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Section 1: 10-Q (10-Q)

Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________________________________________________
 FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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

397859460_mrcoopergrouplogosm.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 class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.01 par value per share
COOP
The Nasdaq Stock Market
____________________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.
Large Accelerated Filer
¨
Accelerated Filer
x
Non-Accelerated Filer
¨
Smaller reporting company
¨
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Number of shares of common stock, $0.01 par value, outstanding as of April 30, 2019 was 91,048,012.



MR. COOPER GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
 
 
Page
PART I
 
 
 
 
Item 1.
 
 
 
 
Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018 (Successor)
 
 
 
 
Consolidated Statements of Operations (unaudited) for the Successor’s Three Months Ended March 31, 2019 and the Predecessor’s Three Months Ended March 31, 2018
 
 
 
 
Consolidated Statements of Stockholders’ Equity (unaudited) for the Successor’s Three Months Ended March 31, 2019 and the Predecessor’s Three Months Ended March 31, 2018
 
 
 
 
Consolidated Statements of Cash Flows (unaudited) for the Successor’s Three Months Ended March 31, 2019 and the Predecessor’s Three Months Ended March 31, 2018
 
 
 
 
 
 
 
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.
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except share data)
 
Successor
 
March 31, 2019
 
December 31, 2018
 
(unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
181

 
$
242

Restricted cash
339

 
319

Mortgage servicing rights, $3,481 and $3,665 at fair value, respectively
3,488

 
3,676

Advances and other receivables, net of reserves of $71 and $47, respectively
1,147

 
1,194

Reverse mortgage interests, net of reserves of $8 and $13, respectively
7,489

 
7,934

Mortgage loans held for sale at fair value
2,170

 
1,631

Mortgage loans held for investment at fair value
118

 
119

Property and equipment, net of accumulated depreciation of $27 and $16, respectively
112

 
96

Deferred tax asset, net
1,024

 
967

Other assets
1,578

 
795

Total assets
$
17,646

 
$
16,973

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Unsecured senior notes, net
$
2,461

 
$
2,459

Advance facilities, net
578

 
595

Warehouse facilities, net
3,050

 
2,349

Payables and other liabilities
1,975

 
1,543

MSR related liabilities - nonrecourse at fair value
1,343

 
1,216

Mortgage servicing liabilities
90

 
71

Other nonrecourse debt, net
6,388

 
6,795

Total liabilities
15,885

 
15,028

Commitments and contingencies (Note 18)


 


Preferred stock at $0.00001 - 10 million shares authorized, 1 million shares issued and outstanding, respectively; aggregate liquidation preference of ten dollars, respectively

 

Common stock at $0.01 par value - 300 million shares authorized, 91.0 million and 90.8 million shares issued, respectively
1

 
1

Additional paid-in-capital
1,095

 
1,093

Retained earnings
662

 
848

Total Mr. Cooper stockholders’ equity
1,758

 
1,942

Non-controlling interests
3

 
3

Total stockholders’ equity
1,761

 
1,945

Total liabilities and stockholders’ equity
$
17,646

 
$
16,973


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

3


MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(millions of dollars, except for earnings per share data)
 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2019
 
 
Three Months Ended March 31, 2018
Revenues:
 
 
 
 
Service related, net
$
84

 
 
$
464

Net gain on mortgage loans held for sale
166

 
 
124

Total revenues
250

 
 
588

Expenses:
 
 
 
 
Salaries, wages and benefits
215

 
 
180

General and administrative
228

 
 
184

Total expenses
443

 
 
364

Other income (expenses):
 
 
 
 
Interest income
134

 
 
145

Interest expense
(189
)
 
 
(171
)
Other income (expenses)
15

 
 
8

Total other income (expenses), net
(40
)
 
 
(18
)
(Loss) income before income tax expense (benefit)
(233
)
 
 
206

Less: Income tax (benefit) expense
(47
)
 
 
46

Net (loss) income
(186
)
 
 
160

Less: Net (loss) income attributable to non-controlling interests

 
 

Net (loss) income attributable to Successor/Predecessor
(186
)
 
 
160

Less: Undistributed earnings attributable to participating stockholders

 
 

Net (loss) income attributable to common stockholders
$
(186
)
 
 
$
160

 
 
 
 
 
Net (loss) income per common share attributable to Successor/Predecessor:
 
 
 
 
Basic
$
(2.05
)
 
 
$
1.63

Diluted
$
(2.05
)
 
 
$
1.61


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

4


MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(millions of dollars, except share data)
 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
(in thousands)
 
Amount
 
Shares
(in thousands)
 
Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Share Amount
 
Total Nationstar Stockholders’
Equity and
Mr. Cooper Stockholders’ Equity, respectively
 
Non-controlling Interests
 
Total
Equity
Predecessor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018

 
$

 
97,728

 
$
1

 
$
1,131

 
$
731

 
$
(148
)
 
$
1,715

 
$
7

 
$
1,722

Shares issued / (surrendered) under incentive compensation plan

 

 
465

 

 
(4
)
 

 

 
(4
)
 

 
(4
)
Share-based compensation

 

 

 

 
4

 

 

 
4

 

 
4

Net income

 

 

 

 

 
160

 

 
160

 

 
160

Balance at March 31, 2018

 
$

 
98,193

 
$
1

 
$
1,131

 
$
891

 
$
(148
)
 
$
1,875

 
$
7

 
$
1,882

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2019
1,000

 
$

 
90,821

 
$
1

 
$
1,093

 
$
848

 
$

 
$
1,942

 
$
3

 
$
1,945

Shares issued under incentive compensation plan

 

 
221

 

 
(2
)
 

 

 
(2
)
 

 
(2
)
Share-based compensation

 

 

 

 
4

 

 

 
4

 

 
4

Net loss

 

 

 

 

 
(186
)
 

 
(186
)
 

 
(186
)
Balance at March 31, 2019
1,000

 
$

 
91,042

 
$
1

 
$
1,095

 
$
662

 
$

 
$
1,758

 
$
3

 
$
1,761


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

5


MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2019
 
 
Three Months Ended March 31, 2018
Operating Activities
 
 
 
 
Net (loss) income attributable to Successor/Predecessor
$
(186
)
 
 
$
160

Adjustments to reconcile net (loss) income to net cash attributable to operating activities:
 
 
 
 
Deferred tax (benefit) expense
(47
)
 
 
30

Net gain on mortgage loans held for sale
(166
)
 
 
(124
)
Interest income on reverse mortgage loan
(82
)
 
 
(119
)
Gain on sale of assets

 
 
(9
)
Provision for servicing reserves
11

 
 
38

Fair value changes and amortization/accretion of mortgage servicing rights/liabilities
379

 
 
(178
)
Fair value changes in excess spread financing
(69
)
 
 
50

Fair value changes in mortgage servicing rights financing liability
2

 
 
24

Fair value changes in mortgage loan held for investment
(1
)
 
 

Amortization of premiums, net of discount accretion
2

 
 
3

Depreciation and amortization for property and equipment and intangible assets
21

 
 
15

Share-based compensation
4

 
 
4

Repurchases of forward loan assets out of Ginnie Mae securitizations
(364
)
 
 
(251
)
Mortgage loans originated and purchased for sale, net of fees
(5,717
)
 
 
(5,096
)
Sales proceeds and loan payment proceeds for mortgage loans held for sale and held for investment
6,197

 
 
5,713

Changes in assets and liabilities:
 
 
 
 
Advances and other receivables
120

 
 
270

Reverse mortgage interests
614

 
 
382

Other assets
(216
)
 
 
54

Payables and other liabilities
(217
)
 
 
(29
)
Net cash attributable to operating activities
285

 
 
937

 
 
 
 
 
Investing Activities
 
 
 
 
Acquisitions, net of cash acquired
(85
)
 
 

Property and equipment additions, net of disposals
(10
)
 
 
(16
)
Purchase of forward mortgage servicing rights, net of liabilities incurred
(130
)
 
 
(17
)
Net payment related to acquisition of HECM related receivables

 
 
(1
)
Proceeds on sale of forward and reverse mortgage servicing rights
243

 
 

Proceeds on sale of assets

 
 
13

Net cash attributable to investing activities
18

 
 
(21
)

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

6


MR. COOPER GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(millions of dollars)
 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2019
 
 
Three Months Ended March 31, 2018
Financing Activities
 
 
 
 
Increase (decrease) in warehouse facilities
307

 
 
(125
)
Decrease in advance facilities
(30
)
 
 
(293
)
Repayment of notes payable
(294
)
 
 

Proceeds from issuance of HECM securitizations

 
 
443

Proceeds from sale of HECM securitizations
20

 
 

Repayment of HECM securitizations
(127
)
 
 
(317
)
Proceeds from issuance of participating interest financing in reverse mortgage interests
86

 
 
90

Repayment of participating interest financing in reverse mortgage interests
(494
)
 
 
(664
)
Proceeds from the issuance of excess spread financing
245

 
 

Settlement of excess spread financing
(50
)
 
 
(45
)
Repayment of nonrecourse debt – legacy assets
(3
)
 
 
(3
)
Repurchase of unsecured senior notes

 
 
(16
)
Repayment of finance lease liability
(1
)
 
 

Surrender of shares relating to stock vesting
(2
)
 
 
(4
)
Debt financing costs
(1
)
 
 
(5
)
Net cash attributable to financing activities
(344
)
 
 
(939
)
Net decrease in cash, cash equivalents, and restricted cash
(41
)
 
 
(23
)
Cash, cash equivalents, and restricted cash - beginning of period
561

 
 
575

Cash, cash equivalents, and restricted cash - end of period(1)
$
520

 
 
$
552

 
 
 
 
 
Supplemental Disclosures of Cash Activities
 
 
 
 
Cash paid for interest expense
$
74

 
 
$
191

Net cash paid for income taxes
$

 
 
$
1


(1) 
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amount reported within the consolidated balance sheets.
 
Successor
 
 
Predecessor
 
March 31, 2019
 
 
March 31, 2018
Cash and cash equivalents
$
181

 
 
$
187

Restricted cash
339

 
 
365

Total cash, cash equivalents, and restricted cash
$
520

 
 
$
552


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

7



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

1. Nature of Business and Basis of Presentation

Nature of Business
Mr. Cooper Group Inc., collectively with its consolidated subsidiaries, (“Mr. Cooper”, the “Company”, “we”, “us” or “our”) provides servicing, origination and transaction-based services related to single family residences throughout the United States with operations under its primary brands: Mr. Cooper® and Xome®. Mr. Cooper is one of the largest home loan servicers in the country focused on delivering a variety of servicing and lending products, services and technologies. Xome provides technology and data enhanced solutions to homebuyers, home sellers, real estate agents and mortgage companies. The Company’s corporate website is located at www.mrcoopergroup.com.

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

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

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

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

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

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

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

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

8



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

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

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

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

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

Recent Accounting Guidance Not Yet Adopted
Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), requires expected credit losses for financial instruments held at the reporting date to be measured based on historical experience, current conditions and reasonable and supportable forecasts. The update eliminates the probable initial recognition threshold in current GAAP and instead reflects an entity’s current estimate of all expected credit losses. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. ASU 2016-13 is effective for interim periods beginning after December 15, 2019. The Company is currently evaluating the potential impact of ASU 2016-13 on its consolidated financial statements.

9



Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”) removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 fair value measurement methodologies, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact of ASU 2018-13 on its consolidated financial statements.


2. Acquisitions

Acquisition of Pacific Union Financial, LLC
On February 1, 2019, the Company completed the acquisition of all the limited liability units of Pacific Union Financial, LLC (“Pacific Union”), a California limited liability company. The purchase price was estimated to be $116, which is subject to adjustment. Pacific Union was a privately-held company that was engaged in the origination as well as servicing of residential mortgage loans, and operated throughout the United States. The acquisition allows the Company to expand its servicing portfolio and increase its mortgage lending volume and capabilities.

The acquisition has been accounted for in accordance with Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 (“ASC 805”), Business Combinations, using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on its estimated fair values as of the acquisition date. The determination of fair value estimates requires management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments. The Company’s estimates are subject to change as the Company obtains additional information and finalizes its review of estimates during the measurement period (up to one year from the acquisition date). The primary areas of the preliminary allocation of fair value of consideration transferred that are not yet finalized relate to the fair value of mortgage servicing rights, loans held for sale, advances and other receivables and payables and accrued liabilities as the Company continues to evaluate the underlying inputs and assumptions that are being used in fair value estimates. Based on the preliminary allocation of fair value, goodwill of $29 has been recorded, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily attributable to the assembled workforce and synergies with the Company’s current operations. The goodwill is assigned to the Origination and Servicing segments based on expected cash flows and is expected to be deductible for tax purposes.

10



Preliminary Estimated Fair Value of Net Assets Acquired:
 
Cash and cash equivalents
$
37

Restricted cash
2

Mortgage servicing rights
271

Advances and other receivables
84

Mortgage loans held for sale
536

Mortgage loans held for investment
1

Property and equipment
10

Other assets
483

Fair value of assets acquired
1,424

Notes payable(1)
294

Advance facilities
13

Warehouse facilities
393

Payables and other liabilities
519

Other nonrecourse debt
129

Fair value of liabilities assumed
1,348

Total fair value of net tangible assets acquired
76

Intangible assets:
 
Customer relationships(2)
11

Preliminary goodwill
29

 
$
116


(1) 
Notes payables was subsequently paid off in February 2019 after the consummation of the acquisition.
(2) 
The estimated fair values for customer relationships were measured using the excess earnings method and were determined to have a remaining useful life of 10 years.

The purchase price allocation has not been finalized as of March 31, 2019, as the Company continues to analyze respective valuations of acquired assets and assumed liabilities as specified above.

The Company incurred total acquisition costs of $2 during the three months ended March 31, 2019, of which $1 are included in salaries, wages and benefits expense and $1 in general and administrative expense in the Company’s consolidated statements of operations. The acquisition costs were primarily related to legal, accounting and consulting services.

For the three months ended March 31, 2019, the operations contributed by this acquisition generated consolidated total revenues of $39 and income before income tax of $14, which are reported in the Company’s consolidated statements of operations.

The following unaudited pro forma financial information presents the combined results of operations for the three months ended March 31, 2019 as if the transaction had occurred on January 1, 2019.
 
Three Months Ended March 31, 2019
Pro forma total revenues
$
269

 
 
Pro forma net loss
$
(184
)

11



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

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

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

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

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

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

The table below presents the calculation of aggregate purchase price.
Purchase Price:
 
Converted WMIH common shares (prior to reverse stock split) in millions
394

Price per share, based on price of $1.398 for WMIH stock on July 31, 2018
$
1.398

Purchase price from common stock issued
551

Purchase price from cash payment
1,226

Total purchase price
$
1,777


The allocation of the fair value of the acquired business was based on preliminary valuations of the estimated net fair value of the assets acquired. The determination of fair value estimates requires management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments. The Company’s estimates are subject to change as the Company obtains additional information and finalizes its review of estimates during the measurement period (up to one year from the acquisition date). The primary areas of the preliminary allocation of fair value of consideration transferred that are not yet finalized relate to the fair value of advances and other receivables and payables and accrued liabilities.

12



The Company will record any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined. Fair value adjustments based on updated estimates could materially affect the goodwill recorded on the acquisition.

The preliminary allocation of the purchase price to the acquired assets and liabilities is as follows:
Preliminary Estimated Fair Value of Net Assets Acquired:
 
Cash and cash equivalents
$
166

Restricted cash
430

Mortgage servicing rights
3,422

Advances and other receivables
1,262

Reverse mortgage interests
9,189

Mortgage loans held for sale
1,514

Mortgage loans held for investment
125

Property and equipment
96

Other assets
610

Fair value of assets acquired
16,814

Unsecured senior notes
1,830

Advance facilities
551

Warehouse facilities
2,701

Payables and other liabilities
1,352

MSR related liabilities—nonrecourse
1,065

Mortgage servicing liabilities
123

Other nonrecourse debt
7,583

Fair value of liabilities assumed
15,205

Total fair value of net tangible assets acquired
1,609

Intangible assets(1)
103

Preliminary goodwill
65

 
$
1,777


(1) 
The following intangible assets were acquired in the Nationstar acquisition.
 
Useful Life (Years)
 
Fair Value
Customer relationships(i)
6
 
$
61

Tradename(ii)
5
 
8

Technology(ii)
3-5
 
11

Internally developed software(iii)
2
 
23

Total
 
 
$
103


(i) 
The estimated fair values for customer relationships were measured using the excess earnings method.
(ii) 
The estimated fair values for tradename and technology were measured using the relief-from-royalty method. This method assumes the tradename and technology have value to the extent the owner is relieved of the obligation to pay royalties for the benefits received from these assets.
(iii) 
The estimated fair values for internally developed software were measured using the replacement cost method.


13


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

The purchase price allocation has not been finalized as of March 31, 2019, as the Company continues to analyze the valuations assigned to the acquired assets and assumed liabilities. During the three months ended March 31, 2019, the Company finalized its valuation of reverse mortgage assets and liabilities related to loan specific cash flows. However, the Company has not yet finalized valuation related to advances and other receivables recorded within reverse mortgage interest primarily as unsecuritized interests in addition to payables and accrued liabilities.

WMIH incurred total acquisition costs of $92 prior to the consummation of the Merger, of which $4 was incurred in the three months ended March 31, 2018. The acquisition costs were primarily related to legal, accounting and consulting services and were expensed as incurred through July 31, 2018. Included in the total acquisition costs was a transaction fee of $25 to KKR Capital Markets LLC (“KCM”), an affiliate of KKR Wand Investors Corporation, which is WMIH’s largest stockholder, for acting as a non-exclusive financial advisor to WMIH with respect to the Merger and an arrangement fee of $7 to KCM for acting as a placement agent with respect to a bridge financing facility in connection with the Merger that was not executed. In addition, WMIH incurred $38 of costs related to borrowings under the Notes, which was capitalized in debt costs.

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

The Predecessor incurred total acquisition costs of $27 in connection with the Merger. Included in the Predecessor’s consolidated statements of operations for the three months ended March 31, 2018 were $3 of acquisition costs incurred by Nationstar. Included in the Company’s consolidated statements of operations for the three months ended March 31, 2019 were $1 of acquisition costs related to the compensation arrangements incurred by the Company related to the Merger.

Acquisition of Assurant Mortgage Solutions (“AMS”)
On August 1, 2018, Xome Holdings LLC, a wholly-owned subsidiary of the Company, acquired AMS for $38 in cash with additional consideration dependent on the achievement of certain future performance targets, which was initially estimated at $15 as of December 31, 2018. Total purchase price was estimated at $53. The acquisition expands Xome’s product footprint and grows its third-party client portfolio across its valuation, title and field services businesses. The Company finalized its purchase price allocation and recorded intangible assets of $24 and goodwill of $13 in 2018. The Company expects entire goodwill to be deductible for tax purposes. Under ASC 805, Business Combinations, the contingent consideration was remeasured to fair value of $4 at March 31, 2019. The $11 change in the fair value was included in other income (expenses) within the consolidated statement of operations for the three months ended March 31, 2019.



14


3. Mortgage Servicing Rights and Related Liabilities

The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities.
 
Successor
MSRs and Related Liabilities
March 31, 2019
 
December 31, 2018
Forward MSRs - fair value
$
3,481

 
$
3,665

Reverse MSRs - amortized cost
7

 
11

Mortgage servicing rights
$
3,488

 
$
3,676

 
 
 
 
Mortgage servicing liabilities - amortized cost
$
90

 
$
71

 
 
 
 
Excess spread financing - fair value
$
1,309

 
$
1,184

Mortgage servicing rights financing - fair value
34

 
32

MSR related liabilities - nonrecourse at fair value
$
1,343

 
$
1,216


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

The following table sets forth the activities of forward MSRs.
 
Successor
 
 
Predecessor
MSRs - Fair Value
Three Months Ended March 31, 2019
 
 
Three Months Ended March 31, 2018
Fair value - beginning of period
$
3,665

 
 
$
2,937

Additions:
 
 
 
 
Servicing retained from mortgage loans sold
66

 
 
68

Purchases of servicing rights(1)
409

 
 
19

Dispositions:
 
 
 
 
Sales of servicing assets
(260
)
 
 

Changes in fair value:
 
 
 
 
Changes in valuation inputs or assumptions used in the valuation model
(332
)
 
 
239

Other changes in fair value
(67
)
 
 
(69
)
Fair value - end of period
$
3,481

 
 
$
3,194


(1) 
Purchases of servicing rights during the three months ended March 31, 2019 includes $271 of mortgage servicing rights that were acquired from Pacific Union. See Note 2, Acquisitions for further discussion.

From time to time, the Company sells its ownership interest in certain MSRs and is retained as the subservicer for the sold assets. The Company has evaluated the sale accounting requirements related to these transactions, including the Company’s continued involvement as the subservicer, and concluded that these transactions qualify for sale accounting treatment. During the three months ended March 31, 2019, the Company sold $19,409 in unpaid principal balance (“UPB”) of forward MSRs, of which $19,276 in UPB were retained by the Company as subservicer.

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

15



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

The following table provides a breakdown of credit sensitive and interest sensitive unpaid principal balance (“UPB”) for the Company’s forward MSRs.
 
Successor
 
March 31, 2019
 
December 31, 2018
MSRs - Sensitivity Pools
UPB
 
Fair Value
 
UPB
 
Fair Value
Credit sensitive
$
153,565

 
$
1,626

 
$
135,752

 
$
1,495

Interest sensitive
150,127

 
1,855

 
159,729

 
2,170

Total
$
303,692

 
$
3,481

 
$
295,481

 
$
3,665


The Company used the following key weighted-average inputs and assumptions in estimating the fair value of MSRs.
 
Successor
 
March 31, 2019
 
December 31, 2018
Credit Sensitive
 
 
 
Discount rate
11.3
%
 
11.3
%
Total prepayment speeds
13.5
%
 
11.8
%
Expected weighted-average life
6.0 years

 
6.4 years

 
 
 
 
Interest Sensitive
 
 
 
Discount rate
9.4
%
 
9.3
%
Total prepayment speeds
12.5
%
 
10.0
%
Expected weighted-average life
6.1 years

 
7.0 years


The following table shows the hypothetical effect on the fair value of the Successor’s MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated.
 
Successor
 
Discount Rate
 
Total Prepayment Speeds
MSRs - Hypothetical Sensitivities
100 bps
Adverse
Change
 
200 bps
Adverse
Change
 
10%
Adverse
Change
 
20%
Adverse
Change
March 31, 2019
 
 
 
 
 
 
 
Mortgage servicing rights
$
(125
)
 
$
(241
)
 
$
(147
)
 
$
(283
)
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
Mortgage servicing rights
$
(137
)
 
$
(265
)
 
$
(129
)
 
$
(250
)

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


16


Reverse Mortgage Servicing Rights and Liabilities - Amortized Cost
The Company services certain HECM reverse mortgage loans with an unpaid principal balance of $27,014 and $28,415 as of March 31, 2019 and December 31, 2018, respectively. Mortgage servicing liabilities (“MSL”) had an ending balance of $90 and $71 as of March 31, 2019 and December 31, 2018, respectively. For the three months ended March 31, 2019 and 2018, the Company and Predecessor accreted $18 and $8 of the MSL and recorded other MSL adjustments of $37 and $3, respectively. The MSL adjustment recorded by the Company relates to the fair value adjustments for MSL assumed from the Merger as a result of revised cost to service assumption in the valuation of MSL during the measurement period. See Note 2, Acquisitions for further information. Such accretion recorded by the Predecessor relates to previous portfolio acquisitions.

Reverse MSR had an ending balance of $7 and $11 as of March 31, 2019 and December 31, 2018, respectively. For the three months ended March 31, 2019, the Company amortized $2 and recorded other MSR adjustments of $6. The MSR adjustment recorded by the Company relates to the fair value adjustments for MSR assumed from the Merger as a result of revised cost to service assumption in the valuation of MSR during the measurement period. See Note 2, Acquisitions for further information. For the three months ended March 31, 2018, the Predecessor recorded other MSR adjustments of $4.

The fair value of the reverse MSR was $7 and $11 as of March 31, 2019 and December 31, 2018, respectively. The fair value of the MSL was $75 and $53 as of March 31, 2019 and December 31, 2018, respectively. Management evaluates reverse MSRs and MSLs each reporting period for impairment. Based on management’s assessment at March 31, 2019, no impairment or increased obligation was needed.

Excess Spread Financing - Fair Value
In order to finance the acquisition of certain MSRs on various portfolios, the Company has entered into sale and assignment agreements with a third-party associated with funds and accounts under management of BlackRock Financial Management Inc. (“BlackRock”), a third-party associated with funds and accounts under management of Värde Partners, Inc. (“Varde”) and with certain affiliated entities formed and managed by New Residential Investment Corp. (“New Residential”). The Company sold to such entities the right to receive a specified percentage of the excess cash flow generated from the Portfolios after receipt of a fixed base servicing fee per loan. Servicing fees associated with traditional MSRs can be segregated into a contractually specified base servicing fee component and an excess servicing fee. The base servicing fee, along with ancillary income and earnings on escrows, is designed to cover costs incurred to service the specified pool plus a reasonable profit margin. The remaining servicing fee is considered excess. The Company retains all the base servicing fee, along with ancillary revenues and earnings on escrows, associated with servicing the Portfolios and retains a portion of the excess servicing fee. The Company continues to be the servicer of the Portfolios and provides all servicing and advancing functions.

Contemporaneous with the above, the Company entered into refinanced loan obligations with New Residential, BlackRock and Varde. Should the Company refinance any loan in the Portfolios, subject to certain limitations, it will be required to transfer the new loan or a replacement loan of similar economic characteristics into the Portfolios. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above, which is the primary driver of the recapture rate assumption.

The range of key assumptions used in the Company’s valuation of excess spread financing are as follows.
 
Successor
Excess Spread Financing
Prepayment Speeds
 
Average
Life (Years)
 
Discount Rate
 
Recapture Rate
March 31, 2019
 
 
 
 
 
 
 
Low
6.8%
 
4.7
 
8.5%
 
7.9%
High
18.3%
 
7.2
 
13.9%
 
33.1%
Weighted-average
12.9%
 
5.9
 
10.4%
 
20.4%
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
Low
6.0%
 
5.0
 
8.5%
 
8.5%
High
16.7%
 
8.1
 
13.9%
 
30.5%
Weighted-average
11.0%
 
6.5
 
10.4%
 
18.6%


17


The following table shows the hypothetical effect on Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated.
 
Successor
 
Discount Rate
 
Prepayment Speeds
Excess Spread Financing - Hypothetical Sensitivities
100 bps
Adverse
Change
 
200 bps
Adverse
Change
 
10%
Adverse
Change
 
20%
Adverse
Change
March 31, 2019
 
 
 
 
 
 
 
Excess spread financing
$
50

 
$
104

 
$
50

 
$
106

 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
Excess spread financing
$
47

 
$
99

 
$
38

 
$
81


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

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

Mortgage Servicing Rights Financing - Fair Value
From December 2013 through June 2014, the Company entered into agreements to sell a contractually specified base servicing fee component of certain MSRs and servicing advances under specified terms to a joint venture capitalized by New Residential and certain unaffiliated third-party investors. The Company continues to be the named servicer, and, for accounting purposes, ownership of the mortgage servicing rights continues to reside with the Company. Accordingly, the Company records the MSRs and an MSR financing liability associated with this transaction in its consolidated balance sheets.

The following table sets forth the weighted average assumptions used in the valuation of the mortgage servicing rights financing liability.
 
Successor
Mortgage Servicing Rights Financing Assumptions
March 31, 2019
 
December 31, 2018
Advance financing rates
3.9
%
 
4.2
%
Annual advance recovery rates
19.3
%
 
19.0
%


18


The following table sets forth the items comprising revenues associated with servicing loan portfolios.
 
Successor
 
 
Predecessor
Servicing Revenue
Three Months Ended March 31, 2019
 
 
Three Months Ended March 31, 2018
Contractually specified servicing fees(1)
$
281

 
 
$
250

Other service-related income(1)(2)
50

 
 
28

Incentive and modification income(1)
7

 
 
15

Late fees(1)
25

 
 
24

Reverse servicing fees
9

 
 
19

Mark-to-market adjustments(3)
(293
)
 
 
152

Counterparty revenue share(4)
(48
)
 
 
(45
)
Amortization, net of accretion(5)
(23
)
 
 
(48
)
Total servicing revenue
$
8

 
 
$
395


(1) 
Amounts include subservicing related revenues.
(2) 
Amount for the three months ended March 31, 2019 included a gain of $21 from the execution of a clean-up call option on a reverse mortgage loan trust, as the Company was the master servicer and holder of clean-up call rights.
(3) 
Mark-to-market (“MTM”) adjustments include fair value adjustments on MSR, excess spread financing and MSR financing liabilities. The amount of MSR MTM includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables. The negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the MSR portfolio. The impact of negative modeled cash flows was $11 for the three months ended March 31, 2019. The impact of negative modeled cash flows for the Predecessor was $12 for three months ended March 31, 2018.
(4) 
Counterparty revenue share represents the excess servicing fee that the Company pays to the counterparties under the excess spread financing arrangements and the payments made associated with MSRs financing arrangements.
(5) 
Amortization is net of excess spread accretion of $36 and MSL accretion of $18 for the three months ended March 31, 2019. Amortization for the Predecessor is net of excess spread accretion of $30 for the three months ended March 31, 2018. The Predecessor recorded MSL accretion within reverse servicing fees, whereas the Successor has elected to record MSL accretion within Amortization, net of accretion.


4. Advances and Other Receivables, Net

Advances and other receivables, net consists of the following.
 
Successor
 
March 31, 2019
 
December 31, 2018
Servicing advances, net of $169 and $205 discount, respectively
$
947

 
$
952

Receivables from agencies, investors and prior servicers, net of $48 and $48 discount, respectively
271

 
289

Reserves
(71
)
 
(47
)
Total advances and other receivables, net
$
1,147

 
$
1,194


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

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

19



The following table sets forth the activities of the reserves for advances and other receivables.
 
Successor
 
 
Predecessor
Reserves for Advances and Other Receivables
Three Months Ended March 31, 2019
 
 
Three Months Ended March 31, 2018
Balance - beginning of period
$
47

 
 
$
284

Provision and other additions(1)
30

 
 
22

Write-offs
(6
)
 
 
(29
)
Balance - end of period
$
71

 
 
$
277


(1) 
The Company and the Predecessor recorded a provision of $11 and $12 through the MTM adjustments in service related revenues for the three months ended March 31, 2019 and 2018, respectively, for inactive and liquidated loans that are no longer part of the MSR portfolio. Other additions represent reclassifications of required reserves provisioned within other balance sheet accounts as associated serviced loans become inactive or liquidate.
 
Purchase Discount for Advances and Other Receivables
In connection with the acquisition of Pacific Union in February 2019, the Company recorded the acquired advances and other receivables at estimated fair value as of the acquisition date, which resulted in a preliminary purchase discount of $19. Refer to Note 2, Acquisitions for discussion of the Pacific Union acquisition. In 2018, the Company recorded the acquired advances and other receivables in connection with the Merger at estimated fair value as of the acquisition date, which resulted in a preliminary purchase discount of $302.

As of March 31, 2019, a total of $104 purchase discount has been utilized with $217 purchase discount remaining.

The following table sets forth the activities of the purchase discounts for advances and other receivables.
 
Successor
 
Three Months Ended March 31, 2019
Purchase Discounts
Servicing Advances
 
Receivables from Agencies, Investors and Prior Servicers
Balance - beginning of period
$
205

 
$
48

Addition from acquisition
19

 

Utilization of purchase discounts
(55
)
 

Balance - end of period
$
169

 
$
48



5. Reverse Mortgage Interests, Net

Reverse mortgage interests, net consists of the following:
 
Successor
Reverse Mortgage Interests, Net
March 31, 2019
 
December 31, 2018
Participating interests in HECM mortgage-backed securities (“HMBS”), net of $36 and $58 premium, respectively
$
5,293

 
$
5,664

Other interests securitized, net of $112 and $100 discount, respectively
950

 
1,064

Unsecuritized interests, net of $95 and $122 discount, respectively
1,254

 
1,219

Reserves
(8
)
 
(13
)
Total reverse mortgage interests, net
$
7,489

 
$
7,934


Participating Interests in HMBS
Participating interests in HMBS consist of the Company’s reverse mortgage interests in HECM loans which have been transferred to GNMA and subsequently securitized through the issuance of HMBS. During the three months ended March 31, 2019 and 2018, a total of $82 and $85 in UPB was transferred to GNMA and securitized by the Company and Predecessor, respectively.


20


In March 2019, the Company entered into an agreement with Fannie Mae for the transfer of reverse mortgage loans. As a result, $61 was transferred from Fannie Mae and securitized into GNMA HMBS during the three months ended March 31, 2019.

Other Interests Securitized
Other interests securitized consist of reverse mortgage interests that no longer meet HMBS program eligibility criteria and have been repurchased out of HMBS. These reverse mortgage interests have subsequently been transferred to private securitization trusts and are accounted for as a secured borrowing. No such securitizations occurred during the three months ended March 31, 2019. The Company sold $20 UPB of Trust 2018-3 during the three months ended March 31, 2019. During the three months ended March 31, 2018, the Predecessor securitized a total of $443 UPB through Trust 2018-1 and Trust 2018-2 and a total of $284 UPB from Trust 2016-2 and Trust 2016-3 were called and the related debt was extinguished. Refer to Other Nonrecourse Debt in Note 10, Indebtedness, for additional information.

Unsecuritized Interests
Unsecuritized interests in reverse mortgages consists of the following:
 
Successor
 
March 31, 2019
 
December 31, 2018
Repurchased HECM loans (exceeds 98% MCA)
$
941

 
$
949

HECM related receivables
270

 
300

Funded borrower draws not yet securitized
114

 
76

REO-related receivables
24

 
16

Purchase discount
(95
)
 
(122
)
Total unsecuritized interests
$
1,254

 
$
1,219


Unsecuritized interests include repurchased HECM loans for which the Company is required to repurchase from the HMBS pool when the outstanding principal balance of the HECM loan is equal to or greater than 98% of the maximum claim amount (“MCA”) established at origination in accordance with HMBS program guidelines. The Company and the Predecessor repurchased a total of $740 and $1,051 of HECM loans out of GNMA HMBS securitizations during the three months ended March 31, 2019 and 2018, respectively, of which $188 and $229 were subsequently assigned to a third party in accordance with applicable servicing agreements, respectively. To the extent a loan is not subject to applicable servicing agreements and assigned to a third party, the loan is either subject to assignment to U.S. Department of Housing and Urban Development (“HUD”), per contractual obligations with GNMA, liquidated via a payoff from the borrower or liquidated via a foreclosure according to the terms of the underlying mortgage.

The Company and the Predecessor also estimate and record an asset for probable recoveries from prior servicers for their respective portion of the losses associated with the underlying loans that were not serviced in accordance with established guidelines. Receivables from prior servicers totaled $16 and $18 for the Company’s reverse loan portfolio at March 31, 2019 and December 31, 2018, respectively.

Reserves for Reverse Mortgage Interests
The Company records reserves related to reverse mortgage interests based on potential unrecoverable costs and loss exposures expected to be realized. Recoverability is determined based on the Company’s ability to meet HUD servicing guidelines and is viewed as two different categories of expenses: financial and operational. Financial exposures are defined as the cost of doing business related to servicing the HECM product and include potential unrecoverable costs primarily based on HUD claim guidelines related to recoverable expenses and unfavorable changes in the appraised value of the loan collateral. Operational exposures are defined as unrecoverable debenture interest curtailments imposed for missed HUD-specified servicing timelines. Reserves for reverse mortgage interests are related to both financial and operational exposures.


21


The activity of the reserves for reverse mortgage interests is set forth below.
 
Successor
 
 
Predecessor
Reserves for reverse mortgage interests
Three Months Ended March 31, 2019
 
 
Three Months Ended March 31, 2018
Balance - beginning of period
$
13

 
 
$
115

Provision

 
 
26

Write-offs
(5
)
 
 
(7
)
Balance - end of period
$
8

 
 
$
134


Purchase Discount for Reverse Mortgage Interests
In connection with the Merger, the Company recorded the acquired reverse mortgage interests at estimated fair value as of the acquisition date, which resulted in a purchase premium of $42 for participating interests in HMBS, and a purchase discount of $298 for other interest securitized and unsecuritized interests as this population of reverse mortgage interests represents a portion of the portfolio that has more risk of loss attributable to financial and operational exposures related to being serviced through foreclosure and collateral liquidation.

The following table sets forth the activities of the purchase premiums and discounts for reverse mortgage interests.
 
Successor
 
 Three Months Ended March 31, 2019
Purchase premiums and discounts for reverse mortgage interests
Net Premium for Participating Interests in HMBS(1)
 
Net Discount for Other Interest Securitized(1)
 
Net Discount for Unsecuritized Interests(1)
Balance - beginning of period
$
58

 
$
(100
)
 
$
(122
)
Adjustments(2)
(16
)
 
(2
)
 
(6
)
Utilization of purchase discounts

 
6

 
22

(Amortization)/Accretion
(14
)
 
(15
)
 
18

Transfers(3)
8

 
(1
)
 
(7
)
Balance - end of period
$
36

 
$
(112
)
 
$
(95
)

(1) 
Net position as certain items are in a premium/(discount) position, based on the characteristics of underlying tranches of loans.
(2) 
Adjustments to premium/(discount) due to revised cost to service assumption utilized in the valuation of reverse mortgage assets and liabilities acquired from the Merger. See Note 2, Acquisitions for additional information.
(3) 
Transfer of premium/(discount) based on the transfer of associated loans between categories based upon the underlying loan characteristics.

In connection with previous reverse mortgage portfolio acquisitions, the Predecessor recorded a purchase discount within unsecuritized interests. The following table sets forth the activities of the purchase discounts for reverse mortgage interests.
 
Predecessor
Purchase discounts for reverse mortgage interests
 Three Months Ended March 31, 2018
Balance - beginning of period
$
(89
)
Additions
(7
)
Accretion
6

Balance - end of period
$
(90
)

Reverse Mortgage Interest Income
The Company accrues interest income for its participating interest in reverse mortgages based on the stated rates underlying HECM loans and FHA guidelines. Total interest earned on the Company’s and the Predecessor’s reverse mortgage interests was $82 and $119 for the three months ended March 31, 2019 and 2018, respectively.



22


6. Mortgage Loans Held for Sale and Investment

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

Mortgage loans held for sale are recorded at fair value as set forth below.
 
Successor
 
March 31, 2019
 
December 31, 2018
Mortgage loans held for sale – UPB
$
2,077

 
$
1,568

Mark-to-market adjustment(1)
93

 
63

Total mortgage loans held for sale
$
2,170

 
$
1,631


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

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

The total UPB of mortgage loans held for sale on non-accrual status was as follows:
 
Successor
 
March 31, 2019
 
December 31, 2018
Mortgage Loans Held for Sale - UPB
UPB
 
Fair Value
 
UPB
 
Fair Value
Non-accrual(1)
$
26

 
$
23

 
$
45

 
$
42


(1) 
Non-accrual includes $22 and $40 of UPB related to Ginnie Mae repurchased loans as of March 31, 2019 and December 31, 2018, respectively.

From time to time, the Company exercises its right to repurchase individual delinquent loans in Ginnie Mae securitization pools to minimize interest spread losses, to re-pool into new Ginnie Mae securitizations or to otherwise sell to third-party investors. During the three months ended March 31, 2019, the Company repurchased $67 of delinquent Ginnie Mae loans and securitized or sold to third-party investors $39 of previously repurchased loans. During the three months ended March 31, 2018, the Predecessor repurchased $68 of delinquent Ginnie Mae loans and securitized or sold to third-party investors $88 of previously repurchased loans.
 
As of March 31, 2019 and 2018, $43 and $39 of the repurchased loans have re-performed and were held in accrual status, respectively, and remaining balances continue to be held under a nonaccrual status.

The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was $20 and $33 as of March 31, 2019 and December 31, 2018, respectively.


23


The following table details a roll forward of the change in the account balance of mortgage loans held for sale.
 
Successor
 
 
Predecessor
Mortgage loans held for sale
Three Months Ended March 31, 2019
 
 
Three Months Ended March 31, 2018
Balance - beginning of period
$
1,631

 
 
$
1,891

Mortgage loans originated and purchased, net of fees(1)
6,252

 
 
5,088

Loans sold
(6,088
)
 
 
(5,649
)
Repurchase of loans out of Ginnie Mae securitizations
364

 
 
251

Transfer of mortgage loans held for sale to advances/accounts receivable, net related to claims(2)
(3
)
 
 
(3
)
Net transfer of mortgage loans held for sale from REO in other assets(3)
3

 
 
8

Changes in fair value
10

 
 
(5
)
Other purchase-related activities(4)
1

 
 
8

Balance - end of period
$
2,170

 
 
$
1,589


(1) 
Mortgage loans originated and purchased during the three months ended March 31, 2019 includes $536 of loans held for sale that were acquired from Pacific Union. See Note 2, Acquisitions for further discussion.
(2) 
Amounts are comprised of claims made on certain government insured mortgage loans upon completion of the REO sale.
(3) 
Net amounts are comprised of REO in the sales process, which are transferred to other assets, and certain government insured mortgage REO, which are transferred from other assets upon completion of the sale so that the claims process can begin.
(4) 
Amounts are comprised primarily of non-Ginnie Mae loan purchases and buyouts.

For the three months ended March 31, 2019 and 2018, the Company received proceeds of $6,194 and $5,709, respectively, on the sale of mortgage loans held for sale, resulting in gains of $106 and $60, respectively.

The Company has the right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. The majority of Ginnie Mae repurchased loans are repurchased solely 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. The amounts repurchased out of Ginnie Mae pools, as presented above, are primarily in connection with loan modifications and loan resolution activity as part of the Company’s contractual obligations as the servicer of the loans.

Mortgage Loans Held for Investment
The following sets forth the composition of mortgage loans held for investment, net.
 
Successor
 
March 31, 2019
 
December 31, 2018
Mortgage loans held for investment, net – UPB
$
153

 
$
156

Fair value adjustments
(35
)
 
(37
)
Total mortgage loans held for investment at fair value
$
118

 
$
119




24


The total UPB of mortgage loans held for investment on non-accrual status was as follows for the dates indicated.
 
Successor
 
March 31, 2019
 
December 31, 2018
Mortgage Loans Held for Investment - UPB
UPB
 
Fair Value
 
UPB
 
Fair Value
Non-accrual
$
25

 
$
11

 
$
27

 
$
13


The following table details a roll forward of the change in the account balance of mortgage loans held for investment.
 
Successor
Mortgage loans held for investment at fair value
March 31, 2019
Balance - beginning of period
$
119

Payments received from borrowers
(2
)
Changes in fair value
1

Balance - end of period
$
118


The total UPB of mortgage loans held for investment for which the Company has begun formal foreclosure proceedings was $13 and $15 as of March 31, 2019 and December 31, 2018, respectively.


7. Leases

Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in other assets and payables and other liabilities, respectively, on its consolidated balance sheets as of March 31, 2019. The Company does not currently have any significant finance leases in which it is the lessee. Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. ROU assets are further adjusted for lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in general and administrative expenses in the consolidated statements of operations. The Company’s leases relate primarily to office space and equipment, with remaining lease terms of generally 1 to 9 years. Certain lease arrangements contain extension options, which typically range from 3 to 5 years, at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. As of March 31, 2019, operating lease ROU assets and liabilities were $133 and $142, respectively.

The table below summarizes the Company’s net lease cost:
 
Successor
 
Three Months Ended March 31, 2019
Operating lease cost
$
8

Short-term lease cost
1

Sublease income(1)

Net lease cost
$
9


(1) 
Amount is less than $1.

25



The table below summarizes other information related to Company’s operating leases:
 
Successor
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
6

Leased assets obtained in exchange for new operating lease liabilities
$
127

Weighted-average remaining lease term - operating leases, in years
5.5

Weighted-average discount rate - operating leases
5.0
%

Maturities of operating lease liabilities as of March 31, 2019 are as follows:
Year Ending December 31,
 
Operating Leases
2019(1)
 
$
35

2020
 
31

2021
 
25

2022
 
16

2023
 
12

2024 and thereafter
 
31

Total minimum lease payments
 
150

Less: imputed interest
 
8

Total lease liabilities
 
$
142


(1) 
Excluding the three months ended March 31, 2019.

Finance lease liability was $3 as of March 31, 2019, majority of which matures within a year.


8. Other Assets

Other assets consist of the following:
 
Successor
 
March 31, 2019
 
December 31, 2018
Loans subject to repurchase from Ginnie Mae
$
774

 
$
266

Accrued revenues
155

 
145

Right-of-use assets
133

 

Intangible assets
116

 
117

Goodwill
109

 
23

Other
291

 
244

Total other assets
$
1,578

 
$
795


Loans Subject to Repurchase Right from Ginnie Mae
Forward loans are sold to Ginnie Mae in conjunction with the issuance of mortgage backed securities. The Company, as the issuer of the mortgage backed securities, has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. Once the Company has the unilateral right to repurchase a delinquent loan, it has effectively regained control over the loan and recognizes these rights to the loan on its consolidated balance sheets and establishes a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The amount as of March 31, 2019 includes $510 from Pacific Union.


26


Accrued Revenues
Accrued revenues are primarily comprised of service fees earned but not received based upon the terms of the Company’s servicing and subservicing agreements.

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

Goodwill and Intangible Assets
The following presents changes in the carrying amount of goodwill for the three months ended March 31, 2019.
 
 
Successor
 
 
Three Months Ended March 31, 2019
Balance - beginning of period
 
$
23

Additions from acquisitions(1)
 
31

Measurement period adjustment related to Merger(2)
 
55

Balance - end of period
 
$
109


(1) 
As discussed in Note 2, Acquisitions, the Company recorded goodwill of $29 in connection with the acquisition of Pacific Union. In addition, on February 28, 2019, the Company completed the acquisition of the Seterus mortgage servicing platform and assumed certain assets related thereto from IBM. In connection with this acquisition, the Company recorded $2 in goodwill.
(2) 
The Company recorded a total measurement period adjustment of $55 to goodwill in 2019 related to the acquisition of Nationstar. See further discussion in Note 2, Acquisitions

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

In 2019, the Company recorded intangible assets of $11 in connection with the acquisitions of Pacific Union. In 2018, the Company recorded intangible assets of $103 and $24 in connection with the acquisitions of Nationstar and Assurant Mortgage Solutions, respectively. See further discussion in Note 2, Acquisitions.

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

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


9. Derivative Financial Instrument

Derivative instruments utilized by the Company primarily include interest rate lock commitments (“IRLCs”), loan purchase commitments (“LPCs”), forward Mortgage Backed Securities (“MBS”) purchase commitments, Eurodollar and Treasury futures and interest rate swap agreements.

Associated with the Company’s derivatives are $15 and $12 in collateral deposits on derivative instruments recorded in other assets on the Company’s consolidated balance sheets as of March 31, 2019 and December 31, 2018, respectively. The Company does not offset fair value amounts recognized for derivative instruments with amounts collected or deposited on derivative instruments in the consolidated balance sheets.


27


The following table provides the outstanding notional balances, fair values of outstanding positions and recorded gains/(losses).
 
 
 
Successor
 
 
 
March 31, 2019
 
Three Months Ended March 31, 2019
 
Expiration
Dates
 
Outstanding
Notional
 
Fair
Value
 
Recorded Gains/(Losses)
Assets
 
 
 
 
 
 
 
Mortgage loans held for sale
 
 
 
 
 
 
 
Loan sale commitments
2019
 
$
365

 
$
17.2

 
$
(8.7
)
Derivative financial instruments
 
 
 
 
 
 
 
IRLCs
2019
 
2,557

 
68.9

 
9.1

Forward sales of MBS
2019
 
410

 
1.3

 
(0.5
)
LPCs
2019
 
216

 
2.0

 
0.3

Eurodollar futures(1)
2019-2021
 
7

 

 

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments
 
 
 
 
 
 
 
IRLCs(1)
2019
 

 

 

Forward sales of MBS
2019
 
3,804

 
21.3

 
(2.6
)
LPCs
2019
 
52

 
0.2

 
(0.2
)
Eurodollar futures(1)
2019-2021
 
13

 

 


 
 
 
Predecessor
 
 
 
March 31, 2018
 
Three Months Ended March 31, 2018
 
Expiration
Dates
 
Outstanding
Notional
 
Fair
Value
 
Recorded Gains/(Losses)
Assets
 
 
 
 
 
 
 
Mortgage loans held for sale
 
 
 
 
 
 
 
Loan sale commitments
2018
 
$
427

 
$
8.9

 
$
8.8

Derivative financial instruments
 
 
 
 
 
 
 
IRLCs
2018
 
1,968

 
57.4

 
(1.9
)
Forward sales of MBS
2018
 
1,130

 
5.7

 
3.3

LPCs
2018
 
223

 
1.0

 
0.1

Treasury futures
2018
 
331

 
1.3

 
(0.6
)
Eurodollar futures(1)
2018-2021
 
30

 

 

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments
 
 
 
 
 
 
 
IRLCs(1)
2018
 
8

 

 

Forward sales of MBS
2018
 
2,384

 
7.3

 
4.5

LPCs
2018
 
116

 
0.5

 
(0.1
)
Treasury futures
2018
 
223

 
1.2

 
(0.2
)
Eurodollar futures(1)
2020-2021
 
6

 

 


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



28


10. Indebtedness

Notes Payable
 
 
 
 
 
 
 
 
 
 
Successor
 
 
 
 
 
 
 
 
 
 
March 31, 2019
 
December 31, 2018
Advance Facilities
 
Interest Rate
 
Maturity Date
 
Collateral
 
Capacity Amount
 
Outstanding
 
Collateral Pledged
 
Outstanding
 
Collateral pledged
Nationstar agency advance receivables trust
 
LIBOR+1.5% to 2.6%
 
December 2020
 
Servicing advance receivables
 
$
350

 
$
225

 
$
262

 
$
218

 
$
255

Nationstar mortgage advance receivable trust
 
LIBOR+1.5% to 6.5%
 
August 2021
 
Servicing advance receivables
 
325

 
195

 
265

 
209

 
284

MBS servicer advance facility (2014)
 
LIBOR+2.5%
 
December 2019
 
Servicing advance receivables
 
135

 
89

 
160

 
90

 
149

Nationstar agency advance financing facility
 
LIBOR+1.5% to 7.4%
 
July 2020
 
Servicing advance receivables
 
125

 
69

 
78

 
78

 
89

Advance facilities principal amount
 
 
 
 
 
578

 
$
765

 
595

 
$
777

Unamortized debt issuance costs
 
 
 
 
 

 
 
 

 
 
Advance facilities, net
 
 
 
$
578



 
$
595

 



29


 
 
 
 
 
 
 
 
 
 
Successor
 
 
 
 
 
 
 
 
 
 
March 31, 2019
 
December 31, 2018
Warehouse Facilities
 
Interest Rate
 
Maturity Date
 
Collateral
 
Capacity Amount
 
Outstanding
 
Collateral pledged
 
Outstanding
 
Collateral pledged
$1,000 warehouse facility
 
LIBOR+1.6% to 2.5%
 
September 2019
 
Mortgage loans or MBS
 
$
1,000

 
$
210

 
$
215

 
$
137

 
$
140

$950 warehouse facility
 
LIBOR+1.7% to 3.5%
 
November 2019
 
Mortgage loans or MBS
 
950