Newswires
MR. COOPER GROUP INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's discussion and analysis of financial condition and results of
operations ("MD&A") should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements and in conjunction with
our Annual Report on Form 10-K for the year ended December 31, 2022 . The
following discussion contains, in addition to the historical information,
forward-looking statements that include risks, assumptions and uncertainties
that could cause actual results to differ materially from those anticipated by
such statements.
Dollar amounts are reported in millions, except per share data and other key
metrics, unless otherwise noted.
We have provided a glossary of terms, which defines certain industry-specific
and other terms that are used herein, at the end of the MD&A section.
Overview
We are a leading servicer of residential mortgage loans. Our purpose is to keep
the dream of homeownership alive, and we do this as a servicer by helping
mortgage borrowers manage what is typically their largest financial asset, and
by helping our investors maximize the returns from their portfolios of
residential mortgages. We have a track record of significant growth, having
expanded our servicing portfolio from $10 billion in 2009 to $853 billion as of
March 31, 2023 . We believe this track record reflects our strong operating
capabilities, which include a low-cost servicing platform, strong loss
mitigation skills, a commitment to compliance, a customer-centric culture, a
demonstrated ability to retain customers, growing origination capabilities, and
significant investment in technology.
Our strategy is to position the Company for sustainable long-term growth, drive
improved efficiency and profitability, and generate a return on tangible equity
of 12% or higher. Key strategic priorities include the following:
•Strengthen our balance sheet by building capital and liquidity, and managing
interest rate and other forms of risk;
•Improve efficiency by driving continuous improvement in unit costs for our
Servicing and Originations segments, as well as by taking corporate actions to
eliminate costs throughout the organization;
•Grow our servicing portfolio to $1 trillion in UPB by acquiring new customers
and retaining existing customers;
•Achieve and sustain a refinance recapture rate of 60%;
•Delight our customers and keep Mr. Cooper a great place for our team members to
work;
•Reinvent the customer experience by acting as the customer's advocate and by
harnessing technology to deliver digital solutions that are personalized and
friction-less;
•Sustain the talent of our people and the culture of our organization; and
•Maintain strong relationships with agencies, investors, regulators, and other
counterparties and a strong reputation for compliance and customer service.
Anticipated Trends
In the first quarter of 2023, our servicing portfolio was down slightly from the fourth quarter of 2022 due to timing, but we expect continued portfolio growth in 2023, as we have successfully bid on$57 billion UPB in MSR acquisitions during the quarter with expected boarding during the second and third quarters of 2023. Additionally, in connection with a pending acquisition inApril 2023 , we agreed to take on a special servicing platform, which includes approximately$37 billion UPB in subservicing contracts. Overall, we expect to generate strong earnings with servicing portfolio growth being the primary driver during 2023. InApril 2023 , the Company increased capacity on our MSR facilities by$1,150 . See further discussion in Liquidity and Capital Resources section. In the first quarter of 2023, our Originations segment generated pretax income of$23 on funded volume of$2,739 . For 2023, we expect Originations to operate at consistent profitable levels considering the high levels of interest rates volatility. 26 -------------------------------------------------------------------------------- Table of Contents While the recent inflation rate increase appears to have subsided, the inflation rate remains relatively high. Inflationary pressures may limit a borrower's disposable income, which can decrease a borrowers' ability to enter into mortgage transactions. Inflationary pressures, along with supply chain disruptions, may also increase our operating costs. However, historically changes in interest rates have a greater impact on our financial results than changes in inflation. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or extent as the inflation rate. Results of Operations Table 1. Consolidated Operations Three Months Ended March 31, 2023 2022 Change
Revenues - operational(1) $ 391$ 499 $ (108) Revenues - mark-to-market (61) 553 (614) Total revenues 330 1,052 (722) Total expenses 261 338 (77) Total other (expenses) income, net (34) 152 (186) Income before income tax (benefit) expense 35 866 (831) Less: Income tax (benefit) expense (2) 208 (210) Net income $ 37$ 658 $ (621)
(1)Revenues - operational consists of total revenues, excluding mark-to-market.
Income before income tax (benefit) expense decreased during the three months endedMarch 31, 2023 as compared to 2022 primarily due to a decrease in total revenues, partially offset by lower total expenses. The decrease in total revenues was primarily attributable to a decline in revenues from our Servicing segment due to the change in MSR MTM and excess spread and financing MTM due to an increase in prepayment speeds during the three months endedMarch 31, 2023 driven by a decrease in mortgage rates compared to decrease in prepayment speeds in 2022 for the comparative period driven by an increase in mortgage rates. The decrease in total expenses was primarily driven by lower salaries, wages and benefits in our Originations segment due to lower headcount in both the direct-to-consumer and correspondent channels as a result of reducing headcount commensurate with lower origination volumes. The change in total other (expenses) income, net during the three months endedMarch 31, 2023 as compared to 2022 was primarily due to a$223 gain recorded in 2022 upon completion of the Sagent Transaction. See further discussions in Note 2, Dispositions, in the Notes to the Condensed Consolidated Financial Statements and in the Segment Results section of the MD&A. The effective tax rate during the three months endedMarch 31, 2023 was (5.6)% as compared to 24.0% in 2022. The change in effective tax rate is primarily attributable to the impact of quarterly discrete tax items relative to income before taxes for the respective period, including the excess tax benefit from stock-based compensation. Segment Results
Our operations are conducted through two segments: Servicing and Originations.
•The Servicing segment performs operational activities on behalf of investors or owners of the underlying mortgages and mortgage servicing rights, including collecting and disbursing borrower payments, investor reporting, customer service, modifying loans where appropriate to help borrowers stay current, and when necessary performing collections, foreclosures, and the sale of REO. •The Originations segment originates residential mortgage loans through our direct-to-consumer channel, which provides refinance options for our existing customers, and through our correspondent channel, which purchases or originates loans from mortgage bankers.
Refer to Note 16, Segment Information, in the Notes to the Condensed
Consolidated Financial Statements for a summary of segment results.
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Table of Contents Servicing Segment The Servicing segment's strategy is to generate income by growing the portfolio and maximizing the servicing margin. We believe several competitive strengths have been critical to our long-term growth as a servicer and subservicer, including our low-cost platform that creates operating leverage, our skill in mitigating losses for investors and clients, our commitment to strong customer service, industry leading compliance management, our history of successfully boarding new loans, and the ability to retain existing customers by offering attractive refinance options. We believe that our operational capabilities are reflected in our strong servicer ratings and recent agency recognition.
Table 2. Servicer Ratings
Fitch(1) Moody's(2) S&P(3)
Rating date August 2022 April 2022 June 2022
Residential RPS2 SQ2- Above Average
Master Servicer RMS2+ SQ2+ Above Average
Special Servicer RSS2 SQ2- Above Average
Subprime Servicer RPS2 SQ2- Above Average
(1)Fitch Rating Scale of 1 (Highest Performance) to 5 (Low/No Proficiency)
(2)Moody's Rating Scale of SQ1 (Strong Ability/Stability) to SQ5 (Weak
Ability/Stability)
(3)S&P Rating Scale of Strong to Weak
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The following tables set forth the results of operations for the Servicing
segment:
Table 3. Servicing Segment Results of Operations
Three Months Ended March 31,
2023 2022 Change
Amt bps(1) Amt bps(1) Amt bps
Revenues
Operational $ 407 19 $ 365 19 $ 42 -
Amortization, net of accretion (115) (5) (202) (11) 87 6
Mark-to-market adjustments -
Servicing (61) (3) 553 30 (614) (33)
Total revenues 231 11 716 38 (485) (27)
Expenses
Salaries, wages and benefits 82 4 75 4 7 -
General and administrative
Servicing support fees 16 1 11 1 5 -
Corporate and other general and
administrative expenses 42 2 25 1 17 1
Foreclosure and other
liquidation related expenses,
net 11 - 6 - 5 -
Depreciation and amortization 2 - 5 - (3) -
Total general and administrative
expenses 71 3 47 2 24 1
Total expenses 153 7 122 6 31 1
Other income (expense)
Interest income 79 4 19 1 60 3
Advance interest expense (14) (1) (6) - (8) (1)
Other interest expense (49) (2) (48) (3) (1) 1
Interest expense (63) (3) (54) (3) (9) -
Total other income (expense),
net 16 1 (35) (2) 51 3
Income before income tax expense $ 94 5 $ 559 30 $ (465) (25)
Weighted average cost - advance
and MSR facilities 7.4 % 2.9 % 4.5 %
Weighted average cost - excess
spread financing 8.7 % 9.0 % (0.3) %
(1)Calculated basis points ("bps") are as follows: Annualized dollar
amount/Total average UPB X 10000.
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Table 4. Servicing - Revenues
Three Months Ended March 31,
2023 2022 Change
Amt bps(1) Amt bps(1) Amt bps
MSR Operational Revenue
Base servicing fees $ 327 15 $ 272 15 $ 55 -
Modification fees(2) 3 - 5 - (2) -
Late payment fees(2) 16 1 15 1 1 -
Other ancillary revenues(2) 10 - 42 2 (32) (2)
Total MSR operational revenue 356 16 334 18 22 (2)
Subservicing-related revenue(2) 69 3 69 3 - -
Total servicing fee revenue 425 19 403 21 22 (2)
MSR financing liability costs (8) - (5) - (3) -
Excess spread payments and portfolio
runoff (10) - (33) (2) 23 2
Total operational revenue 407 19 365 19 42 -
Amortization, Net of Accretion
MSR amortization (125) (5) (235) (13) 110 8
Excess spread accretion 10 - 33 2 (23) (2)
Total amortization, net of accretion (115) (5) (202) (11) 87 6
Mark-to-Market Adjustments -
Servicing
MSR MTM (105) (5) 798 43 (903) (48)
MTM adjustments(3)(4) 50 2 (146) (8) 196 10
Excess spread / financing MTM (6) - (99) (5) 93 5
Total MTM adjustments - Servicing (61) (3) 553 30 (614) (33)
Total revenues - Servicing $ 231 11 $ 716 38 $ (485) (27)
(1)Calculated basis points ("bps") are as follows: Annualized dollar
amount/Total average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations
are separately presented as subservicing-related revenue.
(3)MTM adjustments 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. The
impact of negative modeled cash flows was $9 and $6 during the three months
ended March 31, 2023 and 2022, respectively.
(4)MTM adjustments also include a gain of $59 and loss of $140 from MSR hedging
activities during the three months ended March 31, 2023 and 2022, respectively.
Servicing Segment Revenues
The following provides the changes in revenues for the Servicing segment:
Servicing - Operational revenue increased during the three months ended March
31, 2023 as compared to 2022 primarily due to an increase in base servicing fees
as a result of a larger servicing UPB portfolio in 2023, partially offset by a
decrease in other ancillary revenue as a result of greater early payoff and
default fees from acquisitions in 2022, and higher early-buyout and re-delivery
volume in 2022.
MSR amortization decreased during the three months ended March 31, 2023 as
compared to 2022, primarily due to lower prepayments driven by higher mortgage
rates in 2023, partially offset by a higher average MSR UPB and higher average
MSR fair value.
The change in MSR MTM during the three months ended March 31, 2023 compared to
2022, was primarily driven by decrease in mortgage rates in 2023 compared to an
increase in mortgage rates in 2022 for the same period, which increased
prepayment speeds and resulted in a decrease in fair value of the MSR.
Subservicing - There were no material changes for Subservicing fees during the
three months ended
30 -------------------------------------------------------------------------------- Table of Contents Servicing Segment Expenses Total expenses increased during the three months endedMarch 31, 2023 as compared to 2022, primarily driven by an increase in corporate and other general and administrative expenses and salaries, wages and benefits. Corporate and other general and administrative expenses increased as compared to the same period in 2022 as a result of increased general and administrative expenses primarily due to growth in our servicing portfolio and an increase in allocated cost in 2023 primarily due to a higher percentage of total headcount in Servicing following the workforce reduction in the Originations segment in 2022. The increase in salaries, wages and benefits was primarily driven by higher headcount due to growth of our servicing portfolio. Servicing Segment Other Income (Expenses), net Total other income (expenses), net changed during the three months endedMarch 31, 2023 as compared to 2022, primarily due to higher interest income earned on custodial balances attributable to higher interest rates, partially offset by higher interest expense from MSR and advance financing.
Table 5. Servicing Portfolio - Unpaid Principal Balances
Three Months Ended March 31,
2023 2022
Average UPB
MSRs $ 412,777 $ 356,092
Subservicing and other(1) 447,841 393,120
Total average UPB $ 860,618 $ 749,212
March 31, 2023 March 31, 2022
Carrying
UPB Amount bps UPB Carrying Amount bps
MSRs
Agency $ 382,368 $ 6,258 164 $ 377,225 $ 5,635 149
Non-agency 30,070 308 102 34,615 371 107
Total MSRs 412,438 6,566 159 411,840 6,006 146
Subservicing and other(1)
Agency 419,399 N/A 372,080 N/A
Non-agency 20,712 N/A 11,879 N/A
Total subservicing and other 440,111 N/A 383,959 N/A
Total ending balance $ 852,549 $ 6,566 $ 795,799 $ 6,006
MSRs UPB Encumbrance March 31, 2023 March 31, 2022
MSRs - unencumbered $ 331,323 $ 291,167
MSRs - encumbered(2) 81,115 120,673
MSRs UPB $ 412,438 $ 411,840
(1)Subservicing and other includes (i) loans we service for others, (ii)
residential mortgage loans originated but have yet to be sold, and (iii) agency
REO balances for which we own the mortgage servicing rights. Our subservicing
and other portfolio UPB increased in 2023 primarily due to acquisitions, where
we assumed subservicing contracts, and portfolio growth from our subservicing
clients.
(2)The encumbered MSRs consist of residential mortgage loans included within our
excess spread financing transactions and MSR financing liability. The decrease
in encumbered MSRs as of March 31, 2023 is primarily due to the fact that in
June 2022 , we entered into an assignment agreement with an investor to
repurchase excess spread liabilities for a total purchase price of $277 .
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The following tables provide a rollforward of our MSR and subservicing and other
portfolio UPB:
Table 6. Servicing and Subservicing and Other Portfolio UPB Rollforward
Three Months Ended March 31, 2023 Three Months Ended March 31, 2022
Subservicing and Subservicing and
MSR Other Total MSR Other Total
Balance - beginning of
period $ 411,382 $ 459,053 $ 870,435 $ 339,208 $ 370,520 $ 709,728
Additions:
Originations 2,731 - 2,731 10,610 - 10,610
Acquisitions / Increase in
subservicing(1) 8,045 21,097 29,142 79,386 36,471 115,857
Deductions:
Dispositions (985) (32,222) (33,207) (19) (4,988) (5,007)
Principal reductions and
other (4,086) (3,846) (7,932) (3,567) (3,368) (6,935)
Voluntary reductions(2) (4,270) (3,802) (8,072) (13,606) (14,656) (28,262)
Involuntary reductions(3) (338) (169) (507) (105) (20) (125)
Net changes in loans
serviced by others (41) - (41) (67) - (67)
Balance - end of period $ 412,438 $ 440,111 $ 852,549 $ 411,840 $ 383,959 $ 795,799
(1)Includes transfers to/from Subservicing and Other.
(2)Voluntary reductions are related to loan payoffs by customers.
(3)Involuntary reductions refer to loan chargeoffs.
The table below summarizes the overall performance of the servicing and
subservicing portfolio:
Table 7. Key Performance Metrics - Servicing and Subservicing Portfolio(1)
March 31, 2023 March 31, 2022
Loan count(2) 4,078,443 3,873,434
Average loan amount(3) $ 209,042 $ 205,452
Average coupon - agency 3.6 % 3.5 %
Average coupon - non-agency 4.7 % 4.3 %
60+ delinquent (% of loans)(4) 2.4 % 2.5 %
90+ delinquent (% of loans)(4) 2.1 % 2.2 %
120+ delinquent (% of loans)(4) 1.9 % 2.0 %
Three Months Ended March 31,
2023 2022
Total prepayment speed (12-month constant prepayment rate) 4.1 % 14.8 %
(1)Characteristics and key performance metrics of our servicing portfolio
exclude UPB, and loan counts acquired but not yet boarded and currently serviced
by others.
(2)As of March 31, 2023 and 2022, loan count includes 32,212 and 46,444 loans in
forbearance related to the CARES Act, respectively.
(3)Average loan amount is presented in whole dollar amounts.
(4)Loan delinquency is based on the current contractual due date of the loan. In
the case of a completed loan modification, delinquency is based on the modified
due date of the loan. Loan delinquency includes loans in forbearance.
Delinquency is an assumption in determining the mark-to-market adjustment and is
a key indicator of MSR portfolio performance. Delinquent loans contribute to
lower MSR values due to higher costs to service and increased carrying costs of
advances.
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Table 8. MSRs Loan Modifications and Workout Units
Three Months Ended March 31,
2023 2022 Change
Modifications(1) 5,264 18,417 (13,153)
Workouts(2) 11,089 14,081 (2,992)
Total modifications and workout units 16,353 32,498 (16,145)
(1)Modifications consist of agency programs, including forbearance options under
the CARES Act, designed to adjust the terms of the loan (e.g., reduced interest
rates).
(2)Workouts consist of other loss mitigation options designed to assist
borrowers and keep them in their homes, but do not adjust the terms of the loan.
Workouts exclude loans which did not miss a contractual payment during
forbearance related to the CARES Act.
Total modifications during the three months ended March 31, 2023 decreased
compared to 2022 primarily due to a decrease in modifications related to loans
impacted by the COVID-19 pandemic. Total workouts during the three months ended
March 31, 2023 decreased compared to 2022 primarily due to a decrease in
customers who were exiting forbearance plans, as there were fewer customers in
forbearance.
Servicing Portfolio and Liabilities
The following table sets forth the activities of MSRs:
Table 9. MSRs - Fair Value Rollforward
Three Months Ended March 31,
2023 2022
Fair value - beginning of period $ 6,654 $ 4,223
Additions:
Servicing retained from mortgage loans sold 54 200
Purchases of servicing rights 102 1,015
Dispositions:
Sales of servicing assets (15) (4)
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the
valuation model (MSR MTM):
Agency (86) 776
Non-agency (19) 22
Changes in valuation due to amortization:
Scheduled principal payments (50) (43)
Prepayments
Voluntary prepayments
Agency (67) (177)
Non-agency (3) (14)
Involuntary prepayments
Agency (5) (1)
Other changes(1) 1 9
Fair value - end of period $ 6,566 $ 6,006
(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.
33 -------------------------------------------------------------------------------- Table of Contents See Note 3, Mortgage Servicing Rights and Related Liabilities and Note 13, Fair Value Measurements, in the Notes to the Condensed Consolidated Financial Statements, for additional information regarding the range of assumptions and sensitivities related to the fair value measurement of MSRs as ofMarch 31, 2023 andDecember 31, 2022 . Excess Spread Financing
As further disclosed in Note 3, Mortgage Servicing Rights and Related
Liabilities, in the Notes to the Condensed Consolidated Financial Statements, we
have entered into sale and assignment agreements treated as financing
arrangements whereby the acquirer has the right to receive a specified
percentage of the excess cash flow generated from an MSR. In
Company entered into an assignment agreement to repurchase excess spread
liabilities for a total purchase price of
The servicing fees associated with an MSR can be segregated into (i) a base servicing fee and (ii) an excess servicing fee. The base servicing fee, along with ancillary income and other revenues, is designed to cover costs incurred to service the specified pool plus a reasonable margin. The remaining servicing fee is considered excess. We sell a percentage of the excess fee as a method for efficiently financing acquired MSRs and the purchase of loans. We do not currently utilize these transactions as a primary source of financing due to the availability of lower cost sources of funding. Excess spread financings are recorded at fair value, and the impact of fair value adjustments on future revenues and capital resources varies primarily due to prepayment speeds and discount rates. See Note 3, Mortgage Servicing Rights and Related Liabilities and Note 13, Fair Value Measurements, in the Notes to the Condensed Consolidated Financial Statements, for additional information regarding the range of assumptions and sensitivities related to the measurement of the excess spread financing liability as ofMarch 31, 2023 andDecember 31, 2022 .
The following table sets forth the change in the excess spread financing:
Table 10. Excess Spread Financing - Rollforward
Three Months Ended March 31,
2023
2022
Fair value - beginning of period $ 509$ 768 Additions: New financings - - Deductions: Repayments (4) - Settlements (18) (32) Changes in fair value: Agency 4 73 Non-agency - 6 Fair value - end of period $ 491$ 815 34
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Table of Contents Originations Segment The strategy of our Originations segment is to originate or acquire new MSRs for our servicing portfolio at a more attractive cost than purchasing MSRs in bulk transactions and to retain our existing customers by providing them with attractive refinance and purchase options. The Originations segment plays a strategically important role because its profitability is typically counter cyclical to that of the Servicing segment. Furthermore, by originating or acquiring MSRs at a more attractive cost than would be the case in bulk MSR acquisitions, the Originations segment improves our overall profitability and cash flow. Our Originations segment is one way that we help underserved consumers access the financial markets. In the three months endedMarch 31, 2023 , our total originations included loans for 2,009 customers with low FICOs (<660), 2,624 customers with income below theU.S. median household income, 2,487 first-time homebuyers, and 881 veterans. During this time period, we originated a total of 2,913Ginnie Mae loans, which are designed for first-time homebuyers and low- and moderate-income borrowers, comprising$1 billion in total proceeds. Once these loans are originated, the underserved borrowers become our servicing customers.
The Originations segment includes two channels:
•Our direct-to-consumer ("DTC") lending channel relies on our call centers,
website and mobile apps, specially trained teams of licensed mortgage
originators, predictive analytics and modeling utilizing proprietary data from
our servicing portfolio to reach our existing customers who may benefit from a
new mortgage. Depending on borrower eligibility, we will refinance existing
loans into conventional, government or non-agency products. Through lead
campaigns and direct marketing, the direct-to-consumer channel seeks to convert
leads into loans and ultimately MSRs in a cost-efficient manner.
•Our correspondent lending channel facilitates the acquisition of MSRs through
purchasing newly originated residential mortgage loans that have been
underwritten to investor guidelines. This includes both conventional and
government-insured loans that qualify for inclusion in securitizations that are
guaranteed by the GSEs. Our correspondent lending channel enables us to
replenish servicing portfolio run-off typically at a better rate of return than
traditional bulk acquisitions.
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The following tables set forth the results of operations for the Originations
segment:
Table 11. Originations Segment Results of Operations
Three Months Ended March 31,
2023 2022 Change
Revenues
Service related, net - Originations(1) $ 11 $ 42 $ (31)
Net gain on mortgage loans held for sale
Net gain on loans originated and sold(2) 18 119 (101)
Capitalized servicing rights(3) 51 163 (112)
Total net gain on mortgage loans held for sale 69 282 (213)
Total revenues 80 324 (244)
Expenses
Salaries, wages and benefits 34 121 (87)
General and administrative
Loan origination expenses 7 20 (13)
Corporate and other general administrative
expenses 9 17 (8)
Marketing and professional service fees 4 12 (8)
Depreciation and amortization 2 4 (2)
Total general and administrative 22 53 (31)
Total expenses 56 174 (118)
Other income (expenses)
Interest income 6 17 (11)
Interest expense (7) (12) 5
Total other (expenses) income, net (1) 5 (6)
Income before income tax expense $ 23 $ 155 $ (132)
Weighted average note rate - mortgage loans held
for sale 6.1 % 3.4 % 2.7 %
Weighted average cost of funds - warehouse
facilities (excluding facility fees) 6.3 % 1.9 % 4.4 %
(1)Service related, net - Originations refers to fees collected from customers
for originated loans and from other lenders for loans purchased through the
correspondent channel, and includes loan application, underwriting and other
similar fees.
(2)Net gain on loans originated and sold (excluding capitalized servicing
rights) represents the unrealized and realized gains and losses from the
origination, purchase, and sale of loans as well as the unrealized and realized
gains and losses from related derivative instruments. Gains from the origination
and sale of loans are affected by the volume and margin of our originations
activity which can vary based upon mortgage interest rates.
(3)Capitalized servicing rights represent the fair value attributed to mortgage
servicing rights at the time in which they are retained in connection with the
sale of loans during the period.
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Table 12. Originations - Key Metrics
Three Months Ended March 31,
2023 2022 Change
Key Metrics
Consumer direct lock pull through adjusted
volume(1) $ 1,457 $ 6,746 $ (5,289)
Other locked pull through adjusted volume(1) 1,588 3,586 (1,998)
Total pull through adjusted lock volume $ 3,045 $ 10,332 $ (7,287)
Funded volume(2) $ 2,739 $ 11,573 $ (8,834)
Volume of loans sold $ 2,872 $ 13,690 $ (10,818)
Recapture percentage(3) 24.3% 37.4% (13.1)%
Refinance recapture percentage(4) 75.8% 50.3% 25.5%
Purchase as a percentage of funded volume 52.4% 22.7% 29.7%
Value of capitalized servicing on retained
settlements 214 bps 167 bps 47 bps
Originations Margin
Revenue $ 80 $ 324 $ (244)
Pull through adjusted lock volume $ 3,045 $ 10,332 $ (7,287)
Revenue as a percentage of pull through
adjusted lock volume(5) 2.63 % 3.14 % (0.51) %
Expenses(6) $ 57 $ 169 $ (112)
Funded volume $ 2,739 $ 11,573 $ (8,834)
Expenses as a percentage of funded volume(7) 2.08 % 1.46% 0.62 %
Originations Margin 0.55 % 1.68 % (1.13) %
(1)Pull through adjusted volume represents the expected funding from locks taken
during the period.
(2)Funded volume for the period could include pull through adjusted lock volume
from prior periods.
(3)Recapture percentage includes new loan originations for both purchase and
refinance transactions where borrower retention and/or property retention occur
as a result of a loan payoff from our servicing portfolio. Excludes loans we are
contractually unable to solicit.
(4)Refinance recapture percentage includes new loan originations for refinance
transactions where borrower retention and property retention occurs as a result
of a loan payoff from our servicing portfolio. Excludes loans we are
contractually unable to solicit.
(5)Calculated on pull-through adjusted lock volume as revenue is recognized at
the time of loan lock.
(6)Expenses include total expenses and total other income (expenses), net.
(7)Calculated on funded volume as expenses are incurred based on closing of the
loan.
Originations Segment Revenues
Total revenues decreased during the three months ended March 31, 2023 compared
to 2022 primarily driven by lower originations volume in 2023 that resulted in a
decrease in capitalized servicing rights and a decline in net gain on loans
originated and sold.
Originations Segment Expenses
Total expenses during the three months ended March 31, 2023 decreased when
compared to 2022 primarily due to a decline in salaries, wages and benefits
expense, and loan origination expenses. Salaries, wages and benefits expense
declined in 2023 primarily due to decreased headcount and lower originations
volumes in both the direct-to-consumer and correspondent channels. Loan
origination expenses declined in 2023 primarily due to cost reduction
initiatives in connection with decreased origination volumes.
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Originations Segment Other (Expenses) Income, Net
Interest income relates primarily to mortgage loans held for sale. Interest
expense is associated with the warehouse facilities utilized to finance newly
originated loans. Due to decreased originations volume, both interest income and
interest expense declined, partially offset by higher interest rates, resulting
in immaterial changes for total other (expenses) income, net, during the three
months ended March 31, 2023 as compared to 2022.
Originations Margin
The Originations Margin for the three months ended March 31, 2023 decreased as
compared to 2022 primarily due to a higher ratio of expenses as a percentage of
funded volume driven by lower funded volume due to higher mortgage rates in 2023
and lower revenue as a percentage of pull through adjusted lock volume driven by
lower margins from a shift in channel mix from direct-to-consumer to
correspondent. Direct-to-consumer channel mix was 48% and 65% for the three
months ended March 31, 2023 , and 2022, respectively.
Corporate/Other
Corporate/Other includes the results of Xome's operations, the Company's unallocated overhead expenses (which include the costs of executive management and other corporate functions that are not directly attributable to our operating segments), changes in equity investments and interest expense on our unsecured senior notes. In addition, Corporate/Other includes eliminations related to intersegment hedge fair value changes.
The following table set forth the selected financial results for
Corporate/Other:
Table 13. Corporate/Other Selected Financial Results
Three Months Ended March 31,
2023 2022 Change
Corporate/Other - Operations Total revenues $ 19 $ 12 $ 7 Total expenses 52 42 10 Interest expense 40 40 - Other (expense) income, net (9) 222 (231) Key Metrics Average exchange inventory under management 25,631 14,170 11,461 Total revenues increased during the three months endedMarch 31, 2023 as compared to 2022 primarily due to transition services provided toSagent after the sale of servicing platform toSagent , which began in the second quarter of 2022. Total expenses increased in 2023 primarily due to an increase in allocated costs in 2023, driven by higher percentage of total headcount in Corporate/Other in 2023 following the workforce reduction in the Originations segment in 2022. The change in other (expense) income, net, in the three months endedMarch 31, 2023 as compared to 2022 was primarily due to a gain of$223 that was recorded in the first quarter of 2022 upon completion of the Sagent Transaction. 38 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources We measure liquidity by unrestricted cash and availability of collateralized borrowing capacity on our MSR and other debt facilities. We held cash and cash equivalents on hand of$534 as ofMarch 31, 2023 compared to$527 as ofDecember 31, 2022 . During the three months endedMarch 31, 2023 , we generated net cash of$160 from operating activities and bought back 2.1 million shares of our outstanding common stock for a total cost of$89 as part of our stock repurchase program. We have sufficient borrowing capacity to support our operations. As ofMarch 31, 2023 , total available borrowing capacity for advance, warehouse, and MSR facilities was$10,800 , of which$1,586 was collateralized and immediately available to draw. During the three months endedMarch 31, 2023 , we increased capacity on our MSR facilities by$400 . Subsequent to quarter end, we finalized the following capacity changes for MSR facilities: Capacity as of MSR Facilities Maturity March 31, 2023 New Capacity $ Change$600 warehouse facility April 2025 $
600
September 2024 500 750 250$500 warehouse facility April 2025 - 500 500 MSR facilities capacity amount $
1,100
InMarch 2023 ,Silicon Valley Bank and Signature Bank were closed and taken over by theFederal Deposit Insurance Corporation (the "FDIC"), which created significant market disruption and uncertainty for businesses who bank with those institutions, and raised significant concern regarding the stability of the banking system inthe United States , in particular with respect to regional banks. Our corporate cash accounts and Principal & Interest (P&I) accounts are held in money center and global investment banks and Tax & Insurance (T&I) accounts where the underlying borrowers are fully insured by theFDIC are held in insured deposit accounts at a mix of money center, global investments and regional banks. We have increased the target hedge ratio on our MSR hedge position from 25% of the net duration risk in our MSR portfolio at year-end 2022 to a target of 75% as ofMarch 31, 2023 , with the goal of mitigating the risk to capital and tangible book value in a declining interest rate environment.
There have been no significant changes to our sources and uses of cash as
disclosed in our Annual Reports on Form 10-K for the year ended
2022
Cash Flows
The table below presents cash flows information:
Table 14. Cash Flows
Three Months Ended March 31,
2023 2022 Change
Net cash attributable to:
Operating activities $ 160 $ 926 $ (766)
Investing activities (107) (964) 857
Financing activities (88) (294) 206
Net decrease in cash, cash equivalents, and
restricted cash $ (35) $ (332) $ 297
Operating activities
Cash generated from operating activities decreased to $160 during the three
months ended March 31, 2023 from $926 in 2022. The decrease was primarily due to
a decrease of $2,702 in cash generated from originations net sales activities
driven by higher mortgage rates, partially offset by a decrease of $2,027 in
cash used for the repurchase of loan assets out of Ginnie Mae securitizations.
Investing activities
Cash used in investing activities decreased to $107 during the three months
ended March 31, 2023 from $964 in 2022. The decrease was primarily due to a
decrease of $851 in cash used for the purchase of mortgage servicing rights in
2023.
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Financing activities
Cash used in financing activities decreased to $88 during the three months ended
March 31, 2023 from $294 in 2022. The decrease was primarily due to a net
borrowing of $51 in 2023 compared to net repayment of $204 in 2022 on our
advance and warehouse facilities, partially offset by an increase of $54 in cash
used for the repurchase of common stock.
Capital Resources
Capital Structure and Debt We require access to external financing resources from time to time depending on our cash requirements, assessments of current and anticipated market conditions and after-tax cost of capital. If needed, we believe additional capital could be raised through a combination of issuances of equity, corporate indebtedness, asset-backed acquisition financing and/or cash from operations. Our access to capital markets can be impacted by factors outside our control, including economic conditions. Financial Covenants Our credit facilities contain various financial covenants, which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements, which are measured at our operating subsidiary,Nationstar Mortgage LLC . As ofMarch 31, 2023 , we were in compliance with our required financial covenants. Seller/Servicer Financial Requirements We are also subject to net worth, liquidity and capital ratio requirements established by theFederal Housing Finance Agency ("FHFA") for Fannie Mae and Freddie Mac ("Enterprises") Seller/Servicers, andGinnie Mae for single family issuers, as summarized below. These requirements apply to our operating subsidiary,Nationstar Mortgage, LLC . MinimumNet Worth •FHFA - a net worth base of$2.5 plus 25 basis points of outstanding UPB for total loans serviced. •Ginnie Mae - a net worth equal to the sum of base of$2.5 plus 35 basis points of the issuer's total single-family effective outstanding obligations. Minimum Liquidity •FHFA - 3.5 basis points of total Agency Mortgage Servicing UPB plus incremental 200 basis points of total nonperforming Agency, measured at 90+ delinquencies, servicing in excess of 6% total Agency servicing UPB. •Ginnie Mae - the greater of$1 or 10 basis points of our outstanding single-family MBS. Minimum Capital Ratio •FHFA andGinnie Mae - a ratio of TangibleNet Worth to Total Assets greater than 6%.
Secured Debt to Gross Tangible Asset Ratio
•Ginnie Mae - a secured debt to gross tangible asset ratios no greater than 60%.
As of
requirements for FHFA and
In 2022, the FHFA andGinnie Mae revised its Seller/Servicers and single-family issuers minimum financial eligibility requirements. All revisions are effective in 2023 or 2024, as summarized below. The Company is currently evaluating the impact of the revised requirements and does not anticipate the revised requirements to have significant impact on its ability to meet financial eligibility requirements. MinimumNet Worth (effectiveSeptember 30, 2023 ) •FHFA - a net worth base of$2.5 plus a dollar amount equal to or exceeding the sum of (i) 25 basis points of the sellers/servicer's residential first lien mortgage servicing UPB, serviced for the Enterprises, plus (ii) 25 basis points of non-agency serviced UPB, plus (iii) 35 basis points of the sellers/servicer's residential first lien mortgage servicing UPB serviced forGinnie Mae . •Ginnie Mae - a net worth equal to the sum of$2.5 , plus (i) 35 basis points of the issuer's total effectiveGinnie Mae single-family outstanding obligations, plus (ii) 25 basis points of the issuer's total Enterprises single family outstanding servicing portfolio balance, plus (iii) 25 basis points of the issuer's total non-agency single family servicing portfolio. 40 -------------------------------------------------------------------------------- Table of Contents Minimum Liquidity Requirements (effectiveSeptember 30, 2023 ) •FHFA - a base Liquidity of eligible assets equal to or exceeding: •7 basis points of sellers/servicer's residential first lien mortgage servicing UPB serviced for the Enterprises, if the seller/servicer remits (or an Enterprise draws) interest or principal, or both, as scheduled, regardless of whether principal or interest has been collected from the borrower, plus •3.5 basis points of the sellers/servicer's residential first lien mortgage servicing UPB serviced for the Enterprises, if the seller/servicer remits (or an Enterprise draws) the interest and principal only as actually collected from the borrower, plus •3.5 basis points of the seller/servicer's non-agency servicing UPB, plus •10 basis points of the seller/servicer's residential first lien mortgage servicing UPB serviced forGinnie Mae . •In addition, an origination liquidity equal to or exceeding 50 basis points of the sum of the following (effectiveDecember 31, 2023 ): i.Residential first lien mortgages held for sale, at lower of cost or market ii.Residential first lien mortgages held for sale, at fair value, plus iii.UPB of interest rate lock commitments after fallout adjustments •Supplemental liquidity at all time equal to or exceeding the sum of (effectiveDecember 31, 2023 ): i.2 basis points of the sellers/servicer's residential mortgage servicing UPB serviced for the Enterprises, plus ii.5 basis points of the sellers/servicer's residential mortgage servicing UPB serviced forGinnie Mae •Ginnie Mae - the greater of$1 or the sum of: •10 basis points of the issuer's outstandingGinnie Mae single-family servicing UPB, plus •3.5 basis points of the issuer's outstanding Enterprises single family servicing UPB, if the issuer remits (or the Enterprise draws) the principal and interest only as actually collected from the borrower, plus •7 basis points of the Issuer's outstanding Enterprises single-family servicing UPB, if the issuer remits (or the Enterprise draws) the principal or interest, or both, as scheduled, regardless of whether principal or interest has been collected from the borrower, plus •3.5 basis points of the issuer's outstanding non-agency single-family servicing UPB. •Ginnie Mae - issuers that originated more than$1 billion in UPB of any residential first mortgage in the recent four-quarter period must have liquid assets equal to the greater of at least$1 or the sum of the points listed immediately above, plus (effectiveDecember 31, 2023 ): •50 basis points of loans held for sale, plus •50 basis points of the issuer's UPB of IRLCs after fallout adjustments
Capital Requirements (effective
•Ginnie Mae - a Risk-based Capital Ratio ("RBCR") of at least 6%. RBCR is
adjusted net worth less excess MSRs divided by total risked-based assets.
Financial Reporting Requirements (effectiveDecember 31, 2023 ) •FHFA - must obtain an assessment of the seller/servicer's performance and creditworthiness by a qualified, independent third party on an annual basis and meet the following criteria: •One primary servicer rating or master servicer rating, as applicable for large non-depository institutions that have greater than or equal to$50 billion in servicing UPB, and •One primary servicer rating or master servicer rating, as applicable, and one third party long-term senior unsecured debt rating or long-term corporate family rating, for large non-depository institutions that have greater than$100 billion in servicing UPB, and •One primary servicer rating or master servicer rating, as applicable, and issued by two rating agencies, each of which must issue either a third party long-term unsecured debt rating or long-term corporate family rating for large non-depository institutions that have greater than or equal to$150 billion in servicing UPB. Since ourGinnie Mae single-family servicing portfolio exceeds$75 billion in UPB, we are also required to obtain an external primary servicer rating and issuer credit ratings from two different rating agencies and receive a minimum rating of a B or its equivalent. We met this requirement for all financial periods presented. In addition, Fannie Mae or Freddie Mac may require capital ratios in excess of stated requirements. Refer to Note 14, Capital Requirements, in the Notes to the Condensed Consolidated Financial Statements for additional information. 41 --------------------------------------------------------------------------------
Table of Contents
Table 15. Debt
March 31, 2023 December 31, 2022
Advance facilities principal amount $ 642 $
669
Warehouse facilities principal amount 865
817
MSR facilities principal amount 1,440
1,410
Unsecured senior notes principal amount 2,700 2,700 Advance Facilities As part of our normal course of business, we borrow money to fund servicing advances. Our servicing agreements require that we advance our own funds to meet contractual principal and interest payments for certain investors, and to pay taxes, insurance, foreclosure costs and various other items that are required to preserve the assets being serviced. Delinquency rates and prepayment speeds affect the size of servicing advance balances, and we exercise our ability to stop advancing principal and interest where the pooling and servicing agreements permit, where the advance is deemed to be non-recoverable from future proceeds. These servicing requirements affect our liquidity. We rely upon several counterparties to provide us with financing facilities to fund a portion of our servicing advances. As ofMarch 31, 2023 , we had a total borrowing capacity of$975 , of which we could borrow an additional$333 . Warehouse and MSR Facilities Loan origination activities generally require short-term liquidity in excess of amounts generated by our operations. The loans we originate are financed through several warehouse lines on a short-term basis. We typically hold the loans for approximately 30 days and then sell or place the loans in government securitizations in order to repay the borrowings under the warehouse lines. Our ability to fund current operations depends upon our ability to secure these types of short-term financings on acceptable terms and to renew or replace the financings as they expire. Our MSR facilities provide financing for our servicing portfolio and investments. As ofMarch 31, 2023 , we had a total borrowing capacity of$6,725 and$3,100 for warehouse and MSR facilities, of which we could borrow an additional$5,860 and$1,660 , respectively. Unsecured Senior Notes In 2020 and 2021, we completed offerings of unsecured senior notes with maturity dates ranging from 2027 to 2031. We pay interest semi-annually to the holders of these notes at interest rates ranging from 5.125% to 6.000%. For more information regarding our indebtedness, see Note 9, Indebtedness, in the Notes to the Condensed Consolidated Financial Statements. Contractual Obligations As ofMarch 31, 2023 , no material changes to our outstanding contractual obligations were made from the amounts previously disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2022 .
Critical Accounting Policies and Estimates
Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified the following policies that, due to the judgment, estimates and assumptions inherent in those policies, are critical to an understanding of our condensed consolidated financial statements. These policies relate to fair value measurements, particularly those determined to be Level 3 as discussed in Note 13, Fair Value Measurements, in the Notes to the Condensed Consolidated Financial Statements and valuation and realization of deferred tax assets. We believe that the judgment, estimates and assumptions used in the preparation of our condensed consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of these critical accounting policies on our condensed consolidated financial statements, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. Fair value measurements considered to be Level 3 representing estimated values based on significant unobservable inputs primarily include (i) the valuation of MSRs, and (ii) the valuation of excess spread financing. For further information on our critical accounting policies and estimates, please refer to the Company's Annual Reports on Form 10-K for the year endedDecember 31, 2022 . There have been no material changes to our critical accounting policies and estimates sinceDecember 31, 2022 . 42 --------------------------------------------------------------------------------
Table of Contents Other Matters
Recent Accounting Developments
Below lists recently issued accounting pronouncements applicable to us but not
yet adopted.
Accounting Standards Update 2020-04, 2021-01 and 2022-06, collectively
implemented as Accounting Standards Codification Topic 848 ("ASC 848"),
Reference Rate Reform provides temporary optional expedients and exceptions for
applying generally accepted accounting principles to contract modifications,
hedge accounting and other transactions affected by the transitioning away from
reference rates that are expected to be discontinued, such as interbank offered
rates and the London Inter-Bank Offered Rate ("LIBOR"). If LIBOR ceases to exist
or if the methods of calculating LIBOR change from current methods for any
reasons, interest rates on our floating rate loans, obligation derivatives, and
other financial instruments tied to LIBOR rates, may be affected and need
renegotiation with its lenders. In January 2021 , ASU 2021-01 was issued to
clarify that all derivative instruments affected by changes to the interest
rates used for discounting, margining alignment due to reference rate reform are
in scope of ASC 848. In December 2022 , ASU 2022-06 was issued to defer the
sunset date of Topic 848 from December 31, 2022 to December 31, 2024 . The
guidance was effective upon issuance and may be applied prospectively to
contract modifications, existing hedging relationships and other impacted
transactions through December 31, 2024 . The guidance in ASU 2020-04 and ASU
2021-01 is optional and may be elected over time as reference rate reform
activities occur. At present, the Company has limited exposure to LIBOR based
index rates. Due to the short-term maturities of the Company's advance and
warehouse facilities, substantially all the Company's facilities have matured
and transitioned away from LIBOR to alternative reference rates in 2022 when
renewed. In addition, our derivative financial instruments are not tied to LIBOR
rates. The Company does not expect ASU 2020-04 and ASU 2021-01 to have material
impact on our condensed consolidated financial statements.
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GLOSSARY OF TERMS
This Glossary of Terms defines some of the terms that are used throughout this
report and does not represent a complete list of all defined terms used.
Advance Facility. A secured financing facility to fund advance receivables which is backed by a pool of mortgage servicing advance receivables made by a servicer to a certain pool of mortgage loans. Agency. Government entities guaranteeing the mortgage investors that the principal amount of the loan will be repaid; theFederal Housing Administration , theDepartment of Veterans Affairs , theUS Department of Agriculture andGinnie Mae (and collectively, the "Agencies") Agency Conforming Loan. A mortgage loan that meets all requirements (loan type, maximum amount, LTV ratio and credit quality) for purchase by Fannie Mae, Freddie Mac, or insured by the FHA,USDA or guaranteed by theVA or sold into Ginnie Mae. Asset-Backed Securities ("ABS"). A financial security whose income payments and value is derived from and collateralized (or "backed") by a specified pool of underlying receivables or other financial assets.
Bulk acquisitions or purchases. MSR portfolio acquired on non-retained basis
through an open market bidding process.
Base Servicing Fee. The servicing fee retained by the servicer, expressed in basis points, in an excess MSR arrangement in exchange for the provision of servicing functions on a portfolio of mortgage loans, after which the servicer and the co-investment partner share the excess fees on a pro rata basis.
Client. Owner of the underlying mortgage servicing rights on behalf of whom we
service loans.
Conventional Mortgage Loans. A mortgage loan that is not guaranteed or insured by the FHA, theVA or any other government agency. Although a conventional loan is not insured or guaranteed by the government, it can still follow the guidelines of GSEs and be sold to the GSEs. Correspondent lender, lending channel or relationship. A correspondent lender is a lender that funds loans in their own name and then sells them off to larger mortgage lenders. A correspondent lender underwrites the loans to the standards of an investor and provides the funds at close.
Customer. Residential mortgage borrower.
Delinquent Loan. A mortgage loan that is 30 or more days past due from its
contractual due date.
Department of Veterans Affairs ("VA"). TheVA is a cabinet-level department of theU.S. federal government, which guarantees certain home loans for qualified borrowers eligible for securitization with GNMA. Direct-to-consumer originations ("DTC"). A type of mortgage loan origination pursuant to which a lender markets refinancing and purchase money mortgage loans directly to selected consumers through telephone call centers, the Internet or other means.
Excess Servicing Fees. In an excess MSR arrangement, the servicing fee cash
flows on a portfolio of mortgage loans after payment of the base servicing fee.
Excess Spread. MSRs with a co-investment partner where the servicer receives a base servicing fee and the servicer and co-investment partner share the excess servicing fees. This co-investment strategy reduces the required upfront capital from the servicer when purchasing or investing in MSRs.
Exchange inventory. Consists of Xome's residential real estate inventory ranging
from pre-foreclosure to bank-owned properties.
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Federal National Mortgage Association ("Fannie Mae" or "FNMA"). FNMA was
federally chartered by the U.S. Congress in 1938 to support liquidity,
stability, and affordability in the secondary mortgage market, where existing
mortgage-related assets are purchased and sold. Fannie Mae buys mortgage loans
from lenders and resells them as mortgage-backed securities in the secondary
mortgage market.
Federal Housing Administration ("FHA"). The FHA is a U.S. federal government
agency within the Department of Housing and Urban Development (HUD). It provides
mortgage insurance on loans made by FHA-approved lenders in compliance with FHA
guidelines throughout the United States .
Federal Housing Finance Agency ("FHFA"). A U.S. federal government agency that
is the regulator and conservator of Fannie Mae and Freddie Mac and the regulator
of the 12 Federal Home Loan Banks.
Federal Home Loan Mortgage Corporation ("Freddie Mac" or "FHLMC"). Freddie Mac
was chartered by Congress in 1970 to stabilize the nation's residential mortgage
markets and expand opportunities for homeownership and affordable rental
housing. Freddie Mac participates in the secondary mortgage market by purchasing
mortgage loans and mortgage-related securities for investment and by issuing
guaranteed mortgage-related securities.
Forbearance. An agreement between the mortgage servicer or lender and borrower
for a temporary postponement of mortgage payments. It is a form of repayment
relief granted by the lender or creditor in lieu of forcing a property into
foreclosure.
Government National Mortgage Association ("Ginnie Mae" or "GNMA"). GNMA is a
self-financing, wholly owned U.S. Government corporation within HUD. Ginnie Mae
guarantees the timely payment of principal and interest on MBS backed by
federally insured or guaranteed loans - mainly loans insured by the FHA or
guaranteed by the VA . Ginnie Mae securities are the only MBS to carry the full
faith and credit guarantee of the U.S. federal government.
Government-Sponsored Enterprise ("GSE"). Certain entities established by the
U.S. Congress to provide liquidity, stability and affordability in residential
housing. These agencies are Fannie Mae, Freddie Mac and the 12 Federal Home Loan
Banks.
Interest Rate Lock Commitments ("IRLC"). Agreements under which the interest
rate and the maximum amount of the mortgage loan are set prior to funding the
mortgage loan.
Investors. Our investors include agency investors and non-agency investors.
Agency investors primarily consist of Government National Mortgage Association
("Ginnie Mae" or "GNMA") and the GSEs, Federal National Mortgage Association
("Fannie Mae" or "FNMA") and Federal Home Loan Mortgage Corp ("Freddie Mac" or
"FHLMC"). Non-agency investors consist of investors in private-label
securitizations.
Loan Modification. Temporary or permanent modifications to loan terms with the
borrower, including the interest rate, amortization period and term of the
borrower's original mortgage loan. Loan modifications are usually made to loans
that are in default, or in imminent danger of defaulting.
Loan-to-Value Ratio ("LTV"). The unpaid principal balance of a mortgage loan as
a percentage of the total appraised or market value of the property that secures
the loan. An LTV over 100% indicates that the UPB of the mortgage loan exceeds
the value of the property.
Lock period. A set of periods of time that a lender will guarantee a specific
rate is set prior to funding the mortgage loan.
Loss Mitigation. The range of servicing activities provided by a servicer in an attempt to minimize the losses suffered by the owner of a defaulted mortgage loan. Loss mitigation techniques include short-sales, deed-in-lieu of foreclosures and loan modifications, among other options.
secured by a group of mortgage loans.
Mortgage Servicing Right ("MSRs"). The right and obligation to service a loan or
pool of loans and to receive a servicing fee as well as certain ancillary
income. MSRs may be bought and sold, resulting in the transfer of loan servicing
obligations. MSRs are designated as such when the benefits of servicing the
loans are expected to adequately compensate the servicer for performing the
servicing.
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MSR Facility. A line of credit backed by mortgage servicing rights that is used
for financing purposes. In certain cases, these lines may be a sub-limit of
another warehouse facility or alternatively exist on a stand-alone basis. These
facilities allow for same or next day draws at the request of the borrower.
Non-Conforming Loan. A mortgage loan that does not meet the standards of
eligibility for purchase or securitization by Fannie Mae, Freddie Mac or Ginnie
Mae.
Originations. The process through which a lender provides a mortgage loan to a
borrower.
Prepayment Speed. The rate at which voluntary mortgage prepayments occur or are
projected to occur. The statistic is calculated on an annualized basis and
expressed as a percentage of the outstanding principal balance.
Primary Servicer. The servicer that owns the right to service a mortgage loan or pool of mortgage loans. This differs from a subservicer, which has a contractual agreement with the primary servicer to service a mortgage loan or pool of mortgage loans in exchange for a subservicing fee based upon portfolio volume and characteristics. Prime Mortgage Loan. Generally, a high-quality mortgage loan that meets the underwriting standards set by Fannie Mae or Freddie Mac and is eligible for purchase or securitization in the secondary mortgage market. Prime Mortgage loans generally have lower default risk and are made to borrowers with excellent credit records and a monthly income at least three to four times greater than their monthly housing expenses (mortgage payments plus taxes and other debt payments) as well as significant other assets. Mortgages not classified as prime mortgage loans are generally called either sub-prime or Alt-A.
Private Label Securitizations. Securitizations that do not meet the criteria set
by Fannie Mae, Freddie Mac or Ginnie Mae.
Pull through adjusted lock volume. Represents the expected funding from locks
taken during the period.
Real Estate Owned ("REO"). Property acquired by the servicer on behalf of the
owner of a mortgage loan or pool of mortgage loans, usually through foreclosure
or a deed-in-lieu of foreclosure on a defaulted loan. The servicer or a
third-party real estate management firm is responsible for selling the REO. Net
proceeds of the sale are returned to the owner of the related loan or loans. In
most cases, the sale of REO does not generate enough to pay off the balance of
the loan underlying the REO, causing a loss to the owner of the related mortgage
loan.
Recapture. Voluntarily prepaid loans that are expected to be refinanced by the
related servicer.
Refinancing. The process of working with existing borrowers to refinance their
mortgage loans. By refinancing loans for borrowers we currently service, we
retain the servicing rights, thereby extending the longevity of the servicing
cash flows.
Servicing. The performance of contractually specified administrative functions
with respect to a mortgage loan or pool of mortgage loans. Duties of a servicer
typically include, among other things, collecting monthly payments, maintaining
escrow accounts, providing periodic monthly statements to the borrower and
monthly reports to the loan owners or their agents, managing insurance,
monitoring delinquencies, executing foreclosures (as necessary), and remitting
fees to guarantors, trustees and service providers. A servicer is generally
compensated with a specific fee outlined in the contract established prior to
the commencement of the servicing activities.
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Servicing Advances. In the course of servicing loans, servicers are required to
make advances that are reimbursable from collections on the related mortgage
loan or pool of loans. There are typically three types of servicing advances:
P&I Advances, T&I Advances and Corporate Advances.
(i) P&I Advances cover scheduled payments of principal and interest that have
not been timely paid by borrowers. P&I Advances serve to facilitate the cash
flows paid to holders of securities issued by the residential MBS trust. The
servicer is not the insurer or guarantor of the MBS and thus has the right to
cease the advancing of P&I, when the servicer deems the next advance
nonrecoverable.
(ii) T&I Advances pay specified expenses associated with the preservation of a
mortgaged property or the liquidation of defaulted mortgage loans, including but
not limited to property taxes, insurance premiums or other property-related
expenses that have not been timely paid by borrowers in order for the lien
holder to maintain its interest in the property.
(iii) Corporate Advances pay costs, fees and expenses incurred in foreclosing
upon, preserving defaulted loans and selling REO, including attorneys' and other
professional fees and expenses incurred in connection with foreclosure and
liquidation or other legal proceedings arising in the course of servicing the
defaulted mortgage loans.
Servicing Advances are reimbursed to the servicer if and when the borrower makes
a payment on the underlying mortgage loan at the time the loan is modified or
upon liquidation of the underlying mortgage loan but are primarily the
responsibility of the investor/owner of the loan. The types of servicing
advances that a servicer must make are set forth in its servicing agreement with
the owner of the mortgage loan or pool of mortgage loans. In some instances, a
servicer is allowed to cease Servicing Advances, if those advances will not be
recoverable from the property securing the loan.
Subservicing. Subservicing is the process of outsourcing the duties of the
primary servicer to a third-party servicer. The third-party servicer performs
the servicing responsibilities for a fee and is typically not responsible for
making servicing advances, which are subsequently reimbursed by the primary
servicer. The primary servicer is contractually liable to the owner of the loans
for the activities of the subservicer.
Unpaid Principal Balance ("UPB"). The amount of principal outstanding on a
mortgage loan or a pool of mortgage loans. UPB is used together with the
servicing fees and ancillary incomes as a means of estimating the future revenue
stream for a servicer.
of the
qualified borrowers.
Warehouse Facility. A type of line of credit facility used to temporarily
finance mortgage loan originations to be sold in the secondary market. Pursuant
to a warehouse facility, a loan originator typically agrees to transfer to a
counterparty certain mortgage loans against the transfer of funds by the
counterpart, with a simultaneous agreement by the counterpart to transfer the
loans back to the originator at a date certain, or on demand, against the
transfer of funds from the originator.
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