coop-20220930

0000933136-22-000086.txt : 20221026 0000933136-22-000086.hdr.sgml : 20221026 20221026070413 ACCESSION NUMBER: 0000933136-22-000086 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 88 CONFORMED PERIOD OF REPORT: 20220930 FILED AS OF DATE: 20221026 DATE AS OF CHANGE: 20221026 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Mr. Cooper Group Inc. CENTRAL INDEX KEY: 0000933136 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 911653725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14667 FILM NUMBER: 221331068 BUSINESS ADDRESS: STREET 1: 8950 CYPRESS WATERS BLVD. CITY: COPPELL STATE: TX ZIP: 75019 BUSINESS PHONE: 2146874958 MAIL ADDRESS: STREET 1: 8950 CYPRESS WATERS BLVD. CITY: COPPELL STATE: TX ZIP: 75019 FORMER COMPANY: FORMER CONFORMED NAME: WMIH CORP. DATE OF NAME CHANGE: 20150512 FORMER COMPANY: FORMER CONFORMED NAME: WMI HOLDINGS CORP. DATE OF NAME CHANGE: 20120320 FORMER COMPANY: FORMER CONFORMED NAME: WASHINGTON MUTUAL, INC DATE OF NAME CHANGE: 20061017 10-Q 1 coop-20220930.htm 10-Q coop-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________________________________________________________________

FORM 10-Q


☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number: 001-14667

________________________________________________________________________________________________________

Mr. Cooper Group Inc.

(Exact name of registrant as specified in its charter)


Delaware						91-1653725
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

8950 Cypress Waters Blvd, Coppell, TX						75019
(Address of principal executive offices)						(Zip Code)

(469) 549-2000
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	COOP	The Nasdaq Stock Market

____________________________________________________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.


Large Accelerated Filer	x	Accelerated Filer	☐
Non-Accelerated Filer	¨	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Number of shares of common stock, $0.01 par value, outstanding as of October 21, 2022 was 70,564,728.

Table of Contents

MR. COOPER GROUP INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	3
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
	1. Nature of Business and Basis of Presentation	9
	2. Dispositions	10
	3. Mortgage Servicing Rights and Related Liabilities	11
	4. Advances and Other Receivables	13
	5. Mortgage Loans Held for Sale	15
	6. Loans Subject to Repurchase from Ginnie Mae	16
	7. Goodwill and Intangible Assets	16
	8. Derivative Financial Instruments	16
	9. Indebtedness	18
	10. Securitizations and Financings	19
	11. Earnings Per Share	20
	12. Income Taxes	22
	13. Fair Value Measurements	22
	14. Capital Requirements	25
	15. Commitments and Contingencies	25
	16. Segment Information	27
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	54

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56

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PART I. Financial Information

Item 1. Financial Statements

MR. COOPER GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars, except share data)


	September 30, 2022		December 31, 2021
	(unaudited)
Assets
Cash and cash equivalents	$	530	$	895
Restricted cash	148		146
Mortgage servicing rights at fair value	6,408		4,223
Advances and other receivables, net of reserves of $143 and $167, respectively	831		1,228
Mortgage loans held for sale at fair value	1,581		4,381
Property and equipment, net of accumulated depreciation of $116 and $122, respectively	69		98
Deferred tax assets, net	711		991
Other assets	2,537		2,242

Total assets	$	12,815	$	14,204

Liabilities and Stockholders’ Equity
Unsecured senior notes, net	$	2,673	$	2,670
Advance and warehouse facilities, net	3,070		4,997
Payables and other liabilities	2,428		2,392
MSR related liabilities - nonrecourse at fair value	539		778
Total liabilities	8,710		10,837
Commitments and contingencies (Note 15)
Preferred stock at $0.00001 - 10 million shares authorized, zero shares issued, zero shares outstanding; aggregate liquidation preference of zero	—		—
Common stock at $0.01 par value - 300 million shares authorized, 93.2 million shares issued	1		1
Additional paid-in-capital	1,099		1,116
Retained earnings	3,801		2,879
Treasury shares at cost - 22.7 million and 19.4 million shares, respectively	(796)		(630)
Total Mr. Cooper stockholders’ equity	4,105		3,366
Non-controlling interests	—		1
Total stockholders’ equity	4,105		3,367
Total liabilities and stockholders’ equity	$	12,815	$	14,204

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(millions of dollars, except for earnings per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues:
Service related, net	$	395	$	288	$	1,610	$	860
Net gain on mortgage loans held for sale	115		572		551		1,833
Total revenues	510		860		2,161		2,693
Expenses:
Salaries, wages and benefits	183		251		614		805
General and administrative	133		151		368		476
Total expenses	316		402		982		1,281

Interest income	83		66		169		163
Interest expense	(104)		(118)		(321)		(363)
Other (expense) income, net	(20)		8		197		494
Total other (expense) income, net	(41)		(44)		45		294
Income from continuing operations before income tax expense	153		414		1,224		1,706
Less: Income tax expense	40		104		302		410
Net income from continuing operations	113		310		922		1,296
Net (loss) income from discontinued operations	—		(11)		—		3
Net income	113		299		922		1,299
Less: Undistributed earnings attributable to participating stockholders	—		1		—		9
Less: Premium on retirement of preferred stock	—		28		—		28
Net income attributable to common stockholders	$	113	$	270	$	922	$	1,262

Earnings from continuing operations per common share attributable to Mr. Cooper:
Basic	$	1.59	$	3.56	$	12.71	$	14.85
Diluted	$	1.55	$	3.42	$	12.37	$	14.20

Earnings from discontinued operations per common share attributable to Mr. Cooper:
Basic	$	—	$	(0.14)	$	—	$	0.04
Diluted	$	—	$	(0.13)	$	—	$	0.03

Earnings per common share attributable to Mr. Cooper:
Basic	$	1.59	$	3.42	$	12.71	$	14.89
Diluted	$	1.55	$	3.29	$	12.37	$	14.23

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(millions of dollars, except share data)


	Preferred Stock			Common Stock
	Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
Balance at June 30, 2021	1,000	$	—	86,149	$	1	$	1,120	$	2,434	$	(206)	$	3,349	$	1	$	3,350
Shares issued / (surrendered) under incentive compensation plan	—	—		45	—		—		—		—		—		—		—
Share-based compensation	—	—		—	—		7		—		—		7		—		7
Repurchase of common stock	—	—		(11,073)	—		—		—		(368)		(368)		—		(368)
Retirement of preferred stock	(1,000)	—		—	—		(19)		(9)		—		(28)		—		(28)
Net income	—	—		—	—		—		299		—		299		—		299
Balance at September 30, 2021	—	$	—	75,121	$	1	$	1,108	$	2,724	$	(574)	$	3,259	$	1	$	3,260

Balance at June 30, 2022	—	$	—	71,651	$	1	$	1,094	$	3,688	$	(747)	$	4,036	$	1	$	4,037
Shares issued / (surrendered) under incentive compensation plan	—	—		42	—		(2)		—		1		(1)		—		(1)
Share-based compensation	—	—		—	—		7		—		—		7		—		7
Dividends paid to noncontrolling interests	—	—		—	—		—		—		—		—		(1)		(1)
Repurchase of common stock	—	—		(1,136)	—		—		—		(50)		(50)		—		(50)


Net income	—	—		—	—		—		113		—		113		—		113
Balance at September 30, 2022	—	$	—	70,557	$	1	$	1,099	$	3,801	$	(796)	$	4,105	$	—	$	4,105

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(millions of dollars, except share data)


	Preferred Stock			Common Stock
	Shares (in thousands)	Amount		Shares (in thousands)	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Share Amount		Total Mr. Cooper Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
Balance at January 1, 2021	1,000	$	—	89,457	$	1	$	1,126	$	1,434	$	(58)	$	2,503	$	1	$	2,504
Shares issued / (surrendered) under incentive compensation plan	—	—		1,242	—		(20)		—		—		(20)		—		(20)
Share-based compensation	—	—		—	—		21		—		—		21		—		21

Repurchase of common stock	—	—		(15,578)	—		—		—		(516)		(516)		—		(516)
Retirement of preferred stock	(1,000)	—		—	—		(19)		(9)		—		(28)		—		(28)
Net income	—	—		—	—		—		1,299		—		1,299		—		1,299
Balance at September 30, 2021	—	$	—	75,121	$	1	$	1,108	$	2,724	$	(574)	$	3,259	$	1	$	3,260

Balance at January 1, 2022	—	$	—	73,777	$	1	$	1,116	$	2,879	$	(630)	$	3,366	$	1	$	3,367
Shares issued / (surrendered) under incentive compensation plan	—	—		898	—		(41)		—		19		(22)		—		(22)
Share-based compensation	—	—		—	—		24		—		—		24		—		24
Dividends paid to noncontrolling interests	—	—		—	—		—		—		—		—		(1)		(1)
Repurchase of common stock	—	—		(4,118)	—		—		—		(185)		(185)		—		(185)

Net income	—	—		—	—		—		922		—		922		—		922
Balance at September 30, 2022	—	$	—	70,557	$	1	$	1,099	$	3,801	$	(796)	$	4,105	$	—	$	4,105

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

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MR. COOPER GROUP INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions of dollars)


	Nine Months Ended September 30,
	2022		2021
Operating Activities
Net income	$	922	$	1,299
Less: Net income from discontinued operations	—		3
Net income from continuing operations	922		1,296
Adjustments to reconcile net income from continuing operations to net cash attributable to operating activities:
Deferred tax expense	280		326
Net gain on mortgage loans held for sale	(551)		(1,833)
Provision for servicing and non-servicing reserves	22		28
Fair value changes in mortgage servicing rights	(719)		296
Fair value changes in MSR related liabilities	134		(7)
Depreciation and amortization for property and equipment and intangible assets	29		45
Gain on sale of business	—		(494)
Gain on disposition of assets	(223)		—
Loss on MSR hedging activities	329		82
Other operating activities	75		40
Repurchases of loan assets out of Ginnie Mae securitizations	(2,904)		(8,530)
Mortgage loans originated and purchased for sale, net of fees	(25,120)		(67,507)
Sales proceeds and loan payment proceeds for mortgage loans held for sale	30,440		74,968
Changes in assets and liabilities:
Advances and other receivables	355		(41)
Other assets	287		236
Payables and other liabilities	(212)		(289)
Net cash attributable to operating activities - continuing operations	3,144		(1,384)
Net cash attributable to operating activities - discontinued operations	—		614
Net cash attributable to operating activities	3,144		(770)

Investing Activities
Sale of business, net of cash divested	—		432
Property and equipment additions, net of disposals	(14)		(33)
Purchase of mortgage servicing rights	(1,257)		(431)
Proceeds on sale of mortgage servicing rights	284		13
Other investing activities	—		1
Net cash attributable to investing activities - continuing operations	(987)		(18)
Net cash attributable to investing activities - discontinued operations	—		1,029
Net cash attributable to investing activities	(987)		1,011

Financing Activities
(Decrease) increase in advance and warehouse facilities	(1,933)		1,950
Repayments of excess spread financing	(293)		—
Settlements of excess spread financing	(80)		(118)
Repurchase of common stock	(185)		(516)
Retirement of preferred stock	—		(28)
Other financing activities	(29)		(33)
Net cash attributable to financing activities - continuing operations	(2,520)		1,255
Net cash attributable to financing activities - discontinued operations	—		(1,495)
Net cash attributable to financing activities	(2,520)		(240)
Net (decrease) increase in cash, cash equivalents, and restricted cash	(363)		1
Cash, cash equivalents, and restricted cash - beginning of period	1,041		913
Cash, cash equivalents, and restricted cash - end of period(1)	$	678	$	914

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Supplemental Disclosures of Non-cash Investing Activities
Equity consideration received from disposition of assets	$	250	$	—
Purchase of mortgage servicing rights	$	7	$	12
Forward mortgage servicing rights sales price holdback	$	15	$	2
Equity consideration received from sale of business	$	—	$	53

(1)The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the condensed consolidated balance sheets.


	September 30, 2022		September 30, 2021
Cash and cash equivalents	$	530	$	731
Restricted cash	148		118
Restricted cash within assets of discontinued operations	—		65
Total cash, cash equivalents, and restricted cash	$	678	$	914

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

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MR COOPER GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(millions of dollars, unless otherwise stated)

1. Nature of Business and Basis of Presentation

Nature of Business

Mr. Cooper Group Inc., collectively with its consolidated subsidiaries, (“Mr. Cooper,” the “Company,” “we,” “us” or “our”) provides servicing, origination and transaction-based services related to single family residences throughout the United States with operations under its primary brands: Mr. Cooper® and Xome®. Mr. Cooper is one of the largest home loan originators and servicers in the country focused on delivering a variety of servicing and lending products, services and technologies. The Company’s corporate website is located at www.mrcoopergroup.com. The Company has provided a glossary of terms, which defines certain industry-specific and other terms that are used herein, in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-Q.

Basis of Presentation

The interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2021.

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

Share-based compensation for restricted stock units granted to employees of the Company, consultants, and non-employee directors is based on the fair market value of the Company’s common stock on the grant date and recognized as an expense over the requisite employee service period on a straight-line basis using an accelerated attribution model. Shares for these awards are issued to employees from treasury stock.

Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, other entities in which the Company has a controlling financial interest and those variable interest entities (“VIE”) where the Company’s wholly-owned subsidiaries are the primary beneficiaries. Assets and liabilities of VIEs and their respective results of operations are consolidated from the date that the Company became the primary beneficiary through the date the Company ceases to be the primary beneficiary. The Company applies the equity method of accounting to investments where it is able to exercise significant influence, but not control, over the policies and procedures of the entity and owns less than 50% of the voting interests. These investments are initially measured at cost and subsequently adjusted for Company’s proportionate share of earnings and losses in the investee. Investments in certain companies over which the Company does not exert significant influence are recorded at fair value, or at cost upon election of measurement alternative, at the end of each reporting period. Intercompany balances and transactions on consolidated entities have been eliminated.

Use of Estimates

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

Reclassifications

Certain reclassifications have been made in the 2021 condensed consolidated statement of cash flows to conform to 2022 presentation. Such reclassifications were not material and did not affect total revenues or net income.

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Recent Accounting Guidance Adopted

The Company did not adopt any accounting guidance during the nine months ended September 30, 2022 that had a material impact on its condensed consolidated financial statements or disclosures.

2. Dispositions

Sale of Mortgage Servicing Platform

On March 31, 2022, the Company completed the sale of certain assets and liabilities of its servicing and subservicing technology platform for performing and non-performing mortgage loans (the “Mortgage Servicing Platform”) to Sagent M&C, LLC (“Sagent”), in exchange for Class A-1 Common Units equal to 19.9% ownership of Sagent, and the sale of certain tangible personal property of the Company used in the conduct of the Mortgage Servicing Platform in exchange for $9.9 in cash, for total consideration of $260 (the “Sagent Transaction”). In connection with the Sagent Transaction, the Company recorded a gain of $223, which was included in “other income, net” within the condensed consolidated statements of operations, and recorded $4 transaction costs during the nine months ended September 30, 2022. No transaction costs were recorded in the three months ended September 30, 2022. The net carrying amount of assets and liabilities transferred in connection with the Sagent Transaction was $31 and reported under Corporate/Other.

The Company accounted for the equity interest under the equity method of accounting, as the Company has the ability to exercise significant influence over Sagent’s operating and financial decisions but does not own a majority equity interest or otherwise control the respective entity. Under the equity method of accounting, the investment is initially stated at cost and subsequently adjusted for additional investments and the Company’s proportionate share of Sagent’s earnings or losses and distributions. The initial cost of the equity interest recorded was $250, which represented the fair value as of March 31, 2022. The Company recorded a $5 loss during the three and nine months ended September 30, 2022 related to the Company's proportionate share of net loss of Sagent. The Company’s investment in Sagent was $245 as of September 30, 2022.

Sale of Reverse Servicing Portfolio

In 2021, the Company completed the sale of its reverse servicing portfolio, operating under Champion Mortgage brand (“Champion”), to Mortgage Assets Management, LLC and its affiliates (“MAM”) for total consideration of $1,640. Upon close of the transaction, MAM assumed Champion’s reverse portfolio and related operations. The Company recorded transaction costs of $5 during the nine months ended September 30, 2021. There were no transaction costs recorded for the three months ended September 30, 2021. The carrying amounts of assets and liabilities associated with the reverse servicing operation were reported under the Servicing segment. The sale of business represents a strategic shift in the Company’s operations. Therefore, the sale of the reverse servicing portfolio qualifies for reporting as discontinued operations, and the related results of operations are reported as discontinued operations in the condensed consolidated statements of operations for prior periods presented.

As part of the transaction, the Company entered into a transitional servicing agreement with MAM, under which the Company was compensated for continuing to subservice the reverse loans through the date that the loans were transferred out of Company’s servicing system. The transfer of the loans out of the Company’s servicing system was completed on April 1, 2022. In addition, the Company retained certain loans, primarily related to previously liquidated loans. As of September 30, 2022, the retained total assets and total liabilities were $38 and $27, respectively. As of December 31, 2021, the retained total assets and total liabilities were $55 and $39, respectively. The retained assets and liabilities are included in “other assets”, and “payables and other liabilities”, respectively, on the condensed consolidated balance sheets.

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The following table sets forth the condensed consolidated statements of operations data for discontinued operations for the three and nine months ended September 30, 2021:


	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Revenue - service related, net	$	4	$	13
Salaries, wages and benefits expense	(7)		(23)
General and administrative expense	(14)		50
Interest income	31		118
Interest expense	(26)		(90)
Loss on classification as discontinued operations	(3)		(64)
(Loss) income from discontinued operations before income tax (benefit) expense	(15)		4
Less: Income tax (benefit) expense	(4)		1
Net (loss) income from discontinued operations	$	(11)	$	3

3. Mortgage Servicing Rights and Related Liabilities

The following table sets forth the carrying value of the Company’s mortgage servicing rights (“MSRs”) and the related liabilities. In estimating the fair value of all mortgage servicing rights and related liabilities, the impact of the current environment was considered in the determination of key assumptions.


MSRs and Related Liabilities	September 30, 2022		December 31, 2021
MSRs - fair value	$	6,408	$	4,223

Excess spread financing - fair value	$	519	$	768
Mortgage servicing rights financing - fair value	20		10
MSR related liabilities - nonrecourse at fair value	$	539	$	778

Mortgage Servicing Rights

The following table sets forth the activities of MSRs:


	Nine Months Ended September 30,
MSRs - Fair Value	2022		2021
Fair value - beginning of period	$	4,223	$	2,703
Additions:
Servicing retained from mortgage loans sold	481		790
Purchases of servicing rights	1,256		438
Dispositions:
Sales of servicing assets	(293)		(13)
Changes in fair value:
Changes in valuation inputs or assumptions used in the valuation model (MSR MTM)	1,363		476
Changes in valuation due to amortization	(644)		(772)
Other changes	22		44
Fair value - end of period	$	6,408	$	3,666

During the nine months ended September 30, 2022 and 2021, the Company sold $20,723 and $1,266 in unpaid principal balance (“UPB”) of MSRs, of which $19,692 and $1,144 were retained by the Company as subservicer, respectively.

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MSRs are segregated between investor type into agency and non-agency pools (referred to herein as “investor pools”) based upon contractual servicing agreements with investors at the respective balance sheet date to evaluate the MSR portfolio and fair value of the portfolio. Agency investors primarily consist of government sponsored enterprises (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan Mortgage Corp (“Freddie Mac” or “FHLMC”), and the Government National Mortgage Association (“Ginnie Mae” or “GNMA”). Non-agency investors consist of investors in private-label securitizations.

The following table provides a breakdown of UPB and fair value for the Company’s MSRs:


	September 30, 2022				December 31, 2021
MSRs - UPB and Fair Value Breakdown by Investor Pools	UPB		Fair Value		UPB		Fair Value
Agency	$	363,637	$	6,068	$	302,851	$	3,859
Non-agency	31,769		340		36,357		364
Total	$	395,406	$	6,408	$	339,208	$	4,223

Refer to Note 13, Fair Value Measurements, for further discussion on key weighted-average inputs and assumptions used in estimating the fair value of MSRs.

The following table shows the hypothetical effect on the fair value of the Company’s MSRs when applying certain unfavorable variations of key assumptions to these assets for the dates indicated:


	Discount Rate				Total Prepayment Speeds				Cost to Service per Loan
MSRs - Hypothetical Sensitivities	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change		10% Adverse Change		20% Adverse Change
September 30, 2022
Mortgage servicing rights	$	(266)	$	(512)	$	(142)	$	(276)	$	(66)	$	(132)

December 31, 2021
Mortgage servicing rights	$	(141)	$	(272)	$	(148)	$	(286)	$	(46)	$	(93)

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

Excess Spread Financing - Fair Value

The Company had excess spread financing liability of $519 and $768 as of September 30, 2022 and December 31, 2021, respectively. Refer to Note 13, Fair Value Measurements, for key weighted-average inputs and assumptions used in the valuation of excess spread financing liability. In June 2022, the Company entered into an assignment agreement with an investor to repurchase excess spread liabilities for a total purchase price of $277.

The following table shows the hypothetical effect on the Company’s excess spread financing fair value when applying certain unfavorable variations of key assumptions to these liabilities for the dates indicated:

Discount Rate

Prepayment Speeds

Excess Spread Financing - Hypothetical Sensitivities

100 bps

Adverse

Change

200 bps

Adverse

Change

10%

Adverse

Change

20%

Adverse

Change

September 30, 2022

Excess spread financing