7. Mortgage Loans Held for Sale and Investment

Mortgage Loans Held for Sale

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

Mortgage loans held for sale are recorded at fair value as set forth below.



	Successor		Predecessor
	September 30, 2018		December 31, 2017
Mortgage loans held for sale – UPB	$	1,639	$	1,837
Mark-to-market adjustment⁽¹⁾	42		54
Total mortgage loans held for sale	$	1,681	$	1,891

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

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

The total UPB of mortgage loans held for sale on non-accrual status was as follows:



	Successor				Predecessor
	September 30, 2018				December 31, 2017
Mortgage Loans Held for Sale - UPB	UPB		Fair Value		UPB		Fair Value
Non-accrual	$	46	$	43	$	66	$	64

From time to time, the Company exercises its right to repurchase individual delinquent loans in Ginnie Mae securitization pools to minimize interest spread losses, to re-pool into new Ginnie Mae securitizations or to otherwise sell to third-party investors. During the two months ended September 30, 2018, the Company repurchased $29 of delinquent Ginnie Mae loans and securitized or sold to third-party investors $32 of previously repurchased loans. During the seven months ended July 31, 2018 and the nine months ended September 30, 2017, the Predecessor repurchased $118 and $236 of delinquent Ginnie Mae loans, respectively, and securitized or sold to third-party investors $154 and $253 of previously repurchased loans, respectively.

As of September 30, 2018 and 2017, $58 and $59 of the repurchased loans have re-performed and were held in accrual status, respectively, and remaining balances continue to be held under a nonaccrual status.

The total UPB of mortgage loans held for sale for which the Company and the Predecessor have begun formal foreclosure proceedings was $33 and $51 as of September 30, 2018 and December 31, 2017, respectively.

The following table details a roll forward of the change in the account balance of mortgage loans held for sale.



	Successor			Predecessor
Mortgage loans held for sale	For the Period August 1 - September 30, 2018			For the Period January 1 - July 31, 2018			Nine Months Ended September 30, 2017
Balance - beginning of period	$	1,514		$	1,891		$	1,788
Mortgage loans originated and purchased, net of fees	3,459			12,319			13,988
Loans sold	(3,508		)	(13,255		)	(15,107		)
Repurchase of loans out of Ginnie Mae securitizations	223			544			943
Transfer of mortgage loans held for sale to advances/accounts receivable, net related to claims⁽¹⁾	(2		)	(7		)	(16		)
Net transfer of mortgage loans held for sale from REO in other assets⁽²⁾	4			14			20
Changes in fair value	(8		)	(1		)	16
Other purchase-related activities⁽³⁾	(1		)	9			14
Balance - end of period	$	1,681		$	1,514		$	1,646

⁽¹⁾Amounts are comprised of claims made on certain government insured mortgage loans upon completion of the REO sale.

⁽²⁾Net amounts are comprised of REO in the sales process, which are transferred to other assets, and certain government insured mortgage REO, which are transferred from other assets upon completion of the sale so that the claims process can begin.

⁽³⁾Amounts are comprised primarily of non-Ginnie Mae loan purchases and buyouts.

For the two months ended September 30, 2018, the Company received proceeds of $3,543 on the sale of mortgage loans held for sale, resulting in gains of $35. For the one month ended July 31, 2018, the Predecessor received proceeds of $1,891 on the sale of mortgage loans held for sale, resulting in gains of $13. For the seven months ended July 31, 2018 and the nine months ended September 30, 2017, the Predecessor received proceeds of $13,382 and $15,470, respectively, on the sale of mortgage loans held for sale, resulting in gains of $127 and $363, respectively.

The Company has the right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. The majority of Ginnie Mae repurchased loans are repurchased solely with the intent to re-pool into new Ginnie Mae securitizations upon re-performance of the loan or to otherwise sell to third-party investors. Therefore, these loans are classified as held for sale. The amounts repurchased out of Ginnie Mae pools, as presented above, are primarily in connection with loan modifications and loan resolution activity as part of the Company's contractual obligations as the servicer of the loans.

Mortgage Loans Held for Investment

The following sets forth the composition of mortgage loans held for investment, net.



	Successor
	September 30, 2018
Mortgage loans held for investment, net – UPB	$	161
Fair value adjustments	(39		)
Total mortgage loans held for investment at fair value	$	122



	Predecessor
	December 31, 2017
Mortgage loans held for investment, net – UPB	$	193
Transfer discount:
Non-accretable	(41		)
Accretable	(12		)
Allowance for loan losses	(1		)
Total mortgage loans held for investment	$	139

The Predecessor recorded interest income on the transferred loans on a level-yield method. To maintain a level-yield on these transferred loans over the estimated extended life, the Predecessor reclassified to accretable yield discount approximately $1 of transfer discount designated as reserves for future loss for the seven months ended July 31, 2018 and nine months ended September 30, 2017. No provision for reserves was required for the nine months ended September 30, 2017, as the fair value of the underlying collateral exceeded the carrying value of the loans, net of the non-accretable discount.

The total UPB of mortgage loans held for investment on non-accrual status was as follows for the dates indicated.



	Successor
	September 30, 2018
Mortgage Loans Held for Investment - UPB	UPB		Fair Value
Non-accrual	$	32	$	15

The following table details a roll forward of the change in the account balance of mortgage loans held for investment.



	Successor
Mortgage loans held for investment at fair value	For the Period August 1 - September 30, 2018
Balance - beginning of period	$	125
Payments received from borrowers	(2		)
Losses incurred	(1		)
Changes in fair value⁽¹⁾	—
Balance - end of period	$	122

⁽¹⁾ The changes in fair value during the two months ended September 30, 2018 is less than $1.

The total UPB of mortgage loans held for investment for which the Company and the Predecessor has begun formal foreclosure proceedings was $15 and $22 as of September 30, 2018 and December 31, 2017, respectively.