayment speeds
Average life
Interest Sensitive
Discount rate
Prepayment speeds
Average life
Successor
December 31, 2019
December 31, 2018
9.7%
13.1%
5.8 years
10.4%
12.7%
6.0 years
9.1%
13.5%
5.7 years
10.2%
10.8%
6.7 years
11.3%
11.8%
6.4 years
9.3%
10.0%
7.0 years
104 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following table shows the hypothetical effect on the fair value of the Company’s forward MSRs when applying certain
unfavorable variations of key assumptions to these assets for the dates indicated:
Forward MSRs - Hypothetical Sensitivities
December 31, 2019
Mortgage servicing rights
December 31, 2018
Mortgage servicing rights
$
$
Successor
Discount Rate
Total Prepayment Speeds
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
(127) $
(245) $
(165) $
(317)
(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 $22,725 and $28,415 as of
December 31, 2019 and 2018, respectively. The carrying value of reverse mortgage servicing liabilities (“MSL”) was $61 and $71
as of December 31, 2019 and 2018, respectively. For the year ended December 31, 2019 and five months ended December 31,
2018, the Company accreted $47 and $15 of the MSL, respectively. In addition, the Company recorded an MSL adjustment of
$37 during the year ended December 31, 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 3, Acquisitions, for further information. For the seven months ended July 31, 2018, the Predecessor
accreted $11 of the MSL and recorded impairment of $56 in general and administrative expenses. Accretion recorded by the
Predecessor relates to previous portfolio acquisitions.
The carrying value of reverse MSR was $6 and $11 as of December 31, 2019 and 2018, respectively. For the year ended December
31, 2019 and five months ended December 31, 2018, the Company recorded $1 and $4 of amortization, respectively. In addition,
for the year ended December 31, 2019 the Company recorded other MSR net adjustments of $4. The MSR net adjustments recorded
by the Company primarily relates to 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 3, Acquisitions, for further information.
For the seven months ended July 31, 2018, the Predecessor recorded an impairment of $4.
The fair value of the MSL was $28 and $53 as of December 31, 2019 and 2018, respectively. The fair value of the reverse MSR
was $6 and $11 as of December 31, 2019 and 2018, respectively. Management evaluates reverse MSRs and MSLs each reporting
period for impairment. Based on management’s assessment at December 31, 2019 and 2018, no impairment or increased obligation
was needed.
Excess Spread Financing - Fair Value
In order to finance the acquisition of certain MSRs on various Portfolios, the Company has entered into sale and assignment
agreements with third parties and sold to these entities the right to receive a specified percentage of the excess cash flow generated
from the portfolios in excess of a fixed base servicing fee per loan. The Company retains all the base servicing fee, ancillary
income and interest float earnings on principal along with interest payments and escrow, 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.
105Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The Company used the following weighted-average assumptions in the Company’s valuation of excess spread financing:
Excess Spread Financing Assumptions
Discount rate
Prepayment speeds
Recapture rate
Average life
Successor
December 31, 2019
December 31, 2018
11.6%
12.6%
20.1%
5.8 years
10.4%
11.0%
18.6%
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:
Excess Spread Financing - Hypothetical
Sensitivities
December 31, 2019
Excess spread financing
December 31, 2018
Excess spread financing
$
$
Successor
Discount Rate
Prepayment Speeds
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
46
$
95
$
46
$
47
$
99
$
38
$
96
81
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 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:
Mortgage Servicing Rights Financing Assumptions
Advance financing rates
Annual advance recovery rates
Successor
December 31, 2019
December 31, 2018
3.5%
18.8%
4.2%
19.0%
106 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following table sets forth the items comprising total revenues for the Servicing segment:
Successor
Predecessor
Total Revenues - Servicing
Contractually specified servicing fees(1)
Other service-related income(1)(2)
Incentive and modification income(1)
Late fees(1)
Reverse servicing fees
Mark-to-market adjustments(3)
Counterparty revenue share(4)
Amortization, net of accretion(5)
Total revenues - Servicing
Year Ended
December 31, 2019
$
1,194
Five Months Ended
December 31, 2018
421
$
182
40
110
31
(505)
(284)
(236)
532
$
44
17
34
16
(164)
(68)
(64)
236
$
Seven Months Ended
July 31, 2018
$
$
574
66
37
53
37
196
(111)
(112)
740
Year Ended
December 31, 2017
1,003
$
168
80
89
58
(160)
(230)
(242)
766
$
(1) Amounts include subservicing related revenues.
(2) Amount for the year ended December 31, 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 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 was $62 and $25 for the year ended December 31, 2019 and five months ended December 31, 2018, respectively.
The impact of negative modeled cash flows for the Predecessor was $38 for the seven months ended July 31, 2018 and $72
for the year ended December 31, 2017, 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 MSR financing arrangements.
(5) Amortization for the Company is net of excess spread accretion of $243 and $53 and MSL accretion of $47 and $15 for the
year ended December 31, 2019 and the five months ended December 31, 2018, respectively. Amortization for the Predecessor
is net of excess spread accretion of $78 for the seven months ended July 31, 2018 and $161 for the year ended December 31,
2017, respectively. The Predecessor recorded MSL accretion within reverse servicing fees, whereas the Successor has elected
to record MSL accretion within Amortization, net of accretion.
5. Advances and Other Receivables, Net
Advances and other receivables, net consists of the following:
Servicing advances, net of $131 and $205 discount, respectively
Receivables from agencies, investors and prior servicers, net of $21 and $48
discount, respectively
Reserves
Total advances and other receivables, net
$
Successor
December 31, 2019
$
970
December 31, 2018
1,000
$
193
(175)
988
$
241
(47)
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, 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.
107Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following table sets forth the activities of the servicing reserves for advances and other receivables:
Successor
Reserves for Advances and Other Receivables
Balance - beginning of period
Provision and other additions(1)
Write-offs
Balance - end of period
Year Ended
December 31, 2019
$
47
Five Months Ended
December 31, 2018
$
160
(32)
175
$
$
Predecessor
Seven Months Ended
July 31, 2018
— $
47
—
47
$
284
69
(56)
297
(1) The Company recorded a provision of $62 and $25, and the Predecessor recorded a provision of $38 through the MTM
adjustments in revenues - service related, net in the consolidated statements of operations for the year ended December 31,
2019, five months ended December 31, 2018 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 3,
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 purchase discount
of $302.
As of December 31, 2019, a total of $169 purchase discount has been utilized, with $152 purchase discount remaining.
The following table sets forth the activities of the purchase discount for advances and other receivables:
Successor
Year Ended December 31, 2019
Five Months Ended December 31, 2018
Servicing Advances
$
205
Receivables from
Agencies, Investors
and Prior Servicers
$
48
Servicing Advances
246
$
Receivables from
Agencies, Investors
and Prior Servicers
56
$
19
(93)
131
$
—
(27)
21
$
—
(41)
205
$
—
(8)
48
Purchase Discounts
Balance - beginning of period
Addition from acquisition
Utilization of purchase discounts
Balance - end of period
$
6. Reverse Mortgage Interests, Net
Reverse mortgage interests, net consists of the following:
Participating interests in HECM mortgage-backed securities, including $10 and $58
purchase premium, respectively
Other interests securitized, net of $56 and $100 purchase discount, respectively
Unsecuritized interests, net of $68 and $122 purchase discount, respectively
Reserves
Total reverse mortgage interests, net
Successor
December 31, 2019
December 31, 2018
$
$
4,292
938
1,052
(3)
6,279
$
$
5,664
1,064
1,219
(13)
7,934
108 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 the Company’s consolidated balance sheets. The Company does
not originate reverse mortgages, but during the year ended December 31, 2019 and five months ended December 31, 2018, a total
of $265 and $107 in UPB associated with new draws on existing loans were transferred to GNMA and securitized by the Company,
respectively. During the seven months ended July 31, 2018 a total of $198 in 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 year ended December 31, 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 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 year ended December 31,
2019, the Company securitized a total of $751 UPB through Trust 2019-1 and Trust 2019-2 and a total of $476 UPB from Trust
2017-2 and Trust 2018-1 was called and the related debt was extinguished. The Company sold $20 UPB of Trust 2018-3 retained
bonds during the year ended December 31, 2019. During the five months ended December 31, 2018, the Company securitized a
total of $364 UPB through Trust 2018-3 and a total of $188 UPB from Trust 2017-1 was called and the related debt was extinguished.
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 was called and the related debt was extinguished. Refer to
Other Nonrecourse Debt in Note 12, Indebtedness, for additional information.
Unsecuritized Interests
Unsecuritized interests in reverse mortgages consists of the following:
Repurchased HECM loans (exceed 98% MCA)
HECM related receivables(1)
Funded borrower draws not yet securitized
REO-related receivables
Purchase discount
Total unsecuritized interests
Successor
December 31, 2019
$
789
December 31, 2018
949
$
250
67
14
(68)
1,052
$
300
76
16
(122)
1,219
$
(1) HECM related receivables consist primarily of receivables from FNMA for corporate advances and service fees and claims
receivables from the U.S. Department of Housing and Urban Development on reverse mortgage interests.
Unsecuritized interests include repurchased HECM loans for which the Company is required to repurchase from the HMBS pool
when the outstanding principal balance of the HECM loan is equal to or greater than 98% of the MCA established at origination
in accordance with HMBS program guidelines. These unsecuritized interests are primarily financed through available warehouse
lines. The Company repurchased a total of $2,333 and $1,429 of HECM loans out of GNMA HMBS securitizations during the
year ended December 31, 2019 and five months ended December 31, 2018, respectively, of which $616 and $328 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 $1,819 and $1,493 of HECM loans to HUD during the year ended December
31, 2019 and five months ended December 31, 2018, respectively. The Predecessor assigned a total of $1,712 of HECM loans to
HUD during the seven months ended July 31, 2018.
109Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 set forth the activities of the servicing reserves for reverse mortgage interests:
Successor
Reserves for reverse mortgage interests
Balance - beginning of period
Provisions (release), net
Write-offs
Balance - end of period
Year Ended
December 31, 2019
$
13
(3)
(7)
3
$
Five Months Ended
December 31, 2018
$
— $
13
$
—
13
$
Predecessor
Seven Months Ended
July 31, 2018
115
32
(18)
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 it 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:
Purchase premiums and discounts for reverse mortgage interests
Balance - beginning of period
Adjustments(2)
Utilization of purchase discounts(3)
(Amortization)/Accretion
Transfers(4)
Balance - end of period
Purchase premiums and discounts for reverse mortgage interests
Balance - beginning of period
Utilization of purchase discounts(3)
Accretion/(Amortization)
Successor
Year Ended December 31, 2019
$
Net Premium for
Participating
Interests in HMBS(1)
$
58
(16)
—
(49)
17
$
10
$
Net Discount for
Other Interest
Securitized(1)
Net Discount for
Unsecuritized
Interests(1)
(100) $
(2)
33
23
(10)
(56) $
(122)
(6)
63
4
(7)
(68)
Successor
Five Months Ended December 31, 2018
Net Premium for
Participating
Interests in HMBS(1)
58
$
Net Discount for
Other Interest
Securitized(1)
Net Discount for
Unsecuritized
Interests(1)
$
$
(117) $
—
17
(100) $
(173)
43
8
(122)
—
—
58
Balance - end of period
$
(1) Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans.
(2) 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 3, Acquisitions, for additional information.
(3) Utilization of purchase discounts to mitigate loss on liquidated loans, for which the remaining receivable was written-off.
(4) Transfer of premium/(discount) based on the transfer of associated loans between categories consistent with the underlying
loan characteristics.
110 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 discounts for reverse mortgage interests:
Purchase discounts for reverse mortgage interests
Balance - beginning of period
Additions
Accretion
Balance - end of period
Predecessor
Seven Months Ended
July 31, 2018
$
$
(89)
(7)
14
(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 and FHA guidelines. Total interest earned on the Company’s reverse mortgage interests was $307 and $206 for the year
ended December 31, 2019 and five months ended December 31, 2018, respectively. Total interest earned on the Predecessor’s
reverse mortgage interests was $274 and $490 for the seven months ended July 31, 2018 and year ended December 31, 2017,
respectively.
7. 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:
Mortgage loans held for sale - UPB
Mark-to-market adjustment(1)
Total mortgage loans held for sale
Successor
December 31, 2019
$
3,949
$
128
4,077
December 31, 2018
1,568
$
63
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:
Mortgage loans held for sale - UPB
Non-accrual(1)
December 31, 2019
December 31, 2018
UPB
Fair Value
UPB
Fair Value
$
29
$
22
$
45
$
42
Successor
(1) Non-accrual includes $25 and $40 of UPB related to Ginnie Mae repurchased loans as of December 31, 2019 and 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 December 31, 2019 and 2018, respectively.
111Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following table sets forth the activities of mortgage loans held for sale:
Mortgage loans held for sale
Balance - beginning of period
Loans sold
Mortgage loans originated and purchased, net of fees(1)
Repurchase of loans out of Ginnie Mae securitizations
Net transfers of mortgage loans held for sale to/from REO in
other assets and transfer from mortgage loans held for
investment(2)(3)
Changes in fair value
Other purchase-related activities(4)
Transfer of mortgage loans held for sale to advances and other
receivables, net related to claims(5)
Balance - end of period
Successor
Year Ended
December 31, 2019
$
1,631
(41,289)
40,772
Five Months Ended
December 31, 2018
1,514
$
(9,304)
8,890
2,895
527
Predecessor
Seven Months Ended
July 31, 2018
$
34
29
21
5
6
(2)
$
(16)
4,077
$
(5)
1,631
$
1,891
(13,255)
12,319
544
14
(1)
9
(7)
1,514
(1) Mortgage loans originated and purchased during the year ended December 31, 2019 includes $536 of loans held for sale that
were acquired from Pacific Union. See Note 3, 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 year ended December 31, 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 year ended December 31, 2019 and five months ended December 31, 2018, the Company received proceeds of $41,809
and $9,397, respectively, on the sale of mortgage loans held for sale, resulting in gains of $549 and $93, respectively. For the seven
months ended July 31, 2018 and the year ended December 31, 2017, the Predecessor received proceeds of $13,382 and $20,772,
respectively, on the sale of mortgage loans held for sale, resulting in gains of $127 and $454 respectively.
The Company has the right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria,
including being delinquent greater than 90 days. The majority of Ginnie Mae repurchased loans are repurchased in connection
with loan modifications and loan resolution activity, with the intent to re-pool into new Ginnie Mae securitizations upon re-
performance of the loan or to otherwise sell to third-party investors. Therefore, these loans are classified as held for sale.
112 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
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
Balance - beginning of period
Sale of mortgage loans
Transfers to mortgage loans held for sale
Payments received from borrowers
Transfers to real estate owned
Changes in fair value
Charge-offs
Balance - end of period
Year Ended
December 31, 2019
$
119
(94)
(12)
(11)
(5)
3
$
—
— $
Five Months Ended
December 31, 2018
125
$
—
—
(5)
—
2
(3)
119
The following sets forth the composition of mortgage loans held for investment as of December 31, 2018:
Mortgage loans held for investment – UPB
Fair value adjustments
Total mortgage loans held for investment at fair value
The total UPB of mortgage loans held for investment on non-accrual status was as follows:
Successor
December 31, 2018
156
$
(37)
119
$
Mortgage loans held for investment - UPB
Non-accrual
Successor
December 31, 2018
UPB
Fair Value
$
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.
113Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 8. Property and Equipment, Net
The composition of property and equipment, net, and the corresponding ranges of estimated useful lives were as follows:
Furniture, fixtures, and equipment
Capitalized software costs
Software in development and other
Leasehold improvements
Long-term finance leases - computer equipment
Property and equipment
Less: Accumulated depreciation
Total property and equipment, net
$
Successor
December 31, 2019
$
50
December 31, 2018
32
$
54
31
24
8
167
(55)
112
$
24
24
22
10
112
(16)
96
Estimated Useful
Life
3 - 5 years
3 - 5 years
3 - 5 years
5 years
The Company recorded depreciation expense on property and equipment of $41 and $16 for the year ended December 31, 2019
and five months ended December 31, 2018, respectively. The Predecessor recorded depreciation expense on property and equipment
of $31 and $54 for the seven months ended July 31, 2018 and the year ended December 31, 2017, respectively. The Company has
entered into various lease agreements for computer equipment, which are classified as finance leases. See Note 9, Leases, for more
information.
There were no significant impairment charges recorded by the Company during the year ended December 31, 2019 and five months
ended December 31, 2018 and the Predecessor for the seven months ended July 31, 2018 and year ended December 31, 2017.
9. 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 the consolidated balance sheets as of December 31,
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 9 years. Certain lease arrangements contain extension options, which typically range from 3 to 5 years, at the then
fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included
in the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing
rate based on the information available at the lease commencement date in determining the present value of the lease payments.
As of December 31, 2019, operating lease ROU assets and liabilities were $121 and $135, respectively.
114 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
The table below summarizes the Company’s net lease cost:
Operating lease cost
Short-term lease cost
Sublease income
Net lease cost
The table below summarizes other information related to the Company’s operating leases:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Leased assets obtained in exchange for new operating lease liabilities
Weighted average remaining lease term - operating leases, in years
Weighted average discount rate - operating leases
Maturities of operating lease liabilities as of December 31, 2019 are as follows:
Year Ending December 31,
2020
2021
2022
2023
2024
2025 and thereafter
Total future minimum lease payments
Less: imputed interest
Total operating lease liabilities
10. Other Assets
Other assets consist of the following:
Loans subject to repurchase right from Ginnie Mae
Derivative financial instruments
Trade receivables and accrued revenues
Right-of-use assets
Goodwill
Intangible assets
Other
Total other assets
Successor
Year Ended
December 31, 2019
$
40
1
(3)
38
$
Successor
Year Ended
December 31, 2019
$
$
$
$
30
154
5.5
5.0%
Operating Leases
40
32
23
17
12
32
156
21
135
Successor
December 31, 2018
266
$
December 31, 2019
$
560
153
126
121
120
74
236
$
1,390
$
49
145
—
23
117
195
795
115Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 December 31, 2019 includes $336 attributable to Pacific Union.
Derivative Financial Instruments
See Note 11, Derivative Financial Instruments, for further details on derivative financial instruments.
Trade Receivables and Accrued Revenues
Trade receivables and accrued revenues are primarily comprised of trade receivables and service fees earned but not received
based upon the terms of the Company’s servicing and subservicing agreements.
Right of Use Assets
Right of use assets are recognized for operating leases as a result of adoption of ASC 842. See Note 9, Leases, for additional
information.
Goodwill
The table below presents changes in the carrying amount of goodwill for the year ended December 31, 2019:
Balance - beginning of period
Addition from acquisitions(1)
Measurement period adjustment related to Merger(2)
Balance - end of period
Successor
Year Ended
December 31, 2019
$
23
Five Months Ended
December 31, 2018
10
$
42
55
$
120
$
13
—
23
Predecessor
Seven Months Ended
July 31, 2018
$
$
72
—
—
72
(1) As discussed in Note 3, 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 3, Acquisitions.
The Company performed a qualitative assessment of its reporting units and determined that no impairment of goodwill existed in
the year ended December 31, 2019 and five months ended December 31, 2018. The Predecessor did not recognize goodwill
impairment in the seven months ended July 31, 2018 and the year ended December 31, 2017.
In 2018, the Company recorded goodwill of $10 and $13 in connection with the acquisitions of Nationstar and AMS, respectively.
See further discussion in Note 3, Acquisitions.
116 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Intangible Assets
The following tables present the composition of intangible assets:
Customer relationships
Technology
Trade name
Other
Total intangible assets
Customer relationships
Technology
Trade name
Other(1)
Total intangible assets
Successor
December 31, 2019
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
90
46
8
1
145
$
(45) $
(23)
(2)
(1)
(71) $
Weighted Average
Remaining Life in
Years
5.9
2.9
3.6
2.8
4.7
45
23
6
—
74
Successor
December 31, 2018
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
77
52
8
3
140
$
(14) $
(8)
(1)
—
(23) $
63
44
7
3
117
Weighted Average
Remaining Life in
Years
5.6
3.6
4.6
4.8
4.7
$
$
$
$
(1) Accumulated amortization amount is less than $1 for the specified dates.
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 AMS, respectively. See further
discussion in Note 3, Acquisitions.
The Company recognized $50 and $23 of amortization expense during the year ended December 31, 2019 and five months ended
December 31, 2018, respectively. The Predecessor recognized amortization expense of $2 during the seven months ended July
31, 2018 and $5 during the year ended December 31, 2017, respectively.
During the fourth quarter of 2019, in connection with an ancillary business, the Company recorded an $7 impairment of technology
and other intangible assets within Corporate/Other segment. The impairment charges were included in the general and administrative
expenses in the consolidated statements of operations.
The following table presents the estimated aggregate amortization expense for existing amortizable intangible assets for the years
indicated:
Year Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total future amortization expense
Amount
32
17
13
8
1
3
74
$
$
Other
Other primarily includes prepaid expenses, margin call deposits, REO, tax receivables, receivables related to recent loan transfers
and various receivables due from investors. REO, net includes $11 and $10 of REO-related receivables with government insurance
as of December 31, 2019 and 2018, respectively, limiting loss exposure to the Company.
117Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 11. 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 $6 and $12 in collateral deposits on derivative instruments recorded in other assets
on the Company’s consolidated balance sheets as of December 31, 2019 and 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)
for the derivative financial instruments:
Assets
Mortgage loans held for sale
Loan sale commitments
Derivative financial instruments
IRLCs
LPCs
Forward sales of MBS
Eurodollar futures(1)
Total derivative financial instruments -
assets
Liabilities
Derivative financial instruments
IRLCs(1)
LPCs
Forward sales of MBS
Eurodollar futures(1)
Total derivative financial instruments -
liabilities
Successor
December 31, 2019
Expiration
Dates
Outstanding
Notional
Fair
Value
Year Ended
December 31, 2019
Recorded Gains/
(Losses)
2020
$
1,202
$
32.3
$
2020
2020
2020
2020-2021
2020
2020
2020
2020-2021
$
$
$
4,838
1,094
3,120
6
134.7
12.2
6.5
—
9,058
$
153.4
$
12
$
540
6,036
7
— $
2.6
12.3
—
6,595
$
14.9
$
6.5
75.0
10.5
4.6
—
90.1
—
2.1
(11.6)
—
(9.5)
118 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Successor
December 31, 2018
Five Months
Ended December
31, 2018
Predecessor
Seven Months
Ended July 31,
2018
Expiration
Dates
Outstanding
Notional
Fair
Value
Recorded
Gains/(Losses)
Recorded Gains/
(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments
2019
$
319
$
13.5
$
2.8
$
10.5
Derivative financial instruments
IRLCs
LPCs
Forward sales of MBS
Treasury futures(1)
Eurodollar futures(1)
Total derivative financial instruments -
assets
Liabilities
Derivative financial instruments
IRLCs(1)
LPCs
Forward sales of MBS
Treasury futures(1)
Eurodollar futures(1)
2019
2019
2019
2018
2019-2021
2019
2019
2019
2018
2019-2021
$
$
1,301
215
485
—
19
47.6
1.7
0.1
—
—
(12.1)
0.4
(3.1)
(0.1)
—
2,020
$
49.4
$
(14.9)
$
— $
90
2,639
—
6
— $
0.4
19.3
—
—
— $
(0.2)
17.4
(0.1)
—
Total derivative financial instruments -
liabilities
$
2,735
$
19.7
$
17.1
$
(1) Fair values or recorded gains/(losses) of derivative instruments are less than $0.1 for the specified dates.
0.4
0.3
0.9
(1.8)
—
(0.2)
—
0.1
(1.0)
(1.3)
—
(2.2)
12. Indebtedness
Notes Payable
Advance Facilities
$325 advance facility
$250 advance facility
$200 advance facility
Interest
Rate
LIBOR
+1.5% to
6.5%
LIBOR
+1.5% to
2.6%
LIBOR
+2.5%
Maturity
Date
August 2021
December
2020
January 2021
$125 advance facility
CP +1.5% to
7.4%
July 2020
Advance facilities principal amount
Unamortized debt issuance costs
Advance facilities, net
Collateral
Servicing
advance
receivables
Servicing
advance
receivables
Servicing
advance
receivables
Servicing
advance
receivables
Successor
December 31, 2019
December 31, 2018
Capacity
Amount
Outstanding
Collateral
Pledged
Outstanding
Collateral
pledged
$
325
$
224
$
285
$
209
$
284
250
200
125
98
63
37
422
$
—
422
$
167
125
88
665
$
218
90
78
595
$
—
595
255
149
89
777
119Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Warehouse Facilities
Interest Rate
Maturity
Date
$1,500 warehouse
facility
$1,200 warehouse
facility
$1,000 warehouse
facility
$800 warehouse
facility(1)
$750 warehouse
facility
$700 warehouse
facility
$600 warehouse
facility
$500 warehouse
facility
$500 warehouse
facility(2)
$200 warehouse
facility
$200 warehouse
facility
$200 warehouse
facility
$200 warehouse
facility
$50 warehouse
facility
$40 warehouse
facility
$40 warehouse
facility(2)
LIBOR+1.0%
June 2020
LIBOR+1.5%
to 3.0%
LIBOR+1.4%
to 2.3%
LIBOR+1.5%
to 2.9%
LIBOR+1.4%
to 2.8%
LIBOR+1.3%
to 2.2%
LIBOR+2.3%
LIBOR+1.5%
to 3.0%
LIBOR+2.0%
to 2.3%
LIBOR+1.4%
November
2020
September
2020
April 2020
September
2020
November
2020
February
2021
April 2020
September
2020
January
2021
LIBOR+1.2% April 2021
LIBOR+2.0% May 2020
LIBOR+1.3%
LIBOR+2.0%
to 6.0%
LIBOR+3.3%
LIBOR+3.0%
October
2020
April 2020
September
2020
November
2019
Collateral
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Warehouse facilities principal amount
MSR Facilities
$400 warehouse
facility
$400 warehouse
facility
$150 warehouse
facility(1)
$50 warehouse
facility
LIBOR+3.5%
to 6.1%
LIBOR+2.3%
June 2021
December
2020
LIBOR+2.8% April 2020
LIBOR+4.5%
August
2020
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
Mortgage loans
or MBS
MSR facilities principal amount
Warehouse and MSR facilities principal amount
Unamortized debt issuance costs
Warehouse facilities, net
Pledged Collateral:
Mortgage loans held for sale and
mortgage loans held for investment
Reverse mortgage interests
MSR
Successor
December 31, 2019
December 31, 2018
Capacity
Amount
Outstanding
Collateral
Pledged
Outstanding
Collateral
pledged
$
1,500
$
759
$
733
$
— $
1,200
1,000
800
750
700
600
500
500
200
200
200
200
50
40
40
400
400
150
50
683
762
589
411
469
174
336
—
136
27
54
—
11
5
—
724
783
656
425
488
202
349
—
136
27
78
—
15
6
—
560
137
464
119
220
151
187
290
—
18
103
—
—
—
1
—
622
140
514
122
248
168
200
299
—
19
132
—
—
—
2
4,416
4,622
2,250
2,466
945
200
130
84
1,359
5,981
150
—
—
10
160
4,576
$
(1)
4,575
100
—
—
—
100
2,350
$
(1)
$
2,349
928
226
430
102
1,686
4,152
3,826
$
3,931
$
1,528
$
590
160
691
1,359
722
100
1,628
838
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 2019.
120 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Unsecured Senior Notes
Unsecured senior notes consist of the following:
$950 face value, 8.125% interest rate payable semi-annually, due July 2023
$750 face value, 9.125% interest rate payable semi-annually, due July 2026
$600 face value, 6.500% interest rate payable semi-annually, due July 2021(1)
$300 face value, 6.500% interest rate payable semi-annually, due June 2022(1)
Unsecured senior notes principal amount
Unamortized debt issuance costs, premium and discount
Unsecured senior notes, net
$
Successor
December 31, 2019
$
950
December 31, 2018
950
$
750
492
206
2,398
(32)
2,366
$
750
592
206
2,498
(39)
2,459
(1) This note was subsequently redeemed in full in February 2020. See Note 26, Subsequent Events, for further information.
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 of 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. During the year ended December 31,
2019 and the five months ended December 31, 2018, the Company repaid $100 and $364 in principal of outstanding notes,
respectively. Additionally, the Company redeemed $658 in principal of outstanding notes during the five months ended December
31, 2018. The Predecessor repurchased $60 in principal amount of outstanding notes during the seven months ended July 31, 2018,
resulting in a loss of $2.
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 December 31, 2019, the expected maturities of the Company’s unsecured senior notes based on contractual maturities are
as follows:
Year Ending December 31,
2020
2021(1)
2022(1)
2023
2024
Thereafter
Total unsecured senior notes principal amount
Amount
—
492
206
950
—
750
2,398
$
$
(1) This note was subsequently redeemed in full in February 2020. See Note 26, Subsequent Events, for further information.
121Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Other Nonrecourse Debt
Other nonrecourse debt consists of the following:
Participating interest financing(1)
Securitization of nonperforming HECM
loans
Issue Date
—
Maturity
Date
—
Class of
Note
—
Trust 2019-2
November
2019
November
2029
Trust 2019-1
June 2019
June 2029
November
2018
November
2028
August
2018
March
2018
August
2028
March
2028
September
2017
September
2027
November
2009
October
2039
Trust 2018-3
Trust 2018-2
Trust 2018-1(2)
Trust 2017-2(2)
Nonrecourse Debt - Legacy(3)
Other nonrecourse debt principal amount
Unamortized debt issuance costs, premium
and discount
Other nonrecourse debt, net
A, M1,
M2, M3,
M4, M5
A, M1,
M2, M3,
M4, M5
A, M1,
M2, M3,
M4, M5
A, M1,
M2, M3,
M4, M5
A, M1,
M2, M3,
M4, M5
A, M1,
M2
A
Successor
December
31, 2019
December
31, 2018
Collateral
Amount
$
Outstanding Outstanding
5,607
4,284
$
— $
337
315
226
168
—
—
—
333
302
209
148
—
—
—
5,276
—
—
326
250
284
231
29
6,727
10
68
$
5,286
$
6,795
(1) Amounts represent the Company’s participating interest in GNMA HMBS securitized portfolios.
(2) As discussed in Note 6, Reverse Mortgage Interests, Net, Trust 2017-2 and Trust 2018-1 were collapsed and the related debt
extinguished during the year ended December 31, 2019.
(3) As discussed in Note 7, Mortgage Loans Held for Sale and Investment, Trust 2009-A, the Company’s legacy portfolio, was
collapsed and the related debt was extinguished in 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 accrued interest on HECM loans. Proceeds are received in
exchange for securitized advances on the HECM loan amounts transferred to GNMA, and the Company retains a beneficial interest
(referred to as a “participating interest”) in the securitization trust in which the HECM loans and HMBS obligations are held and
assume both issuer and servicer responsibilities in accordance with GNMA HMBS program guidelines. Monthly cash flows
generated from the HECM loans are used to service the HMBS obligations. The interest rate is based on the underlying HMBS
rate with a range of 1.9% to 5.7%.
122 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 balance sheets as reverse mortgage interests and the related financing included
in other nonrecourse debt. Interest is accrued at a rate of 2.3% 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 less than one to three years. The Company may re-securitize the previously called loans from earlier HECM securitizations to
achieve a lower cost of funds.
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 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 in September 2019. See Note 7, 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 December 31, 2019.
13. Payables and Other Liabilities
Payables and other liabilities consist of the following:
Loans subject to repurchase from Ginnie Mae
Payables to servicing and subservicing investors
Payable to GSEs and securitized trusts
Operating lease liability
MSR purchases payable including advances
Other liabilities
Total payables and other liabilities
Successor
December 31, 2019
$
560
December 31, 2018
266
$
423
182
135
20
696
494
105
—
182
496
$
2,016
$
1,543
Loans Subject to Repurchase from Ginnie Mae
See Note 10, Other Assets, for a description of assets and liabilities related to loans subject to repurchase from Ginnie Mae. The
amount as of December 31, 2019 includes $336 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 9, Leases, for additional
information.
123Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MSR purchases payable including advances
MSR purchases payable including advances represents the amounts owed to the seller in connection with the purchase of MSRs.
Other Liabilities
Other liabilities primarily include accrued bonus and payroll, accrued interest, accrued legal expenses, payables to insurance
carriers and insurance cancellation reserves, 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 11, Derivative Financial Instruments, for further details on derivative financial instruments.
The following table sets forth the activities of the repurchase reserves:
Repurchase Reserves
Balance - beginning of period
Provisions(1)
Releases
Balance - end of period
Successor
For the year ended
December 31, 2019
$
8
Five Months Ended
December 31, 2018
9
$
25
(8)
25
$
3
(4)
8
$
Predecessor
Seven Months Ended
July 31, 2018
$
$
9
3
(3)
9
(1) Provision for the year ended December 31, 2019 is primarily due to repurchase reserve liabilities assumed in connection with
the acquisition of Pacific Union. See Note 3, 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 in the consolidated statements of operations. 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 December
31, 2019 is sufficient to cover loss exposure associated with repurchase contingencies.
124 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 14. 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 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
December 31, 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
Reverse mortgage interests, net(1)
Advances and other receivables, net
Mortgage loans held for investment, net(2)
Other assets
Total assets
Liabilities
Advance facilities(3)
Payables and other liabilities
Participating interest financing
HECM Securitizations (HMBS)
$
$
$
Trust 2019-2
Trust 2019-1
Trust 2018-3
Trust 2018-2
Trust 2018-1
Trust 2017-2
Nonrecourse debt–legacy assets(2)
$
66
—
540
—
—
42
$
5,230
—
—
—
$
70
—
628
118
—
63
6,728
—
—
—
606
$
5,272
$
816
$
6,791
359
$
1
—
—
—
—
—
—
—
—
— $
1
4,284
333
302
209
148
—
—
—
505
$
1
—
—
—
—
—
—
—
29
—
1
5,607
—
—
326
250
284
231
—
Total liabilities
$
360
$
5,277
$
535
$
6,699
(1) Amounts include net purchase discount of $46 and $42 as of December 31, 2019 and December 31, 2018, respectively.
(2) Trust 2009-A was collapsed in September 2019. Refer to Mortgage Loans Held for Investment in Note 7, Mortgage Loans
Held for Sale and Investment, for additional information.
(3) Advance facilities 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
12, Indebtedness, for additional information.
125Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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:
Total collateral balances - UPB
Total certificate balances
Successor
December 31, 2019
$
1,503
December 31, 2018
1,873
$
$
1,512
$
1,817
The Company has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of
December 31, 2019, and 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:
Principal Amount of Loans 60 Days or More Past Due
Unconsolidated securitization trusts
15. Share-Based Compensation and Equity
Successor
December 31, 2019
$
193
December 31, 2018
285
$
Share-Based Compensation
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 share-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. The stock awards for employees
generally vest in equal installments on each of the first three anniversaries of the awards, provided that (i) the participant remains
continuously employed with the Company during that time or (ii) the participant’s employment has terminated by reason of
retirement. The stock awards for non-employee directors generally vest the earlier of (a) the first anniversary of the grant date or
(b) the date of the next annual stockholders meeting following the grant date. In addition, upon death or disability, the unvested
shares of an award will vest. Any forfeiture of restricted stock awards before vesting has been achieved, results in a reduction in
the balance of outstanding common shares.
The following table summarizes the Company’s share-based awards:
Equity awards outstanding as of December 31, 2018
Granted
Vested
Forfeited
Equity awards outstanding as of December 31, 2019
Successor
Shares (or Units)
(in thousands)
Weighted-Average
Grant Date Fair
Value, per Share (or
Unit)
3,473
$
2,525
(436)
(327)
5,235
15.53
12.44
16.73
14.61
14.00
The Company recorded $18 and $2 of expenses related to share-based awards during the year ended December 31, 2019 and the
five months ended December 31, 2018, respectively. The Predecessor recorded $17 of expenses related to share-based awards
during the seven months ended July 31, 2018, including $7 expenses recognized due to a one-time accelerated vesting of equity
awards in connection with the Merger. In addition, the Predecessor recorded $17 of expenses related to share-based awards during
the year ended December 31, 2017. As of December 31, 2019, unrecognized compensation expense totaled $55 related to non-
vested stock award payments that are expected to be recognized over a weighted average period of 1.55 years.
126 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The Company is eligible to receive a tax benefit when the vesting date fair value of an award exceeds the value used to recognize
compensation expense at the date of grant. The excess tax benefits recognized by the Company and the Predecessor are not material.
As of December 31, 2019, approximately 80 thousand Xome stock appreciation rights (“SARs”) were outstanding and can be
settled in cash or units of Xome Holdings LLC (at the election of Xome). The SARs generally vest over three years and have a
ten-year term. The SARs become exercisable and are recognized to expense upon a liquidity event at Xome which includes a
change in control or an initial public offering of Xome. No expense was recorded for outstanding SARs in 2019, 2018 and 2017
as a liquidity event has not occurred.
16. 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 a participating security because it
has dividend rights determined on an as-converted basis in the event of Company’s declaration of a dividend or distribution for
common shares.
On October 10, 2018, the Company completed its previously announced 1-for-12 reverse stock split. The Successor period presented
has been retrospectively revised to reflect this change.
The following table sets forth the computation of basic and diluted net income per common share (amounts in millions, except
per share amounts):
Successor
Predecessor
Year Ended
December 31, 2019
Five Months Ended
December 31, 2018
Seven Months Ended
July 31, 2018
Year Ended
December 31, 2017
Net income attributable to Successor/
Predecessor
Less: Undistributed earnings attributable
to participating stockholders
Net income attributable to common
stockholders
Net income per common share
attributable to Successor/Predecessor
common stockholders:
Basic
Diluted
$
$
$
$
Weighted average shares of common
stock outstanding (in thousands):
Basic
Dilutive effect of stock awards
Dilutive effect of participating securities
Diluted
274
$
884
$
154
$
2
8
—
272
$
876
$
154
$
30
—
30
2.99
2.95
$
$
9.65
9.54
$
$
1.57
1.55
$
$
0.31
0.30
91,035
270
839
92,144
90,813
178
839
91,830
98,046
1,091
—
99,137
97,696
1,107
—
98,803
127Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 17. Income Taxes
The components of income tax (benefit) expense were as follows:
Successor
Predecessor
Year Ended
December 31, 2019
Five Months Ended
December 31, 2018
Seven Months Ended
July 31, 2018
Year Ended
December 31, 2017
$
Current Income Taxes
Federal
State
Total current income taxes
Deferred Income Taxes
Federal
State
Total deferred income taxes
Total provision for income taxes
$
$
19
74
93
(298)
(68)
(366)
(273) $
— $
—
—
(1,015)
(6)
(1,021)
(1,021)
$
(14) $
(1)
(15)
54
9
63
48
$
52
7
59
(43)
(3)
(46)
13
The following table presents a reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the
actual effective tax rate:
Tax (Benefit) Expense at
Federal Statutory Rate
Effect of:
State taxes, net of
federal benefit
Non-controlling
interests
Change in valuation
allowance
Deferred adjustments
Nondeductible items
Federal tax reform
impact
Current payable
adjustments
Adjustments related
to uncertain tax
positions
Other, net
Successor
Predecessor
Year Ended December
31, 2019
Five Months Ended
December 31, 2018
Seven Months Ended
July 31, 2018
Year Ended December
31, 2017
$
(1)
21.0 % $
(29)
21.0 % $
42
21.0 % $
15
35.0 %
5
1
(141.2)%
(21.1)%
(285)
2
4
—
—
—
1
8066.4 %
(64.1)%
(136.5)%
— %
— %
— %
(5.7)%
(6)
—
(990)
3
1
—
—
—
—
4.2 %
— %
720.0 %
(1.8)%
(1.0)%
— %
— %
— %
— %
8
—
—
(1)
7
—
(1)
—
(7)
3.8 %
— %
— %
(0.5)%
3.3 %
1
—
(1)
—
1
1.9 %
(0.3)%
(1.2)%
— %
3.2 %
— %
(5)
(12.6)%
(0.5)%
—
— %
— %
(3.3)%
1
1
2.4 %
0.5 %
Total income tax (benefit)
expense
$
(273)
7718.8 % $ (1,021)
742.4 % $
48
23.8 % $
13
28.9 %
In 2019, the effective tax rate differed from the statutory tax rate primarily due to the release of the valuation allowance, as well
as state tax adjustments and permanent differences. The effective tax rate for the five months ended December 31, 2018 differed
from the statutory tax rate primarily due to the reversal of the valuation allowance associated with the NOL carryforwards of
WMIH, permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m),
penalties and nondeductible meals and entertainment expenses. In 2017, the effective tax rate differed from the statutory tax rate
primarily as a result of changes made by the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), including deferred adjustments
related to the remeasurement of deferred tax assets and liabilities as a result of the reduction of the U.S. corporate tax rate to 21%.
128 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
In the assessment of whether a valuation allowance was required as of December 31, 2019, the Company considered the four
sources of taxable income, as follows, under ASC 740-10-30-18:
1. Taxable income in prior carryback year(s) if carryback is permitted under the tax law;
2. Future reversals of existing taxable temporary differences;
3. Tax-planning strategies; and
4. Future taxable income exclusive of reversing temporary differences and carryforwards.
The Company noted that the NOL carryback period of taxable income is no longer available to offset taxable income in prior years
as modified as part of the Tax Reform Act. In determining the appropriate deferred tax asset valuation allowance as of December 31,
2019, the Company considered and evaluated the remaining three sources of income. The Company considered the future reversals
of existing taxable temporary differences and identified tax-planning strategies that were considered prudent and feasible. In
addition, the Company considered:
Internal forecasts of future pre-tax income exclusive of reversing temporary differences and carryforwards;
1.
2. The nature and timing of future reversals of existing deferred tax assets;
3. Future originating temporary and permanent differences; and
4. NOL carryforward expiration dates.
Consistent with the prior year analysis, the Company based its projection of future taxable income on historical pre-tax income
and assumed a steady state of operations that would generate cash flows and liquidity sufficient to maintain current operations
and pay down corporate debt, which results in a reduction in interest expense in future periods. The Company considered other
factors in its determination of future taxable income that was demonstrated by historical performance.
As a result, the Company believes it is more likely than not that its deferred tax assets will be realized prior to its expiration and
released an additional $285 of the valuation allowance during the fourth quarter of 2019. A valuation allowance of $9 remains for
the deferred tax asset associated with NOL carryforwards that are subject to limitation under Section 382 as of December 31,
2019. The Company does not expect any future tax loss limitations under Sections 382 and 384 that would impact its utilization
of remaining federal NOL carryforwards. Accordingly, the Company has federal NOL carryforwards (pre-tax) of approximately
$4.7 billion and $6.3 billion as of December 31, 2019 and 2018, respectively. It is expected that the federal NOL carryforwards
will begin to expire beginning with the 2026 tax year, if unused. The Company also has immaterial state NOL carryforwards that
will begin to expire beginning with the 2019 tax year, if unused.
129Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Temporary differences and carryforwards that give rise to deferred tax assets and liabilities are comprised of the following:
Deferred Tax Assets
Effect of:
Loss carryforwards (federal, state & capital)
Goodwill and intangible assets
Loss reserves
Reverse mortgage interests
Lease liability
Accruals
Restricted share-based compensation
Partnership interests
Excess interest expense
Other, net
Total deferred tax assets
Deferred Tax Liabilities
MSR amortization and mark-to-market, net
Right-of-use assets
Depreciation and amortization, net
Prepaid assets
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
Successor
December 31, 2019
December 31, 2018
$
$
$
998
364
108
44
32
16
3
1
—
12
1,578
(181)
(29)
(12)
(2)
(224)
(9)
1,345
$
1,334
4
69
70
1
14
1
7
10
5
1,515
(243)
—
(12)
(1)
(256)
(295)
964
The Company elected to account for the Global Intangible Low-Taxed Income (“GILTI”) tax expense in the period in which it is
incurred. As a result, no deferred tax impact of GILTI has been provided in the consolidated financial statements.
The Company files income tax returns in the U.S. federal jurisdiction and numerous U.S. state jurisdictions. With few exceptions,
as of December 31, 2019, the Company is no longer subject to U.S. federal and state income tax examinations for tax years prior
to 2015.
As of December 31, 2019 and 2018, the Company had no unrecognized tax benefits recorded related to uncertain tax positions.
The following is a tabular reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits,
excluding interest and penalties, for the Predecessor:
Predecessor
Unrecognized Tax Benefits
Balance - beginning of period
Increases in tax positions of current year
(Decreases)/Increases in tax positions of prior years
Settlements
Balance - end of period
Seven Months Ended
July 31, 2018
Year Ended
December 31, 2017
—
$
17
—
(17)
—
— $
1
20
(4)
17
$
$
As of December 31, 2017, the Predecessor recorded $19 of unrecognized tax benefits related to uncertain tax positions, including
$2 in interest and penalties. In the period ended March 31, 2018 the Predecessor took certain actions to remediate the uncertain
tax position that existed as of the prior period. As a result, the Predecessor recognized all of the unrecognized tax benefits and
recorded an income tax benefit of approximately $6, exclusive of any benefits related to interest and penalties in the period ended
March 31, 2018.
130 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 18. 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 7, 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 until 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 7, Mortgage Loans Held for Sale and Investment, for more information. As
of December 31, 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, discount rates, ancillary revenues, earnings on escrow and costs to
service. These assumptions are generated and applied based on collateral stratifications including product type, remittance type,
geography, delinquency and coupon dispersion. These assumptions require the use of judgment by the Company and can have a
significant 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 4, 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
131Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K as the net present value based on discounted cash flow is not materially different from the net realizable value. See Note 5, Advances
and Other Receivables, Net, for more information.
Reverse Mortgage Interests, Net (Level 3) – The Company’s reverse mortgage interests are primarily comprised of HECM loans
that are insured by FHA and guaranteed by Ginnie Mae upon securitization. Quarterly, the Company estimates fair value using
discounted cash flows, obtained from a third-party and supplemented with historical loss experience on similar assets, with the
discount rate approximating that of similar financial instruments, as observed from recent trades with the HMBS. Key assumptions
within the model are based on market participant benchmarks and include discount rates, cost to service, weighted average life of
the portfolio, and estimated participating income. Discounted cash flows are applied based on collateral stratifications and include
loan rate type, loan status (active vs. inactive), and securitization. Prices are also influenced from both internal models and other
observable inputs. The Company determined fair value for all loans based on the applicable tranches established during the Merger
valuation. Tranches are segregated based on participation percentages, original loan 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 6, 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 11, 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 12, 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 12,
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 12, 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 4, 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 4, Mortgage Servicing Rights and Related Liabilities, for more information.
132 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 6, Reverse
Mortgage Interests, Net, and Note 12, 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 12, 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
December 31, 2019
Recurring Fair Value Measurements
Total Fair Value
Level 1
Level 2
Level 3
Assets
Mortgage loans held for sale
$
4,077.0
$
Mortgage loans held for investment
Forward mortgage servicing rights
Derivative financial instruments:
IRLCs
Forward MBS trades
LPCs
Eurodollar futures(1)
Total assets
Liabilities
Derivative financial instruments:
IRLCs(1)
Forward MBS trades
LPCs
Eurodollar futures(1)
Mortgage servicing rights financing
Excess spread financing
Total liabilities
$
$
$
—
3,496.4
134.7
6.5
12.2
—
7,726.8
$
— $
12.3
2.6
—
37.4
1,310.8
1,363.1
$
— $
—
—
—
—
—
—
— $
— $
—
—
—
—
—
— $
4,077.0
$
—
—
134.7
6.5
12.2
—
—
—
3,496.4
—
—
—
—
4,230.4
$
3,496.4
— $
12.3
2.6
—
—
—
14.9
$
—
—
—
—
37.4
1,310.8
1,348.2
(1) Fair values of the underlying assets and liabilities are less than $0.1 for the specified dates.
133Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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
$
Mortgage loans held for investment
Forward mortgage servicing rights
Derivative financial instruments:
IRLCs
Forward MBS trades
LPCs
Eurodollar futures(1)
Total assets
Liabilities
Derivative financial instruments:
Forward MBS trades
LPCs
Eurodollar futures(1)
Mortgage servicing rights financing
Excess spread financing
Total liabilities
$
$
$
119.1
3,665.4
47.6
0.1
1.7
—
5,464.7
$
19.3
$
0.4
—
31.7
1,184.4
1,235.8
$
— $
—
—
—
—
—
—
— $
— $
—
—
—
—
— $
1,630.8
$
—
—
47.6
0.1
1.7
—
—
119.1
3,665.4
—
—
—
—
1,680.2
$
3,784.5
19.3
$
0.4
—
—
—
19.7
$
—
—
—
31.7
1,184.4
1,216.1
(1) Fair values of the underlying assets and liabilities are less than $0.1 for the specified dates.
The tables below present a reconciliation for all of the Company and Predecessor’s Level 3 assets and liabilities measured at fair
value on a recurring basis:
Year Ended December 31, 2019
Balance - beginning of period
Total gains or losses included in earnings
Payments received from borrowers
Purchases, issuances, sales, repayments
and settlements
Purchases
Issuances
Sales
Repayments
Settlements
Transfers to mortgage loans held for sale
Transfers to real estate owned
Balance - end of period
Assets
Liabilities
Successor
Mortgage servicing
rights
Mortgage loans held
for investment
Excess spread
financing
Mortgage servicing
rights financing
$
$
3,665
(1,053)
—
858
434
(408)
—
—
—
—
$
3,496
$
119
$
3
(11)
—
—
(94)
—
—
(12)
(5)
— $
$
1,184
(169)
—
—
542
—
(27)
(219)
—
—
1,311
$
32
5
—
—
—
—
—
—
—
—
37
134 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Assets
Liabilities
Successor
Mortgage servicing
rights
Mortgage loans held
for investment
Excess spread
financing
Mortgage servicing
rights financing
Five Months Ended December 31, 2018
Balance - beginning of period
Total gains or losses included in earnings
Payments received from borrowers
Purchases, issuances, sales, repayments
and settlements
Purchases
Issuances
Sales
Repayments
Settlements
$
$
3,413
(236)
—
$
125
(1)
(5)
479
120
(111)
—
—
—
—
—
—
—
Balance - end of period
$
3,665
$
119
$
1,039
$
5
—
—
255
—
(38)
(77)
1,184
$
26
6
—
—
—
—
—
—
32
Seven Months Ended July 31, 2018
Balance - beginning of period
Total gains or losses included in earnings
Purchases, issuances, sales, repayments and settlements
Purchases
Issuances
Sales
Repayments
Settlements
Predecessor
Assets
Liabilities
Mortgage servicing
rights
Excess spread
financing
Mortgage servicing
rights financing
$
2,937
$
996
$
166
144
162
4
—
—
81
—
70
—
(3)
(105)
1,039
$
10
16
—
—
—
—
—
26
Balance - end of period
$
3,413
$
No transfers were made into Level 3 fair value assets and liabilities for the year ended December 31, 2019, five months ended
December 31, 2018, and seven months ended July 31, 2018. During the year ended December 31, 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
7, 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 five months ended December 31, 2018 and seven months ended July 31, 2018.
135Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The tables below present a summary of the estimated carrying amount and fair value of the Company and Predecessor’s financial
instruments:
Successor
December 31, 2019
Carrying
Amount
Level 1
Fair Value
Level 2
Level 3
Financial assets
Cash and cash equivalents
$
Restricted cash
Advances and other receivables, net
Reverse mortgage interests, net
Mortgage loans held for sale
Mortgage loans held for investment
Derivative financial instruments
Financial liabilities
Unsecured senior notes(1)
Advance facilities
Warehouse facilities(1)
Mortgage servicing rights financing
liability
Excess spread financing
Derivative financial instruments
Participating interest financing(1)
HECM Securitization (HMBS)(1)
Trust 2019-2
Trust 2019-1
Trust 2018-3
Trust 2018-2
329
283
988
6,279
4,077
—
153
2,366
422
4,575
37
1,311
15
4,299
331
300
208
148
$
$
329
283
— $
—
—
—
—
—
—
2,505
—
—
—
—
—
—
—
—
—
—
—
—
4,077
—
153
—
422
4,575
—
—
15
—
—
—
—
—
(1) The amounts are presented net of unamortized debt issuance costs, premium and discount.
—
—
988
6,318
—
—
—
—
—
—
37
1,311
—
4,299
331
300
208
148
136 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Successor
December 31, 2018
Carrying
Amount
Level 1
Fair Value
Level 2
Level 3
Financial assets
Cash and cash equivalents
$
Restricted cash
Advances and other receivables, net
Reverse mortgage interests, net
Mortgage loans held for sale
Mortgage loans held for investment
Derivative financial instruments
Financial liabilities
Unsecured senior notes(1)
Advance facilities(1)
Warehouse facilities(1)
Mortgage servicing rights financing
liability
Excess spread financing
Derivative financial instruments
Participating interest financing(1)
HECM Securitization (HMBS)(1)
Trust 2018-3
Trust 2018-2
Trust 2018-1
Trust 2017-2
Nonrecourse debt - legacy assets
242
319
1,194
7,934
1,631
119
49
2,459
595
2,349
32
1,184
20
5,675
326
250
284
231
29
$
$
242
319
— $
—
—
—
—
—
—
2,451
—
—
—
—
—
—
—
—
—
—
—
—
—
1,631
—
49
—
595
2,349
—
—
20
—
—
—
—
—
—
—
—
1,194
7,942
—
119
—
—
—
—
32
1,184
—
5,672
326
249
284
230
28
(1) The amounts are presented net of unamortized debt issuance costs, premium and discount.
19. Employee Benefit Plans
The Company sponsors a defined contribution plan (401(k) plan) that covers all full-time employees. The Company matches 100%
of participant contributions up to 2% of their total eligible annual base compensation and matches 50% of contributions for the
next 4% of each participant’s total eligible annual base compensation. Matching contributions by the Company totaled
approximately $20 and $7 for the year ended December 31, 2019 and for the five months ended December 31, 2018, respectively.
Matching contributions by the Predecessor totaled approximately $10 and $15 for the seven months ended July 31, 2018 and the
year ended December 31, 2017, respectively.
20. Capital Requirements
Certain of the Company’s secondary market investors require minimum net worth (“capital”) requirements, as specified in the
respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated
requirements to approve large servicing transfers. To the extent that these requirements are not met, the Company’s secondary
market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of the Company’s
selling and servicing agreements, which would prohibit the Company from further originating or securitizing these specific types
of mortgage loans or being an approved servicer. The Company’s various capital requirements related to its outstanding selling
and servicing agreements are measured based on the Company’s operating subsidiary, Nationstar Mortgage LLC. As of
December 31, 2019, the Company was in compliance with its selling and servicing capital requirements.
137Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 21. 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 and 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 December 31, 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 December 31, 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.
138 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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 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 $64 and $22 for the year ended December 31, 2019 and the five months ended December
31, 2018, respectively, was included in general and administrative expenses on the consolidated statements of operations. Legal-
related expense for the Predecessor of $40 and $40 for the seven months ended July 31, 2018 and the year ended December 31,
2017, 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 $18 to $37 in excess of the accrued
liability (if any) related to those matters as of December 31, 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.
139Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 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
December 31, 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.
Lease Commitments
The Company leases various corporate and other office facilities under non-cancelable lease agreements with primary terms
extending through 2029. These lease agreements generally provide for market-rate renewal options and may provide for escalations
in minimum rentals over the lease term. The Company incurred rental expense of $39 and $16 during the year ended December
31, 2019 and the five months ended December 31, 2018, respectively. Rental expense incurred by the Predecessor was $19 and
$31 during the seven months ended July 31, 2018 and the year ended December 31, 2017, respectively. See Note 9, Leases, for
more information.
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 11, Derivative Financial Instruments, for more
information.
The Company had certain reverse MSRs, reverse MSLs and reverse mortgage loans related to approximately $22,725 and $28,415
of UPB in reverse mortgage loans as of December 31, 2019 and 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 December 31, 2019 and 2018, the Company’s maximum unfunded advance obligation to fund borrower
draws related to these MSRs and loans was approximately $2,617 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.
22. 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 actual cost of
services performed based on a 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.
140 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K The following tables present financial information by segment:
Successor
Year Ended December 31, 2019
Servicing
Originations
Xome
Elimination
Total
Operating
Segments
Corporate/
Other
Consolidated
Revenues
Service related, net
$
408
$
80
$
422
$
(3) $
907
$
2
$
909
Net gain on mortgage loans
held for sale
Total revenues
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other income (expenses), net
Total other income (expenses), net
(Loss) income before income tax
(benefit) expense
Depreciation and amortization for
property and equipment and
intangible assets
Total assets
$
$
$
124
532
690
500
(469)
4
35
963
1,043
568
98
(98)
4
4
—
422
398
—
—
14
14
—
(3)
(3)
—
—
—
—
1,087
1,994
1,653
598
(567)
22
53
11
13
198
7
(212)
(7)
(212)
1,098
2,007
1,851
605
(779)
15
(159)
(123) $
479
$
38
$
— $
394
$
(397) $
(3)
19
11,044
$
$
18
9,257
$
$
14
526
$
$
— $
51
(4,826) $
16,001
$
$
40
2,304
$
$
91
18,305
Successor
Five Months Ended December 31, 2018
Servicing
Originations
Xome
Elimination
Total
Operating
Segments
Corporate/
Other
Consolidated
Revenues
Service related, net
$
217
$
24
$
177
$
— $
418
$
— $
Net gain on mortgage loans
held for sale
Total revenues
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other income, net
Total other income (expenses), net
(Loss) income before income tax
(benefit) expense
Depreciation and amortization for
property and equipment and
intangible assets
Total assets
$
$
$
19
236
303
222
(173)
6
55
157
181
155
27
(26)
5
6
—
177
178
—
(1)
1
—
—
—
—
—
—
—
—
176
594
636
249
(200)
12
61
—
—
71
7
(93)
1
(85)
418
176
594
707
256
(293)
13
(24)
(12) $
32
$
(1) $
— $
19
$
(156) $
(137)
9
13,485
$
$
5
4,866
$
$
5
493
$
$
— $
19
(3,772) $
15,072
$
$
20
1,901
$
$
39
16,973
141Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Servicing
Originations
Xome
Elimination/
Reclassification(1)
Total
Operating
Segments
Corporate/
Other
Consolidated
Revenues
Service related, net
$
740
$
36
$
149
$
(25) $
900
$
1
$
901
Predecessor
Seven Months Ended July 31, 2018
Net gain on mortgage
loans held for sale
Total revenues
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other (expenses)
income, net
Total other income
(expenses), net
Income (loss) before income
tax expense (benefit)
Depreciation and
amortization for property and
equipment and intangible
assets
Total assets
$
$
$
—
740
474
288
(268)
(1)
19
270
306
245
38
(37)
—
1
—
149
123
—
—
9
9
25
—
—
—
—
—
—
295
1,195
842
326
(305)
8
29
—
1
103
7
(83)
(2)
(78)
295
1,196
945
333
(388)
6
(49)
285
$
62
$
35
$
— $
382
$
(180) $
202
15
14,578
$
$
7
4,701
$
$
7
425
$
$
— $
29
(3,591) $
16,113
$
$
4
913
$
$
33
17,026
Servicing(1)
Originations
Xome
Elimination/
Reclassification(1)
Total
Operating
Segments
Corporate/
Other
Consolidated
Revenues
Service related, net
$
766
$
63
$
291
$
(79) $
1,041
$
2
$
1,043
Predecessor
Year Ended December 31, 2017
Net gain on mortgage
loans held for sale
Total revenues
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other (expenses)
income, net
Total other income
(expenses), net
Income (loss) before income
tax expense (benefit)
Depreciation and
amortization for property and
equipment and intangible
assets
Total assets
$
$
$
—
766
691
527
(523)
(3)
1
528
591
439
55
(54)
—
1
—
291
247
—
—
9
9
79
—
—
—
—
—
—
607
1,648
1,377
582
(577)
6
11
—
2
98
15
(154)
(3)
607
1,650
1,475
597
(731)
3
(142)
(131)
76
$
153
$
53
$
— $
282
$
(238) $
44
23
15,006
$
$
10
4,935
$
$
14
393
$
$
— $
47
(3,117) $
17,217
$
$
12
819
$
$
59
18,036
(1) For the Predecessor’s Servicing segment results purposes, all revenue is attributable to servicing the portfolio. Therefore, $25
and $79 of net gain on mortgage loans was moved to revenues - service related, net during the seven months ended July 31,
2018 and the year ended December 31, 2017, respectively. For consolidated results purposes, these amounts were reclassed
to net gain on mortgage loans held for sale.
142 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
23. Guarantor Financial Statement Information
As of December 31, 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(2) with an outstanding aggregate
principal amount of $492 and a 6.500% unsecured senior notes due June 2022(2) 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 direct wholly-owned subsidiaries are guarantors of the unsecured senior notes as well.
Presented below are the consolidating financial statements of the Company, Nationstar Mortgage LLC and the guarantor subsidiaries
for the years 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.
(2) This note was subsequently redeemed in full in February 2020. See Note 26, Subsequent Events, for further information.
143Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2019
Mr. Cooper
Issuer(1)
Successor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
$
$
$
— $
—
—
—
—
—
—
1,273
—
2,828
$
287
175
3,478
988
5,312
4,077
92
70
1,279
698
4,101
$
16,456
$
1,667
$
699
$
—
—
63
—
—
—
140
1,870
2,231
63
4,575
1,882
1,334
61
4,299
715
13,628
2,828
1
—
—
—
—
—
—
—
215
—
216
$
41
$
108
24
—
967
—
20
2
751
—
$
1,913
$
— $
—
—
—
—
—
—
—
(855)
(3,526)
(4,381) $
— $
—
— $
359
— $
—
—
1
—
—
—
—
1
215
—
70
14
—
987
—
1,430
483
—
—
—
—
—
(855)
(855)
(3,526)
329
283
3,502
988
6,279
4,077
112
1,345
1,390
—
18,305
2,366
422
4,575
2,016
1,348
61
5,286
—
16,074
2,231
$
4,101
$
16,456
$
216
$
1,913
$
(4,381) $
18,305
Assets
Cash and cash equivalents
Restricted cash
Mortgage servicing rights
Advances and other receivables, net
Reverse mortgage interests, net
Mortgage loans held for sale at fair
value
Property and equipment, net
Deferred tax assets, net
Other assets
Investment in subsidiaries
Total assets
Liabilities and Stockholders’ Equity
Unsecured senior notes, net
Advance facilities, net
Warehouse facilities, net
Payables and other liabilities
MSR related liabilities - nonrecourse at
fair value
Mortgage servicing liabilities
Other nonrecourse debt, net
Payables to affiliates
Total liabilities
Total stockholders’ equity
Total liabilities and stockholders’
equity
(1)
Issuer balances exclude the balances of its guarantor and non-guarantor subsidiaries, as previously described.
144 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2019
Mr. Cooper
Issuer(1)
Successor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
Revenues:
Service related, net
Net gain on mortgage loans held for
sale
Total revenues
Expenses:
Salaries, wages benefits
General and administrative
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other income (expenses), net
Gain (loss) from subsidiaries
Total other income (expenses), net
(Loss) income before income tax
expense
Less: Income tax (benefit) expense
Net income (loss)
Less: Net loss attributable to non-
controlling interests
Net income (loss) attributable to Mr.
Cooper
$
— $
451
$
22
$
436
$
— $
909
—
—
—
—
—
—
(153)
—
142
(11)
(11)
(285)
274
—
1,087
1,538
794
651
1,445
525
(566)
1
98
58
151
13
138
(4)
—
22
5
2
7
—
—
(15)
—
(15)
—
—
—
—
11
447
158
241
399
80
(60)
29
—
49
97
(1)
98
—
—
—
—
—
—
—
—
—
(240)
(240)
(240)
—
(240)
—
1,098
2,007
957
894
1,851
605
(779)
15
—
(159)
(3)
(273)
270
(4)
$
274
$
142
$
— $
98
$
(240) $
274
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
145Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2019
Mr. Cooper
Issuer(1)
Successor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
Operating Activities
Net income (loss)
Adjustment to reconcile net income
(loss) to net cash attributable to
operating activities:
Deferred tax benefit
(Gain) loss from subsidiaries
Net gain on mortgage loans held for
sale
Interest income on reverse mortgage
loans
Loss on sale of assets
Provision for servicing reserves
Fair value changes and amortization/
accretion of mortgage servicing
rights/liabilities
Fair value changes in excess spread
financing
Fair value changes in mortgage
servicing rights financing liability
Fair value changes in mortgage loans
held for investment
Amortization of premiums, net of
discount accretion
Depreciation and amortization for
property and equipment and
intangible assets
Share-based compensation
Other loss
Repurchases of forward loans assets out
of Ginnie Mae securitizations
Mortgage loans originated and
purchased for sale, net of fees
Sales proceeds and loan payment
proceeds for mortgage loans held for
sale and held for investment
Changes in assets and liabilities:
Advances and other receivables
Reverse mortgage interests
Other assets
Payables and other liabilities
Net cash attributable to operating
activities
$
274
$
138
$
— $
98
$
(240) $
270
(286)
(142)
—
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
—
147
—
—
(77)
(98)
(1,087)
(264)
2
66
997
(164)
5
—
(18)
75
16
3
(2,895)
(40,269)
41,809
228
2,035
11
(70)
443
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3)
—
(11)
(43)
—
—
8
(5)
—
(3)
(21)
16
2
8
—
12
139
—
157
(80)
(15)
259
—
240
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(366)
—
(1,098)
(307)
2
66
1,005
(169)
5
(3)
(32)
91
18
11
(2,895)
(40,257)
41,948
228
2,192
78
(85)
702
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
146 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR COOPER GROUP INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2019
(Continued)
Mr. Cooper
Issuer(1)
Successor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
Investing Activities
Acquisition, net of cash acquired
Property and equipment additions, net
of disposals
Purchase of forward mortgage servicing
rights, net of liabilities incurred
Proceeds on sale of forward and reverse
mortgage servicing rights
Net cash attributable to investing
activities
Financing Activities
Increase in warehouse facilities
Decrease in advance facilities
Repayment of notes payable
Proceeds from issuance of HECM
securitizations
Proceeds from sale of HECM
securitizations
Repayment of HECM securitizations
Proceeds from issuance of participating
interest financing
Repayment of participating interest
financing
Proceeds from issuance of excess spread
financing
Repayment of excess spread financing
Settlement of excess spread financing
Repayment of nonrecourse debt - legacy
assets
Redemption and repayment of
unsecured senior notes
Repayment of finance lease liability
Surrender of shares relating to stock
vesting
Debt financing costs
Net cash attributable to financing
activities
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents - beginning
of period
Cash and cash equivalents - end of
period
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(85)
(34)
(547)
343
(323)
1,704
(40)
(294)
—
—
—
277
(1,868)
542
(27)
(219)
—
(100)
(4)
(2)
(6)
(37)
83
379
$
— $
462
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
1
—
(15)
—
—
(15)
—
(146)
—
751
20
(870)
—
—
—
—
—
(29)
—
—
—
(2)
(276)
(32)
181
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
149
$
— $
(85)
(49)
(547)
343
(338)
1,704
(186)
(294)
751
20
(870)
277
(1,868)
542
(27)
(219)
(29)
(100)
(4)
(2)
(8)
(313)
51
561
612
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
147Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2018
Mr. Cooper
Issuer(1)
Successor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
$
$
$
— $
—
—
—
—
—
—
—
973
—
2,820
$
193
186
3,644
1,194
6,770
1,631
1
84
—
660
601
1
—
—
—
—
—
—
—
—
202
—
$
48
$
133
32
—
1,164
—
118
12
(6)
621
—
3,793
$
14,964
$
203
$
2,122
$
— $
—
—
—
—
—
—
—
—
(688)
(3,421)
(4,109) $
1,660
$
799
$
—
—
49
—
—
—
139
1,848
1,945
90
2,349
1,413
1,197
71
5,676
549
12,144
2,820
— $
—
— $
505
— $
—
—
1
—
—
—
—
1
202
—
80
19
—
1,119
—
1,723
399
—
—
—
—
—
(688)
(688)
(3,421)
242
319
3,676
1,194
7,934
1,631
119
96
967
795
—
16,973
2,459
595
2,349
1,543
1,216
71
6,795
—
15,028
1,945
$
3,793
$
14,964
$
203
$
2,122
$
(4,109) $
16,973
Assets
Cash and cash equivalents
Restricted cash
Mortgage servicing rights
Advances and other receivables, net
Reverse mortgage interests, net
Mortgage loans held for sale at fair
value
Mortgage loans held for investment, net
Property and equipment, net
Deferred tax assets, net
Other assets
Investment in subsidiaries
Total assets
Liabilities and Stockholders’ Equity
Unsecured senior notes, net
Advance facilities, net
Warehouse facilities, net
Payables and other liabilities
MSR related liabilities - nonrecourse at
fair value
Mortgage servicing liabilities
Other nonrecourse debt, net
Payables to affiliates
Total liabilities
Total stockholders’ equity
Total liabilities and stockholders’
equity
(1)
Issuer balances exclude the balances of its guarantor and non-guarantor subsidiaries, as previously described.
148 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING STATEMENT OF OPERATIONS
FIVE MONTHS ENDED DECEMBER 31, 2018
Mr. Cooper
Issuer(1)
Successor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
Revenues:
Service related, net
Net gain on mortgage loans held for
sale
Total revenues
Expenses:
Salaries, wages and benefits
General and administrative
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other income, net
(Loss) gain from subsidiaries
Total other income (expenses), net
(Loss) income before income tax benefit
Less: Income tax benefit
Net income (loss)
Less: Net loss attributable to non-
controlling interests
Net income (loss) attributable to Mr.
Cooper
$
— $
233
$
9
$
176
$
— $
—
—
1
—
1
—
(64)
1
(44)
(107)
(108)
(992)
884
—
175
408
258
262
520
237
(211)
11
2
39
(73)
(29)
(44)
—
—
9
2
1
3
—
—
—
—
—
6
—
6
—
1
177
76
107
183
19
(18)
1
—
2
(4)
—
(4)
—
—
—
—
—
—
—
—
—
42
42
42
—
42
—
$
884
$
(44) $
6
$
(4) $
42
$
418
176
594
337
370
707
256
(293)
13
—
(24)
(137)
(1,021)
884
—
884
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
149Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING STATEMENT OF OPERATIONS
SEVEN MONTHS ENDED JULY 31, 2018
Nationstar
Issuer(1)
Predecessor
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
Total revenues
Expenses:
Salaries, wages benefits
General and administrative
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other (expenses) income, net
Gain (loss) from subsidiaries
Total other income (expenses), net
Income (loss) before income tax
expense
Less: Income tax expense
Net income (loss)
Less: Net income attributable to non-
controlling interests
Net income (loss) attributable to
Nationstar
—
—
—
27
27
—
—
—
181
181
154
—
154
—
295
1,027
359
427
786
299
(364)
(3)
56
(12)
229
48
181
—
—
16
3
1
4
—
—
—
—
—
12
—
12
—
—
153
64
64
128
34
(24)
9
—
19
44
—
44
—
—
—
—
—
—
—
—
—
(237)
(237)
(237)
—
(237)
—
$
154
$
181
$
12
$
44
$
(237) $
295
1,196
426
519
945
333
(388)
6
—
(49)
202
48
154
—
154
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
150 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FIVE MONTHS ENDED DECEMBER 31, 2018
Mr. Cooper
Issuer(1)
Successor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
$
884
$
(44) $
6
$
(4) $
42
$
884
Operating Activities
Net income (loss)
Adjustments to reconcile net income
(loss) to net cash attributable to
operating activities:
Deferred tax benefit
Loss (gain) from subsidiaries
Net gain on mortgage loans held for
sale
Interest income on reverse mortgage
loans
Provision for servicing reserves
Fair value changes and amortization/
accretion of mortgage servicing
rights/liabilities
Fair value changes in excess spread
financing
Fair value changes in mortgage
servicing rights financing liability
Fair value changes in mortgage loans
held for investment
Amortization of premiums, net of
discount accretion
Depreciation and amortization for
property and equipment and
intangible assets
Share-based compensation
Other loss (gain)
Repurchases of forward loans assets out
of Ginnie Mae securitizations
Mortgage loans originated and
purchased for sale, net of fees
Sales proceeds and loan payment
proceeds for mortgage loans held for
sale and held for investment
Changes in assets and liabilities:
Advances and other receivables
Reverse mortgage interests
Other assets
Payables and other liabilities
(971)
44
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
1
28
(49)
(2)
(175)
(206)
38
225
6
6
—
7
33
1
1
(527)
(8,888)
9,389
43
1,569
(18)
(130)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
—
—
(1)
—
(1)
—
—
—
(1)
—
(2)
(1)
6
1
(1)
—
—
16
—
(25)
(38)
34
(17)
—
(42)
(1,021)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(176)
(206)
38
225
5
6
(2)
9
39
2
—
(527)
(8,888)
9,405
43
1,544
(61)
(68)
1,251
Net cash attributable to operating
activities
(11)
1,279
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
151Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FIVE MONTHS ENDED DECEMBER 31, 2018
(Continued)
Mr. Cooper
Issuer(1)
Successor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
Investing Activities
Acquisition, net of cash acquired
Property and equipment additions, net
of disposals
Purchase of forward mortgage servicing
rights, net of liabilities incurred
Proceeds on sale of forward and reverse
mortgage servicing rights
Net cash attributable to investing
activities
Financing Activities
Decrease in warehouse facilities
Increase in advance facilities
Proceeds from issuance of HECM
securitizations
Repayment of HECM securitizations
Proceeds from issuance of participating
interest financing
Repayment of participating interest
financing
Proceeds from issuance of excess spread
financing
Repayment of excess spread financing
Settlement of excess spread financing
Repayment of nonrecourse debt - legacy
assets
Redemption and repayment of
unsecured senior notes
Proceeds from non-controlling interests
Debt financing costs
Net cash attributable to financing
activities
Net decrease in cash and cash
equivalents
Cash and cash equivalents - beginning
of period
Cash and cash equivalents - end of
period
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(11)
11
—
(18)
(313)
105
(226)
(351)
40
—
—
112
(943)
255
(38)
(77)
—
(1,030)
3
(3)
(2,032)
(979)
1,358
$
— $
379
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
1
(33)
3
6
—
(24)
—
5
343
(374)
—
—
—
—
—
(6)
—
—
1
(31)
(72)
253
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(33)
(15)
(307)
105
(250)
(351)
45
343
(374)
112
(943)
255
(38)
(77)
(6)
(1,030)
3
(2)
(2,063)
(1,062)
1,623
$
181
$
— $
561
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
152 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
SEVEN MONTHS ENDED JULY 31, 2018
Nationstar
Issuer(1)
Predecessor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
Operating Activities
Net income (loss)
Adjustment to reconcile net income
(loss) to net cash attributable to
operating activities:
Deferred tax expense
(Gain) loss from subsidiaries
Net gain on mortgage loans held for
sale
Interest income on reverse mortgage
loans
Gain on sale of assets
MSL related increased obligation
Provision for servicing reserves
Fair value changes and amortization/
accretion of mortgage servicing
rights/liabilities
Fair value changes in excess spread
financing
Fair value changes in mortgage
servicing rights financing liability
Amortization of premiums, net of
discount accretion
Depreciation and amortization for
property and equipment and
intangible assets
Share-based compensation
Other loss
Repurchases of forward loans assets out
of Ginnie Mae securitizations
Mortgage loans originated and
purchased for sale, net of fees
Sales proceeds and loan payment
proceeds for mortgage loans held for
sale and held for investment
Changes in assets and liabilities:
Advances and other receivables
Reverse mortgage interests
Other assets
Payables and other liabilities
Net cash attributable to operating
activities
$
154
$
181
$
12
$
44
$
(237) $
154
—
(181)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9
27
9
63
(56)
(295)
(274)
—
59
70
(178)
81
16
11
26
16
3
(544)
(12,328)
13,381
377
1,866
(294)
65
2,246
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(12)
—
—
—
—
—
—
(9)
—
—
1
—
—
(3)
7
1
—
—
—
11
—
(265)
256
(4)
39
—
237
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
63
—
(295)
(274)
(9)
59
70
(177)
81
16
8
33
17
3
(544)
(12,328)
13,392
377
1,601
(41)
88
2,294
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
153Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR COOPER GROUP INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
SEVEN MONTHS ENDED JULY 31, 2018
(Continued)
Nationstar
Issuer(1)
Predecessor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
Investing Activities
Property and equipment additions, net
of disposals
Purchase of forward mortgage servicing
rights, net of liabilities incurred
Net payment related to acquisition of
HECM related receivables
Proceeds on sale of assets
Net cash attributable to investing
activities
Financing Activities
Decrease in warehouse facilities
Decrease in advance facilities
Proceeds from issuance of HECM
securitizations
Repayment of HECM securitizations
Proceeds from issuance of participating
interest financing in reverse mortgage
interests
Repayment of participating interest
financing in reverse mortgage interests
Proceeds from issuance of excess spread
financing
Repayment of excess spread financing
Settlement of excess spread financing
Repayment of nonrecourse debt - legacy
assets
Repurchase of unsecured senior notes
Repurchase of common stock
Surrender of shares relating to stock
vesting
Debt financing costs
Dividends to non-controlling interests
Net cash attributable to financing
activities
Net (decrease) increase in cash and cash
equivalents
Cash and cash equivalents - beginning
of period
Cash and cash equivalents - end of
period
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(9)
—
—
(9)
—
—
(35)
(127)
(1)
—
(163)
(585)
(55)
—
—
208
(1,599)
70
(3)
(105)
—
(62)
—
—
(24)
(1)
(2,156)
(73)
423
$
— $
350
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
1
(5)
(7)
—
13
1
—
(250)
759
(448)
—
—
—
—
—
(7)
—
—
—
—
—
54
94
151
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
245
$
— $
(40)
(134)
(1)
13
(162)
(585)
(305)
759
(448)
208
(1,599)
70
(3)
(105)
(7)
(62)
—
(9)
(24)
(1)
(2,111)
21
575
596
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
154 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2017
Nationstar
Issuer(1)
Predecessor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
Revenues:
Service related, net
Net gain on mortgage loans held for
sale
Total revenues
Expenses:
Salaries wages and benefits
General and administrative
Total expenses
Other income (expenses), net:
Interest income
Interest expense
Other (expenses) income, net
Gain (loss) from subsidiaries
Total other income (expenses), net
Income (loss) before income tax
expense
Less: Income tax expense
Net income (loss)
Less: Net income attributable to non-
controlling interests
Net income (loss) attributable to
Nationstar
$
— $
717
$
28
$
298
$
— $
1,043
—
—
—
—
—
—
—
—
30
30
30
—
30
—
606
1,323
605
590
1,195
544
(675)
(6)
53
(84)
44
13
31
1
—
28
5
11
16
—
—
—
—
—
12
—
12
—
1
299
132
132
264
53
(56)
9
—
6
41
—
41
—
—
—
—
—
—
—
—
—
(83)
(83)
(83)
—
(83)
—
$
30
$
30
$
12
$
41
$
(83) $
607
1,650
742
733
1,475
597
(731)
3
—
(131)
44
13
31
1
30
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
155Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2017
Nationstar
Issuer(1)
Predecessor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
Operating Activities
Net income (loss)
Adjustments to reconcile net income
(loss) to net cash attributable to
operating activities:
Deferred tax benefit
(Gain) loss from subsidiaries
Net gain on mortgage loans held for
sale
Interest income on reverse mortgage
loans
Loss (gain) on sale of assets
Provision for servicing reserves
Fair value changes and amortization/
accretion of mortgage servicing
rights/liabilities
Fair value changes in excess spread
financing
Fair value changes in mortgage
servicing rights financing liability
Amortization of premiums, net of
discount accretion
Depreciation and amortization for
property and equipment and
intangible assets
Share-based compensation
Other loss
Repurchases of forward loans assets out
of Ginnie Mae securitizations
Mortgage loans originated and
purchased for sale, net of fees
Sales proceeds and loan payment
proceeds for mortgage loans held for
sale and held for investment
Changes in assets and liabilities:
Advances and other receivables
Reverse mortgage interests
Other assets
Payables and other liabilities
Net cash attributable to operating
activities
$
30
$
31
$
12
$
41
$
(83) $
31
—
(30)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4
—
4
(46)
(53)
(606)
(490)
1
148
430
15
(17)
73
45
12
6
(1,249)
(19,159)
20,760
(30)
1,829
(103)
(180)
1,417
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(12)
(1)
(1)
—
—
(1)
—
(9)
—
—
(3)
—
9
14
5
—
—
—
16
—
(157)
36
(12)
(61)
—
83
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(46)
—
(607)
(490)
(8)
148
430
12
(17)
82
59
17
6
(1,249)
(19,159)
20,776
(30)
1,672
(75)
(193)
1,359
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
156 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K MR. COOPER GROUP INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2017
(Continued)
Nationstar
Issuer(1)
Predecessor
Guarantor
(Subsidiaries
of Issuer)
Non-
Guarantor
(Subsidiaries
of Issuer)
Eliminations
Consolidated
Investing Activities
Property and equipment additions, net
of disposals
Purchase of forward mortgage servicing
rights, net of liabilities incurred
Net proceeds from acquisition of reverse
mortgage servicing portfolio and
HECM-related receivables
Proceeds on sale of forward and reverse
mortgage servicing rights
Proceeds on sale of assets
Purchase of cost-method investment
Net cash attributable to investing
activities
Financing Activities
Increase in warehouse facilities
Decrease in advance facilities
Proceeds from issuance of HECM
securitizations
Repayment of HECM securitizations
Proceeds from issuance of participating
interest financing in reverse mortgage
interests
Repayment of participating interest
financing in reverse mortgage interests
Repayment of excess spread financing
Settlement of excess spread financing
Repayment of nonrecourse debt - legacy
assets
Redemption and repayment of
unsecured senior notes
Surrender of shares relating to stock
vesting
Debt financing costs
Dividends to non-controlling interests
Net cash attributable to financing
activities
Net decrease in cash and cash
equivalents
Cash and cash equivalents - beginning
of period
Cash and cash equivalents - end of
period
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4)
—
—
(4)
—
—
(37)
(56)
16
71
16
(4)
6
863
(81)
—
(1)
575
(2,597)
(23)
(207)
—
(123)
—
(13)
(5)
(1,612)
(189)
612
$
— $
423
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5)
(7)
—
—
—
—
(12)
—
(160)
707
(571)
—
—
—
—
(15)
—
—
—
—
(39)
(1)
(112)
263
2
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(42)
(63)
16
71
16
(4)
(6)
863
(241)
707
(572)
575
(2,597)
(23)
(207)
(15)
(123)
(4)
(13)
(5)
(1,655)
(302)
877
575
(1)
Issuer activities exclude the activities of its guarantor and non-guarantor subsidiaries, as previously described.
$
151
$
— $
157Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 24. Transactions with Affiliates
Nationstar previously entered into arrangements with Fortress Investment Group (“Fortress”), its subsidiaries managed funds, or
affiliates for purposes of financing its 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 3, 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 Investment Corp. (“New Residential”)
Excess Spread Financing
The Predecessor 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 $122 and $241 during the seven months ended July 31, 2018
and year ended December 31, 2017, respectively, which are 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 $43 and $31 of subservicing fees and other subservicing revenues during the seven months ended July 31, 2018 and year
ended December 31, 2017, 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 seven months ended
July 31, 2018 and the year ended December 31, 2017, the Predecessor recognized revenue of $3 and $6 related to these servicing
arrangements, respectively.
158 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 25. Quarterly Financial Data (Unaudited)
The unaudited quarterly consolidated results of operations are summarized in the tables below:
Successor
Year Ended December 31, 2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Service related revenue, net
$
84
$
Net gain on mortgage loans held for sale
Total revenues
Total expenses
Total other income (expenses), net
(Loss) income before income tax (benefit)
expense
Less: Income tax (benefit) expense
Net (loss) income
Less: Net loss attributable to non-
controlling interests
Net (loss) income attributable to Mr.
Cooper
Less: Undistributed earnings attributable to
participating stockholders(1)
Net (loss) income attributable to common
stockholders
Net (loss) income per common share
attributable to Mr. Cooper common
stockholders:
Basic
Diluted
$
$
$
$
166
250
443
(40)
(233)
(47)
(186)
—
$
137
262
399
492
(24)
(117)
(29)
(88)
(1)
(186) $
(87) $
—
—
(186) $
(87) $
$
258
360
618
478
(33)
107
24
83
(1)
84
$
1
83
$
430
310
740
438
(62)
240
(221)
461
(2)
463
4
459
(2.05) $
(2.05) $
(0.96) $
(0.96) $
0.91
0.90
$
$
5.03
4.95
159Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Predecessor
Successor
Quarter
Ended March
31, 2018
Quarter
Ended June
30, 2018
One Month
Ended July
31, 2018
Two Months
Ended
September 30,
2018
Quarter
Ended
December 31,
2018
Service related revenue, net
Net gain on mortgage loans held for sale
Total revenues
Total expenses
Total other income (expenses), net
Income (loss) before income tax expense (benefit)
Less: Income tax expense (benefit)
Net income (loss)
Less: Net income attributable to non-controlling
interests
Net income (loss) attributable to Predecessor/
Successor
Less: Undistributed earnings attributable to
participating stockholders(1)
Net income (loss) attributable to common
stockholders
Net income (loss) per common share attributable to
Predecessor/Successor common stockholders:
Basic
Diluted
$
$
$
$
$
464
124
588
364
(18)
206
46
160
—
160
—
$
317
127
444
339
(26)
79
21
58
—
58
—
120
44
164
242
(5)
(83)
(19)
(64)
—
(64)
—
$
259
$
83
342
275
(26)
41
(979)
1,020
—
159
93
252
432
2
(178)
(42)
(136)
—
1,020
(136)
9
—
160
$
58
$
(64)
$
1,011
$
(136)
1.63
1.61
$
$
0.59
0.59
$
$
(0.65)
(0.65)
$
$
11.13
10.99
$
$
(1.50)
(1.50)
(1) Undistributed earnings allocated to participating securities and earnings per share are computed independently for each period.
Accordingly, the sum of each quarterly amount may not agree to the year-to-date total.
26. Subsequent Events
On January 16, 2020, the Company completed an offering of $600 aggregate principal amount of 6.000% Senior Notes due 2027
(the “Notes”). The Notes will bear interest at 6.000% per annum and will mature on January 15, 2027. Interest on the Notes will
be payable semi-annually on January 15 and July 15 of each year, beginning on July 15, 2020. In February 2020, the net proceeds
of the offering, together with cash on hand, were used to redeem in full the outstanding 6.500% Senior Notes due 2021 and 6.500%
Senior Notes due 2022.
160 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As a result of the Merger, we adopted the controls and procedures of the Predecessor. 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 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of December 31, 2019.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 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.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined by
Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for
external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making
this assessment, we used the criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”)
in Internal Control-Integrated 2013 Framework. A control system, no matter how well conceived, implemented and operated, can
provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of such inherent
limitations, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been
detected.
Based on our assessment and those criteria, our management concluded that our internal control over financial reporting was
effective as of December 31, 2019.
Our independent registered public accounting firm has audited the effectiveness of our internal control over financial reporting
as of December 31, 2019 as stated in their report, dated February 28, 2020, which appears herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31,
2019 that have materially affected, or are reasonably likely to materially affect, the Company’s 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.
161Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Mr. Cooper Group Inc.
Opinion on Internal Control over Financial Reporting
We have audited Mr. Cooper Group Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Mr. Cooper Group Inc. (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the accompanying consolidated balance sheets of the Company as of December 31, 2019 and 2018 (Successor), the
related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 2019 (Successor)
and for the five months ended December 31, 2018 (Successor), and the related notes, and the related consolidated statements of
operations, stockholders’ equity and cash flows of Nationstar Mortgage Holdings Inc. (Nationstar) for the seven months ended
July 31, 2018 (Predecessor) and for the year ended December 31, 2017 (Predecessor), and the related notes, and our report dated
February 28, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, Texas
February 28, 2020
162 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K
Item 9B. Other Information
None.
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item will be incorporated by reference from the Company’s definitive proxy statement for the 2020
Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of the Company’s fiscal year-end (the “2020
Proxy Statement”).
Item 11. Executive Compensation
Information required by this item will be incorporated by reference from the 2020 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information required by this item will be incorporated by reference from the 2020 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required by this item will be incorporated by reference from the 2020 Proxy Statement.
Item 14. Principal Accountant Fees and Services.
Information required by this item will be incorporated by reference from the 2020 Proxy Statement.
Item 15. Exhibits and Financial Statement Schedules
Documents filed as part of this Annual Report on Form 10-K:
1. Financial Statements:
Our consolidated financial statements as of December 31, 2019 and 2018 and for the year ended December 31, 2019 and five
months ended December 31, 2018 (Successor) and for the seven months ended July 31, 2018 and the year ended December
31, 2017 (Predecessor), and the notes thereto, together with the report of the independent registered public accounting firm
on those consolidated financial statements are filed within Item 8 in Part II as part of this Annual Report on Form 10-K.
2. Financial Statement Schedules:
No financial statement schedules are presented since the required information is not present or not present in amounts sufficient
to require submission of the schedule, or because the information required is included in the consolidated financial statements
and accompanying notes.
3. Exhibits:
The exhibits to this report are listed in the index to exhibits below.
163Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K INDEX TO EXHIBITS
Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Filed or
Furnished
Herewith
Agreement and Plan of Merger, dated as of
February 12, 2018, among Nationstar Mortgage
Holdings Inc., WMIH Corp. and Wand Merger
Corporation
Amended and Restated Certificate of
Incorporation of the Company, as amended.
Amended and Restated Bylaws of the Company
Form of Stock Certificate
Form of Series A Convertible Preferred Stock
Certificate
Description of Common Stock
Investor Rights Agreement, dated January 30,
2014, between WMIH Corp., KKR Fund
Holdings L.P. and any subsequent stockholder
party
Indenture, dated as of February 7, 2013, by and
among Nationstar Mortgage LLC, Nationstar
Capital Corporation, the guarantors thereto and
Wells Fargo Bank, National Association, as
trustee
First Supplemental Indenture, dated as of
March 26, 2013, by and among Nationstar
Mortgage LLC, Nationstar Capital Corporation,
the guarantors thereto and Wells Fargo Bank,
National Association, as trustee
Second Supplemental Indenture, dated as of
June 21, 2018, by and among Nationstar
Mortgage LLC, Nationstar Capital Corporation,
the guarantors thereto and Wells Fargo Bank,
National Association, as trustee
(Third) Supplemental Indenture, dated as of
July 31, 2018 among the Company as
Guaranteeing Parent, Nationstar Mortgage LLC
and Nationstar Capital Corporation, as the
Issuers and Wells Fargo Bank, National
Association, as trustee
Indenture, dated as of May 31, 2013, by and
among Nationstar Mortgage LLC, Nationstar
Capital Corporation, the guarantors thereto and
Wells Fargo Bank, National Association, as
trustee
8-K
001-14667
2.1
02/14/2018
8-K
001-14667
10-Q
10-Q
001-14667
001-14667
8-K
001-14667
3.1
3.2
4.1
4.6
10/10/2018
11/09/2018
11/01/2019
01/31/2014
8-K
001-4667
4.2
01/31/2014
X
8-K
001-35449
4.1
02/07/2013
8-K
001-35449
4.2
03/26/2013
8-K
001-35449
4.1
06/22/2018
8-K
001-1667
4.1
08/01/2018
8-K
001-35449
4.1
05/31/2013
Exhibit
Number
2.1+
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
First Supplemental Indenture, dated as of June
21, 2018, by and among Nationstar Mortgage
LLC, Nationstar Capital Corporation, the
guarantors thereto and Wells Fargo Bank,
National Association, as trustee
8-K
00135449
4.2
06/22/2018
164 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Exhibit
Number
Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Filed or
Furnished
Herewith
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
(Second) Supplemental Indenture, dated as of
July 31, 2018 among the Company as
Guaranteeing Parent, Nationstar Mortgage LLC
and Nationstar Capital Corporation, as the
Issuers and Wells Fargo Bank, National
Association, as trustee
Indenture, dated as of July 13, 2018, among
Wand Merger Corporation (now known as
Nationstar Mortgage Holdings Inc.) as Issuer,
the Company as Parent Guarantor and Wells
Fargo Bank, National Association as Trustee
Supplemental Indenture No. 1, dated as of July
31, 2018, among Nationstar Mortgage Holdings
Inc. as Issuer, the Company as Parent
Guarantor, the guarantors thereto and Wells
Fargo Bank, National Association as Trustee
Indenture, dated as of January 16, 2020, among
Nationstar Mortgage Holdings Inc. as Issuer,
the Company as Parent Guarantor, the
guarantors thereto and Wells Fargo Bank,
National Association as Trustee
Fourth Amended and Restated Indenture, dated
January 31, 2013, among Nationstar Agency
Advance Funding Trust, as issuer, The Bank of
New York Mellon, as indenture trustee,
calculation agent, paying agent and securities
intermediary, Nationstar Mortgage LLC, as
servicer and as administrator, and Barclays
Bank PLC, as administrative agent
Amendment No. 1 to the Fourth Amended and
Restated Indenture, dated April 22, 2014,
among Nationstar Agency Advance Funding
Trust, the issuer, The Bank of New York
Mellon, as indenture trustee, Nationstar
Mortgage LLC, as administrator and Barclays
Bank PLC, as administrative agent
Amendment No. 2 to the Fourth Amended and
Restated Indenture, dated May 5, 2015, among
Nationstar Agency Advance Funding Trust, the
issuer, The Bank of New York Mellon, as
indenture trustee, Nationstar Mortgage LLC, as
administrator and Barclays Bank PLC, as
administrative agent and Credit Suisse AG,
New York Branch, as administrative agent
Amendment No. 3 to the Fourth Amended and
Restated Indenture, dated June 26, 2015, among
Nationstar Agency Advance Funding Trust, the
issuer, The Bank of New York Mellon, as
indenture trustee, Nationstar Mortgage LLC, as
administrator and Barclays Bank PLC, as
administrative agent and Credit Suisse AG,
New York Branch, as administrative agent
8-K
001-14667
4.2
08/01/2018
8-K
001-14667
4.1
07/13/2018
8-K
001-14667
4.3
08/01/2018
X
8-K
001-35449
10.1
02/06/2013
10-Q
001-35449
4.4
05/09/2014
10-Q
001-35449
4.1
08/03/2015
10-Q
001-35449
4.2
08/03/2015
165Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Exhibit
Number
Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Filed or
Furnished
Herewith
Amended and Restated Series 2013-VF1
Indenture Supplement to Fourth Amended and
Restated Indenture, dated January 31, 2013,
among Nationstar Agency Advance Funding
Trust, as issuer, The Bank of New York Mellon,
as indenture trustee, calculation agent, paying
agent and securities intermediary, Nationstar
Mortgage LLC, as administrator and as
servicer, and Barclays Bank PLC, as
administrative agent
Amended and Restated Receivables Pooling
Agreement, dated January 31, 2013, between
Nationstar Agency Advance Funding LLC
(depositor) and Nationstar Agency Advance
Funding Trust (issuer)
Amended and Restated Receivables Sale
Agreement, dated January 31, 2013, between
Nationstar Mortgage LLC (receivables seller
and servicer) and Nationstar Agency Advance
Funding LLC (depositor)
Mortgage Loan Participation Purchase and Sale
Agreement, dated March 25, 2011, between
Barclays Bank PLC and Nationstar Mortgage
LLC
Amendment Number One, dated February 29,
2012, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated March 25,
2011, between Barclays Bank PLC and
Nationstar Mortgage LLC
Amendment Number Two, dated August 28,
2012, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated March 25,
2011, among Barclays Bank PLC and
Nationstar Mortgage LLC
Amendment Number Three, dated December
24, 2012, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated March 25,
2012, between Barclays Bank PLC and
Nationstar Mortgage LLC
Amendment Number Four, dated July 18, 2013,
to the Mortgage Loan Participation Purchase
and Sale Agreement, dated as of March 25,
2011, between Barclays Bank PLC and
Nationstar Mortgage LLC
Amendment Number Five, dated July 24, 2013,
to the Mortgage Loan Participation Purchase
and Sale Agreement, dated as of March 25,
2011, between Barclays Bank PLC and
Nationstar Mortgage LLC
Amendment Number Six, dated September 20,
2013, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
4.19
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10-K
001-35449
4.17
03/01/2016
8-K
001-35449
10.5
02/06/2013
8-K
001-35449
10.6
02/06/2013
10-K
001-35449
10.18
03/15/2013
10-K
001-35449
10.19
03/15/2013
10-K
001-35449
10.20
03/15/2013
10-K
001-35449
10.21
03/15/2013
10-Q
001-35449
10.11
11/14/2013
10-Q
001-35449
10.12
11/14/2013
10-Q
001-35449
10.13
11/14/2013
166 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Exhibit
Number
Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Filed or
Furnished
Herewith
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Amendment Number Seven, dated August 21,
2014, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011 between Barclays Bank PLC
and Nationstar Mortgage LLC
Amendment Number Eight, dated October 20,
2014, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
Amendment Number Nine, dated October 19,
2015, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
Amendment Number Ten, dated October 17,
2016, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
Amendment Number Eleven, dated October 31,
2016, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
Amendment Number Twelve, dated October 30,
2017, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
Amendment Number Thirteen, dated March 22,
2018, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
Amendment Number Fourteen, dated October
24, 2018, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
Amendment Number Fifteen, dated November
20, 2018, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
Amendment Number Sixteen, dated January 28,
2019, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
Amendment Number Seventeen, dated March
29, 2019, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
10-Q
001-35449
10.3
11/07/2014
10-Q
001-35449
10.4
11/07/2014
10-K
001-35449
10.28
03/01/2016
10-K
001-35449
10.17
03/09/2017
10-K
001-35449
10.18
03/09/2017
10-K
001-35449
10.18
03/02/2018
10-Q
001-35449
10.1
05/10/2018
10-K
001-14667
10.17
03/11/2019
10-K
001-14667
10.18
03/11/2019
10-Q
001-14667
10.1
05/08/2019
10-Q
001-14667
10.2
05/08/2019
167Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Exhibit
Number
Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Filed or
Furnished
Herewith
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
Amendment Number Eighteen, dated April 3,
2019, to the Mortgage Loan Participation
Purchase and Sale Agreement, dated as of
March 25, 2011, between Barclays Bank PLC
and Nationstar Mortgage LLC
Second Amended and Restated Master
Repurchase Agreement, dated January 29,
2016, between Barclays Bank PLC, as
purchaser and agent, Sutton Funding LLC, as
purchaser, and Nationstar Mortgage LLC, as
seller
Amendment Number One, dated as of June 24,
2016 to the Second Amended and Restated
Master Repurchase Agreement, dated January
29, 2016, among Barclays Bank PLC, as
purchaser and agent, Sutton Funding LLC, as a
purchaser, and Nationstar Mortgage LLC, as
seller
Amendment Number Two, dated as of October
17, 2016 to the Second Amended and Restated
Master Repurchase Agreement, dated January
29, 2016, among Barclays Bank PLC, as
purchaser and agent, Sutton Funding LLC, as a
purchaser, and Nationstar Mortgage LLC, as
seller
Amendment Number Three, dated as of
October 31, 2016 to the Second Amended and
Restated Master Repurchase Agreement, dated
January 29, 2016, among Barclays Bank PLC,
as purchaser and agent, Sutton Funding LLC, as
a purchaser, and Nationstar Mortgage LLC, as
seller
Amendment Number Four, dated as of October
30, 2017 to the Second Amended and Restated
Master Repurchase Agreement, dated January
29, 2016, among Barclays Bank PLC, as
purchaser and agent, Sutton Funding LLC, as a
purchaser, and Nationstar Mortgage LLC, as
seller
Amendment Number Five, dated as of March
22, 2018 to the Second Amended and Restated
Master Repurchase Agreement, dated January
29, 2016, among Barclays Bank PLC, as
purchaser and agent, and Nationstar Mortgage
LLC, as seller
Amendment Number Six, dated as of May 29,
2018 to the Second Amended and Restated
Master Repurchase Agreement, dated January
29, 2016, among Barclays Bank PLC, as
purchaser and agent and Nationstar Mortgage
LLC, as seller
Amendment Number Seven, dated as of
October 24, 2018 to the Second Amended and
Restated Master Repurchase Agreement, dated
January 29, 2016, among Barclays Bank PLC,
as purchaser and agent, and Nationstar
Mortgage LLC, as seller
10-Q
001-14667
10.1
08/02/2019
10-Q
001-35449
10.1
05/05/2016
10-Q
001-35449
10.2
08/09/2016
10-K
001-35449
10.21
03/09/2017
10-K
001-35449
10.22
03/09/2017
10-K
001-35449
10.23
03/02/2018
10-Q
001-35449
10.2
05/10/2018
10-Q
001-35449
10.1
08/03/2018
10-K
001-14667
10.26
03/11/2019
168 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Exhibit
Number
Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Filed or
Furnished
Herewith
10.30
10.31
10.32
10.33
10.34
Amendment Number Eight, dated as of
November 20, 2018 to the Second Amended
and Restated Master Repurchase Agreement,
dated January 29, 2016, among Barclays Bank
PLC, as purchaser and agent, and Nationstar
Mortgage LLC, as seller
Amendment Number Nine, dated as of January
28, 2019 to the Second Amended and Restated
Master Repurchase Agreement, dated January
29, 2016, among Barclays Bank PLC, as
purchaser and agent, and Nationstar Mortgage
LLC, as seller
Amendment Number Ten, dated as of March
29, 2019 to the Second Amended and Restated
Master Repurchase Agreement, dated January
29, 2016, among Barclays Bank PLC, as
purchaser and agent, and Nationstar Mortgage
LLC, as seller
Amendment Number Eleven, dated as of April
3, 2019 to the Second Amended and Restated
Master Repurchase Agreement, dated January
29, 2016, among Barclays Bank PLC, as
purchaser and agent, and Nationstar Mortgage
LLC, as seller
Amendment Number Twelve, dated as of
October 25, 2019 to the Second Amended and
Restated Master Repurchase Agreement, dated
January 29, 2016, among Barclays Bank PLC,
as purchaser and agent, and Nationstar
Mortgage LLC, as seller
10.35**
Offer Letter, dated as of June 24, 2015, by and
between Nationstar Mortgage LLC and
Anthony L. Ebers
10.36**
Offer Letter, dated as of July 6, 2015, by and
between Nationstar Mortgage LLC and Michael
R. Rawls
10.37**
Offer Letter, dated as of December 11, 2018 by
and between the Company and Christopher
Marshall
10-K
001-14667
10.27
03/11/2019
10-Q
001-14667
10.3
05/08/2019
10-Q
001-14667
10.4
05/08/2019
10-Q
001-14667
10.2
08/02/2019
X
10-K
001-35449
10.45
03/01/2016
10-K
001-35449
10.46
03/01/2016
8-K
001-14667
10.1
12/12/2018
10.38** 2012 Long-Term Incentive Plan
10-K
001-14667
10.17
03/15/2013
10.39** First Amendment to 2012 Long-Term Incentive
Plan
10.40** Second Amendment to 2012 Long-Term
Incentive Plan
10.41** Form of Participant Restricted Stock
Agreement
10.42**
10.43**
Nationstar Mortgage Holdings Inc. Second
Amended and Restated 2012 Incentive
Compensation Plan
Amendment to the Nationstar Mortgage
Holdings Inc. Second Amended and Restated
2012 Incentive Compensation Plan
8-K
10-K
10-K
001-14667
001-14667
001-14667
99.1
02/03/2014
10.15
02/27/2015
10.33
03/02/2018
8-K
001-35449
10.1
05/12/2016
8-K
001-14667
10.2
08/01/2018
169Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Filed or
Furnished
Herewith
Exhibit
Number
10.44**
Form of Amended and Restated Restricted
Stock Unit Agreement for Non-Employee
Directors under the Amended and Restated
2012 Incentive Compensation Plan
10.45**
Form of Restricted Stock Unit Agreement for
Employees under the Amended and Restated
2012 Incentive Compensation Plan
10.46** Mr. Cooper Group Inc. 2019 Omnibus
Incentive Plan
10.47** Form of Grant Notice and Restricted Stock Unit
Award Agreement-Employees
10.48**
Form of Grant Notice and Restricted Stock Unit
Award Agreement-Non-Employee Directors
10.49**
Nationstar Mortgage LLC Executive
Management Incentive Plan, dated as of March
31, 2015
10.50** Form of Indemnification Agreement with
directors and officers
21.1
23.1
31.1
31.2
32.1
32.2
Subsidiaries of the Registrant
Consent of Ernst & Young LLP
Certification by Chief Executive Officer
pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934 and
Section 302 of the Sarbanes-Oxley Act of 2002
Certification by Chief Financial Officer
pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934 and
Section 302 of the Sarbanes-Oxley Act of 2002
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
Certification by Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase
Document
101.PRE
XBRL Taxonomy Extension Presentation
Linkbase Document
10-K
001-35449
10.54
03/01/2016
10-Q
001-35449
10.5
05/07/2015
S-8
333-231552
99.1
05/16/2019
8-K
001-14667
10.2
05/17/2019
8-K
001-14667
10.3
05/17/2019
8-K
001-35449
10.1
04/02/2015
8-K
001-14667
10.1
05/13/2015
X
X
X
X
X
X
X
X
X
X
X
X
170 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K + The schedules and other attachments referenced in this exhibit have been omitted in accordance with Item 601(b)(2) of
Regulation S-K. A copy of any omitted schedule or attachment will be furnished supplementary to the Securities and Exchange
Commission upon request.
** Management contract, compensatory plan or arrangement.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other
disclosure other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose.
In particular, any representations and warranties made by the Company in these agreements or other documents were made solely
within the specific context of the relevant agreement or document and may not describe the actual state of affairs at the date they
were made or at any other time.
Item 16. Form 10-K Summary
None.
171Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Mr. Cooper Group Inc.
By: /s/ Jay Bray
Jay Bray
President and Chief Executive Officer
February 28, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Jay Bray
February 28, 2020
Jay Bray, President, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Christopher G. Marshall
February 28, 2020
Christopher G. Marshall, Vice Chairman and
Chief Financial Officer (Principal Financial
and Accounting Officer)
/s/ Elizabeth Burr
Elizabeth Burr, Director
/s/ Robert H. Gidel
Robert H. Gidel, Director
/s/ Roy A. Guthrie
Roy A. Guthrie, Director
/s/ Christopher J. Harrington
Christopher J. Harrington, Director
/s/ Michael D. Malone
Michael D. Malone, Director
/s/ Tagar C. Olson
Tagar C. Olson, Director
/s/ Steven D. Scheiwe
Steven D. Scheiwe, Director
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
172 Mr. Cooper Group Inc. - 2019 Annual Report on Form 10-K 2019ANNUAL REPORT