MR. COOPER GROUP INC. The following discussion should be read in conjunction with the information contained in our consolidated financial statements, including the notes thereto. The following discussion contains, in addition to the historical information, forward-looking statements that include risks and uncertainties (see discussion of "Forward-Looking Statements" included elsewhere in this Annual Report on Form 10-K). Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Item 1A, Risk Factors, and elsewhere in this Annual Report on Form 10-K. All dollar amounts presented herein are in millions, except per share data and other key metrics, unless otherwise noted.
Basis of Presentation
The below presentation discusses the results of the operations for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . For a discussion of results of operations for the year endedDecember 31, 2020 , compared to the year endedDecember 31, 2019 , please refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Overview We are a leading servicer and originator of residential mortgage loans. Our purpose is to keep the dream of homeownership alive, and we do this 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 UPB from$10 billion in 2009 to$710 billion as ofDecember 31, 2021 . We believe this track record reflects our strong operating capabilities, which include a proprietary 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 to position the Company for continued, sustainable long-term growth includes initiatives to improve profitability and generate a return on tangible equity of 12% or higher. Key strategic initiatives 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 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 a refinance recapture rate of 60%; •Delight our customers and keepMr. 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 user-friendly digital solutions; •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.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic introduces unprecedented uncertainty in the economy, including the risk of a significant employment shock and recessionary conditions, with implications for the health and safety of our employees, borrower delinquency rates, servicing advances, origination volumes, the availability of financing, and our overall profitability and liquidity. We have taken aggressive steps to address these risks, including moving in excess of 95% of our staff to work-from-home status as well as implementing other practices for mitigating the risk of the pandemic, including restrictions on non-essential travel and face-to-face meetings and enhanced sanitization of our facilities. We also implemented the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which makes available forbearance plans for up to one year for borrowers under government and government agency mortgage programs, which we have extended to borrowers in our private label mortgage servicing portfolio. As ofJanuary 31, 2022 , approximately 1.5% of our customers were on a forbearance plan, down from a peak of 7.2% inJuly 2020 . We include loans in forbearance related to the CARES Act, whereby no payments have been received from borrowers for greater than 90 days, in loans subject to repurchase right fromGinnie Mae in other assets and payables and other liabilities on a gross basis. The balance decreased to$1,301 as ofDecember 31, 2021 from$5,879 loans as ofDecember 31, 2020 . See liquidity discussion related to the COVID-19 pandemic in Liquidity and Capital Resources section in MD&A. 31Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K --------------------------------------------------------------------------------
Table of Contents
Anticipated Trends
In the fourth quarter of 2021, our MSR portfolio continued to grow due to strong execution across all channels, primarily through acquisitions. We expect to see continued portfolio growth entering 2022. We completed servicing acquisitions of$43 billion in UPB in the fourth quarter of 2021 and finished the quarter with a strong pipeline. Although we produced solid early-buyout revenues in the fourth quarter of 2021, we expect the revenues from early-buyout to decrease significantly in the first quarter of 2022 as the related forbearance programs have now largely expired.
Our Originations segment produced solid funding volumes in the direct-to-consumer channel in the fourth quarter of 2021. We expect the originations profit margins to compress quarter-over-quarter in the first quarter of 2022 and overall expect our margins to gradually decline towards the historical average as a result of continued pricing pressure.
Results of Operations
Table 1. Consolidated Operations
Year Ended December 31,
2021 2020 Change
Revenues - operational(1) $ 2,897 $ 3,298 $ (401)
Revenues - mark-to-market 421 (609) 1,030
Total revenues 3,318 2,689 629
Total expenses 1,662 1,782 (120)
Total other income (expenses), net 281 (505) 786
Income from continuing operations before income
tax expense 1,937 402 1,535
Less: Income tax expense 471 93 378
Net income from continuing operations 1,466 309 1,157
Less: Net income attributable to non-controlling
interests - 2 (2)
Net income from continuing operations
attributable to Mr. Cooper $ 1,466 $ 307 $ 1,159 (1)Revenues - operational consists of total revenues, excluding mark-to-market.
The increase in income from continuing operations before income tax expense for the year endedDecember 31, 2021 compared to 2020 was primarily driven by favorable mark-to-market adjustments primarily due to higher mortgage rates in 2021. In addition, the increase in income from continuing operations before income tax expense was also attributable to the completion of the sale of our Title, Valuations and Field Services businesses in 2021, which resulted in a decrease in expenses and a$528 gain recorded in total other income (expenses), net. See further discussions in Note 1, Nature of Business and Basis of Presentation, in the Notes to the Consolidated Financial Statements and Segment Results section of the MD&A. Income tax expense on continuing operations increased in the year endedDecember 31, 2021 when compared to 2020. The effective tax rate for continuing operations for the year endedDecember 31, 2021 increased to 24.3% from 23.1% in 2020, primarily attributable to an increase in state income tax adjustments and permanent differences such as nondeductible executive compensation.Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 32 --------------------------------------------------------------------------------
Table of Contents
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, 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 20, Segment Information, in the Notes to Consolidated Financial Statements for a summary of segment results.
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, including our low-cost
platform, our skill in mitigating losses for investors, our commitment to strong
customer service and regulatory compliance, 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 most recent, strong servicer ratings, which are reflected below.
Table 2. Servicer Ratings
Fitch(1) Moody's(2) S&P(3)
Rating date May 2021 February 2021 December 2020
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
33 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
--------------------------------------------------------------------------------Table of Contents
The following table sets forth the results of operations for the Servicing segment:
Table 3. Servicing Segment Results of Operations
Year Ended December 31,
2021 2020 Change
Amt bps(1) Amt bps(1) Amt bps
Revenues
Operational $ 1,605 25 $ 1,182 20 $ 423 5
Amortization, net of accretion (753) (12) (510) (9) (243) (3)
Mark-to-market 421 7 (609) (10) 1,030 17
Total revenues 1,273 20 63 1 1,210 19
Expenses
Salaries, wages and benefits 271 4 272 4 (1) -
General and administrative
Servicing support fees 86 1 97 2 (11) (1)
Corporate and other general and
administrative expenses 116 2 120 2 (4) -
Foreclosure and other liquidation related
(recoveries) expenses, net (3) - (18) - 15 -
Depreciation and amortization 32 1 20 - 12 1
Total general and administrative expenses 231 4 219 4 12 -
Total expenses 502 8 491 8 11 -
Other income (expense)
Interest income 129 2 61 1 68 1
Advance interest expense (18) - (26) (1) 8 1
Other interest expense (244) (4) (242) (4) (2) -
Interest expense (262) (4) (268) (5) 6 1
Total other (expenses), net (133) (2) (207) (4) 74 2
Income (loss) from continuing operations
before income tax expense (benefit) $ 638 10 $ (635) (11) $ 1,273 21
Weighted average cost - advance facilities 2.8 % 2.9 % (0.1) %
Weighted average cost - excess spread
financing 9.0 % 9.0 % - %
(1)Calculated basis points ("bps") are as follows: Annual dollar amount/Total
average UPB X 10000.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 34--------------------------------------------------------------------------------
Table of Contents
Table 4. Servicing - Revenues
Year Ended December 31,
2021 2020 Change
Amt bps(1) Amt bps(1) Amt bps
Forward MSR Operational Revenue
Base servicing fees $ 919 14 $ 952 16 $ (33) (2)
Modification fees(2) 26 - 15 - 11 -
Incentive fees(2) 1 - 8 - (7) -
Late payment fees(2) 59 1 70 1 (11) -
Other ancillary revenues(2) 625 10 282 5 343 5
Total forward MSR operational revenue 1,630 25 1,327 22 303 3
Base subservicing fees and other
subservicing revenue(2) 254 4 226 4 28 -
Total servicing fee revenue 1,884 29 1,553 26 331 3
MSR financing liability costs (24) - (33) - 9 -
Excess spread payments and portfolio runoff (255) (4) (338) (6) 83 2
Total operational revenue 1,605 25 1,182 20 423 5
Amortization, Net of Accretion
Forward MSR amortization (1,008) (16) (848) (15) (160) (1)
Excess spread accretion 255 4 338 6 (83) (2)
Total amortization, net of accretion (753) (12) (510) (9) (243) (3)
Mark-to-Market Adjustments
MSR MTM 502 8 (819) (14) 1,321 22
MTM Adjustments(3) (114) (2) 11 - (125) (2)
Excess spread / financing MTM 33 1 199 4 (166) (3)
Total MTM adjustments 421 7 (609) (10) 1,030 17
Total revenues - Servicing $ 1,273 20 $ 63 1 $ 1,210 19
(1)Calculated basis points ("bps") are as follows: Annual dollar amount/Total
average UPB X 10000.
(2)Certain ancillary and other non-base fees related to subservicing operations
are separately presented as other subservicing revenues.
(3)MTM Adjustments 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 $35 and $28 for the years ended
December 31, 2021 and 2020, respectively. In addition, MTM Adjustments included
a negative $86 impact from MSR hedging activities during the year ended December
31, 2021 .
Servicing Segment Revenues
The following provides the changes in revenues for the Servicing segment:
Forward - Other ancillary revenues increased in 2021 compared to 2020, primarily
due to the
Forward MSR amortization increased for the year ended
MSR MTM was positive during the year endedDecember 31, 2021 compared to negative MSR MTM in 2020, primarily due to an increase in mortgage rates in 2021 versus a decrease in mortgage rates in 2020. The Excess spread/financing MTM decreased in 2021 when compared to 2020 primarily due to a lower magnitude of change in mortgage rates as well as change in direction in mortgage rates during each period. The change for MTM Adjustments in 2021 compared to 2020 was primarily due to the growth of loan-related derivative activities. Subservicing - Subservicing fees increased during the year endedDecember 31, 2021 as compared to 2020, primarily due to higher average subservicing portfolio UPB. Servicing Segment Expenses There were no material changes for total expenses during the year endedDecember 31, 2021 as compared to 2020. 35Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K --------------------------------------------------------------------------------
Table of Contents
Servicing Segment Other Income (Expenses), net Total other expenses, net decreased during the year endedDecember 31, 2021 as compared to 2020, primarily due to an increase in other interest income due to higher pandemic related buyouts.
Table 5. Servicing Portfolio - Unpaid Principal Balances
Year Ended December 31,
2021 2020
Average UPB
Forward MSRs $ 299,483 $ 286,159
Subservicing and other(1) 350,365 305,063
Total average UPB $ 649,848 $ 591,222
December 31, 2021 December 31, 2020
Carrying
UPB Amount bps UPB Carrying Amount bps
Forward MSRs
Agency $ 302,851 $ 3,859 127 $ 227,136 $ 2,305 101
Non-agency 36,357 364 100 44,053 398 90
Total forward MSRs 339,208 4,223 124 271,189 2,703 100
Subservicing and other(1)
Agency 353,660 N/A 321,858 N/A
Non-agency 16,860 N/A 14,655 N/A
Total subservicing and other 370,520 N/A 336,513 N/A
Total ending balance $ 709,728 $ 4,223 $ 607,702 $ 2,703
December 31,
Forward MSRs UPB Encumbrance December 31, 2021 2020
Forward MSRs - unencumbered $ 212,472 $ 104,798
Forward MSRs - encumbered(2) 126,736 166,391 Total Forward MSRs UPB$ 339,208 $ 271,189 (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. (2)The encumbered forward MSRs consist of residential mortgage loans included within our excess spread financing transactions and MSR financing liability. Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 36 -------------------------------------------------------------------------------- Table of Contents The following table provides a rollforward of our forward MSR and subservicing and other portfolio UPB: Table 6. Forward Servicing and Subservicing and Other Portfolio UPB Rollforward Year Ended December 31, 2021 2020 Subservicing and Subservicing and Forward MSR Other Total Forward MSR Other Total
Balance - beginning of year
79,599 4,996 84,595 58,734 4,331 63,065
Acquisitions / Increase in
subservicing(1) 76,594 170,258 246,852 1,506 154,718 156,224
Deductions:
Dispositions (1,226) (16,075) (17,301) (110) (27,765) (27,875)
Principal reductions and
other (11,718) (13,608) (25,326) (10,722) (10,754) (21,476)
Voluntary reductions(2) (74,500) (111,457) (185,957) (73,691) (107,762) (181,453)
Involuntary reductions(3) (437) (107) (544) (991) (238) (1,229)
Net changes in loans
serviced by others (293) - (293) (319) - (319)
Balance - end of year $ 339,208 $ 370,520 $ 709,728 $ 271,189 $ 336,513 $ 607,702 (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.
During the year endedDecember 31, 2021 , our ending forward MSR UPB increased primarily due to originations volumes and acquisitions, partially offset by an increase in voluntary reductions in a low interest rate environment. During the year endedDecember 31, 2021 , our subservicing and other portfolio ending UPB increased primarily driven by acquisitions, partially offset by higher voluntary reductions in the low interest rate environment.
37
Table of Contents The table below summarizes the overall performance of the forward servicing and subservicing portfolio:
Table 7. Key Performance Metrics - Forward Servicing and Subservicing Portfolio(1)
December 31, 2021 December 31, 2020
Loan count(2) 3,561,051 3,373,066
Average loan amount(3) $ 195,512 $ 180,165
Average coupon - agency(4) 3.6 % 4.2 %
Average coupon - non-agency(4) 4.4 % 4.5 %
60+ delinquent (% of loans)(5) 3.1 % 5.8 %
90+ delinquent (% of loans)(5) 2.8 % 5.3 %
120+ delinquent (% of loans)(5) 2.6 % 4.5 %
Year Ended December 31,
2021 2020
Total prepayment speed (12-month constant prepayment rate) 25.6 % 27.1 %
(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 December 31, 2021 and 2020, loan count includes 54,462 and 199,118,
respectively, of loans in forbearance related to the CARES Act.
(3)Average loan amount is presented in whole dollar amounts.
(4)The weighted average coupon amounts are only reflective of our owned forward
MSR portfolio that is reported at fair value.
(5)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. Delinquency rates have begun to decrease as the COVID-19 pandemic's
effect on the macroeconomic environment declines.
Table 8. Forward Loan Modifications and Workout Units
Year Ended December 31,
2021 2020 Change
Modifications(1) 67,664 21,674 45,990
Workouts(2) 70,028 42,867 27,161
Total modification and workout units 137,692 64,541 73,151
(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 that did not miss a contractual payment during forbearance related to the CARES Act.
Total modifications and workouts during the year ended
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 38 -------------------------------------------------------------------------------- Table of Contents Servicing Portfolio and Liabilities
The following table sets forth the activities of forwards MSRs:
Table 9. Forward MSRs - Fair Value Rollforward
Year Ended December 31,
2021 2020
Fair value - beginning of year $ 2,703 $ 3,496
Additions:
Servicing retained from mortgage loans sold 1,077 687
Purchases of servicing rights 948 124
Dispositions:
Sales of servicing assets (55) (9)
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the
valuation model (MSR MTM):
Agency 342 (691)
Non-agency 160 (128)
Changes in valuation due to amortization:
Scheduled principal payments (123) (94)
Prepayments
Voluntary prepayments
Agency (818) (653)
Non-agency (63) (91)
Involuntary prepayments
Agency (4) (9)
Non-agency - (1)
Other changes(1) 56 72
Fair value - end of year $ 4,223 $ 2,703 (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.
See Note 4, Mortgage Servicing Rights and Related Liabilities and Note 17, Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding the range of assumptions and sensitivities related to the fair value measurement of forward MSRs as ofDecember 31, 2021 and 2020. Excess Spread Financing As further disclosed in Note 4, Mortgage Servicing Rights and Related Liabilities, in the Notes to 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. 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 (i) prepayment speeds and (ii) our ability to recapture prepayments through the origination platform. See Note 4, Mortgage Servicing Rights and Related Liabilities and Note 17, Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding the range of assumptions and sensitivities related to the fair value measurement of the excess spread financing liability as ofDecember 31, 2021 and 2020. 39Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K --------------------------------------------------------------------------------
Table of Contents
The following table sets forth the change in the excess spread financing:
Table 10. Excess Spread Financing - Rollforward
Year Ended December 31,
2021 2020
Fair value - beginning of year $ 934$ 1,311 Additions: New financings - 24 Deductions: Settlements and repayments (156) (207) Changes in fair value: Agency (20) (195) Non-Agency 10 1 Fair value - end of year $ 768$ 934 Originations Segment The strategy of our Originations segment is to originate or acquire new loans for the 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 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 loans 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 2021, our total originations included loans for 45,100 customers with low FICOs (<660), 68,761 customers with income below theU.S. median household income, 40,761 first-time homebuyers, and 22,601 veterans. The originations during this period included 72,250Ginnie Mae loans, which are designed for first-time homebuyers and low- and moderate-income borrowers, comprising$17 billion in total proceeds. Once these loans are originated, these underserved borrowers become our servicing customers. Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 40 -------------------------------------------------------------------------------- Table of Contents The following table sets forth the results of operations for the Originations segment:
Table 11. Originations Segment Results of Operations
Year Ended December 31,
2021 2020 $ Change % Change
Revenues
Service related, net -
Originations(1) $ 176 $ 105 $ 71 68 %
Net gain on mortgage loans held for
sale
Net gain on loans originated and
sold(2) 751 1,437 (686) (48) %
Capitalized servicing rights(3) 952 674 278 41 %
Provision for repurchase reserves,
net of release (20) (23) 3 (13) %
Total net gain on mortgage loans
held for sale 1,683 2,088 (405) (19) %
Total revenues 1,859 2,193 (334) (15) %
Expenses
Salaries, wages and benefits 609 540 69 13 %
General and administrative
Loan origination expenses 100 77 23 30 %
Corporate and other general and
administrative expenses 67 64 3 5 %
Marketing and professional service
fees 52 47 5 11 %
Depreciation and amortization 24 18 6 33 %
Total general and administrative 243 206 37 18 %
Total expenses 852 746 106 14 %
Other income (expenses)
Interest income 102 95 7 7 %
Interest expense (88) (78) (10) 13 %
Total other income, net 14 17 (3) (18) %
Income before income tax expense $ 1,021 $ 1,464 $ (443) (30) %
Weighted average note rate -
mortgage loans held for sale 3.0 % 3.3 % (0.3) % (9) %
Weighted average cost of funds
(excluding facility fees) 2.0 % 2.7 % (0.7) % (26) %
(1)Service related revenues, 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 represents the gains and losses from
the origination, purchase, and sale of loans and related derivative instruments.
Gains from the origination and sale of loans are affected by the volume and
margin of our originations activity and are impacted by fluctuations in mortgage
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.
41
Table of Contents
Table 12. Originations - Key Metrics
Year Ended December 31,
2021 2020 $ Change % Change
Key Metrics
Consumer direct lock pull through
adjusted volume(1) $ 36,624 $ 37,940 $ (1,316) (3) %
Other locked pull through adjusted
volume(1) 39,810 30,631 9,179 30 %
Total pull through adjusted lock
volume $ 76,434 $ 68,571 $ 7,863 11 %
Funded volume $ 84,463 $ 63,212 $ 21,251 34 %
Volume of loans sold $ 93,549 $ 64,114 $ 29,435 46 %
Recapture percentage(2) 31.4 % 27.2 % 4.2 % 15 %
Refinance recapture percentage(3) 40.0 % 33.2 % 6.8 % 20 %
Purchase as a percentage of funded
volume 23.3 % 17.7 % 5.6 % 32 %
Value of capitalized servicing on
retained settlements 132 bps 134 bps (2) bps (1) %
Originations Margin
Revenue $ 1,859 $ 2,193 $ (334) (15) %
Pull through adjusted lock volume $ 76,434 $ 68,571 $ 7,863 11 %
Revenue as a percentage of pull
through adjusted lock volume(4) 2.43 % 3.20 % (0.77) % (24) %
Expenses(5) $ 838 $ 729 $ 109 15 %
Funded volume $ 84,463 $ 63,212 $ 21,251 34 %
Expenses as a percentage of funded
volume(6) 0.99 % 1.15 % (0.16) % (14) %
Originations Margin 1.44 % 2.05 % (0.61) % (30) %
(1)Pull through adjusted volume represents the expected funding from locks taken
during the period.
(2)Recapture percentage includes new loan originations from both purchase and
refinance transactions where borrower retention and/or property retention occurs
as a result of a loan payoff from our servicing portfolio. Excludes loans we are
contractually unable to solicit.
(3)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.
(4)Calculated on pull-through adjusted lock volume as revenue is recognized at
the time of loan lock.
(5)Expenses include total expense and total other income (expenses), net.
(6)Calculated on funded volume as expenses are incurred based on closing of the
loan.
Income before income tax expense decreased for the year ended December 31, 2021
as compared to 2020 primarily due to decreased revenues from net gain on loans
originated and sold, which was primarily due to an unfavorable mark-to-market on
interest rate locks and loan commitments in 2021 compared to a favorable
mark-to-market in 2020. The Originations Margin for the year ended December 31,
2021 decreased as compared to 2020 primarily due to a lower revenue ratio as a
percentage of pull through adjusted lock volume driven by lower margins from a
shift in channel mix from DTC to higher correspondent channel mix. Correspondent
channel mix for the year ended December 31, 2021 was 52% compared to 45% in
2020.
Originations Segment Revenues
Total revenues decreased for the year ended December 31, 2021 compared to 2020
primarily due to a decrease in net gain on loans originated and sold, as a
result of unfavorable mark-to-market on interest rate locks and loan commitments
and unfavorable fair value adjustment on loans held for sale, which were
partially offset by favorable mark-to-market adjustments on loan derivatives and
hedges. The decrease in net gain on loans originated and sold was partially
offset by an increase in revenues from capitalized servicing rights. There were
no material changes for repurchase reserves.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 42
--------------------------------------------------------------------------------
Table of Contents
Originations Segment Expenses
Total expenses for the year ended December 31, 2021 increased when compared to
2020 primarily due to growth in origination volumes, which contributed to the
increase in salaries, wages and benefits in connection with higher compensation
and headcount related costs, and loan origination expenses. Expenses as a
percentage of funded volume decreased during the year ended December 31, 2021
when compared to 2020, primarily due to improved cost efficiencies and scale.
Originations Segment Other 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.
There were no material changes for total other income, net during the year ended
Corporate/Other
Corporate/Other represents unallocated overhead expenses, including the costs of executive management and other corporate functions that are not directly attributable to our operating segments, and interest expense on our unsecured senior notes. In the third quarter of 2021, we began presenting the Xome financial results under Corporate/Other and prior period amounts have been updated to reflect the change in segment presentation. See Note 20, Segment Information, for further details on change in reportable segments. Previously, Xome financial results were reported under the Xome segment, which ceased to be a reportable segment in the third quarter of 2021 due to the sale of our Title, Valuation and Field Services businesses. Xome continues to operate its REO exchange business, which facilitates the sale of foreclosed properties. We completed the sales of our Title, Valuations and Field Services businesses onJune 30, 2021 ,August 31, 2021 andOctober 22, 2021 , respectively. For more information, see Note 1, Nature of Business and Basis of Presentation in the Notes to the Consolidated Financial Statements.
The following tables set forth the selected financial results for Corporate/Other:
Table 13. Corporate/Other Selected Financial Results
Year Ended December 31,
2021 2020 $ Change % Change
Corporate/Other - Operations
Total revenues $ 186 $ 433 $ (247) (57) %
Total expenses 308 545 (237) (43) %
Interest expense 128 182 (54) (30) %
Other income (expense), net 528 (135) 663 (491) %
Key Metrics
Average exchange properties under
management 15,039 16,354 (1,315) (8) %
Total revenues and total expenses decreased during the year ended December 31,
2021 as compared to 2020 primarily due to the sale of our Title, Valuations and
Field Services businesses in 2021.
Interest expense decreased in the year ended December 31, 2021 as compared to
2020 primarily due to repayment and redemption in 2020 of the unsecured senior
notes due 2021, 2022, 2023 and 2026, and the issuance in 2020 of the unsecured
senior notes due 2027, 2028 and 2030 at lower interest rates. For further
discussion, refer to Note 12, Indebtedness, in the Notes to Consolidated
Financial Statements.
The change in other income (expense), net, in the year ended December 31, 2021
as compared to 2020 was primarily a result of the total gain of $528 that was
recorded in 2021 upon completion of the sale of our Title, Valuations and Field
Services businesses. In addition, a loss of $138 was recorded in 2020 in
connection with the redemption of the unsecured senior notes due 2021, 2022,
2023 and 2026.
43
Table of Contents Liquidity and Capital Resources We measure liquidity by unrestricted cash and availability of borrowings on our MSR and other facilities. We held cash and cash equivalents on hand of$895 as ofDecember 31, 2021 compared to$695 as ofDecember 31, 2020 . During the year endedDecember 31, 2021 , we bought back 16.9 million shares of our outstanding common stock as part of our stock repurchase program. Additionally, during the year endedDecember 31, 2021 , we repurchased and retired all of our outstanding preferred stock. We have sufficient borrowing capacity to support our operations. As ofDecember 31, 2021 , total available borrowing capacity was$16,880 of which we could borrow an additional$11,871 . The economic impact of the COVID-19 pandemic could continue to result in an increase in servicing advances and liquidity demands related to the utilization of forbearance programs offered by the CARES Act. Forbearance rates have declined since the peak during the second quarter of 2020. As ofDecember 31, 2021 , our total advance capacity was$1,715 , of which$1,101 remained unused. For more information on our MSR and advance facilities, see Note 12, Indebtedness, in the Notes to Consolidated Financial Statements. Sources and Uses of Cash Our primary sources of funds for liquidity include: (i) servicing fees and ancillary revenues; (ii) advance and warehouse facilities, other secured borrowings and unsecured senior notes; (iii) payments received in connection with the sale of excess spread. Our primary uses of funds for liquidity include: (i) funding of servicing advances; (ii) originations of loans; (iii) payment of interest expenses; (iv) payment of operating expenses; (v) repayment of borrowings and repurchases or redemptions of outstanding indebtedness; (vi) payments for acquisitions of MSRs; (vii) payment of our technology expenses. We believe that our cash flows from operating activities, as well as capacity through existing facilities, provide adequate resources to fund our anticipated ongoing cash requirements. We rely on these facilities to fund operating activities. As the facilities mature, we anticipate renewal of these facilities will be achieved. Future debt maturities will be funded with cash and cash equivalents, cash flow from operating activities and, if necessary, future access to capital markets. We continue to optimize the use of balance sheet cash to avoid unnecessary interest carrying costs. In addition, derivative instruments are used as part of the overall strategy to manage exposure to market risks primarily associated with fluctuations in interest rates related to originations. See Note 11, Derivative Financial Instruments, in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, which is incorporated herein for a summary of our derivative transactions. In the normal course of business, we enter into various types of on- and off-balance sheet transactions with special purpose entities ("SPEs") determined to be variable interest entities ("VIEs"), which primarily consist of securitization trusts established for a limited purpose. Generally, these SPEs are formed for the purpose of securitization transactions in which we transfer assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets. In these securitization transactions, we typically receive cash and/or other interests in the SPE as proceeds for the transferred assets. See Note 13, Securitizations and Financings, in the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, which is incorporated herein for a summary of our transactions with VIEs and unconsolidated balances, and details of their impact on our consolidated financial statements. Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 44 -------------------------------------------------------------------------------- Table of Contents Cash Flows The table below presents cash flows information: Table 14. Cash Flows Year Ended December 31, 2021 2020 $ Change % Change Net cash attributable to: Operating activities$ 2,632 $ 331 $ 2,301 695 % Investing activities 1,192 (134) 1,326 (990) % Financing activities (3,696) 104 (3,800) (3,654) % Net increase in cash, cash equivalents and restricted cash $ 128$ 301 $ (173) (57) % Operating activities Cash generated from operating activities increased to$2,632 during the year endedDecember 31, 2021 from$331 in 2020. The increase was primarily related to continuing operations, driven by$2,675 in cash generated from origination net sales activities in 2021 compared to$161 of cash used in 2020, as a result of an increase in sale proceeds and loan payment proceeds for mortgage loans held for sale, partially offset by cash used of$380 for advances and other receivables, net in 2021 compared to$48 in 2020. Investing activities Our investing activities generated cash of$1,192 during the year endedDecember 31, 2021 compared to cash used of$134 in 2020. The change in cash attributable to investing activities was primarily driven by$1,629 in cash proceeds from the sale of the reverse servicing portfolio. Additionally, investing activities from continuing operations included$465 in cash proceeds from the sale of our Title, Valuations and Field Services businesses, net of cash divested, in 2021, offset by an increase of$792 in cash used for the purchase of forward mortgage servicing rights. Financing activities Our financing activities used cash of$3,696 during the year endedDecember 31, 2021 compared to cash generated of$104 in 2020. The change in cash attributable to financing activities was primarily related to continuing operations, driven by net repayment of$1,272 in 2021 compared to net borrowing of$1,861 in 2020 on our advance and warehouse facilities. Additionally, in 2021, we received$600 from the issuance of the 2031 unsecured senior note, whereas in 2020, we had a net cash outflow of$408 as a result of the issuance of the 2027, 2028 and 2030 unsecured senior notes and the repayment and redemption of the 2021, 2022, 2023 and 2026 unsecured senior notes. Further, we used cash of$572 for the repurchase of our common stock in 2021 compared to$58 in 2020.
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 ofDecember 31, 2021 , 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 Seller/Servicers, andGinnie Mae for single family issuers, as summarized below. These requirements apply to our operating subsidiary,Nationstar Mortgage, LLC .
45
Table of Contents 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 (i) 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
Since we have aGinnie Mae single-family servicing portfolio that 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 are permitted to satisfy minimum liquidity requirements using a combination of AAA rated government securities that are marked to market in addition to cash and certain cash equivalents. 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 18, Capital Requirements, in the Notes to Consolidated Financial Statements for additional information. Table 15. Debt December 31, 2021 December 31, 2020 Advance facilities principal amount $ 614 $
669
Warehouse facilities principal amount 4,125
5,835
MSR facilities principal amount 270
270
Unsecured senior notes principal amount 2,700 2,100 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 ofDecember 31, 2021 , we had a total borrowing capacity of$1,715 , of which we could borrow an additional$1,101 . The maturity dates of our advance facilities range fromOctober 2022 toAugust 2023 . As ofDecember 31, 2021 , we had$218 of borrowings outstanding under facilities maturing within less than one year and$396 of borrowings outstanding under facilities maturing within the next three years. Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 46 -------------------------------------------------------------------------------- Table of Contents 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. As ofDecember 31, 2021 , we had a total borrowing capacity of$14,055 and$1,110 for warehouse and MSR facilities, of which we could borrow an additional$9,930 and$840 , respectively. The maturity dates for our warehouse facilities range fromJanuary 2022 toSeptember 2023 . As ofDecember 31, 2021 , we had$2,266 of borrowings outstanding under warehouse facilities maturing within less than one year and$1,859 of borrowings outstanding under warehouse facilities maturing within the next three years. The maturity dates for our MSR facilities range fromAugust 2022 toNovember 2023 . As ofDecember 31, 2021 , we had$270 of borrowing outstanding under MSR facilities maturing within the next three years. Unsecured Senior Notes In 2021, we completed an offering of an unsecured senior note with a maturity date of 2031. In 2020, we completed offerings of unsecured senior notes with maturity dates ranging from 2027 to 2030. We pay interest semi-annually to the holders of these notes at interest rates ranging from 5.125% to 6.000%. We are scheduled to pay a total of$1,180 of interest payments from these notes over the next ten years, of which$151 is due within less than one year.
As of
Table 16. Contractual Maturities - Unsecured Senior Notes
Year Ending December 31, Amount 2022 through 2026 $ - Thereafter 2,700
Unsecured senior notes principal amount 2,700 Unamortized debt issuance costs
(30)
Unsecured senior notes, net $ 2,670
Other contractual obligations
Our operating lease obligations were primarily incurred for office space and
equipment. The average lease terms are generally for 1 to 8 years. As of
December 31, 2021 , the total future minimum lease payments for our operating
lease obligations was $135 , of which $24 is due within less than a year. For
more information regarding lease obligations, see Note 8, Leases, in the Notes
to Consolidated Financial Statements.
47
Table of Contents
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 consolidated financial statements. These
policies relate to fair value measurements, particularly those determined to be
Level 3 as discussed in Note 17, Fair Value Measurements, in Notes to
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 consolidated financial statements are appropriate given the
factual circumstances at the time. However, given the sensitivity of our
consolidated financial statements to these critical accounting policies, 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 include (i) the valuation of MSRs, (ii) the
valuation of excess spread financing and (iii) the valuation of interest rate
lock commitments ("IRLCs").
MSRs at Fair Value
We generally retain the servicing rights for existing forward residential
mortgage loans transferred to a third party. We recognize MSRs in such transfers
that meet the requirements for sale accounting. Additionally, we may acquire the
rights to service forward residential mortgage loans from third parties. We
apply fair value accounting to this class of MSRs, with all changes in fair
value recorded within revenues - service related, net in the consolidated
statements of operations. We estimate the fair value of these MSRs using a
discounted cash flow model, which incorporates prepayment speeds, discount rate,
costs to service, delinquencies, ancillary revenues, recapture rates and other
assumptions that management believes are consistent with the assumptions that
other similar market participants use in valuing the MSRs. The key assumptions
to determine fair value include prepayment speed, discount rate and cost to
service. However, the discounted cash flow model is complex and uses
asset-specific collateral data and market inputs for interest and discount
rates. In addition, the modeling requirements of MSRs are complex because of the
high number of variables that drive cash flows associated with MSRs. For the
impact of changes in estimates on MSRs at fair value, see Item 7A. Quantitative
and Qualitative Disclosures about Market Risk and Note 4, Mortgage Servicing
Rights and Related Liabilities, in the Notes to Consolidated Financial
Statements
Excess Spread Financing
In conjunction with the acquisition of certain MSRs on various pools of
residential mortgage loans (the "Portfolios"), we have entered into sale and
assignment agreements related to its right to servicing fees, under which we
sell to third parties the right to receive a portion of the excess cash flow
generated from the Portfolios after receipt of a fixed base servicing fee per
loan. We measure these financing arrangements at fair value to more accurately
represent the future economic performance of the acquired MSRs and related
excess servicing financing, with all changes in fair value recorded as a charge
or credit to revenues - servicing related, net in the consolidated statements of
operations. The fair value on excess spread financing is based on the present
value of future expected discounted cash flows with the discount rate
approximating current market value. The cash flow assumptions and prepayment
assumptions used in the model are based on various factors, with the key
assumptions being mortgage prepayment speeds and discount rate. However, the
discounted cash flow model is complex and uses asset-specific collateral data
and market inputs. In addition, our total market risk is influenced by a wide
variety of factors including market volatility and liquidity of the markets. For
the impact of changes in estimates on excess spread financing, see Item 7A.
Quantitative and Qualitative Disclosures about Market Risk and Note 4, Mortgage
Servicing Rights and Related Liabilities, in the Notes to Consolidated Financial
Statements.
Interest Rate Lock Commitments
IRLCs represent an agreement to extend credit to a mortgage loan applicant, or
an agreement to purchase a loan from a third-party originator, whereby the
interest rate on the loan is set prior to funding. The fair values of interest
rate lock commitments are subject to changes in mortgage interest rates from the
date of the commitment through the sale of the loan into the secondary market.
As a result, we are exposed to interest rate risk during the period from the
date of the lock commitment through (i) the lock commitment cancellation or
expiration date; or (ii) the date of sale into the secondary mortgage
market. IRLCs are considered freestanding derivatives and are recorded at fair
value at inception inclusive of the inherent value of servicing. Loan
commitments generally range between 30 days and 90 days, and we typically sell
mortgage loans within 30 days of origination. Changes in fair value subsequent
to inception are based on changes in the fair value of the underlying loan, and
changes in the probability that the loan will fund within the terms of the
commitment. Any changes in fair value are recorded in earnings as a component of
net gain on mortgage loans held for sale on the consolidated statement of
operations and consolidated statement of cash flows. For the impact of changes
in estimates on IRLCs, see Item 7A. Quantitative and Qualitative Disclosures
about Market Risk.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 48-------------------------------------------------------------------------------- Table of Contents Realization of Deferred Tax Assets Our provision for income taxes is calculated using the balance sheet method, which requires the recognition of deferred income taxes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain changes in the valuation allowance. We provide a valuation allowance against deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the adequacy of the valuation allowance, we consider all forms of evidence, including: (1) historic earnings or losses; (2) anticipated taxable income resulting from the reversal of taxable temporary differences; (3) tax planning strategies; and (4) anticipated future earnings exclusive of the reversal of taxable temporary differences. Of all of the sources of taxable income, we generally rely upon reversals of existing deferred tax liabilities, tax planning strategies, and future taxable income excluding reversing differences. In determining the appropriate amount of valuation allowance required, we consider (1) internal forecasts of our future pre-tax income exclusive of reversing temporary differences and carryforwards, (2) the nature and timing of future reversals of existing deferred tax assets and liabilities, (3) future originating temporary and permanent differences, and (4) NOL carryforward expiration dates, among others. Other Matters
Recent Accounting Developments
Below provides recently issued accounting pronouncements applicable to us but not yet effective.
Accounting Standards Update 2020-04 and 2021-01, 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 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. ASU 2020-04 and ASU 2021-01 were effective March
2020 and January 2021 , respectively, for contract modifications, existing
hedging relationships and other impacted transactions through December 31, 2022 .
The guidance in ASU 2020-04 and ASU 2021-01 is optional and may be elected over
time as reference rate reform activities occur. We have not elected to apply any
of the amendments through December 31, 2021 and are currently assessing the
impact of ASU 2020-04 and ASU 2021-01 on our consolidated financial statements.
See Part II, Item 8, Note 1, Nature of Business and Basis of Presentation, in
the Notes to the Consolidated Financial Statements for information on recent
accounting guidance adopted in 2021.
49 Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K
--------------------------------------------------------------------------------Table of Contents
GLOSSARY OF TERMSThis 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. 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.
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. 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.
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.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 50
--------------------------------------------------------------------------------Table of Contents
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.
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.
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.
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.
Pull through adjusted lock volume. Represents the expected funding from locks taken during the period.
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.
51
Table of Contents 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.
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. 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.
Mr. Cooper Group Inc. - 2021 Annual Report on Form 10-K 52 --------------------------------------------------------------------------------
Table of Contents
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.
53
Table of Contents
© Edgar Online, source
