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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, 2023
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
mrcoopergrouplogor1a01.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 20, 2023 was 65,860,343.

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, 2023 (unaudited) and December 31, 2022
Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022
Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2023 and 2022
17. 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, 2023December 31, 2022
 (unaudited) 
Assets
Cash and cash equivalents$553 $527 
Restricted cash151 175 
Mortgage servicing rights at fair value8,504 6,654 
Advances and other receivables, net of reserves of $164 and $137, respectively
758 1,019 
Mortgage loans held for sale at fair value893 893 
Property and equipment, net of accumulated depreciation of $136 and $122, respectively
59 65 
Deferred tax assets, net499 703 
Other assets2,010 2,740 
Total assets$13,427 $12,776 
Liabilities and Stockholders’ Equity
Unsecured senior notes, net $3,147 $2,673 
Advance, warehouse and MSR facilities, net 3,545 2,885 
Payables and other liabilities1,964 2,633 
MSR related liabilities - nonrecourse at fair value467 528 
Total liabilities9,123 8,719 
Commitments and contingencies (Note 16)
Common stock at $0.01 par value - 300 million shares authorized, 93.2 million shares issued
1 1 
Additional paid-in-capital1,081 1,104 
Retained earnings4,256 3,802 
Treasury shares at cost - 27.4 million and 24.0 million shares, respectively
(1,034)(850)
Total stockholders’ equity4,304 4,057 
Total liabilities and stockholders’ equity$13,427 $12,776 

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,
2023202220232022
Revenues:
Service related, net$432 $395 $1,095 $1,610 
Net gain on mortgage loans held for sale142 115 295 551 
Total revenues574 510 1,390 2,161 
Expenses:
Salaries, wages and benefits166 183 470 614 
General and administrative135 133 370 368 
Total expenses301 316 840 982 
Interest income167 83 369 169 
Interest expense(146)(104)(378)(321)
Other income (expense), net58 (20)44 197 
Total other income (expense), net79 (41)35 45 
Income before income tax expense352 153 585 1,224 
Less: Income tax expense77 40 131 302 
Net income$275 $113 $454 $922 
Earnings per share
Basic$4.14 $1.59 $6.70 $12.71 
Diluted$4.06 $1.55 $6.58 $12.37 
    
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)
Common Stock
Shares
(in thousands) 		AmountAdditional Paid-in CapitalRetained EarningsTreasury Share AmountTotal Mr. Cooper Stockholders’ EquityNon-controlling InterestsTotal Stockholders’
Equity
Balance at June 30, 202271,651 $1 $1,094 $3,688 $(747)$4,036 $1 $4,037 
Shares issued / (surrendered) under incentive compensation plan42 — (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, 202270,557 $1 $1,099 $3,801 $(796)$4,105 $— $4,105 
Balance at June 30, 202366,848 $1 $1,074 $3,981 $(977)$4,079 $— $4,079 
Shares issued / (surrendered) under incentive compensation plan25 — (1)— 1 — — — 
Share-based compensation— — 8 — — 8 — 8 
Repurchase of common stock(1,039)— — — (58)(58)— (58)
Net income— — — 275 — 275 — 275 
Balance at September 30, 202365,834 $1 $1,081 $4,256 $(1,034)$4,304 $— $4,304 

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)
Common Stock
Shares
(in thousands) 		AmountAdditional Paid-in CapitalRetained EarningsTreasury Share AmountTotal Mr. Cooper Stockholders’ EquityNon-controlling InterestsTotal Stockholders’
Equity
Balance at January 1, 202273,777 $1 $1,116 $2,879 $(630)$3,366 $1 $3,367 
Shares issued / (surrendered) under incentive compensation plan898 — (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, 202270,557 $1 $1,099 $3,801 $(796)$4,105 $— $4,105 
Balance at January 1, 202369,266 $1 $1,104 $3,802 $(850)$4,057 $— $4,057 
Shares issued / (surrendered) under incentive compensation plan902 — (44)— 20 (24)— (24)
Share-based compensation— — 21 — — 21 — 21 
Repurchase of common stock(4,334)— — — (204)(204)— (204)
Net income— — — 454 — 454 — 454 
Balance at September 30, 202365,834 $1 $1,081 $4,256 $(1,034)$4,304 $— $4,304 

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,
 20232022
Operating Activities
Net income$454 $922 
Adjustments to reconcile net income to net cash attributable to operating activities:
Deferred tax expense108 280 
Net gain on mortgage loans held for sale(295)(551)
Provision for servicing and non-servicing reserves26 22 
Fair value changes in mortgage servicing rights140 (719)
Fair value changes in MSR related liabilities(2)134 
Depreciation and amortization for property and equipment and intangible assets28 29 
Gain on disposition of assets— (223)
Bargain purchase gain(96)— 
Loss on MSR hedging activities244 329 
(Gain) loss on MSR sales(29)1 
Other operating activities88 75 
Repurchases of loan assets out of Ginnie Mae securitizations(984)(2,904)
Mortgage loans originated and purchased for sale, net of fees(10,104)(25,120)
Sales proceeds and loan payment proceeds for mortgage loans held for sale11,187 30,438 
Changes in assets and liabilities:
Advances and other receivables291 355 
Other assets(137)287 
Payables and other liabilities(147)(211)
Net cash attributable to operating activities772 3,144 
Investing Activities
Acquisitions of business, net of cash acquired(522)— 
Acquisition of assets(34)— 
Property and equipment additions, net of disposals(16)(14)
Purchase of mortgage servicing rights(1,073)(1,257)
Proceeds on sale of mortgage servicing rights and excess yield560 284 
Other investing activities(3)— 
Net cash attributable to investing activities(1,088)(987)
Financing Activities
Increase (decrease) in advance, warehouse and MSR facilities617 (1,933)
Settlements and repayment of excess spread financing(59)(373)
Repurchase of common stock(204)(185)
Other financing activities(36)(29)
Net cash attributable to financing activities318 (2,520)
Net increase (decrease) in cash, cash equivalents, and restricted cash2 (363)
Cash, cash equivalents, and restricted cash - beginning of period702 1,041 
Cash, cash equivalents, and restricted cash - end of period(1)
$704 $678 
Supplemental Disclosures of Non-cash Investing Activities
Equity consideration received from disposition of assets$— $250 
Purchase of mortgage servicing rights$40 $7 
Mortgage servicing rights sales price holdback$27 $15 

(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, 2023September 30, 2022
Cash and cash equivalents$553 $530 
Restricted cash151 148 
Total cash, cash equivalents, and restricted cash$704 $678 
See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited). 
7
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® and Xome®. Mr. Cooper is one of the largest home loan servicers and originators 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, 2022.

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. These investments are initially measured at cost and subsequently adjusted for the 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 and updated for observable price changes 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 2022 condensed consolidated statement of cash flows to conform to 2023 presentation. Such reclassifications were not material and did not affect total revenues or net income.

Recent Accounting Guidance Adopted
The Company did not adopt any accounting guidance during the nine months ended September 30, 2023 that had a material impact on its condensed consolidated financial statements or disclosures.


8
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 preliminary 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. During the three and nine months ended September 30, 2023, the Company incurred $8 of acquisition costs related to the Roosevelt Transaction. The financial results of Rushmore and Roosevelt were included in Servicing segment and Corporate/Other segment, respectively.

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 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 transaction closed in the third quarter of 2023 for total consideration of approximately $658. The transaction was executed in two steps. The first step was a bulk purchase of a portion of Home Point’s mortgage servicing rights (“MSR”) portfolio for $335. The second step of the transaction 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 steps of the transaction was $323, or $2.33 per share.

The Company accounted for the combined 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. The Company acquired $1.2 billion MSR and assumed a senior note with a principal balance of $500, among other acquired net assets. 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. 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. During the three and nine months ended September 30, 2023, the Company incurred $5 of acquisition costs related to the Home Point transaction.


3. 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 (expense), 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.

9
The Company accounts 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 loss of $4 and $15 during the three and nine months ended September 30, 2023, respectively, related to the Company's proportionate share of net loss of Sagent. 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 $222 as of September 30, 2023.


4. 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 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, 2023December 31, 2022
MSRs - fair value$8,504 $6,654 
Excess spread financing at fair value$446 $509 
Mortgage servicing rights financing at fair value21 19 
MSR related liabilities - nonrecourse at fair value$467 $528 

Mortgage Servicing Rights
The following table sets forth the activities of MSRs:
Nine Months Ended September 30,
MSRs - Fair Value20232022
Fair value - beginning of period$6,654 $4,223 
Additions:
Servicing retained from mortgage loans sold219 481 
Purchases and acquisitions of servicing rights2,305 1,256 
Dispositions:
Sales of servicing assets and excess yield(555)(293)
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM)304 1,363 
Changes in valuation due to amortization(444)(644)
Other changes(1)
21 22 
Fair value - end of period$8,504 $6,408 

(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 nine months ended September 30, 2023 and 2022, the Company sold $23,789 and $20,723 in unpaid principal balance (“UPB”) of MSRs, of which $22,640 and $19,692 were retained by the Company as subservicer, respectively.

During the nine months ended September 30, 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 $41,958 for total proceeds of $294. The Company recorded a gain of $33 through the mark-to-market adjustments within “revenues - service related, net” in the condensed consolidated statements of operations.

10
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 Home Loan Mortgage Corp (“Freddie Mac” or “FHLMC”), the Federal National Mortgage Association (“Fannie Mae” or “FNMA”), 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, 2023December 31, 2022
MSRs - UPB and Fair Value Breakdown by Investor PoolsUPBFair ValueUPBFair Value
Agency$501,315 $8,193 $380,502 $6,322 
Non-agency27,009 311 30,880 332 
Total$528,324 $8,504 $411,382 $6,654 

Refer to Note 14, 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(1)
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, 2023
Mortgage servicing rights$(341)$(655)$(179)$(348)$(80)$(159)
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
December 31, 2022
Mortgage servicing rights$(266)$(511)$(136)$(264)$(61)$(122)

(1)Beginning in the second quarter of 2023, the Company valued MSRs using a stochastic option adjusted spread (“OAS”) instead of a static discount rate. Refer to Note 14, Fair Value Measurements, for further discussion.

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.

Excess Spread Financing - Fair Value
The Company had excess spread financing liability of $446 and $509, with UPB of $76,732 and $83,706 as of September 30, 2023 and December 31, 2022, respectively. Refer to Note 14, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of excess spread financing liability.

11
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(1)
Prepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
September 30, 2023
Excess spread financing$15 $32 $9 $17 
Discount Rate
Prepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities
100 bps
Adverse
Change
200 bps
Adverse
Change
10%
Adverse
Change
20%
Adverse
Change
December 31, 2022
Excess spread financing$19 $40 $11 $22 

(1)Beginning in the second quarter of 2023, the Company valued excess spread financing using a stochastic OAS instead of a static discount rate. Refer to Note 14, Fair Value Measurements, for further discussion.

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

Mortgage Servicing Rights Financing - Fair Value
The Company had MSR financing liability of $21 and $19 as of September 30, 2023 and December 31, 2022, respectively. Refer to Note 14, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of the MSR financing liability.
12

Revenues - Service Related, net
The following table sets forth the items comprising total “revenues - service related, net”:
Three Months Ended September 30,Nine Months Ended September 30,
Revenues - Service Related, net2023202220232022
Contractually specified servicing fees(1)
$440 $371 $1,231 $1,076 
Other service-related income(1)
25 22 58 94 
Incentive and modification income(1)
18 4 32 22 
Servicing late fees(1)
24 19 68 57 
Mark-to-market adjustments - Servicing
MSR MTM270 239 304 1,363 
Loss on MSR hedging activities(192)(100)(244)(329)
(Loss) gain on MSR sales(3)(2)29 (1)
Reclassifications(2)
(8)(10)(26)(22)
Excess spread / MSR financing MTM(4)(3)2 (134)
Total mark-to-market adjustments - Servicing63 124 65 877 
Amortization, net of accretion
MSR amortization(171)(183)(444)(644)
Excess spread accretion11 14 32 74 
Total amortization, net of accretion(160)(169)(412)(570)
Originations service fees(3)
18 20 45 86 
Corporate/Xome related service fees22 22 62 56 
Other(4)
(18)(18)(54)(88)
Total revenues - Service Related, net$432 $395 $1,095 $1,610 

(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 $175 and $172 for the three months ended September 30, 2023 and 2022, respectively, and $528 and $488 for the nine months ended September 30, 2023 and 2022, 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.


5. Advances and Other Receivables

Advances and other receivables, net, consists of the following:
Advances and Other Receivables, NetSeptember 30, 2023December 31, 2022
Servicing advances, net of $12 purchase discount
$813 $1,053 
Receivables from agencies, investors and prior servicers, net of $7 purchase discount
109 103 
Reserves(164)(137)
Total advances and other receivables, net$758 $1,019 

13
The following table sets forth the activities of the servicing reserves for advances and other receivables:
Three Months Ended September 30,Nine Months Ended September 30,
Reserves for Advances and Other Receivables2023202220232022
Balance - beginning of period$156 $150 $137 $167 
Provision8 10 26 22 
Reclassifications(1)
11 9 27 31 
Write-offs(11)(26)(26)(77)
Balance - end of period$164 $143 $164 $143 

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

Purchase Discount for Advances and Other Receivables
The following tables set forth the activities of the purchase discounts for advances and other receivables:
Three Months Ended September 30,
20232022
Purchase Discount for Advances and Other ReceivablesServicing AdvancesReceivables from Agencies, Investors and Prior ServicersServicing AdvancesReceivables from Agencies, Investors and Prior Servicers
Balance - beginning of period$9 $7 $14 $8 
Addition from acquisition(1)
4 — — — 
Utilization of purchase discounts(1)— (2)(1)
Balance - end of period$12 $7 $12 $7 

Nine Months Ended September 30,
20232022
Purchase Discount for Advances and Other ReceivablesServicing AdvancesReceivables from Agencies, Investors and Prior ServicersServicing AdvancesReceivables from Agencies, Investors and Prior Servicers
Balance - beginning of period $12 $7 $19 $12 
Addition from acquisition(1)
4 — — — 
Utilization of purchase discounts(4)— (7)(5)
Balance - end of period$12 $7 $12 $7 

(1)In connection with the acquisition of Home Point during the third quarter of 2023, the Company recorded the acquired advances and other receivables at estimate fair value as of the acquisition date, which resulted in a purchase discount of $4. Refer to Note 2, Acquisitions, for discussion of the Home Point acquisition.

Credit Loss for Advances and Other Receivables
As of September 30, 2023, the total current expected credit loss (“CECL”) reserve was $36, of which $29 and $7 were recorded in reserves and purchase discount for advances and other receivables, respectively. As of September 30, 2022, the total CECL reserve was $34, of which $27 and $7 were recorded in reserves and purchase discount for advances and other receivables, respectively. There were no material changes to CECL reserves during the three and nine months ended September 30, 2023 and 2022.

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.

14
6. Mortgage Loans Held for Sale

Mortgage loans held for sale are recorded at fair value as set forth below:
Mortgage Loans Held for SaleSeptember 30, 2023December 31, 2022
Mortgage loans held for sale – UPB$932 $921 
Mark-to-market adjustment(1)
(39)(28)
Total mortgage loans held for sale$893 $893 

(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:
Nine Months Ended September 30,
Mortgage Loans Held for Sale20232022
Balance - beginning of period$893 $4,381 
Loans sold and loan payments received(11,146)(30,648)
Mortgage loans originated and purchased, net of fees10,155 25,120 
Repurchase of loans out of Ginnie Mae securitizations(1)
984 2,904 
Net change in unrealized gain (loss) on retained loans held for sale10 (177)
Net transfers of mortgage loans held for sale(2)
(3)1 
Balance - end of period$893 $1,581 

(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 nine months ended September 30, 2023 and 2022, the Company recorded a total realized gain of $42 and loss of $208 from total sales proceeds of $10,990 and $30,185, 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:
September 30, 2023December 31, 2022
Mortgage Loans Held for SaleUPBFair ValueUPBFair Value
Non-accrual(1)
$41 $32 $102 $87 

(1)Non-accrual UPB includes $32 and $90 of UPB related to Ginnie Mae repurchased loans as of September 30, 2023 and December 31, 2022, respectively.

The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $26 and $65 as of September 30, 2023 and December 31, 2022, respectively.

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7. 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 $1,027 and $1,865 as of September 30, 2023 and December 31, 2022, respectively, which are included in both “other assets” and “payables and other liabilities” in the condensed consolidated balance sheets.


8. Goodwill and Intangible Assets

The Company had goodwill of $141 and $120, and intangible assets of $30 and $8 as of September 30, 2023 and December 31, 2022, respectively. In connection with the Rushmore Transaction during the second quarter of 2023, the Company recorded $23 of intangible assets, which primarily consist of subservicing customer relationships. In connection with the Roosevelt Transaction during the third quarter of 2023, the Company recorded $4 of intangible assets and $21 of goodwill. See Note 2, Acquisitions, for further details. Goodwill and intangible assets are included in “other assets” within the condensed consolidated balance sheets.


9. 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 “(gain) 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.
September 30, 2023Nine Months Ended September 30, 2023
Derivative Financial InstrumentsExpiration
Dates		Outstanding
Notional		Fair
Value		Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments2023$304 $6 $(4)
Derivative financial instruments
IRLCs2023$813 $22 $— 
LPCs2023121 1 — 
Forward MBS trades20231,383 13 74 
Treasury futures20235 — — 
Total derivative financial instruments - assets$2,322 $36 $74 
Liabilities
Derivative financial instruments
IRLCs2023$40 $— $— 
LPCs2023288 2 — 
Forward MBS trades20231,249 28 (97)
Treasury futures20232,353 65 (196)
Total derivative financial instruments - liabilities$3,930 $95 $(293)

September 30, 2022Nine Months Ended September 30, 2022
Derivative Financial InstrumentsExpiration
Dates		Outstanding
Notional		Fair
Value		Gains/(Losses)
Assets
Mortgage loans held for sale
Loan sale commitments2022$439 $(3)$(28)
Derivative financial instruments
IRLCs2022$1,118 $21 $(113)
LPCs202253 1 (2)
Forward MBS trades20222,296 74 542 
Treasury futures2022— — 4 
Total derivative financial instruments - assets$3,467 $96 $431 
Liabilities
Derivative financial instruments
IRLCs2022$551 $8 $(8)
LPCs2022223 5 (2)
Forward MBS trades2022458 19 (72)
Treasury futures2022806 62 (262)
Total derivative financial instruments - liabilities$2,038 $94 $(344)

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As of September 30, 2023, the Company held $135 and $8 in collateral deposits and collateral obligations on derivative instruments, respectively. As of December 31, 2022 the Company held $49 and $1 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.


10. Indebtedness

Advance, Warehouse and MSR Facilities
September 30, 2023December 31, 2022
Maturity DateCollateralCapacity AmountOutstandingCollateral PledgedOutstandingCollateral Pledged
Advance Facilities
$350 advance facilityOctober 2024Servicing advance receivables$350 $129 $166 $150 $189 
$250 advance facility(1)
November 2024Servicing advance receivables250 207 284 308 410 
$250 advance facilityJanuary 2024Servicing advance receivables250 177 200 171 209 
$75 advance facilityDecember 2023Servicing advance receivables75 35 52 40 45 
Advance facilities principal amount 548 702 669 853 
Warehouse Facilities
$1,500 warehouse facilityJune 2024Mortgage loans or MBS1,500 162 163