9. Debt and Borrowing Arrangements

The following table summarizes the components of Debt:



	June 30, 2018							December 31, 2017
	Balance			Interest Rate⁽¹⁾		Available Capacity⁽²⁾		Balance
	(In millions)
Committed warehouse facilities	$	36		4.3	%	$	63	$	67
Uncommitted warehouse facilities	3			—		222		18
Servicing advance facility	20			3.8	%	5		32
Mortgage warehouse and advance facilities	59							117

Term notes due in 2019	97			7.375	%	n/a		97
Term notes due in 2021	22			6.375	%	n/a		22
Unsecured credit facilities	—			—		3		—
Unsecured debt, face value	119							119
Debt issuance costs	(1		)					(1		)
Unsecured debt, net	118							118
Total	$	177						$	235

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⁽¹⁾	Interest rate shown represents the stated interest rate of outstanding borrowings, which may differ from the effective rate due to the amortization of premiums, discounts and issuance costs. Warehouse facilities and the servicing advance facility are variable-rate. Rate shown for Warehouse facilities represents the weighted-average rate of current outstanding borrowings.


⁽²⁾	Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements, including asset-eligibility requirements. Available capacity has been reduced by amounts that have been drawn related to discontinued operations, as detailed in Note 8, 'Discontinued Operations'.

Assets held as collateral that are not available to pay the Company’s general obligations as of June 30, 2018 consisted of:



	Warehouse Facilities		Servicing Advance Facility		Subservicing Advance Liabilities ⁽¹⁾		MSRs Secured Liability ⁽²⁾
	(In millions)
Restricted cash	$	—	$	10	$	—	$	—
Servicing advances	—		46		194		—
Mortgage loans held for sale (unpaid principal balance)	40		—		—		—
Mortgage servicing rights	—		—		—		437
Total	$	40	$	56	$	194	$	437

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⁽¹⁾	Under the terms of certain subservicing arrangements, the subservicing counterparty is required to fund servicing advances for their respective portfolios of subserviced loans. A subservicing advance liability is recorded for cash received from the counterparty to fund advances and is repaid to the counterparty upon the collection of the mortgage servicing advance receivables.


⁽²⁾	Represents MSRs that are accounted for as a secured borrowing arrangement.

The following table provides the contractual debt maturities as of June 30, 2018:



	Warehouse Facilities		Servicing Advance Facility		Unsecured Debt		Total
	(In millions)
Within one year	$	39	$	20	$	—	$	59
Between one and two years	—		—		97		97
Between two and three years	—		—		—		—
Between three and four years	—		—		22		22
Between four and five years	—		—		—		—
Thereafter	—		—		—		—
	$	39	$	20	$	119	$	178

See Note 6, 'Fair Value Measurements' for the measurement of the fair value of Debt.

Net Interest Expense

The following table summarizes the components of Net interest expense:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(In millions)
Interest income	$	4		$	7		$	7		$	13
Secured interest expense	(2		)	(3		)	(4		)	(7		)
MSRs secured interest expense ⁽¹⁾	(13		)	(1		)	(27		)	(1		)
Unsecured interest expense	—			(9		)	(1		)	(19		)
Net interest expense	$	(11	)	$	(6	)	$	(25	)	$	(14	)

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⁽¹⁾	MSRs secured interest expense is the implied interest cost on the MSRs secured liability. MSRs secured interest expense fully offsets the estimated yield on capitalized MSRs treated as a secured borrowing arrangement, which is included within Loan servicing income, net.

Mortgage Warehouse Facilities

Mortgage warehouse facilities primarily represents variable-rate asset-backed facilities to support the origination of mortgage loans, which provide creditors a collateralized interest in specific mortgage loans that meet the eligibility requirements under the terms of the facility. The source of repayment of the facilities is typically from the sale or securitization of the underlying loans into the secondary mortgage market. The Company evaluates its capacity needs for warehouse facilities, and adjusts the amount of available capacity under these facilities in response to the current mortgage environment and origination needs. During the three months ended June 30, 2018, the Company further reduced its total capacity in response to lower forecasted capacity needs.

On March 29, 2018, the Company extended the committed mortgage repurchase facility with Wells Fargo through October 2, 2018 and the capacity was reduced to $50 million at the Company's request.

On April 3, 2018, the committed repurchase facility with Bank of America expired and was not renewed at the Company's request.

On April 25, 2018, the Company extended the mortgage repurchase facility with Barclays Bank PLC through October 29, 2018 and the committed capacity was reduced to $50 million at the Company's request, and the uncommitted capacity remained at $25 million.

Servicing Advance Facility

On April 16, 2018, PHH Servicer Advance Receivables Trust 2013-1 (“PSART”), an indirect, wholly-owned subsidiary of the Company extended the revolving period and extended the final maturity date of the note purchase agreement with Wells Fargo Bank for the Series 2015-1 variable funding notes to October 15, 2018. On March 15, 2018, the aggregate maximum principal amount was reduced to $25 million.

Debt Covenants

In connection with the extension of the mortgage warehouse and servicing advance facilities, certain financial covenants have been modified. Among other covenants, certain committed facilities require that the Company maintain: (i) net worth, adjusted to include any capital distributions and changes in fair value of mortgage servicing rights up to a maximum aggregate amount of $334 million, of at least $400 million on the last day of each fiscal month of the second quarter of 2018 and $365 million on the last day of each fiscal month thereafter; (ii) a ratio of indebtedness to tangible net worth (adjusted to include any capital distributions and changes in fair value of mortgage servicing rights up to a maximum aggregate amount of $334 million) of no greater than 4.50 to 1 ; (iii) a ratio of unsecured indebtedness (reduced by cash and cash equivalents in excess of $40 million) to tangible net worth (adjusted to include any capital distributions and changes in fair value of mortgage servicing rights up to a maximum aggregate amount of $334 million) of not more than 1.25 to 1; and (iv) maintenance of $250 million of cash and cash equivalents (adjusted to include capital distributions up to a maximum aggregate amount of $150 million) in excess of its recorded liability for legal and regulatory matters through June 30, 2018, and $225 million at all times thereafter. These covenants represent the most restrictive net worth, liquidity, and debt to equity covenants; however, certain other outstanding debt agreements contain liquidity and debt to equity covenants that are less restrictive.

The Company was in compliance with all financial covenants related to its debt arrangements for the six months ended June 30, 2018.