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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________________________________________________
 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
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
coop-20220930_g1.jpg
________________________________________________________________________________________________________
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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareCOOPThe 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 FilerxAccelerated Filer
Non-Accelerated Filer¨Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
Number of shares of common stock, $0.01 par value, outstanding as of October 21, 2022 was 70,564,728.


MR. COOPER GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
  Page
PART I
Item 1.
Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021
Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021
Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2022 and 2021
16. Segment Information
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

PART I. Financial Information

Item 1. Financial Statements
MR. COOPER GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions of dollars, except share data)
September 30, 2022December 31, 2021
 (unaudited) 
Assets
Cash and cash equivalents$530 $895 
Restricted cash148 146 
Mortgage servicing rights at fair value6,408 4,223 
Advances and other receivables, net of reserves of $143 and $167, respectively
831 1,228 
Mortgage loans held for sale at fair value1,581 4,381 
Property and equipment, net of accumulated depreciation of $116 and $122, respectively
69 98 
Deferred tax assets, net711 991 
Other assets2,537 2,242 
Total assets$12,815 $14,204 
Liabilities and Stockholders’ Equity
Unsecured senior notes, net $2,673 $2,670 
Advance and warehouse facilities, net 3,070 4,997 
Payables and other liabilities2,428 2,392 
MSR related liabilities - nonrecourse at fair value539 778 
Total liabilities8,710 10,837 
Commitments and contingencies (Note 15)
Preferred stock at $0.00001 - 10 million shares authorized, zero shares issued, zero shares outstanding; aggregate liquidation preference of zero
  
Common stock at $0.01 par value - 300 million shares authorized, 93.2 million shares issued
1 1 
Additional paid-in-capital1,099 1,116 
Retained earnings3,801 2,879 
Treasury shares at cost - 22.7 million and 19.4 million shares, respectively
(796)(630)
Total Mr. Cooper stockholders’ equity4,105 3,366 
Non-controlling interests 1 
Total stockholders’ equity4,105 3,367 
Total liabilities and stockholders’ equity$12,815 $14,204 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).
3

MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(millions of dollars, except for earnings per share data)
 Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues:
Service related, net$395 $288 $1,610 $860 
Net gain on mortgage loans held for sale115 572 551 1,833 
Total revenues510 860 2,161 2,693 
Expenses:
Salaries, wages and benefits183 251 614 805 
General and administrative133 151 368 476 
Total expenses316 402 982 1,281 
Interest income83 66 169 163 
Interest expense(104)(118)(321)(363)
Other (expense) income, net(20)8 197 494 
Total other (expense) income, net(41)(44)45 294 
Income from continuing operations before income tax expense153 414 1,224 1,706 
Less: Income tax expense40 104 302 410 
Net income from continuing operations113 310 922 1,296 
Net (loss) income from discontinued operations (11) 3 
Net income113 299 922 1,299 
Less: Undistributed earnings attributable to participating stockholders 1  9 
Less: Premium on retirement of preferred stock 28  28 
Net income attributable to common stockholders$113 $270 $922 $1,262 
Earnings from continuing operations per common share attributable to Mr. Cooper:
Basic$1.59 $3.56 $12.71 $14.85 
Diluted$1.55 $3.42 $12.37 $14.20 
Earnings from discontinued operations per common share attributable to Mr. Cooper:
Basic$ $(0.14)$ $0.04 
Diluted$ $(0.13)$ $0.03 
Earnings per common share attributable to Mr. Cooper:
Basic$1.59 $3.42 $12.71 $14.89 
Diluted$1.55 $3.29 $12.37 $14.23 
    
See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).
4

MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions of dollars, except share data)
Preferred StockCommon Stock
Shares
(in thousands)
AmountShares
(in thousands)
AmountAdditional Paid-in CapitalRetained EarningsTreasury Share AmountTotal Mr. Cooper Stockholders’ EquityNon-controlling InterestsTotal Stockholders’
Equity
Balance at June 30, 20211,000 $ 86,149 $1 $1,120 $2,434 $(206)$3,349 $1 $3,350 
Shares issued / (surrendered) under incentive compensation plan— — 45 —  —   —  
Share-based compensation— — — — 7 — — 7 — 7 
Repurchase of common stock— — (11,073)— — — (368)(368)— (368)
Retirement of preferred stock(1,000)— — — (19)(9)— (28)— (28)
Net income— — — — — 299 — 299  299 
Balance at September 30, 2021 $ 75,121 $1 $1,108 $2,724 $(574)$3,259 $1 $3,260 
Balance at June 30, 2022 $ 71,651 $1 $1,094 $3,688 $(747)$4,036 $1 $4,037 
Shares issued / (surrendered) under incentive compensation plan  42  (2) 1 (1) (1)
Share-based compensation    7   7  7 
Dividends paid to noncontrolling interests        (1)(1)
Repurchase of common stock  (1,136)   (50)(50) (50)
Net income     113  113  113 
Balance at September 30, 2022 $ 70,557 $1 $1,099 $3,801 $(796)$4,105 $ $4,105 

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

5

MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions of dollars, except share data)
Preferred StockCommon Stock
Shares
(in thousands)
AmountShares
(in thousands)
AmountAdditional Paid-in CapitalRetained EarningsTreasury Share AmountTotal Mr. Cooper Stockholders’ EquityNon-controlling InterestsTotal Stockholders’
Equity
Balance at January 1, 20211,000 $ 89,457 $1 $1,126 $1,434 $(58)$2,503 $1 $2,504 
Shares issued / (surrendered) under incentive compensation plan— — 1,242 — (20)—  (20)— (20)
Share-based compensation— — — — 21 — — 21 — 21 
Repurchase of common stock— — (15,578)— — — (516)(516)— (516)
Retirement of preferred stock(1,000)— — — (19)(9)— (28)— (28)
Net income— — — — — 1,299 — 1,299  1,299 
Balance at September 30, 2021 $ 75,121 $1 $1,108 $2,724 $(574)$3,259 $1 $3,260 
Balance at January 1, 2022 $ 73,777 $1 $1,116 $2,879 $(630)$3,366 $1 $3,367 
Shares issued / (surrendered) under incentive compensation plan  898  (41) 19 (22) (22)
Share-based compensation    24   24  24 
Dividends paid to noncontrolling interests        (1)(1)
Repurchase of common stock  (4,118)   (185)(185) (185)
Net income     922  922  922 
Balance at September 30, 2022 $ 70,557 $1 $1,099 $3,801 $(796)$4,105 $ $4,105 

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

6

MR. COOPER GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
Nine Months Ended September 30,
 20222021
Operating Activities
Net income$922 $1,299 
Less: Net income from discontinued operations 3 
Net income from continuing operations922 1,296 
Adjustments to reconcile net income from continuing operations to net cash attributable to operating activities:
Deferred tax expense280 326 
Net gain on mortgage loans held for sale(551)(1,833)
Provision for servicing and non-servicing reserves22 28 
Fair value changes in mortgage servicing rights(719)296 
Fair value changes in MSR related liabilities134 (7)
Depreciation and amortization for property and equipment and intangible assets29 45 
Gain on sale of business (494)
Gain on disposition of assets(223) 
Loss on MSR hedging activities329 82 
Other operating activities75 40 
Repurchases of loan assets out of Ginnie Mae securitizations(2,904)(8,530)
Mortgage loans originated and purchased for sale, net of fees(25,120)(67,507)
Sales proceeds and loan payment proceeds for mortgage loans held for sale30,440 74,968 
Changes in assets and liabilities:
Advances and other receivables355 (41)
Other assets287 236 
Payables and other liabilities(212)(289)
Net cash attributable to operating activities - continuing operations3,144 (1,384)
Net cash attributable to operating activities - discontinued operations 614 
Net cash attributable to operating activities3,144 (770)
Investing Activities
Sale of business, net of cash divested 432 
Property and equipment additions, net of disposals(14)(33)
Purchase of mortgage servicing rights(1,257)(431)
Proceeds on sale of mortgage servicing rights284 13 
Other investing activities 1 
Net cash attributable to investing activities - continuing operations(987)(18)
Net cash attributable to investing activities - discontinued operations 1,029 
Net cash attributable to investing activities(987)1,011 
Financing Activities
(Decrease) increase in advance and warehouse facilities(1,933)1,950 
Repayments of excess spread financing(293) 
Settlements of excess spread financing(80)(118)
Repurchase of common stock(185)(516)
Retirement of preferred stock (28)
Other financing activities(29)(33)
Net cash attributable to financing activities - continuing operations(2,520)1,255 
Net cash attributable to financing activities - discontinued operations (1,495)
Net cash attributable to financing activities(2,520)(240)
Net (decrease) increase in cash, cash equivalents, and restricted cash(363)1 
Cash, cash equivalents, and restricted cash - beginning of period1,041 913 
Cash, cash equivalents, and restricted cash - end of period(1)
$678 $914 
7

Supplemental Disclosures of Non-cash Investing Activities
Equity consideration received from disposition of assets$250 $ 
Purchase of mortgage servicing rights$7 $12 
Forward mortgage servicing rights sales price holdback$15 $2 
Equity consideration received from sale of business$ $53 

(1)The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the condensed consolidated balance sheets.
September 30, 2022September 30, 2021
Cash and cash equivalents$530 $731 
Restricted cash148 118 
Restricted cash within assets of discontinued operations 65 
Total cash, cash equivalents, and restricted cash$678 $914 
See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited). 
8

MR COOPER GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(millions of dollars, unless otherwise stated)

1. Nature of Business and Basis of Presentation

Nature of Business
Mr. Cooper Group Inc., collectively with its consolidated subsidiaries, (“Mr. Cooper,” the “Company,” “we,” “us” or “our”) provides servicing, origination and transaction-based services related to single family residences throughout the United States with operations under its primary brands: Mr. Cooper® and Xome®. Mr. Cooper is one of the largest home loan originators and servicers in the country focused on delivering a variety of servicing and lending products, services and technologies. The Company’s corporate website is located at www.mrcoopergroup.com. The Company has provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-Q.

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, 2021.

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.

Share-based compensation for restricted stock units granted to employees of the Company, consultants, and non-employee directors is based on the fair market value of the Company’s common stock on the grant date and recognized as an expense over the requisite employee service period on a straight-line basis using an accelerated attribution model. Shares for these awards are issued to employees from treasury stock.

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. These investments are initially measured at cost and subsequently adjusted for Company’s proportionate share of earnings and losses in the investee. 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 due to factors such as adverse changes in the economy, macro-economic uncertainty, changes in interest rates, secondary market pricing for loans held for sale and derivatives, strength of underwriting and servicing practices, changes in prepayment assumptions, declines in home prices or discrete events adversely affecting specific borrowers and such differences could be material.

Reclassifications
Certain reclassifications have been made in the 2021 condensed consolidated statement of cash flows to conform to 2022 presentation. Such reclassifications were not material and did not affect total revenues or net income.

9

Recent Accounting Guidance Adopted
The Company did not adopt any accounting guidance during the nine months ended September 30, 2022 that had a material impact on its condensed consolidated financial statements or disclosures.


2. Dispositions

Sale of Mortgage Servicing Platform
On March 31, 2022, the Company completed the sale of certain assets and liabilities of its servicing and subservicing technology platform for performing and non-performing mortgage loans (the “Mortgage Servicing Platform”) to Sagent M&C, LLC (“Sagent”), in exchange for Class A-1 Common Units equal to 19.9% ownership of Sagent, and the sale of certain tangible personal property of the Company used in the conduct of the Mortgage Servicing Platform in exchange for $9.9 in cash, for total consideration of $260 (the “Sagent Transaction”). In connection with the Sagent Transaction, the Company recorded a gain of $223, which was included in “other income, net” within the condensed consolidated statements of operations, and recorded $4 transaction costs during the nine months ended September 30, 2022. No transaction costs were recorded in the three months ended September 30, 2022. The net carrying amount of assets and liabilities transferred in connection with the Sagent Transaction was $31 and reported under Corporate/Other.

The Company accounted for the equity interest under the equity method of accounting, as the Company has the ability to exercise significant influence over Sagent’s operating and financial decisions but does not own a majority equity interest or otherwise control the respective entity. Under the equity method of accounting, the investment is initially stated at cost and subsequently adjusted for additional investments and the Company’s proportionate share of Sagent’s earnings or losses and distributions. The initial cost of the equity interest recorded was $250, which represented the fair value as of March 31, 2022. The Company recorded a $5 loss during the three and nine months ended September 30, 2022 related to the Company's proportionate share of net loss of Sagent. The Company’s investment in Sagent was $245 as of September 30, 2022.

Sale of Reverse Servicing Portfolio
In 2021, the Company completed the sale of its reverse servicing portfolio, operating under Champion Mortgage brand (“Champion”), to Mortgage Assets Management, LLC and its affiliates (“MAM”) for total consideration of $1,640. Upon close of the transaction, MAM assumed Champion’s reverse portfolio and related operations. The Company recorded transaction costs of $5 during the nine months ended September 30, 2021. There were no transaction costs recorded for the three months ended September 30, 2021. The carrying amounts of assets and liabilities associated with the reverse servicing operation were reported under the Servicing segment. The sale of business represents a strategic shift in the Company’s operations. Therefore, the sale of the reverse servicing portfolio qualifies for reporting as discontinued operations, and the related results of operations are reported as discontinued operations in the condensed consolidated statements of operations for prior periods presented.

As part of the transaction, the Company entered into a transitional servicing agreement with MAM, under which the Company was compensated for continuing to subservice the reverse loans through the date that the loans were transferred out of Company’s servicing system. The transfer of the loans out of the Company’s servicing system was completed on April 1, 2022. In addition, the Company retained certain loans, primarily related to previously liquidated loans. As of September 30, 2022, the retained total assets and total liabilities were $38 and $27, respectively. As of December 31, 2021, the retained total assets and total liabilities were $55 and $39, respectively. The retained assets and liabilities are included in “other assets”, and “payables and other liabilities”, respectively, on the condensed consolidated balance sheets.

10

The following table sets forth the condensed consolidated statements of operations data for discontinued operations for the three and nine months ended September 30, 2021:
Three Months Ended September 30, 2021Nine Months Ended September 30, 2021
Revenue - service related, net$4 $13 
Salaries, wages and benefits expense(7)(23)
General and administrative expense(14)50 
Interest income31 118 
Interest expense(26)(90)
Loss on classification as discontinued operations(3)(64)
(Loss) income from discontinued operations before income tax (benefit) expense(15)4 
Less: Income tax (benefit) expense(4)1 
Net (loss) income from discontinued operations$(11)$3 


3. Mortgage Servicing Rights and Related Liabilities

The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities. In estimating the fair value of all mortgage servicing rights and related liabilities, the impact of the current environment was considered in the determination of key assumptions.
MSRs and Related LiabilitiesSeptember 30, 2022December 31, 2021
MSRs - fair value$6,408 $4,223 
Excess spread financing - fair value$519 $768 
Mortgage servicing rights financing - fair value20 10 
MSR related liabilities - nonrecourse at fair value$539 $778 

Mortgage Servicing Rights
The following table sets forth the activities of MSRs:
Nine Months Ended September 30,
MSRs - Fair Value20222021
Fair value - beginning of period$4,223 $2,703 
Additions:
Servicing retained from mortgage loans sold481 790 
Purchases of servicing rights1,256 438 
Dispositions:
Sales of servicing assets(293)(13)
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM)1,363 476 
Changes in valuation due to amortization(644)(772)
Other changes22 44 
Fair value - end of period$6,408 $3,666 

During the nine months ended September 30, 2022 and 2021, the Company sold $20,723 and $1,266 in unpaid principal balance (“UPB”) of MSRs, of which $19,692 and $1,144 were retained by the Company as subservicer, respectively.

11

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

The following table provides a breakdown of UPB and fair value for the Company’s MSRs:
September 30, 2022December 31, 2021
MSRs - UPB and Fair Value Breakdown by Investor PoolsUPBFair ValueUPBFair Value
Agency$363,637 $6,068 $302,851 $3,859 
Non-agency31,769 340 36,357 364 
Total$395,406 $6,408 $339,208 $4,223 

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:
Discount Rate
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
September 30, 2022
Mortgage servicing rights$(266)$(512)$(142)$(276)$(66)$(132)
December 31, 2021
Mortgage servicing rights$(141)