Mr. Cooper Group Inc. [COOP] Filings

10-Q 1 coop-20240630.htm 10-Q coop-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________________________________________________________________

FORM 10-Q


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

For the quarterly period ended June 30, 2024


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

For the transition period from _______ to _______

Commission file number: 001-14667

________________________________________________________________________________________________________

Mr. Cooper Group Inc.

(Exact name of registrant as specified in its charter)


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

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

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

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


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

____________________________________________________________________________________________________

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

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

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


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

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

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

Number of shares of common stock, $0.01 par value, outstanding as of July 19, 2024 was 64,483,836.

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MR. COOPER GROUP INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023	3
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2024 and 2023	4
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2024 and 2023	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2024 and 2023	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
	1. Nature of Business and Basis of Presentation	9
	2. Acquisitions	10
	3. Mortgage Servicing Rights and Related Liabilities	11
	4. Advances and Other Receivables	13
	5. Mortgage Loans Held for Sale	15
	6. Loans Subject to Repurchase from Ginnie Mae	16
	7. Goodwill and Intangible Assets	16
	8. Derivative Financial Instruments	16
	9. Indebtedness	18
	10. Securitizations and Financings	20
	11. Earnings Per Share	21
	12. Income Taxes	21
	13. Fair Value Measurements	21
	14. Capital Requirements	25
	15. Commitments and Contingencies	25
	16. Segment Information	27
	17. Subsequent Events	29
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	54
Item 4.	Controls and Procedures	55

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	59

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PART I. Financial Information

Item 1. Financial Statements

MR. COOPER GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars, except share data)


	June 30, 2024		December 31, 2023
	(unaudited)
Assets
Cash and cash equivalents	$	642	$	571
Restricted cash	162		169
Mortgage servicing rights at fair value	10,352		9,090
Advances and other receivables, net of reserves of $149 and $170, respectively	934		996
Mortgage loans held for sale at fair value	1,539		927
Property and equipment, net of accumulated depreciation of $151 and $141, respectively	57		53
Deferred tax assets, net	351		472
Other assets	1,746		1,918
Total assets	$	15,783	$	14,196

Liabilities and Stockholders’ Equity
Unsecured senior notes, net	$	4,141	$	3,151
Advance, warehouse and MSR facilities, net	4,925		4,302
Payables and other liabilities	1,684		1,995
MSR related liabilities - nonrecourse at fair value	439		466
Total liabilities	11,189		9,914
Commitments and contingencies (Note 15)
Common stock at $0.01 par value - 300 million shares authorized, 93.2 million shares issued	1		1
Additional paid-in-capital	1,058		1,087
Retained earnings	4,687		4,302
Treasury shares at cost - 28.7 million and 28.6 million shares, respectively	(1,152)		(1,108)
Total stockholders’ equity	4,594		4,282
Total liabilities and stockholders’ equity	$	15,783	$	14,196

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

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues:
Service related, net	$	485	$	402	$	963	$	663
Net gain on mortgage loans held for sale	98		84		184		153
Total revenues	583		486		1,147		816
Expenses:
Salaries, wages and benefits	168		156		327		304
General and administrative	132		122		290		235
Total expenses	300		278		617		539
Interest income	189		117		347		202
Interest expense	(187)		(122)		(357)		(232)
Other expense, net	(8)		(5)		(11)		(14)
Total other expense, net	(6)		(10)		(21)		(44)
Income before income tax expense	277		198		509		233
Less: Income tax expense	73		56		124		54
Net income	$	204	$	142	$	385	$	179

Earnings per share
Basic	$	3.16	$	2.10	$	5.96	$	2.62
Diluted	$	3.10	$	2.07	$	5.83	$	2.57

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

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(millions of dollars, except share data)


	Common Stock
		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Shares		Total Stockholders’ Equity
Balance at March 31, 2023		68,053	$	1	$	1,066	$	3,839	$	(920)	$	3,986
Shares issued / (surrendered) under incentive compensation plan		7	—		—		—		—		—
Share-based compensation		—	—		8		—		—		8
Repurchase of common stock		(1,212)	—		—		—		(57)		(57)

Net income		—	—		—		142		—		142
Balance at June 30, 2023		66,848	$	1	$	1,074	$	3,981	$	(977)	$	4,079

Balance at March 31, 2024		64,719	$	1	$	1,051	$	4,483	$	(1,130)	$	4,405
Shares issued / (surrendered) under incentive compensation plan		63	—		(2)		—		2		—
Share-based compensation		—	—		9		—		—		9

Repurchase of common stock		(298)	—		—		—		(24)		(24)


Net income		—	—		—		204		—		204
Balance at June 30, 2024		64,484	$	1	$	1,058	$	4,687	$	(1,152)	$	4,594

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

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(millions of dollars, except share data)


	Common Stock
		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Shares		Total Stockholders’ Equity
Balance at January 1, 2023		69,266	$	1	$	1,104	$	3,802	$	(850)	$	4,057
Shares issued / (surrendered) under incentive compensation plan		877	—		(43)		—		19		(24)
Share-based compensation		—	—		13		—		—		13

Repurchase of common stock		(3,295)	—		—		—		(146)		(146)

Net income		—	—		—		179		—		179
Balance at June 30, 2023		66,848	$	1	$	1,074	$	3,981	$	(977)	$	4,079

Balance at January 1, 2024		64,599	$	1	$	1,087	$	4,302	$	(1,108)	$	4,282
Shares issued / (surrendered) under incentive compensation plan		720	—		(46)		—		19		(27)
Share-based compensation		—	—		17		—		—		17
Repurchase of common stock		(835)	—		—		—		(63)		(63)

Net income		—	—		—		385		—		385
Balance at June 30, 2024		64,484	$	1	$	1,058	$	4,687	$	(1,152)	$	4,594

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

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions of dollars)


	Six Months Ended June 30,
	2024		2023
Operating Activities
Net income	$	385	$	179
Adjustments to reconcile net income to net cash attributable to operating activities:
Deferred tax expense	121		46
Net gain on mortgage loans held for sale	(184)		(153)
Provision for servicing and non-servicing reserves	11		18
Fair value changes in mortgage servicing rights	61		239
Fair value changes in MSR related liabilities	6		(6)
Depreciation and amortization for property and equipment and intangible assets	16		18


Loss on MSR hedging activities	225		52
Gain on MSR and excess yield sales	(11)		(32)
Other operating activities	45		34
Sales proceeds and loan payment proceeds for mortgage loans held for sale	6,946		6,842
Mortgage loans originated and purchased for sale, net of fees	(6,786)		(6,593)
Repurchases of loan assets out of Ginnie Mae securitizations	(744)		(547)
Changes in assets and liabilities:
Advances and other receivables	29		197
Other assets	(71)		(39)
Payables and other liabilities	(185)		(106)
Net cash attributable to operating activities	(136)		149

Investing Activities

Acquisition of assets	—		(34)
Property and equipment additions, net of disposals	(16)		(10)
Purchase of mortgage servicing rights	(1,498)		(841)
Proceeds on sale of mortgage servicing rights and excess yield	261		312
Other investing activities	(20)		(3)
Net cash attributable to investing activities	(1,273)		(576)

Financing Activities
Increase in advance, warehouse and MSR facilities	621		630
Settlements and repayment of excess spread financing	(33)		(40)
Issuance of unsecured senior notes	1,000		—
Repurchase of common stock	(63)		(146)
Other financing activities	(52)		(32)
Net cash attributable to financing activities	1,473		412
Net increase (decrease) in cash, cash equivalents, and restricted cash	64		(15)
Cash, cash equivalents, and restricted cash - beginning of period	740		702
Cash, cash equivalents, and restricted cash - end of period(1)	$	804	$	687

Supplemental Disclosures of Non-cash Investing Activities

Purchase of mortgage servicing rights holdback payable	$	45	$	57
Sale of mortgage servicing rights holdback receivable	$	2	$	—

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


	June 30, 2024		June 30, 2023
Cash and cash equivalents	$	642	$	517
Restricted cash	162		170
Total cash, cash equivalents, and restricted cash	$	804	$	687

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

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MR COOPER GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(millions of dollars, except per share data, or 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®, Xome® and Rushmore Servicing®. Mr. Cooper is one of the largest home loan servicers and a major mortgage originator in the country focused on delivering a variety of servicing and lending products, services and technologies.

The Company has provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-Q.

Basis of Presentation

The interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2023.

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

Basis of Consolidation

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

Use of Estimates

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

Recent Accounting Guidance Adopted

The Company did not adopt any accounting guidance during the six months ended June 30, 2024 that had a material impact on its condensed consolidated financial statements or disclosures.

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2. Acquisitions

Acquisition of Assets

During the second quarter of 2023, the Company acquired certain assets and liabilities of Rushmore Loan Management Services LLC (“Rushmore”) for a total purchase price of $34 (the “Rushmore Transaction”). Assets acquired were recorded in the Servicing segment and primarily included subservicing contracts and related servicing advances and receivables. The Company accounted for the transaction as an asset acquisition in accordance with Accounting Standard Codification Topic 805, Business Combinations (“ASC 805”), whereby the purchase price represents relative fair value of assets and liabilities acquired.

Acquisition of Roosevelt Management Company and Affiliated Companies

In July 2023, the Company acquired all the equity interests of Roosevelt Management Company, LLC (“Roosevelt”), an investment management firm, and its affiliated subsidiaries including Rushmore Loan Management Services LLC and other entities, for a total purchase price of $28 (“Roosevelt Transaction”). The Company accounted for the transaction as a business combination in accordance with ASC 805 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, with the excess of the purchase price over those fair values allocated to goodwill. The Company recorded $4 of intangible assets and $21 of goodwill based on the purchase price allocation. $5 and $16 of the goodwill is assigned to Servicing segment and Corporate/Other segment, respectively. The goodwill will be deductible for tax purposes. The financial results of Rushmore and Roosevelt were included in Servicing segment and Corporate/Other segment, respectively. The Company finalized its allocation of fair value of consideration transferred during the three months ended December 31, 2023.

Acquisition of Home Point Capital Inc.

In May 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) and a mortgage servicing rights purchase and sale agreement (“Purchase Agreement”) with Home Point Capital Inc. (“Home Point”), a Delaware corporation. Per the Merger Agreement, the Company agreed to commence a tender offer to acquire all of the outstanding shares of common stock of Home Point, other than certain excluded shares. The Home Point transactions closed in the third quarter of 2023 for total consideration of approximately $658. The Purchase Agreement was a bulk purchase of a portion of Home Point’s mortgage servicing rights (“MSR”) portfolio for $335. The Merger Agreement was the tender offer to acquire outstanding shares of common stock of Home Point, which included the benefit of the cash paid in the bulk purchase of Home Point’s MSR portfolio. The net consideration paid for the two transactions was $323, or $2.33 per share.

The Company accounted for the two transactions as one business combination (“Home Point Acquisition”) in accordance with ASC 805 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 acquired $1.2 billion mortgage servicing rights (“MSRs”) and assumed an unsecured senior note with a principal balance of $500, among other acquired net assets. During the third quarter of 2023, the Company recorded a preliminary bargain purchase gain of $96 in “other income (expense), net” within the condensed consolidated statements of operations and reported under Corporate/Other segment, which represents the excess of the estimated fair value of net assets acquired over the consideration transferred. In June 2024, the Company finalized its review of tax matters related to the Home Point Acquisition, resulting in an increase of $4 in other liabilities and a reduction of $4 in the previously recorded bargain purchase gain. Purchase accounting for the Home Point acquisition is now finalized and the final bargain purchase gain related to the acquisition was $92.

The Company believes it was able to negotiate a bargain purchase price due to seller’s operational challenges from significant market volatility, as well as the seller’s desire to exit the business in an expedited manner.

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3. Mortgage Servicing Rights and Related Liabilities

The following table sets forth the carrying value of the Company’s MSR and the related liabilities. In estimating the fair value of all MSRs and related liabilities, the impact of the current environment was considered in the determination of key assumptions.


MSRs and Related Liabilities	June 30, 2024		December 31, 2023
MSRs - fair value	$	10,352	$	9,090

Excess spread financing at fair value	$	406	$	437
Mortgage servicing rights financing at fair value	33		29
MSR related liabilities - nonrecourse at fair value	$	439	$	466

Mortgage Servicing Rights

The following table sets forth the activities of MSRs:


	Six Months Ended June 30,
MSRs - Fair Value	2024		2023
Fair value - beginning of period	$	9,090	$	6,654
Additions:
Servicing retained from mortgage loans sold	137		133
Purchases and acquisitions of servicing rights	1,403		870
Dispositions:
Sales of servicing assets and excess yield	(237)		(280)
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM)	344		34
Changes in valuation due to amortization	(405)		(273)
Other changes(1)	20		11
Fair value - end of period	$	10,352	$	7,149

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

During the six months ended June 30, 2024 and 2023, the Company sold $3,305 and $1,605 in unpaid principal balance (“UPB”) of MSRs, of which $3,029 and $590 were retained by the Company as subservicer, respectively.

During the three months ended June 30, 2024 and 2023, certain agencies entered into agreements with the Company to purchase excess servicing cash flows (“excess yield”) on certain agency loans with a total UPB of approximately $27,841 and $41,958 for proceeds of $226 and $294, respectively. During the three months ended June 30, 2024 and 2023, the Company recorded a gain of $27 and $33, respectively, through the mark-to-market adjustments within “revenues - service related, net” in the condensed consolidated statements of operations.

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

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


	June 30, 2024				December 31, 2023
MSRs - UPB and Fair Value Breakdown by Investor Pools	UPB		Fair Value		UPB		Fair Value
Agency	$	650,171	$	10,023	$	561,656	$	8,774
Non-agency	25,854		329		26,286		316
Total	$	676,025	$	10,352	$	587,942	$	9,090

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

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


	Option Adjusted Spread				Total Prepayment Speeds				Cost to Service per Loan
MSRs - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change		10% Adverse Change		20% Adverse Change
June 30, 2024
Mortgage servicing rights	$	(410)	$	(788)	$	(271)	$	(524)	$	(91)	$	(182)

December 31, 2023
Mortgage servicing rights	$	(368)	$	(706)	$	(219)	$	(425)	$	(89)	$	(178)

Excess Spread Financing - Fair Value

The Company had excess spread financing liability of $406 and $437, related to the UPB of $70,488 and $74,219 as of June 30, 2024 and December 31, 2023, respectively. Refer to Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of excess spread financing liability.

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:


	Option Adjusted Spread				Prepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change
June 30, 2024
Excess spread financing	$	14	$	29	$	9	$	19

December 31, 2023
Excess spread financing	$	16	$	32	$	10	$	20

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

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Mortgage Servicing Rights Financing - Fair Value

The Company had MSR financing liability of $33 and $29 as of June 30, 2024 and December 31, 2023, respectively. Refer to Note 2, Significant Accounting Policies, for further discussion on MSR financing, and Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of the MSR financing liability.

Revenues - Service related, net

The following table sets forth the items comprising total “revenues - service related, net”:


	Three Months Ended June 30,				Six Months Ended June 30,
Revenues - Service related, net	2024		2023		2024		2023
Contractually specified servicing fees(1)	$	547	$	407	$	1,061	$	791
Other service-related income(1)	16		19		38		33
Incentive and modification income(1)	16		8		34		14
Servicing late fees(1)	31		23		61		44
Mark-to-market adjustments - Servicing
MSR MTM	155		139		344		34
Loss on MSR hedging activities	(103)		(111)		(225)		(52)
Gain on MSR sales	23		32		11		32
Reclassifications(2)	(6)		(9)		(12)		(18)
Excess spread / MSR financing MTM	—		12		(6)		6
Total mark-to-market adjustments - Servicing	69		63		112		2
Amortization, net of accretion
MSR amortization	(226)		(148)		(405)		(273)
Excess spread accretion	9		11		18		21
Total amortization, net of accretion	(217)		(137)		(387)		(252)
Originations service related fees(3)	19		16		35		27
Corporate/Xome service related fees	20		21		42		40
Other(4)	(16)		(18)		(33)		(36)
Total revenues - Service related, net	$	485	$	402	$	963	$	663

(1)The Company recognizes revenue on an earned basis for services performed. Amounts include subservicing related revenues. Amounts also include servicing fees from loans sold with servicing retained of $189 and $176 for the three months ended June 30, 2024 and 2023, respectively, and $374 and $353 for the six months ended June 30, 2024 and 2023, respectively.

(2)Reclassifications include 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.

(3)Amounts include fees collected from customers for originated loans and from other lenders for loans purchased through the correspondent channel, and include loan application, underwriting, and other similar fees.

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

4. Advances and Other Receivables

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


Advances and Other Receivables, Net	June 30, 2024		December 31, 2023
Servicing advances, net of $12 and $13 purchase discount	$	1,023	$	1,065
Receivables from agencies, investors and prior servicers, net of zero and $6 purchase discount	60		101
Reserves	(149)		(170)
Total advances and other receivables, net	$	934	$	996

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


	Three Months Ended June 30,				Six Months Ended June 30,
Reserves for Advances and Other Receivables	2024		2023		2024		2023
Balance - beginning of period	$	144	$	148	$	170	$	137
Provision(1)	(4)		9		11		18
Reclassifications(2)	8		9		17		16
Write-offs/Recoveries(3)	1		(10)		(49)		(15)
Balance - end of period	$	149	$	156	$	149	$	156

(1)The Company recorded a provision of $6 and $9 through the MTM adjustments in “revenues - service related, net” in the condensed consolidated statements of operations during the three months ended June 30, 2024 and 2023, respectively and a provision of $12 and $18 during the six months ended June 30, 2024 and 2023, respectively.

(2)Reclassifications represent required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.

(3)Write-offs represent fully reserved items which have been removed from the servicing platform.

Purchase Discount for Advances and Other Receivables

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


	Three Months Ended June 30,
	2024				2023
Purchase Discount for Advances and Other Receivables	Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Servicing Advances		Receivables from Agencies, Investors and Prior Servicers
Balance - beginning of period	$	12	$	—	$	9	$	7

Balance - end of period	$	12	$	—	$	9	$	7


	Six Months Ended June 30,
	2024				2023
Purchase Discount for Advances and Other Receivables	Servicing Advances		Receivables from Agencies, Investors and Prior Servicers		Servicing Advances		Receivables from Agencies, Investors and Prior Servicers
Balance - beginning of period	$	13	$	6	$	12	$	7
Utilization of purchase discounts	(1)		(6)		(3)		—
Balance - end of period	$	12	$	—	$	9	$	7

Credit Loss for Advances and Other Receivables

The following table sets forth the activities of the CECL allowance for advances and other receivables:


	Three Months Ended June 30,				Six Months Ended June 30,
CECL Allowance for Advances and Other Receivables	2024		2023		2024		2023
Balance - beginning of period	$	17	$	38	$	35	$	36
Provision	2		(1)		3		1
Write-offs(1)	—		—		(19)		—
Balance - end of period(2)	$	19	$	37	$	19	$	37

(1)Write-offs represent fully reserved items which have been removed from the servicing platform.

(2)As of June 30, 2024, $19 was recorded in reserves. As of June 30, 2023, $30 and $7 were recorded in reserves and purchase discount for advances and other receivables, respectively.

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

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5. Mortgage Loans Held for Sale

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


Mortgage Loans Held for Sale	June 30, 2024		December 31, 2023
Mortgage loans held for sale – UPB	$	1,528	$	924
Mark-to-market adjustment(1)	11		3
Total mortgage loans held for sale	$	1,539	$	927

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

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


	Six Months Ended June 30,
Mortgage Loans Held for Sale	2024		2023
Balance - beginning of period	$	927	$	893
Loans sold (at carrying value) and loan payments received	(6,923)		(6,845)
Mortgage loans originated and purchased, net of fees	6,786		6,593
Repurchase of loans out of Ginnie Mae securitizations(1)	744		547
Net change in unrealized gain on retained loans held for sale	6		5
Net transfers of mortgage loans held for sale(2)	(1)		(6)
Balance - end of period	$	1,539	$	1,187

(1)The Company has the optional 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.

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

For the six months ended June 30, 2024 and 2023, the Company recorded a total realized gain of $22 and loss of $3 from total sales proceeds of $4,692 and $6,722, respectively, on the sale of mortgage loans held for sale.

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


	June 30, 2024				December 31, 2023
Mortgage Loans Held for Sale	UPB		Fair Value		UPB		Fair Value
Non-accrual(1)	$	42	$	34	$	42	$	36

(1)Non-accrual UPB includes $33 and $35 of UPB related to Ginnie Mae repurchased loans as of June 30, 2024 and December 31, 2023, respectively.

The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $30 as of June 30, 2024 and December 31, 2023, respectively.

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6. Loans Subject to Repurchase from Ginnie Mae

Loans are sold to Ginnie Mae in conjunction with the issuance of mortgage-backed securities. The Company, as the issuer of the mortgage-backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including payments not being received from borrowers for greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its condensed consolidated balance sheets and establishes a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The Company had loans subject to repurchase from Ginnie Mae of $829 and $966 as of June 30, 2024 and December 31, 2023, respectively, which are included in both “other assets” and “payables and other liabilities” in the condensed consolidated balance sheets.

7. Goodwill and Intangible Assets

The Company had goodwill of $141 as of June 30, 2024 and December 31, 2023, and intangible assets of $25 and $28 as of June 30, 2024 and December 31, 2023, respectively. Goodwill and intangible assets are included in “other assets” within the condensed consolidated balance sheets.

8. Derivative Financial Instruments

Derivative instruments are used as part of the overall strategy to manage exposure to interest rate risks related to mortgage loans held for sale and IRLCs (“the pipeline”) and the MSR portfolio. The Company economically hedges the pipeline separately from the MSR portfolio primarily using third-party derivative instruments. Such derivative instruments utilized by the Company include IRLCs, LPCs, forward MBS and Treasury futures. The changes in value on the derivative instruments associated with pipeline hedging are recorded in earnings as a component of “revenues - net gain on mortgage loans held for sale” on the condensed consolidated statements of operations and condensed consolidated statement of cash flows, while changes in the value of derivative instruments associated with the MSR portfolio fair value are recorded in “revenues - service related, net” on the condensed consolidated statements of operations and in “loss on MSR hedging activities” on the condensed consolidated statements of cash flows.

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The following tables provide the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses) for the derivative financial instruments. Gains/(losses) include both realized and unrealized gains/(losses) of each derivative financial instrument.


		June 30, 2024				Six Months Ended June 30, 2024
Derivative Financial Instruments	Expiration Dates	Outstanding Notional		Fair Value		Gain/(Loss)
Assets
Mortgage loans held for sale
Loan sale commitments	2024	$	652	$	22	$	11
Derivative financial instruments
IRLCs	2024	$	1,029	$	31	$	10
LPCs	2024	324		2		(1)
Forward MBS trades	2024	1,789		7		15
Treasury futures	2024	3,432		62		(50)
Total derivative financial instruments - assets		$	6,574	$	102	$	(26)
Liabilities
Derivative financial instruments
IRLCs	2024	$	25	$	—	$	—
LPCs	2024	480		2		(1)
Forward MBS trades	2024	4,797		8		(87)
Treasury futures	2024	470		3		(96)
Total derivative financial instruments - liabilities		$	5,772	$	13	$	(184)


		June 30, 2023				Six Months Ended June 30, 2023
Derivative Financial Instruments	Expiration Dates	Outstanding Notional		Fair Value		Gain/(Loss)
Assets
Mortgage loans held for sale
Loan sale commitments	2023	$	556	$	8	$	(1)
Derivative financial instruments
IRLCs	2023	$	1,041	$	30	$	8
LPCs	2023	200		1		—
Forward MBS trades	2023	1,712		10		43
Treasury futures	2023	72		—		—
Total derivative financial instruments - assets		$	3,025	$	41	$	51
Liabilities
Derivative financial instruments
IRLCs	2023	$	18	$	—	$	—
LPCs	2023	234		1		—
Forward MBS trades	2023	1,175		3		(50)
Treasury futures	2023	2,510		20		(44)

Total derivative financial instruments - liabilities		$	3,937	$	24	$	(94)

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As of June 30, 2024, the Company held $20 and $8 in collateral deposits and collateral obligations on derivative instruments, respectively. As of December 31, 2023 the Company held $8 and $56 in collateral deposits and collateral obligations on derivative instruments, respectively. Collateral deposits and collateral obligations are recorded in “other assets” and “payables and other liabilities,” respectively, in the Company’s condensed consolidated balance sheets. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the condensed consolidated balance sheets.

9. Indebtedness

Advance, Warehouse and MSR Facilities


					June 30, 2024				December 31, 2023
	Maturity Date	Collateral	Capacity Amount		Outstanding		Collateral Pledged		Outstanding		Collateral Pledged
Advance Facilities
$350 advance facility	Oct 2024	Servicing advance receivables	$	350	$	125	$	159	$	132	$	169
$300 advance facility(1)	Nov 2024	Servicing advance receivables	300		217		217		273		364
$300 advance facility(2)	Sep 2025	Servicing advance receivables	300		251		283		250		326
$50 advance facility(3)	Dec 2024	Servicing advance receivables	50		27		43		27		49
Advance facilities principal amount					620		702		682		908

Warehouse Facilities
$1,500 warehouse facility	Jun 2025	Mortgage loans or MBS	1,500		160		160		107		104
$750 warehouse facility	Aug 2024	Mortgage loans or MBS	750		169		209		137		176
$750 warehouse facility	Oct 2024	Mortgage loans or MBS	750		329		351		155		166
$500 warehouse facility	Jun 2025	Mortgage loans or MBS	500		118		122		72		78
$350 warehouse facility	Aug 2024	Mortgage loans or MBS	350		198		202		73		75
$250 warehouse facility(4)	Sep 2025	Mortgage loans or MBS	250		220		250		158		177
$200 warehouse facility	Dec 2024	Mortgage loans or MBS	200		70		73		82		84
$200 warehouse facility	Jan 2025	Mortgage loans or MBS	200		—		—		12		21
$100 warehouse facility	Apr 2025	Mortgage loans or MBS	100		78		85		25		33
$100 warehouse facility	Apr 2025	Mortgage loans or MBS	100		—		—		—		—
$100 warehouse facility (3)	Dec 2024	Mortgage loans or MBS	100		27		27		1		1
$1 warehouse facility	Dec 2024	Mortgage loans or MBS	1		—		—		—		—
Warehouse facilities principal amount					1,369		1,479		822		915

MSR Facilities
$1,750 warehouse facility(5)	Apr 2026	MSR	1,750		900		2,562		980		1,455
$1,450 warehouse facility(1)	Nov 2024	MSR	1,450		250		2,371		545		1,306
$950 warehouse facility(4)	Sep 2025	MSR	950		680		1,634		300		2,164
$500 warehouse facility	Jun 2026	MSR	500		250		486		—		—
$500 warehouse facility	Jul 2026	MSR	500		345		751		405		655
$500 warehouse facility	Apr 2026	MSR	500		250		787		305		634
$500 warehouse facility	Jun 2026	MSR	500		250		760		250		677
$50 warehouse facility	Nov 2025	MSR	50		25		72