As filed with
the Securities and Exchange Commission on March 6,
2012
Registration
No. 333-174246
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 5
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NATIONSTAR
MORTGAGE HOLDINGS INC.
(Exact name of registrant as
specified in its charter)
|
|
|
|
|
Delaware
|
|
6162
|
|
45-2156869
|
(State or Other Jurisdiction of Incorporation or Organization)
|
|
(Primary Standard Industrial Classification Code Number)
|
|
(I.R.S. Employer
Identification No.)
|
350 Highland Drive
Lewisville, Texas
75067
(469) 549-2000
(Address, Including Zip Code, and
Telephone Number, Including Area Code, of Registrants
Principal Executive Offices)
Anthony W. Villani,
Esq.
Executive Vice President and
General Counsel
Nationstar Mortgage Holdings
Inc.
350 Highland Drive
Lewisville, Texas,
75067
(469) 549-2000
(Name, address, including zip code,
and telephone number, including area code, of agent for service)
(Copies of all communications,
including communications sent to agent for service)
|
|
|
Duane McLaughlin, Esq.
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
(212) 225-2000
|
|
Richard B. Aftanas, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
(212) 735-3000
|
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this registration
statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 check the
following
box: o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer o
|
Accelerated
filer o
|
Non-accelerated
filer þ
|
Smaller reporting
company o
|
(Do not check if a smaller
reporting company)
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act or until the registration statement shall
become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may
determine.
The information in
this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
|
Subject to Completion
Preliminary Prospectus dated March 6, 2012
PROSPECTUS
16,666,667 Shares
Nationstar Mortgage Holdings
Inc.
Common Stock
This is an initial public offering of common stock of Nationstar
Mortgage Holdings Inc. We are selling 16,666,667 shares of
our common stock. After this offering, the Initial Stockholder,
an entity owned primarily by certain private equity funds
managed by an affiliate of Fortress Investment Group LLC, will
own approximately 80.8% of our common stock or 78.5% if the
underwriters overallotment option is fully exercised.
The estimated initial public offering price is between $17.00
and $19.00 per share. Our common stock has been approved for
listing on the New York Stock Exchange (NYSE) under
the symbol NSM.
Investing in our common stock involves risks. See Risk
Factors beginning on page 15.
Neither the Securities and Exchange Commission (SEC)
nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total
|
|
Public offering price
|
|
|
$
|
|
|
|
$
|
|
Underwriting discount
|
|
|
$
|
|
|
|
$
|
|
Proceeds to us (before expenses)
|
|
|
$
|
|
|
|
$
|
|
We have granted the underwriters the right to purchase up to
2,500,000 additional shares of common stock at the public
offering price less underwriting discounts and commissions, for
the purpose of covering overallotments.
The underwriters expect to deliver the shares of common stock to
investors on or about , 2012.
|
|
|
|
BofA
Merrill Lynch |
Citigroup |
Credit Suisse |
Wells Fargo Securities |
|
|
|
|
|
Allen
& Company LLC |
Barclays
Capital |
J.P.
Morgan |
Keefe,
Bruyette & Woods |
Sterne
Agee |
The date of this prospectus
is ,
2012.
We are responsible for the information contained in this
prospectus and in any related free-writing prospectus we may
prepare or authorize to be delivered to you. We have not
authorized anyone to give you any other information, and we take
no responsibility for any other information that others may give
you. We are not, and the underwriters are not, making an offer
of these securities in any jurisdiction where the offer is not
permitted. You should not assume that the information contained
in this prospectus is accurate as of any date other than the
date on the front of this prospectus.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
1
|
|
|
|
|
15
|
|
|
|
|
40
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
48
|
|
|
|
|
53
|
|
|
|
|
96
|
|
|
|
|
99
|
|
|
|
|
103
|
|
|
|
|
111
|
|
|
|
|
136
|
|
|
|
|
142
|
|
|
|
|
155
|
|
|
|
|
159
|
|
|
|
|
162
|
|
|
|
|
167
|
|
|
|
|
169
|
|
|
|
|
171
|
|
|
|
|
181
|
|
|
|
|
181
|
|
|
|
|
182
|
|
|
|
|
183
|
|
|
|
|
F-1
|
|
EX-23.1 |
EX-24.2 |
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. It may not contain all the information that may
be important to you. You should read the entire prospectus
carefully, including the section entitled Risk
Factors and our financial statements and the related notes
included elsewhere in this prospectus, before making an
investment decision to purchase shares of our common stock.
Nationstar Mortgage Holdings Inc. is a newly formed Delaware
corporation that has not, to date, conducted any activities
other than those incident to its formation and the preparation
of this registration statement. Unless the context suggests
otherwise, references in this prospectus to
Nationstar, the Company, we,
us, and our refer to Nationstar Mortgage
LLC and its consolidated subsidiaries prior to the consummation
of the Restructuring (as defined below), and to Nationstar
Mortgage Holdings Inc. and its consolidated subsidiaries after
the consummation of the Restructuring. References in this
prospectus to Fortress refer to Fortress Investment
Group LLC. For certain industry and other terms, investors are
referred to the section entitled Glossary of Industry and
Other Terms beginning on page 99. All amounts in this
prospectus are expressed in U.S. dollars and the financial
statements have been prepared in accordance with generally
accepted accounting principles in the United States
(GAAP).
Company
Overview
We are a leading high touch non-bank residential mortgage
servicer with a broad array of servicing capabilities across the
residential mortgage product spectrum. We have been the fastest
growing mortgage servicer since 2007 as measured by growth in
aggregate unpaid principal balance (UPB), having
grown 70.2% annually on a compounded basis. As of
December 31, 2011, we serviced over
645,000 residential mortgage loans with an aggregate UPB of
$106.6 billion (including $7.8 billion of servicing
under contract), making us the largest high touch non-bank
servicer in the United States. Our clients include national and
regional banks, government organizations, securitization trusts,
private investment funds and other owners of residential
mortgage loans and securities.
We attribute our growth to our strong servicer performance and
high touch servicing model, which emphasizes borrower
interaction to improve loan performance and minimize loan
defaults and foreclosures. We believe our exceptional track
record as a servicer, coupled with our ability to scale our
operations without compromising servicer quality, have enabled
us to add new mortgage servicing portfolios with relatively low
capital investment. We are a preferred partner of many large
financial organizations, including government-sponsored
enterprises (GSEs) and other regulated institutions
that value our strong performance and also place a premium on
our entirely
U.S.-based
servicing operations. We employ over 2,500 people in the
United States and are a licensed servicer in all 50 states.
In addition to our core servicing business, we are one of only a
few non-bank servicers with a fully integrated loan originations
platform and suite of adjacent businesses designed to meet the
changing needs of the mortgage industry. Our originations
platform complements and enhances our servicing business by
allowing us to replenish our servicing portfolio as loans pay
off over time, while our adjacent businesses broaden our product
offerings by providing mortgage-related services spanning the
life cycle of a mortgage loan. We believe our integrated
approach, together with the strength and diversity of our
servicing operations and our strategies for growing substantial
portions of our business with minimal capital outlays (which we
refer to as our capital light approach), position us
to take advantage of the major structural changes currently
occurring across the mortgage industry.
Servicing
Industry Dynamics
Mortgage servicers provide
day-to-day
administration and servicing for loans on behalf of mortgage
owners and earn revenues based primarily on the UPB of loans
serviced. Servicers collect and remit monthly
1
loan principal and interest payments and provide related
services in exchange for contractual servicing fees. Servicers
also provide special services such as overseeing the resolution
of troubled loans. As the mortgage industry continues to
struggle with elevated borrower delinquencies, this special
servicing function has become a particularly important component
of a mortgage servicers role and, we believe, a key
differentiator among mortgage servicers.
According to Inside Mortgage Finance, there were approximately
$10.3 trillion of U.S. residential mortgage loans
outstanding as of December 31, 2011. In the aftermath of
the U.S. financial crisis, the residential mortgage industry is
undergoing major structural changes that affect the way mortgage
loans are originated, owned and serviced. These changes have
benefited and should continue to significantly benefit non-bank
mortgage servicers. Banks currently dominate the residential
mortgage servicing industry, servicing over 90% of all
residential mortgage loans as of September 30, 2011. Over 50% of
all residential mortgage loan servicing is concentrated among
just four banks. However, banks are currently under tremendous
pressure to exit or reduce their exposure to the mortgage
servicing business as a result of increased regulatory scrutiny
and capital requirements, headline risk associated with sizeable
legal settlements, as well as potentially significant earnings
volatility. Furthermore, banks mortgage servicing
operations, which have historically been oriented towards
payment processing, are often ill-equipped to maximize loan
performance through high touch servicing.
As a result of these factors and the overall increased demands
on servicers by mortgage owners, mortgage servicing is shifting
from banks to non-bank servicers. Already, over the last
18 months, banks have completed servicing transfers on
$275 billion of mortgage loans. We believe this represents
a fundamental change in the mortgage servicing industry and
expect the trend to continue at an accelerated rate in the
future. Because the mortgage servicing industry is characterized
by high barriers to entry, including the need for specialized
servicing expertise and sophisticated systems and
infrastructure, compliance with GSE and client requirements,
compliance with
state-by-state
licensing requirements and the ability to adapt to regulatory
changes at the state and federal levels, we believe we are one
of the few mortgage servicers competitively positioned to
benefit from the shift.
Our
Business
Residential
Mortgage Servicing
Our leading residential mortgage servicing business serves a
diverse set of clients encompassing a broad range of mortgage
loans, including prime and non-prime loans, traditional and
reverse mortgage loans, GSE and government agency-insured loans,
as well as private-label loans issued by non-government
affiliated
2
institutions. We have grown our residential mortgage servicing
portfolio from an aggregate UPB of $12.7 billion as of
December 31, 2007 to $106.6 billion as of
December 31, 2011 (including $7.8 billion of servicing
under contract). Since December 2008, we have added over
$104 billion in UPB to our servicing platform through
approximately 300 separate transfers from 30 different
counterparties (excluding $7.8 billion of servicing under
contract). This growth has been funded primarily through
internally generated cash flows and proceeds from debt
financings.
Our performance record stands out when compared to other
mortgage servicers:
|
|
|
|
|
As of December 2011, a GSE ranked us in the top 5 out of over
1,000 approved servicers in foreclosure prevention workouts.
|
|
|
|
In 2011, we were in the top tier of rankings for Federal Housing
Administration-(FHA) and Housing and Urban
Development-approved servicers, with a Tier 1 ranking (out
of four possible tiers).
|
|
|
|
|
|
As of December 31, 2011, our delinquency and default rates
on non-prime mortgages we service on behalf of third party
investors in asset-backed securities (ABS) were each
40% lower than the peer group average.
|
Our high touch, active servicing approach emphasizes increased
borrower contact in an effort to improve loan performance and
reduce loan defaults and foreclosures, thereby minimizing credit
losses and maximizing cash flows for our clients. Where
appropriate, we perform loan modifications, often facilitated by
government programs such as the Home Affordable Modification
Program (HAMP), which serve as an effective
alternative to foreclosure by keeping borrowers in their homes
and bringing them current on their loans. We believe our proven
servicing approach and relative outperformance have led large
financial institutions, GSEs and government organizations to
award major servicing and subservicing contracts to us, often on
a repeat basis.
Our systems and infrastructure play a key role in our servicing
success. Through careful monitoring and frequent direct
communication with borrowers, we are able to quickly identify
potential payment problems and work with borrowers to address
issues efficiently. To this end, we leverage our proprietary
processing, loss mitigation and caller routing systems to
implement a single point of contact model for troubled loans
that ensures smooth and prompt communication with borrowers,
consistent with standards imposed on the largest bank servicers
by the Office of the Comptroller of the Currency (the
OCC), the Federal Reserve and the Federal Deposit
Insurance Corporation (FDIC). Our core systems are
scalable to multiples of our current size.
We service loans as the owner of mortgage servicing rights
(MSRs), which we refer to as primary
servicing, and we also service loans on behalf of other
MSR or mortgage owners, which we refer to as
subservicing. As of December 31, 2011, our
primary servicing and subservicing portfolios represented 46.4%
and 53.6%, respectively, of our total servicing portfolio
(excluding $7.8 billion of servicing under contract).
Primary
Servicing
Primary servicers act as servicers on behalf of mortgage owners
and directly own the MSRs, which represent the contractual right
to a stream of cash flows (expressed as a percentage of UPB) in
exchange for performing specified mortgage servicing functions
and temporarily advancing funds to cover payments on delinquent
and defaulted mortgages.
We have grown our primary servicing portfolio to
$45.8 billion in UPB as of December 31, 2011
(excluding $7.8 billion of servicing under contract) from
$12.7 billion in UPB as of December 31, 2007,
representing a compound annual growth rate of 37.8%. We plan to
continue growing our primary servicing
3
portfolio principally by acquiring MSRs from banks and other
financial institutions under pressure to exit or reduce their
exposure to the mortgage servicing business. As the servicing
industry paradigm continues to shift from bank to non-bank
servicers at an increasing pace, we believe there will be a
significant opportunity to increase our market share of the
servicing business.
We acquire MSRs on a standalone basis and have also developed an
innovative model for investing on a capital light basis by
co-investing with financial partners in excess MSRs.
Excess MSRs are the servicing fee cash flows (excess
fees) on a portfolio of mortgage loans after payment of a
basic servicing fee. In these transactions, we provide all
servicing functions in exchange for the basic servicing fee,
then share the excess fee with our co-investment partner on a
pro rata basis. Through December 31, 2011, we added
$10 billion of loan servicing through excess MSRs and
expect to continue to deploy this co-investment strategy in the
future.
Subservicing
Subservicers act on behalf of MSR or mortgage owners that choose
to outsource the loan servicing function. In our subservicing
portfolio, we earn a contractual fee per loan we service. The
loans we subservice often include pools of underperforming
mortgage loans requiring high touch servicing capabilities. Many
of our recent subservicing transfers have been facilitated by
GSEs and other large mortgage owners that are seeking to improve
loan performance through servicer upgrades. Subservicing
represents another capital light means of growing our servicing
business, as subservicing contracts are typically awarded on a
no-cost basis and do not require substantial capital.
We have grown our subservicing portfolio to $53.0 billion
in UPB as of December 31, 2011 by completing 290 transfers
with 26 counterparties since we entered the subservicing
business in August 2008. We expect to enter into additional
subservicing arrangements as mortgage owners seek to transfer
credit stressed loans to high touch subservicers with proven
track records and the infrastructure and expertise to improve
loan performance.
Adjacent
Businesses
We operate or have investments in several adjacent businesses
which provide mortgage-related services that are complementary
to our servicing and originations businesses. These businesses
offer an array of ancillary services, including providing
services for delinquent loans, managing loans in the
foreclosure/real estate owned (REO) process and
providing title insurance agency, loan settlement and valuation
services on newly originated and re-originated loans. We offer
these adjacent services in connection with loans we currently
service, as well as on a third party basis in exchange for base
and/or
incentive fees. In addition to enhancing our core businesses,
these adjacent services present an opportunity to increase
future earnings with minimal capital investment, including by
expanding the services we provide to large banks and other
financial institutions seeking to outsource these functions to a
third party.
Originations
We are one of only a few non-bank servicers with a fully
integrated loan originations platform to complement and enhance
our servicing business. In 2011, we originated approximately
$3.4 billion of loans, up from $2.8 billion in 2010.
We originate primarily conventional agency (GSE) and
government-insured residential mortgage loans and, to mitigate
risk, typically sell these loans within 30 days while
retaining the associated servicing rights.
A key determinant of the profitability of our primary servicing
portfolio is the longevity of the servicing cash flows before a
loan is repaid or liquidates. Our originations efforts are
primarily focused on re-origination, which involves
actively working with existing borrowers to refinance their
mortgage loans. By re-originating loans for existing borrowers,
we retain the servicing rights, thereby extending the longevity
of the
4
servicing cash flows, which we refer to as
recapture. We recaptured 35.4% of the loans we
service that were refinanced or repaid by the borrower during
2011 and our goal for 2012 is to achieve a recapture rate of
over 55%. Because the refinanced loans typically have lower
interest rates or lower monthly payments, and, in general,
subsequently refinance more slowly and default less frequently,
these refinancings also typically improve the overall quality of
our primary servicing portfolio.
With our in-house originations capabilities, we believe we are
better protected against declining servicing cash flows as we
replace servicing run-off through new loan originations or
retain our servicing portfolios through re-origination. In
addition, our re-origination strategy allows us to generate
additional loan servicing more cost-effectively than MSRs can
otherwise be acquired in the open market.
Our
Strengths
We believe our servicing platform, coupled with our originations
and adjacent businesses, position us well for a variety of
market environments. The following competitive strengths
contribute to our leading market position and differentiate us
from our competitors:
Top
Performing Preferred Servicing Partner
Through careful monitoring and frequent direct communication
with borrowers, our high touch, high-quality servicing model
allows us to improve loan performance and reduce loan defaults
and foreclosures, thereby minimizing credit losses and
maximizing cash flows for our clients. In recognition of our
performance, as of December 2011, a GSE ranked us in the top 5
out of over 1,000 approved servicers in foreclosure prevention
workouts. Our demonstrated ability to achieve strong results and
relative outperformance, as well as our entirely
U.S.-based
servicing operations, have made us a preferred partner of large
financial institutions, GSEs and government organizations, which
have awarded major servicing and subservicing contracts to us,
often on a repeat basis.
Scalable
Technology and Infrastructure
Our highly scalable technology and infrastructure have enabled
us to manage rapid growth over the past several years while
maintaining our high servicing standards and enhancing loan
performance. We have made significant investments in loan
administration, customer service, compliance and loss
mitigation, as well as in employee training and retention. Our
staffing, training and performance tracking programs,
centralized in the Dallas/Fort Worth, Texas area, have
allowed us to expand the size of our servicing team while
maintaining high quality standards. With our core systems
scalable to multiples of our current size, we believe our
infrastructure positions us well to take advantage of structural
changes in the mortgage industry. Because the mortgage servicing
industry is characterized by high barriers to entry, we also
believe we are one of the few mortgage servicers competitively
positioned to benefit from existing and future market
opportunities.
Track
Record of Efficient Capital Deployment
We have an established track record of deploying capital to grow
our business. For example, since December 2008, we have
effectively used capital from internally generated cash flows
and proceeds from debt financings to add over $104 billion
in UPB to our servicing platform (excluding $7.8 billion of
servicing under contract). In addition, we employ capital light
strategies, including our innovative strategy for co-investment
in excess MSRs with financial partners as well as subservicing
arrangements, to add new mortgage servicing portfolios with
relatively low capital investment. Through December 31,
2011, we added $10 billion of loan servicing through excess
MSRs and expect to continue to deploy this co-investment
strategy in the future, while also evaluating subservicing
arrangements as mortgage owners seek to transfer credit stressed
loans to high touch subservicers in order to improve loan
performance. We believe that our experience of efficiently
deploying capital for growth puts us in a strong position to
manage future growth opportunities.
5
Attractive
Business Model with Strong Recurring Revenues
Banks are under tremendous pressure to exit or reduce their
exposure to the mortgage servicing business, and GSEs are
looking for strong mortgage servicers as the mortgage industry
continues to struggle with elevated borrower delinquencies. As
the shift from bank to non-bank servicers accelerates, we
believe there will be a significant opportunity for us to
achieve growth on attractive terms. Our senior management team
has already demonstrated its ability to identify, evaluate and
execute servicing portfolio acquisitions. We have developed an
attractive business model to grow our business and generate
strong, recurring, contractual fee-based revenue with minimal
credit risk. These revenue streams provide us with significant
capital to grow our business organically.
Integrated
Originations Capabilities
As one of only a few non-bank servicers with a fully integrated
loan originations platform, we are often able to extend the
longevity of our servicing cash flows through loan refinancings.
We recaptured 35.4% of the loans we service that were refinanced
or repaid by the borrower during 2011 and our goal for 2012 is
to achieve a recapture rate of over 55%. Because, in general,
refinanced loans subsequently refinance more slowly and default
less frequently than many currently outstanding loans, these
refinancings also typically improve the overall quality of our
primary servicing portfolio. We believe our in-house
originations capabilities allow us to generate additional loan
servicing more cost-effectively than MSRs can otherwise be
acquired in the open market.
Strong
and Seasoned Management Team
Our senior management team is comprised of experienced mortgage
industry executives with a track record of generating financial
and operational improvements. Our current Chief Executive
Officer has been with us for more than a decade and has managed
the company through the most recent economic downturn and
through multiple economic cycles. Several members of our
management team have held senior positions at other residential
mortgage companies. Our senior management team has demonstrated
its ability to adapt to changing market conditions and has
developed a proven ability to identify, evaluate and execute
successful portfolio and platform acquisitions. We believe that
the experience of our senior management team and its management
philosophy are significant contributors to our operating
performance.
Growth
Strategies
We expect to drive future growth in the following ways:
Grow
Residential Mortgage Servicing
We expect to grow our business primarily by adding to our
residential mortgage servicing portfolios through MSR
acquisitions and subservicing transfers. Over the last
18 months, banks and other financial institutions have
completed a significant number of MSR sales and subservicing
transfers, and we expect an even greater number over the next
18 months. We are continuously reviewing, evaluating and,
when attractive, pursuing MSR sales and subservicing transfers,
and we believe we are well-positioned to compete effectively for
these opportunities. We believe our success in this area has
been, and will continue to be, driven by our strong servicer
performance, as well as by the systems and infrastructure we
have implemented to meet specific client requirements.
Pursue
Capital Light Servicing Opportunities
We intend to pursue capital light strategies that will allow us
to grow our MSR and subservicing portfolios with minimal capital
outlays. Within our subservicing portfolio, since August 2008,
we have grown our servicing UPB to $53.0 billion with no
capital outlays. Many of our recent subservicing transfers have
6
been facilitated by GSEs and other large mortgage owners and we
expect to leverage our relationships to complete additional
subservicing transfers as mortgage owners seek to transfer
credit stressed loans to high touch servicers through
subservicing arrangements. Within our MSR portfolio, we have
developed an innovative strategy for co-investing on a capital
light basis in excess MSRs with financial partners. Through
December 31, 2011, we added $10 billion of loan
servicing through excess MSRs and expect to continue to deploy
this co-investment strategy in the future. We anticipate that
these capital light strategies will allow us to significantly
expand our mortgage servicing portfolio with reduced capital
investment.
Expand
Originations to Complement Servicing
We also expect our originations platform to play an important
role in driving our growth and, in particular, enhancing the
profitability of our servicing business. As one of only a few
non-bank servicers with a fully integrated loan originations
platform, we originate new GSE-eligible and FHA-insured loans
for sale into the securitization market and retain the servicing
rights associated with those loans. More importantly, we
re-originate loans from existing borrowers seeking to take
advantage of improved loan terms, thereby extending the
longevity of the related servicing cash flows, which increases
the profitability and the credit quality of the servicing
portfolio. Through our originations platform, we generate
additional loan servicing more cost-effectively than MSRs can
otherwise be acquired in the open market. Finally, we facilitate
borrower access to government programs designed to encourage
refinancings of troubled or stressed loans, improving overall
loan performance. We believe this full range of abilities makes
us a more attractive counterparty to entities seeking to
transfer servicing to us, and we expect it to contribute to the
growth of our servicing portfolio.
Meet
Evolving Needs of the Residential Mortgage
Industry
We expect to drive growth across all of our businesses by being
a solution provider to a wide range of financial and government
organizations as they navigate the structural changes taking
place across the mortgage industry. With banks under pressure to
reduce their exposure to the mortgage market, with the U.S.
government under pressure to address its large mortgage exposure
and with weak market conditions contributing to elevated loan
delinquencies and defaults, we expect there to be numerous
compelling situations requiring our expertise. We believe the
greatest opportunities will be available to servicers with the
proven track record, scalable infrastructure and range of
services that can be applied flexibly to address different
organizations needs. To position ourselves for these
opportunities, since 2010 we have expanded our business
development team and hired a dedicated senior executive whose
primary role is to identify, evaluate, and enhance acquisition
and partnership opportunities across the mortgage industry,
including with national and regional banks, mortgage and bond
insurers, private investment funds and various government
agencies. We have also expanded and enhanced our loan transfer,
collections and loss mitigation infrastructure in order to be
able to accommodate substantial additional growth. We expect
these efforts to position us to be a key participant in the long
term restructuring and recovery of the mortgage sector.
Corporate
and Other Information
Nationstar Mortgage Holdings Inc. was recently incorporated for
the purpose of effecting this offering and currently holds no
material assets and does not engage in any operations. Prior to
the completion of this offering, all of the equity interests in
Nationstar Mortgage LLC will be transferred from FIF HE Holdings
LLC (our Initial Stockholder) to two direct,
wholly-owned subsidiaries of Nationstar Mortgage Holdings Inc.
(the Restructuring). Additionally, as part of the
Restructuring, certain parent entities of our Initial
Stockholder that do not have any material assets or material
liabilities other than their direct or indirect ownership of our
Initial Stockholder, or any operations, will be merged with and
into Nationstar Mortgage Holdings Inc., and the former
shareholders of those parent entities will receive equity
interests in our Initial Stockholder. Upon the completion of the
Restructuring, we will conduct our business through Nationstar
Mortgage LLC and its consolidated subsidiaries. Prior to the
completion of this offering, we also will effect a 70,000 to 1
stock split pursuant to a stock dividend. All shares and per
share data in this prospectus have been
7
adjusted to reflect the stock split, except as otherwise
indicated. In addition, in connection with this offering, the
Initial Stockholder is offering to certain of our current and
former members of management the opportunity to exchange their
Series 1 Class A units for shares of our common stock
that are currently held by the Initial Stockholder (the
Unit Exchange). See Principal
StockholderUnit Exchange.
Our executive offices are located at 350 Highland Drive,
Lewisville, Texas 75067 and our telephone number is
(469) 549-2000.
Our Internet website address is
www.nationstarholdings.com. Information on, or accessible
through, our website is not part of this prospectus.
Nationstar Mortgage LLC was formed in 1994 in Denver, Colorado
as Nova Credit Corporation, a Nevada corporation. In 1997, it
moved its executive offices and primary operations to Dallas,
Texas and changed its name to Centex Credit Corporation. In
2001, Centex Credit Corporation was merged into Centex Home
Equity Company, LLC, a Delaware limited liability company
(CHEC). In 2006, our Initial Stockholder acquired
all of its outstanding membership interests (the
Acquisition), and CHEC changed its name to
Nationstar Mortgage LLC.
Our
Principal Stockholder
Following the completion of this offering, our Initial
Stockholder, an entity owned primarily by certain private equity
funds managed by an affiliate of Fortress, a leading global
investment manager that offers alternative and traditional
investment products, will own approximately 80.8% of our
outstanding common stock or 78.5% if the underwriters
overallotment option is fully exercised. After this offering,
the Initial Stockholder will own shares sufficient for the
majority vote over fundamental and significant corporate matters
and transactions. See Risk FactorsRisks Related to
Our Organization and Structure.
Ownership
Structure
Set forth below is the ownership structure of Nationstar
Mortgage Holdings Inc. and its subsidiaries upon consummation of
the Restructuring and this offering.
8
The
Offering
|
|
|
Common stock we are offering |
|
16,666,667 shares |
|
Common stock to be issued and outstanding after this offering |
|
86,666,667 shares |
|
Use of proceeds by us |
|
We estimate that the net proceeds to us from the sale of shares
in this offering, after deducting offering expenses payable by
us, will be approximately $276.7 million, assuming the
shares are offered at $18.00 per share, which is the midpoint of
the estimated initial public offering price range set forth on
the cover page of this prospectus. We intend to use the net
proceeds from this offering for working capital and other
general corporate purposes, including servicing acquisitions,
which may include acquisitions from one or more affiliates of
the underwriters in this offering. See Use of
Proceeds. |
|
Dividend policy |
|
We do not expect to pay dividends on our common stock for the
foreseeable future. Instead, we anticipate that all of our
earnings in the foreseeable future will be used for the
operation and growth of our business. |
|
|
|
Any future determination to pay dividends on our common stock
will be at the discretion of our board of directors and will
depend upon many factors, including our financial position,
results of operations, liquidity, legal requirements and
restrictions that may be imposed by the indenture governing our
10.875% senior notes due 2015 (the senior
notes). See Dividend Policy. |
|
Risk factors |
|
Please read the section entitled Risk Factors
beginning on page 15 for a discussion of some of the
factors you should carefully consider before deciding to invest
in our common stock. |
The number of shares of common stock to be issued and
outstanding after the completion of this offering is based on
70,000,000 shares of common stock issued and outstanding as
of February 24, 2012 after giving effect to the
Restructuring and the 70,000 for 1 stock split (which will be
effective prior to the completion of this offering), and
excludes an additional 5,200,000 shares reserved for
issuance under our equity incentive plan, 4,169,442 of which
remain available for grant.
Except as otherwise indicated, all information in this
prospectus:
|
|
|
|
|
assumes an initial public offering price of $18.00 per share,
the midpoint of the estimated initial public offering price
range set forth on the cover page of this prospectus;
|
|
|
|
assumes no exercise by the underwriters of their option to
purchase an additional 2,500,000 shares of common stock
from us to cover overallotments;
|
|
|
|
does not include 1,030,558 unvested shares of restricted
stock that we expect to grant to certain of our executive
officers, directors and employees in connection with this
offering;
|
9
|
|
|
|
|
does not give effect to any exchange of units of the Initial
Stockholder by our current or former members of management for
shares of our common stock in the Unit Exchange; and
|
|
|
|
|
|
reflects a 70,000 for 1 stock split, which will be effective
prior to the completion of this offering.
|
10
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following tables summarize consolidated financial
information of Nationstar Mortgage LLC, our predecessor company,
as well as pro forma information that reflects the impact of our
conversion to a taxable entity from a disregarded entity for tax
purposes. We were formed on May 9, 2011 and have not, to
date, conducted any activities other than those incident to our
formation and the preparation of this registration statement. We
were formed solely for the purpose of reorganizing the
organizational structure of the Initial Stockholder and
Nationstar Mortgage LLC, so that the issuer is a corporation
rather than a limited liability company and our existing
investors will own common stock rather than equity interests in
a limited liability company. You should read these tables along
with Managements Discussion and Analysis of
Financial Condition and Results of Operations,
Business and our consolidated financial statements
and the related notes included elsewhere in this prospectus.
The information in the following tables gives effect to the
70,000 for 1 stock split, which will be effective prior to the
completion of this offering. The summary consolidated statement
of operations data for the years ended December 31, 2009,
2010 and 2011 and the summary consolidated balance sheet data at
December 31, 2010 and 2011 have been derived from our
audited financial statements included elsewhere in this
prospectus. The summary consolidated balance sheet data at
December 31, 2009 has been derived from our audited
financial statements that are not included in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands, except per share data)
|
|
Statement of Operations DataConsolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
$100,218
|
|
|
|
$184,084
|
|
|
|
$268,598
|
|
Gain (loss) on mortgage loans held for sale
|
|
|
(21,349
|
)
|
|
|
77,344
|
|
|
|
109,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
78,869
|
|
|
|
261,428
|
|
|
|
377,734
|
|
Total expenses and impairments
|
|
|
142,367
|
|
|
|
220,976
|
|
|
|
306,183
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
52,518
|
|
|
|
98,895
|
|
|
|
66,802
|
|
Interest expense
|
|
|
(69,883
|
)
|
|
|
(116,163
|
)
|
|
|
(105,375
|
)
|
Loss on interest rate swaps and caps
|
|
|
(14
|
)
|
|
|
(9,801
|
)
|
|
|
298
|
|
Fair value changes in ABS securitizations
|
|
|
|
|
|
|
(23,297
|
)
|
|
|
(12,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(17,379
|
)
|
|
|
(50,366
|
)
|
|
|
(50,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
$(80,877
|
)
|
|
|
$(9,914
|
)
|
|
|
$20,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Information (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical net income before taxes
|
|
|
|
|
|
|
|
|
|
|
$20,887
|
|
Pro forma adjustment for
taxes(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
|
|
|
|
|
|
|
|
|
$20,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
$(0.93
|
)
|
|
|
$(0.11
|
)
|
|
|
$0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
outstanding(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
86,667
|
|
|
|
86,667
|
|
|
|
86,667
|
|
|
|
|
(1) |
|
Our pro forma effective tax rate for 2011 is 0%. The pro forma
tax provision, before utilization of tax benefits, is $11,448 on
pre-tax income of $20,887. We expect to assume certain tax
attributes of certain parent entities of our Initial Stockholder
as a result of the Restructuring, including approximately
$196 million of net operating loss carry forwards as of
December 31, 2011. We expect to record a full valuation
allowance against any resulting deferred tax asset. The
utilization of these tax attributes will be limited pursuant to
Sections 382 and 383 of the Internal Revenue Code. |
11
|
|
|
(2) |
|
Represents the number of shares issued and outstanding after
giving effect to our sale of common stock in this offering and
does not include common stock that may be issued and sold upon
exercise of the underwriters overallotment option. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2010
|
|
2011
|
|
|
(in thousands)
|
Balance Sheet DataConsolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$41,645
|
|
|
|
$21,223
|
|
|
|
$62,445
|
|
Accounts receivable
|
|
|
513,939
|
|
|
|
441,275
|
|
|
|
562,300
|
|
Mortgage servicing rights
|
|
|
114,605
|
|
|
|
145,062
|
|
|
|
251,050
|
|
Total assets
|
|
|
1,280,185
|
|
|
|
1,947,181
|
|
|
|
1,787,931
|
|
Notes
payable(1)
|
|
|
771,857
|
|
|
|
709,758
|
|
|
|
873,179
|
|
Unsecured senior notes
|
|
|
|
|
|
|
244,061
|
|
|
|
280,199
|
|
Legacy assets securitized debt
|
|
|
177,675
|
|
|
|
138,662
|
|
|
|
112,490
|
|
Excess spread financing (at fair value)
|
|
|
|
|
|
|
|
|
|
|
44,595
|
|
ABS nonrecourse debt (at fair value)
|
|
|
|
|
|
|
496,692
|
|
|
|
|
|
Total liabilities
|
|
|
1,016,362
|
|
|
|
1,690,809
|
|
|
|
1,506,622
|
|
Total members equity
|
|
|
263,823
|
|
|
|
256,372
|
|
|
|
281,309
|
|
|
|
|
(1) |
|
A summary of notes payable as of December 31, 2011 follows: |
|
|
|
|
|
Notes Payable
|
|
December 31, 2011
|
|
|
(in thousands)
|
Servicing
|
|
|
|
|
2010-ABS Advance Financing Facility
|
|
|
$219,563
|
|
2011-Agency Advance Financing Facility
|
|
|
25,011
|
|
MBS Advance Financing Facility
|
|
|
179,904
|
|
Securities Repurchase Facility (2011)
|
|
|
11,774
|
|
MSR Note
|
|
|
10,180
|
|
Originations
|
|
|
|
|
$300 Million Warehouse Facility
|
|
|
251,722
|
|
$100 Million Warehouse Facility
|
|
|
16,047
|
|
$175 Million Warehouse Facility
|
|
|
46,810
|
|
$50 Million Warehouse Facility
|
|
|
7,310
|
|
ASAP+ Short-Term Financing Facility
|
|
|
104,858
|
|
|
|
|
|
|
|
|
|
$873,179
|
|
|
|
|
|
|
The following tables summarize consolidated financial
information for our Operating Segments. Management analyzes our
performance in two separate segments, the Servicing Segment and
the Originations Segment, which together constitute our
Operating Segments. In addition, we have a legacy asset
portfolio, which primarily consists of non-prime and
non-conforming mortgage loans, most of which were originated
from April to July 2007. The Servicing Segment provides loan
servicing on our servicing portfolio and the Originations
Segment involves the origination, packaging and sale of GSE
mortgage loans into the secondary markets via whole loan sales
or securitizations.
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2010
|
|
2011
|
|
|
(in thousands)
|
Statement of Operations DataOperating Segments
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
$101,289
|
|
|
|
$189,884
|
|
|
|
$269,585
|
|
Gain on mortgage loans held for sale
|
|
|
54,437
|
|
|
|
77,498
|
|
|
|
109,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
155,726
|
|
|
|
267,382
|
|
|
|
379,016
|
|
Total expenses and impairments
|
|
|
118,429
|
|
|
|
194,203
|
|
|
|
279,537
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
8,404
|
|
|
|
12,111
|
|
|
|
14,981
|
|
Interest expense
|
|
|
(29,315
|
)
|
|
|
(60,597
|
)
|
|
|
(68,979
|
)
|
Gain (loss) on interest rate swaps and caps
|
|
|
|
|
|
|
(9,801
|
)
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(20,911
|
)
|
|
|
(58,287
|
)
|
|
|
(53,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$16,386
|
|
|
|
$14,892
|
|
|
|
$45,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Net Income from Operating Segments to Adjusted EBITDA
Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from Operating Segments
|
|
|
$16,386
|
|
|
|
$14,892
|
|
|
|
$45,779
|
|
Adjust for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense from unsecured senior notes
|
|
|
|
|
|
|
24,628
|
|
|
|
30,464
|
|
Depreciation and amortization
|
|
|
1,542
|
|
|
|
1,873
|
|
|
|
3,395
|
|
Change in fair value of MSRs
|
|
|
27,915
|
|
|
|
6,043
|
|
|
|
39,000
|
|
Fair value changes on excess spread
financing(1)
|
|
|
|
|
|
|
|
|
|
|
3,060
|
|
Share-based compensation
|
|
|
579
|
|
|
|
8,999
|
|
|
|
14,764
|
|
Exit costs
|
|
|
|
|
|
|
|
|
|
|
1,836
|
|
Fair value changes on interest rate swaps
|
|
|
|
|
|
|
9,801
|
|
|
|
(298
|
)
|
Ineffective portion of cash flow hedge
|
|
|
|
|
|
|
(930
|
)
|
|
|
(2,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(2)
|
|
|
$46,422
|
|
|
|
$65,306
|
|
|
|
$135,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Relates to a financing arrangement on certain MSRs which are
carried at fair value under Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(ASC) 825, Financial Instruments. |
|
|
|
(2) |
|
Adjusted EBITDA is a key performance measure used by management
in evaluating the performance of our segments. Adjusted EBITDA
represents our Operating Segments income (loss), and
excludes income and expenses that relate to the financing of the
senior notes, depreciable (or amortizable) asset base of the
business, income taxes (if any), exit costs from our
restructuring and certain non-cash items. Adjusted EBITDA also
excludes results from our legacy asset portfolio and certain
securitization trusts that were consolidated upon adoption of
the new accounting guidance eliminating the concept of a
qualifying special purpose entity (QSPE). |
|
|
|
|
|
Adjusted EBITDA provides us with a key measure of our Operating
Segments performance as it assists us in comparing our
Operating Segments performance on a consistent basis.
Management believes Adjusted |
13
|
|
|
|
|
EBITDA is useful in assessing the profitability of our core
business and uses Adjusted EBITDA in evaluating our operating
performance as follows: |
|
|
|
|
|
Financing arrangements for our Operating Segments are secured by
assets that are allocated to these segments. Interest expense
that relates to the financing of the senior notes is not
considered in evaluating our operating performance because this
obligation is serviced by the excess earnings from our Operating
Segments after the debt obligations that are secured by their
assets.
|
|
|
|
To monitor operating costs of each Operating Segment excluding
the impact from depreciation, amortization and fair value change
of the asset base, exit costs from our restructuring and
non-cash operating expense, such as share-based compensation.
Operating costs are analyzed to manage costs per our operating
plan and to assess staffing levels, implementation of
technology-based solutions, rent and other general and
administrative costs.
|
|
|
|
|
|
Management does not assess the growth prospects and the
profitability of our legacy asset portfolio and certain
securitization trusts that were consolidated upon adoption of
the new accounting guidance, except to the extent necessary to
assess whether cash flows from the assets in the legacy asset
portfolio are sufficient to service its debt obligations. |
|
|
|
We also use Adjusted EBITDA (with additional adjustments) to
measure our compliance with covenants such as leverage coverage
ratios for our senior notes. |
|
|
|
Adjusted EBITDA has limitations as an analytical tool and should
not be considered in isolation or as a substitute for analysis
of our results as reported under GAAP. Some of these limitations
are: |
|
|
|
|
|
Adjusted EBITDA does not reflect our cash expenditures or future
requirements for capital expenditures or contractual commitments;
|
|
|
|
Adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital needs;
|
|
|
|
Adjusted EBITDA does not reflect the cash requirements necessary
to service principal payments related to the financing of the
business;
|
|
|
|
Adjusted EBITDA does not reflect the interest expense or the
cash requirements necessary to service interest or principal
payments on our corporate debt;
|
|
|
|
although depreciation and amortization and changes in fair value
of MSRs are non-cash charges, the assets being depreciated and
amortized will often have to be replaced in the future and
Adjusted EBITDA does not reflect any cash requirements for such
replacements; and
|
|
|
|
other companies in our industry may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative
measure.
|
|
|
|
|
|
Because of these and other limitations, Adjusted EBITDA should
not be considered as a measure of discretionary cash available
to us to invest in the growth of our business. Adjusted EBITDA
is presented to provide additional information about our
operations. Adjusted EBITDA is a non-GAAP measure and should be
considered in addition to, but not as a substitute for or
superior to, operating income, net income, operating cash flow
and other measures of financial performance prepared in
accordance with GAAP. We compensate for these limitations by
relying primarily on our GAAP results and using Adjusted EBITDA
only supplementally. |
14
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
You should carefully consider the following risk factors, as
well as other information contained in this prospectus, before
deciding to invest in our common stock. The occurrence of any of
the following risks could materially and adversely affect our
business, prospects, financial condition, results of operations
and cash flow, in which case, the trading price of our common
stock could decline and you could lose all or part of your
investment.
Risks
Related to Our Business and Industry
Our
foreclosure proceedings in certain states have been delayed due
to inquiries by certain state Attorneys General, court
administrators and state and federal government agencies, the
outcome of which could have a negative effect on our operations,
earnings or liquidity.
Allegations of irregularities in foreclosure processes,
including so-called robo-signing by mortgage loan
servicers, have gained the attention of the Department of
Justice, regulatory agencies, state Attorneys General and the
media, among other parties. On December 1, 2011, the
Massachusetts Attorney General filed a lawsuit against five
large mortgage providers alleging unfair and deceptive business
practices, including the use of so-called
robo-signers. In response, one of the mortgage
providers has halted most lending in Massachusetts. Certain
state Attorneys General, court administrators and government
agencies, as well as representatives of the federal government,
have issued letters of inquiry to mortgage servicers, including
us, requesting written responses to questions regarding policies
and procedures, especially with respect to notarization and
affidavit procedures. These requests or any subsequent
administrative, judicial or legislative actions taken by these
regulators, court administrators or other government entities
may subject us to fines and other sanctions, including a
foreclosure moratorium or suspension. Additionally, because we
do business in all fifty states, our operations may be affected
by regulatory actions or court decisions that are taken at the
individual state level.
In addition to these inquiries, several state Attorneys General
have requested that certain mortgage servicers, including us,
suspend foreclosure proceedings pending internal review to
ensure compliance with applicable law, and we have received
requests from four such state Attorneys General. Pursuant to
these requests and in light of industry-wide press coverage
regarding mortgage foreclosure documentation practices, we, as a
precaution, had already delayed foreclosure proceedings in
23 states, so that we may evaluate our foreclosure
practices and underlying documentation. Upon completion of our
internal review and after responding to such inquiries, we
resumed these previously delayed proceedings. Such inquiries,
however, as well as continued court backlog and emerging court
processes may cause an extended delay in the foreclosure process
in certain states.
Even in states where we have not suspended foreclosure
proceedings or where we have lifted or will soon lift any such
delayed foreclosures, we have faced, and may continue to face,
increased delays and costs in the foreclosure process. For
example, we have incurred, and may continue to incur, additional
costs related to the re-execution and re-filing of certain
documents. We may also be required to take other action in our
capacity as a mortgage servicer in connection with pending
foreclosures. In addition, the current legislative and
regulatory climate could lead borrowers to contest foreclosures
that they would not otherwise have contested under ordinary
circumstances, and we may incur increased litigation costs if
the validity of a foreclosure action is challenged by a
borrower. Delays in foreclosure proceedings could also require
us to make additional servicing advances by drawing on our
servicing advance facilities, or delay the recovery of advances,
all or any of which could materially affect our earnings and
liquidity and increase our need for capital.
15
The
Dodd-Frank Act could increase our regulatory compliance burden
and associated costs, limit our future capital raising
strategies, and place restrictions on certain originations and
servicing operations all of which could adversely affect our
business, financial condition and results of
operations.
On July 21, 2010, President Obama signed the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 (the
Dodd-Frank Act) into law. The Dodd-Frank Act
represents a comprehensive overhaul of the financial services
industry in the United States. The Dodd-Frank Act includes,
among other things: (i) the creation of a Financial
Stability Oversight Council to identify emerging systemic risks
posed by financial firms, activities and practices, and to
improve cooperation among federal agencies; (ii) the
creation of a Bureau of Consumer Financial Protection
(CFPB) authorized to promulgate and enforce consumer
protection regulations relating to financial products;
(iii) the establishment of strengthened capital and
prudential standards for banks and bank holding companies;
(iv) enhanced regulation of financial markets, including
the derivatives and securitization markets; and
(v) amendments to the Truth in Lending Act aimed at
improving consumer protections with respect to mortgage
originations, including originator compensation, minimum
repayment standards and prepayment considerations. On
July 21, 2011, the CFPB obtained enforcement authority
pursuant to the Dodd-Frank Act and began official operations. On
October 13, 2011, the CFPB issued guidelines governing how
it supervises mortgage transactions, which involves sending
examiners to banks and other institutions that service mortgages
to assess whether consumers interests are protected. On
January 11, 2012, the CFPB issued guidelines governing
examination procedures for bank and non-bank mortgage
originators. The exact scope and applicability of many of these
requirements to us are currently unknown as the regulations to
implement the Dodd-Frank Act generally have not yet been
finalized. These provisions of the Dodd-Frank Act and actions by
the CFPB could increase our regulatory compliance burden and
associated costs and place restrictions on certain originations
and servicing operations, all of which could in turn adversely
affect our business, financial condition and results of
operations.
The
enforcement consent orders by, agreements with, and settlements
of, certain federal and state agencies against the largest
mortgage servicers related to foreclosure practices could impose
additional compliance costs on our servicing business, which
could materially and adversely affect our financial condition
and results of operations.
On April 13, 2011, the federal agencies overseeing certain
aspects of the mortgage market, the OCC, the Federal Reserve and
the FDIC, entered into enforcement consent orders with 14 of the
largest mortgage servicers in the United States regarding
foreclosure practices. The enforcement consent orders require
the servicers, among other things to: (i) promptly correct
deficiencies in residential mortgage loan servicing and
foreclosure practices; (ii) make significant modifications
in practices for residential mortgage loan servicing and
foreclosure processing, including communications with borrowers
and limitations on dual-tracking, which occurs when servicers
continue to pursue foreclosure during the loan modification
process; (iii) ensure that foreclosures are not pursued
once a mortgage has been approved for modification and establish
a single point of contact for borrowers throughout the loan
modification and foreclosure processes; and (iv) establish
robust oversight and controls pertaining to their third party
vendors, including outside legal counsel, that provide default
management or foreclosure services. While these enforcement
consent orders are considered not to be preemptive of the state
actions, it is currently unclear how state actions and
proceedings will be affected by the federal consents.
On February 9, 2012, federal and state agencies announced a
$25 billion settlement with five large banks that resulted
from investigations of foreclosure practices. As part of the
settlement, the banks have agreed to comply with various
servicing standards relating to foreclosure and bankruptcy
proceedings, documentation of borrowers account balances,
chain of title, and evaluation of borrowers for loan
modifications and short sales as well as servicing fees and the
use of force-placed insurance. The settlement also provides for
certain financial relief to homeowners.
Although we are not a party to the above enforcement consent
orders and settlements, we could become subject to the terms of
the consent orders and settlements if (i) we subservice
loans for the mortgage servicers that are parties to the
enforcement consent orders and settlements; (ii) the
agencies begin to enforce
16
the consent orders and settlements by looking downstream to our
arrangement with certain mortgage servicers; (iii) the
mortgage servicers for which we subservice loans request that we
comply with certain aspects of the consent orders and
settlements, or (iv) we otherwise find it prudent to comply
with certain aspects of the consent orders and settlements. In
addition, the practices set forth in such consent orders and
settlements may be adopted by the industry as a whole, forcing
us to comply with them in order to follow standard industry
practices, or may become required by our servicing agreements.
While we have made and continue to make changes to our operating
policies and procedures in light of the consent orders and
settlements, further changes could be required and changes to
our servicing practices will increase compliance costs for our
servicing business, which could materially and adversely affect
our financial condition or results of operations.
On September 1, 2011 and November 10, 2011, the New
York State Department of Financial Services entered into
agreements regarding mortgage servicing practices with seven
financial institutions. The additional requirements provided for
in these agreements will increase operational complexity and the
cost of servicing loans in New York. Other servicers, including
us, could be required to enter into similar agreements. In
addition, other states may also require mortgage servicers to
enter into similar agreements. These additional costs could also
materially and adversely affect our financial condition and
results of operations.
Legal
proceedings, state or federal governmental examinations or
enforcement actions and related costs could have a material
adverse effect on our liquidity, financial position and results
of operations.
We are routinely and currently involved in legal proceedings
concerning matters that arise in the ordinary course of our
business. These legal proceedings range from actions involving a
single plaintiff to class action lawsuits with potentially tens
of thousands of class members. An adverse result in governmental
investigations or examinations or private lawsuits, including
purported class action lawsuits, may adversely affect our
financial results. In addition, a number of participants in our
industry, including us, have been the subject of purported class
action lawsuits and regulatory actions by state regulators, and
other industry participants have been the subject of actions by
state Attorneys General. Although we believe we have meritorious
legal and factual defenses to the lawsuits in which we are
currently involved, the ultimate outcomes with respect to these
matters remain uncertain. Litigation and other proceedings may
require that we pay settlement costs, legal fees, damages,
penalties or other charges, any or all of which could adversely
affect our financial results. In particular, ongoing and other
legal proceedings brought under state consumer protection
statutes may result in a separate fine for each violation of the
statute, which, particularly in the case of class action
lawsuits, could result in damages substantially in excess of the
amounts we earned from the underlying activities and that could
have a material adverse effect on our liquidity, financial
position and results of operations.
Governmental investigations, both state and federal, can be
either formal or informal. The costs of responding to the
investigations can be substantial. In addition,
government-mandated changes to servicing practices could lead to
higher costs and additional administrative burdens, in
particular regarding record retention and informational
obligations.
The
continued deterioration of the residential mortgage market may
adversely affect our business, financial condition and results
of operations.
Since mid-2007, adverse economic conditions, including high
unemployment, have impacted the residential mortgage market,
resulting in unprecedented delinquency, default and foreclosure
rates, all of which have led to increased loss severities on all
types of residential mortgage loans due to sharp declines in
residential real estate values. Falling home prices have
resulted in higher loan-to-value ratios (LTVs),
lower recoveries in foreclosure and an increase in loss
severities above those that would have been realized had
property values remained the same or continued to increase. As
LTVs increase, borrowers are left with equity in their homes
that is not sufficient to permit them to refinance their
existing loans. This may also provide borrowers an incentive to
default on their mortgage loan even if they have the ability to
make principal and interest payments, which we refer to as
strategic defaults. Increased mortgage defaults negatively
impact our
17
Servicing Segment because they increase the costs to service
the underlying loans and may ultimately reduce the number of
mortgages we service.
Adverse economic conditions may also impact our Originations
Segment. Declining home prices and increasing LTVs may preclude
many potential borrowers, including borrowers whose existing
loans we service, from refinancing their existing loans. An
increase in prevailing interest rates could decrease our
originations volume through our Consumer Direct Retail
originations channel, our largest originations channel by volume
from December 31, 2006 to December 31, 2011, because
this channel focuses predominantly on refinancing existing
mortgage loans.
A continued deterioration or a delay in any recovery in the
residential mortgage market may reduce the number of mortgages
we service or new mortgages we originate, reduce the
profitability of mortgages currently serviced by us, adversely
affect our ability to sell mortgage loans originated by us or
increase delinquency rates. Any of the foregoing could adversely
affect our business, financial condition and results of
operations.
We may
experience serious financial difficulties as some mortgage
servicers and originators have experienced, which could
adversely affect our business, financial condition and results
of operations.
Since late 2006, a number of mortgage servicers and originators
of residential mortgage loans have experienced serious financial
difficulties and, in some cases, have gone out of business.
These difficulties have resulted, in part, from declining
markets for their mortgage loans as well as from claims for
repurchases of mortgage loans previously sold under provisions
requiring repurchase in the event of early payment defaults or
breaches of representations and warranties regarding loan
quality and certain other loan characteristics. Higher
delinquencies and defaults may contribute to these difficulties
by reducing the value of mortgage loan portfolios and requiring
originators to sell their portfolios at greater discounts to
par. In addition, the cost of servicing an increasingly
delinquent mortgage loan portfolio may rise without a
corresponding increase in servicing compensation. The value of
many residual interests retained by sellers of mortgage loans in
the securitization market has also been declining. Overall
originations volumes are down significantly in the current
economic environment. According to Inside Mortgage Finance,
total U.S. residential mortgage originations volume
decreased from $3.0 trillion in 2006 to $1.4 trillion in
2011. Any of the foregoing could adversely affect our business,
financial condition and results of operations.
We
service reverse mortgages, which subjects us to additional risks
and could have a material adverse effect on our business,
liquidity, financial condition and results of
operations.
In December 2011, we signed an agreement to purchase the
servicing rights to certain reverse mortgages (the Reverse
Mortgage Acquisition) from Bank of America, N.A.
(BANA), an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, one of the underwriters of
this offering. The reverse mortgage business is subject to
substantial risks, including market, credit, interest rate,
liquidity, operational and legal risks. A reverse mortgage is a
loan available to seniors aged 62 or older that allows
homeowners to borrow money against the value of their home. No
repayment of the mortgage is required until the borrower dies or
the home is sold. A deterioration of the market for reverse
mortgages may reduce the number of reverse mortgages we service,
reduce the profitability of reverse mortgages currently serviced
by us and adversely affect our ability to sell reverse mortgages
in the market. Although foreclosures involving reverse mortgages
generally occur less frequently than forward mortgages, loan
defaults on reverse mortgages leading to foreclosures may occur
if borrowers fail to meet maintenance obligations, such as
payment of taxes or home insurance premiums. An increase in
foreclosure rates may increase our cost of servicing. As a
reverse mortgage servicer, we will also be responsible for
funding any payments due to borrowers in a timely manner,
remitting to investors interest accrued, and paying for interest
shortfalls. Advances on reverse mortgages are typically greater
than advances on forward residential mortgages. They are
typically recovered upon weekly or monthly reimbursement or from
sale in the market. In the event we receive requests for
advances in excess of amounts we are able to fund, we may not be
able to fund these advance requests, which could materially and
adversely affect our liquidity. Finally, we are subject to
negative headline risk in the event that loan defaults on
reverse mortgages lead to foreclosures or
18
even evictions of elderly homeowners. All of the above factors
could have a material adverse effect on our business, liquidity,
financial condition and results of operations.
Borrowers
with adjustable rate mortgage loans are especially exposed to
increases in monthly payments and they may not be able to
refinance their loans, which could cause delinquency, default
and foreclosure and therefore adversely affect our
business.
Borrowers with adjustable rate mortgage loans are exposed to
increased monthly payments when the related mortgage loans
interest rate adjusts upward from an initial fixed rate or a low
introductory rate, as applicable, to the rate computed in
accordance with the applicable index and margin. Borrowers with
adjustable rate mortgage loans seeking to refinance their
mortgage loans to avoid increased monthly payments as a result
of an upwards adjustment of the mortgage loans interest
rate may no longer be able to find available replacement loans
at comparably low interest rates. This increase in
borrowers monthly payments, together with any increase in
prevailing market interest rates, may result in significantly
increased monthly payments for borrowers with adjustable rate
mortgage loans, which may cause delinquency, default and
foreclosure. Increased mortgage defaults and foreclosures may
adversely affect our business as they reduce the number of
mortgages we service.
We
principally service higher risk loans, which exposes us to a
number of different risks.
A significant percentage of the mortgage loans we service are
higher risk loans, meaning that the loans are to less
creditworthy borrowers or for properties the value of which has
decreased. These loans are more expensive to service because
they require more frequent interaction with customers and
greater monitoring and oversight. As a result, these loans tend
to have higher delinquency and default rates, which can have a
significant impact on our revenues, expenses and the valuation
of our MSRs. It may also be more difficult for us to recover
advances we are required to make with respect to higher risk
loans. In connection with the ongoing mortgage market reform and
regulatory developments, servicers of higher risk loans may be
subject to increased scrutiny by state and federal regulators or
may experience higher compliance costs, which could result in
higher servicing costs. We may not be able to pass along any
incremental costs we incur to our servicing clients. All of the
foregoing factors could therefore adversely affect our business,
financial condition and results of operations.
A
significant change in delinquencies for the loans we service
could adversely affect our business, financial condition and
results of operations.
Delinquency rates have a significant impact on our revenues, our
expenses and on the valuation of our MSRs as follows:
|
|
|
|
|
Revenue. An increase in delinquencies will
result in lower revenue for loans we service for GSEs because we
only collect servicing fees from GSEs for performing loans.
Additionally, while increased delinquencies generate higher
ancillary fees, including late fees, these fees are not likely
to be recoverable in the event that the related loan is
liquidated. In addition, an increase in delinquencies lowers the
interest income we receive on cash held in collection and other
accounts.
|
|
|
|
Expenses. An increase in delinquencies will
result in a higher cost to service due to the increased time and
effort required to collect payments from delinquent borrowers.
It may also result in an increase in interest expense as a
result of an increase in our advancing obligations.
|
|
|
|
Liquidity. An increase in delinquencies could
also negatively impact our liquidity because of an increase in
borrowing under our advance facilities.
|
19
|
|
|
|
|
Valuation of MSRs. We base the price we pay
for MSRs on, among other things, our projections of the cash
flows from the related pool of mortgage loans. Our expectation
of delinquencies is a significant assumption underlying those
cash flow projections. If delinquencies were significantly
greater than expected, the estimated fair value of our MSRs
could be diminished. If the estimated fair value of MSRs is
reduced, we could suffer a loss, which has a negative impact on
our financial results.
|
A further increase in delinquency rates could therefore
adversely affect our business, financial condition and results
of operations.
Decreasing
property values have caused an increase in LTVs, resulting in
borrowers having little or negative equity in their property,
which may reduce new loan originations and provide incentive to
borrowers to strategically default on their loans.
According to CoreLogic, the percentage of borrowers who owe more
on a related mortgage loan than the property is worth, or have
negative equity in their property, reached approximately 23% in
December 2011. We believe that borrowers with negative equity in
their properties are more likely to strategically default on
mortgage loans, which could materially affect our business.
Also, with the exception of loans modified under the Making Home
Affordable plan (MHA), we are unable to refinance
loans with high LTVs. Increased LTVs could reduce our ability to
originate loans for borrowers with low or negative equity and
could adversely affect our business, financial condition and
results of operations.
The
industry in which we operate is highly competitive and our
inability to compete successfully could adversely affect our
business, financial condition and results of
operations.
We operate in a highly competitive industry that could become
even more competitive as a result of economic, legislative,
regulatory and technological changes. In the servicing industry,
we face competition in areas such as fees and performance in
reducing delinquencies and entering successful modifications.
Competition to service mortgage loans comes primarily from large
commercial banks and savings institutions. These financial
institutions generally have significantly greater resources and
access to capital than we do, which gives them the benefit of a
lower cost of funds. Additionally, our servicing competitors may
decide to modify their servicing model to compete more directly
with our servicing model, or our servicing model may generate
lower margins as a result of competition or as overall economic
conditions improve.
In the mortgage loan originations industry, we face competition
in such areas as mortgage loan offerings, rates, fees and
customer service. Competition to originate mortgage loans comes
primarily from large commercial banks and savings institutions.
These financial institutions generally have significantly
greater resources and access to capital than we do, which gives
them the benefit of a lower cost of funds.
In addition, technological advances and heightened
e-commerce
activities have increased consumers accessibility to
products and services. This has intensified competition among
banks and non-banks in offering mortgage loans and loan
servicing. We may be unable to compete successfully in our
industries and this could adversely affect our business,
financial condition and results of operations.
We may
not be able to maintain or grow our business if we cannot
identify and acquire MSRs or enter into additional subservicing
agreements on favorable terms.
Our servicing portfolio is subject to run off,
meaning that mortgage loans serviced by us may be prepaid prior
to maturity, refinanced with a mortgage not serviced by us or
liquidated through foreclosure,
deed-in-lieu
of foreclosure or other liquidation process or repaid through
standard amortization of principal. As a result, our ability to
maintain the size of our servicing portfolio depends on our
ability to originate additional mortgages or to acquire the
right to service additional pools of residential mortgages. We
may not be able to acquire MSRs or enter into additional
subservicing agreements on terms favorable to us or at all,
20
which could adversely affect our business, financial condition
and results of operations. In determining the purchase price for
MSRs and subservicing agreements, management makes certain
assumptions, many of which are beyond our control, including,
among other things:
|
|
|
|
|
the rates of prepayment and repayment within the underlying
pools of mortgage loans;
|
|
|
|
projected rates of delinquencies, defaults and liquidations;
|
|
|
|
future interest rates;
|
|
|
|
our cost to service the loans;
|
|
|
|
ancillary fee income; and
|
|
|
|
amounts of future servicing advances.
|
We may
not be able to recover our significant investments in personnel
and our technology platform if we cannot identify and acquire
MSRs or enter into additional subservicing agreements on
favorable terms, which could adversely affect our business,
financial condition and results of operations.
We have made, and expect to continue to make, significant
investments in personnel and our technology platform to allow us
to service additional loans. In particular, prior to acquiring a
large portfolio of MSRs or entering into a large subservicing
contract, we invest significant resources in recruiting,
training, technology and systems. We may not realize the
expected benefits of these investments to the extent we are
unable to increase the pool of residential mortgages serviced,
we are delayed in obtaining the right to service such loans or
we do not appropriately value the MSRs that we do purchase or
the subservicing agreements we enter into. Any of the foregoing
could adversely affect our business, financial condition and
results of operations.
We may
not realize all of the anticipated benefits of potential future
acquisitions, which could adversely affect our business,
financial condition and results of operations.
Our ability to realize the anticipated benefits of potential
future acquisitions of servicing portfolios, originations
platforms or companies will depend, in part, on our ability to
scale-up to
appropriately service any such assets, and integrate the
businesses of such acquired companies with our business. The
process of acquiring assets or companies may disrupt our
business and may not result in the full benefits expected. The
risks associated with acquisitions include, among others:
|
|
|
|
|
uncoordinated market functions;
|
|
|
|
unanticipated issues in integrating information, communications
and other systems;
|
|
|
|
unanticipated incompatibility of purchasing, logistics,
marketing and administration methods;
|
|
|
|
not retaining key employees; and
|
|
|
|
the diversion of managements attention from ongoing
business concerns.
|
Moreover, the success of any acquisition will depend upon our
ability to effectively integrate the acquired servicing
portfolios, originations platforms or businesses. The acquired
servicing portfolios, originations platforms or businesses may
not contribute to our revenues or earnings to any material
extent, and cost savings and synergies we expect at the time of
an acquisition may not be realized once the acquisition has been
completed. If we inappropriately value the assets we acquire or
the value of the assets we acquire
21
declines after we acquire them, the resulting charges may
negatively affect the carrying value of the assets on our
balance sheet and our earnings. See We use financial
models and estimates in determining the fair value of certain
assets, such as MSRs and investments in debt securities. If our
estimates or assumptions prove to be incorrect, we may be
required to record impairment charges, which could adversely
affect our earnings. Furthermore, if we incur additional
indebtedness to finance an acquisition, the acquired business
may not be able to generate sufficient cash flow to service that
additional indebtedness. Unsuitable or unsuccessful acquisitions
could adversely affect our business, financial condition and
results of operations.
We may be
unable to obtain sufficient capital to meet the financing
requirements of our business.
Our financing strategy includes the use of significant leverage.
Accordingly, our ability to finance our operations and repay
maturing obligations rests in large part on our ability to
borrow money. We are generally required to renew our financing
arrangements each year, which exposes us to refinancing and
interest rate risks. See Note 12 to Consolidated
Financial StatementsIndebtedness. Our ability to
refinance existing debt and borrow additional funds is affected
by a variety of factors including:
|
|
|
|
|
limitations imposed on us under the indenture governing our
senior notes and other financing agreements that contain
restrictive covenants and borrowing conditions that may limit
our ability to raise additional debt;
|
|
|
|
the decrease in liquidity in the credit markets;
|
|
|
|
prevailing interest rates;
|
|
|
|
the strength of the lenders from which we borrow;
|
|
|
|
limitations on borrowings on advance facilities imposed by the
amount of eligible collateral pledged, which may be less than
the borrowing capacity of the advance facility; and
|
|
|
|
accounting changes that may impact calculations of covenants in
our debt agreements.
|
In the ordinary course of our business, we periodically borrow
money or sell newly-originated loans to fund our servicing and
originations operations. See Managements Discussion
and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources. Our
ability to fund current operations and meet our service advance
obligations depends on our ability to secure these types of
financings on acceptable terms and to renew or replace existing
financings as they expire. Such financings may not be available
with the GSEs or other counterparties on acceptable terms or at
all.
An event of default, a negative ratings action by a rating
agency, an adverse action by a regulatory authority or a general
deterioration in the economy that constricts the availability of
creditsimilar to the market conditions that we have
experienced during the last three yearsmay increase our
cost of funds and make it difficult for us to renew existing
credit facilities or obtain new lines of credit. We intend to
continue to seek opportunities to acquire loan servicing
portfolios and/or businesses that engage in loan servicing
and/or loan originations. Our liquidity and capital resources
may be diminished by any such transactions. Additionally, we
believe that a significant acquisition may require us to raise
additional capital to facilitate such a transaction, which may
not be available on acceptable terms or at all.
In June 2011, the Basel Committee on Banking Supervision of the
Bank of International Settlements announced the final framework
for strengthening capital requirements, known as Basel III,
which if implemented by U.S. bank regulatory agencies, will
increase the cost of funding on banking institutions that we
rely on for financing. Such Basel III requirements on
banking institutions could reduce our sources of funding and
increase the costs of originating and servicing mortgage loans.
If we are unable to obtain
22
sufficient capital on acceptable terms for any of the foregoing
reasons, this could adversely affect our business, financial
condition and results of operations.
We may
not be able to continue to grow our loan originations volume,
which could adversely affect our business, financial condition
and results of operations.
Our loan originations business consists primarily of refinancing
existing loans. While we intend to use sales lead aggregators
and Internet marketing to reach new borrowers, our Consumer
Direct Retail originations platform may not succeed because of
the referral-driven nature of our industry. Further, our largest
customer base consists of borrowers whose existing loans we
service. Because we primarily service credit-sensitive loans,
many of our existing servicing customers may not be able to
qualify for conventional mortgage loans with us or may pose a
higher credit risk than other consumers. Furthermore, our
Consumer Direct Retail originations platform focuses
predominantly on refinancing existing mortgage loans. This type
of originations activity is sensitive to increases in interest
rates.
Our loan originations business also consists of providing
purchase money loans to homebuyers. The origination of purchase
money mortgage loans is greatly influenced by traditional
business clients in the home buying process such as realtors and
builders. As a result, our ability to secure relationships with
such traditional business clients will influence our ability to
grow our purchase money mortgage loan volume and, thus, our loan
originations business.
Our wholesale originations business operates largely through
third party mortgage brokers who are not contractually obligated
to do business with us. Further, our competitors also have
relationships with our brokers and actively compete with us in
our efforts to expand our broker networks. Accordingly, we may
not be successful in maintaining our existing relationships or
expanding our broker networks. If we are unable to continue to
grow our loan originations business, this could adversely affect
our business, financial condition and results of operations.
Our
counterparties may terminate our servicing rights and
subservicing contracts, which could adversely affect our
business, financial condition and results of
operations.
The owners of the loans we service and the primary servicers of
the loans we subservice, may, under certain circumstances,
terminate our MSRs or subservicing contracts, respectively.
As is standard in the industry, under the terms of our master
servicing agreement with GSEs, GSEs have the right to terminate
us as servicer of the loans we service on their behalf at any
time and also have the right to cause us to sell the MSRs to a
third party. In addition, failure to comply with servicing
standards could result in termination of our agreements with
GSEs. See Because we are required to follow the
guidelines of the GSEs with which we do business and are not
able to negotiate our fees with these entities for the purchase
of our loans, our competitors may be able to sell their loans on
more favorable terms. Some GSEs may also have the right to
require us to assign the MSRs to a subsidiary and sell our
equity interest in the subsidiary to a third party. Under our
subservicing contracts, the primary servicers for which we
conduct subservicing activities have the right to terminate our
subservicing rights with or without cause, with little notice
and little to no compensation. We expect to continue to acquire
subservicing rights, which could exacerbate these risks.
If we were to have our servicing or subservicing rights
terminated on a material portion of our servicing portfolio,
this could adversely affect our business, financial condition
and results of operations.
23
Federal,
state and local laws and regulations could materially adversely
affect our business, financial condition and results of
operations.
Federal, state and local governments have recently proposed or
enacted numerous laws, regulations and rules related to mortgage
loans generally and foreclosure actions in particular. These
laws, regulations and rules may result in delays in the
foreclosure process, reduced payments by borrowers, modification
of the original terms of mortgage loans, permanent forgiveness
of debt and increased servicing advances. In some cases, local
governments have ordered moratoriums on foreclosure activity,
which prevent a servicer or trustee, as applicable, from
exercising any remedies they might have in respect of
liquidating a severely delinquent mortgage loan. Several courts
also have taken unprecedented steps to slow the foreclosure
process or prevent foreclosure altogether.
In addition, the Federal Housing Finance Agency (the
FHFA) recently proposed changes to mortgage
servicing compensation structures, including cutting servicing
fees and channeling funds toward reserve accounts for delinquent
loans.
Due to the highly regulated nature of the residential mortgage
industry, we are required to comply with a wide array of
federal, state and local laws and regulations that regulate,
among other things, the manner in which we conduct our servicing
and originations business and the fees we may charge. These
regulations directly impact our business and require constant
compliance, monitoring and internal and external audits. A
material failure to comply with any of these laws or regulations
could subject us to lawsuits or governmental actions, which
could materially adversely affect our business, financial
condition and results of operations.
In addition, there continue to be changes in legislation and
licensing in an effort to simplify the consumer mortgage
experience, which require technology changes and additional
implementation costs for loan originators. We expect legislative
changes will continue in the foreseeable future, which may
increase our operating expenses.
Any of these changes in the law could adversely affect our
business, financial condition and results of operations.
Unlike
competitors that are banks, we are subject to state licensing
and operational requirements that result in substantial
compliance costs.
Because we are not a depository institution, we do not benefit
from a federal exemption to state mortgage banking, loan
servicing or debt collection licensing and regulatory
requirements. We must comply with state licensing requirements
and varying compliance requirements in all fifty states and the
District of Columbia, and we are sensitive to regulatory changes
that may increase our costs through stricter licensing laws,
disclosure laws or increased fees or that may impose conditions
to licensing that we or our personnel are unable to meet. In
addition, we are subject to periodic examinations by state
regulators, which can result in refunds to borrowers of certain
fees earned by us, and we may be required to pay substantial
penalties imposed by state regulators due to compliance errors.
Future state legislation and changes in existing regulation may
significantly increase our compliance costs or reduce the amount
of ancillary fees, including late fees, that we may charge to
borrowers. This could make our business cost-prohibitive in the
affected state or states and could materially affect our
business.
Federal
and state legislative and agency initiatives in mortgage-backed
securities (MBS) and securitization may adversely
affect our financial condition and results of
operations.
There are federal and state legislative and agency initiatives
that could, once fully implemented, adversely affect our
business. For instance, the risk retention requirement under the
Dodd-Frank Act requires securitizers to retain a minimum
beneficial interest in MBS they sell through a securitization,
absent certain qualified residential mortgage (QRM)
exemptions. Once implemented, the risk retention requirement may
24
result in higher costs of certain originations operations and
impose on us additional compliance requirements to meet
servicing and originations criteria for QRMs. Additionally, the
amendments to Regulation AB relating to the registration
statement required to be filed by ABS issuers recently adopted
by the SEC pursuant to the Dodd-Frank Act would increase
compliance costs for ABS issuers, which could in turn increase
our cost of funding and operations. Lastly, certain proposed
federal legislation would permit borrowers in bankruptcy to
restructure mortgage loans secured by primary residences.
Bankruptcy courts could, if this legislation is enacted, reduce
the principal balance of a mortgage loan that is secured by a
lien on mortgaged property, reduce the mortgage interest rate,
extend the term to maturity or otherwise modify the terms of a
bankrupt borrowers mortgage loan. Any of the foregoing
could materially affect our financial condition and results of
operations.
Our
business would be adversely affected if we lose our
licenses.
Our operations are subject to regulation, supervision and
licensing under various federal, state and local statutes,
ordinances and regulations. In most states in which we operate,
a regulatory agency regulates and enforces laws relating to
mortgage servicing companies and mortgage originations companies
such as us. These rules and regulations generally provide for
licensing as a mortgage servicing company, mortgage originations
company or third party debt default specialist, requirements as
to the form and content of contracts and other documentation,
licensing of our employees and employee hiring background
checks, licensing of independent contractors with which we
contract, restrictions on collection practices, disclosure and
record-keeping requirements and enforcement of borrowers
rights. In certain states, we are subject to periodic
examination by state regulatory authorities. Some states in
which we operate require special licensing or provide extensive
regulation of our business.
We believe that we maintain all material licenses and permits
required for our current operations and are in substantial
compliance with all applicable federal, state and local
regulations. We may not be able to maintain all requisite
licenses and permits, and the failure to satisfy those and other
regulatory requirements could result in a default under our
servicing agreements and have a material adverse effect on our
operations. The states that currently do not provide extensive
regulation of our business may later choose to do so, and if
such states so act, we may not be able to obtain or maintain all
requisite licenses and permits. The failure to satisfy those and
other regulatory requirements could result in a default under
our servicing agreements and have a material adverse effect on
our operations. Furthermore, the adoption of additional, or the
revision of existing, rules and regulations could adversely
affect our business, financial condition and results of
operations.
We may be
required to indemnify or repurchase loans we originated, or will
originate, if our loans fail to meet certain criteria or
characteristics or under other circumstances.
The indentures governing our securitized pools of loans and our
contracts with purchasers of our whole loans contain provisions
that require us to indemnify or repurchase the related loans
under certain circumstances. While our contracts vary, they
contain provisions that require us to repurchase loans if:
|
|
|
|
|
our representations and warranties concerning loan quality and
loan circumstances are inaccurate, including representations
concerning the licensing of a mortgage broker;
|
|
|
|
we fail to secure adequate mortgage insurance within a certain
period after closing;
|
|
|
|
a mortgage insurance provider denies coverage; or
|
|
|
|
we fail to comply, at the individual loan level or otherwise,
with regulatory requirements in the current dynamic regulatory
environment.
|
We believe that, as a result of the current market environment,
many purchasers of residential mortgage loans are particularly
aware of the conditions under which originators must indemnify
or repurchase
25
loans and would benefit from enforcing any repurchase remedies
they may have. We believe that our exposure to repurchases under
our representations and warranties includes the current unpaid
balance of all loans we have sold. In the years ended
December 31, 2008, 2009, 2010 and 2011, we sold an
aggregate of $7.4 billion of loans. To recognize the
potential loan repurchase or indemnification losses, we have
recorded a reserve of $10.0 million as of December 31,
2011. Because of the increase in our loan originations since
2008, we expect that repurchase requests are likely to increase.
Should home values continue to decrease, our realized loan
losses from loan repurchases and indemnifications may increase
as well. As such, our reserve for repurchases may increase
beyond our current expectations. See Managements
Discussion and Analysis of Financial Condition and Results of
OperationsAnalysis of Items on Consolidated Balance
SheetLiabilities and Members Equity. If we are
required to indemnify or repurchase loans that we originate and
sell or securitize that result in losses that exceed our
reserve, this could adversely affect our business, financial
condition and results of operations.
We may
incur increased litigation costs and related losses if a
borrower challenges the validity of a foreclosure action or if a
court overturns a foreclosure, which could adversely affect our
liquidity, business, financial condition and results of
operations.
We may incur costs if we are required to, or if we elect to,
execute or re-file documents or take other action in our
capacity as a servicer in connection with pending or completed
foreclosures. We may incur litigation costs if the validity of a
foreclosure action is challenged by a borrower. If a court
overturns a foreclosure because of errors or deficiencies in the
foreclosure process, we may have liability to a title insurer or
the purchaser of the property sold in foreclosure. These costs
and liabilities may not be legally or otherwise reimbursable to
us, particularly to the extent they relate to securitized
mortgage loans. In addition, if certain documents required for a
foreclosure action are missing or defective, we could be
obligated to cure the defect or repurchase the loan. A
significant increase in litigation costs could adversely affect
our liquidity, and our inability to be reimbursed for an advance
could adversely affect our business, financial condition and
results of operations.
Because
we are required to follow the guidelines of the GSEs with which
we do business and are not able to negotiate our fees with these
entities for the purchase of our loans, our competitors may be
able to sell their loans to GSEs on more favorable
terms.
Even though we currently originate conventional agency and
government conforming loans, because we previously originated
non-prime mortgage loans, we believe we are required to pay a
higher fee to access the secondary market for selling our loans
to GSEs. We believe that because many of our competitors have
always originated conventional loans, they are able to sell
newly originated loans on more favorable terms than us. As a
result, these competitors are able to earn higher margins than
we earn on originated loans, which could materially impact our
business.
In our transactions with the GSEs, we are required to follow
specific guidelines that impact the way we service and originate
mortgage loans including:
|
|
|
|
|
our staffing levels and other servicing practices;
|
|
|
|
the servicing and ancillary fees that we may charge;
|
|
|
|
our modification standards and procedures; and
|
|
|
|
the amount of non-reimbursable advances.
|
In particular, the FHFA has directed GSEs to align their
guidelines for servicing delinquent mortgages they own or
guarantee, which can result in monetary incentives for servicers
that perform well and penalties
26
for those that do not. In addition, FHFA has directed Fannie Mae
to assess compensatory fees against servicers in connection with
delinquent loans, foreclosure delays, and other breaches of
servicing obligations.
We cannot negotiate these terms with the GSEs and they are
subject to change at any time. A significant change in these
guidelines that has the effect of decreasing our fees or
requires us to expend additional resources in providing mortgage
services could decrease our revenues or increase our costs,
which could adversely affect our business, financial condition
and results of operations.
We are
required to make servicing advances that can be subject to
delays in recovery or may not be recoverable in certain
circumstances, which could adversely affect our liquidity,
business, financial condition and results of
operations.
During any period in which a borrower is not making payments, we
are required under most of our servicing agreements to advance
our own funds to meet contractual principal and interest
remittance requirements for investors, pay property taxes and
insurance premiums, legal expenses and other protective
advances. We also advance funds to maintain, repair and market
real estate properties on behalf of investors. As home values
change, we may have to reconsider certain of the assumptions
underlying our decisions to make advances and, in certain
situations, our contractual obligations may require us to make
certain advances for which we may not be reimbursed. In
addition, in the event a mortgage loan serviced by us defaults
or becomes delinquent, the repayment to us of the advance may be
delayed until the mortgage loan is repaid or refinanced or a
liquidation occurs. As a reverse mortgage servicer, we will also
be responsible for funding any payments due to borrowers in a
timely manner, remitting to investors interest accrued and
paying for interest shortfalls. Advances on reverse mortgages
are typically greater than advances on forward residential
mortgages. They are typically recovered upon weekly or monthly
reimbursement or from sale in the market. In the event we
receive requests for advances in excess of amounts we are able
to fund, we may not be able to fund these advance requests,
which could materially and adversely affect our liquidity. A
delay in our ability to collect an advance may adversely affect
our liquidity, and our inability to be reimbursed for an advance
could adversely affect our business, financial condition and
results of operations.
Changes
to government mortgage modification programs could adversely
affect future incremental revenues.
Under HAMP and similar government programs, a participating
servicer may be entitled to receive financial incentives in
connection with any modification plans it enters into with
eligible borrowers and subsequent success fees to the extent
that a borrower remains current in any agreed upon loan
modification. While we participate in and dedicate numerous
resources to HAMP, we may not continue to participate in or
realize future revenues from HAMP or any other government
mortgage modification program. Changes in legislation or
regulation regarding HAMP that result in the modification of
outstanding mortgage loans and changes in the requirements
necessary to qualify for refinancing mortgage loans may impact
the extent to which we participate in and receive financial
benefits from such programs, or may increase the expense of our
participation in such programs. Changes in government loan
modification programs could also result in an increase to our
costs.
HAMP is currently scheduled to expire on December 31, 2013.
If HAMP is not extended, this could decrease our revenues, which
would adversely affect our business, financial condition and
results of operations.
Under the MHA, a participating servicer may receive a financial
incentive to modify qualifying loans, in accordance with the
plans guidelines and requirements. The MHA also allows us
to refinance loans with a high LTV of up to 125%. This allows us
to refinance loans to existing borrowers who have little or
negative equity in their homes. Changes in legislation or
regulations regarding the MHA could reduce our volume of
refinancing originations to borrowers with little or negative
equity in their homes. Changes to HAMP, the MHA and other
similar programs could adversely affect future incremental
revenues.
27
We are
highly dependent upon programs administered by GSEs such as
Fannie Mae and Freddie Mac to generate revenues through mortgage
loan sales to institutional investors. Any changes in existing
U.S. government-sponsored mortgage programs could materially and
adversely affect our business, liquidity, financial position and
results of operations.
In February 2011, the Obama Administration delivered a report to
Congress regarding a proposal to reform the housing finance
markets in the United States. The report, among other things,
outlined various potential proposals to wind down the GSEs and
reduce or eliminate over time the role of the GSEs in
guaranteeing mortgages and providing funding for mortgage loans,
as well as proposals to implement reforms relating to borrowers,
lenders and investors in the mortgage market, including reducing
the maximum size of loans that the GSEs can guarantee, phasing
in a minimum down payment requirement for borrowers, improving
underwriting standards and increasing accountability and
transparency in the securitization process.
Our ability to generate revenues through mortgage loan sales to
institutional investors depends to a significant degree on
programs administered by the GSEs, such as Fannie Mae and
Freddie Mac, a government agency, Ginnie Mae, and others that
facilitate the issuance of MBS in the secondary market. These
GSEs play a critical role in the residential mortgage industry
and we have significant business relationships with many of
them. Almost all of the conforming loans we originate qualify
under existing standards for inclusion in guaranteed mortgage
securities backed by GSEs. We also derive other material
financial benefits from these relationships, including the
assumption of credit risk by these GSEs on loans included in
such mortgage securities in exchange for our payment of
guarantee fees and the ability to avoid certain loan inventory
finance costs through streamlined loan funding and sale
procedures.
Any discontinuation of, or significant reduction in, the
operation of these GSEs or any significant adverse change in the
level of activity in the secondary mortgage market or the
underwriting criteria of these GSEs could materially and
adversely affect our business, liquidity, financial position and
results of operations.
The
conservatorship of Fannie Mae and Freddie Mac and related
efforts, along with any changes in laws and regulations
affecting the relationship between Fannie Mae and Freddie Mac
and the U.S. federal government, could adversely affect our
business and prospects.
Due to increased market concerns about the ability of Fannie Mae
and Freddie Mac to withstand future credit losses associated
with securities held in their investment portfolios, and on
which they provide guarantees without the direct support of the
U.S. federal government, on July 30, 2008, the U.S.
government passed the Housing and Economic Recovery Act of 2008.
On September 7, 2008, the FHFA, placed Fannie Mae and
Freddie Mac into conservatorship and, together with the
U.S. Treasury, established a program designed to boost
investor confidence in their respective debt and MBS. As the
conservator of Fannie Mae and Freddie Mac, the FHFA controls and
directs the operations of Fannie Mae and Freddie Mac and may
(i) take over the assets and operations of Fannie Mae and
Freddie Mac with all the powers of the shareholders, the
directors and the officers of Fannie Mae and Freddie Mac and
conduct all business of Fannie Mae and Freddie Mac;
(ii) collect all obligations and money due to Fannie Mae
and Freddie Mac; (iii) perform all functions of Fannie Mae
and Freddie Mac which are consistent with the conservators
appointment; (iv) preserve and conserve the assets and
property of Fannie Mae and Freddie Mac; and (v) contract
for assistance in fulfilling any function, activity, action or
duty of the conservator.
In addition to the FHFA becoming the conservator of Fannie Mae
and Freddie Mac, the U.S. Treasury and the FHFA have
entered into preferred stock purchase agreements among the
U.S. Treasury, Fannie Mae and Freddie Mac pursuant to which
the U.S. Treasury will ensure that each of Fannie Mae and
Freddie Mac maintains a positive net worth.
Although the U.S. Treasury has committed capital to Fannie
Mae and Freddie Mac, these actions may not be adequate for their
needs. If these actions are inadequate, Fannie Mae and Freddie
Mac could continue to suffer losses and could fail to honor
their guarantees and other obligations. The future roles of
Fannie Mae and
28
Freddie Mac could be significantly reduced and the nature of
their guarantees could be considerably limited relative to
historical measurements. Any changes to the nature of the
guarantees provided by Fannie Mae and Freddie Mac could redefine
what constitute agency and government conforming MBS and could
have broad adverse market implications. Such market implications
could adversely affect our business and prospects.
The
geographic concentration of our servicing portfolio may result
in a higher rate of delinquencies, which could adversely affect
our business, financial condition and results of
operations.
As of December 31, 2011, approximately 9%, 14% and 14% of
the aggregate outstanding loan balance in our servicing
portfolio was secured by properties located in California,
Florida and Texas, respectively. Some of these states have
experienced severe declines in property values and are
experiencing a disproportionately high rate of delinquencies and
foreclosures relative to other states. To the extent these
states continue to experience weaker economic conditions or
greater rates of decline in real estate values than the United
States generally, the concentration of loans we service in those
regions may increase the effect of the risks listed in this
Risk Factors section. The impact of property value
declines may increase in magnitude and it may continue for a
long period of time. Additionally, if states in which we have
greater concentrations of business were to change their
licensing or other regulatory requirements to make our business
cost-prohibitive, we may be required to stop doing business in
those states or may be subject to higher cost of doing business
in those states, which could adversely affect our business,
financial condition and results of operations.
We use
financial models and estimates in determining the fair value of
certain assets, such as MSRs and investments in debt securities.
If our estimates or assumptions prove to be incorrect, we may be
required to record impairment charges, which could adversely
affect our earnings.
We use internal financial models that utilize, wherever
possible, market participant data to value certain of our
assets, including our MSRs, newly originated loans held for sale
and investments in debt securities for purposes of financial
reporting. These models are complex and use 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. Even if the general accuracy of our
valuation models is validated, valuations are highly dependent
upon the reasonableness of our assumptions and the
predictability of the relationships that drive the results of
the models. If loan loss levels are higher than anticipated, due
to an increase in delinquencies or prepayment speeds, or
financial market illiquidity continues beyond our estimate, the
value of certain of our assets may decrease. We may be required
to record impairment charges, which could impact our ability to
satisfy minimum net worth covenants of $175.0 million and
borrowing conditions in our debt agreements and adversely affect
our business, financial condition or results of operations.
Errors in our financial models or changes in assumptions could
adversely affect our earnings. See We may not
realize all of the anticipated benefits of potential future
acquisitions, which could adversely affect our business,
financial condition and results of operations.
Our
earnings may decrease because of changes in prevailing interest
rates.
Our profitability is directly affected by changes in prevailing
interest rates. The following are the material risks we face
related to changes in prevailing interest rates:
|
|
|
|
|
an increase in prevailing interest rates could generate an
increase in delinquency, default and foreclosure rates resulting
in an increase in both operating expenses and interest expense
and could cause a reduction in the value of our assets;
|
|
|
|
|
|
an increase in prevailing interest rates could adversely affect
our loan originations volume because refinancing an existing
loan would be less attractive for homeowners and qualifying for
a loan may be more difficult for consumers;
|
|
|
|
|
|
an increase in prevailing interest rates would increase the cost
of servicing our outstanding debt, including our ability to
finance servicing advances and loan originations;
|
29
|
|
|
|
|
a decrease in prevailing interest rates may require us to record
a decrease in the value of our MSRs; and
|
|
|
|
|
|
a decrease in prevailing interest rates could reduce our
earnings from our custodial deposit accounts.
|
Our
hedging strategies may not be successful in mitigating our risks
associated with interest rates.
From time to time, we have used various derivative financial
instruments to provide a level of protection against interest
rate risks, but no hedging strategy can protect us completely.
The derivative financial instruments that we select may not have
the effect of reducing our interest rate risks. In addition, the
nature and timing of hedging transactions may influence the
effectiveness of these strategies. Poorly designed strategies,
improperly executed and documented transactions or inaccurate
assumptions could actually increase our risks and losses. In
addition, hedging strategies involve transaction and other
costs. Our hedging strategies and the derivatives that we use
may not be able to adequately offset the risks of interest rate
volatility and our hedging transactions may result in or magnify
losses. Furthermore, interest rate derivatives may not be
available on favorable terms or at all, particularly during
economic downturns. Any of the foregoing risks could adversely
affect our business, financial condition and results of
operations.
A
downgrade in our servicer ratings could have an adverse effect
on our business, financial condition and results of
operations.
Standard & Poors and Fitch rate us as a
residential loan servicer. Our current favorable ratings from
the rating agencies are important to the conduct of our loan
servicing business. These ratings may be downgraded in the
future. Any such downgrade could adversely affect our business,
financial condition and results of operations.
We depend
on the accuracy and completeness of information about borrowers
and counterparties and any misrepresented information could
adversely affect our business, financial condition and results
of operations.
In deciding whether to extend credit or to enter into other
transactions with borrowers and counterparties, we may rely on
information furnished to us by or on behalf of borrowers and
counterparties, including financial statements and other
financial information. We also may rely on representations of
borrowers and counterparties as to the accuracy and completeness
of that information and, with respect to financial statements,
on reports of independent auditors. We additionally rely on
representations from public officials concerning the licensing
and good standing of the third party mortgage brokers through
which we do business. While we have a practice of independently
verifying the borrower information that we use in deciding
whether to extend credit or to agree to a loan modification,
including employment, assets, income and credit score, if any of
this information is intentionally or negligently misrepresented
and such misrepresentation is not detected prior to loan
funding, the value of the loan may be significantly lower than
expected. Whether a misrepresentation is made by the loan
applicant, the mortgage broker, another third party or one of
our employees, we generally bear the risk of loss associated
with the misrepresentation. We have controls and processes
designed to help us identify misrepresented information in our
loan originations operations. We, however, may not have detected
or may not detect all misrepresented information in our loan
originations or from our business clients. Any such
misrepresented information could adversely affect our business,
financial condition and results of operations.
Technology
failures could damage our business operations and increase our
costs, which could adversely affect our business, financial
condition and results of operations.
The financial services industry as a whole is characterized by
rapidly changing technologies, and system disruptions and
failures caused by fire, power loss, telecommunications
failures, unauthorized intrusion, computer viruses and disabling
devices, natural disasters and other similar events may
interrupt or delay our ability to provide services to our
borrowers. Security breaches, acts of vandalism and developments
30
in computer capabilities could result in a compromise or breach
of the technology that we use to protect our borrowers
personal information and transaction data. Despite our efforts
to ensure the integrity of our systems, it is possible that we
may not be able to anticipate or implement effective preventive
measures against all security breaches, especially because the
techniques used change frequently or are not recognized until
launched, and because security attacks can originate from a wide
variety of sources, including third parties such as persons
involved with organized crime or associated with external
service providers. Those parties may also attempt to
fraudulently induce employees, customers or other users of our
systems to disclose sensitive information in order to gain
access to our data or that of our customers or clients. These
risks may increase in the future as we continue to increase our
reliance on the internet and use of web-based product offerings
and on the use of cybersecurity.
A successful penetration or circumvention of the security of our
systems or a defect in the integrity of our systems or
cybersecurity could cause serious negative consequences for our
business, including significant disruption of our operations,
misappropriation of our confidential information or that of our
customers, or damage to our computers or operating systems and
to those of our customers and counterparties. Any of the
foregoing events could result in violations of applicable
privacy and other laws, financial loss to us or to our
customers, loss of confidence in our security measures, customer
dissatisfaction, significant litigation exposure and harm to our
reputation, all of which could adversely affect our business,
financial condition and results of operations.
The
success and growth of our business will depend upon our ability
to adapt to and implement technological changes.
Our mortgage loan originations business is currently dependent
upon our ability to effectively interface with our brokers,
borrowers and other third parties and to efficiently process
loan applications and closings. The originations process is
becoming more dependent upon technological advancement, such as
our continued ability to process applications over the Internet,
accept electronic signatures, provide process status updates
instantly and other borrower-expected conveniences. Maintaining
and improving this new technology and becoming proficient with
it may also require significant capital expenditures. As these
requirements increase in the future, we will have to fully
develop these technological capabilities to remain competitive
and any failure to do so could adversely affect our business,
financial condition and results of operations.
Any
failure of our internal security measures or breach of our
privacy protections could cause harm to our reputation and
subject us to liability, any of which could adversely affect our
business, financial condition and results of
operations.
In the ordinary course of our business, we receive and store
certain confidential information concerning borrowers.
Additionally, we enter into third party relationships to assist
with various aspects of our business, some of which require the
exchange of confidential borrower information. If a third party
were to compromise or breach our security measures or those of
the vendors, through electronic, physical or other means, and
misappropriate such information, it could cause interruptions in
our operations and expose us to significant liabilities,
reporting obligations, remediation costs and damage to our
reputation. Any of the foregoing risks could adversely affect
our business, financial condition and results of operations. See
also Technology failures could damage our business
operations and increase our costs, which could adversely affect
our business, financial condition and results of
operations.
Our
vendor relationships subject us to a variety of risks.
We have significant vendors that, among other things, provide us
with financial, technology and other services to support our
servicing and originations businesses. With respect to vendors
engaged to perform activities required by servicing criteria, we
have elected to take responsibility for assessing compliance
with the applicable servicing criteria for the applicable vendor
and are required to have procedures in place to provide
reasonable assurance that the vendors activities comply in
all material respects with servicing criteria
31
applicable to the vendor. In the event that a vendors
activities do not comply with the servicing criteria, it could
negatively impact our servicing agreements. In addition, if our
current vendors were to stop providing services to us on
acceptable terms, including as a result of one or more vendor
bankruptcies due to poor economic conditions, we may be unable
to procure alternatives from other vendors in a timely and
efficient manner and on acceptable terms, or at all. Further, we
may incur significant costs to resolve any such disruptions in
service and this could adversely affect our business, financial
condition and results of operations.
The loss
of the services of our senior managers could adversely affect
our business.
The experience of our senior managers is a valuable asset to us.
Our management team has significant experience in the
residential mortgage originations and servicing industry. We do
not maintain key life insurance policies relating to our senior
managers. The loss of the services of our senior managers could
adversely affect our business.
Our
business could suffer if we fail to attract and retain a highly
skilled workforce.
Our future success will depend on our ability to identify, hire,
develop, motivate and retain highly qualified personnel for all
areas of our organization, in particular skilled managers, loan
servicers, debt default specialists, loan officers and
underwriters. Trained and experienced personnel are in high
demand and may be in short supply in some areas. Many of the
companies with which we compete for experienced employees have
greater resources than we have and may be able to offer more
attractive terms of employment. In addition, we invest
significant time and expense in training our employees, which
increases their value to competitors who may seek to recruit
them. We may not be able to attract, develop and maintain an
adequate skilled workforce necessary to operate our businesses
and labor expenses may increase as a result of a shortage in the
supply of qualified personnel. If we are unable to attract and
retain such personnel, we may not be able to take advantage of
acquisitions and other growth opportunities that may be
presented to us and this could materially affect our business,
financial condition and results of operations.
Negative
public opinion could damage our reputation and adversely affect
our earnings.
Reputation risk, or the risk to our business, earnings and
capital from negative public opinion, is inherent in our
business. Negative public opinion can result from our actual or
alleged conduct in any number of activities, including lending
and debt collection practices, corporate governance, and actions
taken by government regulators and community organizations in
response to those activities. Negative public opinion can also
result from media coverage, whether accurate or not. Negative
public opinion can adversely affect our ability to attract and
retain customers, trading counterparties and employees and can
expose us to litigation and regulatory action. Although we take
steps to minimize reputation risk in dealing with our customers
and communities, this risk will always be present in our
organization.
Risks
Related to Our Organization and Structure
If the
ownership of our common stock continues to be highly
concentrated, it may prevent you and other minority stockholders
from influencing significant corporate decisions and may result
in conflicts of interest.
Following the completion of this offering, the Initial
Stockholder, which is primarily owned by certain private equity
funds managed by an affiliate of Fortress, will own
approximately 80.8% of our outstanding common stock or 78.5% if
the underwriters overallotment option is fully exercised.
As a result, the Initial Stockholder will own shares sufficient
for the majority vote over all matters requiring a stockholder
vote, including: the election of directors; mergers,
consolidations and acquisitions; the sale of all or
substantially all of our assets and other decisions affecting
our capital structure; the amendment of our certificate of
incorporation and our bylaws; and our winding up and
dissolution. This concentration of ownership may delay,
32
deter or prevent acts that would be favored by our other
stockholders. The interests of the Initial Stockholder may not
always coincide with our interests or the interests of our other
stockholders. This concentration of ownership may also have the
effect of delaying, preventing or deterring a change in control
of us. Also, the Initial Stockholder may seek to cause us to
take courses of action that, in its judgment, could enhance its
investment in us, but which might involve risks to our other
stockholders or adversely affect us or our other stockholders,
including investors in this offering. As a result, the market
price of our common stock could decline or stockholders might
not receive a premium over the then-current market price of our
common stock upon a change in control. In addition, this
concentration of share ownership may adversely affect the
trading price of our common stock because investors may perceive
disadvantages in owning shares in a company with significant
stockholders. See Principal Stockholder and
Description of Capital StockAnti-Takeover Effects of
Delaware Law, Our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws.
We are a
holding company with no operations and will rely on our
operating subsidiaries to provide us with funds necessary to
meet our financial obligations and to pay dividends.
We are a holding company with no material direct operations. Our
principal assets are the equity interests we directly or
indirectly hold in our operating subsidiaries, which own our
operating assets. As a result, we will be dependent on loans,
dividends and other payments from our subsidiaries to generate
the funds necessary to meet our financial obligations and to pay
dividends on our common stock. Our subsidiaries are legally
distinct from us and may be prohibited or restricted from paying
dividends or otherwise making funds available to us under
certain conditions. If we are unable to obtain funds from our
subsidiaries, we may be unable to, or our board may exercise its
discretion not to, pay dividends.
We do not
anticipate paying any dividends on our common stock in the
foreseeable future.
We do not expect to declare or pay any cash or other dividends
in the foreseeable future on our common stock because we intend
to use cash flow generated by operations to grow our business.
The indenture governing our senior notes restricts our ability
to pay cash dividends on our common stock. We may also enter
into credit agreements or other borrowing arrangements in the
future that restrict or limit our ability to pay cash dividends
on our common stock. See Dividend Policy.
Certain
provisions of the Stockholders Agreement, our amended and
restated certificate of incorporation and our amended and
restated bylaws could hinder, delay or prevent a change in
control of us, which could adversely affect the price of our
common stock.
Certain provisions of our Stockholders Agreement with our
Initial Stockholder (the Stockholders Agreement),
our amended and restated certificate of incorporation and our
amended and restated bylaws contain provisions that could make
it more difficult for a third party to acquire us without the
consent of our board of directors or the Initial Stockholder.
These provisions provide for:
|
|
|
|
|
a classified board of directors with staggered three-year terms;
|
|
|
|
removal of directors only for cause and only with the
affirmative vote of at least 80% of the voting interest of
stockholders entitled to vote (provided, however, that for so
long as the Initial Stockholder and certain other affiliates of
Fortress and permitted transferees (collectively, the
Fortress Stockholders) beneficially own at least 40%
of our issued and outstanding common stock, directors may be
removed with or without cause with the affirmative vote of a
majority of the voting interest of stockholders entitled to
vote);
|
|
|
|
|
|
provisions in our amended and restated certificate of
incorporation and amended and restated bylaws prevent
stockholders from calling special meetings of our stockholders
(provided, however, that for so long as the Fortress
Stockholders beneficially own at least 25% of our
|
33
|
|
|
|
|
issued and outstanding common stock, any stockholders that
collectively beneficially own at least 25% of our issued and
outstanding common stock may call special meetings of our
stockholders);
|
|
|
|
|
|
advance notice requirements by stockholders with respect to
director nominations and actions to be taken at annual meetings;
|
|
|
|
certain rights to the Fortress Stockholders with respect to the
designation of directors for nomination and election to our
board of directors, including the ability to appoint a majority
of the members of our board of directors for so long as the
Fortress Stockholders continue to beneficially own at least 40%
of our issued and outstanding common stock. See Certain
Relationships and Related Party TransactionsStockholders
Agreement;
|
|
|
|
no provision in our amended and restated certificate of
incorporation or amended and restated bylaws for cumulative
voting in the election of directors, which means that the
holders of a majority of the outstanding shares of our common
stock can elect all the directors standing for election;
|
|
|
|
|
|
our amended and restated certificate of incorporation and our
amended and restated bylaws only permit action by our
stockholders outside a meeting by unanimous written consent,
provided, however, that for so long as the Fortress Stockholders
beneficially own at least 25% of our issued and outstanding
common stock, our stockholders may act without a meeting by
written consent of a majority of our stockholders; and
|
|
|
|
|
|
under our amended and restated certificate of incorporation, our
board of directors has authority to cause the issuance of
preferred stock from time to time in one or more series and to
establish the terms, preferences and rights of any such series
of preferred stock, all without approval of our stockholders.
Nothing in our amended and restated certificate of incorporation
precludes future issuances without stockholder approval of the
authorized but unissued shares of our common stock.
|
In addition, these provisions may make it difficult and
expensive for a third party to pursue a tender offer, change in
control or takeover attempt that is opposed by our Initial
Stockholder, our management or our board of directors. Public
stockholders who might desire to participate in these types of
transactions may not have an opportunity to do so, even if the
transaction is favorable to stockholders. These anti-takeover
provisions could substantially impede the ability of public
stockholders to benefit from a change in control or change our
management and board of directors and, as a result, may
adversely affect the market price of our common stock and your
ability to realize any potential change of control premium. See
Description of Capital StockAnti-Takeover Effects of
Delaware Law, Our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws.
Certain
of our stockholders have the right to engage or invest in the
same or similar businesses as us.
The Fortress Stockholders have other investments and business
activities in addition to their ownership of us. Under our
amended and restated certificate of incorporation, the Fortress
Stockholders have the right, and have no duty to abstain from
exercising such right, to engage or invest in the same or
similar businesses as us, do business with any of our clients,
customers or vendors or employ or otherwise engage any of our
officers, directors or employees. If the Fortress Stockholders
or any of their officers, directors or employees acquire
knowledge of a potential transaction that could be a corporate
opportunity, they have no duty, to the fullest extent permitted
by law, to offer such corporate opportunity to us, our
stockholders or our affiliates.
34
In the event that any of our directors and officers who is also
a director, officer or employee of any of the Fortress
Stockholders acquires knowledge of a corporate opportunity or is
offered a corporate opportunity, provided that this knowledge
was not acquired solely in such persons capacity as our
director or officer and such person acts in good faith, then to
the fullest extent permitted by law such person is deemed to
have fully satisfied such persons fiduciary duties owed to
us and is not liable to us, if the Fortress Stockholder pursues
or acquires the corporate opportunity or if the Fortress
Stockholder does not present the corporate opportunity to us.
See Certain Relationships and Related Party
TransactionsStockholders Agreement.
Risks
Related to this Offering
An active
trading market for our common stock may never develop or be
sustained.
Although our common stock has been approved for listing on the
NYSE, an active trading market for our common stock may not
develop on that exchange or elsewhere or, if developed, that
market may not be sustained. Accordingly, if an active trading
market for our common stock does not develop or is not
maintained, the liquidity of our common stock, your ability to
sell your shares of common stock when desired and the prices
that you may obtain for your shares of common stock will be
adversely affected.
The
market price and trading volume of our common stock may be
volatile, which could result in rapid and substantial losses for
our stockholders.
Even if an active trading market develops, the market price of
our common stock may be highly volatile and could be subject to
wide fluctuations. In addition, the trading volume in our common
stock may fluctuate and cause significant price variations to
occur. The initial public offering price of our common stock
will be determined by negotiation between us and the
representatives of the underwriters based on a number of factors
and may not be indicative of prices that will prevail in the
open market following completion of this offering. If the market
price of our common stock declines significantly, you may be
unable to resell your shares at or above your purchase price, if
at all. The market price of our common stock may fluctuate or
decline significantly in the future. Some of the factors that
could negatively affect our share price or result in
fluctuations in the price or trading volume of our common stock
include:
|
|
|
|
|
variations in our quarterly or annual operating results;
|
|
|
|
changes in our earnings estimates (if provided) or differences
between our actual financial and operating results and those
expected by investors and analysts;
|
|
|
|
the contents of published research reports about us or our
industry or the failure of securities analysts to cover our
common stock after this offering;
|
|
|
|
additions or departures of key management personnel;
|
|
|
|
any increased indebtedness we may incur in the future;
|
|
|
|
announcements by us or others and developments affecting us;
|
|
|
|
actions by institutional stockholders;
|
|
|
|
litigation and governmental investigations;
|
|
|
|
changes in market valuations of similar companies;
|
|
|
|
speculation or reports by the press or investment community with
respect to us or our industry in general;
|
35
|
|
|
|
|
increases in market interest rates that may lead purchasers of
our shares to demand a higher yield;
|
|
|
|
announcements by us or our competitors of significant contracts,
acquisitions, dispositions, strategic relationships, joint
ventures or capital commitments; and
|
|
|
|
general market, political and economic conditions, including any
such conditions and local conditions in the markets in which our
customers are located.
|
These broad market and industry factors may decrease the market
price of our common stock, regardless of our actual operating
performance. The stock market in general has from time to time
experienced extreme price and volume fluctuations, including in
recent months. In addition, in the past, following periods of
volatility in the overall market and the market price of a
companys securities, securities class action litigation
has often been instituted against these companies. This
litigation, if instituted against us, could result in
substantial costs and a diversion of our managements
attention and resources.
Future
offerings of debt or equity securities by us may adversely
affect the market price of our common stock.
In the future, we may attempt to obtain financing or to further
increase our capital resources by issuing additional shares of
our common stock or offering debt or other equity securities,
including commercial paper, medium-term notes, senior or
subordinated notes, debt securities convertible into equity or
shares of preferred stock. In particular, we intend to continue
to seek opportunities to acquire loan servicing portfolios
and/or
businesses that engage in loan servicing
and/or loan
originations. Future acquisitions could require substantial
additional capital in excess of cash from operations. We would
expect to finance the capital required for acquisitions through
a combination of additional issuances of equity, corporate
indebtedness, asset-backed acquisition financing and/or cash
from operations.
Issuing additional shares of our common stock or other equity
securities or securities convertible into equity may dilute the
economic and voting rights of our existing stockholders or
reduce the market price of our common stock or both. Upon
liquidation, holders of such debt securities and preferred
shares, if issued, and lenders with respect to other borrowings
would receive a distribution of our available assets prior to
the holders of our common stock. Debt securities convertible
into equity could be subject to adjustments in the conversion
ratio pursuant to which certain events may increase the number
of equity securities issuable upon conversion. Preferred shares,
if issued, could have a preference with respect to liquidating
distributions or a preference with respect to dividend payments
that could limit our ability to pay dividends to the holders of
our common stock. Our decision to issue securities in any future
offering will depend on market conditions and other factors
beyond our control, which may adversely affect the amount,
timing or nature of our future offerings. Thus, holders of our
common stock bear the risk that our future offerings may reduce
the market price of our common stock and dilute their
stockholdings in us. See Description of Capital
Stock.
The
market price of our common stock could be negatively affected by
sales of substantial amounts of our common stock in the public
markets.
After this offering, there will be 86,666,667 shares of
common stock outstanding or 89,166,667 shares outstanding
if the underwriters exercise their overallotment option in full.
Of our issued and outstanding shares, all the common stock sold
in this offering will be freely transferable, except for any
shares held by our affiliates, as that term is
defined in Rule 144 under the Securities Act of 1933, as
amended (the Securities Act). Following completion
of the offering, approximately 80.8% of our outstanding common
stock (or 78.5% if the underwriters exercise their overallotment
option in full) will be held by the Initial Stockholder and can
be resold into the public markets in the future in accordance
with the requirements of Rule 144. See
Shares Eligible For Future Sale.
36
We and our executive officers, directors and the Initial
Stockholder (who will hold in the aggregate approximately 80.8%
of our outstanding common stock immediately after the completion
of this offering or 78.5% if the underwriters exercise their
overallotment option in full) have agreed with the underwriters
that, subject to certain exceptions, for a period of
180 days after the date of this prospectus, we and they
will not directly or indirectly offer, pledge, sell, contract to
sell, sell any option or contract to purchase or otherwise
dispose of any common stock or any securities convertible into
or exercisable or exchangeable for common stock, or in any
manner transfer all or a portion of the economic consequences
associated with the ownership of common stock, or cause a
registration statement covering any common stock to be filed,
without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated. See UnderwritingNo
Sales of Similar Securities. Merrill Lynch, Pierce, Fenner
& Smith Incorporated may waive these restrictions at its
discretion.
Pursuant to the Stockholders Agreement, the Initial Stockholder
and certain of its affiliates and permitted third party
transferees have the right, in certain circumstances, to require
us to register their approximately 70,000,000 shares of our
common stock under the Securities Act for sale into the public
markets. Upon the effectiveness of such a registration
statement, all shares covered by the registration statement will
be freely transferable. See Certain Relationships and
Related Party TransactionsStockholders Agreement.
The market price of our common stock may decline significantly
when the restrictions on resale by our existing stockholders
lapse. A decline in the price of our common stock might impede
our ability to raise capital through the issuance of additional
common stock or other equity securities.
The
future issuance of additional common stock in connection with
our incentive plans, acquisitions or otherwise will dilute all
other stockholdings.
After this offering, assuming the underwriters exercise their
overallotment option in full, we will have an aggregate of
905,633,333 shares of common stock authorized but unissued
and not reserved for issuance under our incentive plans. We may
issue all of these shares of common stock without any action or
approval by our stockholders, subject to certain exceptions. We
also intend to continue to evaluate acquisition opportunities
and may issue common stock in connection with these
acquisitions. Any common stock issued in connection with our
incentive plans, acquisitions, the exercise of outstanding stock
options or otherwise would dilute the percentage ownership held
by the investors who purchase common stock in this offering.
Investors
in this offering will suffer immediate and substantial
dilution.
The initial public offering price of our common stock will be
substantially higher than the as adjusted net tangible book
value per share issued and outstanding immediately after this
offering. Our net tangible book value per share as of
December 31, 2011 was approximately $4.02 and represents
the amount of book value of our total tangible assets minus the
book value of our total liabilities, after giving effect to the
70,000 for 1 stock split, divided by the number of our
shares of common stock then issued and outstanding. Investors
who purchase common stock in this offering will pay a price per
share that substantially exceeds the net tangible book value per
share of common stock. If you purchase shares of our common
stock in this offering, you will experience immediate and
substantial dilution of $11.56 in the net tangible book value
per share, based upon the initial public offering price of
$18.00 per share (the midpoint of the estimated initial public
offering price range set forth on the cover of this prospectus).
Investors that purchase common stock in this offering will have
purchased 19.2% of the shares issued and outstanding immediately
after the offering, but will have paid 26.2% of the total
consideration for those shares.
Conflicts
of interest may exist with respect to certain underwriters of
this offering.
BANA, an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, one of the underwriters of this offering, is the
lender under our $175 Million Warehouse Facility and
Merrill Lynch, Pierce, Fenner &
37
Smith Incorporated was an initial purchaser in connection with
the offering in March 2010 of our senior notes. In addition, in
December 2011, we entered into the Reverse Mortgage Acquisition
with BANA. BANA is obligated among other things, under certain
circumstances and subject to various terms and conditions, to
repurchase certain of the loans associated with the servicing
rights that were sold to us and, for a limited time, to make
certain advances, including principal advances, with respect to
the underlying mortgage loans to the borrower, and we are
obligated to reimburse BANA monthly for these advances for one
year. Also, in September 2011, we purchased certain MSRs
relating to residential mortgage loans with an aggregate UPB of
approximately $10 billion as of December 31, 2011 from
BANA for approximately $69.6 million.
Wells Fargo Bank, N.A., an affiliate of Wells Fargo Securities,
LLC, one of the underwriters of this offering, is the lender
under our 2010-ABS Advance Financing Facility. Wells Fargo Bank,
N.A. also acts as Master Servicer under certain of our Servicing
Agreements related to mortgage loans for which we act as
servicer. Wells Fargo Bank, N.A. receives customary fees and
commissions for these transactions.
Citibank, N.A., an affiliate of Citigroup Global Markets Inc.,
one of the underwriters of this offering, is the lender under
our $100 Million Warehouse Facility. Citibank, N.A. receives
customary fees and commissions for this transaction.
Barclays Bank plc, an affiliate of Barclays Capital Inc., one of
the underwriters of this offering, is the lender under our
2011-Agency Advance Financing Facility and our $50 Million
Warehouse Facility. Barclays Bank plc receives customary fees
and commissions for these transactions.
Additionally, we intend to make further purchases of servicing
rights from third parties in the future, which could include our
underwriters or their affiliates, and it is possible that we may
use a portion of the proceeds of this offering to fund such
future acquisitions. In connection with such acquisitions, we
may enter into additional borrowing arrangements, including with
our underwriters or their affiliates. Therefore, conflicts of
interest could exist because underwriters or their affiliates
could receive proceeds from this offering in addition to the
underwriting discounts and commissions described in this
prospectus. See UnderwritingOther
Relationships.
We will
have broad discretion in the use of a significant part of the
net proceeds from this offering and may not use them
effectively.
Our management currently intends to use the net proceeds from
this offering in the manner described in Use of
Proceeds and will have broad discretion in the application
of a significant part of the net proceeds from this offering.
The failure by our management to apply these funds effectively
could affect our ability to operate and grow our business.
As a
public company, we will incur additional costs and face
increased demands on our management.
As a public company with shares listed on a U.S. exchange,
we will need to comply with an extensive body of regulations
that did not apply to us previously, including provisions of the
Sarbanes Oxley Act of 2002 (the Sarbanes-Oxley Act),
regulations of the SEC and requirements of the NYSE. We expect
these rules and regulations to increase our legal and financial
compliance costs and to make some activities more time-consuming
and costly. For example, as a result of becoming a public
company, we intend to add independent directors, create
additional board committees and adopt certain policies regarding
internal controls and disclosure controls and procedures. In
addition, we will incur additional costs associated with our
public company reporting requirements and maintaining
directors and officers liability insurance. We are
currently evaluating and monitoring developments with respect to
these rules, which may impose additional costs on us and
materially affect our business, financial condition and results
of operations.
38
We will
be required by Section 404 of the Sarbanes-Oxley Act to
evaluate the effectiveness of our internal controls by the end
of our fiscal year ending December 31, 2013, and the
outcome of that effort may adversely affect our business,
financial condition and results of operations.
As a
U.S.-listed
public company, we will be required to comply with
Section 404 of the Sarbanes-Oxley Act by December 31,
2013. Section 404 will require that we evaluate our
internal control over financial reporting to enable management
to report on, and our independent auditors to audit as of the
end of our fiscal year ended December 31, 2013, the
effectiveness of those controls. While we have begun the lengthy
process of evaluating our internal controls, we are in the early
phases of our review and will not complete our review until well
after this offering is completed. The outcome of our review may
adversely affect our business, financial condition and results
of operations. During the course of our review, we may identify
control deficiencies of varying degrees of severity, and we may
incur significant costs to remediate those deficiencies or
otherwise improve our internal controls. As a public company, we
will be required to report control deficiencies that constitute
a material weakness in our internal control over
financial reporting. We would also be required to obtain an
audit report from our independent auditors regarding the
effectiveness of our internal controls over financial reporting.
If we fail to implement the requirements of Section 404 in
a timely manner, we may be subject to sanctions or investigation
by regulatory authorities, including the SEC or the NYSE.
Furthermore, if we discover a material weakness or our auditor
does not provide an unqualified audit report, our share price
could decline and our ability to raise capital could be impaired.
Risks
Related to Taxation
Our
ability to use net operating loss and any tax credit carryovers
and certain built-in losses to reduce future tax payments is
limited by provisions of the Internal Revenue Code, and may be
subject to further limitation as a result of the transactions
contemplated by this offering.
Sections 382 and 383 of the Internal Revenue Code contain
rules that limit the ability of a company that undergoes an
ownership change, which is generally any change in ownership of
more than 50% of its stock over a three-year period, to utilize
its net operating loss and tax credit carryforwards and certain
built-in losses recognized in years after the ownership change.
These rules generally operate by focusing on ownership changes
involving stockholders owning directly or indirectly 5% or more
of the stock of a company and any change in ownership arising
from a new issuance of stock by the company. Generally, if an
ownership change occurs, the yearly taxable income limitation on
the use of net operating loss and tax credit carryforwards and
certain built-in losses is equal to the product of the
applicable long-term tax exempt rate and the value of the
companys stock immediately before the ownership change. As
a result of the Restructuring, we expect to assume the net
operating losses of certain parent entities of our Initial
Stockholder. However, our use of the $196 million of
federal net operating losses that we expect to assume in the
Restructuring will be subject to annual taxable income
limitations. As a result, we may be unable to offset our taxable
income with losses, or our tax liability with credits, before
such losses and credits expire and therefore would incur larger
federal income tax liability.
In addition, it is possible that the transactions described in
this offering, either on a standalone basis or when combined
with future transactions (including issuances of new shares of
our common stock and sales of shares of our common stock), will
cause us to undergo one or more ownership changes. In that
event, we generally would not be able to use our pre-change loss
or credit carryovers or certain built-in losses prior to such
ownership change to offset future taxable income in excess of
the annual limitations imposed by Sections 382 and 383 and
those attributes already subject to limitations (as a result of
prior ownership changes) may be subject to more stringent
limitations.
39
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under Prospectus Summary,
Risk Factors, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Industry, Business and elsewhere in this
prospectus may contain forward-looking statements that reflect
our current views with respect to, among other things, future
events and financial performance. You can identify these
forward-looking statements by the use of forward-looking words
such as outlook, believes,
expects, potential,
continues, may, will,
should, could, seeks,
approximately, predicts,
intends, plans, estimates,
anticipates, target,
projects, contemplates or the negative
version of those words or other comparable words. Any
forward-looking statements contained in this prospectus are
based upon our historical performance and on our current plans,
estimates and expectations in light of information currently
available to us. The inclusion of this forward-looking
information should not be regarded as a representation by us,
Fortress, the Initial Stockholder, the underwriters or any other
person that the future plans, estimates or expectations
contemplated by us will be achieved. Such forward-looking
statements are subject to various risks and uncertainties and
assumptions relating to our operations, financial results,
financial condition, business, prospects, growth strategy and
liquidity. Accordingly, there are or will be important factors
that could cause our actual results to differ materially from
those indicated in these statements. We believe that these
factors include, but are not limited to:
|
|
|
|
|
the delay in our foreclosure proceedings due to inquiries by
certain state Attorneys General, court administrators and state
and federal government agencies;
|
|
|
|
|
|
the impact of the ongoing implementation of the Dodd-Frank Act
on our business activities and practices, costs of operations
and overall results of operations;
|
|
|
|
the impact on our servicing practices of enforcement consent
orders and agreements entered into by certain federal and state
agencies against the largest mortgage servicers;
|
|
|
|
increased legal proceedings and related costs;
|
|
|
|
the continued deterioration of the residential mortgage market,
increase in monthly payments on adjustable rate mortgage loans,
adverse economic conditions, decrease in property values and
increase in delinquencies and defaults;
|
|
|
|
the deterioration of the market for reverse mortgages and
increase in foreclosure rates for reverse mortgages;
|
|
|
|
our ability to efficiently service higher risk loans;
|
|
|
|
our ability to mitigate the increased risks related to servicing
reverse mortgages;
|
|
|
|
our ability to compete successfully in the mortgage loan
servicing and mortgage loan originations industries;
|
|
|
|
our ability to maintain or grow the size of our servicing
portfolio and realize our significant investments in personnel
and our technology platform by successfully identifying
attractive acquisition opportunities, including MSRs,
subservicing contracts, servicing platforms and originations
platforms;
|
|
|
|
our ability to
scale-up
appropriately and integrate our acquisitions to realize the
anticipated benefits of any such potential future acquisitions;
|
|
|
|
our ability to obtain sufficient capital to meet our financing
requirements;
|
40
|
|
|
|
|
our ability to grow our loan originations volume;
|
|
|
|
the termination of our servicing rights and subservicing
contracts;
|
|
|
|
changes to federal, state and local laws and regulations
concerning loan servicing, loan origination, loan modification
or the licensing of entities that engage in these activities;
|
|
|
|
loss of our licenses;
|
|
|
|
our ability to meet certain criteria or characteristics under
the indentures governing our securitized pools of loans;
|
|
|
|
our ability to follow the specific guidelines of GSEs or a
significant change in such guidelines;
|
|
|
|
delays in our ability to collect or be reimbursed for servicing
advances;
|
|
|
|
changes to HAMP, HARP, MHA or other similar government programs;
|
|
|
|
changes in our business relationships with Fannie Mae, Freddie
Mac, Ginnie Mae and others that facilitate the issuance of MBS;
|
|
|
|
changes to the nature of the guarantees of Fannie Mae and
Freddie Mac and the market implications of such changes;
|
|
|
|
errors in our financial models or changes in assumptions;
|
|
|
|
requirements to write down the value of certain assets;
|
|
|
|
changes in prevailing interest rates;
|
|
|
|
our ability to successfully mitigate our risks through hedging
strategies;
|
|
|
|
changes to our servicer ratings;
|
|
|
|
the accuracy and completeness of information about borrowers and
counterparties;
|
|
|
|
our ability to maintain our technology systems and our ability
to adapt such systems for future operating environments;
|
|
|
|
failure of our internal security measures or breach of our
privacy protections;
|
|
|
|
failure of our vendors to comply with servicing criteria;
|
|
|
|
the loss of the services of our senior managers;
|
|
|
|
changes to our income tax status;
|
|
|
|
failure to attract and retain a highly skilled work force;
|
|
|
|
changes in public opinion concerning mortgage originators or
debt collectors;
|
|
|
|
changes in accounting standards;
|
41
|
|
|
|
|
conflicts of interest with certain underwriters in this offering;
|
|
|
|
conflicts of interest with Fortress and our Initial Stockholder;
and
|
|
|
|
other risks described in the Risk Factors section of
this prospectus beginning on page 15.
|
These factors should not be construed as exhaustive and should
be read in conjunction with the other cautionary statements that
are included in this prospectus. The forward-looking statements
made in this prospectus relate only to events as of the date on
which the statements are made. We do not undertake any
obligation to publicly update or review any forward-looking
statement except as required by law, whether as a result of new
information, future developments or otherwise.
If one or more of these or other risks or uncertainties
materialize, or if our underlying assumptions prove to be
incorrect, our actual results may vary materially from what we
may have expressed or implied by these forward-looking
statements. We caution that you should not place undue reliance
on any of our forward-looking statements. You should
specifically consider the factors identified in this prospectus
that could cause actual results to differ before making an
investment decision to purchase our common stock. Furthermore,
new risks and uncertainties arise from time to time, and it is
impossible for us to predict those events or how they may affect
us.
42
USE OF
PROCEEDS
The net proceeds to us from the sale of the
16,666,667 shares of common stock offered hereby are
estimated to be approximately $276.7 million, assuming an
initial public offering price of $18.00 per share (the midpoint
of the estimated initial public offering price range set forth
on the cover page of this prospectus) and after deducting the
offering expenses payable by us. We intend to use the net
proceeds from this offering for working capital and other
general corporate purposes, including servicing acquisitions,
which may include acquisitions from one or more affiliates of
the underwriters in this offering.
A $1.00 increase (decrease) in the assumed initial public
offering price of $18.00 per share (the midpoint of the
estimated initial public offering price range set forth on the
cover page of this prospectus) would increase (decrease) the net
proceeds to us from this offering by $15.6 million,
assuming the number of shares of common stock offered by us, as
set forth on the cover page of this prospectus, remains the same
and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
43
DIVIDEND
POLICY
We do not expect to pay dividends on our common stock for the
foreseeable future. Instead, we anticipate that all of our
earnings in the foreseeable future will be used for the
operation and growth of our business. Our ability to pay
dividends to holders of our common stock is limited as a
practical matter by the terms of some of our debt, including the
indenture governing the senior notes and other indebtedness. See
Managements Discussion and Analysis of Financial
Condition and Results of OperationsContractual
ObligationsDescription of Certain Indebtedness.
Any future determination to pay dividends on our common stock
will be at the discretion of our board of directors and will
depend upon many factors, including our financial position,
results of operations, liquidity, legal requirements,
restrictions that may be imposed by the terms in current and
future financing instruments and other factors deemed relevant
by our board of directors.
44
CAPITALIZATION
The following sets forth our cash and cash equivalents and
capitalization as of December 31, 2011:
|
|
|
|
|
on an actual basis; and
|
|
|
|
|
|
on an as adjusted basis to give effect to the Restructuring and
sale of 16,666,667 shares of common stock by us in this
offering, at an assumed initial public offering price of $18.00
per share, the midpoint of the estimated initial public offering
price range set forth on the cover page of this prospectus,
after deducting the underwriting discount and estimated offering
expenses payable by us.
|
You should read this table in conjunction with Use of
Proceeds, Selected Consolidated Historical Financial
Data and Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
audited consolidated financial statements and related notes and
other financial information included elsewhere in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
62,445
|
|
|
$
|
339,142
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
Unsecured senior notes
|
|
$
|
280,199
|
|
|
$
|
280,199
|
|
Notes payable:
|
|
|
|
|
|
|
|
|
Servicing:
|
|
|
|
|
|
|
|
|
MBS Advance Financing Facility
|
|
|
179,904
|
|
|
|
179,904
|
|
Securities Repurchase Facility (2011)
|
|
|
11,774
|
|
|
|
11,774
|
|
2010-ABS Advance Financing Facility
|
|
|
219,563
|
|
|
|
219,563
|
|
2011-Agency Advance Financing Facility
|
|
|
25,011
|
|
|
|
25,011
|
|
MSR Note
|
|
|
10,180
|
|
|
|
10,180
|
|
Originations:
|
|
|
|
|
|
|
|
|
$300 Million Warehouse Facility
|
|
|
251,722
|
|
|
|
251,722
|
|
$175 Million Warehouse Facility
|
|
|
46,810
|
|
|
|
46,810
|
|
$100 Million Warehouse Facility
|
|
|
16,047
|
|
|
|
16,047
|
|
$50 Million Warehouse Facility
|
|
|
7,310
|
|
|
|
7,310
|
|
ASAP+ Short-Term Financing Facility
|
|
|
104,858
|
|
|
|
104,858
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
873,179
|
|
|
|
873,179
|
|
|
|
|
|
|
|
|
|
|
Non-recourse debtLegacy Assets
|
|
|
112,490
|
|
|
|
112,490
|
|
Excess spread financing (at fair value)
|
|
|
44,595
|
|
|
|
44,595
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,310,463
|
|
|
|
1,310,463
|
|
Stockholders and members equity:
|
|
|
|
|
|
|
|
|
Members equity
|
|
|
281,309
|
|
|
|
|
|
Preferred stock, par value $0.01 per share;
300,000,000 shares authorized and no shares issued and
outstanding, as adjusted
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share;
1,000,000,000 shares authorized and 86,666,667 shares
issued and outstanding, as
adjusted(1)
|
|
|
|
|
|
|
867
|
|
Additional paid-in capital
|
|
|
|
|
|
|
557,139
|
|
|
|
|
|
|
|
|
|
|
Total stockholders and members equity
|
|
|
281,309
|
|
|
|
558,006
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
1,591,772
|
|
|
$
|
1,868,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include 1,030,558 unvested shares of restricted stock
that we expect to grant to certain of our executive officers,
directors and employees in connection with this offering. |
45
DILUTION
If you invest in our common stock, your ownership interest will
be diluted to the extent of the difference between the initial
public offering price in this offering per share of our common
stock and the pro forma as adjusted net tangible book value per
share of our common stock upon consummation of this offering.
Net tangible book value per share represents the book value of
our total tangible assets less the book value of our total
liabilities divided by the number of shares of common stock then
issued and outstanding.
Our net tangible book value as of December 31, 2011 was
approximately $281.3 million, or approximately
$4.02 per share based on the 70,000,000 shares of
common stock issued and outstanding as of such date after giving
effect to the 70,000 for 1 stock split of our common stock.
After giving effect to our sale of common stock in this offering
at the initial public offering price of $18.00 per share
(the midpoint of the estimated initial public offering price
range set forth on the cover page of this prospectus), and after
deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value as of December 31, 2011
would have been $558.0 million, or $6.44 per share
(assuming no exercise of the underwriters overallotment
option). This represents an immediate and substantial dilution
of $11.56 per share to new investors purchasing common
stock in this offering. The following table illustrates this
dilution per share:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
18.00
|
|
Net tangible book value per share as of December 31, 2011
|
|
$
|
4.02
|
|
|
|
|
|
Increase in net tangible book value per share attributable to
this offering
|
|
|
2.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
giving effect to this offering
|
|
|
|
|
|
|
6.44
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors in this offering
|
|
|
|
|
|
$
|
11.56
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase (decrease) in the assumed initial public
offering price of $18.00 per share (the midpoint of the
estimated initial public offering price range set forth on the
cover page of this prospectus) would increase (decrease) our net
tangible book value by $15.6 million, the pro forma as
adjusted net tangible book value per share after this offering
by $0.18 per share and the dilution to new investors in
this offering by $0.82 per share, assuming the number of
shares of common stock offered by us, as set forth on the cover
page of this prospectus, remains the same and after deducting
the estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
The following table summarizes, on a pro forma basis as of
December 31, 2011, the differences between the number of shares
of common stock purchased from us, the total price and the
average price per share paid by existing stockholders and by the
new investors in this offering, before deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us, at an assumed initial public offering
price of $18.00 per share (the midpoint of the estimated
initial public offering price range set forth on the cover page
of this prospectus).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Shares Purchased
|
|
Total Consideration
|
|
Price per
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Share
|
|
|
(in thousands)
|
|
(in thousands)
|
|
|
|
Existing Stockholders
|
|
|
70,000
|
|
|
|
80.8
|
%
|
|
$
|
845,689
|
|
|
|
73.8
|
%
|
|
$
|
12.08
|
|
New investors
|
|
|
16,667
|
|
|
|
19.2
|
|
|
|
300,000
|
|
|
|
26.2
|
|
|
|
18.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
86,667
|
|
|
|
100.0
|
%
|
|
$
|
1,145,689
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase (decrease) in the assumed initial offering
price would increase (decrease) total consideration paid by new
investors and average price per share paid by new investors by
$16.7 million and
46
$1.00 per share, respectively. An increase (decrease) of
1.0 million in the number of shares offered by us would increase
(decrease) total consideration paid by new investors and average
price per share paid by new investors by $18.0 million and
$0 per share, respectively.
If the underwriters overallotment option is fully
exercised, the pro forma as adjusted net tangible book value per
share after this offering as of December 31, 2011 would be
approximately $6.73 per share and the dilution to new
investors per share after this offering would be $11.27 per
share.
Certain of our current and former members of management who hold
membership interests in the Initial Stockholder have been
offered the opportunity to exchange those interests for shares
of our common stock in the Unit Exchange. The Unit Exchange will
not affect the number of shares of our common stock outstanding
after this offering, as all shares that are being offered in
exchange for the units are currently held by the Initial
Stockholder. See Description of Capital Stock
Unit Exchange.
47
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables present selected consolidated financial
information of Nationstar Mortgage LLC, our predecessor company,
as well as pro forma information that reflects the impact of our
conversion to a taxable entity from a disregarded entity for tax
purposes. We were formed on May 9, 2011 and have not, to
date, conducted any activities other than those incident to our
formation and the preparation of this registration statement. We
were formed solely for the purpose of reorganizing the
organizational structure of the Initial Stockholder and
Nationstar Mortgage LLC, so that the issuer is a corporation
rather than a limited liability company and our existing
investors will own common stock rather than equity interests in
a limited liability company.
This prospectus does not include financial statements of
Nationstar Mortgage Holdings Inc., as it has been incorporated
solely for the purpose of effecting this offering and currently
holds no material assets and does not engage in any operations.
Prior to the completion of this offering, all of the equity
interests in Nationstar Mortgage LLC will be transferred from
our Initial Stockholder to two direct, wholly-owned subsidiaries
of Nationstar Mortgage Holdings Inc., pursuant to the
Restructuring. We anticipate this transaction will be accounted
for as a reorganization of entities under common control.
Accordingly, there will be no change in the basis of the
underlying assets and liabilities.
You should read these tables along with Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Business and our consolidated
financial statements and the related notes included elsewhere in
this prospectus.
The information in the following tables gives effect to the
70,000 for 1 stock split, which will be effective prior to the
completion of this offering.
The selected consolidated statement of operations data for the
years ended December 31, 2009, 2010 and 2011 and the
selected consolidated balance sheet data at December 31,
2010 and 2011 have been derived from our audited financial
statements included elsewhere in this prospectus. The selected
consolidated statement of operations data for the years ended
December 31, 2007 and 2008 and the selected consolidated balance
sheet data at December 31, 2008 and 2009 have been derived
from our audited financial statements that are not included in
this prospectus. The selected consolidated balance sheet data at
December 31, 2007 has been derived from our unaudited financial
statements, which are not included in this prospectus.
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands, except per share data)
|
|
Statement of Operations DataConsolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
$46,301
|
|
|
|
$74,007
|
|
|
|
$100,218
|
|
|
|
$184,084
|
|
|
|
$268,598
|
|
Gain (loss) on mortgage loans held for sale
|
|
|
(94,673
|
)
|
|
|
(86,663
|
)
|
|
|
(21,349
|
)
|
|
|
77,344
|
|
|
|
109,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(48,372
|
)
|
|
|
(12,656
|
)
|
|
|
78,869
|
|
|
|
261,428
|
|
|
|
377,734
|
|
Total expenses and impairments
|
|
|
259,222
|
|
|
|
147,777
|
|
|
|
142,367
|
|
|
|
220,976
|
|
|
|
306,183
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
163,022
|
|
|
|
92,060
|
|
|
|
52,518
|
|
|
|
98,895
|
|
|
|
66,802
|
|
Interest expense
|
|
|
(118,553
|
)
|
|
|
(65,548
|
)
|
|
|
(69,883
|
)
|
|
|
(116,163
|
)
|
|
|
(105,375
|
)
|
Gain (loss) on interest rate swaps and caps
|
|
|
(21,353
|
)
|
|
|
(23,689
|
)
|
|
|
(14
|
)
|
|
|
(9,801
|
)
|
|
|
298
|
|
Fair value changes in ABS securitizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,297
|
)
|
|
|
(12,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
23,116
|
|
|
|
2,823
|
|
|
|
(17,379
|
)
|
|
|
(50,366
|
)
|
|
|
(50,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
$(284,478
|
)
|
|
|
$(157,610
|
)
|
|
|
$(80,877
|
)
|
|
|
$(9,914
|
)
|
|
|
$20,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Information (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical net income before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$20,887
|
|
Pro forma adjustment for
taxes(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$20,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
$(3.28
|
)
|
|
|
$(1.82
|
)
|
|
|
$(0.93
|
)
|
|
|
$(0.11
|
)
|
|
|
$0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
outstanding(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
86,667
|
|
|
|
86,667
|
|
|
|
86,667
|
|
|
|
86,667
|
|
|
|
86,667
|
|
|
|
|
(1) |
|
Our pro forma effective tax rate for 2011 is 0%. The pro forma
tax provision, before utilization of tax benefits, is $11,448 on
pre-tax income of $20,887. We expect to assume certain tax
attributes of certain parent entities of our Initial Stockholder
as a result of the Restructuring, including approximately
$196 million of net operating loss carry forwards as of
December 31, 2011. We expect to record a full valuation
allowance against any resulting deferred tax asset. The
utilization of these tax attributes will be limited pursuant to
Sections 382 and 383 of the Internal Revenue Code. |
|
|
|
(2) |
|
Represents the number of shares issued and outstanding after
giving effect to our sale of common stock in this offering and
does not include common stock that may be issued and sold upon
exercise of the underwriters overallotment option. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
(in thousands)
|
Balance Sheet DataConsolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$41,251
|
|
|
|
$9,357
|
|
|
|
$41,645
|
|
|
|
$21,223
|
|
|
|
$62,445
|
|
Accounts receivable
|
|
|
190,408
|
|
|
|
355,975
|
|
|
|
513,939
|
|
|
|
441,275
|
|
|
|
562,300
|
|
Mortgage servicing rights
|
|
|
82,634
|
|
|
|
110,808
|
|
|
|
114,605
|
|
|
|
145,062
|
|
|
|
251,050
|
|
Total assets
|
|
|
1,303,221
|
|
|
|
1,122,001
|
|
|
|
1,280,185
|
|
|
|
1,947,181
|
|
|
|
1,787,931
|
|
Notes
payable(1)
|
|
|
967,307
|
|
|
|
810,041
|
|
|
|
771,857
|
|
|
|
709,758
|
|
|
|
873,179
|
|
Unsecured senior notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,061
|
|
|
|
280,199
|
|
Legacy assets securitized debt
|
|
|
|
|
|
|
|
|
|
|
177,675
|
|
|
|
138,662
|
|
|
|
112,490
|
|
Excess spread financing (at fair value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,595
|
|
ABS nonrecourse debt (at fair value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496,692
|
|
|
|
|
|
Total liabilities
|
|
|
1,041,525
|
|
|
|
866,079
|
|
|
|
1,016,362
|
|
|
|
1,690,809
|
|
|
|
1,506,622
|
|
Total members equity
|
|
|
261,696
|
|
|
|
255,922
|
|
|
|
263,823
|
|
|
|
256,372
|
|
|
|
281,309
|
|
49
|
|
|
(1) |
|
A summary of notes payable as of December 31, 2011 follows: |
|
|
|
|
|
Notes Payable
|
|
December 31, 2011
|
|
|
(in thousands)
|
Servicing
|
|
|
|
|
2010-ABS Advance Financing Facility
|
|
$
|
219,563
|
|
2011-Agency Advance Financing Facility
|
|
|
25,011
|
|
MBS Advance Financing Facility
|
|
|
179,904
|
|
Securities Repurchase Facility (2011)
|
|
|
11,774
|
|
MSR Note
|
|
|
10,180
|
|
Originations
|
|
|
|
|
$300 Million Warehouse Facility
|
|
|
251,722
|
|
$100 Million Warehouse Facility
|
|
|
16,047
|
|
$175 Million Warehouse Facility
|
|
|
46,810
|
|
$50 Million Warehouse Facility
|
|
|
7,310
|
|
ASAP+ Short-Term Financing Facility
|
|
|
104,858
|
|
|
|
|
|
|
|
|
$
|
873,179
|
|
|
|
|
|
|
The following tables summarize consolidated financial
information for our Operating Segments. Management analyzes our
performance in two separate segments, the Servicing Segment and
the Originations Segment, which together constitute our
Operating Segments. In addition, we have a legacy asset
portfolio, which primarily consists of non-prime and
non-conforming mortgage loans, most of which were originated
from April to July 2007. The Servicing Segment provides loan
servicing on our servicing portfolio and the Originations
Segment involves the origination, packaging and sale of GSE
mortgage loans into the secondary markets via whole loan sales
or securitizations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
(in thousands)
|
Statement of Operations DataOperating Segments
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
$50,123
|
|
|
|
$75,190
|
|
|
|
$101,289
|
|
|
|
$189,884
|
|
|
|
$269,585
|
|
Gain on mortgage loans held for sale
|
|
|
88,489
|
|
|
|
21,985
|
|
|
|
54,437
|
|
|
|
77,498
|
|
|
|
109,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
138,612
|
|
|
|
97,175
|
|
|
|
155,726
|
|
|
|
267,382
|
|
|
|
379,016
|
|
Total expenses and impairments
|
|
|
196,995
|
|
|
|
85,832
|
|
|
|
118,429
|
|
|
|
194,203
|
|
|
|
279,537
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
52,097
|
|
|
|
12,792
|
|
|
|
8,404
|
|
|
|
12,111
|
|
|
|
14,981
|
|
Interest expense
|
|
|
(51,955
|
)
|
|
|
(17,007
|
)
|
|
|
(29,315
|
)
|
|
|
(60,597
|
)
|
|
|
(68,979
|
)
|
Gain (loss) on interest rate swaps and caps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,801
|
)
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
142
|
|
|
|
(4,215
|
)
|
|
|
(20,911
|
)
|
|
|
(58,287
|
)
|
|
|
(53,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$(58,241
|
)
|
|
|
$7,128
|
|
|
|
$16,386
|
|
|
|
$14,892
|
|
|
|
$45,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Net Income (loss) from Operating Segments to Adjusted EBITDA
Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from Operating Segments
|
|
|
$(58,241
|
)
|
|
|
$7,128
|
|
|
|
$16,386
|
|
|
|
$14,892
|
|
|
|
$45,779
|
|
Adjust for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense from unsecured senior notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,628
|
|
|
|
30,464
|
|
Depreciation and amortization
|
|
|
3,348
|
|
|
|
1,172
|
|
|
|
1,542
|
|
|
|
1,873
|
|
|
|
3,395
|
|
Change in fair value of MSRs
|
|
|
16,015
|
|
|
|
11,701
|
|
|
|
27,915
|
|
|
|
6,043
|
|
|
|
39,000
|
|
Fair value changes on excess spread financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,060
|
|
Share-based compensation
|
|
|
1,633
|
|
|
|
1,633
|
|
|
|
579
|
|
|
|
8,999
|
|
|
|
14,764
|
|
Exit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,836
|
|
Goodwill impairment
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value changes on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,801
|
|
|
|
(298
|
)
|
Ineffective portion of cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(930
|
)
|
|
|
(2,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(1)
|
|
|
$(25,245
|
)
|
|
|
$21,634
|
|
|
|
$46,422
|
|
|
|
$65,306
|
|
|
|
$135,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted EBITDA is a key performance measure used by management
in evaluating the performance of our segments. Adjusted EBITDA
represents our Operating Segments income (loss) and
excludes income and expenses that relate to the financing of the
senior notes, depreciable (or amortizable) asset base of the
business, income taxes (if any), exit costs from our
restructuring and certain non-cash items. Adjusted EBITDA also
excludes results from our legacy asset portfolio and certain
securitization trusts that were consolidated upon adoption of
the new accounting guidance eliminating the concept of a QSPE. |
|
|
|
|
|
Adjusted EBITDA provides us with a key measure of our Operating
Segments performance as it assists us in comparing our
Operating Segments performance on a consistent basis.
Management believes Adjusted EBITDA is useful in assessing the
profitability of our core business and uses Adjusted EBITDA in
evaluating our operating performance as follows: |
|
|
|
Financing arrangements for our
Operating Segments are secured by assets that are allocated to
these segments. Interest expense that relates to the financing
of our senior notes is not considered in evaluating our
operating performance because this obligation is serviced by the
excess earnings from our Operating Segments after the debt
obligations that are secured by their assets.
|
|
|
|
To monitor operating costs of each
Operating Segment excluding the impact from depreciation,
amortization and fair value change of the asset base, exit costs
from our restructuring and non-cash operating expense, such as
share-based compensation. Operating costs are analyzed to manage
costs per our operating plan and to assess staffing levels,
implementation of technology-based solutions, rent and other
general and administrative costs.
|
|
|
|
Management does not assess the growth prospects and the
profitability of our legacy asset portfolio and certain
securitization trusts that were consolidated upon adoption of
the new accounting guidance, except to the extent necessary to
assess whether cash flows from the assets in the legacy asset
portfolio are sufficient to service its debt obligations. |
|
|
|
We also use Adjusted EBITDA (with additional adjustments) to
measure our compliance with covenants such as leverage coverage
ratios for our senior notes. |
|
|
|
Adjusted EBITDA has limitations as an analytical tool and should
not be considered in isolation or as a substitute for analysis
of our results as reported under GAAP. Some of these limitations
are: |
|
|
|
Adjusted EBITDA does not reflect
our cash expenditures or future requirements for capital
expenditures or contractual commitments;
|
51
|
|
|
|
|
Adjusted EBITDA does not reflect
changes in, or cash requirements for, our working capital needs;
|
|
|
|
Adjusted EBITDA does not reflect
the cash requirements necessary to service principal payments
related to the financing of the business;
|
|
|
|
Adjusted EBITDA does not reflect
the interest expense or the cash requirements necessary to
service interest or principal payments on our corporate debt;
|
|
|
|
although depreciation and
amortization and changes in fair value of MSRs are non-cash
charges, the assets being depreciated and amortized will often
have to be replaced in the future and Adjusted EBITDA does not
reflect any cash requirements for such replacements; and
|
|
|
|
other companies in our industry
may calculate Adjusted EBITDA differently than we do, limiting
its usefulness as a comparative measure.
|
|
|
|
Because of these and other limitations, Adjusted EBITDA should
not be considered as a measure of discretionary cash available
to us to invest in the growth of our business. Adjusted EBITDA
is presented to provide additional information about our
operations. Adjusted EBITDA is a non-GAAP measure and should be
considered in addition to, but not as a substitute for or
superior to, operating income, net income, operating cash flow
and other measures of financial performance prepared in
accordance with GAAP. We compensate for these limitations by
relying primarily on our GAAP results and using Adjusted EBITDA
only supplementally. |
52
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Nationstar Mortgage Holdings Inc. is a newly formed Delaware
corporation that has not, to date, conducted any activities
other than those incident to its formation and the preparation
of this registration statement. Upon the completion of the
Restructuring, we will conduct our business through Nationstar
Mortgage LLC and its consolidated subsidiaries. The following
discussion and analysis of our financial condition and results
of operations should be read together with our financial
statements and related notes and other financial information
appearing elsewhere in this prospectus. This discussion and
analysis contains forward-looking statements that involve risk,
uncertainties and assumptions. See Special Note Regarding
Forward-Looking Statements. Our actual results could
differ materially from those anticipated in the forward-looking
statements as a result of many factors, including those
discussed in Risk Factors and elsewhere in this
prospectus. Except where the context otherwise requires, the
terms we, us, or our refer
to the business of Nationstar Mortgage LLC and its consolidated
subsidiaries.
General
Our
Business
We are a leading high touch non-bank residential mortgage
servicer with a broad array of servicing capabilities across the
residential mortgage product spectrum. We have been the fastest
growing mortgage servicer since 2007 as measured by annual
percentage growth in UPB, having grown 70.2% annually on a
compounded basis. As of December 31, 2011, we serviced over
645,000 residential mortgage loans with an aggregate UPB of
$106.6 billion, making us the largest high touch non-bank
servicer in the United States. Our total servicing portfolio as
of December 31, 2011 includes approximately
$7.8 billion of reverse residential mortgage loans for
which we entered into an agreement to acquire the MSRs in
December 2011 and closed the transaction in January 2012.
We service loans as the owner of the MSRs, which we refer to as
primary servicing, and we also service loans on
behalf of other MSR or mortgage owners, which we refer to as
subservicing. We acquire MSRs on a standalone basis
and have also developed an innovative model for investing on a
capital light basis by co-investing with financial partners in
excess MSRs. Subservicing represents another capital
light means of growing our servicing business, as subservicing
contracts are typically awarded on a no-cost basis and do not
require substantial capital. As of December 31, 2011, our
primary servicing and subservicing portfolios represented 46.4%
and 53.6%, respectively, of our total servicing portfolio,
excluding approximately $7.8 billion of reverse residential
mortgage loans for which we entered into an agreement to acquire
the MSRs in December 2011 and closed the transaction in January
2012. In addition, we operate or have investments in several
adjacent businesses designed to meet the changing needs of the
mortgage industry. These businesses offer an array of ancillary
services, including providing services for delinquent loans,
managing loans in the foreclosure/REO process and providing
title insurance agency, loan settlement and valuation services
on newly originated and re-originated loans.
We are one of only a few non-bank servicers with a fully
integrated loan originations platform to complement and enhance
our servicing business. We originate primarily conventional
agency (GSE) and government-insured residential mortgage loans
and, to mitigate risk, typically sell these loans within
30 days while retaining the associated servicing rights.
Our originations efforts are primarily focused on
re-origination, which involves actively working with
existing borrowers to refinance their mortgage loans. By
re-originating loans for existing borrowers, we retain the
servicing rights, thereby extending the longevity of the
servicing cash flows, which we refer to as recapture.
We also have a legacy asset portfolio, which consists primarily
of non-prime and nonconforming residential mortgage loans, most
of which we originated from April to July 2007. In November
2009, we
53
engaged in a transaction through which we term-financed our
legacy assets with a non-recourse loan that requires no
additional capital or equity contributions. Additionally, we
consolidated certain securitization trusts where it was
determined that we had both the power to direct the activities
that most significantly impact the variable interest
entities (VIE) economic performance and the
obligation to absorb losses or the right to receive benefits
that could potentially be significant to the VIE pursuant to new
consolidation accounting guidance related to VIEs adopted on
January 1, 2010.
The analysis of our financial condition and results of
operations as discussed herein is primarily focused on the
combined results of our two Operating Segments: the Servicing
Segment and the Originations Segment.
Managing
Business Performance
Management is focused on several key initiatives to manage our
Operating Segments: (i) effective management of our
servicing portfolio; (ii) growing our servicing portfolio
through the acquisition of MSRs or entering into subservicing
contracts; (iii) originating and selling primarily
conventional agency (GSE) and government-insured residential
mortgage loans while retaining the MSRs; (iv) extending the
longevity of the servicing cash flows before loans are repaid or
liquidate by increasing our recapture rate; and (v) growing
our adjacent businesses. We also focus on access to diverse and
multiple liquidity sources to finance the acquisition of MSRs,
our obligations to pay advances as required by our servicing
agreements, and our loan originations.
Servicing
Segment
As part of our primary servicing portfolio, we act as servicers
on behalf of mortgage owners by purchasing MSRs from existing
servicers, or from owners of mortgage loans or pools of mortgage
loans, or by retaining the MSRs related to the loans that we
originate and sell. We acquire MSRs on a standalone and a
capital light basis. Additionally, we enter into subservicing
contracts with MSR or mortgage owners that choose to outsource
the servicing function, pursuant to which we earn a contractual
fee per loan we service.
Servicing fee income is primarily based on the aggregate UPB of
loans serviced and varies by loan type. Other factors that
impact servicing fee income include delinquency rates,
prepayment speeds and loss mitigation activity. Delinquency
rates on the loans we service impact the contractual servicing
and ancillary fees we receive and the costs to service.
Delinquent loans cost more to service than performing loans due
to the additional resources and required servicing advances. We
monitor our delinquency levels through our staffing models, our
business plans and macroeconomic analysis.
The largest cost in our Servicing Segment is staffing cost,
which is primarily impacted by delinquency levels and the size
of our portfolio. Other operating costs in our Servicing Segment
include technology, occupancy and general and administrative
costs. The cost of financing our servicing advances is another
expense. We continually monitor these costs to improve
efficiency by streamlining workflows and implementing
technology-based solutions.
We also provide an array of adjacent services, including
providing services for delinquent loans, managing loans in the
foreclosure/REO process and providing title insurance agency,
loan settlement and valuation services on newly originated and
re-originated loans.
Originations
Segment
In addition to our core servicing business, we are one of only a
few non-bank servicers with a fully integrated loan originations
platform. Because a key determinant of the profitability of our
primary servicing portfolio is the longevity of the servicing
cash flows before a loan is repaid or liquidates, our
originations efforts are primarily focused on
re-origination.
54
Our originations platform complements and enhances our servicing
business by allowing us to replenish our servicing portfolio as
loans pay off over time. Because the refinanced loans typically
have lower interest rates or lower monthly payments, and, in
general, subsequently refinance more slowly and default less
frequently, these refinancings also typically improve the
overall quality of our primary servicing portfolio. In addition,
our re-originations strategy allows us to generate additional
loan servicing more cost-effectively than MSRs can otherwise be
acquired in the open market. Finally, with our in-house
originations capabilities, we believe we are better protected
against declining servicing cash flows as we replace servicing
run-off through new loan originations or retain our servicing
portfolios through re-originations.
Prevailing interest rates and housing market trends, with a
strong housing market leading to higher loan refinancings and a
weak housing market leading to lower loan refinancings, are the
key factors impacting the volume of re-originations and our
Originations Segment. We continually evaluate interest rate
movements and trends to assess the impact on volume of
refinancings, as well as their corresponding impact on revenue
and costs.
In evaluating revenue per loan originated, we focus on various
revenue sources, including loan origination points and fees and
overall gain or loss on the sale or securitization of the loan.
These components are compared to established revenue targets and
operating plans.
In addition to the cost of financing our originations, our
Originations Segment operating costs include staffing costs,
sales commissions, technology, rent and other general and
administrative costs. We continually monitor costs through
comparisons to operating plans.
Market
Considerations
Revenues from our Operating Segments primarily consist of
(i) servicing fee income based generally on the aggregate
UPB of loans serviced and (ii) gain on mortgage loans held
for sale based generally on our originations volume. Maintaining
and growing our revenues depends on our ability to acquire
additional MSRs, enter into additional subservicing contracts
and opportunistically increase our originations volume and our
recapture rate.
Servicing
Segment
Current trends in the mortgage servicing industry include
elevated borrower delinquencies, a significant increase in loan
modifications and the need for high touch servicing expertise,
which emphasizes borrower interaction to improve loan
performance and reduce loan defaults and foreclosures.
In the aftermath of the U.S. financial crisis, the residential
mortgage industry is undergoing major structural changes that
affect the way residential mortgage loans are originated, owned
and serviced. These changes have benefited and should continue
to benefit non-bank mortgage servicers. Banks currently dominate
the residential mortgage servicing industry, servicing over 90%
of all residential mortgage loans as of September 30, 2011.
Over 50% of all residential mortgage loan servicing is
concentrated among just four banks. However, banks are currently
under tremendous pressure to exit or reduce their exposure to
the mortgage servicing business as a result of increased
regulatory scrutiny and capital requirements, headline risk
associated with sizeable legal settlements, as well as
potentially significant earnings volatility.
In addition, as the mortgage industry continues to struggle with
elevated borrower delinquencies, the special servicing function
has become a particularly important component of a mortgage
servicers role and, we believe, a key differentiator among
mortgage servicers, as GSEs and other mortgage owners are
focused on home ownership preservation and superior credit
performance. However, banks servicing operations, which
are primarily oriented towards payment processing, are often
ill-equipped to maximize loan performance through high touch
servicing. This trend has led to increased demand for
experienced high touch servicers and
55
provides us opportunities to acquire additional MSRs, including
co-investing with financial partners in excess MSRs, and to
enter into additional subservicing contracts.
As a result of these factors and the overall increased demands
on servicers by mortgage owners, mortgage servicing is shifting
from banks to non-bank mortgage servicers. Already, over the
last 18 months, banks have completed servicing transfers on
over $250 billion of mortgage loans. We believe this
represents a fundamental change in the mortgage servicing
industry and expect the trend to continue at an accelerated rate
in the future. Because the mortgage servicing industry is
characterized by high barriers to entry, including the need for
specialized servicing expertise and sophisticated systems and
infrastructure, compliance with GSE and client requirements,
compliance with state-by-state licensing requirements and the
ability to adapt to regulatory changes at the state and federal
levels, we believe we are one of the few mortgage servicers
competitively positioned to benefit from the shift.
However, we cannot predict how many, if any, MSRs or
subservicing opportunities will be available in the future; if
we will be able to acquire MSRs from third parties, on a
standalone basis or by co-investing with financial partners in
excess MSRs, if at all; if we will be able to enter into
additional subservicing contracts, including any transactions
facilitated by GSEs; or whether these MSRs will be available at
acceptable prices or on acceptable terms. See Risk
Factors.
Originations
Segment
Todays U.S. residential mortgage originations sector
primarily offers conventional agency and government conforming
mortgage loans. Non-prime and alternative lending programs and
products represent only a small fraction of total originations.
This has led to a consolidation among mortgage lenders in both
the retail and wholesale channels and has resulted in less
competition. In addition to such consolidation, some mortgage
originators have exited the market entirely.
Originations volume is impacted by changes in interest rates and
the housing market. Depressed home prices and increased LTVs may
preclude many potential borrowers, including borrowers whose
existing loans we service, from refinancing their existing
loans. An increase in prevailing interest rates could decrease
the originations volume through our Consumer Direct Retail
originations channel, our largest originations channel by
volume, because this channel focuses predominantly on
refinancing existing mortgage loans.
In addition, there continue to be changes in legislation and
licensing in an effort to simplify the consumer mortgage
experience, which require technology changes and additional
implementation costs for loan originators. We expect legislative
changes will continue in the foreseeable future, which may
increase our operating expenses. See
BusinessRegulation.
Critical
Accounting Policies
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 three 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: (a) fair value
measurements (b) sale of mortgage loans and
(c) accounting for mortgage loans held for investment,
subject to nonrecourse debt. 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. Management
currently views its fair value measurements, which include (i)
the valuation of mortgage loans held for sale, (ii) the
valuation of mortgage loans held for investment, subject to ABS
nonrecourse debt, (iii) the valuation of MSRs,
(iv) the valuation of derivative instruments, (v) the
valuation of
56
ABS nonrecourse debt, (vi) the valuation of excess spread
financing, sale of mortgage loans, and accounting for mortgage
loans held for investment, subject to nonrecourse debt to be our
critical accounting policies.
Fair
Value Measurements
Mortgage Loans Held for SaleThrough September 30,
2009, we recorded mortgage loans held for sale at the lower of
amortized cost or fair value on an aggregate basis grouped by
delinquency status. Effective October 1, 2009, we elected
to measure newly originated conventional residential mortgage
loans held for sale at fair value, as permitted under current
accounting guidance. We estimate fair value by evaluating a
variety of market indicators including recent trades and
outstanding commitments, calculated on an aggregate basis.
Mortgage Loans Held for Investment, Subject to ABS Nonrecourse
DebtWe determine the fair value on loans held for
investment, subject to ABS nonrecourse debt using internally
developed valuation models. These valuation models estimate the
exit price we expect to receive in the loans principal
market. Although we utilize and give priority to observable
market inputs, such as interest rates and market spreads within
these models, we typically are required to utilize internal
inputs, such as prepayment speeds, credit losses and discount
rates. These internal inputs require the use of our judgment and
can have a significant impact on the determination of the
loans fair value. In December 2011, we sold our remaining
variable interest in a securitization trust that had been a
consolidated VIE since January 1, 2010 and deconsolidated the
VIE. Upon deconsolidation of this VIE, we derecognized the
securitized mortgage loans held for investment, subject to ABS
nonrecourse debt.
MSRs at Fair ValueWe recognize MSRs related to all
existing forward residential mortgage loans transferred to a
third party in a transfer that meets the requirements for sale
accounting. Additionally, we may acquire the rights to service
forward residential mortgage loans through the purchase of these
rights from third parties. We apply fair value accounting to
this class of MSRs, with all changes in fair value recorded as a
charge or credit to servicing fee income in the consolidated
statement of operations. We estimate the fair value of these
MSRs using a process that combines the use of a discounted cash
flow model and analysis of current market data to arrive at an
estimate of fair 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, discount
rates and credit losses.
We use internal financial models that use, wherever possible,
market participant data to value these MSRs. These models are
complex and use 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. Even if
the general accuracy of our valuation models is validated,
valuations are highly dependent upon the reasonableness of our
assumptions and the predictability of the relationships that
drive the results of the models. On a periodic basis, a large
portion of these MSRs are reviewed by an outside valuation
expert.
Derivative Financial InstrumentsWe utilize certain
derivative instruments in the ordinary course of our business to
manage our exposure to changes in interest rates. These
derivative instruments include forward sales of MBS, forward
loan sale commitments and interest rate swaps and caps. We also
issue interest rate lock commitments (IRLCs) to
borrowers in connection with single family mortgage loan
originations. We recognize all derivative instruments on our
consolidated statement of financial position at fair value. The
estimated fair values of forward sales of MBS and interest rate
swaps and caps are based on quoted market values and are
recorded as other assets or derivative financial instruments
liabilities in the consolidated balance sheet. The initial and
subsequent changes in value on forward sales of MBS are a
component of gain/(loss) on mortgage loans held for sale in the
consolidated statement of operations. The estimated fair values
of IRLCs and forward sale commitments are based on quoted market
values. Fair value amounts of IRLCs are adjusted for expected
execution of outstanding loan commitments. IRLCs and forward
sale commitments are recorded as a component of mortgage loans
held for sale in the consolidated balance sheet. The initial and
57
subsequent changes in value of IRLCs and forward sale
commitments are a component of gain on mortgage loans held for
sale in the consolidated statement of operations.
ABS Nonrecourse DebtEffective January 1, 2010, new
accounting guidance related to VIEs eliminated the concept of a
QSPE, and all existing special purpose entities
(SPEs) are subject to the new consolidation
guidance. Upon adoption of this new accounting guidance, we
identified certain securitization trusts where we, through our
affiliates, continued to hold beneficial interests in these
trusts. These retained beneficial interests obligate us to
absorb losses of the VIE that could potentially be significant
to the VIE or the right to receive benefits from the VIE that
could potentially be significant. In addition, as master
servicer on the related mortgage loans, we retain the power to
direct the activities of the VIE that most significantly impact
the economic performance of the VIE. When it is determined that
we have both the power to direct the activities that most
significantly impact the VIEs economic performance and the
obligation to absorb losses or the right to receive benefits
that could potentially be significant to the VIE, the assets and
liabilities of these VIEs are included in our consolidated
financial statements. Upon consolidation of these VIEs, we
derecognized all previously recognized beneficial interests
obtained as part of the securitization, including any retained
investment in debt securities, and any remaining residual
interests. In addition, we recognized the securitized mortgage
loans as mortgage loans held for investment, subject to ABS
nonrecourse debt, and the related asset-backed certificates
acquired by third parties as ABS nonrecourse debt on our
consolidated balance sheet.
We estimate the fair value of ABS nonrecourse debt based on the
present value of future expected discounted cash flows with the
discount rate approximating current market value for similar
financial instruments. In December 2011, we sold our remaining
variable interest in a securitization trust that had been a
consolidated VIE since January 1, 2010 and deconsolidated the
variable interest. Upon deconsolidation of this VIE in 2011, we
derecognized the related ABS nonrecourse debt.
Excess Spread FinancingIn December 2011, we entered into a
sale and assignment agreement, which we treated as a financing
with an affiliated entity, whereby we sold the right to receive
65% of the excess cash flow generated from a certain underlying
MSR portfolio after receipt of a fixed basic servicing fee per
loan. We will retain all ancillary income associated with
servicing the portfolio and 35% of the excess cash flow after
receipt of the fixed basic servicing fee. We measure this
financing arrangement at fair value to more accurately represent
the future economic performance of the acquired MSRs and related
excess servicing financing. We estimate the fair value of this
financing using a process that combines the use of a discounted
cash flow model and analysis of quoted market prices based on
the value of the underlying MSRs.
Sale of Mortgage LoansTransfers of financial assets are
accounted for as sales when control over the assets has been
surrendered by us. Control over transferred assets is deemed to
be surrendered when (1) the assets have been isolated from
us, (2) the transferee has the right (free of conditions
that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets, and (3) we do not
maintain effective control over the transferred assets through
either (a) an agreement that entitles and obligates us to
repurchase or redeem them before their maturity or (b) the
ability to unilaterally cause the holder to return specific
assets. Loan securitizations structured as sales as well as
whole loan sales are accounted for as sales of mortgage loans
and the resulting gains or losses on such sales, net of any
accrual for standard representations and warranties, are
reported in operating results as a component of gain/(loss) on
mortgage loans held for sale in the consolidated statement of
operations during the period in which the securitization closes
or the sale occurs.
Mortgage Loans Held for Investment, Subject to Nonrecourse
DebtWe account for the loans that were transferred to held
for investment from held for sale during October 2009 in a
manner similar to ASC 310-30, Loans and Debt Securities
Acquired with Deteriorated Credit Quality. At the date of
transfer, we evaluated such loans to determine whether there was
evidence of deterioration of credit quality since acquisition
and if it was probable that we would be unable to collect all
amounts due according to the loans contractual terms. The
transferred loans were aggregated into separate pools of loans
based on common risk
58
characteristics (loan delinquency). We consider expected
prepayments, and estimate the amount and timing of undiscounted
expected principal, interest, and other cash flows for each
aggregated pool of loans. The determination of expected cash
flows utilizes internal inputs such as prepayment speeds and
credit losses. These internal inputs require the use of
judgement and can have a significant impact on the accretion of
income and/or valuation allowance. We determine the excess of
the pools scheduled contractual principal and contractual
interest payments over all cash flows expected as of the
transfer date as an amount that should not be accreted
(nonaccretable difference). The remaining amount is accreted
into interest income over the remaining life of the pool of
loans (accretable yield). The difference between the
undiscounted cash flows expected and the investment in the loan
is recognized as interest income on a level-yield method over
the life of the loan. Increases in expected cash flows
subsequent to the transfer are recognized prospectively through
an adjustment of the yield on the loans over the remaining life.
Decreases in expected cash flows subsequent to transfer are
recognized as a valuation allowance.
Recent
Developments
Updated
Loan Agreements
In January 2012, we extended the maturity date of our
$75 million warehouse facility with BANA, an affiliate of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, an
underwriter in this offering, to January 2013 and increased the
committed amount under this warehouse facility to
$175 million. We herein refer to this facility as our
$175 Million Warehouse Facility.
In February 2012, we extended the maturity date of our
$100 Million Warehouse Facility to January 2013. Also in
February 2012, we extended the maturity date of our
$300 Million Warehouse Facility to February 2013 and
decreased the committed amount under this warehouse facility to
$150 million.
For a description of our facilities, see Managements
Discussion and Analysis of Financial Condition and Results of
OperationsContractual ObligationsDescription of
Certain Indebtedness.
MSR
Purchase
In December 2011, we entered into a servicing rights sale and
issuer transfer agreement (the Servicing Rights Sale and
Issuer Transfer Agreement) with BANA, an affiliate of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, an
underwriter in this offering. Under the Servicing Rights Sale
and Issuer Transfer Agreement, we agreed to purchase certain
servicing rights relating to reverse mortgage loans with an
aggregate UPB as of December 31, 2011 of approximately
$18 billion and assume certain liabilities associated with
such MSRs. On December 22, 2011, we deposited in escrow the
purchase price of the MSRs relating to reverse mortgage loans
with an aggregate UPB as of December 31, 2011 of
approximately $7.8 billion, and the related advances. The
acquisition was completed on January 3, 2012. Our
acquisition of MSRs related to an additional $9.5 billion
of UPB as of December 31, 2011 is expected to close during
2012 upon receipt of certain specified third party approvals. On
December 23, 2011, we paid a deposit of $9.0 million
related to such servicing. Additionally, we expect to subservice
on behalf of the bank certain reverse mortgage loans with a UPB
as of December 31, 2011 of approximately $1.4 billion
beginning in the latter half of 2012. These reverse mortgage
loan servicing rights represent a new class of servicing rights
for us and will be accounted for under the amortization method.
Recently
Appointed Executive Officers
In February 2012, we appointed David C. Hisey as Chief Financial
Officer of Nationstar Mortgage Holdings Inc. Mr. Hisey
assumed this position on February 27, 2012. Subject to
regulatory approval, Mr. Hisey will hold the same position
at Nationstar Mortgage LLC. Mr. Hisey was previously the
Executive Vice President and Deputy Chief Financial Officer for
Fannie Mae, a role he held since 2008. From 2005 to 2008, he
served as Senior Vice President and Controller for Fannie Mae.
Prior to his most recent assignment
59
at Fannie Mae, he also briefly served as Executive Vice
President and Chief Financial Officer. Prior to joining Fannie
Mae, Mr. Hisey was Corporate Vice President of Financial
Services Consulting, Managing Director and practice leader of
the Lending and Leasing Group of BearingPoint, Inc., a
management consulting and systems integration company. Prior to
joining BearingPoint in 2001, Mr. Hisey was an audit
partner with KPMG, LLP; his tenure at KPMG spanned 19 years
from 1982 to 2001. He received a Bachelor of Business
Administration degree in Accounting from James Madison
University and is a certified public accountant.
In February 2012, we appointed Harold Lewis as President and
Chief Operating Officer of Nationstar Mortgage Holdings, Inc.
Mr. Lewis assumed these positions on February 27,
2012. Subject to regulatory approval, Mr. Lewis will hold
the same positions at Nationstar Mortgage LLC. Mr. Lewis
was previously the Chief Operating Officer at CitiMortgage,
responsible for Operations, Technology and key CitiMortgage
functions. In this role, Mr. Lewis oversaw more than
9,000 employees and was also responsible for Customer
Experience, Services, Agency Relations and Re-engineering.
Mr. Lewis joined CitiMortgage in April 2009 as head of the
Citi Homeowner Assistance Program. Prior to CitiMortgage,
Mr. Lewis held executive positions at Fannie Mae for seven
years, most recently as Senior Vice President of National
Servicing where he was responsible for the management of 1,400
mortgage servicers. Mr. Lewis has also held senior
management roles with Resource Bancshares Mortgage Group,
Nations Credit, Bank of America/Barnett Bank, Cardinal Bank
Shares and Union Planter National Bank. Mr. Lewis received
his Bachelor of Science degree in Business from Memphis State
University.
MSR
Acquisition
On March 6, 2012, we entered into an asset purchase
agreement (the Asset Purchase Agreement) with Aurora
Bank FSB, a federal savings bank organized under the laws of the
United States, and Aurora Loan Services LLC, a Delaware limited
liability company (collectively with Aurora Bank FSB, the
Sellers). Each of the Sellers is a subsidiary of
Lehman Brothers Bancorp Inc. Under the Asset Purchase Agreement,
we agreed to purchase the MSRs to approximately 300,000
residential mortgage loans with a total UPB of approximately
$63 billion, $1.75 billion of servicing advance
receivables, and certain other assets. The composition of the
total portfolio is expected to be approximately 75%
non-conforming loans in private label securitizations and
approximately 25% conforming loans in GSE pools. We have also
agreed to assume certain liabilities. The transaction is
expected to close in the second quarter of 2012, subject to
customary closing conditions, including certain regulatory
approvals and third party consents, and customary termination
rights.
The cash purchase price of the MSRs is approximately
$268 million, subject to certain adjustments. The cash
purchase price of the servicing advance receivables is
approximately $210 million, net of financing. In connection
with this transaction, we expect to enter into advance financing
facilities, including facilities with certain underwriters in
connection with this offering or such underwriters
affiliates, in order to fund the balance of the related
servicing advance receivables.
In addition, we will fund up to approximately $170 million
of the MSR purchase price with the proceeds of a co-investment
(the Excess MSR Agreement) by Newcastle Investment
Corp. (Newcastle), which is an affiliate of
Nationstar. Pursuant to the Excess MSR Agreement, we will sell
to Newcastle the right to receive approximately 65% of the
excess cash flow generated from the MSRs after receipt of a
fixed basic servicing fee per loan. We will retain all ancillary
income associated with servicing the loans and approximately 35%
of the excess cash flow after receipt of the fixed basic
servicing fee. We will continue to be the servicer of the loans
and provide all servicing and advancing functions for the loans.
Under the terms of this investment, if we refinance any loan in
the portfolio, subject to certain limitations, we will be
required to transfer the new loan or a replacement loan into the
portfolio. The new or replacement loan will be governed by the
same terms set forth in the Excess MSR Agreement.
We and the Sellers have agreed to indemnify each other against
certain losses (subject to certain limitations), including
certain losses from claims up to an aggregate amount of 50% of
the aggregate purchase price of the MSRs, after which we will
bear the entirety of such losses.
60
Potential
MSR Acquisitions
We believe there are significant opportunities to grow our
business by acquiring additional MSRs and complementary assets,
and we actively explore potential acquisition opportunities in
the ordinary course of our business. We are currently in
discussions with several financial institutions to acquire
additional MSRs relating to residential mortgage loans and
complementary assets that could result in our entering into one
or more definitive acquisition agreements prior to or
immediately following the completion of this offering. Potential
portfolios include servicing rights relating to residential
mortgage loans with an aggregate UPB of approximately
$10 billion from two other financial institutions. We can
provide no assurances that we will enter into these agreements
or as to the timing of any potential acquisition.
Results
of Operations
The following table summarizes our consolidated operating
results for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$233,411
|
|
|
|
$167,126
|
|
|
|
$90,195
|
|
Other fee income
|
|
|
35,187
|
|
|
|
16,958
|
|
|
|
10,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
268,598
|
|
|
|
184,084
|
|
|
|
100,218
|
|
Gain (loss) on mortgage loans held for sale
|
|
|
109,136
|
|
|
|
77,344
|
|
|
|
(21,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
377,734
|
|
|
|
261,428
|
|
|
|
78,869
|
|
Expenses and impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
202,290
|
|
|
|
149,115
|
|
|
|
90,689
|
|
General and administrative
|
|
|
82,183
|
|
|
|
58,913
|
|
|
|
30,494
|
|
Provision for loan losses
|
|
|
3,537
|
|
|
|
3,298
|
|
|
|
|
|
Loss on sale of foreclosed real estate
|
|
|
6,833
|
|
|
|
205
|
|
|
|
7,512
|
|
Occupancy
|
|
|
11,340
|
|
|
|
9,445
|
|
|
|
6,863
|
|
Loss on
available-for-sale
securitiesother than temporary
|
|
|
|
|
|
|
|
|
|
|
6,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
306,183
|
|
|
|
220,976
|
|
|
|
142,367
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
66,802
|
|
|
|
98,895
|
|
|
|
52,518
|
|
Interest expense
|
|
|
(105,375
|
)
|
|
|
(116,163
|
)
|
|
|
(69,883
|
)
|
Gain (loss) on interest rate swaps and caps
|
|
|
298
|
|
|
|
(9,801
|
)
|
|
|
(14
|
)
|
Fair value changes in ABS securitizations
|
|
|
(12,389
|
)
|
|
|
(23,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(50,664
|
)
|
|
|
(50,366
|
)
|
|
|
(17,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$20,887
|
|
|
|
$(9,914
|
)
|
|
|
$(80,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We provide further discussion of our results of operations for
each of our reportable segments under Segment
Results below. Certain income and expenses not allocated
to our reportable segments are presented under
Legacy Portfolio and Other below and discussed
in Note 24 to Consolidated Financial
StatementsBusiness Segment Reporting.
Comparison
of Consolidated Results for the Years Ended December 31,
2011 and 2010
Revenues increased $116.3 million from $261.4 million
for the year ended December 31, 2010 to $377.7 million
for the year ended December 31, 2011, due to increases in
both our total fee income and our gain on mortgage loans held
for sale offset by MSR fair value adjustments amounting to $39.0
million. The increase in our total fee income was primarily the
result of our higher average servicing portfolio balance of
$81.5 billion for the year ended December 31, 2011,
compared to $38.7 billion for the year ended
December 31, 2010, and an increase in modification fees
earned from HAMP and other non-HAMP modifications. The increase
in the gain on loans held for sale was a result of the
$620.6 million, or 22.2%,
61
increase in the amount of loans originated during the 2011
period compared to the 2010 period and higher margins earned on
the sale of residential mortgage loans during the period.
Expenses and impairments increased $85.2 million from
$221.0 million for the year ended December 31, 2010 to
$306.2 million for the year ended December 31, 2011,
primarily due to the increase in compensation expenses related
to increased staffing levels in order to accommodate our larger
servicing portfolio and originations volumes as well as other
related increases in general and administrative expenses.
Other expense increased $0.3 million from
$50.4 million for the year ended December 31, 2010 to
$50.7 million for the year ended December 31, 2011,
primarily due to a decrease in our net interest margin resulting
from higher average outstanding balances on our outstanding
warehouse and advance facilities. This amount was partially
offset by the impact of our fair value
mark-to-market
charges that were realized on our
2009-ABS
interest rate swap for $9.8 million for the year ended
December 31, 2010, compared to a $0.3 million gain
recognized for the year ended December 31, 2011.
Comparison
of Consolidated Results for the Years Ended December 31,
2010 and 2009
Revenues increased $182.5 million from $78.9 million
for the year ended December 31, 2009 to $261.4 million
for the year ended December 31, 2010, primarily due to the
significant increase in our total fee income and an increase in
our gain on mortgage loans held for sale. The increase in our
total fee income was primarily a result of (1) our higher
average servicing portfolio balance of $38.7 billion for
the year ended December 31, 2010, compared to
$25.8 billion for the year ended December 31, 2009,
and (2) an increase in portfolio level performance-based
fees and fees earned for loss mitigation activities. The
increase in the gain on loans held for sale was a result of the
$1.3 billion, or 88.7%, increase in the amount of loans
originated during 2010 as well as the elimination of lower of
cost or market adjustments related to our legacy asset portfolio.
Expenses and impairments increased $78.6 million from
$142.4 million for the year ended December 31, 2009 to
$221.0 million for the year ended December 31, 2010,
primarily due to the increase in compensation expenses related
to increased staffing levels in order to accommodate our larger
servicing portfolio and originations as well as other related
increases in general and administrative expenses. Our 2010
operating results include an additional $12.1 million in
share-based compensation expense from revised compensation
arrangements executed with certain members of our executive
team. Additionally, expenses and impairments increased from the
consolidation of certain VIEs from January 1, 2010, and
from expenses associated with the settlement of certain claims.
Other expense increased $33.0 million from
$17.4 million for the year ended December 31, 2009 to
$50.4 million for the year ended December 31, 2010,
primarily due to the effects of the consolidation of certain
VIEs and the losses on our outstanding interest rate swap
positions during 2010.
Segment
Results
Our primary business strategy is to generate recurring, stable
income from managing and growing our servicing portfolio. We
operate through two business segments: the Servicing Segment and
the Originations Segment, which we refer to collectively as our
Operating Segments. We report the activity not related to either
operating segment in Legacy Portfolio and Other. Legacy
Portfolio and Other includes primarily all subprime mortgage
loans (i) originated mostly from April to July 2007 or
(ii) acquired from CHEC, and VIEs which were consolidated
pursuant to the January 1, 2010 adoption of new
consolidation guidance related to VIEs. As of December 31,
2011, we had no consolidated VIEs.
The accounting policies of each reportable segment are the same
as those of the consolidated financial statements except for
(i) expenses for consolidated back-office operations and
general overhead
62
expenses such as executive administration and accounting and
(ii) revenues generated on inter-segment services
performed. Expenses are allocated to individual segments based
on the estimated value of the services performed, including
estimated utilization of square footage and corporate personnel,
as well as the equity invested in each segment. Revenues
generated or inter-segment services performed are valued based
on similar services provided to external parties.
Servicing
Segment
The Servicing Segment provides loan servicing on our primary and
subservicing portfolios, including the collection of principal
and interest payments and the generation of ancillary fees
related to the servicing of mortgage loans.
The following table summarizes our operating results from our
Servicing Segment for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$238,394
|
|
|
|
$175,569
|
|
|
|
$91,266
|
|
Other fee income
|
|
|
17,082
|
|
|
|
7,273
|
|
|
|
8,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
255,476
|
|
|
|
182,842
|
|
|
|
100,133
|
|
Gain on mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
255,476
|
|
|
|
182,842
|
|
|
|
100,133
|
|
Expenses and impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
123,655
|
|
|
|
78,269
|
|
|
|
56,726
|
|
General and administrative
|
|
|
48,611
|
|
|
|
24,664
|
|
|
|
10,669
|
|
Occupancy
|
|
|
5,664
|
|
|
|
4,350
|
|
|
|
3,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
177,930
|
|
|
|
107,283
|
|
|
|
70,897
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,263
|
|
|
|
263
|
|
|
|
4,143
|
|
Interest expense
|
|
|
(58,024
|
)
|
|
|
(51,791
|
)
|
|
|
(25,877
|
)
|
Gain (loss) on interest rate swaps and caps
|
|
|
298
|
|
|
|
(9,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(55,463
|
)
|
|
|
(61,329
|
)
|
|
|
(21,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$22,083
|
|
|
|
$14,230
|
|
|
|
$7,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in aggregate UPB of our servicing portfolio primarily
governs the increase in revenues, expenses and other income
(expense) of our Servicing Segment.
The table below provides detail of the characteristics of our
servicing portfolio at the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(in millions)
|
|
|
Servicing Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance (by investor):
|
|
|
|
|
|
|
|
|
|
|
|
|
Special servicing
|
|
|
$10,165
|
|
|
|
$4,893
|
|
|
|
$1,554
|
|
GSEs
|
|
|
69,772
|
|
|
|
52,194
|
|
|
|
24,235
|
|
Non-agency securitizations
|
|
|
18,868
|
|
|
|
7,089
|
|
|
|
7,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total boarded unpaid principal balance
|
|
|
98,805
|
|
|
|
64,176
|
|
|
|
33,664
|
|
Servicing under contract
|
|
|
7,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total servicing portfolio unpaid principal balance
|
|
|
$106,586
|
|
|
|
$64,176
|
|
|
|
$33,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
The table below provides detail of the characteristics and key
performance metrics of our servicing portfolio at and for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011(1)
|
|
|
2010
|
|
|
2009
|
|
|
|
(dollars in millions, except for average loan amount)
|
|
|
Loan countservicing
|
|
|
596,011
|
|
|
|
389,172
|
|
|
|
230,615
|
|
Ending unpaid principal balance
|
|
|
$98,805
|
|
|
|
$64,176
|
|
|
|
$33,664
|
|
Average unpaid principal balance
|
|
|
$81,491
|
|
|
|
$38,653
|
|
|
|
$25,799
|
|
Average loan amount
|
|
|
$165,778
|
|
|
|
$164,904
|
|
|
|
$145,977
|
|
Average coupon
|
|
|
5.43
|
%
|
|
|
5.74
|
%
|
|
|
6.76
|
%
|
Average FICO credit score
|
|
|
627
|
|
|
|
631
|
|
|
|
644
|
|
60+ delinquent (% of
loans)(2)
|
|
|
14.7
|
%
|
|
|
17.0
|
%
|
|
|
19.9
|
%
|
Total prepayment speed (12 month constant pre-payment rate
(CPR))
|
|
|
13.4
|
%
|
|
|
13.3
|
%
|
|
|
16.3
|
%
|
|
|
|
(1) |
|
Characteristics and key performance metrics for the year ended
December 31, 2011 exclude approximately $7.8 billion
of reverse residential mortgage loans for which we entered into
an agreement to acquire the MSRs in December 2011 and closed in
January 2012. |
|
(2) |
|
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. |
For the
Years Ended December 31, 2011 and 2010
Servicing fee income consists of the following for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Servicing fee income
|
|
|
$207,102
|
|
|
|
$118,443
|
|
Loss mitigation and performance-based incentive fees
|
|
|
15,671
|
|
|
|
16,621
|
|
Modification fees
|
|
|
32,552
|
|
|
|
21,792
|
|
Late fees and other ancillary charges
|
|
|
23,728
|
|
|
|
22,828
|
|
Other servicing fee related revenues
|
|
|
1,401
|
|
|
|
1,928
|
|
|
|
|
|
|
|
|
|
|
Total servicing fee income before MSR fair value adjustments
|
|
|
280,454
|
|
|
|
181,612
|
|
Fair value adjustments on excess spread financing
|
|
|
(3,060
|
)
|
|
|
|
|
MSR fair value adjustments
|
|
|
(39,000
|
)
|
|
|
(6,043
|
)
|
|
|
|
|
|
|
|
|
|
Total servicing fee income
|
|
|
$238,394
|
|
|
|
$175,569
|
|
|
|
|
|
|
|
|
|
|
The following tables provide servicing fee income and UPB by
primary servicing and subservicing for and at the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Servicing fee income
|
|
|
|
|
|
|
|
|
Primary servicing
|
|
|
$164,096
|
|
|
|
$161,312
|
|
Subservicing
|
|
|
116,358
|
|
|
|
20,300
|
|
|
|
|
|
|
|
|
|
|
Total servicing fee income before MSR fair value adjustments
|
|
|
$280,454
|
|
|
|
$181,612
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
UPB
|
|
|
|
|
|
|
|
|
Primary servicing
|
|
|
$45,817
|
|
|
|
$34,404
|
|
Subservicing
|
|
|
52,988
|
|
|
|
29,772
|
|
|
|
|
|
|
|
|
|
|
Total unpaid principal balance
|
|
|
$98,805
|
|
|
|
$64,176
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income was $238.4 million for the year ended
December 31, 2011 compared to $175.6 million for the
year ended December 31, 2010, an increase of
$62.8 million, or 35.8%, primarily due to the net effect of
the following:
|
|
|
|
|
Increase of $88.7 million due to higher average UPB of
$81.5 billion in the 2011 period compared to
$38.7 billion in the comparable 2010 period. The increase
in our servicing portfolio was primarily driven by an increase
in average UPB for loans serviced for GSEs and other
subservicing contracts for third party investors of
$61.0 billion in the 2011 period compared to
$28.0 billion in the comparable 2010 period. In addition,
we also experienced an increase in average UPB for our private
asset-backed securitizations portfolio, which increased to
$13.0 billion in the year ended December 31, 2011
compared to $7.4 billion in the comparable 2010 period.
|
|
|
|
Increase of $10.8 million due to higher modification fees
earned from HAMP and non-HAMP modifications.
|
|
|
|
Decrease of $0.9 million due to decreased loss mitigation
and performance-based incentive fees earned from a GSE.
|
|
|
|
Decrease of $33.0 million from change in fair value on MSRs
which was recognized in servicing fee income. The fair value of
our MSRs is based upon the present value of the expected future
cash flows related to servicing these loans. The revenue
components of the cash flows are servicing fees, interest earned
on custodial accounts, and other ancillary income. The expense
components include operating costs related to servicing the
loans (including delinquency and foreclosure costs) and interest
expenses on servicing advances. The expected future cash flows
are primarily impacted by prepayment estimates, delinquencies,
and market discount rates. Generally, the value of MSRs
increases when interest rates increase and decreases when
interest rates decline due to the effect those changes in
interest rates have on prepayment estimates. Other factors
affecting the MSR value includes the estimated effects of loan
modifications on expected cash flows. Such modifications tend to
positively impact cash flows by extending the expected life of
the affected MSR and potentially producing additional revenue
opportunities depending on the type of modification. In valuing
the MSRs, we believe our assumptions are consistent with the
assumptions other major market participants use. These
assumptions include a level of future modification activity that
we believe major market participants would use in their
valuation of MSRs. Internally, we have modification goals that
exceed the assumptions utilized in our valuation model.
Nevertheless, were we to apply an assumption of a level of
future modifications consistent with our internal goals to our
MSR valuation, we do not believe the resulting increase in value
would be material. Additionally, several state Attorneys General
have requested that certain mortgage servicers, including us,
suspend foreclosure proceedings pending internal review to
ensure compliance with applicable law, and we received requests
from four such state Attorneys General. Although we have resumed
those previously delayed proceedings, changes in the foreclosure
process that may be required by government or regulatory bodies
could increase the cost of servicing and diminish the value of
our MSRs. We utilize assumptions of servicing costs that include
delinquency and foreclosure costs that we
|
65
|
|
|
|
|
believe major market participants would use to value their MSRs.
We periodically compare our internal MSR valuation to third
party valuation of our MSRs to help substantiate our market
assumptions. We have considered the costs related to the delayed
proceedings in our assumptions and we do not believe that any
resulting decrease in the MSR was material given the expected
short-term nature of the issue.
|
Other fee income was $17.1 million for the year ended
December 31, 2011 compared to $7.3 million for the
year ended December 31, 2010, an increase of
$9.8 million, or 134.2%, due to higher commissions earned
on lender placed insurance and higher REO sales commissions.
The following table provides other fee income by primary
servicing, subservicing and adjacent businesses for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Other fee income
|
|
|
|
|
|
|
|
|
Primary servicing
|
|
|
$5,520
|
|
|
|
$6,865
|
|
Subservicing
|
|
|
3,038
|
|
|
|
408
|
|
Adjacent businesses
|
|
|
8,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other fee income
|
|
|
$17,082
|
|
|
|
$7,273
|
|
|
|
|
|
|
|
|
|
|
Expenses and impairments were $177.9 million for the year
ended December 31, 2011 compared to $107.3 million for
the year ended December 31, 2010, an increase of
$70.6 million, or 65.8%, primarily due to the increase of
$45.4 million in salaries, wages and benefits expense
resulting primarily from an increase in average headcount from
1,178 in 2010 to 1,966 in 2011 and an increase of
$25.2 million in general and administrative and
occupancy-related expenses associated with increased headcount
and growth in the servicing portfolio. Our 2011 operating
results include an $8.2 million increase in share-based
compensation expense from revised compensation arrangements
executed with certain members of our executive team during the
third quarter of 2010.
The following table provides primary servicing, subservicing,
adjacent businesses and other Servicing Segment expenses for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Expenses and impairments
|
|
|
|
|
|
|
|
|
Primary servicing
|
|
|
$70,549
|
|
|
|
$82,772
|
|
Subservicing
|
|
|
82,938
|
|
|
|
18,276
|
|
Adjacent businesses
|
|
|
9,100
|
|
|
|
|
|
Other Servicing Segment expenses
|
|
|
15,343
|
|
|
|
6,235
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
$177,930
|
|
|
|
$107,283
|
|
|
|
|
|
|
|
|
|
|
Other Servicing Segment expenses primarily include share-based
compensation expenses.
66
Total other income (expense) was $(55.5) million for the year
ended December 31, 2011 compared to $(61.3) million for the
year ended December 31, 2010, a decrease in expense, net of
income, of $5.8 million, or 9.5%, primarily due to the net
effect of the following:
|
|
|
|
|
Interest income was $2.3 million for the year ended
December 31, 2011 compared to $0.3 million for the
year ended December 31, 2010, an increase of
$2.0 million due to higher average outstanding custodial
cash deposit balances on custodial cash accounts as a result of
the growth in our servicing portfolio.
|
|
|
|
Interest expense was $58.0 million for the year ended
December 31, 2011 compared to $51.8 million for the
year ended December 31, 2010, an increase of
$6.2 million, or 12.0%, primarily due to higher average
outstanding debt of $642.9 million in the year ended
December 31, 2011 compared to $638.6 million in the
comparable 2010 period. The impact of the higher debt balances
is partially offset by lower interest rates due to declines in
the base LIBOR and decreases in the overall index margin on
outstanding servicer advance facilities. Interest expense from
the senior notes was $30.3 million and $22.1 million,
respectively, for the years ended December 31, 2011 and
2010. Interest expense also includes gains for the ineffective
portion of cash flow hedge of $2.0 million and
$0.9 million, respectively, for the years ended
December 31, 2011 and 2010.
|
|
|
|
Loss on interest rate swaps and caps was $9.8 million for
the year ended December 31, 2010 compared to a
$0.3 million gain for the year ended December 31,
2011. Effective October 1, 2010, we designated an existing
interest rate swap as a cash flow hedge against outstanding
floating rate financing associated with one of our outstanding
servicer advance facilities. This interest rate swap is recorded
at fair value, with any changes in fair value related to the
effective portion of the hedge being recorded as an adjustment
to other comprehensive income. Prior to this designation, any
changes in fair value were recorded as a loss on interest rate
swaps and caps on our statement of operations. In conjunction
with our October 2011 amendment to our 2010-ABS Advance
Financing Facility, we paid off our 2009-ABS Advance Financing
Facility and transferred the related collateral to the 2010-ABS
Advance Financing Facility. Concurrently with the repayment of
the 2009-ABS Advance Financing Facility, we de-designated the
underlying interest rate swap on our 2009-ABS Advance Financing
Facility. Our outstanding 2010-ABS interest rate swap served as
an economic hedge during the period it was outstanding for the
year ended December 31, 2011.
|
For the
Years Ended December 31, 2010 and 2009
Servicing fee income consists of the following for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Servicing fee income
|
|
|
$118,443
|
|
|
|
$83,659
|
|
Loss mitigation and performance-based incentive fees
|
|
|
16,621
|
|
|
|
7,658
|
|
Modification fees
|
|
|
21,792
|
|
|
|
3,868
|
|
Late fees and other ancillary charges
|
|
|
22,828
|
|
|
|
21,901
|
|
Other servicing fee related revenues
|
|
|
1,928
|
|
|
|
2,095
|
|
|
|
|
|
|
|
|
|
|
Total servicing fee income before MSR fair value adjustments
|
|
|
181,612
|
|
|
|
119,181
|
|
MSR fair value adjustments
|
|
|
(6,043
|
)
|
|
|
(27,915
|
)
|
|
|
|
|
|
|
|
|
|
Total servicing fee income
|
|
|
$175,569
|
|
|
|
$91,266
|
|
|
|
|
|
|
|
|
|
|
67
The following tables provide servicing fee income and UPB by
primary servicing and subservicing for and at the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Servicing fee income
|
|
|
|
|
|
|
|
|
Primary servicing
|
|
|
$161,312
|
|
|
|
$116,966
|
|
Subservicing
|
|
|
20,300
|
|
|
|
2,215
|
|
|
|
|
|
|
|
|
|
|
Total servicing fee income before MSR fair value adjustments
|
|
|
$181,612
|
|
|
|
$119,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in millions)
|
|
|
UPB
|
|
|
|
|
|
|
|
|
Primary servicing
|
|
|
$34,404
|
|
|
|
$32,871
|
|
Subservicing
|
|
|
29,772
|
|
|
|
793
|
|
|
|
|
|
|
|
|
|
|
Total unpaid principal balance
|
|
|
$64,176
|
|
|
|
$33,664
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income was $175.6 million for the year ended
December 31, 2010 compared to $91.3 million for the
year ended December 31, 2009, an increase of
$84.3 million, or 92.3%, primarily due to the net effect of
the following:
|
|
|
|
|
Increase of $34.8 million due to higher average UPB of
$38.7 billion in 2010 compared to $25.8 billion in
2009. The increase in our servicing portfolio was primarily
driven by an increase in average UPB for loans serviced for GSEs
and other subservicing contracts for third party investors of
$31.2 billion in 2010 compared to $17.2 billion in
2009. This increase was partially offset by a decrease in
average UPB for our asset-backed securitizations portfolio,
which decreased to $7.4 billion in 2010 compared to
$8.6 billion in 2009.
|
|
|
|
Increase of $8.9 million due to increased loss mitigation
and performance-based incentive fees earned from a GSE.
|
|
|
|
Increase of $17.9 million due to higher fees earned from
HAMP and from modification fees earned on non-HAMP
modifications. As a high touch servicer, we use modifications as
a key loss mitigation tool. Under HAMP, subject to a program
participation cap, we, as a servicer, will receive an initial
incentive payment of up to $1,500 for each loan modified in
accordance with HAMP subject to the condition that the borrower
successfully completes a trial modification period. With this
program, the servicer must forego any late fees and may not
charge any other fees. In addition, provided that a HAMP
modification does not become 90 days or more delinquent, we
will receive an additional incentive fee of up to $1,000.
Initial redefault rates have been favorable, averaging 10% to
20%. The HAMP program has an expiration date of
December 31, 2012 and is only applicable to first lien
mortgages that were originated on or before January 1,
2009. For non-HAMP modifications, we generally do not waive late
fees, and we charge a modification fee. These amounts are
collected at the time of the modification.
|
|
|
|
Increase of $21.9 million from change in fair value on MSRs
which was recognized in servicing fee income. The fair value of
our MSRs is based upon the present value of the expected future
cash flows related to servicing these loans. The revenue
components of the cash flows are servicing fees, interest earned
on custodial accounts, and other ancillary income. The expense
components include operating costs related to servicing the
loans (including delinquency and
|
68
|
|
|
|
|
foreclosure costs) and interest expenses on servicing advances.
The expected future cash flows are primarily impacted by
prepayment estimates, delinquencies, and market discount rates.
Generally, the value of MSRs increases when interest rates
increase and decreases when interest rates decline due to the
effect those changes in interest rates have on prepayment
estimates. Other factors affecting the MSR value includes the
estimated effects of loan modifications on expected cash flows.
Such modifications tend to positively impact cash flows by
extending the expected life of the affected MSR and potentially
producing additional revenue opportunities depending on the type
of modification. In valuing the MSRs, we believe our assumptions
are consistent with the assumptions other major market
participants use. These assumptions include a level of future
modification activity that we believe major market participants
would use in their valuation of MSRs. Internally, we have
modification goals that exceed the assumptions utilized in our
valuation model. Nevertheless, were we to utilize an assumption
of a level of future modifications consistent with our internal
goals to our MSR valuation, we do not believe the resulting
increase in value would be material.
|
|
|
|
|
|
Increase of $0.9 million due to an increase in ancillary
and late fees arising from growth in the servicing portfolio.
Late fees are recognized as revenue at collection.
|
Other fee income was $7.3 million for the year ended
December 31, 2010 compared to $8.9 million for the
year ended December 31, 2009, a decrease of
$1.6 million, or 18.0%, due to lower lender-placed
insurance commissions and lower REO sales commissions resulting
from a decline in REO sales managed by our internal REO sales
group.
The following table provides other fee income by primary
servicing and subservicing for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Other fee income
|
|
|
|
|
|
|
|
|
Primary servicing
|
|
|
$6,865
|
|
|
|
$8,867
|
|
Subservicing
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other fee income
|
|
|
$7,273
|
|
|
|
$8,867
|
|
|
|
|
|
|
|
|
|
|
Expenses and impairments were $107.3 million for the year
ended December 31, 2010 compared to $70.9 million for
the year ended December 31, 2009, an increase of
$36.4 million, or 51.3%, primarily due to an increase of
$21.6 million in salaries, wages and benefits expense
resulting from an increase in headcount from 910 in 2009 to
1,178 in 2010 and $4.9 million in additional share-based
compensation from revised compensation arrangements with certain
of our executives. Additionally, we recognized an increase of
$14.8 million in general and administrative and occupancy
expenses associated with increased headcount, growth in the
servicing portfolio and increases in reserves for
non-recoverable advances.
69
The following table provides key primary servicing, subservicing
and other Servicing Segment expenses for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Expenses and impairments
|
|
|
|
|
|
|
|
|
Primary servicing
|
|
|
$82,772
|
|
|
|
$67,330
|
|
Subservicing
|
|
|
18,276
|
|
|
|
2,232
|
|
Other Servicing Segment expenses
|
|
|
6,235
|
|
|
|
1,335
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
$107,283
|
|
|
|
$70,897
|
|
|
|
|
|
|
|
|
|
|
Other Servicing Segment expenses primarily include share-based
compensation expenses.
Total other income (expense) was $(61.3) million for the
year ended December 31, 2010 compared to
$(21.7) million for the year ended December 31, 2009,
an increase in expense, net of income, of $39.6 million, or
182.5%, primarily due to the net effect of the following:
|
|
|
|
|
Interest income decreased $3.8 million due to lower average
index rates received on custodial cash deposits associated with
mortgage loans serviced combined with lower average outstanding
custodial cash deposit balances.
|
|
|
|
Interest expense increased $25.9 million primarily due to
higher average outstanding debt of $638.6 million in 2010
compared to $313.3 million in 2009, offset by lower
interest rates due to declines in the base LIBOR and decreases
in the overall index margin on outstanding servicer advance
facilities. Additionally, in 2010, we have included the balances
related to our outstanding corporate note and senior unsecured
debt balances, and the related interest expense thereon, as a
component of our Servicing Segment. As a result of the weakening
housing market, we continued to carry approximately
$530.9 million in residential mortgage loans that we were
unable to securitize as mortgage loans held for sale on our
balance sheet throughout most of 2009. During this time period,
we allocated a portion of our outstanding corporate note balance
to Legacy Portfolio and Other to account for the increased
capacity and financing costs we incurred while these loans were
retained on our balance sheet. For the year ended
December 31, 2010, we recorded $22.1 million in
interest expense related to our outstanding corporate and senior
notes.
|
|
|
|
Loss on interest rate swaps and caps was $9.8 million for
the year ended December 31, 2010, with no corresponding
gain or loss recognized for the year ended December 31,
2009. The loss for the period was a result of a decline in fair
value recognized during the period on outstanding interest rate
swaps designed to economically hedge the interest rate risk
associated with our
2009-ABS
Advance Financing Facility. This facility was not executed until
the end of the fourth quarter of 2009, so we did not recognize
any corresponding fair value adjustments during the year ended
December 31, 2009.
|
Originations
Segment
The Originations Segment involves the origination, packaging,
and sale of GSE mortgage loans into the secondary markets via
whole loan sales or securitizations.
70
The following table summarizes our operating results from our
Originations Segment for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Other fee income
|
|
|
14,109
|
|
|
|
7,042
|
|
|
|
1,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
14,109
|
|
|
|
7,042
|
|
|
|
1,156
|
|
Gain on mortgage loans held for sale
|
|
|
109,431
|
|
|
|
77,498
|
|
|
|
54,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
123,540
|
|
|
|
84,540
|
|
|
|
55,593
|
|
Expenses and impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
71,697
|
|
|
|
57,852
|
|
|
|
31,497
|
|
General and administrative
|
|
|
26,344
|
|
|
|
26,761
|
|
|
|
14,586
|
|
Occupancy
|
|
|
3,566
|
|
|
|
2,307
|
|
|
|
1,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
101,607
|
|
|
|
86,920
|
|
|
|
47,532
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
12,718
|
|
|
|
11,848
|
|
|
|
4,261
|
|
Interest expense
|
|
|
(10,955
|
)
|
|
|
(8,806
|
)
|
|
|
(3,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
1,763
|
|
|
|
3,042
|
|
|
|
823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$23,696
|
|
|
|
$662
|
|
|
|
$8,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in originations volume primarily governs the increase
in revenues, expenses and other income (expense) of our
Originations Segment. The table below provides detail of the
loan characteristics of loans originated for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(in millions)
|
|
|
Originations Volume:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
$2,200
|
|
|
|
$1,608
|
|
|
|
$1,093
|
|
Wholesale
|
|
|
1,212
|
|
|
|
1,184
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Originations Volume
|
|
|
$3,412
|
|
|
|
$2,792
|
|
|
|
$1,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Years Ended December 31, 2011 and 2010
Total revenues were $123.5 million for the year ended
December 31, 2011 compared to $84.5 million for the
year ended December 31, 2010, an increase of
$39.0 million, or 46.2%, primarily due to the net effect of
the following:
|
|
|
|
|
Other fee income was $14.1 million for the year ended December
31, 2011 compared to $7.0 million for the year ended December
31, 2010, an increase of $7.1 million, or 101.4%, primarily due
to higher points and fees collected as a result of the $620.6
million increase in loan originations volume, combined with a
decrease in fees paid to third party mortgage brokers.
|
71
Gain on mortgage loans held for sale consists of the following
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Gain on sale
|
|
|
$68,567
|
|
|
|
$51,839
|
|
Provision for repurchases
|
|
|
(5,534
|
)
|
|
|
(4,649
|
)
|
Capitalized servicing rights
|
|
|
36,474
|
|
|
|
26,253
|
|
Fair value
mark-to-market
adjustments
|
|
|
11,159
|
|
|
|
2,301
|
|
Mark-to-market
on derivatives/hedges
|
|
|
(1,235
|
)
|
|
|
1,754
|
|
|
|
|
|
|
|
|
|
|
Total gain on mortgage loans held for sale
|
|
|
$109,431
|
|
|
|
$77,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on mortgage loans held for sale was $109.4 million for
the year ended December 31, 2011, compared to
$77.5 million for the year ended December 31, 2010, an
increase of $31.9 million, or 41.2%, primarily due to the
net effect of the following:
|
|
|
|
|
|
Increase of $16.8 million from larger volume of
originations, which increased from $2.8 billion in 2010 to
$3.4 billion in 2011, and higher margins earned on the sale
of residential mortgage loans during the period.
|
|
|
|
Increase of $10.2 million from capitalized MSRs due to the
larger volume of originations and subsequent retention of MSRs.
|
|
|
|
Increase of $8.9 million resulting from the change in fair
value on newly-originated loans.
|
|
|
|
Decrease of $3.0 million from change in unrealized
gains/losses on derivative financial instruments. These include
IRLCs and forward sales of MBS.
|
|
|
|
Decrease of $0.9 million from an increase in our provision
for repurchases as a result of the increase in our loan sale
volume.
|
Expenses and impairments were $101.6 million for the year
ended December 31, 2011 compared to $86.9 million for
the year ended December 31, 2010, an increase of
$14.7 million, or 16.9%, primarily due to the net effect of
the following:
|
|
|
|
|
Increase of $13.8 million in salaries, wages and benefits
expense from increase in average headcount of 688 in 2010 to 988
in 2011 and increases in performance-based compensation due to
increases in originations volume.
|
|
|
|
Increase of $0.8 million in general and administrative and
occupancy expense primarily due to an increase in our overhead
expenses from the higher originations volume in the 2011 period.
Additionally we recorded total charges in November 2011 of
$1.8 million related to our strategic decision to refocus
our strategy with respect to our originations platform.
|
Total other income (expense) was $1.8 million for the year
ended December 31, 2011 compared to $3.0 million for the
year ended December 31, 2010, a decrease in income, net of
expense, of $1.2 million, or 40.0%, primarily due to the
net effect of the following:
|
|
|
|
|
Interest income was $12.7 million for the year ended December
31, 2011 compared to $11.8 million for the year ended
December 31, 2010, an increase of $0.9 million, or 7.6%,
representing interest earned from originated loans prior to sale
or securitization. The increase is primarily due to the increase
in the volume of originations. Loans are typically sold within
30 days of origination.
|
72
|
|
|
|
|
Interest expense was $11.0 million for the year ended December
31, 2011 compared to $8.8 million for the year ended
December 31, 2010, an increase of $2.2 million, or 25.0%,
primarily due to an increase in originations volume in 2011 and
associated financing required to originate these loans, combined
with a slight increase in outstanding average days in warehouse
on newly originated loans.
|
For the
Years Ended December 31, 2010 and 2009
Total revenues were $84.5 million for the year ended
December 31, 2010 compared to $55.6 million for the
year ended December 31, 2009, an increase of
$28.9 million, or 52.0%, primarily due to the net effect of
the following:
|
|
|
|
|
Other fee income was $7.0 million for the year ended
December 31, 2010 compared to $1.2 million for the
year ended December 31, 2009, an increase of
$5.8 million or 483.3%, primarily due to our election to
measure newly originated conventional residential mortgage loans
held for sale at fair value, effective October 1, 2009.
Subsequent to this election, any collected points and fees
related to originated mortgage loans held for sale are included
in other fee income. Prior to this election, points and fees
were recorded as deferred originations income and recognized
over the life of the mortgage loan as an adjustment to our
interest income yield or, when the related loan was sold to a
third party purchaser, included as a component of gain on
mortgage loans held for sale.
|
|
|
|
Gain on mortgage loans held for sale was $77.5 million for
the year ended December 31, 2010 compared to
$54.4 million for the year ended December 31, 2009, an
increase of $23.1 million, or 42.5%, primarily due to the
net effect of the following:
|
|
|
|
|
|
Increase of $22.4 million from improved margins and larger
volume of originations, which increased from $1.5 billion
for the year ended December 31, 2009 to $2.8 billion
for the year ended December 31, 2010.
|
|
|
|
Increase of $17.9 million from capitalized MSRs due to the
larger volume of originations and subsequent retention of
servicing rights.
|
|
|
|
Decrease of $0.7 million from change in unrealized
gains/(losses) on derivative financial instruments. These
include IRLCs and forward sales of MBS.
|
|
|
|
Decrease of $20.2 million from recognition of points and
fees earned on mortgage loans held for sale for the year ended
December 31, 2009. Effective October 1, 2009, all
points and fees are recognized at origination upon the election
to apply fair value accounting to newly-originated loans and are
recognized as a component of other fee income.
|
Expenses and impairments were $86.9 million for the year
ended December 31, 2010 compared to $47.5 million for
the year ended December 31, 2009, an increase of
$39.4 million, or 82.9%, primarily due to the net effect of
the following:
|
|
|
|
|
Increase of $26.4 million in salaries, wages and benefits
expense from increase in headcount of 452 in 2009 to 688 in 2010
and increases in performance-based compensation. Additionally,
we recognized $3.6 million in share-based compensation expense
from revised compensation arrangements with certain of our
executives.
|
|
|
|
Increase of $13.1 million in general and administrative and
occupancy expense primarily due to increase in overhead expenses
from the larger volume of originations in 2010 and expenses
associated with certain claims.
|
73
Total other income (expense) was $3.0 million for the year
ended December 31, 2010 compared to $0.8 million for
the year ended December 31, 2009, an increase in income,
net of expense, of $2.2 million, or 275.0%, primarily due
to the net effect of the following:
|
|
|
|
|
Interest income increased $7.5 million from interest earned
from originated loans prior to sale or securitization. The
increase is primarily due to the increase in the volume of
originations. Loans are typically sold within 30 days of
origination.
|
|
|
|
Interest expense increased $5.4 million primarily due to an
increase in originations volume in 2010 and associated financing
required to originate these loans combined with a slight
increase in outstanding average days in warehouse on newly
originated loans.
|
Legacy
Portfolio and Other
Through December 2009, our Legacy Portfolio and Other consisted
primarily of non-prime and non-conforming residential mortgage
loans that we primarily originated from April to July 2007.
Revenues and expenses are primarily a result of mortgage loans
transferred to securitization trusts that were structured as
secured borrowings, resulting in carrying the securitized loans
as mortgage loans on our consolidated balance sheets and
recognizing the asset-backed certificates as nonrecourse debt.
Prior to September 2009, these residential mortgage loans
were classified as mortgage loans held for sale on our
consolidated balance sheet and carried at the lower of cost or
fair value and financed through a combination of our existing
warehouse facilities and our corporate note. These loans were
transferred on October 1, 2009, from mortgage loans held
for sale to a held-for-investment classification at fair value
on the transfer date. Subsequent to the transfer date, we
completed the securitization of the mortgage loans, which was
structured as a secured borrowing. This structure resulted in
carrying the securitized loans as mortgages on our consolidated
balance sheet and recognizing the asset-backed certificates
acquired by third parties as nonrecourse debt.
Effective January 1, 2010, new accounting guidance
eliminated the concept of a QSPE. Consequently, all existing
securitization trusts are considered VIEs and are now subject to
the new consolidation guidance. Upon consolidation of certain of
these VIEs, we recognized the securitized mortgage loans related
to these securitization trusts as mortgage loans held for
investment, subject to ABS nonrecourse debt. See
Note 3 to Consolidated Financial
Statements Variable Interest Entities and
Securitizations. Additionally, we elected the fair value
option provided for by ASC
825-10,
Financial Instruments-Overall. Assets and liabilities
related to these VIEs are included in Legacy Assets and Other in
our segmented results.
In December 2011, we sold our remaining variable interest in a
securitization trust that had been a consolidated VIE since
January 1, 2010 and deconsolidated the variable interest.
Upon deconsolidation of this VIE, we derecognized the related
mortgage loans held for investment, subject to ABS nonrecourse
debt and the ABS nonrecourse debt.
74
The following table summarizes our operating results from Legacy
Portfolio and Other for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$1,972
|
|
|
|
$820
|
|
|
|
$
|
|
Other fee income
|
|
|
3,996
|
|
|
|
2,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
5,968
|
|
|
|
3,463
|
|
|
|
|
|
Gain on mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
|
(75,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,968
|
|
|
|
3,463
|
|
|
|
(75,786
|
)
|
Expenses and impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
7,233
|
|
|
|
13,148
|
|
|
|
3,537
|
|
General and administrative
|
|
|
7,228
|
|
|
|
7,488
|
|
|
|
5,239
|
|
Provision for loan losses
|
|
|
3,537
|
|
|
|
3,298
|
|
|
|
|
|
Loss on sale of foreclosed real estate
|
|
|
6,833
|
|
|
|
205
|
|
|
|
7,512
|
|
Occupancy
|
|
|
2,110
|
|
|
|
2,788
|
|
|
|
1,912
|
|
Loss on available-for-sale securitiesother-than-temporary
|
|
|
|
|
|
|
|
|
|
|
6,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
26,941
|
|
|
|
26,927
|
|
|
|
25,009
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
44,866
|
|
|
|
77,521
|
|
|
|
44,114
|
|
Interest expense
|
|
|
(36,396
|
)
|
|
|
(55,566
|
)
|
|
|
(40,568
|
)
|
Loss on interest rate swaps and caps
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Fair value changes in ABS securitizations
|
|
|
(12,389
|
)
|
|
|
(23,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(3,919
|
)
|
|
|
(1,342
|
)
|
|
|
3,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
$(24,892
|
)
|
|
|
$(24,806
|
)
|
|
|
$(97,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below provides detail of the characteristics of our
securitization trusts included in Legacy Portfolio and Other for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010(1)
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Legacy Portfolio and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
PerformingUPB
|
|
|
$279,730
|
|
|
|
$1,037,201
|
|
|
|
$345,516
|
|
Nonperforming (90+ Delinquency)UPB
|
|
|
90,641
|
|
|
|
337,779
|
|
|
|
141,602
|
|
Real Estate OwnedEstimated Fair Value
|
|
|
3,668
|
|
|
|
27,337
|
|
|
|
10,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Legacy Portfolio and OtherUPB
|
|
|
$374,039
|
|
|
|
$1,402,317
|
|
|
|
$497,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include one previously off-balance sheet securitization
which was consolidated upon adoption of ASC 810,
Consolidation, related to consolidation of certain VIEs. |
For the
Years Ended December 31, 2011 and 2010
Total revenues were $6.0 million for the year ended
December 31, 2011 compared to $3.5 million for the
year ended December 31, 2010, an increase of
$2.5 million. This increase was primarily a result of
higher ancillary income on our legacy portfolio.
75
Interest income, net of interest expense, decreased to
$8.5 million for the year ended December 31, 2011 as
compared to $21.9 million for the year ended
December 31, 2010. The decrease in net interest income was
primarily due to the effects of the derecognition of a
previously consolidated VIE as of July 1, 2010.
Fair value changes in ABS securitizations were
$12.4 million for the year ended December 31, 2011 as
compared to a $23.3 million decrease for the year ended
December 31, 2010. Fair value changes in ABS
securitizations is the net result of the reductions in the fair
value of the assets (Mortgage loans held for investment and REO)
and the reductions in the fair value of the liabilities (ABS
nonrecourse debt).
For the
Years Ended December 31, 2010 and 2009
Total revenues were $3.5 million for the year ended
December 31, 2010, compared to $(75.8) million for the
year ended December 31, 2009. This increase was primarily a
result of a change in classification on mortgage loans held for
sale discussed above, with no gain on mortgage loans held for
sale recorded for the year ended December 31, 2010,
compared to a loss of $75.8 million recorded for the year
ended December 31, 2009.
Expenses and impairments were $26.9 million for the year
ended December 31, 2010 compared to $25.0 million for
the year ended December 31, 2009, an increase of
$1.9 million, or 7.6%, primarily due to an increase in
headcount and allocated expenses for corporate support functions
and executive oversight. Additionally, we recognized
$3.6 million in additional share-based compensation expense
from revised compensation arrangements with certain of our
executives, as well as a $3.3 million provision for loan
losses. These expense increases were offset by the net impact of
the adoption of new accounting guidance on the consolidation of
certain securitization trusts which resulted in a
$7.3 million reduction in charges from losses realized on
foreclosed real estate and a decrease of $6.8 million in
other-than-temporary
impairments recognized on our investment in debt securities
available-for-sale.
Total other income (expense) was $(1.3) million for the
year ended December 31, 2010 compared to $3.5 million
for the year ended December 31, 2009, a decrease of
$4.8 million, or 137.1%. The decrease was primarily due to
an increase in our net interest income, offset by fair value
changes in our ABS securitizations. Interest income, net of
interest expense, increased to $21.9 million for the year
ended December 31, 2010 as compared to $3.5 million
for the year ended December 31, 2009. The increase in
interest income, net was due to the consolidation of certain
securitization trusts upon the adoption of new accounting
guidance related to VIEs. Fair value changes in ABS
securitizations included a loss of $23.3 million for the
year ended December 31, 2010, with no corresponding amount
for the year ended December 31, 2009, due to the election
of the fair value option on consolidated VIEs.
76
Analysis
of Items on Consolidated Balance Sheet
The following table presents our consolidated balance sheets for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$62,445
|
|
|
|
$21,223
|
|
Restricted cash
|
|
|
71,499
|
|
|
|
91,125
|
|
Accounts receivable, net
|
|
|
562,300
|
|
|
|
441,275
|
|
Mortgage loans held for sale
|
|
|
458,626
|
|
|
|
369,617
|
|
Mortgage loans held for investment, subject to nonrecourse
debtLegacy Assets
|
|
|
243,480
|
|
|
|
266,320
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debt
|
|
|
|
|
|
|
538,440
|
|
Receivables from affiliates
|
|
|
4,609
|
|
|
|
8,993
|
|
Mortgage servicing rights
|
|
|
251,050
|
|
|
|
145,062
|
|
Property and equipment, net
|
|
|
24,073
|
|
|
|
8,394
|
|
Real estate owned, net (includes $ and $17,509,
respectively, of real estate owned, subject to ABS nonrecourse
debt)
|
|
|
3,668
|
|
|
|
27,337
|
|
Other assets
|
|
|
106,181
|
|
|
|
29,395
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$1,787,931
|
|
|
|
$1,947,181
|
|
|
|
|
|
|
|
|
|
|
Liabilities and members equity
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
$873,179
|
|
|
|
$709,758
|
|
Unsecured senior notes
|
|
|
280,199
|
|
|
|
244,061
|
|
Payables and accrued liabilities
|
|
|
183,789
|
|
|
|
75,054
|
|
Derivative financial instruments
|
|
|
12,370
|
|
|
|
7,801
|
|
Derivative financial instruments, subject to ABS nonrecourse debt
|
|
|
|
|
|
|
18,781
|
|
Nonrecourse debtLegacy Assets
|
|
|
112,490
|
|
|
|
138,662
|
|
Excess spread financing (at fair value)
|
|
|
44,595
|
|
|
|
|
|
ABS nonrecourse debt (at fair value)
|
|
|
|
|
|
|
496,692
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,506,622
|
|
|
|
1,690,809
|
|
Total members equity
|
|
|
281,309
|
|
|
|
256,372
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
|
$1,787,931
|
|
|
|
$1,947,181
|
|
|
|
|
|
|
|
|
|
|
Assets
Restricted cash consists of certain custodial accounts related
to collections on certain mortgage loans and mortgage loan
advances that have been pledged to debt counterparties under
various master repurchase agreements (MRAs).
Restricted cash was $71.5 million at December 31,
2011, a decrease of $19.6 million from December 31,
2010, primarily a result of decreased servicer advance
reimbursement amounts.
Accounts receivable consists primarily of accrued interest
receivable on mortgage loans and securitizations, collateral
deposits on surety bonds and advances made to nonconsolidated
securitization trusts, as required under various servicing
agreements related to delinquent loans, which are ultimately
paid back to us from the securitization trusts. Accounts
receivable increased $121.0 million to $562.3 million
at December 31, 2011, primarily due to our larger
outstanding servicing portfolio, which resulted in a
$43.0 million increase in corporate and escrow advances and
a $64.9 million increase in outstanding delinquency
advances.
Mortgage loans held for sale are carried at fair value. We
estimate fair value by evaluating a variety of market indicators
including recent trades and outstanding commitments. Mortgage
loans held for sale were
77
$458.6 million at December 31, 2011, an increase of
$89.0 million from December 31, 2010, primarily due to
$3.3 billion in mortgage loan sales offset by
$3.4 billion loan originations during the year ended
December 31, 2011.
Mortgage loans held for investment, subject to nonrecourse
debt Legacy Assets consist of nonconforming or
subprime mortgage loans securitized which serve as collateral
for the nonrecourse debt. Mortgage loans held for investment,
subject to nonrecourse debt Legacy Assets was
$243.5 million at December 31, 2011, a decrease of
$22.8 million from December 31, 2010, as
$19.7 million UPB was transferred to REO during the year
ended December 31, 2011.
Mortgage loans held for investment, subject to ABS nonrecourse
debt consist of mortgage loans that were recognized upon the
adoption of accounting guidance related to VIEs effective
January 1, 2010. To more accurately represent the future
economic performance of the securitization collateral and
related debt balances, we elected the fair value option provided
for by
ASC 825-10.
Effective December 2011, we met the requirements under
applicable accounting guidance to deconsolidate the VIE. As
such, mortgage loans held for investment, subject to ABS
nonrecourse debt were eliminated.
Receivables from affiliates consist of periodic transactions
with Nationstar Regular Holdings, Ltd., a subsidiary of the
Initial Stockholder. These transactions typically involve the
monthly payment of principal and interest advances that are
required to be remitted to securitization trusts as required
under various Pooling and Servicing Agreements. These amounts
are later repaid to us when principal and interest advances are
recovered from the respective borrowers. Receivables from
affiliates were $4.6 million at December 31, 2011, a
decrease of $4.4 million from December 31, 2010, as a
result of increased recoveries on outstanding principal and
interest advances.
MSRs at fair value consist of servicing assets related to all
existing forward residential mortgage loans transferred to a
third party in a transfer that meets the requirements for sale
accounting or through the acquisition of the right to service
residential mortgage loans that do not relate to our assets.
MSRs were $251.1 million at December 31, 2011, an
increase of $106.0 million over December 31, 2010,
primarily a result of the purchase of two significant servicing
portfolios for $102.5 million combined with capitalization
of $36.5 million newly created MSRs, partially offset by a
$39.0 million decrease in the fair value of our MSRs.
Property and equipment, net is comprised of land, furniture,
fixtures, leasehold improvements, computer software, computer
hardware, and software in development and other. These assets
are stated at cost less accumulated depreciation. Property and
equipment, net increased $15.7 million from
December 31, 2010 to $24.1 million at
December 31, 2011, as we invested in information technology
systems to support volume growth in both our Servicing Segment
and Originations Segment.
REO, net represents property we acquired as a result of
foreclosures on delinquent mortgage loans. REO, net is recorded
at estimated fair value, less costs to sell, at the date of
foreclosure. Any subsequent operating activity and declines in
value are charged to earnings. REO, net was $3.7 million at
December 31, 2011, a decrease of $23.6 million from
December 31, 2010. This decrease was primarily a result of
derecognition of our VIE in December 2011.
Other assets include deferred financing costs, derivative
financial instruments, prepaid expenses, loans subject to
repurchase rights from Ginnie Mae and equity method investments.
Other assets increased $76.8 million from December 31,
2010 to $106.2 million, due to $28.9 million in
deposits on pending servicing rights acquisitions that are
expected to close in 2012, $35.7 million in loans subject
to repurchase rights from Ginnie Mae, $4.5 million in
margin call deposits and an acquisition of a 22% investment in
ANC Acquisition LLC (ANC) for an initial investment
of $6.6 million. See Note 10 to Consolidated
Financial StatementsOther Assets.
78
Liabilities
and Members Equity
At December 31, 2011, total liabilities were
$1,506.6 million, a $184.2 million decrease from
December 31, 2010. The decrease in total liabilities was
primarily a result of derecognition of our VIE in December 2011.
Upon derecognition of this VIE, we derecognized the related ABS
nonrecourse debt, a $496.7 million decrease since
December 31, 2010. This decrease was partially offset by an
increase in notes payable of $163.4 million since
December 31, 2010 related to the financing of our increased
servicing and loan origination activities and the issuance of
$34.7 million of additional unsecured senior debt in
December 2011, as well as the addition of $44.6 million of
excess spread financing also in December 2011.
Included in our payables and accrued liabilities caption on our
balance sheet is our reserve for repurchases and
indemnifications of $10.0 million and $7.3 million at
December 31, 2011 and 2010, respectively. This liability
represents our (i) estimate of losses to be incurred on the
repurchase of certain loans that we previously sold and
(ii) estimate of losses to be incurred for indemnification
of losses incurred by purchasers or insurers with respect to
loans that we sold. Certain sale contracts include provisions
requiring us to repurchase a loan or indemnify the purchaser or
insurer for losses if a borrower fails to make certain initial
loan payments due to the acquirer or if the accompanying
mortgage loan fails to meet certain customary representations
and warranties. These representations and warranties are made to
the loan purchasers or insurers about various characteristics of
the loans, such as the manner of origination, the nature and
extent of underwriting standards applied and the types of
documentation being provided and typically are in place for the
life of the loan. Although the representations and warranties
are in place for the life of the loan, we believe that most
repurchase requests occur within the first five years of the
loan. In the event of a breach of the representations and
warranties, we may be required to either repurchase the loan or
indemnify the purchaser for losses it sustains on the loan. In
addition, an investor may request that we refund a portion of
the premium paid on the sale of mortgage loans if a loan is
prepaid within a certain amount of time from the date of sale.
We record a provision for estimated repurchases, loss
indemnification and premium recapture on loans sold, which is
charged to gain (loss) on mortgage loans held for sale.
The activity of our outstanding repurchase reserves were as
follows for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Repurchase reserves, beginning of period
|
|
|
$7,321
|
|
|
|
$3,648
|
|
|
|
$3,965
|
|
Additions
|
|
|
5,534
|
|
|
|
4,649
|
|
|
|
820
|
|
Charge-offs
|
|
|
(2,829
|
)
|
|
|
(976
|
)
|
|
|
(1,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase reserves, end of period
|
|
|
$10,026
|
|
|
|
$7,321
|
|
|
|
$3,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the changes in UPB and loan count
related to unresolved repurchase and indemnification requests
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
UPB
|
|
|
Count
|
|
|
UPB
|
|
|
Count
|
|
|
UPB
|
|
|
Count
|
|
|
|
(in millions, except count)
|
|
|
Beginning balance
|
|
$
|
4.3
|
|
|
|
21
|
|
|
$
|
1.3
|
|
|
|
8
|
|
|
$
|
0.3
|
|
|
|
3
|
|
Repurchases & indemnifications
|
|
|
(6.9
|
)
|
|
|
(37
|
)
|
|
|
(1.9
|
)
|
|
|
(8
|
)
|
|
|
(2.7
|
)
|
|
|
(17
|
)
|
Claims initiated
|
|
|
32.4
|
|
|
|
154
|
|
|
|
10.8
|
|
|
|
53
|
|
|
|
4.6
|
|
|
|
28
|
|
Rescinded
|
|
|
(16.9
|
)
|
|
|
(77
|
)
|
|
|
(5.9
|
)
|
|
|
(32
|
)
|
|
|
(0.9
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
12.9
|
|
|
|
61
|
|
|
$
|
4.3
|
|
|
|
21
|
|
|
$
|
1.3
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
The following table details our loan sales by period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Total
|
|
|
|
(in billions, except count)
|
|
|
|
$
|
|
|
Count
|
|
|
$
|
|
|
Count
|
|
|
$
|
|
|
Count
|
|
|
$
|
|
|
Count
|
|
|
$
|
|
|
Count
|
|
|
Loan sales
|
|
$
|
3.3
|
|
|
|
16,629
|
|
|
$
|
2.6
|
|
|
|
13,090
|
|
|
$
|
1.0
|
|
|
|
5,344
|
|
|
$
|
0.5
|
|
|
|
3,412
|
|
|
$
|
7.4
|
|
|
|
38,475
|
|
We increase the reserve by applying an estimated loss factor to
the principal balance of loan sales. Secondarily, the reserve
may be increased based on outstanding claims received. We have
observed an increase in repurchase requests in each of the last
three years. We believe that because of the increase in our loan
originations since 2008, repurchase requests are likely to
increase. Should home values continue to decrease, our realized
loan losses from loan repurchases and indemnifications may
increase as well. As such, our reserve for repurchases may
increase beyond our current expectations. While the ultimate
amount of repurchases and premium recapture is an estimate, we
consider the liability to be adequate at each balance sheet date.
At December 31, 2011, outstanding members equity was
$281.3 million, a $24.9 million increase from
December 31, 2010, which is primarily attributable to our
net income of $20.9 million in 2011 and $14.8 million
in share-based compensation, partially offset by
$4.3 million distributions to parent and $5.3 million
in tax related share based settlements of units by members.
Recent
Accounting Developments
Accounting Standards Update
No. 2011-03,
Reconsideration of Effective Control for Repurchase
Agreements (Update
No. 2011-03).
Update
No. 2011-03
is intended to improve the accounting and reporting of
repurchase agreements and other agreements that both entitle and
obligate a transferor to repurchase or redeem financial assets
before their maturity. This amendment removes the criterion
pertaining to an exchange of collateral such that it should not
be a determining factor in assessing effective control,
including (1) the criterion requiring the transferor to
have the ability to repurchase or redeem the financial assets on
substantially the agreed terms, even in the event of default by
the transferee, and (2) the collateral maintenance
implementation guidance related to that criterion. Other
criteria applicable to the assessment of effective control are
not changed by the amendments in the update. The amendments in
this update will be effective for interim and annual periods
beginning after December 15, 2011. The adoption of Update
No. 2011-03
is not expected to have a material impact on our financial
condition, liquidity or results of operations.
Accounting Standards Update
No. 2011-04,
Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRS (Update
No. 2011-04).
Update
No. 2011-04
is intended to provide common fair value measurement and
disclosure requirements in GAAP and International Financial
Reporting Standards (IFRS). The changes required in
this update include changing the wording used to describe many
of the requirements in GAAP for measuring fair value and for
disclosing information about fair value measurements. The
amendments in this update are to be applied prospectively and
are effective for interim and annual periods beginning after
December 15, 2011. The adoption of Update
No. 2011-04
is not expected to have a material impact on our financial
condition, liquidity or results of operations.
Accounting Standards Update
No. 2011-05,
Presentation of Comprehensive Income
(Update No. 2011-05).
Update
No. 2011-05
is intended to improve the comparability, consistency, and
transparency of financial reporting and to increase the
prominence of items reported in other comprehensive income.
Update
No. 2011-05
eliminates the option to present components of other
comprehensive income as part of the statement of changes in
stockholders equity and now requires that all non-owner
changes in stockholders equity be presented either in a
single continuous statement of comprehensive income or in two
separate but consecutive statements. This update does not change
the items that must be reported in other
80
comprehensive income or when an item of other comprehensive
income must be reclassified to net income. The amendments in
this update are to be applied retrospectively and are effective
for interim and annual periods beginning after December 15,
2011. The adoption of Update
No. 2011-05
is not expected to have a material impact on our financial
condition, liquidity or results of operations.
Accounting Standards Update No. 2011-12, Deferral of the
Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other
Comprehensive Income in Accounting Standards Update No 2011-05
(Update No. 2011-12). Update 2011-12 is intended to
temporarily defer the effective date of the requirement to
present separate line items on the income statement for
reclassification adjustments of items out of accumulated other
comprehensive income into net income as required by Update No.
2011-05. All other requirements in Update 2011-05 are not
affected by this update. This update does not change the
requirement to present reclassifications adjustments within
other comprehensive income either on the face of the statement
that reports other comprehensive income or in the notes to the
financial statements (Update 2011-05). The amendments in this
update are effective for interim and annual periods beginning
after December 15, 2011. The adoption of Update No. 2011-12
is not expected to have a material impact on our financial
condition liquidity or results of operations.
Liquidity
and Capital Resources
Liquidity measures our ability to meet potential cash
requirements, including the funding of servicing advances, the
payment of operating expenses, the originations of loans and the
repayment of borrowings. Our cash balance increased from
$21.2 million as of December 31, 2010 to
$62.4 million as of December 31, 2011, primarily due
to cash inflows in our financing activities, partially offset by
cash outflows from operating and investing activities. Our cash
balance decreased from $41.6 million as of
December 31, 2009 to $21.2 million as of
December 31, 2010, primarily due to greater cash outflows
from our financing activities to repay our outstanding debt
facilities.
We grew our servicing portfolio from $33.7 billion in UPB
as of December 31, 2009 to $106.6 billion in UPB as of
December 31, 2011 (including $7.8 billion of servicing
under contract). We shifted our strategy after 2007 to leverage
our industry-leading servicing capabilities and capitalize on
the opportunities to grow our originations platform which has
led to the strengthening of our liquidity position. As a part of
our shift in strategy, we ceased originating non-prime loans in
2007, and new originations have been focused on loans that are
eligible to be sold to GSEs. Since 2008, substantially all
originated loans have either been sold or are pending sale.
As part of the normal course of our business, we borrow money
periodically to fund servicing advances and loan originations.
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 the loans or place them
in government securitizations and repay the borrowings under the
warehouse lines. We rely upon several counterparties to provide
us with financing facilities to fund a portion of our servicing
advances and to fund our loan originations on a short-term
basis. 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.
In March 2010, we completed the offering of $250.0 million
of senior notes, which were issued with an issue discount of
$7.0 million for net cash proceeds of $243.0 million,
with a maturity date of April 2015. In December 2011, we
completed an additional offering of $35.0 million of senior
notes. The additional offering was issued with an issue discount
of $0.3 million for net cash proceeds of
$34.7 million, with a maturity date of April 2015. Under
the terms of these senior notes, we pay interest semi-annually
to the note holders at an interest rate of 10.875%.
At this time, we see no material negative trends that we believe
would affect our access to
long-term
borrowings, short-term borrowings or bank credit lines
sufficient to maintain our current operations, or would
81
likely cause us to cease to be in compliance with any applicable
covenants in our indebtedness or that would inhibit our ability
to fund operations and capital commitments for the next
12 months.
Our primary sources of funds for liquidity include:
(i) lines of credit, other secured borrowings and the
senior notes; (ii) servicing fees and ancillary fees;
(iii) payments received from sale or securitization of
loans; and (iv) payments received from mortgage loans held
for sale.
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 (vi) payments for acquisitions of MSRs.
Our servicing agreements impose on us various rights and
obligations that affect our liquidity. Among the most
significant of these obligations is the requirement 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 speed affect the size of servicing advance balances.
As a result of the agreement we entered into to purchase the
servicing rights to certain reverse mortgages from BANA, we will
be required to fund payments due to borrowers, which advances
are typically greater than advances on forward residential
mortgages. These advances are typically recovered upon weekly or
monthly reimbursement or from sale in the market.
We intend to continue to seek opportunities to acquire loan
servicing portfolios
and/or
businesses that engage in loan servicing
and/or loan
originations. Future acquisitions could require substantial
additional capital in excess of cash from operations. We would
expect to finance the capital required for acquisitions through
a combination of additional issuances of equity, corporate
indebtedness, asset-backed acquisition financing and/or cash
from operations.
Operating
Activities
Our operating activities used ($28.9) million of cash flow
for the year ended December 31, 2011 compared to
($101.7) million of cash flow for the same period in the
prior year. The decrease in cash used in operating activities of
$72.8 million during the 2011 period was primarily due to
higher volume sales of residential mortgage loans offset by
higher cash outflows for working capital.
The improvement was primarily due to the net effect of the
following:
|
|
|
|
|
$718.6 million improvement in proceeds received from sale
of originated loans, which provided $3,339.9 million and
$2,621.3 million for the years ending December 31,
2011 and 2010, respectively, partially offset by a
$620.6 million increase in cash used to originate loans.
Mortgage loans originated and purchased, net of fees, used
$3,412.2 million and $2,791.6 million in the years
ending December 31, 2011 and 2010, respectively.
|
|
|
|
|
|
$74.0 million decrease in cash outflows used for working
capital, which used ($21.6) million cash for the year ended
December 31, 2011 and provided $52.4 million during
the same period in the prior year.
|
Our operating activities used ($101.7) million and
($83.6) million of cash flow for the years ended
December 31, 2010 and 2009, respectively. The decrease of
$18.1 million was primarily due to the net effect of the
following:
|
|
|
|
|
Increase of $1,613.9 million attributable to increased
proceeds received from sale of loans, offset by decrease in cash
attributable to $1,311.1 million increase in originations
volume.
|
82
|
|
|
|
|
Decrease in principal payments/prepayments received and other
changes in mortgages loans held for sale of $439.2 million.
|
|
|
|
Increase of $136.2 million primarily due to decreased
delinquency advances to investors to cover scheduled payments of
principal and interest that are required to be remitted to
securitization trusts.
|
|
|
|
Increase of $71.0 million attributable to a decrease in net
loss period over period, primarily as a result of increased
revenues from our higher servicing portfolio and increased
volume in loan originations.
|
Investing
Activities
Our investing activities used ($81.9) million and provided
$101.2 million and $30.0 million of cash flow for the
years ended December 31, 2011, 2010, and 2009,
respectively. The $183.1 million decrease in cash flows
used by investing activities from the 2010 period to the 2011
period was primarily a result of a $96.5 million increase
in total purchases and deposits on MSRs offset by a
$27.8 million increase in cash proceeds from sales of REO.
Also, in March 2011, we acquired a 22% interest in ANC for an
initial investment of $6.6 million. ANC is the parent
company of National Real Estate Information Services, LP
(NREIS), a real estate services company. The
increase in cash flows from investing activities from 2009 to
2010 was primarily a result of an increase in cash proceeds from
sales of REO and principal payments received and other changes
on mortgage loans held for investment, subject to ABS
nonrecourse debt.
Financing
Activities
Our financing activities provided $152.0 million of cash
flow during the year ended December 31, 2011 and used
$(20.0) million and provided $85.9 million of cash
flow for the years ended December 31, 2010 and 2009,
respectively. During the year ended December 31, 2011, we
provided $172.0 million more cash as a result of additional
borrowings to finance the growth in our servicing and
originations business compared to the 2010 period. During the
year ended December 31, 2011, we used $58.1 million to
repay ABS nonrecourse debt, used $3.5 million for debt
financing costs and borrowed an additional $163.4 million
from our existing warehouse and debt facilities as we expanded
both our servicing and originations platforms. The primary
source of financing cash flow during the year ended
December 31, 2010 was $243.0 million proceeds from
offering the senior notes. During the year ended
December 31, 2010, we used $103.5 million to repay ABS
nonrecourse debt, used $14.9 million for debt financing
costs and used $62.1 million to repay the outstanding notes
payable. The increase in cash outflow from financing activities
from 2009 to 2010 was primarily a result of repayment of ABS and
Legacy Asset nonrecourse debt. We also did not receive any
capital contributions from our existing members in 2010,
compared to $20.7 million in capital contributions received
in 2009. In 2009, we issued nonrecourse debt, which provided
$191.3 million in cash.
83
Contractual
Obligations
The table below sets forth our contractual obligations,
excluding our legacy asset securitized debt and our excess
spread financing, at December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2015
|
|
|
After
|
|
|
|
|
|
|
2012
|
|
|
to 2014
|
|
|
to 2016
|
|
|
2016
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Unsecured Senior Notes
|
|
|
$
|
|
|
|
$
|
|
|
|
$285,000
|
|
|
|
$
|
|
|
|
$285,000
|
|
Interest expense from Unsecured Senior Notes
|
|
|
31,510
|
|
|
|
62,848
|
|
|
|
7,748
|
|
|
|
|
|
|
|
102,106
|
|
MBS Advance Financing Facility
|
|
|
179,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,904
|
|
Securities Repurchase Facility (2011)
|
|
|
11,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,774
|
|
2010-ABS Advance Financing Facility
|
|
|
|
|
|
|
219,563
|
|
|
|
|
|
|
|
|
|
|
|
219,563
|
|
2011-Agency Advance Financing Facility
|
|
|
25,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,011
|
|
MSR Note
|
|
|
5,553
|
|
|
|
4,627
|
|
|
|
|
|
|
|
|
|
|
|
10,180
|
|
$300 Million Warehouse Facility
|
|
|
|
|
|
|
251,722
|
|
|
|
|
|
|
|
|
|
|
|
251,722
|
|
$175 Million Warehouse Facility
|
|
|
|
|
|
|
46,810
|
|
|
|
|
|
|
|
|
|
|
|
46,810
|
|
$100 Million Warehouse Facility
|
|
|
|
|
|
|
16,047
|
|
|
|
|
|
|
|
|
|
|
|
16,047
|
|
$50 Million Warehouse Facility
|
|
|
7,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,310
|
|
ASAP+ Short-Term Financing Facility
|
|
|
104,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,858
|
|
Operating Leases
|
|
|
9,837
|
|
|
|
17,299
|
|
|
|
8,109
|
|
|
|
727
|
|
|
|
35,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$375,757
|
|
|
|
$618,916
|
|
|
|
$300,857
|
|
|
|
$727
|
|
|
|
$1,296,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the above contractual obligations, we have also
been involved with several securitizations of ABS, which were
structured as secured borrowings. These structures resulted in
us carrying the securitized loans as mortgages on our
consolidated balance sheet and recognizing the asset-backed
certificates acquired by third parties as nonrecourse debt. The
timing of the principal payments on this nonrecourse debt is
dependent on the payments received on the underlying mortgage
loans and liquidation of REO. The outstanding principal balance
on our Nonrecourse DebtLegacy Assets and was
$112.5 million, at December 31, 2011. The repayment of
our excess spread financing is based on amounts received on the
underlying mortgage loans. As such, we have excluded the
financing from the table above. The fair value of our excess
spread financing was $44.6 million at December 31,
2011.
Description
of Certain Indebtedness
Senior
Unsecured Notes
On March 26, 2010, Nationstar Mortgage LLC and Nationstar
Capital Corporation, as co-issuers, completed a private offering
of $250.0 million aggregate principal amount of
10.875% senior notes due 2015, or the existing
notes. By means of a separate prospectus, Nationstar
Mortgage LLC and Nationstar Capital Corporation completed an
exchange of $250.0 million aggregate principal amount of
10.875% senior notes due 2015, or the registered
notes, for an equal principal amount of the existing notes
in an offering that was registered under the Securities Act. On
December 19, 2011, Nationstar Mortgage LLC and Nationstar
Capital Corporation, as co-issuers, completed a further issuance
of $35.0 million aggregate principal amount of
10.875% senior notes due 2015 on terms identical to those
of the existing senior notes, other than the issue date and
offering price. Pursuant to a registration rights agreement, by
means of a separate prospectus, Nationstar Mortgage LLC and
Nationstar Capital Corporation intend to offer to exchange up to
$35.0 million aggregate principal amount of
10.875% senior notes due 2015, or the registered
follow-on notes, for an equal principal amount of the
existing senior notes in an offering that will have been
registered under the Securities Act. The registered follow-on
notes will be fungible with the registered notes upon issuance.
This prospectus shall not be deemed to be an offer to exchange
such notes. The existing notes, the registered notes, the
follow-on notes, and the registered follow-on notes are referred
to herein as the senior notes. The aggregate principal amount of
outstanding senior notes under this series is $285.0 million.
84
Interest is payable on the senior notes semi-annually in arrears
on April 1 and October 1, starting on October 1, 2010,
with interest accruing from March 26, 2010.
We may redeem some or all of the senior notes at any time before
April 1, 2013 at a price equal to 100% of the aggregate
principal amount thereof plus accrued and unpaid interest, if
any, to the redemption date and a make-whole premium. The
make-whole premium is the greater of (i) 1.0% of the then
outstanding principal amount of the note or (ii) the sum of
(a)(i) the redemption price of the note at April 1, 2013
(such redemption price being set forth in the table below) and
(ii) all required interest payments due on the note through
April 1, 2013 (excluding accrued but unpaid interest to
such redemption date), computed using a discount rate equal to
the applicable treasury rate plus 50 basis points over
(b) the then outstanding principal amount of the note. On
or after April 1, 2013, we may also redeem the senior
notes, in whole or in part, at the following redemption prices
set forth below (expressed as percentages of principal amount),
plus accrued and unpaid interest, if any, if redeemed during the
12-month
period commencing on April 1 of the years set forth below:
|
|
|
|
|
Year
|
|
Percentage
|
|
|
2013
|
|
|
105.438
|
%
|
2014 and thereafter
|
|
|
100.000
|
%
|
In addition, on or prior to April 1, 2013, we may use the
net cash proceeds of one or more equity offerings to redeem up
to 35.0% of the principal amount of all senior notes issued at a
redemption price equal to 110.875% of the principal amount of
the senior notes redeemed plus accrued and unpaid interest.
Upon a change of control (as defined in the
indenture), we (or a third party) must offer to redeem all of
the senior notes for a payment equal to 101% of the senior
notes principal amount plus accrued and unpaid interest
thereon. This offering will not result in a change of control.
The senior notes are guaranteed, jointly and severally, on a
senior basis by all of our current and future wholly-owned
domestic restricted subsidiaries other than securitization
entities and subsidiaries designated as unrestricted
subsidiaries. The senior notes are our and the guarantors
general unsecured obligation and are pari passu in right
of payment with all existing and any future senior indebtedness;
effectively junior in right of payment to all existing and
future senior unsecured indebtedness to the extent of the assets
securing such indebtedness; and senior in right of payment to
all existing and future subordinated indebtedness.
The indenture governing the senior notes contains certain
limitations and restrictions on us and our restricted
subsidiaries ability to, among other things:
|
|
|
|
|
incur additional indebtedness;
|
|
|
|
issue preferred and disqualified stock;
|
|
|
|
purchase or redeem capital stock;
|
|
|
|
make certain investments;
|
|
|
|
pay dividends or make other payments or loans or transfer
property;
|
|
|
|
sell assets;
|
|
|
|
enter into certain types of transactions with affiliates
involving consideration in excess of $5.0 million; and
|
|
|
|
sell all or substantially all of the our or a guarantors
assets or merge with or into another company.
|
85
The covenants are subject to important exceptions and
qualifications described below.
We and our restricted subsidiaries are prohibited from incurring
or issuing additional indebtedness and disqualified stock and
its restricted subsidiaries are prohibited from issuing
preferred stock unless our corporate indebtedness to tangible
net worth ratio for the most recently ended four full fiscal
quarters would be less than 1.10 to 1.00 on a pro forma basis
and the consolidated leverage ratio for the most recently ended
four fiscal quarters would be less than 4.50 to 1.00. In
addition, we may, among other things, incur certain working
capital credit facilities debt not to exceed $35 million;
indebtedness of foreign subsidiaries not to exceed 5% of total
assets of foreign subsidiaries; acquired debt so long as we
would be permitted to incur at least an additional $1 of
indebtedness under the debt ratios; and a general debt basket
not to exceed $12.5 million.
Furthermore, we and our restricted subsidiaries are prohibited
from purchasing or redeeming capital stock; making certain
investments, paying dividends or making other payments or loans
or transfers of property, unless we could incur an additional
dollar of indebtedness under our debt ratios and such payment is
less than 50% of our consolidated net income minus 100% of any
loss plus certain other items that increase the size of the
payment basket. In addition, we may, among other things, make
any payment from the proceeds of a capital contribution or
concurrent offering of our equity interests; make stock
buy-backs from current and former employees/directors in an
amount to not exceed $2.5 million per year, subject to
carryover of unused amounts into subsequent years and subject to
increase for cash proceeds from certain equity issuances to
employees/directors and cash proceeds from key man life
insurance; make investments in joint ventures in an amount not
to exceed (i) $5 million and (ii) 1.00% of total
assets; pay dividends following a public offering up to 6% per
annum of the net proceeds received by us; make any other
restricted payments up to $17.5 million. Moreover, we may
make investments in an amount not to exceed the greater of
(i) $30 million and (ii) 1.00% of total assets.
The indenture contains certain events of default, including
(subject, in some cases, to customary cure periods and
materiality thresholds) defaults based on (i) the failure
to make payments under the indenture when due, (ii) breach
of covenants, (iii) cross-defaults to certain other
indebtedness, (iv) certain bankruptcy or insolvency events,
(v) material judgments and (vi) invalidity of material
guarantees.
Consolidated EBITDA, as defined in the indenture governing the
senior notes, is the key financial covenant measure that
monitors our ability to undertake investing and financing
functions, such as making investments/acquisitions, paying
dividends, and incurring additional indebtedness.
The ratios included in the indenture for the senior notes are
incurrence based compared to the customary ratio covenants that
are often found in credit agreements that require a company to
maintain a certain ratio.
The consolidated leverage ratio as defined in the indenture is
equal to Corporate Indebtedness, as defined in the indenture,
divided by Consolidated EBITDA, and limits our activities as
discussed above, if the ratio is equal to or greater than 4.5.
86
Consolidated EBITDA is computed as follows:
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
Net income
|
|
|
$20,887
|
|
Adjust for:
|
|
|
|
|
Impact from consolidation of securitization
trusts(1)
|
|
|
1,178
|
|
Interest expense from unsecured senior notes
|
|
|
30,464
|
|
Depreciation and amortization
|
|
|
4,063
|
|
Change in fair value of excess spread financing
|
|
|
3,060
|
|
Change in fair value of
MSRs(2)
|
|
|
40,016
|
|
Exit costs
|
|
|
3,604
|
|
Share-based compensation
|
|
|
14,815
|
|
Fair value changes on interest rate swap
|
|
|
(298
|
)
|
Ineffective portion of cash flow hedge
|
|
|
(2,032
|
)
|
(Gain) loss from asset sales and other than temporary impairment
of assets
|
|
|
10,371
|
|
Amortization/write-off of deferred financing cost for debt
obligations in existence prior to issuance of senior notes
|
|
|
4,025
|
|
Servicing resulting from transfers of financial assets
|
|
|
(36,474
|
)
|
Other
|
|
|
264
|
|
|
|
|
|
|
Consolidated EBITDA
|
|
|
$93,943
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents impact to net income from the consolidation of
certain securitization trusts. Net income, as defined in the
Indenture, is based on GAAP in effect as of December 31,
2009, and does not include the impact of the consolidation of
identified VIEs where we have both the power to direct the
activities that most significantly impact the VIEs
economic performance and the obligation to absorb losses or the
right to receive benefits that could potentially be significant
to the VIE. |
|
(2) |
|
Represents change in fair value of MSRs after deconsolidation of
the securitization trusts as discussed in note (1) above. |
Servicing
Our Servicing Segments debt consists of senior notes,
advance financing facilities, MSR Note and excess spread
financing at fair value.
Advance
Financing Facilities
Our advance financing facilities are used to finance our
obligations to pay advances as required by our servicing
agreements. These servicing agreements may require us to advance
certain payments to the owners of the mortgage loans we service,
including P&I advances, T&I advances, or legal fees,
maintenance and preservation costs, or corporate advances. We
draw on one or more of our advance financing facilities
periodically throughout the month, as necessary, and we repay
any facilities on which we have drawn when advances are
recovered through liquidations, prepayments and reimbursement of
advances from modifications.
MBS
Advance Financing Facility
In September 2009, we entered into our MBS Advance Financing
Facility. This facility is maintained with a GSE and currently
has a total size of $275.0 million. The interest rate on
this facility is based on LIBOR plus a margin of 2.50%, and its
stated maturity date is December 2012.
87
Our MBS Advance Facility is secured by certain servicing advance
receivables and is subject to margin calls in the event that the
value of our collateral decreases. The facility requires us to
comply with various customary operating covenants and
performance tests on the underlying receivables related to
payment rates and minimum balance. As of December 31, 2011,
we were in compliance with all covenants and performance tests
under this facility and had an aggregate principal amount of
$179.9 million outstanding.
Securities
Repurchase Facility (2011)
In December 2011, we entered into an MRA with a financial
services company, which expires in March 2012. The MRA states
that we may from time to time transfer to the financial services
company eligible securities against the transfer of funds by the
financial services company, with a simultaneous agreement by the
financial services company to transfer such securities to us at
a certain date, or on demand by us, against the transfer of
funds from us. Additionally, the financial services company may
elect to extend the transfer date for an additional 90 days at
mutually agreed upon terms. The interest rate is based on LIBOR
plus a margin of 3.50%. As of December 31, 2011, we have pledged
our $55.6 million outstanding retained interest in the
outstanding nonrecourse debt legacy assets securitization
which was structured as a financing to secure obligations under
the MRA. The outstanding balance of this facility at
December 31, 2011 was $11.8 million.
2009-ABS
Advance Financing Facility
Our 2009-ABS Advance Financing Facility was maintained with a
financial services company and, before repayment, had a total
size of $350.0 million, comprised of $174.0 million in
term notes the balance of which stayed constant and
$176.0 million in variable funding notes the balance of
which fluctuated with our financing needs. The interest rate on
this facility was based on LIBOR, subject to an interest rate
swap, and had a weighted average cost of 4.82% during the year
ended December 31, 2010. The stated maturity date of this
facility was December 2013, twenty-four months after the stated
repayment date of December 2011.
Our 2009-ABS Advance Financing Facility was secured by certain
servicing advance receivables and was a nonrecourse obligation.
The facility required us to comply with various customary
operating covenants and performance tests on the underlying
receivables related to payment rates and minimum balance. This
facility was repaid in October 2011.
2010-ABS
Advance Financing Facility
In December 2010, we entered into our
2010-ABS
Advance Financing Facility. This facility is maintained with an
affiliate of Wells Fargo Securities, LLC, an underwriter in this
offering, and currently has a total size of $300 million.
The interest rate on this facility is based on LIBOR plus a
margin of 3.00%, and its stated maturity date is May 2014.
Our 2010-ABS
Advance Financing Facility is secured by certain servicing
advance receivables and is a nonrecourse obligation. The
facility requires us to comply with various customary operating
covenants and performance tests on the underlying receivables
related to payment rates and minimum balance. As of December 31,
2011, we were in compliance with all covenants and performance
tests under this facility and had an aggregate principal amount
of $219.6 million outstanding.
2011-Agency
Advance Financing Facility
In October 2011, we entered into our
2011-Agency
Advance Financing Facility. This facility is maintained with an
affiliate of Barclays Capital Inc., an underwriter in this
offering, and currently has a total size of $75 million.
The interest rate on this facility is based on LIBOR plus 2.50%,
and its stated maturity date is October 2012.
88
Our
2011-Agency
Advance Financing Facility is secured by certain servicing
advance receivables and is a nonrecourse obligation. The
facility requires us to comply with various customary operating
covenants and performance tests on the underlying receivables
related to payment rates and minimum balance. As of December 31,
2011, we were in compliance with all covenants and performance
tests under this facility and had an aggregate principal amount
of $25.0 million outstanding.
MSR
Note
In October 2009, we entered into our MSR Note. This note is
maintained with a GSE and had an original aggregate principal
amount of $22.2 million. The interest rate on this note is
based on LIBOR plus a margin of 2.50%, and its stated maturity
date is October 2013.
Our MSR Note was used to finance our acquisition of certain MSRs
and is secured by all of our rights, title and interest in the
acquired MSRs. The MSR Note requires us to comply with various
customary operating covenants, specific covenants, including
maintaining a disaster recovery plan and maintaining priority of
the lenders lien, and certain covenants related to the
collateral and limitations on the creation of liens on the
collateral or assigned servicing compensation. As of
December 31, 2011, we were in compliance with all covenants
and had an aggregate principal amount of $10.2 million
outstanding under the MSR Note.
Excess
Spread Financing at Fair Value
We acquired MSRs on a pool of agency residential mortgage loans
(the Portfolio) on September 30, 2011. In December
2011, we entered into a sale and assignment agreement which is
treated as a financing with an indirect wholly owned subsidiary
of Newcastle. Fortress, an affiliate of our Initial Stockholder,
is Newcastles manager. We accounted for this transaction
as a financing arrangement, in which we sold to Newcastle the
right to receive 65% of the excess cash flow generated from the
Portfolio after receipt of a fixed basic servicing fee per loan.
The sale price was $43.7 million. We will retain all ancillary
income associated with servicing the Portfolio and 35% of the
excess cash flow after receipt of the fixed basic servicing fee.
Nationstar will continue to be the servicer of the Portfolio and
will provide all servicing and advancing functions. Newcastle
will not have prior or ongoing obligations associated with the
Portfolio.
Contemporaneous with the above, we entered into a refinanced
loan agreement with Newcastle. Should we refinance any loan in
the Portfolio, subject to certain limitations, we will be
required to transfer the new loan or a replacement loan of
similar economic characteristics into the Portfolio. The new or
replacement loan will be governed by the same terms set forth in
the sale and assignment agreement described above.
We record acquired servicing rights on forward residential
mortgages at fair value, with all subsequent changes in fair
value recorded as a charge or credit to servicing fee income in
the consolidated statement of operations. We estimate the fair
value of our forward MSRs and the excess servicing spread
financing using a process that combines the use of a discounted
cash flow model and analysis of current market data to arrive at
an estimate of fair value. We elected to measure this financing
arrangement at fair value, as permitted under ASC 825,
Financial Instruments to more accurately represent the
future economic performance of the acquired MSRs and related
excess servicing financing. The fair value of the agreement was
$44.6 million at December 31, 2011. This financing is
nonrecourse to us.
Originations
Our Originations Segments debt consists of warehouse
facilities and our ASAP+ Short-Term Financing Facility.
89
Warehouse
Facilities
Our warehouse facilities are used to finance our loan
originations on a short-term basis. In the ordinary course, we
originate mortgage loans on a near-daily basis, and we use a
combination of our four warehouse facilities and cash to fund
the loans. We agree to transfer to our counterparty certain
mortgage loans against the transfer of funds by the
counterparty, with a simultaneous agreement by the counterparty
to transfer the loans back to us at a date certain, or on demand
by us, against the transfer of funds from us. We typically
renegotiate our warehouse facilities on an annual basis. See
IndustryOriginations Industry Overview. We
sell our newly originated mortgage loans to our counterparty to
finance the originations of our mortgage loans and typically
repurchase the loans within 30 days of origination when we
sell the loans to a GSE or into a government securitization.
$300
Million Warehouse Facility
In July 2006, we entered into our $300 Million Warehouse
Facility, which is maintained with a financial services company.
The interest rate on this facility is based on LIBOR plus a
margin of 3.25%, and its stated maturity date is February 2012.
Our $300 Million Warehouse Facility requires us to comply with
various customary operating covenants and specific covenants,
including maintaining a minimum tangible net worth of
$175.0 million, limitations on transactions with
affiliates, maintenance of liquidity of $20 million and the
maintenance of additional funding through warehouse loans. As of
December 31, 2011, we were in compliance with all covenants
and performance tests under this facility and had an aggregate
principal amount of $251.7 million outstanding.
In February 2012, we negotiated an extension of the
$300 Million Warehouse Facility with the financial services
company. We extended the maturity date to February 2013 and
decreased the committed amount to $150 million.
$175
Million Warehouse Facility
In February 2010, we entered into a $75 million warehouse
facility and in January 2012, we extended the maturity date of
this warehouse facility to January 2013 and increased the
committed amount under this warehouse facility to $175 million.
We herein refer to this facility as our $175 Million Warehouse
Facility. This facility is maintained with BANA, an affiliate of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, an
underwriter in this offering. The interest rate on this facility
is based on LIBOR plus a spread ranging from 1.75% to 2.50%.
Our $175 Million Warehouse Facility requires us to comply with
various customary operating covenants and specific covenants,
including financial covenants regarding our liquidity ratio of
liabilities and warehouse credit to net worth, maintenance of a
minimum tangible net worth of $150.0 million, maintenance
of additional warehouse facilities and limitations on entering
into warehouse facilities with more favorable terms (with
respect to the lender) than this facility without also applying
those more favorable terms to this facility. As of
December 31, 2011, we were in compliance with all covenants
and performance tests under this facility and had an aggregate
principal amount of $46.8 million outstanding.
$100
Million Warehouse Facility
In October 2009, we entered into our $100 Million Warehouse
Facility, which is maintained with an affiliate of Citigroup
Global Markets Inc., an underwriter in this offering. The
interest rate on this facility is based on LIBOR plus a margin
of 3.50%, and its stated maturity date is January 2013.
90
Our $100 Million Warehouse Facility requires us to comply with
various customary operating covenants and specific covenants,
including maintaining additional warehouse facilities,
restrictions on the assignment of purchased loans, limits on
transactions with affiliates and certain financial covenants,
including maintaining a minimum tangible net worth of
$150.0 million. As of December 31, 2011, we were in
compliance with all covenants and performance tests under this
facility and had an aggregate principal amount of
$16.0 million outstanding.
$50
Million Warehouse Facility
In March 2011, we entered into our $50 Million Warehouse
Facility, which is maintained with an affiliate of Barclays
Capital Inc., an underwriter in this offering. The interest rate
on this facility is based on LIBOR plus a spread of 1.45% to
3.95%, which varies based on the underlying transferred
collateral, and its stated maturity date is March 2012. As of
December 31, 2011, we were in compliance with all covenants
and performance tests under this facility and the outstanding
balance was $7.3 million.
ASAP+
Short-Term Financing Facility
In March 2009, we entered into our ASAP+ Short-Term Financing
Facility. This facility is maintained with a GSE and currently
has a total facility size of $200 million. The interest
rate on this facility is based on LIBOR plus a margin of 1.50%,
and the agreements executed pursuant to this facility typically
have a maturity of up to 45 days.
Our ASAP+ Short-Term Financing Facility is used to finance our
loan originations on a short-term basis. Pursuant to these
agreements, we agree to transfer to the GSE certain mortgage
loans against the transfer of funds by the GSE, with a
simultaneous agreement by the counterparty to transfer the loans
back to us at a date certain, or on demand by us, against the
transfer of funds from us. As of December 31, 2011, we had
an aggregate principal amount of $104.9 million outstanding.
Legacy
Assets and Other
Legacy
Asset Term-Funded Notes
In November 2009, we completed the securitization of mortgage
assets and issued approximately $222.4 million of our
Legacy Asset Term-Funded Notes. The interest rate is 7.50%,
subject to an available funds cap. In conjunction with the
securitization, we reclassified our legacy assets as held
for investment on our consolidated balance sheet and
recognize the Legacy Asset Term-Funded Notes as non-recourse
debt. We pay the principal and interest on these notes using the
cash flows from the underlying legacy assets, which serve as
collateral for the debt. As of December 31, 2011, the
aggregate UPB of the legacy assets that secure our Legacy Asset
Term-Funded Notes was $373.1 million. Monthly cash flows
generated from the legacy assets are used to service the debt,
which has a final legal maturity of October 2039. As of
December 31, 2011, our Legacy Asset Term-Funded Notes had a
par amount and carrying value, net of financing costs and
unamortized discount of $130.8 million and
$112.5 million, respectively.
Variable
Interest Entities
We have been the transferor in connection with a number of
securitizations or asset-backed financing arrangements, from
which we have continuing involvement with the underlying
transferred financial assets. We aggregate these securitizations
or asset-backed financing arrangements into two
groups: (1) securitizations of residential mortgage
loans and (2) transfers accounted for as secured
borrowings.
On securitizations of residential mortgage loans, our continuing
involvement typically includes acting as servicer for the
mortgage loans held by the trust and holding beneficial
interests in the trust. Our responsibilities as servicer
include, among other things, collecting monthly payments,
maintaining escrow
91
accounts, providing periodic reports and managing insurance in
exchange for a contractually specified servicing fee. The
beneficial interests held consist of both subordinate and
residual securities that were retained at the time of the
securitization. Prior to January 1, 2010, each of these
securitization trusts was considered a QSPE, and these trusts
were excluded from our consolidated financial statements.
We also maintain various agreements with SPEs, under which we
transfer mortgage loans
and/or
advances on residential mortgage loans in exchange for cash.
These SPEs issue debt supported by collections on the
transferred mortgage loans
and/or
advances. These transfers do not qualify for sale treatment
because we continue to retain control over the transferred
assets. As a result, we account for these transfers as
financings and continue to carry the transferred assets and
recognize the related liabilities on our consolidated balance
sheets. Collections on the mortgage loans
and/or
advances pledged to the SPEs are used to repay principal and
interest and to pay the expenses of the entity. The holders of
these beneficial interests issued by these SPEs do not have
recourse to us and can only look to the assets of the SPEs
themselves for satisfaction of the debt.
Prior to January 1, 2010, we evaluated each SPE for
classification as a QSPE. QSPEs were not consolidated in our
consolidated financial statements. When a SPE was determined to
not be a QSPE, we further evaluated it for classification as a
VIE. When a SPE met the definition of a VIE, and when it was
determined that we were the primary beneficiary, we included the
SPE in our consolidated financial statements.
A VIE is an entity that has either a total equity investment
that is insufficient to permit the entity to finance its
activities without additional subordinated financial support or
whose equity investors lack the characteristics of a controlling
financial interest. A VIE is consolidated by its primary
beneficiary, which is the entity that, through its variable
interests has both the power to direct the activities of a VIE
that most significantly impact the VIEs economic performance and
the obligation to absorb losses of the VIE that could
potentially be significant to the VIE or the right to receive
benefits from the VIE that could potentially be significant to
the VIE.
Effective January 1, 2010, new accounting guidance
eliminated the concept of a QSPE and all existing SPEs are now
subject to new consolidation guidance. Upon adoption of this new
accounting guidance, we identified certain securitization trusts
where we, through our affiliates, continued to hold beneficial
interests in these trusts. These retained beneficial interests
obligate us to absorb losses of the VIE that could potentially
be significant to the VIE or the right to receive benefits from
the VIE that could potentially be significant. In addition, we
as master servicer on the related mortgage loans, retain the
power to direct the activities of the VIE that most
significantly impact the economic performance of the VIE. When
it is determined that we have both the power to direct the
activities that most significantly impact the VIEs
economic performance and the obligation to absorb losses or the
right to receive benefits that could potentially be significant
to the VIE, the assets and liabilities of these VIEs are
included in our consolidated financial statements. Upon
consolidation of these VIEs, we derecognized all previously
recognized beneficial interests obtained as part of the
securitization, including any retained investment in debt
securities, MSRs, and any remaining residual interests. In
addition, we recognized the securitized mortgage loans as
mortgage loans held for investment, subject to ABS nonrecourse
debt, and the related asset-backed certificates (ABS nonrecourse
debt) acquired by third parties as ABS nonrecourse debt on our
consolidated balance sheet. The net effect of the accounting
change on January 1, 2010 members equity was an
$8.1 million charge to members equity.
As a result of market conditions and deteriorating credit
performance on these consolidated VIEs, we expect minimal to no
future cash flows on the economic residual. Under GAAP, we would
be required to provide for additional allowances for loan losses
on the securitization collateral as credit performance
deteriorated, with no offsetting reduction in the
securitizations debt balances, even though any
nonperformance of the assets will ultimately pass through as a
reduction of amounts owed to the debt holders, once they are
extinguished. Therefore, we would be required to record
accounting losses beyond our economic exposure.
92
To more accurately represent the future economic performance of
the securitization collateral and related debt balances, we
elected the fair value option provided for by ASC
825-10,
Financial InstrumentsOverall. This option was
applied to all eligible items within the VIE, including mortgage
loans held for investment, subject to ABS nonrecourse debt, and
the related ABS nonrecourse debt.
Subsequent to this fair value election, we no longer record an
allowance for loan loss on mortgage loans held for investment,
subject to ABS nonrecourse debt. We continue to record interest
income in our consolidated statement of operations on these fair
value elected loans until they are placed on a nonaccrual status
when they are 90 days or more past due. The fair value
adjustment recorded for the mortgage loans held for investment
is classified within fair value changes of ABS securitizations
in our consolidated statement of operations.
Subsequent to the fair value election for ABS nonrecourse debt,
we continue to record interest expense in our consolidated
statement of operations on the fair value elected ABS
nonrecourse debt. The fair value adjustment recorded for the ABS
nonrecourse debt is classified within fair value changes of ABS
securitizations in our consolidated statement of operations.
Under the existing pooling and servicing agreements of these
securitization trusts, the principal and interest cash flows on
the underlying securitized loans are used to service the
asset-backed certificates. Accordingly, the timing of the
principal payments on this nonrecourse debt is dependent on the
payments received on the underlying mortgage loans and
liquidation of REO.
We consolidate the SPEs created for the purpose of issuing debt
supported by collections on loans and advances that have been
transferred to it as VIEs, and we are the primary beneficiary of
these VIEs. We consolidate the assets and liabilities of the
VIEs onto our consolidated financial statements.
A summary of the assets and liabilities of our transactions with
VIEs included in our consolidated financial statements as of
December 31, 2011 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
Transfers
|
|
|
|
|
|
|
|
|
|
Accounted for
|
|
|
|
|
|
|
Securitization
|
|
|
as Secured
|
|
|
|
|
|
|
Trusts
|
|
|
Borrowings
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Assets
|
Restricted cash
|
|
|
$
|
|
|
|
$22,316
|
|
|
|
$22,316
|
|
Accounts receivable
|
|
|
|
|
|
|
279,414
|
|
|
|
279,414
|
|
Mortgage loans held for investment, subject to nonrecourse debt
|
|
|
|
|
|
|
237,496
|
|
|
|
237,496
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned
|
|
|
|
|
|
|
3,668
|
|
|
|
3,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$
|
|
|
|
$542,894
|
|
|
|
$542,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
Notes payable
|
|
|
$
|
|
|
|
$244,574
|
|
|
|
$244,574
|
|
Payables and accrued liabilities
|
|
|
|
|
|
|
977
|
|
|
|
977
|
|
Outstanding servicer advances
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments, subject to ABS nonrecourse debt
|
|
|
|
|
|
|
112,490
|
|
|
|
112,490
|
|
Nonrecourse debtLegacy Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS nonrecourse debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
$
|
|
|
|
$358,041
|
|
|
|
$358,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
On December 23, 2011, we sold our remaining variable
interest in a securitization trust that has been a consolidated
VIE since January 1, 2010. In accordance with ASC 810,
Consolidation, we evaluated this securitization trust and
determined that we no longer have both the power to direct the
activities that most significantly impact the VIEs
economic performance and the obligation to absorb losses or the
right to receive benefits that could potentially be significant
to the VIE and this securitization trust was derecognized as of
December 23, 2011. Upon derecognition of this VIE, we
derecognized the securitized mortgage loans held for investment,
subject to ABS nonrecourse debt, the related ABS nonrecourse
debt, as well as certain other assets and liabilities of the
securitization trust, and recognized any MSRs on the
consolidated balance sheet. Any impact of this derecognition on
our consolidated statement of operations was recognized in 2011.
Off
Balance Sheet Arrangements
A summary of the outstanding collateral and certificate balances
for securitization trusts, including any retained beneficial
interests and MSRs, that were not consolidated by us for the
periods indicated are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2011(1)
|
|
|
2010
|
|
|
|
|
|
|
(in thousands)
|
|
|
Total collateral balances
|
|
|
$4,579,142
|
|
|
|
$4,038,978
|
|
|
|
|
|
Total certificate balances
|
|
|
4,582,598
|
|
|
|
4,026,844
|
|
|
|
|
|
Total MSRs at fair value
|
|
|
28,635
|
|
|
|
26,419
|
|
|
|
|
|
|
|
|
(1) |
|
Unconsolidated securitization trusts consist of VIEs where
we have neither the power to direct the activities that most
significantly impact the VIEs economic performance or the
obligation to absorb losses or the right to receive benefits
that could potentially be significant to the VIE. |
Derivatives
We enter into IRLCs with prospective borrowers. These
commitments are carried at fair value in accordance with
ASC 815, Derivatives and Hedging. ASC 815
clarifies that the expected net future cash flows related to the
associated servicing of a loan should be included in the
measurement of all written loan commitments that are accounted
for at fair value through earnings. The estimated fair values of
IRLCs are based on quoted market values and are recorded in
other assets in the consolidated balance sheets. The initial and
subsequent changes in the value of IRLCs are a component of gain
(loss) on mortgage loans held for sale.
We actively manage the risk profiles of our IRLCs and mortgage
loans held for sale on a daily basis. To manage the price risk
associated with IRLCs, we enter into forward sales of MBS in an
amount equal to the portion of the IRLC expected to close,
assuming no change in mortgage interest rates. In addition, to
manage the interest rate risk associated with mortgage loans
held for sale, we enter into forward sales of MBS to deliver
mortgage loan inventory to investors. The estimated fair values
of forward sales of MBS and forward sale commitments are based
on quoted market values and are recorded as a component of other
assets and mortgage loans held for sale, respectively, in the
consolidated balance sheets. The initial and subsequent changes
in value on forward sales of MBS and forward sale commitments
are a component of gain (loss) on mortgage loans held for sale.
Periodically, we enter into interest rate swap agreements to
hedge the interest payment on the warehouse debt and
securitization of our mortgage loans held for sale. These
interest rate swap agreements generally require us to pay a
fixed interest rate and receive a variable interest rate based
on LIBOR. Unless designated as an accounting hedge, we record
losses on interest rate swaps as a component of gain/(loss) on
interest rate swaps and caps in our consolidated statements of
operations. Unrealized losses on undesignated
94
interest rate derivatives are separately disclosed under
operating activities in the consolidated statements of cash
flows.
On October 1, 2010, we designated an existing interest rate
swap as a cash flow hedge against outstanding floating rate
financing associated with the Nationstar Mortgage Advance
Receivables
Trust 2009-ABS
Advance Financing Facility financing. This interest rate swap
was a cash flow hedge under ASC 815 and was recorded at
fair value on our consolidated balance sheet, with any changes
in fair value being recorded as an adjustment to other
comprehensive income. To qualify as a cash flow hedge, the hedge
must be highly effective at reducing the risk associated with
the exposure being hedged and must be formally designated at
hedge inception. We consider a hedge to be highly effective if
the change in fair value of the derivative hedging instrument is
within 80% to 125% of the opposite change in the fair value of
the hedged item attributable to the hedged risk. Ineffective
portions of the cash flow hedge are reflected in earnings as
they occur as a component of interest expense. In conjunction
with the October 2011 amendment to the
2010-ABS
Advance Financing Facility, we paid off our
2009-ABS
Advance Financing Facility and transferred the related
collateral to the
2010-ABS
Advance Financing Facility. Concurrently with the repayment of
2009-ABS
Advance Financing Facility we de-designated the underlying
interest rate swap on the
2009-ABS
Advance Financing Facility. The interest rate swap associated
with the
2010-ABS
Advance Financing Facility served as an economic hedge for the
remainder of 2011.
95
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of market risks which include
interest rate risk, consumer credit risk and counterparty credit
risk.
Interest
Rate Risk
Changes in interest rates affect our operations primarily as
follows:
Servicing Segment
|
|
|
|
|
an increase in interest rates would increase our costs of
servicing our outstanding debt, including our ability to finance
servicing advances;
|
|
|
|
a decrease (increase) in interest rates would generally increase
(decrease) prepayment rates and may require us to report a
decrease (increase) in the value of our MSRs;
|
|
|
|
a change in prevailing interest rates could impact our earnings
from our custodial deposit accounts; and
|
|
|
|
an increase in interest rates could generate an increase in
delinquency, default and foreclosure rates resulting in an
increase in both operating expenses and interest expense and
could cause a reduction in the value of our assets.
|
Originations Segment
|
|
|
|
|
a substantial and sustained increase in prevailing interest
rates could adversely affect our loan originations volume
because refinancing an existing loan would be less attractive
and qualifying for a loan may be more difficult; and
|
|
|
|
an increase in interest rates would increase our costs of
servicing our outstanding debt, including our ability to finance
loan originations;
|
We actively manage the risk profiles of IRLCs and mortgage loans
held for sale on a daily basis and enter into forward sales of
MBS in an amount equal to the portion of the IRLC expected to
close, assuming no change in mortgage interest rates. In
addition, to manage the interest rate risk associated with
mortgage loans held for sale, we enter into forward sales of MBS
to deliver mortgage loan inventory to investors.
Consumer
Credit Risk
We sell our loans on a non-recourse basis. We also provide
representations and warranties to purchasers and insurers of the
loans sold that typically are in place for the life of the loan.
In the event of a breach of these representations and
warranties, we may be required to repurchase a mortgage loan or
indemnify the purchaser, and any subsequent loss on the mortgage
loan may be borne by us. If there is no breach of a
representation and warranty provision, we have no obligation to
repurchase the loan or indemnify the investor against loss. The
outstanding UPB of loans sold by us represents the maximum
potential exposure related to representation and warranty
provisions.
We maintain a reserve for losses on loans repurchased or
indemnified as a result of breaches of representations and
warranties on our sold loans. Our estimate is based on our most
recent data regarding loan repurchases and indemnity payments,
actual credit losses on repurchased loans, recovery history,
among other factors. Our assumptions are affected by factors
both internal and external in nature. Internal factors include,
among other things, level of loan sales, as well as to whom the
loans are sold, the expectation of credit loss on
96
repurchases and indemnifications, our success rate at appealing
repurchase demands and our ability to recover any losses from
third parties. External factors that may affect our estimate
includes, among other things, the overall economic condition in
the housing market, the economic condition of borrowers, the
political environment at investor agencies and the overall
U.S. and world economy. Many of the factors are beyond our
control and may lead to judgments that are susceptible to change.
Counterparty
Credit Risk
We are exposed to counterparty credit risk in the event of
non-performance by counterparties to various agreements. We
monitor the credit ratings of our counterparties and do not
anticipate losses due to counterparty non-performance.
Sensitivity
Analysis
We assess our market risk based on changes in interest rates
utilizing a sensitivity analysis. The sensitivity analysis
measures the potential impact on fair values based on
hypothetical changes (increases and decreases) in interest rates.
We use a duration-based model in determining the impact of
interest rate shifts on our loan portfolio, certain other
interest-bearing liabilities measured at fair value and interest
rate derivatives portfolios. The primary assumption used in
these models is that an increase or decrease in the benchmark
interest rate produces a parallel shift in the yield curve
across all maturities.
We utilize a discounted cash flow analysis to determine the fair
value of MSRs and the impact of parallel interest rate shifts on
MSRs. The primary assumptions in this model are prepayment
speeds, market discount rates and cost to service. However, this
analysis ignores the impact of interest rate changes on certain
material variables, such as the benefit or detriment on the
value of future loan originations, non-parallel shifts in the
spread relationships between MBS, swaps and U.S. Treasury
rates and changes in primary and secondary mortgage market
spreads. For mortgage loans, IRLCs and forward delivery
commitments on MBS, we rely on a model in determining the impact
of interest rate shifts. In addition, for IRLCs, the
borrowers propensity to close their mortgage loans under
the commitment is used as a primary assumption.
Our total market risk is influenced by a wide variety of factors
including market volatility and the liquidity of the markets.
There are certain limitations inherent in the sensitivity
analysis presented, including the necessity to conduct the
analysis based on a single point in time and the inability to
include the complex market reactions that normally would arise
from the market shifts modeled.
We used December 31, 2011 market rates on our instruments
to perform the sensitivity analysis. The estimates are based on
the market risk sensitive portfolios described in the preceding
paragraphs and assume instantaneous, parallel shifts in interest
rate yield curves. These sensitivities are hypothetical and
presented for illustrative purposes only. Changes in fair value
based on variations in assumptions generally cannot be
extrapolated because the relationship of the change in fair
value may not be linear.
97
The following table summarizes the estimated change in the fair
value of our assets and liabilities sensitive to interest rates
as of December 31, 2011 given hypothetical instantaneous
parallel shifts in the yield curve:
|
|
|
|
|
|
|
|
|
|
|
Change in Fair Value
|
|
|
|
Down
|
|
|
Up
|
|
|
|
25 bps
|
|
|
25 bps
|
|
|
|
(in thousands)
|
|
|
Increase (decrease) in assets
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
$3,442
|
|
|
|
$(4,213)
|
|
Mortgage servicing rights
|
|
|
(5,512)
|
|
|
|
6,202
|
|
Other assets (derivatives)
|
|
|
|
|
|
|
|
|
IRLCs
|
|
|
1,584
|
|
|
|
(2,592)
|
|
|
|
|
|
|
|
|
|
|
Total change in assets
|
|
|
(486)
|
|
|
|
(603)
|
|
Increase (decrease) in liabilities
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
Interest rate swaps and caps
|
|
|
1,562
|
|
|
|
(942)
|
|
Forward MBS trades
|
|
|
5,416
|
|
|
|
(6,669)
|
|
Excess spread financing
|
|
|
(253)
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
Total change in liabilities
|
|
|
6,725
|
|
|
|
(7,281)
|
|
|
|
|
|
|
|
|
|
|
Total, net change
|
|
|
$(7,211)
|
|
|
|
$6,678
|
|
|
|
|
|
|
|
|
|
|
98
GLOSSARY
OF INDUSTRY AND OTHER TERMS
Adjustable Rate Mortgage. A mortgage loan
where the interest rate on the loan adjusts periodically based
on a specified index and margin agreed to at the time the loan
is originated.
Agency and Government 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 FHA (as defined below).
Basic Servicing Fee. The servicing fee paid in
an excess MSR arrangement to a servicer 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.
Compensating Interest. Money paid to the owner
of a mortgage loan or pool of mortgage loans on a monthly basis
(typically by the servicer from its own funds) to compensate the
owner of the mortgage loan for interest shortfalls caused by
intra-month prepayments.
Consumer Direct Retail 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 or the
Internet.
Conventional Mortgage Loans. A mortgage loan
that is not guaranteed or insured by the FHA, the VA (as defined
below) 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 (as defined below).
Corporate Advance. A servicing advance to pay
costs and expenses incurred in foreclosing upon, preserving 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 mortgage loans.
Credit-Sensitive Loan. A mortgage loan with
certain characteristics such as low borrower credit quality,
relaxed original underwriting standards and high LTV, which we
believe indicates that the mortgage loan presents an elevated
credit risk.
Delinquent Loan. A mortgage loan that is 30 or
more days past due from its scheduled due date.
Department of Veterans Affairs
(VA). The VA is a cabinet-level
department of the U.S. federal government, which guarantees
certain home loans for qualified borrowers.
Distributed Retail Originations. A type of
mortgage loan origination pursuant to which a lender markets
primarily purchase money mortgage loans directly to consumers
from local branches.
Excess Fees. In an excess MSR arrangement, the
servicing fee cash flows on a portfolio of mortgage loans after
payment of the basic servicing fee.
Excess MSRs. MSRs with a co-investment partner
pursuant to which the servicer receives a basic servicing fee
and the servicer and co-investment partner share the excess
fees. This co-investment strategy reduces the required upfront
capital from the servicer.
Fannie Mae. The Federal National Mortgage
Association, a federally chartered association that buys
mortgage loans from lenders and resells them as securities in
the secondary mortgage market.
99
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.
Float Income. Interest income earned by a
servicer on (i) funds collected from borrowers during the
period of time between receipt of the funds and the remittance
of the funds to investors and (ii) funds collected from
borrowers for the payment of taxes and insurance, where
applicable.
Freddie Mac. The Federal Home Loan Mortgage
Corporation, a federally chartered corporation that buys
mortgage loans from lenders and resells them as securities in
the secondary mortgage market.
Ginnie Mae. The Government National Mortgage
Association, a wholly-owned U.S. federal government
corporation that is an agency of the Department of Housing and
Urban Development. The main focus of Ginnie Mae is to ensure
liquidity for U.S. federal government-insured mortgages
including those insured by the FHA. Ginnie Mae guarantees to
investors who purchase MBS the timely payment of principal and
interest. 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). Financing corporations
established by the U.S. Congress, including Fannie Mae,
Freddie Mac and the Federal Home Loan Banks.
High Touch Servicing. A servicing model that
is designed to increase borrower repayment performance with a
view towards home ownership preservation and to decrease
borrower delinquencies and defaults on mortgage portfolios. This
model emphasizes a focus on loss mitigation and frequent
interactions with borrowersvia telephone, mail, electronic
communications and other personal contact methods.
Home Affordable Modification Program
(HAMP). A U.S. federal
government program designed to help eligible homeowners avoid
foreclosure through mortgage loan modifications. Participating
servicers may be entitled to receive financial incentives in
connection with loan modifications they enter into with eligible
borrowers and subsequent success fees to the extent that a
borrower remains current in any agreed upon loan modification.
Home Affordable Refinance Program
(HARP). A U.S. federal
government program designed to help eligible homeowners
refinance their existing mortgage loans. The mortgage must be
owned or guaranteed by a GSE, and applicants must be
up-to-date
on their mortgage payments but unable to obtain refinancing
because the value of their homes has declined.
Independent Loan Servicer. A loan servicer
that is not affiliated with a depository institution.
Loan Modification. Temporary or permanent
modifications, including re-modifications, to the terms and
conditions of a borrowers 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 UPB of a mortgage
loan as a percentage of the total appraised value of the
property that secures the loan. LTV is one of the key risk
factors that originators assess when qualifying borrowers for a
mortgage loan. A loan with a low LTV is seen as less of a credit
risk than a loan with a high LTV. An LTV over 100% indicates
that the UPB of the mortgage loan exceeds the value of the
property.
Loss Mitigation. The range of servicing
activities designed by a servicer to minimize the losses
suffered by the owner of a mortgage loan in connection with a
borrower default. Loss mitigation techniques include
short-sales,
deed-in-lieu
of foreclosures and loan modifications, among other options.
100
Making Home Affordable Plan
(MHA). Also known as the President of
the United States Homeowner Affordability and Stability
Plan. A U.S. federal government program designed to help
eligible homeowners avoid foreclosure and keep their homes by
refinancing their existing mortgages. MHA loans are available to
eligible homeowners with LTVs ratios of up to 125%.
Mortgage Servicing Right
(MSR). The right to service a loan or
pool of loans and to receive a servicing fee. MSRs may be bought
and sold, resulting in the transfer of loan servicing
obligations.
Non-Conforming Mortgage Loan. A mortgage loan
that does not meet the standards of eligibility for purchase or
securitization by Fannie Mae, Freddie Mac or Ginnie Mae.
Non-Recoverable Advance. A servicing advance
made by a servicer, which will not ultimately be recoverable by
the servicer from funds received upon liquidation of the
underlying property of the mortgage loan.
Originations. The process through which a
lender provides a mortgage loan to a borrower.
P&I Advance. A servicing advance to cover
scheduled payments of principal and interest that have not been
timely paid by borrowers. P&I Advances serve to ensure the
cash flows paid to holders of securities issued by the
residential MBS trust.
Prepayment Speed. The rate at which 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 right with
the primary servicer to service a mortgage loan or pool of
mortgage loans in exchange for a subservicing fee.
Prime Mortgage Loan. Generally, a high-quality
mortgage loan that meets the underwriting standards set by
Fannie Mae, Freddie Mac and Ginnie Mae and is eligible for
purchase or securitization in the secondary mortgage market.
Conventional mortgage loans generally have lower default risk
and are made to borrowers with good 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). Mortgages not classified as conventional mortgages
are generally called either jumbo prime, non-prime or Alt-A.
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 Rate. For refinance eligible
portfolios, the ratio of the UPB of loans re-originated to the
UPB of the loans voluntarily paid off by the borrowers over a
defined measurement period. The present calculation of the
denominator includes borrowers who may have paid off their
mortgage by any means including selling their house.
Re-origination. The process of actively
working with existing borrowers to refinance their mortgage
loans. By re-originating loans for existing borrowers, we retain
the servicing rights, thereby extending the longevity of the
servicing cash flows.
Residential Mortgage-Backed Security
(RMBS). A fixed income security
backed by pools of residential mortgages.
101
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 reports and
managing insurance. A servicer is generally compensated with a
specific fee outlined in the contract established prior to the
commencement of the servicing activities.
Servicing Advance. In the course of servicing
loans, servicers are required to make servicing advances that
are reimbursable from collections on the related mortgage loan.
There are typically three types of servicing advances: P&I
Advances, T&I Advances and Corporate Advances. Servicing
advances are reimbursed to the servicer if and when the borrower
makes a payment on the underlying mortgage loan or upon
liquidation of the underlying mortgage 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.
Servicing Advance Facility. A secured
financing facility backed by a pool of mortgage servicing
advance receivables made by a servicer to the owner of a
mortgage loan or pool of mortgage loans.
Special Servicers. Special servicers are
responsible for enhancing recoveries on delinquent loans and REO
assets. Loans are transferred to a special servicer based on
predetermined delinquency or other performance measures.
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.
T&I Advance. A servicing advance to 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 their interest in the property.
Unpaid Principal Balance
(UPB). The amount of principal
outstanding on a mortgage loan or a pool of mortgage loans. UPB
is used as a means of estimating the future revenue stream for a
servicer.
Warehouse Facility. A type of facility used to
finance mortgage loan originations. 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 counterparty, with a simultaneous agreement by the
counterparty to transfer the loans back to the originator at a
date certain, or on demand, against the transfer of funds from
the originator.
Wholesale Originations. A type of mortgage
loan origination pursuant to which a lender acquires refinancing
and purchase money mortgage loans from third party mortgage
brokers or correspondent lenders.
102
INDUSTRY
We conduct our business in the residential mortgage industry in
the United States. We participate in two distinct, but related,
sectors of the mortgage industry: residential mortgage loan
servicing, which includes primary servicing and subservicing,
and residential mortgage loan originations.
Servicing
Industry Overview
According to Inside Mortgage Finance, there were approximately
$10.3 trillion in residential mortgage loans outstanding in the
United States as of December 31, 2011. Each mortgage loan
must be serviced by a loan servicer. Primary servicers, which
are loan servicers that own the MSRs they service, generally
earn a contractual per loan fee of 25 to 50 basis points
per annum on the UPB of loans serviced, as well as incentive
fees and associated ancillary fees, such as late fees.
Subservicers, which are loan servicers that service loans on
behalf of other MSR or mortgage owners, generally receive a
contractual per loan fee the equivalent of between 5 to 45 basis
points per annum on the UPB of loans serviced. Consequently, a
loan servicer can create value for both itself and the mortgage
owner and, in the case of a subservicing arrangement, for the
owner of the MSRs, by increasing the number of borrowers that
remain current in their repayment obligations. Owners may
include a lender, third party investor or, in the case of a
securitized pool of mortgages, a residential MBS trust.
Loan servicing, including primary servicing and subservicing,
predominantly involves the calculation, collection and
remittance of principal and interest payments, the
administration of mortgage escrow accounts, the collection of
insurance claims, the administration of foreclosure procedures,
the management of REO and the disbursement of required advances.
In a weak economic and credit environment with elevated
delinquencies and defaults, servicing is operationally more
challenging and more capital intensive as servicers need to add
and train staff to manage the increase in delinquent borrowers.
In addition, servicers are generally required to make advances
on delinquent mortgage loans for principal and interest
payments, taxes, insurance, legal fees and property maintenance
fees, all of which are typically recovered upon foreclosure or
liquidation. According to CoreLogic, completed foreclosures
reached 830,000 in 2011. Furthermore, Fannie Mae estimates that
as of December 31, 2010 and September 30, 2011, it had
$764 billion and $724 billion of assets, respectively,
within its own portfolio with characteristics that we believe
make them credit-sensitive.
Mortgage
Servicing Functions
Loan servicers play a key role in the residential mortgage
market by providing loan servicing functions on behalf of MSR or
mortgage owners, including collecting and remitting monthly loan
principal and interest payments, taxes and insurance, performing
customer service functions and taking active steps to minimize
any potential losses associated with borrower delinquencies and
defaults.
Primary
Servicing
Typically, a primary servicer is contractually obligated to
service a mortgage loan in accordance with accepted servicing
industry practices as well as applicable regulations and
statutes. A primary servicers rights and obligations are
governed by the pooling and servicing agreement for the
underlying loans.
To the extent a borrower does not make a payment, primary
servicers are generally required to make advances of principal
and interest, taxes, insurance and legal fees until such time as
the underlying property is liquidated or the servicer determines
that additional advances will not be recoverable from future
payments, proceeds or other collections on the mortgage loan. In
the event of a foreclosure, primary servicers are entitled to
reimbursement of advances from the sale proceeds of the related
property, and, if these advances are non-recoverable, from
collections on other mortgage loans in the related mortgage pool.
103
Collection efforts attempt to maximize early contact with late
or newly delinquent borrowers, with more focused attention on
borrowers of lower credit quality. In addition, primary
servicers are responsible for closely managing their collection
calls and letter campaigns which are tailored to specific loan
products.
Subservicing
A subservicers rights and obligations are governed by the
subservicing agreement with the third party that owns the
related MSRs.
As a result of more timely reimbursement of advances,
subservicing is distinct from, and generally requires much less
capital than, primary servicing. Subservicers typically are only
required to make advances on an intra-month basis. Like primary
servicers, in the event of a foreclosure, subservicers are
entitled to reimbursement of monthly advances from the sale
proceeds of the related property or, if these advances are
non-recoverable, from collections on co-pooled mortgage loans.
Additionally, subservicers are typically entitled to direct
monthly reimbursement from the owner of the MSRs of any
shortfall between the aggregate amount advanced by the
subservicer and the aggregate amount of reimbursement from the
sale proceeds of related property or from the collections on
co-pooled mortgage loans.
As with primary servicers, subservicers attempt to maximize
early contact with late or newly delinquent borrowers and must
closely manage their product-tailored collection calls and
letter campaigns.
Loan
Servicing Landscape
The
Traditional Bank Servicing Model
The majority of loan servicing in the United States is performed
by the nations money center banks such as Bank of America,
Wells Fargo, JPMorgan Chase and Citigroup, which together
serviced over 50% of all outstanding mortgage loans on
one-to-four-family residences as of December 31, 2011.
These traditional bank servicers primarily service conventional,
performing mortgages and are most effective at routine account
management of portfolios with low delinquencies that require
limited interaction with the borrowers, or so-called front-end
activities.
The traditional bank servicer model, which was developed to
process simple payments and to minimize costs, functioned well
in environments characterized by low delinquencies and defaults,
and is best described as traditional servicing. In
the current environment of elevated delinquencies, foreclosures,
liquidation proceedings and REO activity, however, traditional
servicers are experiencing higher operating costs, and their
performance metrics are declining. According to Calculated Risk,
from 2007 through 2010, approximately 3.4 million homes
were lost to foreclosure. In addition, based on information from
the Mortgage Bankers Association, as of December 31, 2011,
approximately 7.7% of mortgages in the United States were in the
process of foreclosure or were 90 or more days delinquent,
representing approximately 3.7 to 3.9 million mortgages.
At the same time, banks are currently under tremendous pressure
to exit or reduce their exposure to the servicing business as a
result of increased regulatory scrutiny and capital
requirements, headline risk associated with sizeable legal
settlements and potentially significant earnings volatility.
The High
Touch Servicing Model
In contrast to the traditional bank servicer model, the high
touch servicer model emphasizes increased borrower contact in an
effort to improve loan performance and reduce loan defaults and
foreclosures, thereby minimizing credit losses and maximizing
cash flows, or so-called back-end activities. In addition to
more normalized environments, the high touch servicing model
functions well in environments characterized by elevated
delinquencies, foreclosures, liquidation proceedings and REO
activity. We believe there is a very
104
limited number of servicers such as us that are able to operate
both front- and back-end activities effectively in a variety of
market environments. Finally, we believe current market
opportunities favor and are greatest for servicers of this
nature, as compared to traditional, bank-owned servicers.
Servicer
Compensation
Loan servicers earn servicing fees through their MSRs and
subservicing contracts, as the case may be, and these fees
represent the largest source of revenue from loan servicing
operations.
Primary
Servicer Compensation
By purchasing MSRs, primary servicers generally receive a
contractual per loan servicing fee of 25 to 50 basis points
per annum on the UPB of the loans serviced. The servicing fees
are typically supplemented by incentive fees and ancillary fees.
Incentive fees include modification initiation and success fees
from the HAMP program and modification or collateral workout
related incentives from various pool owners and GSEs. Ancillary
fees include late fees, non-sufficient funds fees, convenience
fees and interest income earned on loan payments that have been
collected but have not yet been remitted to the owner of the
mortgage loan.
Primary servicers have additional opportunities to provide
value-added services to the owners of the loans they service.
These value-added adjacent services include providing services
for delinquent loans, managing loans in the foreclosure/REO
process and providing title insurance agency, loan settlement
and valuation services on newly originated and re-originated
loans.
Subservicer
Compensation
Under subservicing arrangements, where loan servicers do not pay
to acquire MSRs and only have intra-month advancing obligations,
the subservicers generally receive a contractual per loan
servicing fee the equivalent of between 5 to 45 basis
points per annum on the UPB of the loans serviced. As with
primary servicers, subservicers typically supplement their
subservicing fees through incentive and ancillary fees as well
as the provision of adjacent services.
Advances
In the course of servicing delinquent loans, servicers are
required to make advances that are reimbursable from collections
on the related mortgage loan, or in the event of a
non-recoverable advance, from collections on other mortgage
loans in the related mortgage pool.
There are generally three types of advances: P&I Advances,
T&I Advances and Corporate Advances.
P&I Advances: Advances to cover scheduled
payments of principal and interest that have not been timely
paid by borrowers. P&I Advances serve to smooth the cash
flows paid to holders of securities issued by the residential
MBS trust.
T&I Advances: Advances to 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.
Corporate Advances: Advances to pay costs and
expenses incurred in loan foreclosure and REO preservation and
sale, 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
mortgage loans.
105
A servicer may decide to stop making P&I Advances prior to
liquidation of the mortgage loan if the servicer deems future
P&I Advances to be non-recoverable. In this circumstance,
T&I Advances and Corporate Advances will likely continue in
order to preserve existing value of the mortgage loan and
complete the foreclosure and REO sale process.
Servicers of GSE securities are reimbursed by the GSE for their
advances upon completion of the foreclosure sale at which point
the mortgage loan is repurchased out of the MBS trust by the
GSE. Servicers of GSE securities are not responsible for
managing REO. Conversely, servicers of non-agency MBS are
obligated under the servicing agreement to make advances through
liquidation of the related REO.
Advances are non-interest bearing assets. Non-bank servicers
typically utilize securitizations or match funded liabilities to
finance their advances. The securitizations are generally
non-recourse to the servicer, and the advances are financed at a
discount to par accounting for the non-interest bearing nature
of the asset. Advance rates for securitizations generally range
between 70% to 85% depending upon the rating and structure.
In the course of servicing reverse mortgages, servicers are also
required to make advances (i) to the borrowers under the
mortgage documents; (ii) for property taxes, insurance,
field visits, property inspections, legal fees, appraisals,
broker price opinions and securing and maintaining the mortgaged
property in the event of a foreclosure and subsequent sale; and
(iii) of mortgage insurance premiums to HUD. Advances on
reverse mortgages are typically greater than advances on forward
residential mortgages.
Unlike traditional mortgage borrowers, reverse mortgage
borrowers are not required to remit monthly payments of
principal and interest to amortize loans or reimburse advances.
Borrowers repay advances (with the exception of advances for
payment of taxes or insurance) at their discretion. Some
borrowers choose to pay down previous advances, but most never
make monthly payments. Instead, these advances are reimbursed by
the owner of the reverse mortgage securities to the servicer on
a weekly or monthly basis or from sale in the market. Servicers
are generally responsible for accurately adjusting the interest
rates charged for advances made to borrowers.
Industry
Dynamics
We believe a number of factors associated with the dislocation
in the mortgage industry have led to a supply and demand
imbalance in the residential mortgage servicing market, creating
a market opportunity for high touch servicers. These factors
include:
Elevated
delinquencies, defaults, foreclosures and REO
According to CoreLogic, completed foreclosures have increased
from 514,000 in 2007 to 830,000 in 2011. The Mortgage Bankers
Association forecasts that delinquent loans and loans in
foreclosure peaked in early 2010 but will stay elevated for
quite some time. Moodys Analytics projects that home
prices will not begin to recover until 2013. In a period of
elevated mortgage delinquencies and defaults, servicing becomes
operationally more challenging as servicers need to dedicate
more resources to manage the higher volume of delinquent
borrowers. In the current environment of elevated delinquencies,
foreclosures, liquidation proceedings and REO activity, we
believe traditional bank servicers will continue to recognize
the importance of high touch servicing characterized by a strong
emphasis on superior asset performance and loss mitigation
expertise, and seek to partner with servicers that they believe
can be more effective at minimizing credit losses and maximizing
loan performance.
106
Source: Mortgage Bankers Association, HOPE NOW, CoreLogic,
Calculated Risk
Regulatory
and legislative factors
We believe banks are currently under tremendous pressure to exit
or reduce their exposure to the mortgage servicing business as a
result of increased regulatory scrutiny and capital
requirements, headline risk associated with sizeable legal
settlements and potentially significant earnings volatility. As
a result of the severe dislocation in the U.S. housing
market and the related fallout, regulatory and legislative
attention on the mortgage industry has increased. Numerous
legislative and regulatory actions have been proposed, and we
believe the following factors will continue to increase
compliance costs for the largest servicers and cause many of
them to exit or reduce their exposure to the mortgage servicing
business.
|
|
|
|
|
|
Increased Capital Requirements
|
|
|
|
|
Pending Basel III standards impose material capital charges
for banks holding mortgage servicing assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Volatility
|
|
|
|
|
QRM provision in the Dodd-Frank Act requires banks to retain
risk on balance sheet
|
|
|
|
|
|
Mark-to-market exposure creates earnings volatility
|
|
|
|
|
|
Difficult to hedge variability
|
|
|
|
|
|
|
|
|
|
|
|
|
Demonization of Banking System
|
|
|
|
|
Signed consent orders with the OCC, the Federal Reserve and the
FDIC
|
|
|
|
|
|
Settlement with federal and state agencies
|
|
|
|
|
|
Negotiations with state Attorneys General
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Scrutiny & Headline Risk
|
|
|
|
|
Mortgage settlements with RMBS holders
|
|
|
|
|
|
Robo-signing headlines
|
|
|
|
|
|
Robust loan put-back from GSEs
|
|
|
|
|
|
Servicing requirements regarding delinquent mortgages
|
107
|
|
|
|
|
|
|
|
|
|
|
Modification of servicing compensation related to Fannie Mae
and Freddie Mac loans
|
|
|
|
|
|
New regulations from the recently formed CFPB
|
|
|
|
|
|
Additional litigation brought by Attorneys General of
non-participating states
|
Additionally, we believe there is a limited number of non-bank
servicers such as us who are positioned to capitalize upon these
opportunities and provide a high level of service. We believe
these factors will continue to drive a separation within the
servicing market between front-end and back-end servicing
compensation.
Reform of GSEs
On September 7, 2008, FHFA placed Fannie Mae and Freddie
Mac into conservatorship and, together with the
U.S. Treasury, established a program designed to boost
investor confidence in their respective debt and MBS. The
U.S. government has expressed interest in reforming and
significantly reducing the participation of the GSEs in the
residential mortgage market. As a result of their
conservatorship and the anticipation of their eventual reduced
participation in the residential mortgage market, we believe the
GSEs will continue to facilitate servicing transfers to strong,
proven servicers with a track record of improving asset
performance and mitigating credit losses. We expect these
transfers to accelerate as market forces continue to erode
portfolio performance. Due to our history of strong asset
performance and our long-standing relationships with the GSEs,
we believe we are among a very limited number of servicers
positioned to acquire additional GSE-controlled servicing.
In addition to the market opportunities that we have identified
and we believe will continue to present themselves, numerous
government programs and initiatives continue to provide
advantages for servicers with loss mitigation expertise. We
expect servicers that are flexible and adept at implementing
government hardship assistance programs will be rewarded with
higher incentive fees and more servicing transfers from the
GSEs. In contrast, we expect that, as a part of a recent FHFA
initiative, servicers not meeting certain performance benchmarks
will be penalized with compensatory fees and potential servicing
revocations. We believe these trends favor servicers such as us
that have a track record of improving asset performance on the
loans they service.
Opportunities under HAMP
In response to the rising level of foreclosures, in February
2009, the U.S. Treasury announced the implementation of HAMP
designed to keep borrowers in their homes. HAMP is currently
scheduled to expire on December 31, 2013. HAMP provides
financial incentives to loan servicers and borrowers to
successfully modify qualifying residential mortgages. Under the
program, servicers receive an up-front fee of $1,000 for each
completed modification and an additional $500 if the loan is
current, but are at risk of imminent default while the borrower
is in the HAMP trial period, typically a three-month period in
which no foreclosure sales can occur and the borrowers
ability to meet the modified loans terms and conditions is
gauged. Servicers also receive success fees of as much as $1,000
each year for up to three years, which accrue monthly and are
paid annually on the anniversary of the month in which the trial
period plan was executed. The annual incentives are predicated
on the borrower remaining in good standing, meaning that the
borrower must not be more than two months delinquent at any time
during the year.
Originations
Industry Overview
According to Inside Mortgage Finance, total residential mortgage
originations in the United States were $1.35 trillion in
2011, a decrease of 17.2% compared to 2010. Of the 2011
originations, approximately 90% were conforming mortgages
guaranteed by GSEs, including Fannie Mae and Freddie Mac, or
government
108
agencies such as the FHA and the VA. From 2006 to
December 31, 2011, the annual aggregate principal balance
of newly originated mortgage loans that were either insured or
guaranteed by government agencies or sold to GSEs or into
government securitizations remained relatively flat at
$1.2 trillion.
The U.S. residential mortgage market consists of a primary
mortgage market that links borrowers and lenders and a secondary
mortgage market that links lenders and investors. In the primary
mortgage market, residential mortgage lenders such as mortgage
banking companies, commercial banks, savings institutions,
credit unions and other financial institutions originate or
provide mortgages to borrowers. Lenders obtain liquidity for
originations in a variety of ways, including by selling
mortgages or mortgage-related securities into the secondary
mortgage market. Banks that originate mortgage loans also have
access to customer deposits to fund their originations business.
The secondary mortgage market consists of institutions engaged
in buying and selling mortgages in the form of whole loans,
which represent mortgages that have not been securitized, and
mortgage-related securities. The GSEs and a government agency,
Ginnie Mae, participate in the secondary mortgage market by
purchasing mortgage loans and mortgage-related securities for
investment and by issuing guaranteed mortgage-related securities.
Loan
Originations Process
Residential mortgage loans are generally originated through
either a direct retail lending channel or a wholesale mortgage
brokerage network.
A direct retail lending channel consists of a centralized retail
platform
and/or
distributed retail branches. A centralized retail platform is a
telephone based platform with multiple loan officers in one
location. Typical loan originations channels for a direct retail
lending network include realtors, homebuilders, credit unions,
banks, the Internet and refinances from existing servicing
portfolios. In a direct lending retail network, the lender
controls all loan originations processes, including sourcing the
borrower, taking the application and setting the interest rate,
ordering the appraisal and underwriting, processing, closing and
funding the loan.
Loans sourced by mortgage brokers are funded by the lender and
generally closed in the lenders name. When originating
loans through mortgage brokers, the mortgage brokers role
is to identify the applicant, assist in completing the loan
application, gather necessary information and documents and
serve as the liaison to the borrower through the lending
process. The lender reviews and underwrites the application
submitted by the mortgage broker, approves or denies the
application, sets the interest rate and other terms of the loan
and, upon acceptance by the borrower and satisfaction of all
conditions required by the lender, funds the loan. Because
mortgage brokers conduct their own marketing, employ their own
personnel to complete the loan applications and maintain contact
with the borrowers, mortgage brokers represent an efficient loan
originations channel.
The length of time from the origination or purchase of a
mortgage loan to its sale or securitization generally ranges
from 10 to 60 days, depending on a variety of factors
including loan volume, product type, interest rates and capital
markets conditions. An important source of capital for the
residential mortgage industry is warehouse lending. These
facilities provide funding to mortgage loan originators until
the loans are sold to investors in the secondary mortgage loan
market.
Types
of Mortgage Loans
Mortgage loans generally fall into one of the following five
categories: prime conforming mortgage loans, prime
non-conforming mortgage loans, government mortgage loans,
non-prime mortgage loans and prime second-lien mortgage loans.
Prime Conforming Mortgage Loans: These are
prime credit quality first-lien mortgage loans (i.e. mortgage
loans that, in the event of default, have priority over all
other liens or claims) secured by single-
109
family residences that meet or conform to the
underwriting standards established by Fannie Mae or Freddie Mac
for inclusion in their guaranteed mortgage securities programs.
Prime Non-Conforming Mortgage Loans: These are
prime credit quality first-lien mortgage loans secured by
single-family residences that either (i) do not conform to
the underwriting standards established by Fannie Mae or Freddie
Mac, because they have original principal amounts exceeding
Fannie Mae and Freddie Mac limits, which are commonly referred
to as jumbo mortgage loans, or (ii) have alternative
documentation requirements and property or credit-related
features (e.g., higher LTV or debt-to-income ratios) but are
otherwise considered prime credit quality due to other
compensating factors.
Government Mortgage Loans: These are
first-lien mortgage loans secured by single-family residences
that are insured by the FHA or guaranteed by the VA and
securitized into Ginnie Mae securities.
Non-prime Mortgage Loans: These are first-lien
and certain junior lien mortgage loans secured by single-family
residences, made to individuals with credit profiles that do not
qualify for a prime loan, have credit-related features that fall
outside the parameters of traditional prime mortgage loans or
have performance characteristics that otherwise expose us to
comparatively higher risk of loss.
Prime Second-Lien Mortgage Loans: These are
open- and closed-end mortgage loans (i.e. mortgage loans that
do, in the case of an open-end loan, or do not, in the case of a
closed-end loan, allow the borrower to increase the amount of
the mortgage at a later time) secured by a second or more junior
lien on single-family residences, which include home equity
mortgage loans.
Due to the significant stress in the residential mortgage
industry experienced over the last few years, underwriting
standards have improved. Some of these improvements include the
elimination or significant reduction of mortgage affordability
products such as no income verification loans, limited or no
documentation loans, option adjustable rate mortgage loans and
non-owner occupied loans. Also, underwriting standards now
include higher minimum credit scores and lower maximum LTVs than
were acceptable under past lending practices. These improvements
in underwriting standards should lead to improved performance.
110
BUSINESS
Company
Overview
We are a leading high touch non-bank residential mortgage
servicer with a broad array of servicing capabilities across the
residential mortgage product spectrum. We have been the fastest
growing mortgage servicer since 2007 as measured by growth in
aggregate unpaid principal balance (UPB), having
grown 70.2% annually on a compounded basis. As of
December 31, 2011, we serviced over 645,000 residential
mortgage loans with an aggregate UPB of $106.6 billion
(including $7.8 billion of servicing under contract),
making us the largest high touch non-bank servicer in the United
States. Our clients include national and regional banks,
government organizations, securitization trusts, private
investment funds and other owners of residential mortgage loans
and securities.
We attribute our growth to our strong servicer performance and
high touch servicing model, which emphasizes borrower
interaction to improve loan performance and minimize loan
defaults and foreclosures. We believe our exceptional track
record as a servicer, coupled with our ability to scale our
operations without compromising servicer quality, have enabled
us to add new mortgage servicing portfolios with relatively low
capital investment. We are a preferred partner of many large
financial organizations, including government-sponsored
enterprises (GSEs) and other regulated institutions
that value our strong performance and also place a premium on
our entirely
U.S.-based
servicing operations. We employ over 2,500 people in the
United States and are a licensed servicer in all 50 states.
In addition to our core servicing business, we are one of only a
few non-bank servicers with a fully integrated loan originations
platform and suite of adjacent businesses designed to meet the
changing needs of the mortgage industry. Our originations
platform complements and enhances our servicing business by
allowing us to replenish our servicing portfolio as loans pay
off over time, while our adjacent businesses broaden our product
offerings by providing mortgage-related services spanning the
life cycle of a mortgage loan. We believe our integrated
approach, together with the strength and diversity of our
servicing operations and our strategies for growing substantial
portions of our business with minimal capital outlays (which we
refer to as our capital light approach), position us
to take advantage of the major structural changes currently
occurring across the mortgage industry.
Servicing
Industry Dynamics
Mortgage servicers provide
day-to-day
administration and servicing for loans on behalf of mortgage
owners and earn revenues based primarily on the UPB of loans
serviced. Servicers collect and remit monthly loan principal and
interest payments and provide related services in exchange for
contractual servicing fees. Servicers also provide special
services such as overseeing the resolution of troubled loans. As
the mortgage industry continues to struggle with elevated
borrower delinquencies, this special servicing function has
become a particularly important component of a mortgage
servicers role and, we believe, a key differentiator among
mortgage servicers.
According to Inside Mortgage Finance, there were approximately
$10.3 trillion of U.S. residential mortgage loans
outstanding as of December 31, 2011. In the aftermath of
the U.S. financial crisis, the residential mortgage industry is
undergoing major structural changes that affect the way mortgage
loans are originated, owned and serviced. These changes have
benefited and should continue to significantly benefit non-bank
mortgage servicers. Banks currently dominate the residential
mortgage servicing industry, servicing over 90% of all
residential mortgage loans as of September 30, 2011. Over 50% of
all residential mortgage loan servicing is concentrated among
just four banks. However, banks are currently under tremendous
pressure to exit or reduce their exposure to the mortgage
servicing business as a result of increased regulatory scrutiny
and capital requirements, headline risk associated with sizeable
legal settlements, as well as potentially
111
significant earnings volatility. Furthermore, banks
mortgage servicing operations, which have historically been
oriented towards payment processing, are often ill-equipped to
maximize loan performance through high touch servicing.
As a result of these factors and the overall increased demands
on servicers by mortgage owners, mortgage servicing is shifting
from banks to non-bank servicers. Already, over the last
18 months, banks have completed servicing transfers on
$275 billion of mortgage loans. We believe this represents
a fundamental change in the mortgage servicing industry and
expect the trend to continue at an accelerated rate in the
future. Because the mortgage servicing industry is characterized
by high barriers to entry, including the need for specialized
servicing expertise and sophisticated systems and
infrastructure, compliance with GSE and client requirements,
compliance with
state-by-state
licensing requirements and the ability to adapt to regulatory
changes at the state and federal levels, we believe we are one
of the few mortgage servicers competitively positioned to
benefit from the shift.
Our
Business
Residential
Mortgage Servicing
Our leading residential mortgage servicing business serves a
diverse set of clients encompassing a broad range of mortgage
loans, including prime and non-prime loans, traditional and
reverse mortgage loans, GSE and government agency-insured loans,
as well as private-label loans issued by non-government
affiliated institutions. We have grown our residential mortgage
servicing portfolio from an aggregate UPB of $12.7 billion
as of December 31, 2007 to $106.6 billion as of
December 31, 2011 (including $7.8 billion of servicing
under contract). Since December 2008, we have added over
$104 billion in UPB to our servicing platform through
approximately 300 separate transfers from 30 different
counterparties (excluding $7.8 billion of servicing under
contract). This growth has been funded primarily through
internally generated cash flows and proceeds from debt
financings.
Our performance record stands out when compared to other
mortgage servicers:
|
|
|
|
|
As of December 2011, a GSE ranked us in the top 5 out of over
1,000 approved servicers in foreclosure prevention workouts.
|
112
|
|
|
|
|
In 2011, we were in the top tier of rankings for Federal Housing
Administration-(FHA) and Housing and Urban
Development-approved servicers, with a Tier 1 ranking (out
of four possible tiers).
|
|
|
|
|
|
As of December 31, 2011, our delinquency and default rates
on non-prime mortgages we service on behalf of third party
investors in asset-backed securities (ABS) were each
40% lower than the peer group average.
|
Our high touch, active servicing approach emphasizes increased
borrower contact in an effort to improve loan performance and
reduce loan defaults and foreclosures, thereby minimizing credit
losses and maximizing cash flows for our clients. Where
appropriate, we perform loan modifications, often facilitated by
government programs such as the Home Affordable Modification
Program (HAMP), which serve as an effective
alternative to foreclosure by keeping borrowers in their homes
and bringing them current on their loans. We believe our proven
servicing approach and relative outperformance have led large
financial institutions, GSEs and government organizations to
award major servicing and subservicing contracts to us, often on
a repeat basis.
Our systems and infrastructure play a key role in our servicing
success. Through careful monitoring and frequent direct
communication with borrowers, we are able to quickly identify
potential payment problems and work with borrowers to address
issues efficiently. To this end, we leverage our proprietary
processing, loss mitigation and caller routing systems to
implement a single point of contact model for troubled loans
that ensures smooth and prompt communication with borrowers,
consistent with standards imposed on the largest bank servicers
by the Office of the Comptroller of the Currency (the
OCC), the Federal Reserve and the Federal Deposit
Insurance Corporation (FDIC). Our core systems are
scalable to multiples of our current size.
We service loans as the owner of mortgage servicing rights
(MSRs), which we refer to as primary
servicing, and we also service loans on behalf of other
MSR or mortgage owners, which we refer to as
subservicing. As of December 31, 2011, our
primary servicing and subservicing portfolios represented 46.4%
and 53.6%, respectively, of our total servicing portfolio
(excluding $7.8 billion of servicing under contract).
Primary
Servicing
Primary servicers act as servicers on behalf of mortgage owners
and directly own the MSRs, which represent the contractual right
to a stream of cash flows (expressed as a percentage of UPB) in
exchange for performing specified mortgage servicing functions
and temporarily advancing funds to cover payments on delinquent
and defaulted mortgages.
We have grown our primary servicing portfolio to
$45.8 billion in UPB as of December 31, 2011
(excluding $7.8 billion of servicing under contract) from
$12.7 billion in UPB as of December 31, 2007,
representing a compound annual growth rate of 37.8%. We plan to
continue growing our primary servicing portfolio principally by
acquiring MSRs from banks and other financial institutions under
pressure to exit or reduce their exposure to the mortgage
servicing business. As the servicing industry paradigm continues
to shift from bank to non-bank servicers at an increasing pace,
we believe there will be a significant opportunity to increase
our market share of the servicing business.
We acquire MSRs on a standalone basis and have also developed an
innovative model for investing on a capital light basis by
co-investing with financial partners in excess MSRs.
Excess MSRs are the servicing fee cash flows (excess
fees) on a portfolio of mortgage loans after payment of a
basic servicing fee. In these transactions, we provide all
servicing functions in exchange for the basic servicing fee,
then share the excess fee with our co-investment partner on a
pro rata basis. Through December 31, 2011, we added
113
$10 billion of loan servicing through excess MSRs and
expect to continue to deploy this co-investment strategy in the
future.
Subservicing
Subservicers act on behalf of MSR or mortgage owners that choose
to outsource the loan servicing function. In our subservicing
portfolio, we earn a contractual fee per loan we service. The
loans we subservice often include pools of underperforming
mortgage loans requiring high touch servicing capabilities. Many
of our recent subservicing transfers have been facilitated by
GSEs and other large mortgage owners that are seeking to improve
loan performance through servicer upgrades. Subservicing
represents another capital light means of growing our servicing
business, as subservicing contracts are typically awarded on a
no-cost basis and do not require substantial capital.
We have grown our subservicing portfolio to $53.0 billion
in UPB as of December 31, 2011 by completing 290 transfers
with 26 counterparties since we entered the subservicing
business in August 2008. We expect to enter into additional
subservicing arrangements as mortgage owners seek to transfer
credit stressed loans to high touch subservicers with proven
track records and the infrastructure and expertise to improve
loan performance.
Adjacent
Businesses
We operate or have investments in several adjacent businesses
which provide mortgage-related services that are complementary
to our servicing and originations businesses. These businesses
offer an array of ancillary services, including providing
services for delinquent loans, managing loans in the
foreclosure/real estate owned (REO) process and
providing title insurance agency, loan settlement and valuation
services on newly originated and re-originated loans. We offer
these adjacent services in connection with loans we currently
service, as well as on a third party basis in exchange for base
and/or
incentive fees. In addition to enhancing our core businesses,
these adjacent services present an opportunity to increase
future earnings with minimal capital investment, including by
expanding the services we provide to large banks and other
financial institutions seeking to outsource these functions to a
third party.
Originations
We are one of only a few non-bank servicers with a fully
integrated loan originations platform to complement and enhance
our servicing business. In 2011, we originated approximately
$3.4 billion of loans, up from $2.8 billion in 2010.
We originate primarily conventional agency (GSE) and
government-insured residential mortgage loans and, to mitigate
risk, typically sell these loans within 30 days while
retaining the associated servicing rights.
A key determinant of the profitability of our primary servicing
portfolio is the longevity of the servicing cash flows before a
loan is repaid or liquidates. Our originations efforts are
primarily focused on re-origination, which involves
actively working with existing borrowers to refinance their
mortgage loans. By re-originating loans for existing borrowers,
we retain the servicing rights, thereby extending the longevity
of the servicing cash flows, which we refer to as
recapture. We recaptured 35.4% of the loans we
service that were refinanced or repaid by the borrower during
2011 and our goal for 2012 is to achieve a recapture rate of
over 55%. Because the refinanced loans typically have lower
interest rates or lower monthly payments, and, in general,
subsequently refinance more slowly and default less frequently,
these refinancings also typically improve the overall quality of
our primary servicing portfolio.
114
With our in-house originations capabilities, we believe we are
better protected against declining servicing cash flows as we
replace servicing run-off through new loan originations or
retain our servicing portfolios through re-origination. In
addition, our re-origination strategy allows us to generate
additional loan servicing more cost-effectively than MSRs can
otherwise be acquired in the open market.
Our
Strengths
We believe our servicing platform, coupled with our originations
and adjacent businesses, position us well for a variety of
market environments. The following competitive strengths
contribute to our leading market position and differentiate us
from our competitors:
Top
Performing Preferred Servicing Partner
Through careful monitoring and frequent direct communication
with borrowers, our high touch, high-quality servicing model
allows us to improve loan performance and reduce loan defaults
and foreclosures, thereby minimizing credit losses and
maximizing cash flows for our clients. In recognition of our
performance, as of December 2011, a GSE ranked us in the top 5
out of over 1,000 approved servicers in foreclosure prevention
workouts. Our demonstrated ability to achieve strong results and
relative outperformance, as well as our entirely
U.S.-based
servicing operations, have made us a preferred partner of large
financial institutions, GSEs and government organizations, which
have awarded major servicing and subservicing contracts to us,
often on a repeat basis.
Scalable
Technology and Infrastructure
Our highly scalable technology and infrastructure have enabled
us to manage rapid growth over the past several years while
maintaining our high servicing standards and enhancing loan
performance. We have made significant investments in loan
administration, customer service, compliance and loss
mitigation, as well as in employee training and retention. Our
staffing, training and performance tracking programs,
centralized in the Dallas/Fort Worth, Texas area, have
allowed us to expand the size of our servicing team while
maintaining high quality standards. With our core systems
scalable to multiples of our current size, we believe our
infrastructure positions us well to take advantage of structural
changes in the mortgage industry. Because the mortgage servicing
industry is characterized by high barriers to entry, we also
believe we are one of the few mortgage servicers competitively
positioned to benefit from existing and future market
opportunities.
Track
Record of Efficient Capital Deployment
We have an established track record of deploying capital to grow
our business. For example, since December 2008, we have
effectively used capital from internally generated cash flows
and proceeds from debt financings to add over $104 billion
in UPB to our servicing platform (excluding $7.8 billion of
servicing under contract). In addition, we employ capital light
strategies, including our innovative strategy for co-investment
in excess MSRs with financial partners as well as subservicing
arrangements, to add new mortgage servicing portfolios with
relatively low capital investment. Through December 31,
2011, we added $10 billion of loan servicing through excess
MSRs and expect to continue to deploy this co-investment
strategy in the future, while also evaluating subservicing
arrangements as mortgage owners seek to transfer credit stressed
loans to high touch subservicers in order to improve loan
performance. We believe that our experience of efficiently
deploying capital for growth puts us in a strong position to
manage future growth opportunities.
Attractive
Business Model with Strong Recurring Revenues
Banks are under tremendous pressure to exit or reduce their
exposure to the mortgage servicing business, and GSEs are
looking for strong mortgage servicers as the mortgage industry
continues to struggle with elevated borrower delinquencies. As
the shift from bank to non-bank servicers accelerates, we
believe
115
there will be a significant opportunity for us to achieve growth
on attractive terms. Our senior management team has already
demonstrated its ability to identify, evaluate and execute
servicing portfolio acquisitions. We have developed an
attractive business model to grow our business and generate
strong, recurring, contractual fee-based revenue with minimal
credit risk. These revenue streams provide us with significant
capital to grow our business organically.
Integrated Originations Capabilities
As one of only a few non-bank servicers with a fully integrated
loan originations platform, we are often able to extend the
longevity of our servicing cash flows through loan refinancings.
We recaptured 35.4% of the loans we service that were refinanced
or repaid by the borrower during 2011 and our goal for 2012 is
to achieve a recapture rate of over 55%. Because, in general,
refinanced loans subsequently refinance more slowly and default
less frequently than many currently outstanding loans, these
refinancings also typically improve the overall quality of our
primary servicing portfolio. We believe our in-house
originations capabilities allow us to generate additional loan
servicing more cost-effectively than MSRs can otherwise be
acquired in the open market.
Strong and Seasoned Management Team
Our senior management team is comprised of experienced mortgage
industry executives with a track record of generating financial
and operational improvements. Our current Chief Executive
Officer has been with us for more than a decade and has managed
the company through the most recent economic downturn and
through multiple economic cycles. Several members of our
management team have held senior positions at other residential
mortgage companies. Our senior management team has demonstrated
its ability to adapt to changing market conditions and has
developed a proven ability to identify, evaluate and execute
successful portfolio and platform acquisitions. We believe that
the experience of our senior management team and its management
philosophy are significant contributors to our operating
performance.
Growth
Strategies
We expect to drive future growth in the following ways:
Grow
Residential Mortgage Servicing
We expect to grow our business primarily by adding to our
residential mortgage servicing portfolios through MSR
acquisitions and subservicing transfers. Over the last
18 months, banks and other financial institutions have
completed a significant number of MSR sales and subservicing
transfers, and we expect an even greater number over the next
18 months. We are continuously reviewing, evaluating and,
when attractive, pursuing MSR sales and subservicing transfers,
and we believe we are well-positioned to compete effectively for
these opportunities. We believe our success in this area has
been, and will continue to be, driven by our strong servicer
performance, as well as by the systems and infrastructure we
have implemented to meet specific client requirements.
Pursue
Capital Light Servicing Opportunities
We intend to pursue capital light strategies that will allow us
to grow our MSR and subservicing portfolios with minimal capital
outlays. Within our subservicing portfolio, since August 2008,
we have grown our servicing UPB to $53.0 billion with no
capital outlays. Many of our recent subservicing transfers have
been facilitated by GSEs and other large mortgage owners and we
expect to leverage our relationships to complete additional
subservicing transfers as mortgage owners seek to transfer
credit stressed loans to high touch servicers through
subservicing arrangements. Within our MSR portfolio, we have
developed an innovative strategy for co-investing on a capital
light basis in excess MSRs with financial partners. Through
December 31, 2011, we added $10 billion of loan
servicing through excess MSRs and expect to continue to
116
deploy this co-investment strategy in the future. We anticipate
that these capital light strategies will allow us to
significantly expand our mortgage servicing portfolio with
reduced capital investment.
Expand
Originations to Complement Servicing
We also expect our originations platform to play an important
role in driving our growth and, in particular, enhancing the
profitability of our servicing business. As one of only a few
non-bank servicers with a fully integrated loan originations
platform, we originate new GSE-eligible and FHA-insured loans
for sale into the securitization market and retain the servicing
rights associated with those loans. More importantly, we
re-originate loans from existing borrowers seeking to take
advantage of improved loan terms, thereby extending the
longevity of the related servicing cash flows, which increases
the profitability and the credit quality of the servicing
portfolio. Through our originations platform, we generate
additional loan servicing more cost-effectively than MSRs can
otherwise be acquired in the open market. Finally, we facilitate
borrower access to government programs designed to encourage
refinancings of troubled or stressed loans, improving overall
loan performance. We believe this full range of abilities makes
us a more attractive counterparty to entities seeking to
transfer servicing to us, and we expect it to contribute to the
growth of our servicing portfolio.
Meet
Evolving Needs of the Residential Mortgage
Industry
We expect to drive growth across all of our businesses by being
a solution provider to a wide range of financial and government
organizations as they navigate the structural changes taking
place across the mortgage industry. With banks under pressure to
reduce their exposure to the mortgage market, with the U.S.
government under pressure to address its large mortgage exposure
and with weak market conditions contributing to elevated loan
delinquencies and defaults, we expect there to be numerous
compelling situations requiring our expertise. We believe the
greatest opportunities will be available to servicers with the
proven track record, scalable infrastructure and range of
services that can be applied flexibly to address different
organizations needs. To position ourselves for these
opportunities, since 2010 we have expanded our business
development team and hired a dedicated senior executive whose
primary role is to identify, evaluate, and enhance acquisition
and partnership opportunities across the mortgage industry,
including with national and regional banks, mortgage and bond
insurers, private investment funds and various government
agencies. We have also expanded and enhanced our loan transfer,
collections and loss mitigation infrastructure in order to be
able to accommodate substantial additional growth. We expect
these efforts to position us to be a key participant in the long
term restructuring and recovery of the mortgage sector.
Our
Operations
Residential
Mortgage Servicing
We are a leading high touch non-bank residential mortgage
servicer with a broad array of servicing capabilities across the
residential mortgage product spectrum. We service loans as the
owner of MSRs, which we refer to as primary
servicing, and we also service loans on behalf of other
MSR or mortgage owners, which we refer to as
subservicing. The servicing portfolio consists of
acquired MSRs, subservicing transferred from various third
parties and loans originated by our integrated originations
platform.
We service these loans using a high touch servicing model
designed to improve loan performance and reduce loan defaults
and foreclosures. Certain of the loans underlying the MSRs that
we own are credit sensitive in nature and the value of these
MSRs is more likely to be affected by changes in credit losses
than by interest rate movement. The remaining loans underlying
our MSRs are prime agency and government conforming residential
mortgage loans for which the value of these MSRs is more likely
to be affected by interest rate movement than changes in credit
losses.
117
As of December 31, 2011, we serviced over 645,000
residential mortgage loans with an aggregate UPB of
$106.6 billion (including $7.8 billion of servicing
under contract). As of December 31, 2011, our primary
servicing and subservicing portfolios represented 46.4% and
53.6%, respectively, of our total servicing portfolio (excluding
$7.8 billion of servicing under contract). The table below
indicates the portion of our servicing portfolio that is primary
servicing and subservicing, as well as the portion of our
primary servicing portfolio that is credit sensitive and
interest rate sensitive at and for the periods indicated. Our
subservicing portfolio is assumed to be credit sensitive in
nature.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in millions)
|
|
|
Servicing Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance (by investor):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Sensitive Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE/FHA
|
|
|
$10,227
|
|
|
|
$22,897
|
|
|
|
$19,675
|
|
|
|
$26,541
|
|
RMBS
|
|
|
9,415
|
|
|
|
8,390
|
|
|
|
7,519
|
|
|
|
6,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Credit Sensitive Loans
|
|
|
19,642
|
|
|
|
31,287
|
|
|
|
27,194
|
|
|
|
33,344
|
|
Interest Sensitive Loans-GSE/FHA
|
|
|
1,700
|
|
|
|
1,584
|
|
|
|
7,210
|
|
|
|
12,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Primary Portfolio
|
|
|
21,342
|
|
|
|
32,871
|
|
|
|
34,404
|
|
|
|
45,817
|
|
Subservicing Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance (by investor):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Servicing
|
|
|
|
|
|
|
793
|
|
|
|
4,078
|
|
|
|
9,238
|
|
GSE/FHA
|
|
|
|
|
|
|
|
|
|
|
25,694
|
|
|
|
31,280
|
|
RMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Subservicing Portfolio
|
|
|
|
|
|
|
793
|
|
|
|
29,772
|
|
|
|
52,988
|
|
Servicing under contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Servicing Portfolio
|
|
|
$21,342
|
|
|
|
$33,664
|
|
|
|
$64,176
|
|
|
|
$106,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Summary Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
$74,601
|
|
|
|
$100,133
|
|
|
|
$182,842
|
|
|
|
$255,476
|
|
Net income
|
|
|
14,718
|
|
|
|
7,502
|
|
|
|
14,230
|
|
|
|
22,083
|
|
The table below provides detail of the characteristics and key
performance metrics of our servicing portfolio at and for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011(2)
|
|
|
|
(in millions, except for average loan amount and loan
count)
|
|
|
Loan countservicing
|
|
|
159,336
|
|
|
|
230,615
|
|
|
|
389,172
|
|
|
|
596,011
|
|
Ending unpaid principal balance
|
|
|
$21,342
|
|
|
|
$33,664
|
|
|
|
$64,176
|
|
|
|
$98,805
|
|
Average unpaid principal balance
|
|
|
$12,775
|
|
|
|
$25,799
|
|
|
|
$38,653
|
|
|
|
$81,491
|
|
Average loan amount
|
|
|
$133,943
|
|
|
|
$145,977
|
|
|
|
$164,904
|
|
|
|
$165,788
|
|
Average coupon
|
|
|
7.49
|
%
|
|
|
6.76
|
%
|
|
|
5.74
|
%
|
|
|
5.43
|
%
|
Average FICO credit score
|
|
|
588
|
|
|
|
644
|
|
|
|
631
|
|
|
|
627
|
|
60+ delinquent (% of
loans)(1)
|
|
|
13.1
|
%
|
|
|
19.9
|
%
|
|
|
17.0
|
%
|
|
|
14.7
|
%
|
Total prepayment speed (12 month constant pre-payment rate)
|
|
|
16.2
|
%
|
|
|
16.3
|
%
|
|
|
13.3
|
%
|
|
|
13.4
|
%
|
|
|
|
(1) |
|
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. |
|
|
|
(2) |
|
Characteristics and key performance metrics of our servicing
portfolio for the year ended December 31, 2011 exclude
approximately $7.8 billion of reverse residential mortgage
loans for which we entered into an agreement to acquire the MSRs
in December 2011 and closed in January 2012. |
118
Our
Servicing Model
Our servicing business produces strong recurring, contractual
fee-based revenue with minimal credit risk. Servicing fees are
primarily based on the aggregate UPB of the loans serviced and
the payment structure varies by loan source and type. For loans
that we do not originate, the services we provide and the fees
we receive vary depending on our agreement with the owner of the
mortgage loan or the owner of the MSR, as the case may be. These
include differences in rate of servicing fees as a percentage of
UPB and in the structure of advances. For a more detailed
description of advances, see IndustryServicing
Industry Overview.
Our high touch servicing model emphasizes individual default
specialist accountability for loan performance, which we refer
to as credit loss ownership, and loss mitigation
practices to improve loan performance and reduce loan defaults
and foreclosures. We seek to ensure that each loan that we
service is paid in accordance with its terms. In circumstances
where the borrower is, or is at risk of becoming, delinquent or
in default, we employ both industry standard and proprietary
strategies to work proactively with borrowers in an effort to
avoid foreclosure by keeping borrowers in their homes and
bringing them current on their loans. We refer to this frequent
interaction with borrowersvia phone, Internet, mailings,
and personal contact methodsas high touch servicing. Our
high touch servicing model and operating culture have proven
especially valuable in the current environment characterized by
elevated borrower delinquencies.
To ensure a customer-centric focus, we have separate account
resolution and foreclosure prevention groups for each type of
mortgage owner for which we service loans. We maintain
centralized loan administration and default management groups,
which provide services to all customers.
We are dedicated to a culture of customer service and credit
loss ownership for our servicing employees. We hire recent
college graduates and train them in the mortgage servicing
business by systematically rotating them through a variety of
our business teams. Our new employees initially work on
performing loans and loans that are less than 30 days past
due. After gaining experience in this environment, we train our
employees in the more challenging 60 and 90 day delinquent
categories, where we particularly emphasize a culture of
ownership and accountability.
To select the best resolution option for a delinquent loan, we
perform a structured analysis of all options using information
provided by the borrower as well as external data. We use recent
broker price opinions, automated valuation models and other
methods to value the property. We then determine the option with
the best expected outcome for the owner of the mortgage loan.
Where appropriate, we perform modifications, often facilitated
by government programs such as HAMP. In the current environment,
such loan modifications often provide a better outcome for
owners of mortgage loans than foreclosure. We believe that our
high touch servicing model is more effective in keeping
borrowers in their homes and bringing them current on their
loans. This is a win-win situation for the owners of mortgage
loans or MSRs, as the case may be, as well as for the borrowers
that we serve. We conducted over 29,000 loan modifications in
2011 as compared to over 41,000 in 2010. The majority of loans
modified were delinquent, although we modified some performing
loans proactively under the American Securitization Forum
guidelines. Although the most common term modified is the
interest rate, some modifications also involve the forbearance
or rescheduling of delinquent principal and interest. Of the
loans we modified in 2011, over 10,000 were modified pursuant to
the Making Home Affordable plan (MHA). Under the
MHA, we receive an annual financial incentive for up to four
years, provided certain conditions are met. At the same time, we
forego uncollected late fees incurred in the year of
modification for each qualifying loan modification.
The GSEs act as a source of liquidity for the secondary mortgage
market and contract with various independent servicers to
service their mortgage loan portfolio. In transactions with the
GSEs, we are required to follow specific guidelines that impact
the way we service and originate mortgage loans including:
|
|
|
|
|
our staffing levels and other servicing practices;
|
119
|
|
|
|
|
the servicing and ancillary fees that we may charge;
|
|
|
|
our modification standards and procedures; and
|
|
|
|
the amount of advances that are reimbursable.
|
In December 2009, we entered into a strategic relationship with
a GSE, which contemplates, among other things, significant MSRs
and subservicing transfers to us upon terms to be determined.
Under this arrangement, if certain delivery thresholds have been
met, the GSE may require us to establish an operating division
or newly created subsidiary with separate, dedicated employees
within a specified timeline to service the loans underlying the
MSRs or subservice the MSRs underlying the subservicing
transfers. After a specified time period, the GSE may purchase
the subsidiary at an agreed upon price.
Our
Servicing Portfolio
Our servicing portfolio consists of MSRs we retain from loans
that we originate; MSRs we acquire from third party investors,
including in transactions facilitated by GSEs, such as Fannie
Mae and Freddie Mac; and MSRs we manage through subservicing
contracts with third party investors. Our loan servicing
operations are located in Lewisville, Texas. In October 2011, we
entered into an operating sublease agreement for approximately
53,000 square feet of office space in Houston, Texas, which
we plan to use as we continue to grow our servicing business.
The loans we service have typically been
securitizedmeaning that the originator of the loan has
pooled the loan together with multiple other loans and then sold
securities to third party investors that are secured by loans in
the securitization pool. We typically service loans that have
been securitized pursuant to one of two arrangements: as a
primary servicer or as a subservicer.
Primary
Servicing
As a primary servicer, we service loans by purchasing the MSRs
from the mortgage owner or retaining the MSRs related to the
loans we originate. Pursuant to our servicing arrangements, we
generally receive a contractual per loan fee between
approximately 25 to 50 basis points annually on the UPB, with a
weighted average across our servicing portfolio of approximately
31 basis points.
The servicing fees are typically supplemented by incentive fees
and ancillary fees. Incentive fees include modification
initiation and success fees from HAMP and modification or
collateral workout related incentives from various pool owners
and GSEs. Ancillary fees include late fees, non-sufficient funds
fees, convenience fees and interest income earned on loan
payments that have been collected but have not yet been remitted
to the owner of the mortgage loan, or float.
In addition to acquiring MSRs on a standalone basis, we have
also developed an innovative model for investing on a capital
light basis by co-investing with financial partners in excess
MSRs. In these transactions, we provide all servicing functions
in exchange for the basic servicing fee, then share the excess
fee with our co-investment partner on a pro rata basis.
A key determinant of the profitability of our primary servicing
portfolio is the longevity of the servicing cash flows before a
loan is repaid or liquidates. As one of only a few non-bank
servicers with an integrated originations platform, we are often
able to extend the longevity of the servicing cash flows through
loan refinancings by retaining the servicing rights of the loans
we re-originate. Because the refinanced loans typically have
lower interest rates or lower monthly payments, and, in general,
subsequently refinance more slowly and default less frequently,
these refinancings also typically improve the overall quality of
our primary servicing portfolio.
120
As a primary servicer, we have additional opportunities to
provide an array of adjacent services, including providing
services for delinquent loans, managing loans in the
foreclosure/REO process and providing title insurance agency,
loan settlement and valuation services on newly originated and
re-originated loans for a base or incentive fee. See
Adjacent Businesses.
As of December 31, 2011, our primary servicing portfolio
consisted of loans with an aggregate UPB of $45.8 billion,
representing 46.4% of our total servicing portfolio (excluding
$7.8 billion of servicing under contract). We have grown
our primary servicing portfolio to $45.8 billion in UPB as
of December 31, 2011 (excluding $7.8 billion of
servicing under contract) from $12.7 billion in UPB in
2007, representing a compound annual growth rate of 37.8%.
The charts below illustrate the composition of our primary
servicing portfolio by type and product as of December 31,
2011.
As set forth in the chart below, our primary servicing portfolio
is diversified with respect to geography. As of
December 31, 2011, 56.3% of the aggregate UPB of the loans
we service were secured by properties located in the ten largest
states by population. Therefore, we are not as susceptible to
local and regional real estate price fluctuations as primary
servicers whose portfolios are more concentrated in a single
state or region.
121
Subservicing
Alternatively, we may enter into a subservicing agreement with
MSR or mortgage owners pursuant to which we agree to service the
loans on behalf of such MSR or mortgage owners. Under such
subservicing arrangements, where we do not pay to acquire the
MSRs and only have intra-month advance obligations, we generally
receive a contractual per loan fee the equivalent of between 5
to 45 basis points annually on the UPB.
As with our primary servicing arrangements, we typically
supplement our subservicing fees through incentive and ancillary
fees as well as the provision of adjacent services. See
Adjacent Businesses.
As of December 31, 2011, our subservicing portfolio consisted of
loans with an aggregate UPB of $53.0 billion, representing
53.6% of our total servicing portfolio (excluding
$7.8 billion of servicing under contract). Since we entered
the subservicing business in August 2008, we have grown our
subservicing portfolio to $53.0 billion as of
December 31, 2011.
The charts below illustrate the composition of our subservicing
portfolio by type and product as of December 31, 2011.
As set forth in the chart below, our subservicing portfolio is
diversified with respect to geography. As of December 31,
2011, 51.3% of the aggregate UPB of the loans we subservice were
secured by properties located in the ten largest states by
population. Therefore, we are not as susceptible to local and
regional real estate price fluctuations as subservicers whose
portfolios are more concentrated in a single state or region.
122
Adjacent
Businesses
We operate or have investments in several adjacent businesses
which provide mortgage-related services that are complementary
to our servicing and originations businesses. These businesses
offer an array of ancillary services, including providing
services for delinquent loans, managing loans in the
foreclosure/REO process and providing title insurance agency,
loan settlement and valuation services on newly originated and
re-originated loans. We offer these adjacent services in
connection with loans we currently service, as well as on a
third party basis in exchange for base and/or incentive fees. In
addition to enhancing our core businesses, these adjacent
services present an opportunity to increase future earnings with
minimal capital investment, including by expanding the services
we provide to large banks and other financial institutions
seeking to outsource these functions to a third party.
Key
Drivers of Profitability
The following key factors drive the amount of profit we generate
from our servicing operations.
Aggregate UPB: Servicing fees are usually
earned as a percentage of UPB or a per loan amount and growth in
the UPB of a portfolio means growth in servicing fees.
Additionally, a larger servicing portfolio generates increased
ancillary fees and leads to larger custodial balances that
generate greater float income. A larger servicing portfolio also
drives increases in expenses, including additional interest
expense to finance the servicing advances as the size of our
portfolio increases.
In addition, servicers of GSE-insured loans collect servicing
fees only on performing loans while servicers of non-GSE
residential mortgage-backed securities (MBS) are
entitled to servicing fees on both performing loans and
delinquent loans. The servicing fee relating to delinquent loans
is accrued and paid from liquidation proceeds ahead of the
reimbursement of advances. The aggregate UPB from which we earn
fees thus depends partly on the relative number of
non-performing GSEs we have in our portfolio. Because our high
touch active servicing approach emphasizes increased borrower
contact, we believe we can effectively minimize the percentage
of such non-performing loans and therefore maximize the UPB from
which we earn servicing fees.
Stability and longevity of servicing cash
flows: We are able to generate servicing fees by
extending the longevity of our serving cash flows. Prepayment
speed, which is the measurement of how quickly UPB is reduced,
thus significantly affects our profitability. Items reducing UPB
include normal monthly principal
123
payments, refinancings, voluntary property sales and
involuntary property sales such as foreclosures or short sales.
Prepayment speed impacts future servicing fees, fair value of
servicing rights, float income, interest expense on advances and
compensating interest expense. When prepayment speed increases,
our servicing fees decrease faster than projected due to the
shortened life of a portfolio. The converse is true when
prepayment speed decreases.
Prepayment speed affects our float income as well. Decreased
prepayment speed typically leads to our holding lower float
balances before remitting payoff collections to the investor and
lower float income due to a lower invested balance. Lower
prepayments have been associated with higher delinquency rates,
higher advance balances and interest expense.
In addition, as one of only a few non-bank servicers with an
integrated originations platform, we are often able to extend
the longevity of the servicing cash flows through loan
refinancings by retaining the servicing rights of the loans we
re-originate. Because the refinanced loans typically have lower
interest rates or lower monthly payments, and in general,
subsequently refinance more slowly and default less frequently,
these refinancings also typically improve the overall quality of
our primary servicing portfolio.
Ability to add new servicing business: We seek
to increase the size of our servicing portfolio in several ways.
We increase our primary servicing portfolio by acquiring MSRs,
either on a standalone basis or by co-investing with financial
partners in excess MSRs. We also grow our
subservicing portfolio by entering into additional subservicing
arrangements with MSR or mortgage owners.
In addition, we have highly scalable technology and
infrastructure, which have enabled us to manage rapid growth
over the past several years while maintaining our high servicing
standards and enhancing loan performance. We have made
significant investments in loan administration, customer
service, compliance and loss mitigation, as well as in employee
training and retention. In addition, our staffing, training and
performance tracking programs, centralized in the Dallas/Fort
Worth, Texas area, have allowed us to expand the size of our
servicing team while maintaining high quality standards.
Cost of servicing: Our profitability is
inversely proportional to our cost of servicing. As a result, we
actively manage our servicing costs in order to maximize
profitability. However, several factors affect our servicing
costs.
Delinquent loans are more expensive to service than performing
loans because our cost of servicing is higher and, although
credit losses are generally not a concern for our financial
results, our advances to investors increase, which results in
higher financing costs. Performing loans include those loans
that are current or have been delinquent for less than
30 days in accordance with their original terms and those
loans on which borrowers are making scheduled payments under
loan modifications, forbearance plans or bankruptcy plans. We
consider all other loans to be delinquent.
When borrowers are delinquent, the amount of funds that we are
required to advance to the owners of the loans on behalf of the
borrowers increases. While the collectability of advances is
generally not an issue, we do incur significant costs to finance
those advances. We intend to utilize both securitization and
revolving credit facilities to finance our advances. As a
result, increased delinquencies result in increased interest
expense.
The cost of servicing delinquent loans is higher than the cost
of servicing performing loans primarily because the loss
mitigation techniques that we employ to keep borrowers in their
homes are more costly than the techniques used in handling a
performing loan. When loans are performing, we have limited
interaction with the borrowers, and relatively low-cost customer
service personnel conduct most of the interaction. Once a loan
becomes delinquent, however, we must employ our loss mitigation
capabilities to work with the borrower to return the loan to
performing status. These procedures involve increased contact
with the borrower and the development of forbearance plans, loan
modifications or other techniques by highly skilled consultants
with
124
higher compensation. On those occasions when loans go into
foreclosure, we incur additional costs related to both
coordinating the work of local attorneys to represent us in the
foreclosure process and employing specialists to service the
real estate and manage the sale of those foreclosed properties
on behalf of our investors. A significant increase in
delinquencies would cause us to increase our activities in these
areas resulting in increased operating expenses.
Our high touch servicer model, which seeks to improve loan
performance and reduce loan defaults and foreclosures, allows us
to minimize the additional costs associated with such defaults
and foreclosures.
Capital efficiency: Our ability to use our
capital efficiently in managing growth is also a significant
driver of our profitability. We employ capital light strategies,
including our innovative strategy for co-investment in excess
MSRs with financial partners as well as subservicing
arrangements, to add new mortgage servicing portfolios with
relatively low capital investment. Through December 31,
2011, we added $10 billion of loan servicing through excess
MSRs and expect to continue to deploy this co-investment
strategy in the future, while also evaluating subservicing
arrangements as mortgage owners seek to transfer credit stressed
loans to high touch servicers to improve loan performance.
Servicing Organization
The servicing organization is comprised of four primary
functional areas as detailed below.
Loan Administration: The loan administration
area includes the customer service, payment processing, loan
accounting, escrow, taxes and insurance and document
administration groups. The customer service group is primarily
responsible for handling borrower inquiries including date of
last payment, date of next payment due, arranging for a payment,
refinance assistance and standard escrow and balance questions.
In December 2011, the customer service group managed over
125,000 calls and service inquiries. The payment processing
group is responsible for posting borrower payments and managing
any payment-related issues. The majority of the borrower
payments are posted electronically via our lock-box operation,
Western Union, Automated Clearing House or web-based payments.
The loan accounting group manages the payoff of loans. The
escrow, taxes and insurance group manage all escrow balances and
the external vendors we utilize for property insurance and tax
tracking. The document administration group manages the lien
release process upon the payoff of a loan and the tracking of
loan documents for new originations.
Account Resolution: The account resolution
group is responsible for early stage collections (borrowers who
are 1 to 59 days delinquent). For accounts where payments
are past due but not yet delinquent (less than 30 days past
due), we use a behavioral scoring methodology to prioritize our
borrower calling efforts. The key drivers of behavioral score
are payment pattern behavior (i.e., if the borrower historically
has made their payment on the 5th of each month and that
pattern changes more attention will be paid to the borrower) and
updated credit scores. For accounts 31 to 59 days
delinquent, default specialists are assigned individual accounts
and are charged with making contact with the delinquent borrower
to understand the reason for delinquency and attempt to collect
a payment or work on an alternative solution. In the account
resolution group, we use a combination of predictive dialer
technology and account level assignments to contact the
borrowers. The primary objective of this group is to reduce
delinquency levels.
Foreclosure Prevention: The foreclosure
prevention group, commonly referred to in the industry as loss
mitigation, is responsible for late stage collections (borrowers
who are 60 or more days delinquent). The primary focus of this
group is reducing delinquency levels. All accounts in this group
are assigned to individual default specialists loss mitigators.
The primary role of the default specialist loss mitigator is to
contact the borrower and understand the reasons for the
borrowers delinquency and the borrowers desire and
ability to stay in their house. The foreclosure prevention group
performs most of our government and other loan modifications.
125
Default Management: The default management
area includes the foreclosure, bankruptcy, REO and claims
processing groups. The foreclosure group manages accounts
involved in the foreclosure process. In the late stage
delinquency status, we will initiate foreclosure proceedings in
accordance with state foreclosure timelines. Accounts in the
foreclosure group are assigned to foreclosure specialists based
on a state-specific assignment. The primary focus of the
foreclosure group is to perform the foreclosure process in
accordance with the state timelines. Any account which has filed
for bankruptcy is assigned to a bankruptcy specialist who will
administer the bankruptcy plan proceedings in accordance with
applicable law and in conjunction with an outsourcing firm. The
REO group manages properties within the servicing portfolio that
have completed the foreclosure process. We use both internal and
external resources to manage the disposition of the REO
properties. The primary goal of the REO team is to dispose of
the property within an acceptable timeframe at the lowest
possible loss.
Originations
We are one of only a few non-bank servicers with a fully
integrated loan originations platform. We are licensed to
originate residential mortgage loans in all the 48 contiguous
states plus Alaska and the District of Columbia and have
obtained all required federal approvals to originate FHA,
Department of Veterans Affairs (VA) and conventional
loans. We originate primarily conventional agency and government
conforming residential mortgage loans, which we either sell to
other secondary market participants, referred to as conduits, or
securitize through the issuance of Fannie Mae, Freddie Mac or
Ginnie Mae bonds. As such, we minimize any credit or interest
rate risk by not retaining loans on our balance sheet for more
than approximately 30 days beyond funding. As set forth in
the table below, originations volumes have increased
significantly as we have expanded our conventional market
footprint.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in millions)
|
|
|
Originations Volume:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
$538
|
|
|
|
$1,093
|
|
|
|
$1,608
|
|
|
|
$2,200
|
|
Wholesale
|
|
|
4
|
|
|
|
386
|
|
|
|
1,184
|
|
|
|
1,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Originations
|
|
|
$542
|
|
|
|
$1,479
|
|
|
|
$2,792
|
|
|
|
$3,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Summary Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
$22,574
|
|
|
|
$55,593
|
|
|
|
$84,540
|
|
|
|
$123,540
|
|
Net income (loss)
|
|
|
(7,590
|
)
|
|
|
8,884
|
|
|
|
662
|
|
|
|
23,696
|
|
We view our originations platform as an important tool to
complement and enhance our servicing business. A key determinant
of the profitability of our primary servicing portfolio is the
longevity of the servicing cash flows before a loan is repaid or
liquidates. Our originations efforts are primarily focused on
re-origination, which involves actively
working with existing borrowers to refinance their mortgage
loans. Because the refinanced loans typically have lower
interest rates or lower monthly payments, and, in general,
subsequently refinance more slowly and default less frequently,
these refinancings also typically improve the overall quality of
our primary servicing portfolio. In addition, our re-origination
strategy allows us to generate additional loan servicing more
cost-effectively than the MSRs can otherwise be acquired in the
open market. Finally, with our in-house originations
capabilities, we believe we are better protected against
declining servicing cash flows as we replace servicing run-off
through new loan originations or retain our servicing portfolios
through re-origination. While our originations business is
profitable on a standalone basis, we believe its primary value
is to stabilize and enhance our loan servicing cash flows.
126
Our
Originations Platform
We originate loans through our Consumer Direct Retail channel
and our Wholesale channel. Our largest channel is our Consumer
Direct Retail channel, which operates as a centralized call
center. Our second largest channel, the Wholesale channel,
involves brokers sourcing borrowers for us. In 2011, we reduced
the footprint of our traditional retail branch network by
closing offices in non-strategic locations (Alabama, Tennessee,
Vermont and Massachusetts). Our remaining retail branches in
Texas and the Midwest are focused on building our core
relationships with builders and realtors. Our strategy enables
us to diversify and grow our originations in all interest rate
cycles without becoming overly reliant on any single segment of
the mortgage loan market.
We originate purchase money loans and refinance existing loans,
including those that we service. Our strategy is to mitigate the
credit, market and interest rate risk from loan originations by
either selling newly originated loans or placing them in GSEs or
government securitizations. We typically sell new loans within
30 days of origination, and we do not expect to hold any of
the loans that we currently originate on our balance sheet on a
long-term basis. At the time of sale, we have the option to
retain the MSRs on loans we originate.
Our originations capability differentiates us from other
non-bank, high touch loan servicers without an integrated
originations platform by:
|
|
|
|
|
providing us with an organic source of new loans to service, as
existing loans are repaid or otherwise liquidated, more
cost-effectively than MSRs can otherwise be acquired in the open
market;
|
|
|
|
|
|
providing an attractive complement to servicing by allowing us
to modify and refinance mortgage loans, including loans that we
service;
|
|
|
|
|
|
creating a diversified source of revenue that we believe better
protects us against declining servicing cash flows; and
|
|
|
|
|
|
building brand recognition.
|
Originations
Organization
Each of our loan originations channels has dedicated operations,
support and fulfillment functions, including processing,
underwriting, closing and shipping, which are primarily
performed at our offices in Lewisville, Texas. As part of our
efforts to manage credit risk and enhance operating
efficiencies, the underwriting, closing, funding and shipping
for all of our originations channels are managed centrally.
Centralizing these functions enables us to control loan quality,
loan processing times, cost and, ultimately, borrower
satisfaction. Our two mortgage loan originations channels are
discussed in more detail below:
Consumer
Direct Retail Originations
In 2011, our largest originations channel was our Consumer
Direct Retail channel. We employ a single centralized call
center strategy leveraging multiple potential borrower lead
sources. In our Consumer Direct Retail channel, each sales team
typically consists of between 10 and 12 mortgage professionals
managed by a sales leader. Three to four sales leaders report to
a senior vice president responsible for the specific lead source.
Our primary divisions within our Consumer Direct Retail channel
are Renewal, New Customer Acquisition, and Partner Plus. Each
division specializes in meeting the needs of their specific
target borrowers.
127
This strategy provides a flexible organizational structure
capable of shifting to new opportunities quickly. The three
divisions of our Consumer Direct Retail channel are as follows:
Renewal: Focuses on retaining current
borrowers in our servicing portfolio and utilizes an integrated
approach with our Servicing Segment to capture borrowers who
either qualify to refinance their current mortgage or who take
action indicating they may be paying off their loan. The Renewal
teams receive leads for borrowers from telemarketing, live
transfers and scheduled callbacks from Customer Service and
website programs.
New Customer Acquisition: Focuses on
generating new mortgage business from prospective borrowers. We
use credit bureau modeling to identify borrowers who are likely
to be in the market for and likely to qualify to refinance their
existing mortgage loan. Marketing channels include
telemarketing, direct marketing, Internet lead aggregators,
credit bureau triggers such as mortgage inquiries and website
programs.
Partner Plus: Focuses on serving the needs of
strategic and joint marketing clients who, in many cases, do not
have the originations capabilities to provide refinancing for
their own portfolios. Currently, we are providing originations
services to several servicers without originations capability.
In many instances, these alliances involve providing certain
incentives for the borrower to refinance, such as the payment of
closing fees. These programs typically begin with a direct mail
announcement of the relationship followed by direct marketing
campaigns to increase borrower responses. This channel also
offers REO financing for us and our partners through a
centralized platform in Lewisville, Texas.
Wholesale
Originations
The primary business strategy of the Wholesale channel is to
acquire high-quality servicing at a reduced price through a
network of non-exclusive relationships with various approved
mortgage companies and mortgage brokers. The Wholesale channel
is comprised of five sales regions throughout the United States,
each staffed with a regional sales manager, and three
centralized sales regions that operate out of our offices in
Lewisville, Texas. Each region generally has 8 to 12 account
executives whose primary responsibility is to source and service
mortgage brokers. We provide a variety of conforming
conventional mortgage loans to our brokers to allow them to
better service their borrowers.
Mortgage brokers identify applicants, help them complete a loan
application, gather required information and documents, and act
as our liaison with the borrower during the lending process. We
review and underwrite an application submitted by a broker,
accept or reject the application, determine the range of
interest rates and other loan terms, and fund the loan upon
acceptance by the borrower and satisfaction of all conditions to
the loan. By relying on brokers to market our products and
assist the borrower throughout the loan application process, we
can increase loan volume through our Wholesale channel with
proportionately lower increases in overhead costs compared with
the costs of increasing loan volume in loan originations through
our retail channels.
New brokers are sourced through our account executives, industry
trade shows forums and our website. The broker approval process
is critical to maintaining a high quality network of brokers.
Brokers must meet various requirements and must complete the
broker application package, provide evidence of appropriate
state licenses, articles of incorporation, financial statements,
resumes of key personnel and other information as needed. The
Wholesale operations team reviews all submitted materials to
determine whether the broker should be approved. The broker
application is reviewed and investigated by our quality control
and risk management department before final approval is
provided. The process is designed to ensure that borrowers we
acquire through our Wholesale channel are working with reputable
and legitimate mortgage brokers.
128
Our ongoing investment in technology has allowed us to provide
our broker network with the ability to obtain instantaneous
online loan decisions, product options and corresponding
pricing. We believe that the utility and convenience of online
loan decisions and product options are a value-added service
that has and will continue to solidify our business
relationships. In addition, our website provides our brokers
with loan status reports, product guidelines, loan pricing,
interest rate locks and other added features. We expect to
continue to adapt web-based technologies to enhance our
one-on-one
relationships with our brokers.
Technology
In the vast majority of cases, our key, critical systems are
hosted, managed and maintained by our in-house Information
Technology team. Our key systems consist of a combination of
vendor developed applications as well as internally developed
proprietary systems. On our most critical vendor developed
applications (OPUS, XpressQual, TMO, LSAMS, FORTRACS, and
Equator) we maintain license rights to the source code to enable
in-house customization of these systems to meet our business
needs in a time effective manner.
Servicing
For our Servicing Segment, our system of record is LSAMS, which
we use for all loan accounting functions, claims functions and
supports our Customer Service functions. Our early stage account
collection efforts are focused and prioritized through the use
of ESP, our proprietary early delinquency score model, used to
identify higher risk accounts. Our collections and loss
mitigation efforts are supported by Remedy, a proprietary
default management system which, along with our proprietary Net
Present Value engine and our proprietary Property Valuation
Management system, enables our loan resolution personnel to
guide our borrowers to the optimal economic workout alternative
based on the unique factors of each borrowers situation.
For our foreclosure and bankruptcy processes, we use the
FORTRACS system, which integrates with the Lendstar system to
enable online communications and case tracking with our attorney
network. For properties whereby we complete foreclosure and take
them into REO status, we utilize the web-based REO management
system REOTrans to manage the marketing and disposition of our
owned real estate. To support our Investor Reporting functions,
we use a combination of systems that include LSAMS and Lewtan
ABS, a vendor hosted system. We also have a website,
www.NationstarMtg.com, that is a fully automated system to apply
and process mortgage loan applications and that our existing
borrowers can access to receive information on their account.
Information on, or accessible through, our website is not a part
of this prospectus.
Originations
The critical systems that support our loan originations
activities include:
|
|
|
|
|
MLS (Marketing Lead System), our proprietary marketing lead
system which routes, tracks and delivers leads to our loan
officers, who we refer to as our mortgage professionals;
|
|
|
|
OPUS, a web-based
point-of-sale
system that provides product eligibility and pricing to our
retail sales force;
|
|
|
|
TMO, our loan originations system used for loan processing,
underwriting and closing;
|
|
|
|
XpressQual, a web-based
point-of-sale
system that provides product eligibility and pricing to our
wholesale brokers and allows them to submit loans to us online;
|
|
|
|
|
|
www.NationstarBroker.com, our website for wholesale brokers to
receive information on our products and services;
|
129
|
|
|
|
|
CLASS, our proprietary system used to manage our sales
relationships and licensing of our wholesale brokers;
|
|
|
|
ODE, a rules-based pricing and eligibility engine that is
integrated with OPUS, XpressQual and TMO;
|
|
|
|
High Cost Fee Engine, our proprietary compliance fee engine that
enforces both federal and local high cost and fee limits
throughout the loan originations process; and
|
|
|
|
CLT (Compliance License Tracker), our proprietary system that
maintains and tracks all mortgage professionals locational
licensing to ensure that leads and applications are only
processed by properly licensed mortgage professionals.
|
For our Consumer Direct Retail channel, the loan originations
process starts when a lead is imported (or accepted) into our
Marketing Lead System (MLS), a propriety system that our
mortgage professionals use to manage the initial borrower
contact process. Once a mortgage professional has made contact
with a potential borrower, the mortgage professional moves the
lead into OPUS, our web-based
point-of-sale
system. Here, our mortgage professionals capture the necessary
loan application information, obtain credit reports to determine
full product eligibility and establish pricing to facilitate the
sales process. Once our mortgage professionals have helped our
borrowers determine the program and pricing that meets their
needs, the loan application is transferred into TMO, our loan
originations system where we complete the loan process,
underwrite the loan, prepare the closing documents and complete
the loan process.
For our Wholesale originations channel, we provide our brokers a
web-based point of sale system, XpressQual, to use to access
product eligibility and pricing and to submit loans online. We
also use TMO in this channel for the processing, underwriting
and closing functions. Through XpressQual, our brokers have
access to a web-based portal where they can upload their loan
applications to determine product eligibility and loan pricing.
Once they select a program and price, the broker is able to
submit the file to us for processing as well as lock the rate
using XpressQual. As in our retail originations channels, once
submitted for processing, the file is transferred into TMO to
verify the application information, clear conditions, underwrite
and close the loan. Supporting OPUS, XpressQual and TMO, we also
utilize a vendor developed rules-based pricing and eligibility
engine called ODE as well as a proprietary compliance fee engine
that enforces high cost and fee limits throughout the entire
originations process. There is also a Compliance License Tracker
system that maintains and tracks all mortgage professional and
location level licensing. All systems are fully integrated and
share information to ensure complete,
up-to-date
and accurate information for reporting purposes. To protect our
business in the event of disaster, we have implemented a
disaster recovery data facility in a co-location in Irving,
Texas where we maintain near real-time replication of all
critical servicing systems and data.
Employees
As of December 31, 2011, we had a total of
2,599 employees, all of whom are based in the United
States. None of our employees are members of any labor union or
subject to any collective bargaining agreement and we have never
experienced any business interruption as a result of any labor
dispute. Our employees are allocated among our business
functions as follows:
|
|
|
|
|
62% are in our Servicing Segment;
|
|
|
|
|
|
25% are in our Originations Segment; and
|
|
|
|
|
|
13% are in support functions, including Human Resources,
Accounting and other corporate functions.
|
130
In our Servicing Segment, we hire recent college graduates and
teach them our high touch servicing model. Our loan servicers
and debt default specialists follow a training program in which
they first service performing loans and slightly delinquent
loans. As they gain experience, they service more delinquent
loans and assume increased personal responsibility for servicing
a certain set of loans and contacting certain borrowers. In our
Originations Segment, we hire experienced conventional mortgage
originators and provide them with training to acclimate them to
us, as well as compliance and regulatory training.
Regulation
Our business is subject to extensive federal, state and local
regulation. Our loan originations, loan servicing and debt
collection operations are primarily regulated at the state level
by state licensing authorities and administrative agencies.
Because we do business in all fifty states and the District of
Columbia, we, along with certain of our employees who engage in
regulated activities, must apply for licensing as a mortgage
banker or lender, loan servicer
and/or debt
default specialist, pursuant to applicable state law. These
state licensing requirements typically require an application
process, processing fees, background checks and administrative
review. Our servicing operations center in Lewisville, Texas is
licensed (or maintains an appropriate statutory exemption) to
service mortgage loans in all fifty states and the District of
Columbia. Our retail loan originations channel is licensed to
originate loans in at least the states in which it operates, and
our direct originations channel is licensed to originate loans
in the 48 contiguous states plus Alaska and the District of
Columbia. From time to time, we receive requests from states and
other agencies for records, documents and information regarding
our policies, procedures and practices regarding our loan
originations, loan servicing and debt collection business
activities, and undergo periodic examinations by state
regulatory agencies. We incur significant ongoing costs to
comply with these licensing requirements.
While the U.S. federal government does not primarily
regulate loan originations, the federal Secure and Fair
Enforcement for Mortgage Licensing Act of 2008 requires all
states to enact laws that require all U.S. sales representatives
to be individually licensed or registered if they intend to
offer mortgage loan products. These licensing requirements
include enrollment in the Nationwide Mortgage Licensing System,
application to state regulators for individual licenses, a
minimum of 20 hours of pre-licensing education, an annual
minimum of eight hours of continuing education and the
successful completion of both national and state exams.
In addition to licensing requirements, we must comply with a
number of federal consumer protection laws, including, among
others:
|
|
|
|
|
the Gramm-Leach-Bliley Act, which requires us to maintain
privacy with respect to certain consumer data in our possession
and to periodically communicate with consumers on privacy
matters;
|
|
|
|
the Fair Debt Collection Practices Act, which regulates the
timing and content of debt collection communications;
|
|
|
|
the Truth in Lending Act and Regulation Z thereunder, which
require certain disclosures to the mortgagors regarding the
terms of the mortgage loans;
|
|
|
|
the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the credit history of
consumers;
|
|
|
|
the Equal Credit Opportunity Act and Regulation B
thereunder, which prohibit discrimination on the basis of age,
race and certain other characteristics, in the extension of
credit;
|
|
|
|
the Homeowners Protection Act, which requires the cancellation
of mortgage insurance once certain equity levels are reached;
|
131
|
|
|
|
|
the Home Mortgage Disclosure Act and Regulation C
thereunder, which require financial institutions to report
certain public loan data;
|
|
|
|
the Fair Housing Act, which prohibits discrimination in housing
on the basis of race, sex, national origin, and certain other
characteristics; and
|
|
|
|
Regulation AB under the Securities Act, which requires
certain registration, disclosure and reporting for MBS.
|
We must also comply with applicable state and local consumer
protection laws, which may impose more comprehensive and costly
restrictions than the regulations listed above. In a response to
the decline in the housing market and the increase in
foreclosures, many local governments have extended the time
period necessary prior to initiating foreclosure proceedings,
which prevent a servicer or trustee, as applicable, from
exercising any remedies they might have in respect of
liquidating a severely delinquent mortgage loan in a timely
manner.
On February 7, 2012, the Financial Crimes Enforcement Network
(FinCEN) finalized regulations that require non-bank
residential mortgage lenders and originators to establish
anti-money laundering programs and file suspicious activity
reports as FinCEN requires of other types of financial
institutions. The final rule was published in the Federal
Register on February 14, 2012 and will be effective 60 days
thereafter.
On May 28, 2009, we voluntarily entered into an agreement
to actively participate as a loan servicer in HAMP, which
enables eligible borrowers to avoid foreclosure through a more
affordable and sustainable loan modification made in accordance
with HAMP guidelines, procedures, directives and requirements.
Loan modifications pursuant to HAMP may include a rescheduling
of payments or a reduction in the applicable interest rates and,
in some cases, a reduction in the principal amount due. Under
HAMP, subject to a program participation cap, we, as a servicer,
will receive an initial incentive payment of up to $1,500 for
each loan modified in accordance with HAMP subject to the
condition that the borrower successfully completes a trial
modification period. In addition, provided that a HAMP
modification does not become 90 days or more delinquent, we
will receive an incentive of up to $1,000. As of
December 31, 2011, over 24,000 loans with a UPB of
$4.9 billion after modification had been modified through
HAMP. HAMP is currently scheduled to expire on December 31,
2013.
On July 21, 2010, President Obama signed the Dodd-Frank Act
into law. The Dodd-Frank Act represents a comprehensive overhaul
of the financial services industry in the United States. The
Dodd-Frank Act includes, among other things: (1) the
creation of a Financial Stability Oversight Council to identify
emerging systemic risks posed by financial firms, activities and
practices, and to improve cooperation among federal agencies;
(2) the creation of the Bureau of Consumer Financial
Protection (CFPB) authorized to promulgate and
enforce consumer protection regulations relating to financial
products; (3) the establishment of strengthened capital and
prudential standards for banks and bank holding companies;
(4) enhanced regulation of financial markets, including
derivatives and securitization markets; (5) amendments to
the Truth in Lending Act aimed at improving consumer protections
with respect to mortgage originations, including originator
compensation, minimum repayment standards, and prepayment
considerations. On July 21, 2011, the CFPB obtained
enforcement authority pursuant to the Dodd-Frank Act and began
official operations. On October 13, 2011, the CFPB issued
guidelines governing how the agency supervises mortgage
transactions, which involves sending examiners to banks and
other institutions that service mortgages to assess whether
consumers interests are protected. On January 11,
2012, the CFPB issued guidelines governing examination
procedures for bank and non-bank mortgage originators. The exact
scope of and applicability of many of these requirements to us
are currently unknown, as the regulations to implement the
Dodd-Frank Act generally have not yet been finalized. These
provisions of the Dodd-Frank Act and actions by the CFPB could
increase our regulatory compliance burden and associated costs
and place restrictions on certain originations and servicing
operations, all of which could in turn adversely affect our
business, financial condition or results of operations.
132
On April 13, 2011, the federal agencies overseeing certain
aspects of the mortgage market, the OCC, the Federal Reserve and
the FDIC, entered into enforcement consent orders with 14 of the
largest mortgage servicers in the United States regarding
foreclosure practices. The enforcement consent orders require
the servicers, among other things, to: (1) promptly correct
deficiencies in residential mortgage loan servicing and
foreclosure practices; (2) make significant modifications
in practices for residential mortgage loan servicing and
foreclosure processing, including communications with borrowers
and limitations on dual-tracking, which occurs when servicers
continue to pursue foreclosure during the loan modification
process; (3) ensure that foreclosures are not pursued once
a mortgage has been approved for modification and establish a
single point of contact for borrowers throughout the loan
modification and foreclosure processes; and (4) establish
robust oversight and controls pertaining to their third party
vendors, including outside legal counsel, that provide default
management or foreclosure services. While these enforcement
consent orders are considered not to be preemptive of the state
actions, it is currently unclear how state actions and
proceedings will be affected by the federal consents.
On February 9, 2012, federal and state agencies announced a
$25 billion settlement with five large banks that resulted
from investigations of foreclosure practices. As part of the
settlement, the banks have agreed to comply with various
servicing standards relating to foreclosure and bankruptcy
proceedings, documentation of borrowers account balances,
chain of title, and evaluation of borrowers for loan
modifications and short sales as well as servicing fees and the
use of force-placed insurance. The settlement also provides for
certain financial relief to homeowners.
On September 1, 2011 and November 10, 2011, the New
York State Department of Financial Services entered into
agreements regarding mortgage servicing practices with seven
financial institutions. The additional requirements provided for
in these agreements will increase operational complexity and the
cost of servicing loans in New York. Other servicers, including
us, could be required to enter into similar agreements. In
addition, other states may also require mortgage servicers to
enter into similar agreements.
On December 1, 2011, the Massachusetts Attorney General
filed a lawsuit against five large mortgage providers alleging
unfair and deceptive business practices, including the use of
so-called robo-signers. In response, one of the
mortgage providers has halted most lending in Massachusetts.
We, among others in our industry, received a subpoena from the
New York State Department of Financial Services dated
January 18, 2012, requesting the production of documents
related to lender placed insurance, also known as
force-placed insurance, business. We have and are
continuing to provide responsive documents.
Although we are not a party to the above enforcement consent
orders, and settlements, we could become subject to the terms of
the consent orders and settlements if (1) we subservice
loans for the servicers that are parties to the enforcement
consent orders and settlements; (2) the agencies begin to
enforce the consent orders and settlements by looking downstream
to our arrangement with certain mortgage servicers; (3) the
mortgage servicers for which we subservice loans request that we
comply with certain aspects of the consent orders and
settlements; or (4) we otherwise find it prudent to comply
with certain aspects of the consent orders and settlements. In
addition, the practices set forth in such consent orders and
settlements may be adopted by the industry as a whole, forcing
us to comply with them in order to follow standard industry
practices, or may become required by our servicing agreements.
While we have made and continue to make changes to our operating
policies and procedures in light of the consent orders and
settlements, further changes could be required, and changes to
our servicing practices will increase compliance costs for our
servicing business, which could materially and adversely affect
our financial condition or results of operations.
Competition
In our Servicing Segment, we compete with large financial
institutions and with other independent servicers. Our ability
to differentiate ourselves from other loan servicers through our
high touch servicing
133
model and culture of credit loss ownership largely determines
our competitive position within the mortgage loan servicing
industry.
In our Originations Segment, we compete with large financial
institutions and local and regional mortgage bankers and
lenders. Our ability to differentiate the value of our financial
products primarily through our mortgage loan offerings, rates,
fees and customer service determines our competitive position
within the mortgage loan originations industry.
Seasonality
Our Originations Segment is subject to seasonal fluctuations,
and activity tends to diminish somewhat in the months of
December, January and February, when home sales volume and loan
originations volume are at their lowest. This typically causes
seasonal fluctuations in our Originations Segments
revenue. Our Servicing Segment is not subject to seasonality.
Intellectual
Property
We use a variety of methods, such as trademarks, patents,
copyrights and trade secrets, to protect our intellectual
property. We also place appropriate restrictions on our
proprietary information to control access and prevent
unauthorized disclosures.
Properties
Our principal executive headquarters is located in Lewisville,
Texas. At our main campus in Lewisville, Texas, we lease two
buildings containing an aggregate of approximately
201,000 square feet of general office space, pursuant to
two leases, both of which are currently due to expire in the
first half of 2014. In addition to serving as our principal
executive headquarters, our main Lewisville campus houses a
portion of our servicing operations and all of our Consumer
Direct Retail originations platform. We also own a parcel of
undeveloped land at our campus location which can be used for
future expansion.
We lease an additional approximately 40,000 square feet of space
in Lewisville, Texas, which is currently due to expire in August
2013. This building houses our wholesale loan originations
platform and some administrative support functions. We also
maintain two separate leases of approximately 83,000 and
80,000 square feet at another location in Lewisville,
Texas, which are currently due to expire in March 2017. In
October 2011, we entered into an operating sublease agreement
for approximately 53,000 square feet of office space in
Houston, Texas, which will expire in November 2014, which we
plan to use to tap into the ample human capital resources
available in the market while we continue to grow our servicing
business.
As of December 31, 2011, we had seven Distributed Retail
branch leases. Our typical Distributed Retail branch office is
between 1,200 and 3,000 square feet with lease terms of
five years or less.
We have one lease of approximately 80,000 square feet on
property located in Parsippany, New Jersey which we no longer
utilize and which is being actively marketed for disposal.
Additionally, we have leases on 18 locations that we no longer
utilize. These leases are for square footage ranging from
approximately 120 square feet to 4,100 square feet and
expire at various dates through June 2014.
Legal
Proceedings
We are routinely and currently involved in legal proceedings
concerning matters that arise in the ordinary course of our
business. These legal proceedings range from actions involving a
single plaintiff to class action lawsuits with potentially tens
of thousands of class members. An adverse result in governmental
investigations or examinations, or private lawsuits, including
purported class action lawsuits, could have a material adverse
effect on our financial results. In addition, a number of
participants in our industry, including
134
us, have been the subject of purported class action lawsuits
and regulatory actions by state regulators, and other industry
participants have been the subject of actions by states
Attorneys General. Although we believe that we have meritorious
legal and factual defenses to the lawsuits in which we are
currently involved, the ultimate outcomes with respect to these
matters remain uncertain. Litigation and other proceedings may
require that we pay settlement costs, legal fees, damages,
penalties or other charges, which could adversely affect our
financial results. In particular, ongoing and other legal
proceedings brought under state consumer protection statutes may
result in a separate fine for each violation of the statute,
which, particularly in the case of class action lawsuits, could
result in damages substantially in excess of the amounts we
earned from the underlying activities and that could have a
material adverse effect on our liquidity and financial position.
Governmental investigations, both state and federal, can be
either formal or informal. The costs of responding to the
investigations can be substantial. In addition,
government-mandated changes to servicing practices could lead to
higher costs and additional administrative burdens, in
particular, those regarding record retention and informational
obligations.
135
MANAGEMENT
Directors
and Executive Officers
The following table sets forth the name, age and position of
individuals who currently serve as the directors and executive
officers of Nationstar Mortgage Holdings Inc. The following also
includes certain information regarding our directors and
officers individual experience, qualifications, attributes
and skills, and brief statements of those aspects of our
directors backgrounds that led us to conclude that they
should serve as directors.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Wesley R. Edens
|
|
|
50
|
|
|
Chairman and Director
|
Jay Bray
|
|
|
45
|
|
|
Director, President, Chief Executive Officer and Chief Financial
Officer
|
Robert H. Gidel
|
|
|
60
|
|
|
Director
|
Roy Guthrie
|
|
|
58
|
|
|
Director
|
Brett Hawkins
|
|
|
48
|
|
|
Director
|
Michael D. Malone
|
|
|
58
|
|
|
Director
|
Robert Appel
|
|
|
51
|
|
|
Executive Vice President of Servicing
|
Douglas Krueger
|
|
|
43
|
|
|
Executive Vice President of Capital Markets
|
Amar Patel
|
|
|
40
|
|
|
Executive Vice President of Portfolio Investments
|
Lisa Rogers
|
|
|
48
|
|
|
Executive Vice President of Originations
|
Anthony W. Villani
|
|
|
55
|
|
|
Executive Vice President and General Counsel
|
In February 2012, we appointed Dave C. Hisey as Chief
Financial Officer and Harold Lewis as President and Chief
Operating Officer. Mr. Hisey and Mr. Lewis assumed
their respective positions on February 27, 2012. See
Managements Discussion and Analysis of Financial
Condition and Results of OperationsGeneralRecent
Developments. As of that date, Jay Bray will continue to
serve as Chief Executive Officer.
Wesley R. Edens was appointed to our board in 2012. He
has been Co-Chairman of the board of directors of Fortress, an
affiliate of our Initial Stockholder, since August 2009. From
2006 to 2009, he was Chairman of the board of directors of
Fortress. He has also been a member of the Management Committee
of Fortress since co-founding Fortress in 1998. He is
responsible for Fortresss private equity and publicly
traded alternative investment businesses. He is also Chairman of
the board of directors of each of Aircastle Limited, Brookdale
Senior Living Inc., Eurocastle Investment Limited, Florida East
Coast Railway Corp., GateHouse Media, Inc., Mapeley Limited,
Newcastle Investment Corp. and RailAmerica, Inc. and a director
of GAGFAH S.A., Penn National Gaming Inc., Springleaf Finance
Corporation and Springleaf Finance Inc. Mr. Edens was Chief
Executive Officer of Global Signal Inc., a real estate
investment trust, from February 2004 to April 2006 and Chairman
of its board of directors from October 2002 to January 2007. Mr.
Edens also previously served on the boards of the following
publicly traded company and registered investment companies:
Crown Castle Investment Corp. (merged with Global Signal Inc.)
from January 2007 to July 2007; Fortress Brookdale Investment
Fund LLC, from August 13, 2000 (deregistered with the Securities
and Exchange Commission (SEC) in March 2009);
Fortress Pinnacle Investment Fund, from July 24, 2002
(deregistered with the SEC in March 2008); Fortress Investment
Trust II, from July 2002 (deregistered with the SEC in January
2011); and RIC Coinvestment Fund LP, from May 10, 2006
(deregistered with the SEC in June 2009). Prior to forming
Fortress, Mr. Edens was a partner and managing director of
BlackRock Financial Management Inc., where he headed BlackRock
Asset Investors, a private equity fund. In addition, Mr. Edens
was formerly a partner and managing director of Lehman Brothers.
Mr. Edens holds a B.S. in Finance from Oregon State University.
Mr. Edens has extensive credit, private equity finance and
management expertise, extensive experience as an
136
officer and director of public companies and deep familiarity
with Nationstar, and we believe he is qualified to serve on our
board.
Jay Bray was appointed to our board in 2012. He has also
served as our President and Chief Executive Officer since 2012
and as our Chief Financial Officer since 2011. Mr. Bray has
also served as the President of Nationstar Mortgage LLC since
July 2011, as the Chief Executive Officer of Nationstar Mortgage
LLC since October 2011, as the Chief Financial Officer of
Nationstar Mortgage LLC since he joined Nationstar in May 2000,
as a Manager of Nationstar Mortgage LLC since October 2011, and
as a Director of Nationstar Capital Corporation since March
2010. Mr. Bray has over 22 years of experience in the
mortgage servicing and originations industry. From 1988 to 1994,
Mr. Bray worked with Arthur Andersen in Atlanta, Georgia,
where he served as an audit manager from 1992 to 1994. From 1994
to 2000, Mr. Bray held a variety of leadership roles at
Bank of America and predecessor entities, where he managed the
Asset Backed Securitization process for mortgage-related
products, developed and implemented a secondary execution
strategy and profitability plan and managed investment banking
relationships, secondary marketing operations and investor
relations. Additionally, Mr. Bray led the portfolio
acquisition, pricing and modeling group. Mr. Bray holds a
B.A.A. in Accounting from Auburn University and is a Certified
Public Accountant in the State of Georgia. As a result of his
service as Nationstar Mortgage LLCs Chief Financial
Officer for over 11 years, as well as his over
22 years of experience in the mortgage industry, Mr. Bray
possesses a deep understanding of our business and the mortgage
industry and we believe he is qualified to serve on our board.
Robert H. Gidel was appointed to our board in 2012. He
has been a principal in Liberty Partners, LLC, a company that
invests in both private and publicly traded real estate and
finance focused operating companies, since 1998. He has also
been a member of the board of directors and the chairman of the
compensation committee of Developers Diversified Realty, a real
estate investment trust, since 1999. Mr. Gidel has also
served as Chairman of the board of directors of LNR Property
Holdings, a private multi-asset real estate company, from 2005
until 2007. Until January 2007, Mr. Gidel was also a member of
the board of directors and lead director of Global Signal Inc.,
a real estate investment trust. He has been a trustee of
Fortress Registered Investment Trust and a director of Fortress
Investment Fund II, LLC since 1999, both of which are registered
investment companies. From 1996 until 2005, Mr. Gidel was the
independent member of the investment committee of the Lone Star
Funds I, II, III, IV and V. Mr. Gidel was also a member of the
board of directors of U.S. Restaurant Properties, Inc. until
2005 and a member of the board of directors of American
Industrial Properties Real Estate Investment Trust until 2001.
Mr. Gidel holds a B.S.B.A. in Finance Insurance and Real Estate
from the Warrington College of Business at the University of
Florida. Mr. Gidel has extensive expertise in real estate
finance as well as wide-ranging prior experience as a director,
and we believe he is qualified to serve on our board.
Roy A. Guthrie was appointed to our board in 2012. He has
also been a member of the board of directors and a member of the
audit committee of Bluestem Brands, Inc. since 2010. He is also
a member of the board of directors of Garrison Capital, LLC and
Enova International, Inc. From 2005 to 2012, he served as
Executive Vice President of Discover Financial Services, where
he also served as Chief Financial Officer from 2005 to 2011 and
as Treasurer from 2009 to 2010. Prior to joining Discover
Financial Services, Mr. Guthrie was President and Chief
Executive Officer of CitiFinancial International, LTD, a
Consumer Finance Business of Citigroup, from 2000 to 2004, and
he served on Citigroups Management Committee throughout
this period. Mr. Guthrie was also Chief Financial Officer of
Associates First Capital Corporation from 1996 to 2000, while it
was a public company, and he served as a member of its board
from 1998 to 2000. Mr. Guthrie holds a B.A. in Economics from
Hanover College and an M.B.A. from Drake University. Mr. Guthrie
has valuable expertise in consumer finance as well as extensive
experience as an officer and director of public companies, and
we believe he is qualified to serve on our board.
Brett Hawkins was appointed to our board in 2012. He
co-founded GGL Global Gaming, a private video game, social
networking, and digital content distribution platform, in 2004,
and has served on the board of GGLs parent corporation,
Professional Interactive Entertainment, Inc., since its
founding. Mr. Hawkins previously served as Vice President for
Finance of DVDExpress.com, Inc. and President of its successor,
137
Express Media Group, an early e-commerce business selling DVDs,
video games, and peripherals. In March 2001, DVDExpress.com,
Inc. filed a voluntary petition in the United States Bankruptcy
Court, seeking reorganization relief under the provisions of
Chapter 11 of Title 11 of the United States Bankruptcy
Code. Mr. Hawkins has also held senior management positions
at UBS/Warburg Dillon Read, where from 1997 to 1999 he was a
Managing Director overseeing European Principal Finance,
BlackRock Capital Finance, where from 1996 to 1997 he was
Director of European Acquisitions & Operations, Lehman
Brothers, where from 1994 to 1996 he was an Executive Director
of Lehman Brothers International Europe and from 1993 to 1994 a
Senior Vice President at Lehman Brothers Inc., and Salomon
Brothers Inc., where from 1988 to 1993 he was a Vice President
of Mortgage Trading with responsibility for Whole Loan CMO
Business. Mr. Hawkins holds a B.B.A. in Finance and an M.B.A. in
Finance, both from the University of Wisconsin - Madison. Mr.
Hawkins has extensive experience in finance as well as valuable
knowledge of the mortgage finance industry, Internet-based sales
and customer service platforms, and we believe he is qualified
to serve on our board.
Michael D. Malone was appointed to our board in 2012. He
is a member of the Compensation Committee and the Audit
Committee of Morgans Hotel Group Co. and has been one of its
directors since January 2008. From February 2008 until February
2012, he served as a Managing Director of Fortress, an affiliate
of our Initial Stockholder, where he was in charge of the
Charlotte, North Carolina office and responsible for the
business of the capital formation group in the southeast and
southwest regions of the United States. Mr. Malone retired from
Bank of America in November 2007, after nearly 24 years of
service as Senior Executive Banker and Managing Director. Over
those years Mr. Malone worked in and ran a number of investment
banking businesses for the bank and its subsidiary, Banc of
America Securities, including real estate, gaming, lodging,
leisure, and the financial sponsors businesses. Mr. Malone holds
a B.S. in General Studies from the University of Kentucky. Mr.
Malone has valuable experience in both finance and real estate,
and we believe he is qualified to serve on our board.
Robert Appel is our Executive Vice President of Servicing
and has served in such capacity since 2011. He holds the same
position at Nationstar Mortgage LLC and has served in this
capacity since joining Nationstar in February 2008. Mr. Appel
has over 21 years of experience in the mortgage industry and
five years of public accounting experience. From 1985 to 1990,
he served as an audit manager with Ernst and Young LLP. From
1990 to 1992, he held a position as Vice President of Control
for Tyler Cabot Mortgage Securities Fund, a NYSE listed bond
fund. From 1992 to 1999, Mr. Appel held a position at Capstead
Mortgage where he started a master servicing organization and
later became Senior Vice President of Default Management for
Capsteads primary servicer. From 1999 to 2003, he was
Managing Director of GMACs Master Servicing operation.
From 2003 to 2005, Mr. Appel was Chief Executive Officer of
GMACs United Kingdom mortgage lending business. From 2005
to 2008, he served as Servicing Manager of GMACs $100
billion non-prime residential servicing platform. Mr. Appel
holds a B.S., cum laude, in Business Control Systems from the
University of North Texas and was formerly a Certified Public
Accountant, Certified Financial Planner and a former member of
the Freddie Mac Default Advisory Group.
Douglas Krueger is our Executive Vice President of
Capital Markets and has served in such capacity since 2011. He
holds the same position at Nationstar Mortgage LLC and has
served in this capacity since joining Nationstar in February
2009. Mr. Krueger has over 20 years of experience in the
mortgage industry. For five years, Mr. Krueger held various
senior leadership roles with CitiMortgage managing the secondary
marketing and master servicing areas. Mr. Krueger also served as
Senior Vice President with Principal Residential Mortgage for 13
years. Mr. Krueger holds a B.B.A. from the University of Iowa
and has earned the Chartered Financial Analyst designation.
Amar Patel is our Executive Vice President of Portfolio
Investments and has served in such capacity since 2011. He holds
the same position at Nationstar Mortgage LLC and has served in
this capacity since joining Nationstar in June 2006.
Mr. Patel has over 19 years of experience in the
mortgage industry. From 1993 to 2006, Mr. Patel held
various management roles at Capstead Mortgage Corporation, last
serving as Senior Vice President of Asset and Liability
Management. Mr. Patel holds a B.B.A. in Finance and
Mathematics from Baylor University and an M.B.A. from Southern
Methodist University.
138
Lisa A. Rogers is our Executive Vice President of
Originations and has served in such capacity since 2012. She
holds the same position at Nationstar Mortgage LLC.
Ms. Rogers has over 18 years of leadership experience
in the mortgage industry. Prior to joining Nationstar in
September 2011, Ms. Rogers was Senior Vice President,
National Wholesale Operations and Support Manager for Wells
Fargo Home Mortgage. Ms. Rogers had been with Wells Fargo
since 1993 in a variety of roles including production risk
management and strategic development. Ms. Rogers is a
Master Certified Mortgage Banker and a graduate of both the
School of Mortgage Banking and the Mortgage Bankers Association
Future Leaders Program. Ms. Rogers is a past instructor of
the School of Mortgage Banking.
Anthony W. Villani is our Executive Vice President
and General Counsel and has served in such capacity since 2012.
Pending regulatory approval, he will also hold the same position
at Nationstar Mortgage LLC, which he joined in October 2011 as
an Executive Vice President. Prior to joining Nationstar,
Mr. Villani was Vice President and Associate General
Counsel of Goldman, Sachs & Co. where he served as the
managing attorney for Litton Loan Servicing LP, a Goldman Sachs
company, from June 2008 until September 2011. He has also served
as Executive Vice President and General Counsel of EMC Mortgage
Corporation, a wholly-owned subsidiary of The Bear Stearns
Companies Inc. Mr. Villani holds a J.D. from Oklahoma City
University School of Law and a B.S. in Political Science from
Arizona State University. Mr. Villani was admitted to the
Oklahoma Bar in 1983 and the Texas Bar in 1989.
Other
Significant Employees
John M. Draghi is our Executive Vice President of Capital
Planning and Strategic Partnerships and has served in such
capacity since joining Nationstar in February 2012. Although
Mr. Draghi is not one of our executive officers, he makes
significant contributions to our business. Mr. Draghi has
over 25 years of experience in the mortgage industry. From
2009 to 2012, Mr. Draghi was a Managing Director at
Fortress, an affiliate of our Initial Stockholder, and worked
closely with our senior management. Prior to joining Fortress,
Mr. Draghi was the Chief Executive Officer, Chief Operating
Officer and Chief Investment Officer at
C-BASS, an
industry leader in residential investing and servicing, from
1996 to 2007. Prior to joining
C-BASS,
Mr. Draghi worked in the securities industry for
12 years, including as a Vice President at PaineWebber,
where he was responsible for trading residential whole loans,
new issue non-Agency MBS, Subordinated Securities and REMIC
Residuals. Prior to PaineWebber, he worked at Lehman Brothers
for eight years in both Capital Markets and Structured
Finance and as a senior auditor at Coopers & Lybrand.
In addition, Mr. Draghi has consulted in the subordinated
mortgage market for a select group of institutional investors.
Mr. Draghi holds a B.S.B.A. from Boston University and is
an inactive certified public accountant.
Board of
Directors
We have adopted a new certificate of incorporation and new
bylaws. Our amended and restated certificate of incorporation
provides that our board shall consist of not less than three and
not more than eleven directors as the board of directors may
from time to time determine. Our board of directors is divided
into three classes that are, as nearly as possible, of equal
size. Each class of directors is elected for a three-year term
of office, but the terms are staggered so that the term of only
one class of directors expires at each annual general meeting.
The initial terms of the Class I, Class II and
Class III directors will expire in 2013, 2014 and 2015,
respectively. Messrs. Guthrie and Malone will each serve as
a Class I director, Messrs. Gidel and Hawkins will each
serve as a Class II director and Messrs. Edens and Bray
will each serve as a Class III director. All officers serve
at the discretion of the board of directors. Under our
stockholders agreement (the Stockholders Agreement)
with our Initial Stockholder, we are required to take all
reasonable actions within our control (including nominating as
directors the individuals designated by our Initial Stockholder
that otherwise meet our reasonable standards for board
nominations), subject to applicable regulatory and listing
requirements (including the director independence requirements
of the NYSE), so that up to a majority and, in some
circumstances, a majority plus one, depending upon the size of
the board (depending upon the level of ownership of the Initial
Stockholder and certain other affiliates of Fortress and
permitted transferees (referred to in this prospectus,
collectively, as the Fortress Stockholders)) of the
members of our board of directors are individuals designated by
our Initial
139
Stockholder. Upon completion of this offering, and in accordance
with our Stockholders Agreement, our board of directors will
consist of six directors, four of whom will be
independent, as defined under the rules of the NYSE.
Our board of directors has determined that Messrs. Hawkins,
Gidel, Guthrie and Malone will be our independent directors.
Our amended and restated certificate of incorporation does not
provide for cumulative voting in the election of directors,
which means that the holders of a majority of the outstanding
shares of common stock can elect all of the directors standing
for election, and the holders of the remaining shares are not
able to elect any directors, subject to our obligations under
our Stockholders Agreement discussed in the previous paragraph.
Committees
of the Board of Directors
Upon completion of this offering, we will establish the
following committees of our board of directors.
Audit Committee
The audit committee:
|
|
|
|
|
reviews the audit plans and findings of our independent
registered public accounting firm and our internal audit and
risk review staff, as well as the results of regulatory
examinations, and tracks managements corrective action
plans where necessary;
|
|
|
|
reviews our financial statements, including any significant
financial items
and/or
changes in accounting policies, with our senior management and
independent registered public accounting firm;
|
|
|
|
reviews our financial risk and control procedures, compliance
programs and significant tax, legal and regulatory
matters; and
|
|
|
|
has the sole discretion to appoint annually our independent
registered public accounting firm, evaluate its independence and
performance and set clear hiring policies for employees or
former employees of the independent registered public accounting
firm.
|
The members of the audit committee are Messrs. Guthrie (Chair),
Gidel, and Malone. Upon effectiveness of the registration
statement, each member of the committee will be
independent, as defined under the rules of the NYSE
and
Rule 10A-3
of the Securities Exchange Act of 1934, as amended, (the
Exchange Act). Our board of directors has determined
that each director appointed to the audit committee is
financially literate, and the board has determined that
Mr. Guthrie is our audit committee financial expert.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee:
|
|
|
|
|
reviews the performance of our board of directors and makes
recommendations to the board regarding the selection of
candidates, qualification and competency requirements for
service on the board and the suitability of proposed nominees as
directors;
|
|
|
|
advises the board with respect to the corporate governance
principles applicable to us;
|
|
|
|
oversees the evaluation of the board and management;
|
140
|
|
|
|
|
reviews and approves in advance any related party transaction,
other than those that are pre-approved pursuant to pre-approval
guidelines or rules established by the committee; and
|
|
|
|
|
|
recommends guidelines or rules to cover specific categories of
transactions.
|
The members of the nominating and corporate governance committee
are Messrs. Malone (chair), Gidel and Hawkins. Each member
of our nominating and corporate governance committee is
independent, as defined under the rules of the NYSE.
Compensation Committee
The compensation committee:
|
|
|
|
|
reviews and recommends to the board the salaries, benefits and
equity incentive grants for all employees, consultants,
officers, directors and other individuals we compensate;
|
|
|
|
reviews and approves corporate goals and objectives relevant to
Chief Executive Officer compensation, evaluates the Chief
Executive Officers performance in light of those goals and
objectives, and determines the Chief Executive Officers
compensation based on that evaluation; and
|
|
|
|
oversees our compensation and employee benefit plans.
|
The members of the compensation committee are
Messrs. Hawkins (chair), Gidel and Malone. Each member of
our compensation committee is independent, as defined under the
rules of the NYSE. The independent directors that
are appointed to the compensation committee are also
non-employee directors as defined in
Rule 16b-3(b)(3)
under the Exchange Act and outside directors within
the meaning of Section 162(m)(4)(c)(i) of the Code.
141
COMPENSATION
DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis is designed to provide
an understanding of the compensation program for our President,
Chief Executive Officer and Chief Financial Officer, Jay Bray,
our Executive Vice President, Servicing, Robert L. Appel, our
Executive Vice President, Portfolio Investments, Amar Patel, our
Executive Vice President, Capital Markets, Douglas Krueger and
our former Chairman and Chief Executive Officer, Anthony H.
Barone, (collectively, our named executive officers or
NEOs), with respect to our 2011 fiscal year.
Effective October 7, 2011, Mr. Bray became our Chief
Executive Officer and Mr. Barone became the Chairman of the
Board of Managers of Nationstar Mortgage LLC. Our executive
officers receive no direct compensation from us. The executives
who run our Company are compensated by Nationstar Mortgage LLC,
and therefore, the disclosure in this section relates to the
compensation arrangements of Nationstar Mortgage LLC. References
to our compensation policies in this section refer
to the joint policies and practices of us and Nationstar
Mortgage LLC.
Compensation
Philosophy and Objectives
Our primary executive compensation goals are to attract,
motivate and retain the most talented and dedicated executives
and to align annual and long-term incentives while enhancing
unitholder value. To achieve these goals we maintain
compensation plans that:
|
|
|
|
|
Deliver a mix of fixed and at-risk compensation, including
through the grants of restricted units and restricted preferred
units.
|
|
|
|
Through dividend equivalents on grants of restricted units and
restricted preferred units, tie a portion of the overall
compensation of executive officers to the dividends we pay to
our unitholders.
|
|
|
|
Encourage the achievement of our short- and long-term goals on
both the individual and company levels.
|
Process
for Setting Executive Officer Compensation
Peter Smith, the designated manager (the Manager) of
our Initial Stockholder, the sole member of the Company (our
Parent), and its unitholders evaluate our
performance, including the achievement of key investment and
capital raising goals, and the individual performance of each
NEO, with a goal of setting overall compensation at levels that
our Parent and its unitholders believe are appropriate.
Participation of Management. Our NEOs are not
directly responsible for determining our Chief Executive
Officers compensation, although they regularly provide
information to our Parent and its unitholders that is relevant
to its evaluation of the NEOs compensation (for instance,
in terms of our performance against established compensation
goals and otherwise). By contrast, the Chief Executive Officer
plays a more active role in determining the compensation of the
other NEOs, who are his subordinates. He regularly advises our
Parent and its unitholders of his own evaluation of their job
performance and offers for consideration his own recommendations
for their compensation levels. Final compensation decisions are
executed by the Manager.
Compensation Consultant. We have not retained
a compensation consultant to review our policies and procedures
with respect to executive compensation, although the Company or
Parent may elect in the future to retain a compensation
consultant if they determine that doing so would assist it in
implementing and maintaining compensation plans.
Risk Considerations. In developing and
reviewing the executive incentive programs, our Parent and
unitholders consider the business risks inherent in program
designs to ensure they do not induce executives to
142
take unacceptable levels of business risk for the purpose of
increasing their incentive plan awards. Our Parent and
unitholders believe that the mix of compensation components used
in the determination of our NEOs compensation reflects the
performance of our Company and the performance of the individual
employee and does not encourage our NEOs to take unreasonable
risks relating to the business. Our NEOs ownership
interest in the Company aligns our NEOs interests with our
long-term performance and discourages excessive risk taking.
Elements
of Compensation
Our executive compensation consists of the elements set forth
below. Determinations regarding any one element of compensation
affect determinations regarding each other element of
compensation, because the goal of our Parent and unitholders is
to set overall compensation at an appropriate level. Our Parent
and unitholders take into account in this regard the extent to
which different compensation elements are at-risk. Accordingly,
for example, the amount of salary paid to an NEO is considered
by our Parent and unitholders in determining the amount of any
cash bonus or restricted unit or restricted preferred unit
award, but the relationship among the elements is not formulaic
because of the need to balance the likelihood that the at-risk
components of compensation will actually be paid at any
particular level. We further base overall compensation packages
of our executive officers on their experience, current market
conditions, business trends, and overall Company performance. As
a result, the total compensation of our NEOs in 2011 consisted
of the following elements: (1) base salary,
(2) non-equity incentive plan awards, (3) equity
awards, and (4) participation in employee benefit plans.
Base Salary
We utilize base salary as the foundation of our compensation
program. Base salaries for our NEOs are established based upon
the scope of their responsibilities and what is necessary to
recruit and retain skilled executives. We believe that our
executives base salaries are comparable with salaries paid
to executives at companies of a similar size and with a similar
performance to us. Base salaries are reviewed annually in
accordance with the NEOs annual performance evaluation and
increased from time to time in view of each NEOs
individual responsibilities, individual and company performance,
and experience.
Messrs. Bray, Patel, Krueger and Barone had entered into
employment agreements with the Company that set a minimum salary
upon execution of the agreement; however, their employment
agreements expired in 2011 and they are currently employees at
will. Mr. Appel has entered into an employment agreement
with the Company that set a minimum salary upon execution of the
agreement. These base salaries are intended to complement the
at-risk components of the Companys compensation program by
assuring that our NEOs will receive an appropriate minimum level
of compensation.
Annual Bonus Plans
Annual bonus incentives keyed to short-term objectives form an
important part of our compensation program. Our annual bonus
plans are designed to provide incentives to achieve certain
financial goals of the Company, as well as personal objectives.
The Incentive Plan for Messrs. Barone, Bray, Appel and
Patel. Messrs. Barone, Bray, Appel, and
Patel participate in our Annual Incentive Compensation Plan (the
Incentive Plan). The Incentive Plan provides for
payment of annual cash incentive bonuses from a pool equal to 5%
of the Companys Operating Cash Flow. Operating Cash Flow
is generally equal to Adjusted EBITDA from the Operating
Segments less servicing resulting from transfers of financial
assets. In calculating Operating Cash Flow, non-cash components
affecting Adjusted EBITDA both positively and negatively, if
any, are excluded. This measure of Operating Cash Flow is
intended to represent the Companys cash revenues less all
fully allocated cash and accrued expenses. Tying bonus payments
to Operating Cash Flow puts a significant portion of these
executives salary at risk and ties their compensation to
our operational and financial results. The Incentive
143
Plan is maintained by Nationstar Mortgage LLC and is
administered by our Parent. Our Parent chose the Companys
Operating Cash Flow as an incentive metric believing that it
reflects the efficiency with which our management team manages
the Company on a short- and long-term basis.
Our Parent may not decrease the amount of the bonus pool. Each
fiscal year, our Parent determines each applicable NEOs
allocable portion of the bonus pool for that fiscal year,
provided, however, that our Parent may not reduce any
executives allocable percentage to less than 75% of the
executives percentage for the prior fiscal year. To
receive the actual award, the NEO must be employed by the
Company (and not have given notice of intent to resign) on the
last day of the fiscal year to which the bonus relates.
The following are our NEOs target bonus percentages for
2011:
|
|
|
|
|
|
|
Allocable
|
|
|
|
Percentage of the
|
|
Name
|
|
Bonus Pool
|
|
|
Jay Bray
|
|
|
31.7%
|
|
Robert L. Appel
|
|
|
17.2%
|
|
Amar Patel
|
|
|
15.5%
|
|
Anthony H. Barone
|
|
|
35.6%
|
|
Annual Incentive Program for
Mr. Krueger. Mr. Krueger participates
in our annual cash incentive program, which includes Company and
individual performance measures. Mr. Kruegers key
objectives for 2011 were Operating Cash Flow (20% weight factor
in final payout), secondary marketing profit/loss (30% weight)
and other deliverables (50% weight). In 2011, Mr. Kruegers
other responsibilities were associated with managing hedging
risks, execution of loan sales, GSE and investor relations and
frequency of repurchase requests. Under the annual incentive
program, Company and individual performance measures are
established at the beginning of the fiscal year by the
Companys Board of Managers. At year end, the Board of
Managers rates the results for each key objective on a scale of
one to five. The rating is multiplied by the weight of each key
objective to result in a weighted score, with five being the
highest possible score. The weighted score is converted into a
percentage and multiplied by Mr. Kruegers bonus
opportunity to result in the annual cash incentive awarded. The
annual cash incentive is generally paid in a single installment
in the first quarter following completion of the plan year.
Mr. Krueger must be employed by the Company on December 31
of the award year and not have given notice of termination by
the time that the award is paid to receive the bonus. As a
condition of participation in the annual incentive plan,
Mr. Krueger is subject to a non-solicitation covenant.
Following our public offering, we anticipate Mr. Krueger
will continue to receive annual incentive awards but the
Compensation Committee has made no definitive decisions
regarding future awards.
Long-Term Incentive Plans
Equity Incentive Plan. We have provided
long-term incentives in the form of grants of Series 1 and
Series 2 Class A units (Units) and
restricted preferred units relating to Series 1
Class C and Class D preferred units (RSUs)
of the Initial Stockholder to our NEOs to promote sustained high
performance. Units and RSUs are granted pursuant to the limited
liability company agreement of the Initial Stockholder and
individual award agreements. No Units or RSUs were granted to
NEOs in 2011. In 2010, substantial one-time grants of Units and
RSUs, subject to three-year vesting, were granted to each of
Messrs. Bray, Appel, Patel and Barone based on a review of our
existing compensation arrangements with our most highly valued
executives and the business environment. Specifically, the
grants were intended to both serve as a long-term incentive
device, a retention device and to further align the interests of
Messrs. Bray, Appel, Patel and Barone with the Company in the
future.
The Units and RSUs vest over a three year period. Each RSU
represents the right to receive one Series 1 Class C
preferred unit or one Series 1 Class D preferred unit,
as applicable, upon vesting and settlement of the RSU. If the
Company pays a dividend to Class C or Class D
unitholders (other than with
144
respect to any pre-2010 preferred yield), the executive will be
entitled to receive a proportionate payment based on the number
of RSUs he holds, whether or not they have vested.
Our equity arrangements provide for accelerated vesting of the
number of Units and RSUs scheduled to vest on the next scheduled
vesting date, if any, where the employment of an applicable NEO
is terminated without cause (other than within six
months after a change in control), by such NEO for
good reason or upon death or disability, subject to
the NEO executing a general release of claims in favor of the
Company. If the employment of an applicable NEO is terminated
without cause within six months following a change in control,
subject to the NEO executing a general release of claims in
favor of the Company, all unvested Units and RSUs will vest. We
believe that such a provision benefits the Company and its
unitholders by giving our NEOs some protection so they may make
decisions about the Company and any potential transaction free
from concerns about the impact to their unvested equity awards.
On any other termination of employment, all unvested Units and
RSUs will be forfeited.
Following termination of employment, the applicable series will
have certain repurchase rights with respect to the Series 1
and Series 2 Class A units and the Series 1
Class C and Class D preferred units. The applicable
series, and if the series elects not to exercise its right, the
Fortress Funds, which own the Initial Stockholder, may
repurchase the applicable units for 30 days following the
executives termination of employment. The repurchase price
per unit is calculated as set forth in the limited liability
company agreement of the Initial Stockholder and the applicable
award agreements. Thus, the repurchase price differs based on
the units series, as well as the reason for termination.
Class A units granted to Messrs. Bray, Appel, Patel and
Barone, may be repurchased (a) following a termination for
cause at the lesser of fair market value on the date of
(i) termination or (ii) grant, and (b) following
a termination for any other reason, for fair market value on the
date of termination. The Series 1 Class A units
granted to these executives are subject to the Unit Exchange
offered by the Initial Stockholder, pursuant to which these
executives may elect to receive shares of our common stock.
Class C and D units may be repurchased for an amount equal
to the sum of (i) the purchase price of the units plus any
additional capital contributions less any distribution paid with
respect to the units and (ii) any accrued and preferred
yield less any accrued unpaid pre-2010 preferred yield.
Equity Plan Adopted in Connection with our Initial Public
Offering. We have adopted the 2012 Incentive
Compensation Plan (the Plan), which will enable us
to offer certain key employees, consultants and non-employee
directors equity-based awards. In connection with this offering,
we expect to make grants of restricted stock to management in
the total amount of 963,890 shares and to members of the
Board in the total amount of 66,668 shares. Of this amount,
we expect to grant our NEOs, Mr. Bray and Mr. Krueger, 333,334
shares and 16,667 shares, respectively. There is no current
understanding or agreement with respect to any awards to be made
to our other NEOs. The purpose of the Plan is to enhance our
profitability and value for the benefit of stockholders by
enabling us to offer equity-based incentives in order to
attract, retain and reward such individuals, while strengthening
the mutuality of interests between those individuals and our
stockholders. Up to 5,200,000 shares of our common stock
may be issued under the plan with annual increases of
150,000 shares of common stock per year (subject to
adjustment to reflect certain transactions and events specified
in the Plan, as described below). The maximum aggregate awards
that may be granted during any fiscal year will be
3,000,000 shares, or $20 million with respect to a
cash-based award. We intend to file with the SEC a registration
statement on
Form S-8
covering the shares issuable under the Plan.
The following is a summary of the material terms and provisions
of the Plan and certain tax effects of participation in the
Plan. This summary is qualified in its entirety by reference to
the complete text of the Plan, which is attached hereto as
Exhibit 10.57 and incorporated herein. To the extent that
there is a conflict between this summary and the Plan, the terms
of the Plan will govern. Capitalized terms that are used but not
defined in this summary have the meanings given to them in the
Plan.
145
Description of the Plan
Plan Administration. The Plan will be
administered by the compensation committee (the
Committee), which will have discretion and authority
to interpret the Plan, prescribe, amend and rescind rules and
regulations regarding the Plan, select Participants to receive
Awards, determine the form, terms and conditions of Awards, and
take other actions it deems necessary or advisable for the
proper operation or administration of the Plan.
Stock Options and Stock Appreciation
Rights. All Stock Options granted under the Plan
are intended to be non-qualified share options and are not
intended to qualify as incentive stock options
within the meaning of Section 422 of the Internal Revenue
Code. Stock Appreciation Rights may be awarded either alone or
in tandem with Nonqualified Stock Options. Stock Options and
Stock Appreciation Rights will have maximum terms of ten years.
Stock Options and Stock Appreciation Rights will be subject to
the following terms and conditions:
|
|
|
|
|
The Exercise Price for each Share subject to a Stock Option or
Stock Appreciation Right will be not less than the Fair Market
Value of a Share on the date of grant.
|
Restricted Units, Restricted Stock, Deferred Shares and
Performance Shares. Restricted Units, Restricted
Stock, Deferred Shares and Performance Shares are subject to the
following terms and conditions:
|
|
|
|
|
The Committee will determine the purchase price, the vesting
schedule and performance objectives, if any, with respect to the
grant of Restricted Shares, Restricted Units, Deferred Shares
and Performance Shares.
|
Other Stock-Based Awards. The Committee may,
from time to time, grant Awards other than those referred to
above that consist of, are denominated in, or are otherwise
related to Shares. These Awards may include, among other things,
stock units or phantom or hypothetical shares. The Committee has
broad discretion to determine any terms and conditions that will
apply to Other Stock-Based Awards under the Plan.
Cash-Based Awards. The Committee may grant
Cash-Based Awards that may be settled in cash or other property,
including shares of Common Stock. The Committee has broad
discretion to determine any terms and conditions that will apply
to Cash-Based Awards under the Plan.
Transfer. Awards may not be transferred by a
Participant other than by will or the laws of descent and
distribution, except that Restricted Stock may be freely
transferred after the restrictions lapse or are satisfied and
the Shares are delivered.
Adjustments. The maximum number of Shares
available for issuance under the Plan, the individual and
aggregate limits described above, the number of Shares
underlying outstanding Awards and the Exercise Price applicable
to outstanding Awards shall be equitably adjusted upon certain
events effecting the capitalization of Nationstar Mortgage
Holdings Inc. such as a recapitalization or stock split. Upon
the occurrence of certain extraordinary corporate transactions,
such as a dissolution, sale, or merger of Nationstar Mortgage
Holdings Inc., the Committee has discretion to cancel each Award
in exchange for an amount in cash or to provide for the exchange
of each Award for an Award with respect to some or all of the
property which a holder of the number of shares of Common Stock
subject to such Award would have received in the transaction.
Change in Control. The Committee has
discretion to provide for acceleration of vesting
and/or
payment of Awards upon a Change in Control, as defined in the
Plan.
Amendment and Termination. The Committee has
authority at any time to amend or terminate the Plan, provided
that such amendment may not be prejudicial to any Participant.
No material revision to the Plan may become effective without
stockholder approval. For this purpose, a revision will be
deemed to be material based on
146
the rules adopted by the NYSE from time to time or if it
materially increases the number of Shares that may be issued
under the Plan (other than as a result of an adjustment
described above or automatic increases). NYSE rules currently
provide that material revisions which require stockholder
approval include a material increase in the number of shares
available under the Plan, a material expansion of the types of
awards available under the plan, a material expansion of the
class of employees, directors, or other service providers
eligible under the Plan, a material extension of the term of the
Plan, a material change in the method of determining the strike
price of options under the Plan and an amendment to permit
option repricing. The Plan will terminate, if not sooner as a
result of Committee action, on the 10th anniversary of the
date the Plan is adopted.
Summary of Federal Income Tax Consequences of Awards
The following is a brief summary of the principal U.S. federal
income tax consequences of Awards and transactions under the
Plan. This summary is not intended to be exhaustive and, among
other things, does not describe state, local or foreign tax
consequences.
Nonqualified Stock Options and Stock Appreciation
Rights. A Participant will not recognize any
income at the time a Nonqualified Stock Option or Stock
Appreciation Right is granted, nor will we be entitled to a
deduction at that time. When a Nonqualified Stock Option is
exercised, the Participant will recognize ordinary income in an
amount equal to the excess of the Fair Market Value of the
Shares received as of the date of exercise over the Exercise
Price. When a Stock Appreciation Right is exercised, the
Participant will recognize ordinary income in an amount equal to
the cash received or, if the Stock Appreciation Right is paid in
Shares, the Fair Market Value of the Shares received as of the
date of exercise. Payroll taxes are required to be withheld from
the Participant on the amount of ordinary income recognized by
the Participant. We will be entitled to a tax deduction with
respect to a Nonqualified Stock Option or Stock Appreciation
Right in the same amount as the Participant recognizes income.
Restricted Units, Restricted Stock and Performance
Awards. A Participant will not recognize any
income at the time a Restricted Unit, Share of Restricted Stock
or Performance Award is granted, nor will we be entitled to a
deduction at that time. When a Restricted Unit is redeemed, the
Participant will recognize ordinary income in an amount equal to
the Fair Market Value of the Shares received or, if the
Restricted Unit is paid in cash, the amount payable. In the year
in which Shares of Restricted Stock or the Performance Award are
no longer subject to a substantial risk of forfeiture (i.e., in
the year that the Shares vest), the Participant will recognize
ordinary income in an amount equal to the excess of the Fair
Market Value of the Shares on the date of vesting over the
amount, if any, the Participant paid for the Shares. A
Participant may, however, elect within 30 days after
receiving Restricted Stock to recognize ordinary income in the
year of receipt instead of the year of vesting. If an election
is made, the amount of income recognized by the Participant will
be equal to the excess of the Fair Market Value of the Shares on
the date of receipt over the amount, if any, the Participant
paid for the Shares. Payroll taxes are required to be withheld
from the Participant on the amount of ordinary income recognized
by the Participant. We will be entitled to a tax deduction in
the same amount as the Participant recognizes income.
Deferred Shares. In general, the grant of
Deferred Shares will not result in income for the Participant or
in a tax deduction for us. Upon the settlement of such an award,
the Participant will recognize ordinary income equal to the
aggregate value of the payment received, and we generally will
be entitled to a tax deduction in the same amount.
Cash-Based Awards. A Participant will not
recognize any income at the time of the grant to the Participant
of a Cash-Based Award. The Participant will recognize income at
the time that cash is paid to the participant pursuant to a
Cash-Based Award, in the amount paid. Payroll taxes will be
required to be withheld at that time. We will be entitled to a
tax deduction in the same amount as the amount the Participant
recognizes income.
147
Long-Term Incentive Plan. Mr. Krueger
participates in a long-term incentive plan which is designed to
reward company and individual performance and serve as a
retention device. Awards are determined at the conclusion of the
plan year (calendar) based upon the Companys overall
financial performance and Mr. Kruegers contribution
to those results. The Company made no long-term incentive awards
to NEOs in 2011. However, Messrs. Bray, Patel and Barone
received awards in 2008 that vested in 2011 in the amounts of
$200,000, $150,000 and $300,000, respectively. Following our
public offering, we anticipate Mr. Krueger will continue to
receive long-term incentive awards. However, the Compensation
Committee has made no definitive decisions regarding future
awards. Awards are approved by our Board of Managers with an
award date of December 31 of the year just concluded. The award
is generally subject to a three year cliff vesting requirement
from the date of the award, which provides an important
retention incentive as the executive must remain employed by the
Company to receive the award. The award ordinarily is paid in a
single installment in the first quarter of the third year
following grant. Mr. Krueger must be employed by the
Company on the date of payout to receive the award.
Severance Benefits
As noted above, we have entered into an employment agreement
with Mr. Appel and we had entered into employment
agreements with Messrs. Bray, Patel, Krueger and Barone
that expired in 2011. While the employment agreements are in
effect, the agreements provide severance benefits to such
officers in the circumstances described in greater detail below
in the section entitled Employment Agreements.
Other Compensation Components
All of our executive officers are eligible to participate in our
employee benefit plans, including medical, dental, life
insurance and 401(k) plans. These plans are available to all
employees and do not discriminate in favor of our NEOs. In
addition, we reimburse Mr. Barone and Mr. Bray for the
cost of life insurance premiums pursuant to our Executive Life
Program. We do not view perquisites as a significant element of
our comprehensive compensation structure; however, we believe
some perquisites are necessary for the Company to attract and
retain superior management talent for the benefit of all
unitholders. The value of these benefits to the NEOs is set
forth in the Summary Compensation Table under the column
All Other Compensation and details about each
benefit is set forth in a table following the Summary
Compensation Table.
Summary
Compensation Table
The following table sets forth the annual compensation for the
NEOs serving at the end of fiscal year 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Incentive Plan
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Jay Bray
|
|
|
2011
|
|
|
|
320,000
|
|
|
|
|
|
|
|
|
|
|
|
1,633,459
|
(2)
|
|
|
11,048
|
(6)
|
|
|
1,964,507
|
|
|
|
|
2010
|
|
|
|
320,000
|
|
|
|
|
|
|
|
9,918,148
|
|
|
|
809,434
|
(3)
|
|
|
11,048
|
(6)
|
|
|
11,058,630
|
|
|
|
|
2009
|
|
|
|
289,800
|
|
|
|
|
|
|
|
|
|
|
|
630,235
|
(5)
|
|
|
11,069
|
(7)
|
|
|
931,104
|
|
Robert L. Appel
|
|
|
2011
|
|
|
|
275,000
|
|
|
|
|
|
|
|
|
|
|
|
886,495
|
(2)
|
|
|
6,875
|
(8)
|
|
|
1,168,370
|
|
|
|
|
2010
|
|
|
|
275,000
|
|
|
|
|
|
|
|
6,467,985
|
|
|
|
439,288
|
(3)
|
|
|
5,500
|
(8)
|
|
|
7,187,773
|
|
|
|
|
2009
|
|
|
|
275,000
|
|
|
|
|
|
|
|
|
|
|
|
342,035
|
(5)
|
|
|
5,500
|
(8)
|
|
|
622,535
|
|
Amar Patel
|
|
|
2011
|
|
|
|
255,000
|
|
|
|
|
|
|
|
|
|
|
|
797,958
|
(2)
|
|
|
6,231
|
(8)
|
|
|
1,059,189
|
|
|
|
|
2010
|
|
|
|
255,000
|
|
|
|
|
|
|
|
4,147,863
|
|
|
|
395,415
|
(3)
|
|
|
6,231
|
(8)
|
|
|
4,804,509
|
|
|
|
|
2009
|
|
|
|
255,000
|
|
|
|
|
|
|
|
|
|
|
|
307,875
|
(5)
|
|
|
6,231
|
(8)
|
|
|
569,106
|
|
Douglas Krueger
|
|
|
2011
|
|
|
|
257,500
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
(2)
|
|
|
7,725
|
(8)
|
|
|
615,225
|
|
|
|
|
2010
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
425,000
|
(9)
|
|
|
3,125
|
(8)
|
|
|
678,125
|
|
|
|
|
2009
|
|
|
|
215,064
|
|
|
|
50,000
|
(10)
|
|
|
|
|
|
|
350,000
|
(11)
|
|
|
41,239
|
(12)
|
|
|
656,303
|
|
Anthony H. Barone
|
|
|
2011
|
|
|
|
424,350
|
|
|
|
|
|
|
|
|
|
|
|
1,832,088
|
(2)
|
|
|
17,036
|
(13)
|
|
|
2,273,474
|
|
|
|
|
2010
|
|
|
|
424,350
|
|
|
|
|
|
|
|
9,584,458
|
|
|
|
907,862
|
(3)
|
|
|
16,116
|
(4)
|
|
|
10,932,786
|
|
|
|
|
2009
|
|
|
|
424,350
|
|
|
|
|
|
|
|
|
|
|
|
706,872
|
(5)
|
|
|
16,116
|
(4)
|
|
|
1,147,338
|
|
148
|
|
|
(1) |
|
Represents the aggregate grant date fair value, as computed in
accordance with Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(ASC) Topic 718, CompensationStock
Compensation excluding the effect of estimated forfeitures
during the applicable vesting periods, of units and RSUs granted
to the NEOs. Information with respect to vesting of these awards
is disclosed in the Grant of Plan Based Awards table and the
accompanying notes. |
|
(2) |
|
These amounts will be paid in the first quarter of fiscal year
2012 but represent awards with respect to the Companys and
individual performance in fiscal year 2011. |
|
(3) |
|
These amounts were paid in the first quarter of fiscal year 2011
but represent awards with respect to the Companys and
individual performance in fiscal year 2010. |
|
(4) |
|
Represents payment of a life insurance premium equal to $9,216
and a $6,900 contribution to Mr. Barones 401(k)
account. |
|
(5) |
|
These amounts were paid in the first quarter of fiscal 2010 but
represent awards with respect to the Companys and
individual performance in fiscal year 2009. |
|
(6) |
|
Represents payment of a life insurance premium equal to $5,998
and a $5,050 contribution to Mr. Brays 401(k) account. |
|
(7) |
|
Represents payment of a life insurance premium equal to $5,998
and a $5,071 contribution to Mr. Brays 401(k) account. |
|
(8) |
|
Represents a contribution to the NEOs 401(k) account. |
|
(9) |
|
Of this amount, $300,000 was paid in the first quarter of fiscal
year 2011, although it represents an award with respect to the
Companys and Mr. Kruegers individual
performance in fiscal year 2010. The remaining $125,000 is
pursuant to the Long-Term Incentive Plan, described above, and
is subject to three-year time-based cliff vesting; this amount
will become vested on December 31, 2013 as long as
Mr. Krueger remains employed with the Company. |
|
(10) |
|
Represents a sign-on bonus Mr. Krueger received pursuant to
his employment agreement when he joined the Company. |
|
(11) |
|
Of this amount, $225,000 was paid in the first quarter of fiscal
year 2010, although it represents an award with respect to the
Companys and Mr. Kruegers individual
performance in fiscal year 2009, as described in Annual
Incentive Program for Mr. Krueger. The remaining
$125,000 is pursuant to the Long-Term Incentive Plan, described
above, and is subject to three-year time-based cliff vesting;
this amount will become vested on December 31, 2012 as long
as Mr. Krueger remains employed with the Company. |
|
(12) |
|
Represents payment of a relocation expenses equal to $39,469 and
a $1,770 contribution to Mr. Kruegers 401(k) account. |
|
(13) |
|
Represents payment of a life insurance premium equal to $9,216
and a $7,820 contribution to Mr. Barones 401(k)
account. |
149
Grants of
Plan-Based Awards
The following table sets forth, for each of the Executive
Officers, the grants of awards under any plan during the fiscal
year ended December 31, 2011.
|
|
|
|
|
|
|
Estimated
|
|
|
|
Future
|
|
|
|
Payouts
|
|
|
|
Under
|
|
|
|
Non-Equity
|
|
|
|
Incentive Plan
|
|
|
|
Awards
|
|
Name
|
|
Target ($)
|
|
|
Jay Bray
|
|
|
1,633,459(1
|
)
|
Robert L. Appel
|
|
|
886,495(1
|
)
|
Amar Patel
|
|
|
797,958(1
|
)
|
Douglas Krueger
|
|
|
350,000(2
|
)
|
Anthony H. Barone
|
|
|
1,832,088(1
|
)
|
|
|
|
(1) |
|
Represents amounts granted under the Incentive Plan as described
in Incentive Plan for Messrs. Barone, Bray, Appel and
Patel. |
|
(2) |
|
Represents the amount granted under the Annual Incentive Program
for Mr. Krueger, as described above. |
Outstanding
Equity Awards at Fiscal Year End
The following table sets forth, for each of the NEOs the
outstanding equity awards as of the end of the fiscal year ended
December 31, 2011, as described in greater detail in
Long-Term
Incentive Plan. The unvested Series 1 Class A units may be
exchanged for shares of our common stock pursuant to the Unit
Exchange offered by the Initial Stockholder.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
Number of Units That Have
|
|
|
Market Value of Units That Have
|
|
|
|
Not Vested (#)
|
|
|
Not Vested ($)
|
|
Name
|
|
1A
|
|
|
2A
|
|
|
1C&1D
|
|
|
1A
|
|
|
2A
|
|
|
1C&1D
|
|
|
Jay
Bray(1)
|
|
|
56,880
|
|
|
|
10,633
|
|
|
|
692,917
|
|
|
|
4,492,347
|
|
|
|
7,908
|
|
|
|
961,338
|
|
Robert L.
Appel(2)
|
|
|
34,128
|
|
|
|
6,379
|
|
|
|
415,750
|
|
|
|
2,695,408
|
|
|
|
4,744
|
|
|
|
576,803
|
|
Amar
Patel(3)
|
|
|
22,752
|
|
|
|
4,254
|
|
|
|
277,167
|
|
|
|
1,796,939
|
|
|
|
3,164
|
|
|
|
384,535
|
|
Douglas Krueger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony H.
Barone(4)
|
|
|
68,256
|
|
|
|
12,758
|
|
|
|
831,500
|
|
|
|
5,390,816
|
|
|
|
9,488
|
|
|
|
1,153,606
|
|
|
|
|
(1) |
|
This award is subject to vesting. With respect to the
Series 1 Class A, the award will vest with respect to
56,880 Series 1 Class A units on June 30, 2012.
With respect to the Series 2 Class A, the award will
vest with respect to 10,633 Series 2 Class A units on
June 30, 2012. With respect to the Series 1
Class C and D preferred units, the award will vest with
respect to 692,917 units on June 30, 2012. |
|
(2) |
|
This award is subject to vesting. With respect to the
Series 1 Class A, the award will vest with respect to
34,128 units on June 30, 2012. With respect to the
Series 2 Class A, the award will vest with respect to
6,379 units on June 30, 2012. With respect to the
Series 1 Class C and D preferred units, the award will
vest with respect to 415,750 units on June 30, 2012. |
|
(3) |
|
This award is subject to vesting. With respect to the
Series 1 Class A, the award will vest with respect to
22,752 Series 1 Class A units on June 30, 2012.
With respect to the Series 2 Class A, the award will
vest with respect to 4,254 Series 2 Class A units on
June 30, 2012. With respect to the Series 1
Class C and D preferred units, the award will vest with
respect to 277,167 units on June 30, 2012. |
|
(4) |
|
This award is subject to vesting. With respect to the
Series 1 Class A, the award will vest with respect to
68,256 Series 1 Class A units on June 30, 2012.
With respect to the Series 2 Class A, the award will
vest |
150
|
|
|
|
|
with respect to 12,758 on June 30, 2012. With respect to
the Series 1 Class C and D preferred units, the award
will vest with respect to 831,500 units on June 30,
2012. |
Stock
Vested
The following table sets forth, for each of the NEOs,
information with respect to the vesting of equity-based awards
during the fiscal year ended December 31, 2011. The Series
1 Class A units may be exchanged for shares of our common stock
pursuant to the Unit Exchange offered by the Initial Stockholder.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Acquired on Vesting (#)
|
|
|
Value Realized on Vesting ($)
|
|
Name
|
|
1A
|
|
|
2A
|
|
|
1C&1D
|
|
|
1A
|
|
|
2A
|
|
|
1C&1D
|
|
|
Jay Bray
|
|
|
56,880
|
|
|
|
10,631
|
|
|
|
692,917
|
|
|
|
3,651,920
|
|
|
|
8,079
|
|
|
|
888,060
|
|
Robert L. Appel
|
|
|
34,128
|
|
|
|
6,379
|
|
|
|
415,750
|
|
|
|
2,191,152
|
|
|
|
4,847
|
|
|
|
532,836
|
|
Amar Patel
|
|
|
22,752
|
|
|
|
4,252
|
|
|
|
277,167
|
|
|
|
1,460,768
|
|
|
|
3,231
|
|
|
|
355,223
|
|
Douglas Krueger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony H. Barone
|
|
|
68,256
|
|
|
|
12,758
|
|
|
|
831,500
|
|
|
|
4,382,303
|
|
|
|
9,695
|
|
|
|
1,065,672
|
|
Employment
Agreements
The Company has entered into employment agreements with all of
our NEOs.
Employment Agreements of Messrs. Barone and Bray
Mr. Barone and the Company entered into an amended and
restated employment agreement pursuant to which Mr. Barone
agreed to serve as our Chief Executive Officer on
September 17, 2010. Mr. Bray and the Company entered
into an amended and restated employment agreement pursuant to
which Mr. Bray agreed to serve as our Chief Financial
Officer on September 17, 2010. Pursuant to their terms, the
agreements expired on September 17, 2011 and July 10,
2011, respectively. Pursuant to the employment agreements, upon
a termination for any reason or no reason, Messrs. Barone
and Bray are bound by one-year post-termination non-competition,
non-solicitation, confidentiality and non-disparagement
covenants. These covenants survive the termination or expiration
of Messrs. Barones and Brays employment
agreements.
Prior to expiration, the employment agreements provided, among
other things, for payments to the executive following certain
terminations of employment. If prior to the expiration,
Mr. Barones employment or Mr. Brays
employment had been terminated by the Company without
cause or had been terminated by him for good
reason, subject to his execution of a release of claims,
he would have been entitled to (1) 18 months of
continued base salary, (2) an amount equal to 150% of the
average of his annual cash bonus for the three most recently
completed fiscal years and (3) continued coverage under the
Companys medical plan until the earlier of (a) the
time he becomes eligible for coverage from a new employer and
(b) 12 months following the date of termination. If
Mr. Barones or Mr. Brays employment would
have terminated due to his resignation, subject to his execution
of a release of claims, he would have been entitled to
(1) six months of continued base salary and (2) 50% of
the average of his annual cash bonus for the three most recently
completed fiscal years. Following the expiration of the term,
Mr. Barone and Mr. Bray continued as employees at-will
and are not entitled to any severance payments under their
respective employment agreements upon any subsequent termination.
Employment Agreement of Mr. Appel
Mr. Appel and the Company entered into an amended
employment agreement pursuant to which Mr. Appel agreed to
serve as our Executive Vice President, Servicing on
September 17, 2010. The initial term of the employment
agreement ends on February 3, 2011 and will be
automatically renewed for two additional periods of one year
commencing on each of February 4, 2011 and February 4,
2012 unless either party gives
151
the other notice of intent not to renew by no later than
January 4, 2011 and January 4, 2012, respectively.
Failure by the Company to renew Mr. Appels term of
employment on February 4, 2011 and February 4, 2012,
would entitle Mr. Appel to terminate his employment for
good reason and receive the severance payments
described below. Pursuant to the employment agreement, upon a
termination for any reason or no reason, Mr. Appel is bound
by one-year post-termination non-competition, non-solicitation,
confidentiality and non-disparagement covenants. These covenants
survive the termination or expiration of Mr. Appels
employment agreement.
The employment agreement provides for a one-time cash retention
bonus of $400,000 if Mr. Appel is employed by the Company
on February 4, 2013 (and has not given notice of his intent
to resign). If Mr. Appels employment is terminated by
the Company without cause or is terminated by
Mr. Appel for good reason, subject to his
execution of a release of claims, he would be entitled to
(1) an amount equal to (a) 12 months of base
salary plus (b) a lump sum severance payment of $175,000,
(2) a prorated portion of the annual cash incentive bonus
for the year of termination, (3) if such termination occurs
prior to February 4, 2013, the retention bonus, and
(4) continued coverage under the Companys medical
plan until the earlier of (a) the time Mr. Appel
becomes eligible for coverage from a new employer and
(b) 12 months following the date of termination.
Following February 3, 2013, absent an earlier termination
of his employment agreement, Mr. Appel will continue as an
employee at-will and will not be entitled to any severance
payments under his employment agreement upon any subsequent
termination.
Employment
Agreement of Mr. Patel
Mr. Patel and the Company entered into an amended and
restated employment agreement pursuant to which Mr. Patel
agreed to serve as our Executive Vice President on
September 17, 2010. Pursuant to its terms, the agreement
expired on June 1, 2011. Pursuant to the employment
agreement, upon a termination for any reason or no reason,
Mr. Patel is bound by one-year post-termination
non-competition, non-solicitation, confidentiality and
non-disparagement covenants. These covenants survive the
termination or expiration of Mr. Patels employment
agreement.
Prior to the expiration of the agreement, if
Mr. Patels employment had been terminated by the
Company without cause or had been terminated by
Mr. Patel for good reason, subject to
Mr. Patels execution of a release of claims, he would
have been entitled to (1) six months of continued base
salary, (2) an amount equal to 50% of his annual cash bonus
paid to him for the most recently completed fiscal year and
(3) continued coverage under the Companys medical
plan until the earlier of (a) the time he became eligible
for coverage from a new employer and (b) six months
following the date of termination. Following June 1, 2011,
Mr. Patel continued as an employee at-will and will not be
entitled to any severance payments under his employment
agreement upon any subsequent termination.
Employment
Agreement of Mr. Krueger
Mr. Krueger and the Company entered into an employment
agreement pursuant to which Mr. Krueger agreed to serve as
our Executive Vice President, Capital Markets on
February 19, 2009. Pursuant to its terms, the agreement
expired on February 18, 2011. Pursuant to the agreement,
Mr. Krueger is bound by a six-month post-termination
non-competition, a one-year post-termination non-solicitation,
confidentiality and non-disparagement covenants. These covenants
survive the termination or expiration of Mr. Kruegers
employment agreement.
Prior to the expiration of the agreement, if
Mr. Kruegers employment had been terminated by the
Company without cause or had been terminated by
Mr. Krueger for good reason, subject to
Mr. Kruegers execution of a release of claims, he
would have been entitled to (1) accrued benefits,
(2) an amount equal to Mr. Kruegers unpaid base
salary and guaranteed bonus through February 18, 2011 and
(3) continued coverage under the Companys medical
plan until the earlier of (a) the time he becomes eligible
for coverage from a new employer and (b) six months
following the date of termination. Following February 18,
2011, Mr. Krueger
152
continued as an employee at-will and will not be entitled to any
severance payments under his employment agreement upon any
subsequent termination.
Potential
Payments Upon Termination or Change in Control
The following table sets forth the value of benefits that would
have been payable to the NEOs assuming a termination of
employment or change of control on December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause Other than
|
|
|
Control,
|
|
|
|
|
|
|
|
|
|
|
|
|
After A Change in
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
Control or for Good
|
|
|
without
|
|
|
|
Death
|
|
|
Disability
|
|
|
Termination
|
|
|
Reason
|
|
|
Cause
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Jay Bray
|
|
|
5,461,593
|
(1)
|
|
|
5,461,593
|
(1)
|
|
|
|
|
|
|
5,461,593
|
(1)
|
|
|
5,461,593
|
(2)
|
Robert L. Appel
|
|
|
3,276,955
|
(1)
|
|
|
3,276,955
|
(1)
|
|
|
|
|
|
|
5,027,275
|
(2)(3)
|
|
|
5,027,275
|
(2)(3)
|
Amar Patel
|
|
|
2,184,638
|
(1)
|
|
|
2,184,638
|
(1)
|
|
|
|
|
|
|
2,184,638
|
(1)
|
|
|
2,184,638
|
(2)
|
Douglas Krueger
|
|
|
125,000
|
(4)
|
|
|
125,000
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony H. Barone
|
|
|
6,553,910
|
(1)
|
|
|
6,553,910
|
(1)
|
|
|
|
|
|
|
6,553,910
|
(1)
|
|
|
6,553,910
|
(2)
|
|
|
|
(1) |
|
Pursuant to the award agreements granting each of
Messrs. Barone, Bray, Appel and Patel units and RSUs, in
the event the NEOs employment terminates as a result of
the NEOs death, disability or voluntary resignation for
good reason or as a result of the Company terminating the
NEOs employment without cause other than in connection
with a change in control, an additional tranche of any
outstanding and unvested equity awards will become vested. |
|
(2) |
|
Pursuant to the award agreements granting each of
Messrs. Barone, Bray, Appel and Patel units and RSUs, in
the event the NEOs employment terminates as a result the
Company terminating the NEOs employment without cause
within 6 months following a change in control, all of the
NEOs outstanding and unvested equity awards will become
vested. |
|
(3) |
|
Pursuant to his employment agreement upon a termination without
cause, Mr. Appel will receive a severance payment of
$1,750,320 ($275,000 of salary continuation, $400,000 retention
bonus, $175,000 lump sum, $886,495 pro rated bonus (full year as
of December 31, 2011) and $13,825 medical benefits). The
remaining amount of $3,276,955 is pursuant to the unit and RSU
award agreements described in Note (2) above. |
|
(4) |
|
Pursuant to the Long-Term Incentive Plan, in the event of
termination due to death or disability Mr. Krueger will
receive a pro rata payout of his outstanding awards. |
Director
Compensation
Nationstar Mortgage Holdings Inc. has not yet paid any
compensation to our directors. Following completion of this
offering, we will pay an annual fee to each independent director
equal to $50,000, payable in semi-annual installments. In
addition, an annual fee of $10,000 will be paid to each member
of the audit committee of the board of directors, and an annual
fee of $5,000 will be paid to each member of the nominating and
corporate governance committee and the compensation committee of
the board of directors. The chairman of the audit committee will
receive an additional annual fee of $15,000. The chairmen of
board committees, other than the audit committee, will each
receive an additional fee of $5,000. Fees to independent
directors may be made by issuance of common stock, based on the
value of such common stock at the date of issuance, rather than
in cash, provided that any such issuance does not prevent such
director from being determined to be independent and such shares
are granted pursuant to a stockholder approved plan or the
issuance is otherwise exempt from NYSE listing requirements.
Affiliated directors, however, will not be separately
compensated by us. All members of the board of directors will be
reimbursed for reasonable costs and expenses incurred in
attending meetings of our board of directors. Following the
completion of this
153
offering, each independent director will be eligible to receive
awards of our common stock under the Plan described above.
The Nationstar Mortgage LLC Board of Managers is currently
comprised of three members elected by our unitholders: Anthony
Barone (Chairman), Peter Smith and Jay Bray. Each of Messrs.
Barone, Smith and Bray receives no payments in addition to what
has been described as a result of his service on the Board of
Managers (earned but unpaid salary, accrued but unpaid time off,
reimbursable business expenses, vested benefits and benefit
continuation pursuant to employee benefit plans).
154
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Under SEC rules, a related person is an officer, director,
nominee for director or beneficial holder of more than 5% of any
class of our voting securities since the beginning of the last
fiscal year or an immediate family member of any of the
foregoing. Our board of directors has approved a written related
party transaction policy that will take effect prior to
completion of this offering. Pursuant to this policy, directors
(including director nominees), executive officers and employees
are required to report to the General Counsel any transactions
or circumstances that may create or appear to create a conflict
between the personal interests of the individual and the
interests of the Company, regardless of the amount involved. The
General Counsel reports these transactions to the nominating and
corporate governance committee of the board of directors, which
is responsible for evaluating each related party transaction and
making a recommendation to the disinterested members of the
board of directors as to whether the transaction at issue is
fair, reasonable and within Company policy and whether it should
be ratified and approved. The nominating and corporate
governance committee, in making its recommendation, considers
various factors, including the benefit of the transaction to the
Company, the terms of the transaction and whether they are at
arms-length and in the ordinary course of the
Companys business, the direct or indirect nature of the
related persons interest in the transaction, the size and
expected term of the transaction, and other facts and
circumstances that bear on the materiality of the related party
transaction under applicable law and listing standards.
Prior to the adoption of the written policy, our board of
directors used similar processes and controls to obtain
information from our directors, executive officers and
significant stockholders regarding related party transactions
and then determined, based on the facts and circumstances,
whether we or a related person had a direct or indirect material
interest in these transactions. When considering potential
transactions involving a related party, our officers notified
our board of directors of the proposed transaction, provided a
brief background of the transaction and scheduled a meeting with
the board of directors to review the matter. At such meetings,
our Chief Executive Officer, Chief Financial Officer and other
members of management, as appropriate, provided information to
the board of directors regarding the proposed transaction, after
which the board of directors and management discussed the
transaction and the implications of engaging a related party as
opposed to an unrelated third party. If the board of directors
(or specified directors as required by applicable legal
requirements) determined that the transaction was in our best
interests, it voted to approve entering into the transaction
with the applicable related party.
Other than compensation agreements and other arrangements which
are described under Compensation Discussion and
Analysis and the transactions described below, since
January 1, 2011, there has not been, and there is not
currently proposed, any transaction or series of similar
transactions to which we were or will be a party in which the
amount involved exceeded or will exceed $120,000 and in which
any related person had or will have a direct or indirect
material interest.
We currently serve as the loan servicer for two securitized loan
portfolios managed by Newcastle Investment Corp.
(Newcastle), which is managed by an affiliate of
Fortress, for which we receive a monthly net servicing fee equal
to 0.5% per annum on the UPB of the portfolios. For the years
ended December 31, 2009, 2010 and 2011, we received
servicing fees of $7.5 million, $6.5 million and
$5.8 million, respectively. The outstanding UPB as of
December 31, 2010 and December 31, 2011, was
$1.2 billion and $1.1 billion, respectively.
In December 2011, we entered into a sale and assignment
agreement (the Sale Agreement) with an indirect
wholly owned subsidiary of Newcastle. We are an affiliate of
Newcastles manager, which is an affiliate of Fortress. We
acquired MSRs on a pool of agency residential mortgage loans in
September 2011 (the Portfolio). Pursuant to the Sale
Agreement, we sold to Newcastle the right to receive 65% of the
excess cash flow generated from the MSRs of the Portfolio after
receipt of a fixed basic servicing fee per loan. The sale price
was $43.7 million. We will retain all ancillary income
associated with servicing the Portfolio and 35% of the excess
cash flow after receipt of the fixed basic servicing fee. We
will continue to be the servicer of the loans and provide all
servicing and advancing functions for the Portfolio. Newcastle
will not have prior
155
or ongoing obligations associated with the Portfolio.
Contemporaneous with the above, in December 2011, we entered
into a refinanced loan agreement with Newcastle. Should we
refinance any loan in the Portfolio, subject to certain
limitations, we will be required to transfer the new loan or a
replacement loan of similar economic characteristics into the
Portfolio. The new or replacement loan will be governed by the
same terms set forth in the Sale Agreement described above. This
Sale Agreement will be accounted for as a financing arrangement
by us. The fair value on the outstanding note related to this
agreement was $44.6 million at December 31, 2011. Additionally,
as a component of the underlying agreement, Newcastle will be
required to remit to us a holdback amount of $3.3 million,
pending certain conditions being satisfied by us. Such amount is
recorded in accounts receivable.
We currently serve as the loan subservicer for three loan
portfolios managed by FCDB FF1 LLC, FCDB 8020 REO LLC, FCDB FF1
2008-1
Trust, FCDB UB 8020 Residential LLC and FCDB GMPL
2008-1
Trust, which is managed by an affiliate of Fortress, for which
we receive a monthly per loan subservicing fee and other
performance incentive fees subject to our agreement with them.
For the years ended December 31, 2009, December 31,
2010, and December 31, 2011, we received $1.0 million,
$0.6 million and $2.3 million of subservicing fees,
respectively. The outstanding UPB as of December 31, 2010
and December 31, 2011, was $121.1 million and
$2.1 million, respectively.
In September 2010, we entered into a marketing agreement with
Springleaf Home Equity, Inc., Springleaf Financial Services of
Arkansas, Inc. and MorEquity, Inc. (collectively, the
Entities), each of which is indirectly owned by
investment funds managed by affiliates of Fortress. Pursuant to
this agreement, we market our mortgage origination products to
customers of the Entities, and are compensated by the
origination fees of loans that we refinance. For the years ended
December 31, 2010 and December 31, 2011, we recognized
revenue of $0.4 million and $3.2 million,
respectively. The marketing agreement is set to expire on
December 31, 2012. Additionally, in January 2011, we entered
into three agreements to act as the loan subservicer for the
Entities for a whole loan portfolio and two securitized loan
portfolios totaling $4.4 billion for which we receive a
monthly per loan subservicing fee and other performance
incentive fees subject to our agreement with the Entities. For
the year ended December 31, 2011, we recognized revenue of
$9.9 million in additional servicing and other performance
incentive fees related to these portfolios.
In March 2011, we entered into a limited partnership agreement
with ANC. ANC is the parent company of NREIS which through the
ANC partnership we hold a non-controlling interest in NREIS, an
ancillary real estate services and vendor management company
that directly and indirectly provides title agency settlement or
valuation services for loan originations and default management.
We offer these adjacent services in connection with loans we
currently service, as well as on a third party basis in exchange
for base and/or incentive fees. In addition to enhancing our
core businesses, these adjacent services present an opportunity
to increase future earnings with minimal capital investment,
including by expanding the services we provide to large banks
and other financial institutions seeking to outsource these
functions to a third party. As we are able to exercise
significant influence, but not control, over the policies and
procedures of the entity, and we own less than 50% of the voting
interest, we apply the equity method of accounting. During the
year ended December 31, 2011 we disbursed $4.9 million
for servicing-related advances.
Stockholders
Agreement
General
On February 17, 2012, we entered into the Stockholders
Agreement with the Initial Stockholder.
As discussed further below, the Stockholders Agreement provides
certain rights to the Initial Stockholder with respect to the
designation of directors for nomination and election to our
board of directors, as well as registration rights for certain
of our securities owned by the Fortress Stockholders.
156
Our Stockholders Agreement provides that the parties thereto
will use their respective reasonable efforts (including voting
or causing to be voted all of our voting shares beneficially
owned by each) so that no amendment is made to our amended and
restated certificate of incorporation or amended and restated
bylaws in effect as of the date of the Stockholders Agreement
that would add restrictions to the transferability of our shares
by the Initial Stockholder or its permitted transferees which
are beyond those provided for in our amended and restated
certificate of incorporation, amended and restated bylaws, the
Stockholders Agreement or applicable securities laws, or that
nullify the rights set out in the Stockholders Agreement of the
Initial Stockholder or its permitted transferees unless such
amendment is approved by the Initial Stockholder.
Designation
and Election of Directors
Our Stockholders Agreement provides that, for so long as the
Stockholders Agreement is in effect, we and the Fortress
Stockholders shall take all reasonable actions within our
respective control (including voting or causing to be voted all
of the securities entitled to vote generally in the election of
our directors held of record or beneficially owned by the
Fortress Stockholders, and, with respect to us, including in the
slate of nominees recommended by the board those individuals
designated by the Initial Stockholder) so as to elect to
the board, and to cause to continue in office, not more than
six directors (or such other number as the Initial
Stockholder may agree in writing), of whom, at any given time:
|
|
|
|
|
a number of directors equal to a majority of the board of
directors shall be individuals designated by the Initial
Stockholder, for so long as the Fortress Stockholders
beneficially own at least 40% of our voting power, provided that
if the board consists of more than six directors, then the
Initial Stockholder shall have the right to designate a number
of directors equal to a majority of the board plus one director;
|
|
|
|
at least three directors shall be individuals designated by
the Initial Stockholder, for so long as the Fortress
Stockholders beneficially own less than 40% but at least 20% of
our voting power, provided that if the board of directors
consists of more than six directors, then the Initial
Stockholder shall have the right to designate a number of
directors equal to a majority of the board minus one director;
|
|
|
|
at least two directors shall be individuals designated by
the Initial Stockholder for so long as the Fortress Stockholders
beneficially own less than 20% but at least 10% of our voting
power, provided that if the board of directors consists of more
than six directors, then the Initial Stockholder shall have
the right to designate a number of directors (rounded up to the
nearest whole number) that would be required to maintain the
Initial Stockholders proportional representation on the
board of directors; and
|
|
|
|
at least one director shall be an individual designated by
the Initial Stockholder for so long as the Fortress Stockholders
beneficially own less than 10% but at least 5% of our voting
power, provided that if the board of directors consists of more
than six directors, then the Initial Stockholder shall have
the right to designate a number of directors (rounded up to the
nearest whole number) that would be required to maintain the
Initial Stockholders proportional representation on the
board of directors.
|
In accordance with the Stockholders Agreement, the Initial
Stockholder has designated Messrs. Edens, Gidel, Guthrie,
Hawkins and Malone for election to our board of directors.
Registration
Rights
Demand Rights. Under our Stockholders
Agreement, the Fortress Stockholders have, for so long as the
Fortress Stockholders beneficially own an amount of our common
stock (whether owned at the time of
157
this offering or subsequently acquired) equal to or greater
than 1% of our shares of common stock issued and outstanding
immediately after the consummation of this offering (a
Registrable Amount), demand registration
rights that allow the Fortress Stockholders, at any time after
180 days following the consummation of this offering, to
request that we register under the Securities Act an amount
equal to or greater than a Registrable Amount. The Fortress
Stockholders are entitled to unlimited demand registrations so
long as such persons, together, beneficially own a Registrable
Amount. We are also not required to effect any demand
registration within three months of a firm
commitment underwritten offering to which the requestor
held piggyback rights, described below, and which
included at least 50% of the shares of common stock requested by
the requestor to be included. We are not obligated to grant a
request for a demand registration within three months of any
other demand registration.
Piggyback Rights. For so long as the Fortress
Stockholders beneficially own an amount of our common stock
equal to or greater than 1% of our common stock issued and
outstanding immediately after the consummation of this offering,
such Fortress Stockholders also have piggyback
registration rights that allow them to include the common stock
that they own in any public offering of equity securities
initiated by us (other than those public offerings pursuant to
registration statements on
Forms S-4
or S-8 or
pursuant to an employee benefit plan arrangement) or by any of
our other stockholders that have registration rights. The
piggyback registration rights of the Fortress
Stockholders are subject to proportional cutbacks based on the
manner of the offering and the identity of the party initiating
such offering.
Shelf Registration. Under our Stockholders
Agreement, we have granted to the Initial Stockholder or any of
its respective permitted transferees, for so long as it
beneficially owns a Registrable Amount, the right to request a
shelf registration on
Form S-3
providing for offerings of our common stock to be made on a
continuous basis until all shares covered by such registration
have been sold, subject to our right to suspend the use of the
shelf registration prospectuses for a reasonable period of time
(not exceeding 60 days in succession or 90 days in the
aggregate in any 12 month period) if we determine that
certain disclosures required by the shelf registration
statements would be detrimental to us or our stockholders. In
addition, the Initial Stockholder may elect to participate in
such shelf registrations within ten days after notice of the
registration is given.
Indemnification; Expenses; Lock-ups. Under our
Stockholders Agreement, we have agreed to indemnify the
applicable selling stockholder and its officers, directors,
employees, managers, members partners, agents and controlling
persons against any losses or damages resulting from any untrue
statement or omission of material fact in any registration
statement or prospectus pursuant to which it sells shares of our
common stock, unless such liability arose from the applicable
selling stockholders misstatement or omission, and the
applicable selling stockholder has agreed to indemnify us
against all losses caused by its misstatements or omissions. We
will pay all registration expenses incidental to our performance
under the Stockholders Agreement, and the applicable selling
stockholder will pay its portion of all underwriting discounts,
commissions and transfer taxes, if any, relating to the sale of
its shares of common stock under the Stockholders Agreement. We
have agreed to enter into, and to cause our officers and
directors to enter into, lock-up agreements in connection with
any exercise of registration rights by the Fortress Stockholders.
158
PRINCIPAL
STOCKHOLDER
Prior to this offering, all of the shares of outstanding common
stock of Nationstar Mortgage Holdings Inc. were owned by the
Initial Stockholder, FIF HE Holdings LLC.
The following table sets forth information regarding the
ownership of our common stock. Other than the Initial
Stockholder and its direct and indirect equity holders, we are
not aware of any person, or group of affiliated persons, who
beneficially owns more than five percent of our outstanding
common stock. The percentage of beneficial ownership is based on
70,000,000 shares of common stock outstanding prior to this
offering, and 86,666,667 shares of common stock to be
outstanding after the completion of this offering, in each case,
after giving effect to the Restructuring and the 70,000 for
1 stock split (which will be effective prior to the completion
of this offering), and assuming no exercise of the
underwriters overallotment option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Number of Shares
|
|
|
|
Beneficially Owned
|
|
|
Beneficially Owned
|
|
|
|
Prior to the Offering
|
|
|
After the Offering
|
|
|
|
Number
|
|
|
Percentage
|
|
|
Number
|
|
|
Percentage
|
|
Name
|
|
of Shares
|
|
|
of Shares
|
|
|
of Shares
|
|
|
of Shares
|
|
|
Initial
Stockholder(1)
|
|
|
70,000,000
|
|
|
|
100
|
%
|
|
|
70,000,000
|
|
|
|
80.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
FIF HE Holdings LLC. The address of the Initial Stockholder is
c/o Fortress
Investment Group LLC, 1345 Avenue of the Americas, 46th Floor,
New York, New York 10105. The text below contains information
with respect to the beneficial ownership the Initial Stockholder. |
The following table sets forth information as of
January 31, 2012 regarding the beneficial ownership of the
Initial Stockholders issued and outstanding
Series 1 units by:
|
|
|
|
|
each person or group who is known by us to own beneficially more
than 5% of the Initial Stockholders issued and outstanding
Series 1 Class A units;
|
|
|
|
each of our directors;
|
|
|
|
each of our NEOs; and
|
|
|
|
all of our directors and executive officers as a group.
|
Beneficial ownership for the purposes of the following table is
determined in accordance with the rules and regulations of the
SEC. These rules generally provide that a person is the
beneficial owner of securities if such person has or shares the
power to vote or direct the voting of securities, or to dispose
or direct the disposition of securities or has the right to
acquire such powers within 60 days. The information does
not necessarily indicate beneficial ownership for any other
purpose. Except as disclosed in the footnotes to this table and
subject to applicable community property laws, we believe that
each beneficial owner identified in the table possesses sole
voting and investment power over all Series 1 units
shown as beneficially owned by the beneficial owner. For
purposes of the calculations in the table below, the number of
Series 1 units deemed outstanding includes
Series 1 units issuable upon exercise of options held
by the respective person which may be exercised within
60 days after January 31, 2012. For purposes of
calculating each persons percentage ownership,
Series 1 units issuable pursuant to options
exercisable within 60 days after January 31, 2012 are
included as outstanding and beneficially owned for that person
or group, but are not deemed outstanding for the purposes of
computing the percentage ownership of any other person. Unless
otherwise indicated in the table or footnotes below, the address
for each beneficial owner is
c/o Nationstar
Mortgage LLC, 350 Highland Drive, Lewisville, Texas 75067.
159
The Initial Stockholder has four types of issued and outstanding
Series 1 units. Series 1 Class A units have
voting rights. Series 1 Class B preferred units,
Series 1 Class C preferred units and Series 1
Class D units do not have voting rights. The percentage of
beneficial ownership of the Initial Stockholders
Series 1 units is based on 13,210,932 Series 1
Class A units, 1,000 Series 1 Class B units,
81,938,773 Series 1 Class C preferred units and
83,028,948 Series 1 Class D preferred units issued and
outstanding as of January 31, 2012. The table excludes the
Series 1 Class B units as they are beneficially owned
by the Initial Stockholder and an employee who is not an
executive officer or director. The table assumes that the
underwriters will not exercise their overallotment option. None
of our executive officers, NEOs or directors, other than those
set forth below, holds units in the Initial Stockholder.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Beneficially
|
|
|
|
|
Owned
|
|
|
|
|
Number of
|
|
|
Percentage of
|
|
|
|
|
Series 1
Units(1)
|
|
|
Series 1
Units(1)
|
|
|
|
|
Series 1
|
|
|
Series 1
|
|
|
Series 1
|
|
|
Series 1
|
|
|
|
Series 1
|
|
|
|
Series 1
|
|
|
Name of Beneficial Owner
|
|
Class A
|
|
|
Class C
|
|
|
Class D
|
|
|
Class A
|
|
|
|
Class C
|
|
|
|
Class D
|
|
|
Executive Officers, NEOs and Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony H. Barone
|
|
|
104,828
|
|
|
|
531,037
|
|
|
|
537,552
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
Jay Bray
|
|
|
77,473
|
|
|
|
442,530
|
|
|
|
447,959
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
Robert Appel
|
|
|
44,744
|
|
|
|
340,725
|
|
|
|
345,262
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
Amar Patel
|
|
|
31,116
|
|
|
|
227,149
|
|
|
|
230,175
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
Douglas Krueger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
All executive officers, NEOs and directors as a group
(5 persons)
|
|
|
258,161
|
|
|
|
1,541,441
|
|
|
|
1,560,948
|
|
|
|
2.0
|
|
%
|
|
|
1.9
|
|
%
|
|
|
1.9
|
|
%
|
5% Interest holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fortress Fund III
Funds(2)
|
|
|
6,434,408
|
|
|
|
40,198,666
|
|
|
|
20,147,999
|
|
|
|
48.7
|
|
%
|
|
|
49.1
|
|
%
|
|
|
24.3
|
|
%
|
Fortress Fund IV
Funds(2)
|
|
|
6,434,411
|
|
|
|
40,198,666
|
|
|
|
61,320,001
|
|
|
|
48.7
|
|
%
|
|
|
49.1
|
|
%
|
|
|
73.9
|
|
%
|
|
|
|
(1) |
|
The Initial Stockholder issues its equity interests in two
series, each of which relates to certain specified assets of the
LLC: Series 1 units, which relate to all the issued
and outstanding membership interests in Nationstar Mortgage LLC;
and Series 2 units, which relate to equity interests
in a separate entity, which is not a subsidiary of Nationstar
Mortgage LLC. Certain executive compensation arrangements
include equity grants of the Series 2 units of our
Initial Stockholder. See Compensation Discussion and
Analysis. |
|
|
|
(2) |
|
Fortress Fund III Funds represent Fortress Investment
Fund III LP, Fortress Investment Fund III
(Fund B) LP, Fortress Investment Fund III
(Fund C) LP, Fortress Investment Fund III (Fund
D) L.P., Fortress Investment Fund III
(Fund E) L.P., FIF III B HE BLKR LLC, and FIF III C HE
BLKR LLC. Fortress Fund IV Funds represent Fortress
Investment Fund IV (Fund A) L.P., Fortress
Investment Fund IV (Fund B) L.P., Fortress
Investment Fund IV (Fund C) L.P., Fortress
Investment Fund IV (Fund D) L.P., Fortress
Investment Fund IV (Fund E) L.P., Fortress
Investment Fund IV (Fund F) L.P. and Fortress
Investment Fund IV (Fund G) L.P., FIF IV B HE
BLKR LLC and FIF IV CFG HE BLKR LLC. Fortress Fund III GP
LLC is the general partner of each of the Fortress Fund III
Funds (excluding FIF III B HE BLKR LLC and FIF III C HE BLKR
LLC, which are wholly owned by Fortress Investment Fund III
(Fund B) L.P. and Fortress Investment Fund III
(Fund C) L.P., respectively). The sole managing member
of Fortress Fund III GP LLC is Fortress Investment
Fund GP (Holdings) LLC. The sole managing member of
Fortress Investment Fund III GP (Holdings) LLC is Fortress
Operating Entity I LP (FOE I). FIG Corp. is the
general partner of FOE I, and FIG Corp. is wholly owned by
Fortress Investment Group LLC. Fortress Fund IV GP L.P. is
the general partner of each of the Fortress Fund IV Funds
(excluding FIF IV HE BLKR LLC and FIF IV CFG HE BLKR LLC, which
are wholly owned by Fortress Investment Fund IV
(Fund B) L.P., and Fortress Investment Fund IV
(Fund C) L.P., Fortress Investment Fund IV
(Fund F) L.P. and Fortress Investment Fund IV
(Fund G) L.P., respectively). Fortress Fund IV GP
Holdings Ltd. is the general partner of Fortress Fund IV GP
L.P. Fortress Fund IV GP Holdings Ltd. is wholly owned by
FOE I. FIG Corp. is the general partner of FOE I. FIG Corp. is
wholly owned by Fortress Investment Group LLC |
160
|
|
|
|
|
(Fortress). As of January 31, 2012, Wesley R.
Edens owned approximately 14.14% of Fortress. By virtue of his
ownership interest in Fortress and certain of its affiliates, as
well as his role in advising certain investment funds,
Wesley R. Edens may be deemed to be the natural person
that has sole voting and investment control over the shares
listed as beneficially owned by the Initial Stockholder. Mr.
Edens disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein. The address of all
persons listed above is c/o Fortress Investment Group LLC, 1345
Avenue of the Americas, 46th Floor, New York, New York 10105. |
Unit
Exchange
Certain of our current and former members of management (the
Eligible Participants) previously received
Series 1 Class A units of the Initial Stockholder as
consideration for services provided to Nationstar Mortgage LLC
and its subsidiaries. In connection with this offering, the
Initial Stockholder is offering to these Eligible Participants
the opportunity to exchange their Series 1 Class A
units for shares of our common stock that are currently held by
the Initial Stockholder in the Unit Exchange. Eligible
Participants that accept the Unit Exchange on or before the
pricing of this offering will be eligible to receive a number of
shares of our common stock based upon a formula tied to the
initial public offering price per share in this offering. The
Unit Exchange will not affect the number of shares of our common
stock outstanding after this offering, as all shares that are
being offered in exchange for the units are currently held by
the Initial Stockholder. Each Eligible Participant will receive
4.005 shares of our common stock for each Series 1
Class A unit (based upon the midpoint of the estimated
initial public offering price range set forth on the cover of
this prospectus). To the extent that any of the Eligible
Participants Series 1 Class A units have already
vested, the grant offered to such Eligible Participants in
redemption of such units will vest upon grant by us. To the
extent that any of these units have not vested at the time of
the Unit Exchange, we anticipate that the grants offered to such
Eligible Participants in redemption of such units will, to the
greatest extent reasonably possible, vest in such amounts, at
such times and upon such terms as the original unvested units.
The following table sets forth the number of shares and
percentage of shares of our common stock that the Initial
Stockholder, each of our current executive officers, NEOs and
directors, and all of our executive officers, NEOs and directors
as a group, would own if each of the Eligible Participants
accepts the Unit Exchange on or prior to the pricing of the
offer made hereby (based upon the midpoint of the estimated
initial public offering price range set forth on the cover of
this prospectus). None of our executive officers, NEOs or
directors, other than those set forth below, will receive any
shares of our common stock in the Unit Exchange.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Beneficially
|
|
|
Owned After this
Offering(1)
|
|
|
Number of
|
|
Percentage of
|
Name of Beneficial Owner
|
|
Shares
|
|
Shares
|
|
Initial Stockholder
|
|
|
68,657,915
|
|
|
|
79.2
|
%
|
Executive Officers, NEOs and Directors
|
|
|
|
|
|
|
|
|
Anthony H. Barone
|
|
|
419,852
|
|
|
|
*
|
|
Jay Bray
|
|
|
310,291
|
|
|
|
*
|
|
Robert Appel
|
|
|
179,206
|
|
|
|
*
|
|
Amar Patel
|
|
|
124,624
|
|
|
|
*
|
|
Douglas Krueger
|
|
|
|
|
|
|
|
|
All executive officers, NEOs and directors as a group
(12 persons)
|
|
|
1,033,973
|
|
|
|
1.2
|
%
|
|
|
|
(1) |
|
Does not include 1,030,558 unvested shares of restricted stock
that we expect to grant to certain of our executive officers,
directors and employees in connection with this offering. |
161
DESCRIPTION
OF CAPITAL STOCK
The following descriptions are summaries of the material
terms of our amended and restated certificate of incorporation
and amended and restated bylaws. These descriptions contain all
information which we consider to be material, but may not
contain all of the information that is important to you. To
understand them fully, you should read our amended and restated
certificate of incorporation and amended and restated bylaws,
copies of which are filed with the SEC as exhibits to the
registration statement of which this prospectus is a part.
Please note that, with respect to any of our shares held in
book-entry form through The Depository Trust Company or any
other share depositary, the depositary or its nominee will be
the sole registered and legal owner of those shares, and
references in this prospectus to any stockholder or
holder of those shares means only the depositary or
its nominee. Persons who hold beneficial interests in our shares
through a depositary will not be registered or legal owners of
those shares and will not be recognized as such for any purpose.
For example, only the depositary or its nominee will be entitled
to vote the shares held through it, and any dividends or other
distributions to be paid, and any notices to be given, in
respect of those shares will be paid or given only to the
depositary or its nominee. Owners of beneficial interests in
those shares will have to look solely to the depositary with
respect to any benefits of share ownership, and any rights they
may have with respect to those shares will be governed by the
rules of the depositary, which are subject to change from time
to time. We have no responsibility for those rules or their
application to any interests held through the depositary.
Under our amended and restated certificate of incorporation, our
authorized capital stock consists of:
|
|
|
|
|
1,000,000,000 shares of common stock, par value $0.01 per
share; and
|
|
|
|
300,000,000 preferred shares, par value $0.01 per share.
|
Upon completion of this offering, there will be outstanding
86,666,667 shares of common stock after giving effect to
the Restructuring and the 70,000 for 1 stock split, (which
will be effective prior to the completion of this offering), and
assuming no exercise of the underwriters overallotment
option, and no outstanding shares of preferred stock.
The following is a description of the material terms of our
amended and restated certificate of incorporation and amended
and restated bylaws. We refer you to our amended and restated
certificate of incorporation and amended and restated bylaws,
copies of which have been filed with the SEC as exhibits to our
registration statement of which this prospectus forms a part.
Common
Stock
Each holder of common stock is entitled to one vote for each
share of common stock held on all matters submitted to a vote of
stockholders. Except as provided with respect to any other class
or series of stock, the holders of our common stock will possess
the exclusive right to vote for the election of directors and
for all other purposes. Our amended and restated certificate of
incorporation does not provide for cumulative voting in the
election of directors, which means that the holders of a
majority of the outstanding shares of common stock can elect all
of the directors standing for election, and the holders of the
remaining shares are not able to elect any directors; provided,
however, that pursuant to the Stockholders Agreement that we
have entered into with the Initial Stockholder, we are required
to take all reasonable actions within our control (including
nominating as directors the individuals designated by the
Initial Stockholder) so that up to a majority (or other
number, depending upon the level of ownership of the Initial
Stockholder) of the members of our board of directors are
individuals designated by the Initial Stockholder.
162
Subject to any preference rights of holders of any preferred
stock that we may issue in the future, holders of our common
stock are entitled to receive dividends, if any, declared from
time to time by our board of directors out of legally available
funds. In the event of our liquidation, dissolution or winding
up, the holders of our common stock are entitled to share
ratably in all assets remaining after the payment of
liabilities, subject to any rights of holders of our preferred
stock prior to distribution.
Holders of our common stock have no preemptive, subscription,
redemption or conversion rights. Any shares of common stock sold
under this prospectus will be validly issued, fully paid and
nonassessable upon issuance against full payment of the purchase
price for such shares.
Preferred
Stock
Our board of directors has the authority, without action by our
stockholders, to issue preferred stock and to fix voting powers
for each class or series of preferred stock, and to provide that
any class or series may be subject to redemption, entitled to
receive dividends, entitled to rights upon dissolution, or
convertible or exchangeable for shares of any other class or
classes of capital stock. The rights with respect to a series or
class of preferred stock may be greater than the rights attached
to our common stock. It is not possible to state the actual
effect of the issuance of any shares of our preferred stock on
the rights of holders of our common stock until our board of
directors determines the specific rights attached to that
preferred stock. The effect of issuing preferred stock could
include, among other things, one or more of the following:
|
|
|
|
|
restricting dividends in respect of our common stock;
|
|
|
|
diluting the voting power of our common stock or providing that
holders of preferred stock have the right to vote on matters as
a class;
|
|
|
|
impairing the liquidation rights of our common stock; or
|
|
|
|
delaying or preventing a change of control of us.
|
Stockholders
Agreement
For a description of the Stockholders Agreement that we have
entered into with the Initial Stockholder, see Certain
Relationships and Related Party TransactionsStockholders
Agreement.
Anti-Takeover
Effects of Delaware Law, Our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws
The following is a summary of certain provisions of our amended
and restated certificate of incorporation and amended and
restated bylaws that may be deemed to have an anti-takeover
effect and may delay, deter or prevent a tender offer or
takeover attempt that a stockholder might consider to be in its
best interest, including those attempts that might result in a
premium over the market price for the shares held by
stockholders.
Authorized
but Unissued Shares
The authorized but unissued shares of our common stock and our
preferred stock will be available for future issuance without
obtaining stockholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of
authorized but unissued shares of our common stock and preferred
stock could render more difficult or discourage an attempt to
obtain control over us by means of a proxy contest, tender
offer, merger or otherwise.
163
Delaware
Business Combination Statute
We are organized under Delaware law. Some provisions of Delaware
law may delay or prevent a transaction that would cause a change
in our control.
Our amended and restated certificate of incorporation provides
that Section 203 of the Delaware General Corporation Law,
as amended, an anti-takeover law, will not apply to us. In
general, this statute prohibits a publicly held Delaware
corporation from engaging in a business combination with an
interested stockholder for a period of three years after the
date of the transaction by which that person became an
interested stockholder, unless the business combination is
approved in a prescribed manner. For purposes of
Section 203, a business combination includes a merger,
asset sale or other transaction resulting in a financial benefit
to the interested stockholder, and an interested stockholder is
a person who, together with affiliates and associates, owns, or
within three years prior, did own, 15% or more of voting stock.
Other
Provisions of Our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws
Our amended and restated certificate of incorporation provides
for a staggered board of directors consisting of three classes
of directors. Directors of each class are chosen for three-year
terms upon the expiration of their current terms and each year
one class of our directors will be elected by our stockholders.
The terms of the first, second and third classes will expire in
2013, 2014 and 2015, respectively. We believe that
classification of our board of directors will help to assure the
continuity and stability of our business strategies and policies
as determined by our board of directors. Additionally, there is
no cumulative voting in the election of directors. This
classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and
difficult. At least two annual meetings of stockholders, instead
of one, will generally be required to effect a change in a
majority of our board of directors. Thus, the classified board
provision could increase the likelihood that incumbent directors
will retain their positions. The staggered terms of directors
may delay, defer or prevent a tender offer or an attempt to
change control of us, even though a tender offer or change in
control might be believed by our stockholders to be in their
best interest. In addition, our amended and restated certificate
of incorporation and amended and restated bylaws provide that
directors may be removed only for cause and only with the
affirmative vote of at least 80% of the voting interest of
stockholders entitled to vote; provided, however, that for so
long as the Fortress Stockholders beneficially own at least 40%
of our issued and outstanding common stock, directors may be
removed with or without cause with the affirmative vote of a
majority of the voting interest of stockholders entitled to vote.
Pursuant to our amended and restated certificate of
incorporation, shares of our preferred stock may be issued from
time to time, and the board of directors is authorized to
determine and alter all rights, preferences, privileges,
qualifications, limitations and restrictions without limitation.
See Preferred Stock.
Ability
of our Stockholders to Act
Our amended and restated certificate of incorporation and
amended and restated bylaws do not permit our stockholders to
call special stockholders meetings; provided, however, that for
so long as the Fortress Stockholders beneficially own at least
25% of our issued and outstanding common stock, any stockholders
that collectively beneficially own at least 25% of our issued
and outstanding common stock may call special meetings of our
stockholders. Written notice of any special meeting so called
shall be given to each stockholder of record entitled to vote at
such meeting not less than 10 or more than 60 days before
the date of such meeting, unless otherwise required by law.
Under our amended and restated certificate of incorporation and
amended and restated bylaws, any action required or permitted to
be taken at a meeting of our stockholders may be taken without a
meeting by written consent of a majority of our stockholders for
so long as the Fortress Stockholders beneficially own at least
25% of our issued and outstanding common stock. After the
Fortress Stockholders beneficially own less
164
than 25% of our issued and outstanding stock, only action by
unanimous written consent of our stockholders can be taken
without a meeting.
Our amended and restated bylaws provide that nominations of
persons for election to our board of directors may be made at
any annual meeting of our stockholders, or at any special
meeting of our stockholders called for the purpose of electing
directors, (a) by or at the direction of our board of
directors or (b) by any of our stockholders. In addition to
any other applicable requirements, for a nomination to be
properly brought by a stockholder, such stockholder must have
given timely notice thereof in proper written form to our
Secretary of the Company. To be timely, a stockholders
notice must be delivered to or mailed and received at our
principal executive offices (a) in the case of an annual
meeting of stockholders, not less than 90 days nor more
than 120 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for
a date that is not within 30 days before or after such
anniversary date, notice by a stockholder in order to be timely
must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure of the
date of the annual meeting was made, whichever first occurs; and
(b) in the case of a special meeting of our stockholders
called for the purpose of electing directors, not later than the
close of business on the tenth day following the day on which
notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made,
whichever first occurs.
Our amended and restated bylaws provide that no business may be
transacted at any annual meeting of our stockholders, other than
business that is either (a) specified in the notice of
meeting given by or at the direction of our board of directors,
(b) otherwise properly brought before the annual meeting by
or at the direction of our board of directors, or
(c) otherwise properly brought by any of our stockholders.
In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a
stockholder, such stockholder must have given timely notice
thereof in proper written form to our Secretary. To be timely, a
stockholders notice must be delivered to or mailed and
received at our principal executive offices not less than
90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within
30 days before or after such anniversary date, notice by a
stockholder in order to be timely must be so received not later
than the close of business on the tenth day following the day on
which such notice of the date of the annual meeting was mailed
or such public disclosure of the date of the annual meeting was
made, whichever first occurs.
Limitations
on Liability and Indemnification of Directors and
Officers
Our amended and restated certificate of incorporation provides
that our directors will not be personally liable to us or our
stockholders for monetary damages for breach of a fiduciary duty
as a director, except for the following (to the extent such
exemption is not permitted under the Delaware General
Corporation Law, as amended from time to time):
|
|
|
|
|
any breach of the directors duty of loyalty to us or our
stockholders;
|
|
|
|
intentional misconduct or a knowing violation of law;
|
|
|
|
liability under Delaware corporate law for an unlawful payment
of dividends or an unlawful stock purchase or redemption of
stock; or
|
|
|
|
any transaction from which the director derives an improper
personal benefit.
|
Our amended and restated certificate of incorporation and
amended and restated bylaws provide that we must indemnify our
directors and officers to the fullest extent permitted by law.
We are also expressly authorized to advance certain expenses
(including attorneys fees and disbursements and court
costs) to our directors and officers and carry directors
and officers insurance providing indemnification for our
directors
165
and officers for some liabilities. We believe that these
indemnification provisions and insurance are useful to attract
and retain qualified directors and executive officers.
Prior to the completion of this offering, we intend to enter
into separate indemnification agreements with each of our
directors and executive officers. Each indemnification agreement
will provide, among other things, for indemnification to the
fullest extent permitted by law and our amended and restated
certificate of incorporation against (i) any and all
expenses and liabilities, including judgments, fines, penalties
and amounts paid in settlement of any claim with our approval
and counsel fees and disbursements, (ii) any liability
pursuant to a loan guarantee, or otherwise, for any of our
indebtedness, and (iii) any liabilities incurred as a
result of acting on our behalf (as a fiduciary or otherwise) in
connection with an employee benefit plan. The indemnification
agreements will provide for the advancement or payment of all
expenses to the indemnitee and for reimbursement to us if it is
found that such indemnitee is not entitled to such
indemnification under applicable law and our amended and
restated certificate of incorporation. These provisions and
agreements may have the practical effect in some cases of
eliminating our stockholders ability to collect monetary
damages from our directors and executive officers.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, we have been informed that, in the opinion of the
SEC such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
Corporate
Opportunity
Under our amended and restated certificate of incorporation, to
the extent permitted by law:
|
|
|
|
|
the Fortress Stockholders have the right to, and have no duty to
abstain from, exercising such right to, engage or invest in the
same or similar business as us, do business with any of our
clients, customers or vendors or employ or otherwise engage any
of our officers, directors or employees;
|
|
|
|
if the Fortress Stockholders or any of their officers, directors
or employees acquire knowledge of a potential transaction that
could be a corporate opportunity, they have no duty to offer
such corporate opportunity to us, our stockholders or affiliates;
|
|
|
|
we have renounced any interest or expectancy in, or in being
offered an opportunity to participate in, such corporate
opportunities; and
|
|
|
|
in the event that any of our directors and officers who is also
a director, officer or employee of any of the Fortress
Stockholders acquires knowledge of a corporate opportunity or is
offered a corporate opportunity, provided that this knowledge
was not acquired solely in such persons capacity as our
director or officer and such person acted in good faith, then
such person is deemed to have fully satisfied such persons
fiduciary duty and is not liable to us if any of the Fortress
Stockholders pursues or acquires such corporate opportunity or
if such person did not present the corporate opportunity to us.
|
Transfer
Agent
The registrar and transfer agent for our common stock is
American Stock Transfer and Trust Company, LLC.
Listing
Our common stock has been approved for listing on the NYSE under
the symbol NSM.
166
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
common stock, and we cannot predict the effect, if any, that
sales of shares or availability of any shares for sale will have
on the market price of our common stock prevailing from time to
time. Sales of substantial amounts of common stock (including
shares issued on the exercise of options, warrants or
convertible securities, if any) or the perception that such
sales could occur, could adversely affect the market price of
our common stock and our ability to raise additional capital
through a future sale of securities.
Upon completion of this offering, we will have
86,666,667 shares of common stock issued and outstanding
(or a maximum of 89,166,667 shares if the underwriters
exercise their overallotment option in full). All of the
16,666,667 shares of our common stock sold in this offering
(or 19,166,667 shares if the underwriters exercise their
overallotment option in full) will be freely tradable without
restriction or further registration under the Securities Act
unless such shares are purchased by affiliates as
that term is defined in Rule 144 under the Securities Act.
Upon completion of this offering, approximately 80.8% of our
outstanding common stock will be held by the Initial
Stockholder. These shares will be restricted
securities as that phrase is defined in Rule 144.
Subject to certain contractual restrictions, including the
lock-up
agreements described below, holders of restricted shares will be
entitled to sell those shares in the public market if they
qualify for an exemption from registration under Rule 144
or any other applicable exemption under the Securities Act.
Subject to the
lock-up
agreements described below and the provisions of Rules 144
and 701, additional shares will be available for sale as set
forth below.
Lock-Up
Agreements
We and our executive officers, directors and the Initial
Stockholder have agreed with the underwriters that, subject to
certain exceptions, for a period of 180 days after the date
of this prospectus, we and they will not directly or indirectly
offer, pledge, sell, contract to sell, sell any option or
contract to purchase or otherwise dispose of any common stock or
any securities convertible into or exercisable or exchangeable
for common stock, or in any manner transfer all or a portion of
the economic consequences associated with the ownership of
common stock, or cause a registration statement covering any
common stock to be filed, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. See
UnderwritingNo Sales of Similar Securities.
Merrill Lynch, Pierce, Fenner & Smith Incorporated may
waive these restrictions at its discretion.
The 180-day restricted period described in the preceding
paragraph will be automatically extended if (i) during the
last 17 days of the 180-day restricted period we issue an
earnings release or announce material news or a material event
relating to us occurs or (ii) prior to the expiration of
the 180-day restricted period, we announce that we will release
earnings results during the
16-day
period beginning on the last day of the 180-day restricted
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event, unless
Merrill Lynch, Pierce, Fenner & Smith Incorporated provides
a written waiver of such extension. Merrill Lynch, Pierce,
Fenner & Smith Incorporated has no present intent or
arrangement to release any of the securities subject to these
lock-up
agreements. The release of any
lock-up is
considered on a case by case basis. Factors in deciding whether
to release shares may include the length of time before the
lock-up
expires, the number of shares involved, the reason for the
requested release, market conditions, the trading price of our
common stock, historical trading volumes of our common stock and
whether the person seeking the release is an officer, director
or affiliate of the Company.
Rule 144
In general, under Rule 144 under the Securities Act, a
person (or persons whose shares are aggregated) who is not
deemed to have been an affiliate of ours at any time during the
three months preceding a sale, and who has beneficially owned
restricted securities within the meaning of Rule 144 for at
least six
167
months (including any period of consecutive ownership of
preceding non-affiliated holders) would be entitled to sell
those shares, subject only to the availability of current public
information about us. A non-affiliated person who has
beneficially owned restricted securities within the meaning of
Rule 144 for at least one year would be entitled to sell
those shares without regard to the provisions of Rule 144.
A person (or persons whose shares are aggregated) who is deemed
to be an affiliate of ours and who has beneficially owned
restricted securities within the meaning of Rule 144 for at
least six months would be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding shares of our
common stock or the average weekly trading volume of our common
stock reported through the NYSE during the four calendar weeks
preceding such sale. Such sales are also subject to certain
manner of sale provisions, notice requirements and the
availability of current public information about us.
Rule 701
In general, under Rule 701 of the Securities Act, most of
our employees, consultants or advisors who purchased shares from
us in connection with a qualified compensatory stock plan or
other written agreement are eligible to resell those shares
90 days after the date of this prospectus in reliance on
Rule 144, but without compliance with the holding period or
certain other restrictions contained in Rule 144.
Registration
Rights
Pursuant to the Stockholders Agreement, the Initial Stockholder
and certain of its affiliates and permitted third party
transferees will have the right, in certain circumstances, to
require us to register their shares of our common stock under
the Securities Act for sale into the public markets at any time
following the expiration of the
180-day
lock-up
period described above. The Initial Stockholder and certain of
its affiliates and permitted third party transferees will also
be entitled to piggyback registration rights with respect to any
future registration statement that we file for an underwritten
public offering of our securities. Upon the effectiveness of
such a registration statement, all shares covered by the
registration statement will be freely transferable. If these
rights are exercised and the Initial Stockholder sells a large
number of shares of common stock, the market price of our common
stock could decline. See Certain Relationships and Related
Party TransactionsStockholders Agreement for a more
detailed description of these registration rights.
168
CERTAIN
U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS
TO NON-U.S.
HOLDERS
The following discussion is a summary of certain
U.S. federal income and estate tax considerations generally
applicable to the purchase, ownership and disposition of our
common stock by
Non-U.S. Holders.
A
Non-U.S. Holder
means a person (other than a partnership) that is not a citizen
or resident of the United States, a U.S. domestic
corporation, or a person that would otherwise be subject to
U.S. federal income tax on a net income basis in respect of
such common stock. This discussion deals only with our common
stock held as capital assets by holders who purchase common
stock in this offering. This discussion does not cover all
aspects of U.S. federal income taxation that may be
relevant to the purchase, ownership or disposition of our common
stock by prospective investors in light of their particular
circumstances. In particular, this discussion does not address
all of the tax considerations that may be relevant to persons in
special tax situations, including persons that will hold shares
of our common stock in connection with a U.S. trade or
business or a U.S. permanent establishment, hold more than
5% of our common stock, are a controlled foreign
corporation or a passive foreign investment
company, or are otherwise subject to special treatment
under the Code. You should consult your own tax advisors about
the tax consequences of the purchase, ownership, and disposition
of our common stock in light of your own particular
circumstances, including the tax consequences under state,
local, foreign and other tax laws and the possible effects of
any changes in applicable tax laws.
Furthermore, this summary is based upon the provisions of the
Code, the Treasury regulations promulgated thereunder and
administrative and judicial interpretations thereof, all as of
the date hereof. Such authorities may be repealed, revoked,
modified or subject to differing interpretations, possibly on a
retroactive basis, so as to result in U.S. federal income
tax or estate tax consequences different from those discussed
below. This discussion does not address any other
U.S. federal tax considerations (such as gift tax) or any
state, local or
non-U.S. tax
considerations.
Dividends
As discussed under Dividend Policy above, we do not
currently expect to pay dividends. In the event that we do make
a distribution of cash or property with respect to our common
stock, any such distributions generally will constitute
dividends for U.S. federal income tax purposes to the
extent of our current or accumulated earnings and profits, as
determined under U.S. federal income tax principles. If a
distribution exceeds our current and accumulated earnings and
profits, the excess will be treated as a tax-free return of the
Non-U.S. Holders
investment, up to such holders tax basis in the common
stock. Any remaining excess will be treated as capital gain,
subject to the tax treatment described below in Sale,
Exchange or Other Taxable Disposition of Common Stock.
Dividends paid to you generally will be subject to
U.S. federal withholding tax at a 30% rate, or such lower
rate as may be specified by an applicable tax treaty. Even if
you are eligible for a lower treaty rate, we and other payors
will generally be required to withhold at a 30% rate (rather
than the lower treaty rate) on dividend payments to you, unless:
|
|
|
|
|
you have furnished to us or such other payor a valid Internal
Revenue Service (IRS)
Form W-8BEN
or other documentary evidence establishing your entitlement to
the lower treaty rate with respect to such payments, and
|
|
|
|
in the case of actual or constructive dividends paid to a
foreign entity after December 31, 2013, you or the foreign
entity, if required, have provided the withholding agent with
certain information with respect to your or the entitys
direct and indirect U.S. owners, and, if you hold the
common stock through a foreign financial institution, such
institution has entered into an agreement with the
U.S. government to collect and provide to the U.S. tax
authorities information about its accountholders (including
certain investors in such institution or entity).
|
169
If you are eligible for a reduced rate of U.S. federal
withholding tax pursuant to an applicable income tax treaty or
otherwise, you may obtain a refund of any excess amounts
withheld by timely filing an appropriate claim for refund with
the IRS. Investors are encouraged to consult with their own tax
advisors regarding the possible implications of these
withholding requirements on their investment in the common stock.
Sale,
Exchange or Other Taxable Disposition of Common Stock
You generally will not be subject to U.S. federal income
tax with respect to gain recognized on a sale, exchange or other
taxable disposition of shares of our common stock unless you are
an individual present in the United States for 183 or more days
in the taxable year of the sale, exchange or other taxable
disposition, and certain other requirements are met. If you are
such an individual, you will generally be subject to a flat 30%
tax on any gain derived from the sale, exchange or other taxable
disposition that may be offset by U.S. source capital
losses (even though you are not considered a resident of the
United States).
In the case of the sale or disposition of common stock after
December 31, 2014, you may be subject to a 30% withholding
tax on the gross proceeds of the sale or disposition unless the
requirements described in the last bullet point above under
Dividends are satisfied. Investors are
encouraged to consult with their own tax advisors regarding the
possible implications of these withholding requirements on their
investment in the common stock and the potential for a refund or
credit in the case of any withholding tax.
Information
Reporting and Backup Withholding
We must report annually to the IRS and to each
Non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
Non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A
Non-U.S. holder
may be subject to backup withholding for dividends paid to such
holder unless such holder certifies under penalty of perjury
that it is a
Non-U.S. holder
or such holder otherwise establishes an exemption. Any amounts
withheld under the backup withholding rules may be allowed as a
refund or a credit against a
Non-U.S. holders
U.S. federal income tax liability provided the required
information is timely furnished to the IRS.
U.S.
Federal Estate Tax
Shares of our common stock held (or deemed held) by an
individual
Non-U.S. Holder
at the time of his or her death will be included in such
Non-U.S. Holders
gross estate for U.S. federal estate tax purposes, unless
an applicable estate tax treaty provides otherwise.
170
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Citigroup Global Markets Inc., Credit Suisse Securities (USA)
LLC and Wells Fargo Securities, LLC are acting as
representatives of each of the underwriters named below. Subject
to the terms and conditions set forth in an underwriting
agreement among us and the underwriters, we have agreed to sell
to the underwriters, and each of the underwriters has agreed,
severally and not jointly, to purchase from us, the number of
shares of common stock set forth opposite its name below.
|
|
|
|
|
|
|
Number
|
|
Underwriter
|
|
of Shares
|
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
|
|
|
|
Citigroup Global Markets Inc.
|
|
|
|
|
Credit Suisse Securities (USA) LLC
|
|
|
|
|
Wells Fargo Securities, LLC
|
|
|
|
|
Allen & Company LLC
|
|
|
|
|
Barclays Capital Inc.
|
|
|
|
|
J.P. Morgan Securities LLC
|
|
|
|
|
Keefe, Bruyette & Woods, Inc.
|
|
|
|
|
Sterne, Agee & Leach, Inc.
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,666,667
|
|
|
|
|
|
|
Subject to the terms and conditions set forth in the
underwriting agreement, the underwriters have agreed, severally
and not jointly, to purchase all of the shares sold under the
underwriting agreement if any of these shares are purchased. If
an underwriter defaults, the underwriting agreement provides
that the purchase commitments of the nondefaulting underwriters
may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to
make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the shares, and other conditions contained in the
underwriting agreement, such as the receipt by the underwriters
of officers certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
Commissions
and Discounts
The representatives have advised us that the underwriters
propose initially to offer the shares to the public at the
public offering price set forth on the cover page of this
prospectus and to dealers at that price less a concession not in
excess of $ per share. After
the initial offering, the public offering price, concession or
any other term of the offering may be changed.
171
The following table shows the public offering price,
underwriting discount and proceeds before expenses to us. The
information assumes either no exercise or full exercise by the
underwriters of their option to purchase additional shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
Without Option
|
|
|
With Option
|
|
|
|
|
|
Public offering price
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
Underwriting discount
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
Proceeds, before expenses, to us
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
The expenses of the offering, not including the underwriting
discount, are estimated at $3.8 million and are payable by
us. The underwriters have agreed to reimburse us for certain
expenses in connection with this offering.
Option to
Purchase Additional Shares
We have granted an option to the underwriters, exercisable for
30 days after the date of this prospectus, to purchase up
to 2,500,000 additional shares at the public offering
price, less the underwriting discount. If the underwriters
exercise this option, each will be obligated, subject to
conditions contained in the underwriting agreement, to purchase
a number of additional shares proportionate to that
underwriters initial amount reflected in the above table.
No Sales
of Similar Securities
We, the Initial Stockholder, our executive officers and
directors have agreed not to sell or transfer any common stock
or securities convertible into, exchangeable for, exercisable
for, or repayable with common stock, for 180 days after the
date of this prospectus without first obtaining the written
consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Specifically, we and these other persons have
agreed, with certain limited exceptions, not to directly or
indirectly
|
|
|
|
|
offer, pledge, sell or contract to sell any common stock,
|
|
|
|
sell any option or contract to purchase any common stock,
|
|
|
|
purchase any option or contract to sell any common stock,
|
|
|
|
grant any option, right or warrant for the sale of any common
stock,
|
|
|
|
lend or otherwise dispose of or transfer any common stock,
|
|
|
|
request or demand that we file a registration statement related
to the common stock, or
|
|
|
|
enter into any swap or other agreement that transfers, in whole
or in part, the economic consequence of ownership of any common
stock whether any such swap or transaction is to be settled by
delivery of shares or other securities, in cash or otherwise.
|
This lock-up provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable
with common stock. It also applies to common stock owned now or
acquired later by the person executing the agreement or for
which the person executing the agreement later acquires the
power of disposition. This lockup provision does not apply to:
(i) any securities to be sold pursuant to this offering; (ii)
any shares of common stock issued by the Company upon the
exercise of an option or warrant or the conversion of a security
outstanding on the date of the underwriting agreement; (iii) any
grants of stock options, restricted stock or notional units to
employees, directors or contractors pursuant to the terms of any
plan in effect as of the closing of this offering, issuances of
common stock pursuant to the exercise of such
172
options or the exercise of any other employee stock options
outstanding on the date of the underwriting agreement; (iv) any
shares of common stock issued pursuant to any non-employee
director stock plan or dividend reinvestment plan; (v) any
registration statement on Form S-8 under the 1933 Act with
respect to the foregoing clauses; (vi) any issuance of options
or shares pursuant to an exchange for units of the Initial
Stockholder; (vii) any pledge of shares of common stock by the
Initial Stockholder as collateral in connection with any debt
financing of the Initial Stockholder, any of its affiliates or
Fortress Investment Group LLC; (viii) any exchange,
transfer or other disposition by the Initial Stockholder of
options or shares of common stock pursuant to an exchange for
units of the Initial Stockholder; (ix) any transfer by the
Initial Stockholder, our executive officers and directors as a
bona fide gift or gifts; (x) any transfer by the Initial
Stockholder, our executive officers and directors to any trust
for their or their immediately familys direct or indirect
benefit; (xi) any transfer by the Initial Stockholder, our
executive officers and directors as a distribution to their
limited partners or stockholders; (xii) any transfer by the
Initial Stockholder, our executive officers and directors to
funds managed by an affiliate of Fortress Investment Group LLC;
or (xiii) any transfer by the Initial Stockholder, our executive
officers and directors to their affiliates or to any investment
fund or other entity controlled or managed by them. In the event
that either (x) during the last 17 days of the lock-up
period referred to above, we issue an earnings release or
material news or a material event relating to us occurs or
(y) prior to the expiration of the lock-up period, we
announce that we will release earnings results or become aware
that material news or a material event will occur during the
16-day period beginning on the last day of the lock-up period,
the restrictions described above shall continue to apply until
the expiration of the 18-day period beginning on the issuance of
the earnings release or the occurrence of the material news or
material event.
Reserved
Share Program
At our request, the underwriters have reserved for sale, at the
initial public offering price, up to 5% of the shares offered by
this prospectus for sale to some of our directors, officers,
employees, business associates and related persons, including
employees of Fortress. If these persons purchase reserved
shares, it will reduce the number of shares available for sale
to the general public. Any reserved shares that are not so
purchased will be offered by the underwriters to the general
public on the same terms as the other shares offered by this
prospectus.
NYSE
Listing
Our common stock has been approved for listing on the NYSE under
the symbol NSM. In order to meet the requirements
for listing on that exchange, the underwriters have undertaken
to sell a minimum number of shares to a minimum number of
beneficial owners as required by that exchange.
Before this offering, there has been no public market for our
common stock. The initial public offering price will be
determined through negotiations between us and the
representatives. In addition to prevailing market conditions,
the factors to be considered in determining the initial public
offering price are:
|
|
|
|
|
the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us,
|
|
|
|
our financial information,
|
|
|
|
the history of, and the prospects for, our company and the
industry in which we compete,
|
|
|
|
an assessment of our management, its past and present
operations, and the prospects for, and timing of, our future
revenues,
|
|
|
|
the present state of our development, and
|
173
|
|
|
|
|
the above factors in relation to market values and various
valuation measures of other companies engaged in activities
similar to ours.
|
An active trading market for the shares may not develop. It is
also possible that after the offering the shares will not trade
in the public market at or above the initial public offering
price.
The underwriters do not expect to sell more than 5% of the
shares in the aggregate to accounts over which they exercise
discretionary authority.
Price
Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may
limit underwriters and selling group members from bidding for
and purchasing our common stock. However, the representatives
may engage in transactions that stabilize the price of the
common stock, such as bids or purchases to peg, fix or maintain
that price.
In connection with the offering, the underwriters may purchase
and sell our common stock in the open market. These transactions
may include short sales, purchases on the open market to cover
positions created by short sales and stabilizing transactions.
Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the
offering. Covered short sales are sales made in an
amount not greater than the underwriters option to
purchase additional shares described above. The underwriters may
close out any covered short position by either exercising their
option to purchase additional shares or purchasing shares in the
open market. In determining the source of shares to close out
the covered short position, the underwriters will consider,
among other things, the price of shares available for purchase
in the open market as compared to the price at which they may
purchase shares through the option granted to them.
Naked short sales are sales in excess of such
option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned
that there may be downward pressure on the price of our common
stock in the open market after pricing that could adversely
affect investors who purchase in the offering. Stabilizing
transactions consist of various bids for or purchases of shares
of common stock made by the underwriters in the open market
prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
Similar to other purchase transactions, the underwriters
purchases to cover the syndicate short sales may have the effect
of raising or maintaining the market price of our common stock
or preventing or retarding a decline in the market price of our
common stock. As a result, the price of our common stock may be
higher than the price that might otherwise exist in the open
market. The underwriters may conduct these transactions on the
NYSE, in the over-the-counter market or otherwise.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
our common stock. In addition, neither we nor any of the
underwriters make any representation that the representatives
will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
Electronic
Distribution
In connection with the offering, certain of the underwriters or
securities dealers may distribute prospectuses by electronic
means, such as
e-mail.
174
Other
Relationships
Some of the underwriters and their affiliates have engaged in,
and may in the future engage in, investment banking and other
commercial dealings in the ordinary course of business with us
or our affiliates. They have received, or may in the future
receive, customary fees and commissions for these transactions.
In addition, in the ordinary course of their business
activities, the underwriters and their affiliates may make or
hold a broad array of investments and actively trade debt and
equity securities (or related derivative securities) and
financial instruments (including bank loans) for their own
account and for the accounts of their customers. Such
investments and securities activities may involve securities
and/or
instruments of ours or our affiliates. The underwriters and
their affiliates may also make investment recommendations
and/or
publish or express independent research views in respect of such
securities or financial instruments and may hold, or recommend
to clients that they acquire, long
and/or short
positions in such securities and instruments.
Bank of America, N.A. (BANA), an affiliate of
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
one of the underwriters of this offering, is the lender under
our $175 Million Warehouse Facility and Merrill Lynch, Pierce,
Fenner & Smith Incorporated was an initial purchaser
in connection with the offering in March 2010 of our senior
notes.
Wells Fargo Bank, N.A., an affiliate of Wells Fargo Securities,
LLC, one of the underwriters of this offering, is the lender
under our 2010-ABS Advance Financing Facility. Wells Fargo Bank,
N.A. also acts as Master Servicer under certain of our Servicing
Agreements related to mortgage loans for which we act as
servicer. Wells Fargo Bank, N.A. receives customary fees and
commissions for these transactions.
Citibank, N.A., an affiliate of Citigroup Global Markets Inc.,
one of the underwriters of this offering, is the lender under
our $100 Million Warehouse Facility. Citibank, N.A. receives
customary fees and commissions for this transaction.
Barclays Bank plc, an affiliate of Barclays Capital Inc., one of
the underwriters of this offering, is the lender under our
2011-Agency Advance Financing Facility and our $50 Million
Warehouse Facility. Barclays Bank plc receives customary fees
and commissions for these transactions.
In December 2011, we signed an agreement to purchase the
servicing rights to certain reverse mortgages (the Reverse
Mortgage Acquisition) from BANA. Under the Reverse
Mortgage Acquisition, we agreed to purchase certain servicing
rights relating to reverse mortgage loans with an aggregate UPB
as of December 31, 2011 of approximately $18 billion
and assume certain liabilities associated with such MSRs. On
December 22, 2011, we deposited in escrow the purchase
price of the MSRs relating to reverse mortgage loans with an
aggregate UPB as of December 31, 2011 of approximately
$7.8 billion and the related advances. The acquisition was
completed on January 3, 2012. Our acquisition of MSRs
related to an additional $9.5 billion of UPB as of
December 31, 2011 is expected to close during 2012 upon
receipt of certain specified third party approvals. On
December 23, 2011, we paid a deposit of $9.0 million
related to such servicing. Additionally, we expect to subservice
on behalf of the bank certain reverse mortgage loans with a UPB
as of December 31, 2011 of approximately $1.4 billion
beginning in the later portion of 2012.
The purchase agreement for the Reverse Mortgage Acquisition
provides for customary mutual representations and warranties and
cross-indemnities. BANA is obligated among other things, under
certain circumstances and subject to various terms and
conditions, to repurchase certain of the loans associated with
the servicing rights that were sold to us and, for a limited
time, to make certain advances, including principal advances,
with respect to the underlying mortgage loans to the borrower,
and we are obligated to reimburse BANA monthly for these
advances for one year.
Also, in September 2011, we purchased certain MSRs relating to
residential mortgage loans with an aggregate UPB of
approximately $10 billion as of December 31, 2011 from
BANA for approximately
175
$69.6 million. In connection with this transaction, we and
BANA made customary representations and warranties to each other
and agreed to customary cross-indemnities.
We intend to continue to actively seek additional servicing
acquisitions from third parties, potentially including from the
underwriters or their affiliates. In connection with such
acquisitions, we may enter into additional borrowing
arrangements, including with our underwriters or their
affiliates.
In connection with the settlement agreement that BANA, certain
affiliates of Bank of America and Countrywide Financial
Corporation (Countrywide) entered into with The Bank
of New York Mellon relating to certain legacy Countrywide
residential mortgage-backed securitization repurchase exposures
(the Settlement), BANA agreed to transfer the
servicing related to certain high-risk loans to approved
subservicers. The Company is an approved subservicer under the
Settlement. While the Settlement has not received final court
approval, BANA expects to transfer the servicing under the
Settlement of certain loans to us in accordance with the terms
of the Settlement for which we expect to be paid subservicing
fees in accordance with the Settlement.
Notice to
Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), will effect from and
including the date on which the Prospectus Directive is
implemented in that Relevant Member State, no offer of shares
may be made to the public in that Relevant Member State other
than:
|
|
|
|
A.
|
to any legal entity which is a qualified investor as defined in
the Prospectus Directive;
|
|
|
|
|
B.
|
to fewer than 100 or, if the Relevant Member State has
implemented the relevant provision of the 2010 PD Amending
Directive, 150, natural or legal persons (other than qualified
investors as defined in the Prospectus Directive), as permitted
under the Prospectus Directive, subject to obtaining the prior
consent of the representatives; or
|
|
|
|
|
C.
|
in any other circumstances falling within Article 3(2) of
the Prospectus Directive,
|
provided that no such offer of shares shall require the Company
or the representatives to publish a prospectus pursuant to
Article 3 of the Prospectus Directive or supplement a
prospectus pursuant to Article 16 of the Prospectus
Directive.
Each person in a Relevant Member State (other than a Relevant
Member State where there is a Permitted Public Offer) who
initially acquires any shares or to whom any offer is made will
be deemed to have represented, acknowledged and agreed that
(A) it is a qualified investor within the
meaning of the law in that Relevant Member State implementing
Article 2(1)(e) of the Prospectus Directive, and
(B) in the case of any shares acquired by it as a financial
intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, the shares acquired by it in the offering
have not been acquired on behalf of, nor have they been acquired
with a view to their offer or resale to, persons in any Relevant
Member State other than qualified investors as
defined in the Prospectus Directive, or in circumstances in
which the prior consent of the representatives have been given
to the offer or resale. In the case of any shares being offered
to a financial intermediary as that term is used in
Article 3(2) of the Prospectus Directive, each such
financial intermediary will be deemed to have represented,
acknowledged and agreed that the shares acquired by it in the
offer have not been acquired on a non-discretionary basis on
behalf of, nor have they been acquired with a view to their
offer or resale to, persons in circumstances which may give rise
to an offer of any shares to the public other than their offer
or resale in a Relevant Member State to qualified investors as
so defined or in circumstances in which the prior consent of the
representatives have been obtained to each such proposed offer
or resale.
176
The Company, the representatives and their affiliates will rely
upon the truth and accuracy of the foregoing representation,
acknowledgement and agreement.
This prospectus has been prepared on the basis that any offer of
shares in any Relevant Member State will be made pursuant to an
exemption under the Prospectus Directive from the requirement to
publish a prospectus for offers of shares. Accordingly any
person making or intending to make an offer in that Relevant
Member State of shares which are the subject of the offering
contemplated in this prospectus may only do so in circumstances
in which no obligation arises for the Company or any of the
underwriters to publish a prospectus pursuant to Article 3
of the Prospectus Directive in relation to such offer. Neither
the Company nor the underwriters have authorized, nor do they
authorize, the making of any offer of shares in circumstances in
which an obligation arises for the Company or the underwriters
to publish a prospectus for such offer.
For the purpose of the above provisions, the expression an
offer to the public in relation to any shares in any
Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer
and the shares to be offered so as to enable an investor to
decide to purchase or subscribe the shares, as the same may be
varied in the Relevant Member State by any measure implementing
the Prospectus Directive in the Relevant Member State and the
expression Prospectus Directive means
Directive 2003/71/EC (including the 2010 PD Amending
Directive, to the extent implemented in the Relevant Member
States) and includes any relevant implementing measure in the
Relevant Member State and the expression 2010
PD Amending Directive means Directive 2010/73/EU.
Notice to
Prospective Investors in the United Kingdom
In addition, in the United Kingdom, this document is being
distributed only to, and is directed only at, and any offer
subsequently made may only be directed at persons who are
qualified investors (as defined in the Prospectus
Directive) (i) who have professional experience in matters
relating to investments falling within Article 19(5) of the
Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005, as amended (the Order) and/or
(ii) who are high net worth companies (or persons to whom
it may otherwise be lawfully communicated) falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This document must not be acted on or relied on in the United
Kingdom by persons who are not relevant persons. In the United
Kingdom, any investment or investment activity to which this
document relates is only available to, and will be engaged in
with, relevant persons.
Notice to
Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will
not be listed on the SIX Swiss Exchange (SIX)
or on any other stock exchange or regulated trading facility in
Switzerland. This document has been prepared without regard to
the disclosure standards for issuance prospectuses under
art. 652a or art. 1156 of the Swiss Code of
Obligations or the disclosure standards for listing prospectuses
under art. 27 ff. of the SIX Listing Rules or the
listing rules of any other stock exchange or regulated trading
facility in Switzerland. Neither this document nor any other
offering or marketing material relating to the shares or the
offering may be publicly distributed or otherwise made publicly
available in Switzerland.
Neither this document nor any other offering or marketing
material relating to the offering, the Company, the shares have
been or will be filed with or approved by any Swiss regulatory
authority. In particular, this document will not be filed with,
and the offer of shares will not be supervised by, the Swiss
Financial Market Supervisory Authority FINMA (FINMA), and the
offer of shares has not been and will not be authorized under
the Swiss Federal Act on Collective Investment Schemes
(CISA). The investor protection afforded to
acquirers of interests in collective investment schemes under
the CISA does not extend to acquirers of shares.
177
Notice to
Prospective Investors in the Dubai International Financial
Centre
This prospectus supplement relates to an Exempt Offer in
accordance with the Offered Securities Rules of the Dubai
Financial Services Authority (DFSA). This prospectus
supplement is intended for distribution only to persons of a
type specified in the Offered Securities Rules of the DFSA. It
must not be delivered to, or relied on by, any other person. The
DFSA has no responsibility for reviewing or verifying any
documents in connection with Exempt Offers. The DFSA has not
approved this prospectus supplement nor taken steps to verify
the information set forth herein and has no responsibility for
the prospectus supplement. The shares to which this prospectus
supplement relates may be illiquid and/or subject to
restrictions on their resale. Prospective purchasers of the
shares offered should conduct their own due diligence on the
shares. If you do not understand the contents of this prospectus
supplement you should consult an authorized financial advisor.
Notice to
Prospective Investors in France
Neither this prospectus nor any other offering material relating
to the shares described in this prospectus has been submitted to
the clearance procedures of the Autorité des
Marchés Financiers or of the competent authority of
another member state of the European Economic Area and notified
to the Autorité des Marchés Financiers. The
shares have not been offered or sold and will not be offered or
sold, directly or indirectly, to the public in France. Neither
this prospectus nor any other offering material relating to the
shares has been or will be:
|
|
|
|
|
released, issued, distributed or caused to be released, issued
or distributed to the public in France; or
|
|
|
|
|
|
used in connection with any offer for subscription or sale of
the shares to the public in France.
|
Such offers, sales and distributions will be made in France only:
|
|
|
|
|
to qualified investors (investisseurs qualifiés)
and/or to a
restricted circle of investors (cercle restreint
dinvestisseurs), in each case investing for their own
account, all as defined in, and in accordance with
articles L.411-2,
D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the
French Code monétaire et financier;
|
|
|
|
|
|
to investment services providers authorized to engage in
portfolio management on behalf of third parties; or
|
|
|
|
|
|
in a transaction that, in accordance with
article L.411-2-II-1°-or-2°-or
3° of the French Code monétaire et financier and
article 211-2
of the General Regulations (Règlement Général) of
the Autorité des Marchés Financiers, does not
constitute a public offer (appel public à
lépargne).
|
The shares may be resold directly or indirectly, only in
compliance with
articles L.411-1,
L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French
Code monétaire et financier.
Notice to
Prospective Investors in Hong Kong
The shares may not be offered or sold in Hong Kong by means of
any document other than (i) in circumstances which do not
constitute an offer to the public within the meaning of the
Companies Ordinance (Cap. 32, Laws of Hong Kong), or
(ii) to professional investors within the
meaning of the Securities and Futures Ordinance (Cap. 571, Laws
of Hong Kong) and any rules made thereunder, or (iii) in
other circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in
178
Hong Kong or elsewhere), which is directed at, or the contents
of which are likely to be accessed or read by, the public in
Hong Kong (except if permitted to do so under the laws of Hong
Kong) other than with respect to shares which are or are
intended to be disposed of only to persons outside Hong Kong or
only to professional investors within the meaning of
the Securities and Futures Ordinance (Cap. 571, Laws of Hong
Kong) and any rules made thereunder.
Notice to
Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore (the SFA),
(ii) to a relevant person pursuant to Section 275(1),
or any person pursuant to Section 275(1A), and in
accordance with the conditions specified in Section 275 of
the SFA or (iii) otherwise pursuant to, and in accordance
with the conditions of, any other applicable provision of the
SFA, in each case subject to compliance with conditions set
forth in the SFA.
Where the shares are subscribed or purchased under
Section 275 of the SFA by a relevant person which is:
|
|
|
|
|
a corporation (which is not an accredited investor (as defined
in Section 4A of the SFA)) the sole business of which is to
hold investments and the entire share capital of which is owned
by one or more individuals, each of whom is an accredited
investor; or
|
|
|
|
|
|
a trust (where the trustee is not an accredited investor) whose
sole purpose is to hold investments and each beneficiary of the
trust is an individual who is an accredited investor,
|
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest
(howsoever described) in that trust shall not be transferred
within six months after that corporation or that trust has
acquired the shares pursuant to an offer made under
Section 275 of the SFA except:
|
|
|
|
|
to an institutional investor (for corporations, under
Section 274 of the SFA) or to a relevant person defined in
Section 275(2) of the SFA, or to any person pursuant to an
offer that is made on terms that such shares, debentures and
units of shares and debentures of that corporation or such
rights and interest in that trust are acquired at a
consideration of not less than S$200,000 (or its equivalent in a
foreign currency) for each transaction, whether such amount is
to be paid for in cash or by exchange of securities or other
assets, and further for corporations, in accordance with the
conditions specified in Section 275 of the SFA;
|
|
|
|
|
|
where no consideration is or will be given for the
transfer; or
|
|
|
|
|
|
where the transfer is by operation of law.
|
179
Notice to
Prospective Investors in Australia
No prospectus or other disclosure document (as defined in the
Corporations Act 2001 (Cth) of Australia (Corporations
Act)) in relation to the common stock has been or will be
lodged with the Australian Securities & Investments
Commission (ASIC). This document has not been lodged
with ASIC and is only directed to certain categories of exempt
persons. Accordingly, if you receive this document in Australia:
|
|
|
|
(a)
|
you confirm and warrant that you are either:
|
|
|
|
|
(i)
|
a sophisticated investor under
section 708(8)(a) or (b) of the Corporations Act;
|
|
|
|
|
(ii)
|
a sophisticated investor under
section 708(8)(c) or (d) of the Corporations Act and
that you have provided an accountants certificate to us
which complies with the requirements of
section 708(8)(c)(i) or (ii) of the Corporations Act
and related regulations before the offer has been made;
|
|
|
|
|
(iii)
|
a person associated with the company under section 708(12)
of the Corporations Act; or
|
|
|
|
|
(iv)
|
a professional investor within the meaning of
section 708(11)(a) or (b) of the Corporations Act, and to
the extent that you are unable to confirm or warrant that you
are an exempt sophisticated investor, associated person or
professional investor under the Corporations Act any offer made
to you under this document is void and incapable of
acceptance; and
|
|
|
|
|
(b)
|
you warrant and agree that you will not offer any of the common
stock for resale in Australia within 12 months of that
common stock being issued unless any such resale offer is exempt
from the requirement to issue a disclosure document under
section 708 of the Corporations Act.
|
180
LEGAL
MATTERS
Certain legal matters relating to this offering will be passed
upon for us by Cleary Gottlieb Steen & Hamilton LLP,
New York, New York. Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York will act as counsel to the underwriters.
EXPERTS
The consolidated financial statements of Nationstar Mortgage LLC
at December 31, 2011 and 2010, and for each of the three
years in the period ended December 31, 2011, appearing in
this prospectus and registration statement have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
181
MARKET
AND INDUSTRY DATA AND FORECASTS
Certain market and industry data included in this prospectus has
been obtained from third party sources that we believe to be
reliable. Market estimates are calculated by using independent
industry publications, government publications and third party
forecasts in conjunction with our assumptions about our markets.
We have not independently verified such third party information.
While we are not aware of any misstatements regarding any
market, industry or similar data presented herein, such data
involves risks and uncertainties and is subject to change based
on various factors, including those discussed under the headings
Special Note Regarding Forward-Looking Statements
and Risk Factors in this prospectus.
182
WHERE YOU
CAN FIND MORE INFORMATION
We have filed a registration statement, of which this prospectus
is a part, on
Form S-1
with the SEC relating to this offering. This prospectus does not
contain all of the information in the registration statement and
the exhibits included with the registration statement.
References in this prospectus to any of our contracts,
agreements or other documents are not necessarily complete, and
you should refer to the exhibits attached to the registration
statement for copies of the actual contracts, agreements or
documents. You may read and copy the registration statement, the
related exhibits and other material we file with the SEC at the
SECs public reference room in Washington, D.C. at
100 F Street, Room 1580, N.E.,
Washington, D.C. 20549. You can also request copies of
those documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the Commission at
1-800-SEC-0330
for further information on the operation of the public reference
rooms. The SEC also maintains an internet site that contains
reports, proxy and information statements and other information
regarding issuers that file with the SEC. The website address is
http://www.sec.gov.
Upon the effectiveness of the registration statement, we will be
subject to the informational requirements of the Exchange Act,
and, in accordance with the Exchange Act, will file reports,
proxy and information statements and other information with the
SEC. Such annual, quarterly and special reports, proxy and
information statements and other information can be inspected
and copied at the locations set forth above. We intend to make
this information available on the investors relations section of
our website, www.nationstarholdings.com. Information on, or
accessible through, our website is not part of this prospectus.
183
|
|
|
|
|
Audited Consolidated Financial Statements
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-8
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Members of
Nationstar Mortgage LLC
We have audited the accompanying consolidated balance sheets of
Nationstar Mortgage LLC and subsidiaries (the Company) as of
December 31, 2011 and 2010, and the related consolidated
statements of operations, members equity and comprehensive
income, and cash flows for each of the three years in the period
ended December 31, 2011. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Nationstar Mortgage LLC and
subsidiaries at December 31, 2011 and 2010, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2011, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial
statements, the Company changed its method of accounting for
transfers of financial assets and consolidation of variable
interest entities, effective January 1, 2010.
Dallas, Texas
February 23, 2012
F-2
Consolidated
Financial Statements
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$62,445
|
|
|
|
$21,223
|
|
Restricted cash (includes $ and $1,472, respectively, of
restricted cash, subject to ABS nonrecourse debt)
|
|
|
71,499
|
|
|
|
91,125
|
|
Accounts receivable (includes $ and $2,392, respectively,
of accrued interest, subject to ABS nonrecourse debt)
|
|
|
562,300
|
|
|
|
441,275
|
|
Mortgage loans held for sale
|
|
|
458,626
|
|
|
|
369,617
|
|
Mortgage loans held for investment, subject to nonrecourse
debtLegacy Assets, net of allowance for loan losses of
$5,824 and $3,298, respectively
|
|
|
243,480
|
|
|
|
266,320
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debt (at fair value)
|
|
|
|
|
|
|
538,440
|
|
Receivables from affiliates
|
|
|
4,609
|
|
|
|
8,993
|
|
Mortgage servicing rightsfair value
|
|
|
251,050
|
|
|
|
145,062
|
|
Property and equipment, net of accumulated depreciation of
$39,201 and $35,346, respectively
|
|
|
24,073
|
|
|
|
8,394
|
|
REO, net (includes $ and $17,509, respectively, of REO,
subject to ABS nonrecourse debt)
|
|
|
3,668
|
|
|
|
27,337
|
|
Other assets
|
|
|
106,181
|
|
|
|
29,395
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$1,787,931
|
|
|
|
$1,947,181
|
|
|
|
|
|
|
|
|
|
|
Liabilities and members equity
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
$873,179
|
|
|
|
$709,758
|
|
Unsecured senior notes
|
|
|
280,199
|
|
|
|
244,061
|
|
Payables and accrued liabilities (includes $ and $95,
respectively, of accrued interest payable, subject to ABS
nonrecourse debt)
|
|
|
183,789
|
|
|
|
75,054
|
|
Derivative financial instruments
|
|
|
12,370
|
|
|
|
7,801
|
|
Derivative financial instruments, subject to ABS nonrecourse debt
|
|
|
|
|
|
|
18,781
|
|
Nonrecourse debtLegacy Assets
|
|
|
112,490
|
|
|
|
138,662
|
|
Excess spread financing (at fair value)
|
|
|
44,595
|
|
|
|
|
|
ABS nonrecourse debt (at fair value)
|
|
|
|
|
|
|
496,692
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,506,622
|
|
|
|
1,690,809
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingenciesSee Note 19
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
281,309
|
|
|
|
256,372
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
|
$1,787,931
|
|
|
|
$1,947,181
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-3
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$233,411
|
|
|
|
$167,126
|
|
|
|
$90,195
|
|
Other fee income
|
|
|
35,187
|
|
|
|
16,958
|
|
|
|
10,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
268,598
|
|
|
|
184,084
|
|
|
|
100,218
|
|
Gain/(loss) on mortgage loans held for sale
|
|
|
109,136
|
|
|
|
77,344
|
|
|
|
(21,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
377,734
|
|
|
|
261,428
|
|
|
|
78,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses and impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
202,290
|
|
|
|
149,115
|
|
|
|
90,689
|
|
General and administrative
|
|
|
82,183
|
|
|
|
58,913
|
|
|
|
30,494
|
|
Provision for loan losses
|
|
|
3,537
|
|
|
|
3,298
|
|
|
|
|
|
Loss on foreclosed real estate
|
|
|
6,833
|
|
|
|
205
|
|
|
|
7,512
|
|
Occupancy
|
|
|
11,340
|
|
|
|
9,445
|
|
|
|
6,863
|
|
Loss on available for sale
securitiesother-than-temporary
|
|
|
|
|
|
|
|
|
|
|
6,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
306,183
|
|
|
|
220,976
|
|
|
|
142,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
66,802
|
|
|
|
98,895
|
|
|
|
52,518
|
|
Interest expense
|
|
|
(105,375
|
)
|
|
|
(116,163
|
)
|
|
|
(69,883
|
)
|
Gain/(loss) on interest rate swaps and caps
|
|
|
298
|
|
|
|
(9,801
|
)
|
|
|
(14
|
)
|
Fair value changes in ABS securitizations
|
|
|
(12,389
|
)
|
|
|
(23,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(50,664
|
)
|
|
|
(50,366
|
)
|
|
|
(17,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss)
|
|
|
$20,887
|
|
|
|
$(9,914
|
)
|
|
|
$(80,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma information (Note 27):
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical net income before taxes
|
|
|
$20,887
|
|
|
|
|
|
|
|
|
|
Pro forma adjustment for taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
|
$20,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-4
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
Total Members
|
|
|
|
Members
|
|
|
Comprehensive
|
|
|
Units and
|
|
|
|
Units
|
|
|
Income
|
|
|
Members Equity
|
|
|
|
(dollars in thousands)
|
|
|
Balance at December 31, 2008
|
|
|
$255,922
|
|
|
|
$
|
|
|
|
$255,922
|
|
Capital contributions
|
|
|
87,951
|
|
|
|
|
|
|
|
87,951
|
|
Share-based compensation
|
|
|
827
|
|
|
|
|
|
|
|
827
|
|
Net loss and comprehensive loss
|
|
|
(80,877
|
)
|
|
|
|
|
|
|
(80,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
263,823
|
|
|
|
|
|
|
|
263,823
|
|
Cumulative effect of change in accounting principles as of
January 1, 2010 related to adoption of new accounting
guidance on consolidation of variable interest entities
|
|
|
(8,068
|
)
|
|
|
|
|
|
|
(8,068
|
)
|
Share-based compensation
|
|
|
12,856
|
|
|
|
|
|
|
|
12,856
|
|
Tax related share-based settlement of units by members
|
|
|
(3,396
|
)
|
|
|
|
|
|
|
(3,396
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(9,914
|
)
|
|
|
|
|
|
|
(9,914
|
)
|
Change in value of cash flow hedge
|
|
|
|
|
|
|
1,071
|
|
|
|
1,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(8,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
255,301
|
|
|
|
1,071
|
|
|
|
256,372
|
|
Share-based compensation
|
|
|
14,815
|
|
|
|
|
|
|
|
14,815
|
|
Distributions to parent
|
|
|
(4,348
|
)
|
|
|
|
|
|
|
(4,348
|
)
|
Tax related share-based settlement of units by members
|
|
|
(5,346
|
)
|
|
|
|
|
|
|
(5,346
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
20,887
|
|
|
|
|
|
|
|
20,887
|
|
Change in value of cash flow hedge
|
|
|
|
|
|
|
(1,071
|
)
|
|
|
(1,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
19,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
$281,309
|
|
|
|
$
|
|
|
|
$281,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-5
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(dollars in thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss)
|
|
|
$20,887
|
|
|
|
$(9,914
|
)
|
|
|
$(80,877
|
)
|
Adjustments to reconcile net income / (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
14,815
|
|
|
|
12,856
|
|
|
|
827
|
|
(Gain) / loss on mortgage loans held for sale
|
|
|
(109,136
|
)
|
|
|
(77,344
|
)
|
|
|
21,349
|
|
Provision for loan losses
|
|
|
3,537
|
|
|
|
3,298
|
|
|
|
|
|
Loss on foreclosed real estate
|
|
|
6,833
|
|
|
|
205
|
|
|
|
7,512
|
|
Loss on equity method investments
|
|
|
107
|
|
|
|
|
|
|
|
|
|
(Gain) / loss on derivatives including ineffectiveness on
interest rate swaps and caps
|
|
|
(2,331
|
)
|
|
|
8,872
|
|
|
|
(2,422
|
)
|
Impairment of investments in debt securities
|
|
|
|
|
|
|
|
|
|
|
6,809
|
|
Fair value changes in ABS securitizations
|
|
|
12,389
|
|
|
|
23,297
|
|
|
|
|
|
Fair value changes in excess financing spread
|
|
|
3,060
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,063
|
|
|
|
2,117
|
|
|
|
1,767
|
|
Change in fair value on mortgage servicing rights
|
|
|
39,000
|
|
|
|
6,043
|
|
|
|
27,915
|
|
Amortization of debt discount
|
|
|
13,331
|
|
|
|
18,731
|
|
|
|
21,287
|
|
Amortization of discounts
|
|
|
(5,042
|
)
|
|
|
(4,526
|
)
|
|
|
(1,394
|
)
|
Mortgage loans originated and purchased, net of fees
|
|
|
(3,412,185
|
)
|
|
|
(2,791,639
|
)
|
|
|
(1,480,549
|
)
|
Cost of loans sold, net of fees
|
|
|
3,339,859
|
|
|
|
2,621,275
|
|
|
|
1,007,369
|
|
Principal payments/prepayments received and other changes in
mortgage loans originated as held for sale
|
|
|
63,578
|
|
|
|
32,668
|
|
|
|
471,882
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(83,133
|
)
|
|
|
41,148
|
|
|
|
(157,964
|
)
|
Receivables from affiliates
|
|
|
4,384
|
|
|
|
3,958
|
|
|
|
66,940
|
|
Other assets
|
|
|
(44,576
|
)
|
|
|
(861
|
)
|
|
|
(6,961
|
)
|
Payables and accrued liabilities
|
|
|
101,657
|
|
|
|
8,163
|
|
|
|
12,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(28,903
|
)
|
|
|
(101,653
|
)
|
|
|
(83,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued on following page.
F-6
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(dollars in thousands)
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments received and other changes on mortgage loans
held for investment, subject to ABS nonrecourse debt
|
|
|
$40,000
|
|
|
|
$48,838
|
|
|
|
$
|
|
Property and equipment additions, net of disposals
|
|
|
(19,742
|
)
|
|
|
(3,936
|
)
|
|
|
(3,029
|
)
|
Acquisition of equity method investee
|
|
|
(6,600
|
)
|
|
|
|
|
|
|
|
|
Deposits on reverse mortgage servicing rights, net
|
|
|
(26,893
|
)
|
|
|
|
|
|
|
|
|
Deposits on / purchase of forward mortgage servicing rights, net
of liabilities incurred
|
|
|
(96,467
|
)
|
|
|
(17,812
|
)
|
|
|
(1,169
|
)
|
Proceeds from sales of REO
|
|
|
27,823
|
|
|
|
74,107
|
|
|
|
34,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) / provided by investing activities
|
|
|
(81,879
|
)
|
|
|
101,197
|
|
|
|
29,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from restricted cash, net
|
|
|
16,812
|
|
|
|
(33,731
|
)
|
|
|
(31,763
|
)
|
Issuance of nonrecourse debt, net
|
|
|
|
|
|
|
|
|
|
|
191,272
|
|
Issuance of unsecured senior notes, net
|
|
|
35,166
|
|
|
|
243,013
|
|
|
|
|
|
Issuance of excess spread financing
|
|
|
40,492
|
|
|
|
|
|
|
|
|
|
Increase / (decrease) in notes payable
|
|
|
163,421
|
|
|
|
(62,099
|
)
|
|
|
(60,395
|
)
|
Repayment of nonrecourse debtLegacy assets
|
|
|
(30,433
|
)
|
|
|
(45,364
|
)
|
|
|
(15,809
|
)
|
Repayment of ABS nonrecourse debt
|
|
|
(58,091
|
)
|
|
|
(103,466
|
)
|
|
|
|
|
Repayment of excess servicing spread financing
|
|
|
(2,207
|
)
|
|
|
|
|
|
|
|
|
Capital contributions from members
|
|
|
|
|
|
|
|
|
|
|
20,700
|
|
Distributions to parent
|
|
|
(4,348
|
)
|
|
|
|
|
|
|
|
|
Debt financing costs
|
|
|
(3,462
|
)
|
|
|
(14,923
|
)
|
|
|
(18,059
|
)
|
Tax related share-based settlement of units by members
|
|
|
(5,346
|
)
|
|
|
(3,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by / (used in) financing activities
|
|
|
152,004
|
|
|
|
(19,966
|
)
|
|
|
85,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
41,222
|
|
|
|
(20,422
|
)
|
|
|
32,288
|
|
Cash and cash equivalents at beginning of period
|
|
|
21,223
|
|
|
|
41,645
|
|
|
|
9,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
$62,445
|
|
|
|
$21,223
|
|
|
|
$41,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of mortgage loans held for sale to REO at fair value
|
|
|
$90
|
|
|
|
$352
|
|
|
|
$36,164
|
|
Transfer of mortgage loans held for investment to REO at fair
value
|
|
|
6,291
|
|
|
|
18,928
|
|
|
|
5,561
|
|
Transfer of mortgage loans held for sale to held for investment
at fair value
|
|
|
|
|
|
|
|
|
|
|
319,183
|
|
Transfer of mortgage loans held for investment, subject to ABS
nonrecourse debt to REO at fair value
|
|
|
17,528
|
|
|
|
37,127
|
|
|
|
|
|
Contribution of intercompany payable from parent
|
|
|
|
|
|
|
|
|
|
|
67,251
|
|
Change in value of cash flow hedgeaccumulated other
comprehensive income
|
|
|
(1,071
|
)
|
|
|
1,071
|
|
|
|
|
|
Mortgage servicing rights resulting from sale or securitization
of mortgage loans
|
|
|
36,474
|
|
|
|
26,253
|
|
|
|
8,332
|
|
Liabilities incurred from purchase of forward mortgage servicing
rights
|
|
|
6,333
|
|
|
|
|
|
|
|
22,211
|
|
See accompanying notes to the consolidated financial
statements.
F-7
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
(dollars
in thousands, unless otherwise stated)
|
|
1.
|
Nature of
Business and Basis of Presentation
|
Nature of
Business
Nationstar Mortgage LLCs (Nationstar or the Company)
principal business is the servicing of residential mortgage
loans for others and the origination and selling or
securitization of single-family conforming mortgage loans to
government-sponsored entities (GSE) or other third party
investors in the secondary market.
The sale or securitization of mortgage loans typically involves
Nationstar retaining the right to service the mortgage loans
that it sells. The servicing of mortgage loans includes the
collection of principal and interest payments and the assessment
of ancillary fees related to the servicing of mortgage loans.
Additionally, Nationstar periodically obtains servicing rights
through the acquisition of servicing portfolios from third
parties and entering into subservicing arrangements.
Corporate
Reorganization (Unaudited)
In conjunction with the filing and effectiveness of a Form S-1
Registration Statement under the Securities Act of 1933,
Nationstar will become a wholly owned indirect subsidiary of
Nationstar Mortgage Holdings Inc. Nationstar Mortgage Holdings
Inc. was formed solely for the purpose of reorganizing the
structure of FIF HE Holdings LLC (FIF) and Nationstar so that
the common stock issuer is a corporation rather than a limited
liability company. As such, the existing investors will own
common stock rather than equity interests in a limited liability
company. Because Nationstar Mortgage Holdings Inc. upon
formation and prior to the reorganization, will have had no
operations, Nationstar will be the predecessor company. The
reorganization will be accounted for as a reorganization under
common control and, accordingly, there will be no change in the
basis of the assets and liabilities.
Basis of
Presentation
The consolidated financial statements include the accounts of
Nationstar, a Delaware limited liability company, and its wholly
owned subsidiaries and those variable interest entities (VIEs)
where Nationstar is the primary beneficiary. Nationstar applies
the equity method of accounting to investments when the entity
is not a VIE and Nationstar is able to exercise significant
influence, but not control, over the policies and procedures of
the entity but owns less than 50% of the voting interests.
Intercompany balances and transactions have been eliminated.
Results of operations, assets and liabilities of VIEs are
included from the date that the Company became the primary
beneficiary through the date the Company ceases to be the
primary beneficiary. Nationstar is a subsidiary of FIF HE
Holdings LLC (FIF), a subsidiary of Fortress Private Equity
Funds III and IV (Fortress). Nationstar evaluated
subsequent events through the date these consolidated financial
statements were issued.
|
|
2.
|
Significant
Accounting Policies
|
Use of
Estimates in Preparation of Consolidated Financial
Statements
The accompanying consolidated financial statements were prepared
in conformity with accounting principles generally accepted in
the United States (GAAP). The preparation of the financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from these estimates
F-8
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
due to factors such as adverse changes in the economy, increases
in interest rates, changes in prepayment assumptions, declines
in home prices or discrete events adversely affecting specific
borrowers, and such differences could be material.
Reclassification
Adjustments
Certain prior-period amounts have been reclassified to conform
to the current-period presentation.
Cash and
Cash Equivalents
Cash and cash equivalents include unrestricted cash on hand and
other highly liquid investments having an original maturity of
less than three months.
Restricted
Cash
Restricted cash consists of certain custodial accounts related
to Nationstars portfolio securitizations or to collections
on certain mortgage loans and mortgage loan advances that have
been pledged to various Advance Financing Facilities under
Master Repurchase Agreements. Restricted cash also includes
certain fees collected on mortgage loan payments that are
required to be remitted to a government-sponsored entity (GSE)
to settle outstanding guarantee fee requirements.
Mortgage
Loans Held for Sale
Nationstar maintains a strategy of originating mortgage loan
products primarily for the purpose of selling to
government-sponsored entities or other third party investors in
the secondary market. Generally, all newly originated mortgage
loans held for sale are delivered to third party purchasers or
securitized within three months after origination.
Through September 30, 2009, mortgage loans held for sale
were carried at the lower of amortized cost or fair value on an
aggregate basis grouped by delinquency status. Effective
October 1, 2009, Nationstar elected to measure newly
originated prime residential mortgage loans held for sale at
fair value, as permitted under Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 825,
Financial Instruments. Nationstar estimates fair value by
evaluating a variety of market indicators, including recent
trades and outstanding commitments, calculated on an aggregate
basis (see Note 15Fair Value Measurements).
In connection with Nationstars election to measure
mortgage loans held for sale at fair value, Nationstar is no
longer permitted to defer the loan originations fees, net of
direct loan originations costs associated with these loans.
Prior to October 1, 2009, Nationstar deferred all
nonrefundable fees and costs as required under ASC 310,
Receivables. In accordance with this guidance, loan
originations fees, net of direct loan originations costs were
capitalized and added as an adjustment to the basis of the
individual loans originated. These fees are accreted into income
as an adjustment to the loan yield over the life of the loan or
recognized when the loan is sold to a third party purchaser.
Mortgage
Loans Held for Investment, Subject to Nonrecourse
DebtLegacy Assets, Net
Mortgage loans held for investment, subject to nonrecourse
debtLegacy Assets principally consist of nonconforming or
subprime mortgage loans securitized which serve as collateral
for the issued debt. These
F-9
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
loans were transferred on October 1, 2009 from mortgage
loans held for sale at fair value on the transfer date, as
determined by the present value of expected future cash flows,
with no valuation allowance recorded. The difference between the
undiscounted cash flows expected and the investment in the loan
is recognized as interest income on a level-yield method over
the life of the loan. Contractually required payments for
interest and principal that exceed the undiscounted cash flows
expected at transfer are not recognized as a yield adjustment or
as a loss accrual or a valuation allowance. Increases in
expected cash flows subsequent to the transfer are recognized
prospectively through adjustment of the yield on the loans over
the remaining life. Decreases in expected cash flows subsequent
to transfer are recognized as a valuation allowance.
Allowance
for Loan Losses on Mortgage Loans Held for Investment
An allowance for loan losses is established by recording a
provision for loan losses in the consolidated statement of
operations when management believes a loss has occurred on a
loan held for investment. When management determines that a loan
held for investment is partially or fully uncollectible, the
estimated loss is charged against the allowance for loan losses.
Recoveries on losses previously charged to the allowance are
credited to the allowance at the time the recovery is collected.
Nationstar accounts for the loans that were transferred to held
for investment from held for sale during October 2009 in a
manner similar to
ASC 310-30,
Loans and Debt Securities Acquired with Deteriorated Credit
Quality. At the date of transfer, management evaluated such
loans to determine whether there was evidence of deterioration
of credit quality since acquisition and if it was probable that
Nationstar would be unable to collect all amounts due according
to the loans contractual terms. The transferred loans were
aggregated into separate pools of loans based on common risk
characteristics (loan delinquency). Nationstar considers
expected prepayments, and estimates the amount and timing of
undiscounted expected principal, interest, and other cash flows
for each aggregated pool of loans. The determination of expected
cash flows utilizes internal inputs such as prepayment speeds
and credit losses. These internal inputs require the use of
judgement and can have a significant impact on the accretion of
income and/or valuation allowance. Nationstar determines the
excess of the pools scheduled contractual principal and
contractual interest payments over all cash flows expected as of
the transfer date as an amount that should not be accreted
(nonaccretable difference). The remaining amount is accreted
into interest income over the remaining life of the pool of
loans (accretable yield).
Over the life of the transferred loans, management continues to
estimate cash flows expected to be collected. Nationstar
evaluates at the balance sheet date whether the present value of
the loans determined using the effective interest rates has
decreased, and if so, records an allowance for loan loss. The
present value of any subsequent increase in the transferred
loans cash flows expected to be collected is used first to
reverse any existing allowance for loan loss related to such
loans. Any remaining increase in cash flows expected to be
collected are used to adjust the amount of accretable yield
recognized on a prospective basis over the remaining life of the
loans.
Nationstar accounts for its allowance for loan losses for all
other mortgage loans held for investment in accordance with
ASC 450-20,
Loss Contingencies. The allowance for loan losses
represents managements best estimate of probable losses
inherent in the loans held for investment portfolio. Mortgage
loans held for investment portfolio is comprised primarily of
large groups of homogeneous residential mortgage loans. These
loans are evaluated based on the loans present delinquency
status. The estimate of probable losses on these loans considers
the rate of default of the loans and the amount of loss in the
event of default. The rate of default is based on historical
experience related to the migration of these from each
delinquency category to
F-10
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
default over a twelve month period. The entire allowance is
available to absorb probable credit losses from the entire held
for investment portfolio.
Substantially, all mortgage loans held for investment were
transferred from mortgage loans held for sale at fair value in
October 2009.
Mortgage
Loans Held for Investment, Subject to ABS Nonrecourse Debt,
Net
Effective January 1, 2010, new accounting guidance
eliminated the concept of a Qualifying Special Purpose Entity
(QSPE) and all existing securitization trusts are considered
VIEs and are subject to new consolidation guidance provided in
ASC 810. Upon consolidation of any VIEs, Nationstar
recognized the securitized mortgage loans related to these
securitization trusts as mortgage loans held for investment,
subject to ABS nonrecourse debt (see Note 3, Variable
Interest Entities and Securitizations). Additionally, Nationstar
elected the fair value option provided for by
ASC 825-10.
In December 2011, Nationstar sold its remaining variable
interest in a securitization trust that has been a consolidated
VIE since January 1, 2010 and deconsolidated the VIE. Upon
deconsolidation of this VIE, Nationstar derecognized the
securitized mortgage loans held for investment, subject to ABS
nonrecourse debt, the related ABS nonrecourse debt, as well as
certain other assets and liabilities of the securitization
trust, and recognized any mortgage servicing rights on the
consolidated balance sheet.
Receivables
from Affiliates
Nationstar engages in periodic transactions with Nationstar
Regular Holdings, Ltd., a subsidiary of FIF. These transactions
typically involve the monthly payment of principal and interest
advances that are required to be remitted to the securitization
trusts as required under various Pooling and Servicing
Agreements. These amounts are later repaid to Nationstar when
principal and interest advances are recovered from the
respective borrowers. In addition, receivables from affiliates
include amounts due to FIF from settlements on interest rate
swap agreements between FIF and various financial institutions.
These settled amounts are collected by Nationstar and are
ultimately due to FIF.
Mortgage
Servicing Rights (MSRs)
Nationstar recognizes MSRs related to all existing residential
mortgage loans transferred to a third party in a transfer that
meets the requirements for sale accounting and for which the
servicing rights are retained. Additionally, Nationstar may
acquire the rights to service residential mortgage loans that do
not relate to assets transferred by Nationstar through the
purchase of these rights from third parties.
Nationstar identifies MSRs related to all existing forward
residential mortgage loans transferred to a third party in a
transfer that meets the requirements for sale accounting or
through the acquisition of rights to service forward residential
mortgage loans that do not relate to assets transferred by
Nationstar through the purchase of these rights from third
parties as a class of MSR. Nationstar applies fair value
accounting to this class of MSRs, with all changes in fair value
recorded as charges or credits to servicing fee income in
accordance with
ASC 860-50,
Servicing Assets and Liabilities.
Additionally, Nationstar has entered into a contract to acquire
and hold servicing rights for reverse mortgage loans. For this
class of servicing rights, Nationstar will apply the
amortization method (i.e., lower of cost or market) with the
capitalized cost of the MSRs amortized in proportion and over
the period of the
F-11
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
estimated net future servicing income and recognized as an
adjustment to servicing fee income. The expected period of the
estimated net servicing income is based, in part, on the
expected prepayment period of the underlying reverse mortgages.
This class of MSRs will be periodically evaluated for
impairment. For purposes of measuring impairment, MSRs will be
stratified based on predominant risk characteristics of the
underlying serviced loans. These risk characteristics include
loan type (fixed or adjustable rate), term and interest rate.
Impairment, if any, will represent the excess of amortized cost
of an individual stratum over its estimated fair value and will
be recognized through a valuation allowance.
Property
and Equipment, Net
Property and equipment, net is comprised of land, furniture,
fixtures, leasehold improvements, computer software, and
computer hardware. These assets are stated at cost less
accumulated depreciation. Repairs and maintenance are expensed
as incurred. Depreciation is recorded using the straight-line
method over the estimated useful lives of the related assets.
Cost and accumulated depreciation applicable to assets retired
or sold are eliminated from the accounts, and any resulting
gains or losses are recognized at such time through a charge or
credit to general and administrative expenses.
Real
Estate Owned (REO), Net
Nationstar holds REO as a result of foreclosures on delinquent
mortgage loans. REO is recorded at estimated fair value less
costs to sell at the date of foreclosure. Any subsequent
declines in fair value are credited to a valuation allowance and
charged to operations as incurred.
Variable
Interest Entities
Nationstar has been the transferor in connection with a number
of securitizations or asset-backed financing arrangements, from
which Nationstar has continuing involvement with the underlying
transferred financial assets. Nationstar aggregates these
securitizations or asset-backed financing arrangements into two
groups: 1) securitizations of residential mortgage loans
that were accounted for as sales and 2) financings
accounted for as secured borrowings.
On securitizations of residential mortgage loans,
Nationstars continuing involvement typically includes
acting as servicer for the mortgage loans held by the trust and
holding beneficial interests in the trust. Nationstars
responsibilities as servicer include, among other things,
collecting monthly payments, maintaining escrow accounts,
providing periodic reports and managing insurance in exchange
for a contractually specified servicing fee. The beneficial
interests held consist of both subordinate and residual
securities that were retained at the time of the securitization.
Prior to January 1, 2010, each of these securitization
trusts was considered QSPEs, and these trusts were excluded from
Nationstars consolidated financial statements.
Nationstar also maintains various agreements with special
purpose entities (SPEs), under which Nationstar transfers
mortgage loans
and/or
advances on residential mortgage loans in exchange for cash.
These SPEs issue debt supported by collections on the
transferred mortgage loans
and/or
advances. These transfers do not qualify for sale treatment
because Nationstar continues to retain control over the
transferred assets. As a result, Nationstar accounts for these
transfers as financings and continues to carry the transferred
assets and recognizes the related liabilities on
Nationstars consolidated balance sheets. Collections on
the mortgage loans
and/or
advances pledged to the SPEs are used to repay principal and
interest and to pay the expenses of the entity. The holders of
these beneficial interests issued by these SPEs do not have
recourse to Nationstar and can only look to the assets of the
SPEs themselves for satisfaction of the debt.
F-12
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
Prior to January 1, 2010, Nationstar evaluated each special
purpose entity (SPE) for classification as a QSPE. QSPEs were
not consolidated in Nationstars consolidated financial
statements. When an SPE was determined to not be a QSPE,
Nationstar further evaluated it for classification as a VIE.
When an SPE met the definition of a VIE, and when it was
determined that Nationstar was the primary beneficiary,
Nationstar included the SPE in its consolidated financial
statements.
Effective January 1, 2010, new accounting guidance
eliminated the concept of a QSPE and all existing SPEs are
subject to new consolidation guidance. Upon adoption of this new
accounting guidance, Nationstar identified certain
securitization trusts where Nationstar, or through its
affiliates, continued to hold beneficial interests in these
trusts. These retained beneficial interests obligate Nationstar
to absorb losses of the VIE that could potentially be
significant to the VIE or the right to receive benefits from the
VIE that could potentially be significant. In addition,
Nationstar as Master Servicer on the related mortgage loans,
retains the power to direct the activities of the VIE that most
significantly impact the economic performance of the VIE. When
it is determined that Nationstar has both the power to direct
the activities that most significantly impact the VIEs
economic performance and the obligation to absorb losses or the
right to receive benefits that could potentially be significant
to the VIE, the assets and liabilities of these VIEs are
included in Nationstars consolidated financial statements.
Upon consolidation of these VIEs, Nationstar derecognized all
previously recognized beneficial interests obtained as part of
the securitization, including any retained investment in debt
securities, mortgage servicing rights, and any remaining
residual interests. In addition, Nationstar recognized the
securitized mortgage loans as mortgage loans held for
investment, subject to ABS nonrecourse debt, and the related
asset-backed certificates (ABS nonrecourse debt) acquired by
third parties as ABS nonrecourse debt on Nationstars
consolidated balance sheet.
As a result of market conditions and deteriorating credit
performance on these consolidated VIEs, Nationstar expects
minimal to no future cash flows on the economic residual. Under
existing GAAP, Nationstar would be required to provide for
additional allowances for loan losses on the securitization
collateral as credit performance deteriorated, with no
offsetting reduction in the securitizations debt balances,
even though any nonperformance of the assets will ultimately
pass through as a reduction of amounts owed to the debt holders,
once they are extinguished. Therefore, Nationstar would be
required to record accounting losses beyond its economic
exposure.
To more accurately represent the future economic performance of
the securitization collateral and related debt balances,
Nationstar elected the fair value option provided for by
ASC 825-10,
Financial Instruments-Overall. This option was applied to
all eligible items within the VIE, including mortgage loans held
for investment, subject to ABS nonrecourse debt, and the related
ABS nonrecourse debt.
Subsequent to this fair value election, Nationstar no longer
records an allowance for loan loss on mortgage loans held for
investment, subject to ABS nonrecourse debt. Nationstar
continues to record interest income in Nationstars
consolidated statement of operations on these fair value elected
loans until they are placed on a nonaccrual status when they are
90 days or more past due. The fair value adjustment
recorded for the mortgage loans held for investment is
classified within fair value changes of ABS securitizations in
Nationstars consolidated statement of operations.
Subsequent to the fair value election for ABS nonrecourse debt,
Nationstar continues to record interest expense in
Nationstars consolidated statement of operations on the
fair value elected ABS nonrecourse debt. The fair value
adjustment recorded for the ABS nonrecourse debt is classified
within fair value changes of ABS securitizations in
Nationstars consolidated statement of operations.
F-13
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
Under the existing pooling and servicing agreements of these
securitization trusts, the principal and interest cash flows on
the underlying securitized loans are used to service the
asset-backed certificates. Accordingly, the timing of the
principal payments on this nonrecourse debt is dependent on the
payments received on the underlying mortgage loans and
liquidation of REO.
Nationstar consolidates the SPEs created for the purpose of
issuing debt supported by collections on loans and advances that
have been transferred to it as VIEs, and Nationstar is the
primary beneficiary of these VIEs. Nationstar consolidates the
assets and liabilities of the VIEs onto its consolidated
financial statements.
In December 2011, Nationstar sold its remaining variable
interest in a securitization trust that had been a consolidated
VIE since January 1, 2010 and deconsolidated the VIE. In
accordance with ASC 810, Consolidation, Nationstar
evaluated this securitization trust and determined that
Nationstar no longer has both the power to direct the activities
that most significantly impact the VIEs economic
performance and the obligation to absorb losses or the right to
receive benefits that could potentially be significant to the
VIE. Consequently, this securitization trust was derecognized as
of December 31, 2011. Upon deconsolidation of this VIE,
Nationstar derecognized the securitized mortgage loans held for
investment, subject to ABS nonrecourse debt, the related ABS
nonrecourse debt, as well as certain other assets and
liabilities of the securitization trust, and recognized any
mortgage servicing rights on the consolidated balance sheet. The
impact of this derecognition on Nationstars consolidated
statement of operations was recognized in 2011 in the fair value
changes in ABS securitizations line item.
Derivative
Financial Instruments
Nationstar enters into interest rate lock commitments (IRLCs)
with prospective borrowers. These commitments are carried at
fair value in accordance with ASC 815, Derivatives and
Hedging. ASC 815 clarifies that the expected net future
cash flows related to the associated servicing of a loan should
be included in the measurement of all written loan commitments
that are accounted for at fair value through earnings. The
estimated fair values of IRLCs are based on quoted market values
and are recorded in other assets in the consolidated balance
sheets. The initial and subsequent changes in the value of IRLCs
are a component of gain (loss) on mortgage loans held for sale.
Nationstar actively manages the risk profiles of its IRLCs and
mortgage loans held for sale on a daily basis. To manage the
price risk associated with IRLCs, Nationstar enters into forward
sales of MBS in an amount equal to the portion of the IRLC
expected to close, assuming no change in mortgage interest
rates. In addition, to manage the interest rate risk associated
with mortgage loans held for sale, Nationstar enters into
forward sales of MBS to deliver mortgage loan inventory to
investors. The estimated fair values of forward sales of MBS and
forward sale commitments are based on quoted market values and
are recorded as a component of other assets and mortgage loans
held for sale, respectively, in the consolidated balance sheets.
The initial and subsequent changes in value on forward sales of
MBS and forward sale commitments are a component of gain (loss)
on mortgage loans held for sale.
Periodically, Nationstar has entered into interest rate swap
agreements to hedge the interest payment on the warehouse debt
and securitization of its mortgage loans held for sale. These
interest rate swap agreements generally require Nationstar to
pay a fixed interest rate and receive a variable interest rate
based on LIBOR. Unless designated as an accounting hedge,
Nationstar records losses on interest rate swaps as a component
of gain/(loss) on interest rate swaps and caps in
Nationstars consolidated statements of operations.
Unrealized losses on undesignated interest rate derivatives are
separately disclosed under operating activities in the
consolidated statements of cash flows.
F-14
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
On October 1, 2010, the Company designated an existing
interest rate swap as a cash flow hedge against outstanding
floating rate financing associated with the Nationstar Mortgage
Advance Receivables
Trust 2009-ADV1
financing. This interest rate swap was a cash flow hedge under
ASC 815 and was recorded at fair value on the
Companys consolidated balance sheet, with any changes in
fair value being recorded as an adjustment to other
comprehensive income. To qualify as a cash flow hedge, the hedge
must be highly effective at reducing the risk associated with
the exposure being hedged and must be formally designated at
hedge inception. Nationstar considers a hedge to be highly
effective if the change in fair value of the derivative hedging
instrument is within 80% to 125% of the opposite change in the
fair value of the hedged item attributable to the hedged risk.
Ineffective portions of the cash flow hedge are reflected in
earnings as they occur as a component of interest expense. In
conjunction with the October 2011 amendment to the
2010-ABS
Advance Financing Facility, Nationstar paid off its
2009-ABS
Advance Financing Facility and transferred the related
collateral to the
2010-ABS
Advance Financing Facility. Concurrently with the repayment of
the 2009-ABS
Advance Financing Facility, Nationstar de-designated the
underlying interest rate swap on the
2009-ABS
Advance Financing Facility. The interest rate swap associated
with the
2010-ABS
Advance Financing Facility was treated as an economic hedge for
the remainder of 2011.
During 2008, Nationstar entered into interest rate cap
agreements to hedge the interest payment on the servicing
advance facility. These interest rate cap agreements generally
require an upfront payment and receive cash flow only when a
variable rate based on LIBOR exceeds a defined interest rate.
These interest rate cap agreements are not designated as hedging
instruments, and unrealized gains and losses are recorded in
loss on interest rate swaps and caps in Nationstars
consolidated statements of operations.
Interest
Income
Interest income is recognized using the interest method. Revenue
accruals for individual loans are suspended and accrued amounts
reversed when the mortgage loan becomes contractually delinquent
for 90 days or more. Delinquency payment status is based on
the most recently received payment from the borrower. The
accrual is resumed when the individual mortgage loan becomes
less than 90 days contractually delinquent. For individual
loans that have been modified, a period of six timely payments
is required before the loan is returned to an accrual basis.
Interest income also includes (1) interest earned on
custodial cash deposits associated with the mortgage loans
serviced and (2) deferred originations income, net of
deferred originations costs and other revenues derived from the
originations of mortgage loans, which is deferred and recognized
over the life of a mortgage loan or recognized when the related
loan is sold to a third party purchaser.
Servicing
Fee Income
Servicing fees include contractually specified servicing fees,
late charges, prepayment penalties and other ancillary charges.
Servicing encompasses, among other activities, the following
processes: billing, collection of payments, movement of cash to
the payment clearing bank accounts, investor reporting, customer
service, recovery of delinquent payments, instituting
foreclosure, and liquidation of the underlying collateral.
Nationstar recognizes servicing and ancillary fees as they are
earned, which is generally upon collection of the payments from
the borrower. In addition, Nationstar also receives various fees
in the course of providing servicing on its various portfolios.
These fees include modification fees for modifications performed
outside of government programs, modification fees for
modifications pursuant to various government programs, and
incentive fees for servicing performance on specific GSE
portfolios.
F-15
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
Fees recorded on modifications of mortgage loans held for
investment performed outside of government programs are deferred
and recognized as an adjustment to the loans held for
investment. These fees are accreted into interest income as an
adjustment to the loan yield over the life of the loan. Fees
recorded on modifications of mortgage loans serviced by
Nationstar for others are recognized on collection and are
recorded as a component of service fee income. Fees recorded on
modifications pursuant to various government programs are
recognized when Nationstar has completed all necessary steps and
the loans have performed for the minimum required time frame to
establish eligibility for the fee. Revenue earned on
modifications pursuant to various government programs is
included as a component of service fee income. Incentive fees
for servicing performance on specific GSE portfolios are
recognized as various incentive standards are achieved and are
recorded as a component of service fee income.
Sale of
Mortgage Loans
Transfers of financial assets are accounted for as sales when
control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (i) the
assets have been isolated from Nationstar, (ii) the
transferee has the right (free of conditions that constrain it
from taking advantage of that right) to pledge or exchange the
transferred assets, and (iii) Nationstar does not maintain
effective control over the transferred assets through either
(a) an agreement that entitles and obligates Nationstar to
repurchase or redeem them before their maturity or (b) the
ability to unilaterally cause the holder to return specific
assets.
Loan securitizations structured as sales, as well as whole loan
sales, are accounted for in accordance with ASC 860,
Transfers and Servicing, and the resulting gains on such
sales, net of any accrual for recourse obligations, and are
reported in operating results during the period in which the
securitization closes or the sale occurs.
Share-Based
Compensation Expense
Share-based compensation is recognized in accordance with
ASC 718, CompensationStock Compensation. This
guidance requires all share-based payments to employees,
including grants of employee stock options, to be recognized as
an expense in the consolidated statements of operations, based
on their fair values. The amount of compensation is measured at
the fair value of the awards when granted and this cost is
expensed over the required service period, which is normally the
vesting period of the award.
Advertising
Costs
Advertising costs are expensed as incurred and are included as
part of general and administrative expenses.
Income
Taxes
For federal income tax purposes, Nationstar has elected to be a
disregarded entity and is treated as a branch of its parent, FIF
HE Holdings LLC. FIF HE Holdings LLC is taxed as a partnership,
whereby all income is taxed at the member level. Certain states
impose income taxes on LLCs. However, Nationstar does not
believe it is subject to material state or local income tax in
any of the jurisdictions in which it does business.
F-16
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
Recent
Accounting Developments
Accounting Standards Update
No. 2011-03,
Reconsideration of Effective Control for Repurchase
Agreements (Update
No. 2011-03).
Update
No. 2011-03
is intended to improve the accounting and reporting of
repurchase agreements and other agreements that both entitle and
obligate a transferor to repurchase or redeem financial assets
before their maturity. This amendment removes the criterion
pertaining to an exchange of collateral such that it should not
be a determining factor in assessing effective control,
including (i) the criterion requiring the transferor to
have the ability to repurchase or redeem the financial assets on
substantially the agreed terms, even in the event of default by
the transferee, and (ii) the collateral maintenance
implementation guidance related to that criterion. Other
criteria applicable to the assessment of effective control are
not changed by the amendments in the update. The amendments in
this update will be effective for interim and annual periods
beginning after December 15, 2011. The adoption of Update
No. 2011-03
will not have a material impact on Nationstars financial
condition, liquidity or results of operations.
Accounting Standards Update
No. 2011-04,
Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRS (Update
No. 2011-04).
Update
No. 2011-04
is intended to provide common fair value measurement and
disclosure requirements in GAAP and International Financial
Reporting Standards (IFRS). The changes required in this update
include changing the wording used to describe many of the
requirements in GAAP for measuring fair value and for disclosing
information about fair value measurements. The amendments in
this update are to be applied prospectively and are effective
for interim and annual periods beginning after December 15,
2011. The adoption of Update
No. 2011-04
will not have a material impact on Nationstars financial
condition, liquidity or results of operations.
Accounting Standards Update
No. 2011-05,
Presentation of Comprehensive Income (Update
No. 2011-05).
Update
No. 2011-05
is intended to improve the comparability, consistency, and
transparency of financial reporting and to increase the
prominence of items reported in other comprehensive income.
Update
No. 2011-05
eliminates the option to present components of other
comprehensive income as part of the statement of changes in
stockholders equity and now requires that all non-owner
changes in stockholders equity be presented either in a
single continuous statement of comprehensive income or in two
separate but consecutive statements. This update does not change
the items that must be reported in other comprehensive income or
when an item of other comprehensive income must be reclassified
to net income. The amendments in this update are to be applied
retrospectively and are effective for interim and annual periods
beginning after December 15, 2011. The adoption of Update
No. 2011-05
will not have a material impact on Nationstars financial
condition, liquidity or results of operations.
Accounting Standards Update
No. 2011-12,
Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of
Accumulated Other Comprehensive Income in Accounting Standards
Update No
2011-05
(Update
No. 2011-12).
Update
2011-12 is
intended to temporarily defer the effective date of the
requirement to present separate line items on the income
statement for reclassification adjustments of items out of
accumulated other comprehensive income into net income as
required by Update
No. 2011-05.
All other requirements in Update
2011-05 are
not affected by this update. This update does not change the
requirement to present reclassifications adjustments within
other comprehensive income either on the face of the statement
that reports other comprehensive income or in the notes to the
financial statements (Update
2011-05).
The amendments in this update are effective for interim and
annual periods beginning after December 15, 2011. The
adoption of Update
No. 2011-12
will not have a material impact on our financial condition,
liquidity or results of operations.
F-17
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
3.
|
Variable
Interest Entities and Securitizations
|
A VIE is an entity that has either a total equity investment
that is insufficient to permit the entity to finance its
activities without additional subordinated financial support or
whose equity investors lack the characteristics of a controlling
financial interest. A VIE is consolidated by its primary
beneficiary, which is the entity that, through its variable
interests has both the power to direct the activities of a VIE
that most significantly impact the VIEs economic performance and
the obligation to absorb losses of the VIE that could
potentially be significant to the VIE or the right to receive
benefits from the VIE that could potentially be significant to
the VIE.
Effective January 1, 2010, new accounting guidance
eliminated the concept of a QSPE and all existing SPEs are
subject to new consolidation guidance. Upon adoption of this new
accounting guidance, Nationstar identified certain
securitization trusts where Nationstar had both the power to
direct the activities that most significantly impacted the
VIEs economic performance and the obligation to absorb
losses or the right to receive benefits that could potentially
be significant to the VIE, the assets and liabilities of these
VIEs were included in Nationstars consolidated financial
statements. The net effect of the accounting change on
January 1, 2010 members equity was an
$8.1 million charge to members equity.
In December 2011, Nationstar sold its remaining variable
interest in a securitization trust that had been a consolidated
VIE since January 1, 2010 and deconsolidated the VIE. In
accordance with ASC 810, Nationstar has evaluated this
securitization trust and determined that Nationstar no longer
has both the power to direct the activities that most
significantly impact the VIEs economic performance and the
obligation to absorb losses or the right to receive benefits
that could potentially be significant to the VIE, and this
securitization trust was derecognized as of December 31,
2011. Upon deconsolidation of this VIE, Nationstar derecognized
the securitized mortgage loans held for investment, subject to
ABS nonrecourse debt, the related ABS nonrecourse debt, as well
as certain other assets and liabilities of the securitization
trust, and recognized any MSRs on the consolidated balance
sheet. The impact of this derecognition on Nationstars
consolidated statement of operations was recognized in the
fourth quarter of 2011 in the fair value changes in ABS
securitizations line item.
F-18
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
3.
|
Variable
Interest Entities and Securitizations (continued)
|
A summary of the assets and liabilities of Nationstars
transactions with VIEs included in Nationstars
consolidated financial statements as of December 31, 2011
and 2010 is presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
|
|
|
|
|
|
|
|
|
|
Accounted for as
|
|
|
|
|
|
|
Securitization
|
|
|
Secured
|
|
|
|
|
December 31,
2011
|
|
Trusts(1)
|
|
|
Borrowings
|
|
|
Total
|
|
|
Assets
|
Restricted cash
|
|
|
$
|
|
|
|
$22,316
|
|
|
|
$22,316
|
|
Accounts receivable
|
|
|
|
|
|
|
279,414
|
|
|
|
279,414
|
|
Mortgage loans held for investment, subject to nonrecourse debt
|
|
|
|
|
|
|
237,496
|
|
|
|
237,496
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debt
|
|
|
|
|
|
|
|
|
|
|
|
|
REO
|
|
|
|
|
|
|
3,668
|
|
|
|
3,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$
|
|
|
|
$542,894
|
|
|
|
$542,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
$
|
|
|
|
$244,574
|
|
|
|
$244,574
|
|
Payables and accrued liabilities
|
|
|
|
|
|
|
977
|
|
|
|
977
|
|
Outstanding servicer advances
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments, subject to ABS nonrecourse debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecourse debtLegacy Assets
|
|
|
|
|
|
|
112,490
|
|
|
|
112,490
|
|
ABS nonrecourse debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
$
|
|
|
|
$358,041
|
|
|
|
$358,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In December 2011, Nationstar sold its remaining variable
interest in a securitization trust that had been a consolidated
VIE since January 1, 2010 and deconsolidated the VIE. Upon
deconsolidation of this VIE, Nationstar derecognized the related
assets and liabilities. |
F-19
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
3.
|
Variable
Interest Entities and Securitizations (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
|
|
|
|
|
|
|
|
|
|
Accounted for as
|
|
|
|
|
|
|
Securitization
|
|
|
Secured
|
|
|
|
|
December 31,
2010
|
|
Trusts
|
|
|
Borrowings
|
|
|
Total
|
|
|
Assets
|
Restricted cash
|
|
|
$1,472
|
|
|
|
$32,075
|
|
|
|
$33,547
|
|
Accounts receivable
|
|
|
2,392
|
|
|
|
286,808
|
|
|
|
289,200
|
|
Mortgage loans held for investment, subject to nonrecourse debt
|
|
|
|
|
|
|
261,305
|
|
|
|
261,305
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debt
|
|
|
538,440
|
|
|
|
|
|
|
|
538,440
|
|
REO
|
|
|
17,509
|
|
|
|
9,505
|
|
|
|
27,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$559,813
|
|
|
|
$589,693
|
|
|
|
$1,149,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
$
|
|
|
|
$236,808
|
|
|
|
$236,808
|
|
Payables and accrued liabilities
|
|
|
95
|
|
|
|
1,173
|
|
|
|
1,268
|
|
Outstanding servicer advances(1)
|
|
|
32,284
|
|
|
|
|
|
|
|
32,284
|
|
Derivative financial instruments
|
|
|
|
|
|
|
7,801
|
|
|
|
7,801
|
|
Derivative financial instruments, subject to ABS nonrecourse debt
|
|
|
18,781
|
|
|
|
|
|
|
|
18,781
|
|
Nonrecourse debtLegacy Assets
|
|
|
|
|
|
|
138,662
|
|
|
|
138,662
|
|
ABS nonrecourse debt
|
|
|
497,289
|
|
|
|
|
|
|
|
497,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
$548,449
|
|
|
|
$384,444
|
|
|
|
$932,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Outstanding servicer advances consists of principal and interest
advances paid by Nationstar to cover scheduled payments and
interest that have not been timely paid by borrowers. These
outstanding servicer advances are eliminated upon the
consolidation of the securitization trusts. |
A summary of the outstanding collateral and certificate balances
for securitization trusts, including any retained beneficial
interests and MSRs, that were not consolidated by Nationstar for
the periods ending December 31, 2011 and 2010 is presented
in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Total collateral balances
|
|
|
$4,579,142
|
|
|
|
$4,038,978
|
|
Total certificate balances
|
|
|
4,582,598
|
|
|
|
4,026,844
|
|
Total mortgage servicing rights at fair value
|
|
|
28,635
|
|
|
|
26,419
|
|
Nationstar has not retained any variable interests in the
unconsolidated securitization trusts that were outstanding as of
December 31, 2011 or 2010, and therefore does not have a
significant maximum exposure to loss related to these
unconsolidated VIEs. A summary of mortgage loans transferred to
unconsolidated
F-20
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
3.
|
Variable
Interest Entities and Securitizations (continued)
|
securitization trusts that are 60 days or more past due and
the credit losses incurred in the unconsolidated securitization
trusts are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended,
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
Amount
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
|
60 Days or
|
|
|
Credit
|
|
|
60 Days or
|
|
|
Credit
|
|
|
60 Days or
|
|
|
Credit
|
|
|
|
More Past Due
|
|
|
Losses
|
|
|
More Past Due
|
|
|
Losses
|
|
|
More Past Due
|
|
|
Losses
|
|
|
Total securitization trusts
|
|
|
$1,066,130
|
|
|
|
$335,221
|
|
|
|
$830,953
|
|
|
|
$242,905
|
|
|
|
$1,286,234
|
|
|
|
$871,995
|
|
Certain cash flows received from securitization trusts accounted
for as sales for the dates indicated were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended,
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Servicing Fees
|
|
|
Loan
|
|
|
Servicing Fees
|
|
|
Loan
|
|
|
Servicing Fees
|
|
|
Loan
|
|
|
|
Received
|
|
|
Repurchases
|
|
|
Received
|
|
|
Repurchases
|
|
|
Received
|
|
|
Repurchases
|
|
|
Total securitization trusts
|
|
|
$28,569
|
|
|
|
$
|
|
|
|
$29,129
|
|
|
|
$
|
|
|
|
$32,593
|
|
|
|
$
|
|
|
|
4.
|
Consolidated
Statement of Cash FlowsSupplemental Disclosure
|
Total interest paid for the years ended December 31, 2011,
2010, and 2009, was approximately $90.8 million,
$91.8 million, and $47.6 million, respectively.
Accounts receivable consist primarily of accrued interest
receivable on mortgage loans and securitizations, collateral
deposits on surety bonds, and advances made to unconsolidated
securitization trusts, as required under various servicing
agreements related to delinquent loans, which are ultimately
paid back to Nationstar from such trusts.
Accounts receivable consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Delinquent interest advances
|
|
|
$213,737
|
|
|
|
$148,751
|
|
Corporate and escrow advances
|
|
|
299,946
|
|
|
|
256,921
|
|
Insurance deposits
|
|
|
1,750
|
|
|
|
6,390
|
|
Accrued interest (includes $ and $2,392, respectively,
subject to ABS nonrecourse debt)
|
|
|
1,512
|
|
|
|
4,302
|
|
Receivables from trusts
|
|
|
4,664
|
|
|
|
6,607
|
|
Accrued servicing fees
|
|
|
20,865
|
|
|
|
12,789
|
|
Other
|
|
|
19,826
|
|
|
|
5,515
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable
|
|
|
$562,300
|
|
|
|
$441,275
|
|
|
|
|
|
|
|
|
|
|
F-21
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
6.
|
Mortgage
Loans Held for Sale and Investment
|
Mortgage
loans held for sale
Mortgage loans held for sale consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Mortgage loans held for saleunpaid principal balance
|
|
|
$442,596
|
|
|
|
$365,337
|
|
Mark-to-market
adjustment
|
|
|
16,030
|
|
|
|
4,280
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held for sale
|
|
|
$458,626
|
|
|
|
$369,617
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale on a nonaccrual status are
presented in the following table for the periods indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Mortgage loans held for saleNon-performing
|
|
|
$
|
|
|
|
$371
|
|
|
|
$252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the changes in mortgage loans held for sale
to the amounts presented in the consolidated statements of cash
flows for the dates indicated is presented in the following
table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Mortgage loans held for salebeginning balance
|
|
|
$369,617
|
|
|
|
$201,429
|
|
Mortgage loans originated and purchased, net of fees
|
|
|
3,412,185
|
|
|
|
2,791,639
|
|
Cost of loans sold, net of fees
|
|
|
(3,339,859
|
)
|
|
|
(2,621,275
|
)
|
Principal payments received on mortgage loans held for sale and
other changes
|
|
|
19,668
|
|
|
|
(1,349
|
)
|
Transfer of mortgage loans held for sale to held for investment
due to bankruptcy and foreclosures
|
|
|
(2,697
|
)
|
|
|
|
|
Transfer of mortgage loans held for sale to REO
|
|
|
(288
|
)
|
|
|
(827
|
)
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for saleending balance
|
|
|
$458,626
|
|
|
|
$369,617
|
|
|
|
|
|
|
|
|
|
|
F-22
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
6.
|
Mortgage
Loans Held for Sale and Investment (continued)
|
Mortgage
loans held for investment, subject to nonrecourse
debtLegacy Assets, net
Mortgage loans held for investment, subject to nonrecourse
debtLegacy Assets, net as of the dates indicated include
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Mortgage loans held for investment, subject to nonrecourse
debtLegacy Assets, netunpaid principal balance
|
|
|
$375,720
|
|
|
|
$411,878
|
|
Transfer discount
|
|
|
|
|
|
|
|
|
Accretable
|
|
|
(22,392
|
)
|
|
|
(25,219
|
)
|
Non-accretable
|
|
|
(104,024
|
)
|
|
|
(117,041
|
)
|
Allowance for loan losses
|
|
|
(5,824
|
)
|
|
|
(3,298
|
)
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held for investment, subject to nonrecourse
debtlegacy assets, net
|
|
|
$243,480
|
|
|
|
$266,320
|
|
|
|
|
|
|
|
|
|
|
The changes in accretable yield on loans transferred to mortgage
loans held for investment, subject to nonrecourse
debtLegacy Assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
Accretable Yield
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
Balance at the beginning of the period
|
|
|
$25,219
|
|
|
|
$22,040
|
|
Additions
|
|
|
|
|
|
|
|
|
Accretion
|
|
|
(4,131
|
)
|
|
|
(4,082
|
)
|
Reclassifications from (to) nonaccretable discount
|
|
|
1,304
|
|
|
|
7,261
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
|
$22,392
|
|
|
|
$25,219
|
|
|
|
|
|
|
|
|
|
|
Nationstar may periodically modify the terms of any outstanding
mortgage loans held for investment, subject to nonrecourse
debt-legacy assets, net for loans that are either in default or
in imminent default. Modifications often involve reduced
payments by borrowers, modification of the original terms of the
mortgage loans, forgiveness of debt
and/or
increased servicing advances. As a result of the volume of
modification agreements entered into, the estimated average
outstanding life in this pool of mortgage loans has been
extended. Nationstar records 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,
Nationstar reclassified approximately $1.3 million and
$7.3 million for the years ended December 31, 2011 and
2010, respectively, from nonaccretable difference. Furthermore,
the Company considers the decrease in principal, interest, and
other cash flows expected to be collected arising from the
transferred loans as an impairment, and Nationstar recorded
provisions of $3.5 million and $3.3 million for loan
losses for the years ended December 31, 2011 and 2010,
respectively, on the transferred loans to reflect this
impairment.
Nationstar collectively evaluates all mortgage loans held for
investment, subject to nonrecourse debt-legacy assets for
impairment. The changes in the allowance for loan losses on
mortgage loans held for
F-23
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
6.
|
Mortgage
Loans Held for Sale and Investment (continued)
|
investment, subject to nonrecourse debt-legacy assets, net were
as follows (in thousands) for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011
|
|
|
|
Performing
|
|
|
Non-Performing
|
|
|
Total
|
|
|
Balance at the beginning of the period
|
|
|
$829
|
|
|
|
$2,469
|
|
|
|
$3,298
|
|
Provision for loan losses
|
|
|
1,346
|
|
|
|
2,191
|
|
|
|
3,537
|
|
Recoveries on loans previously charged-off
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(534
|
)
|
|
|
(477
|
)
|
|
|
(1,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
|
$1,641
|
|
|
|
$4,183
|
|
|
|
$5,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balanceCollectively evaluated for impairment
|
|
|
$283,770
|
|
|
|
$91,950
|
|
|
|
$375,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
Performing
|
|
|
Non-Performing
|
|
|
Total
|
|
|
Balance at the beginning of the period
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Provision for loan losses
|
|
|
829
|
|
|
|
2,469
|
|
|
|
3,298
|
|
Recoveries on loans previously charged-off
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
|
$829
|
|
|
|
$2,469
|
|
|
|
$3,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balanceCollectively evaluated for impairment
|
|
|
$310,730
|
|
|
|
$101,148
|
|
|
|
$411,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan delinquency and
Loan-to-Value
Ratio (LTV) are common credit quality indicators that Nationstar
monitors and utilizes in its evaluation of the adequacy of the
allowance for loan losses, of which the primary indicator of
credit quality is loan delinquency. LTV refers to the ratio of
comparing the loans unpaid principal balance to the
propertys collateral value. Loan delinquencies and unpaid
principal balances are updated monthly based upon collection
activity. Collateral values are updated from third party
providers on a periodic basis. The collateral values used to
derive the LTVs shown below were obtained at various
dates, but the majority were within the last twenty-four months.
For an event requiring a decision based at least in part on the
collateral value, the Company takes its last known value
provided by a third party and then adjusts the value based on
the applicable home price index.
F-24
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
6.
|
Mortgage
Loans Held for Sale and Investment (continued)
|
The following tables provide the outstanding unpaid principal
balance of Nationstars mortgage loans held for investment
by credit quality indicators as of December 31, 2011 and
2010.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Credit Quality by Delinquency Status
|
|
|
|
|
|
|
|
|
Performing
|
|
|
$283,770
|
|
|
|
$310,730
|
|
Non-Performing
|
|
|
91,950
|
|
|
|
101,148
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$375,720
|
|
|
|
$411,878
|
|
|
|
|
|
|
|
|
|
|
Credit Quality by
Loan-to-Value
Ratio
|
|
|
|
|
|
|
|
|
Less than 60
|
|
|
$42,438
|
|
|
|
$47,568
|
|
Less than 70 and more than 60
|
|
|
15,968
|
|
|
|
17,476
|
|
Less than 80 and more than 70
|
|
|
25,190
|
|
|
|
26,771
|
|
Less than 90 and more than 80
|
|
|
32,620
|
|
|
|
36,079
|
|
Less than 100 and more than 90
|
|
|
33,708
|
|
|
|
37,551
|
|
Greater than 100
|
|
|
225,796
|
|
|
|
246,433
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$375,720
|
|
|
|
$411,878
|
|
|
|
|
|
|
|
|
|
|
Performing loans refer to loans that are less than 90 days
delinquent. Non-performing loans refer to loans that are greater
than 90 days delinquent.
Mortgage
loans held for investment, subject to ABS nonrecourse
debt
In December 2011, Nationstar sold its remaining variable
interest in a securitization trust that had been a consolidated
VIE since January 1, 2010 and deconsolidated the VIE. Upon
deconsolidation of this VIE, Nationstar derecognized the
securitized mortgage loans held for investment, subject to ABS
nonrecourse debt, the related ABS nonrecourse debt, as well as
certain other assets and liabilities of the securitization
trust, and recognized any mortgage servicing rights on the
consolidated balance sheet.
Mortgage loans held for investment, subject to ABS nonrecourse
debt as of December 31, 2010 includes (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debtunpaid principal balance
|
|
|
$983,106
|
|
Fair value adjustment
|
|
|
(444,666
|
)
|
|
|
|
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debt, net
|
|
|
$538,440
|
|
|
|
|
|
|
As of December 31, 2010 approximately $223.5 million
of the unpaid principal balance of mortgage loans held for
investment, subject to ABS nonrecourse debt were over
90 days past due. The fair value of such loans was
approximately $117.6 million.
F-25
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
7.
|
Investment
in Debt Securities
|
Nationstar held bonds retained from securitization trusts as of
December 31, 2009 that were classified as
available-for-sale
securities and were carried at fair value (in thousands).
Effective January 1, 2010 all existing securitization
trusts are considered VIEs and upon consolidation of these VIEs,
Nationstar derecognized all previously recognized beneficial
interests, including retained investment in debt securities,
obtained as part of the securitization (see
Note 3Variable Interest Entities &
Securitizations).
The following table presents a summary of
other-than-temporary
losses recognized on outstanding debt securities for the period
before the consolidation (in thousands):
|
|
|
|
|
|
|
Other-than-
|
|
Year Ended December 31, 2009
|
|
Temporary
|
|
|
Retained bonds security rating
|
|
|
|
|
BBs
|
|
|
$(5,505
|
)
|
Bs
|
|
|
(1,214
|
)
|
|
|
|
|
|
Total retained bonds
|
|
|
(6,719
|
)
|
Retained net interest margin securities
|
|
|
(90
|
)
|
|
|
|
|
|
Loss on
available-for-sale
securitiesother-than-temporary
|
|
|
$(6,809
|
)
|
|
|
|
|
|
|
|
8.
|
Mortgage
Servicing Rights (MSRs)
|
MSRs at
fair value
MSRs arise from contractual agreements between Nationstar and
investors in mortgage securities and mortgage loans. Nationstar
records MSR assets when it sells loans on a servicing-retained
basis, at the time of securitization or through the acquisition
or assumption of the right to service a financial asset. Under
these contracts, Nationstar performs loan servicing functions in
exchange for fees and other remuneration.
The fair value of the MSRs is based upon the present value of
the expected future cash flows related to servicing these loans.
Nationstar receives a base servicing fee ranging from 0.25% to
0.50% annually on the remaining outstanding principal balances
of the loans. The servicing fees are collected from investors.
Nationstar determines the fair value of the MSRs by the use of a
cash flow model that incorporates prepayment speeds, discount
rate, and other assumptions (including servicing costs) that
management believes are consistent with the assumptions other
major market participants use in valuing the MSRs. Certain of
the forward loans underlying the MSRs are prime agency and
government conforming residential forward mortgage loans and as
such are more interest rate sensitive whereas the remaining MSRs
are more credit sensitive. The nature of the forward loans
underlying the MSRs affects the assumptions that management
believes other major market participants use in the valuing the
MSRs. During 2010, Nationstar began obtaining third party
valuations of a portion of its MSRs to assess the reasonableness
of the fair value calculated by the cash flow model.
Certain of the forward loans underlying the mortgage servicing
rights carried at fair value that are owned by Nationstar are
credit sensitive in nature and the value of these mortgage
servicing rights is more likely to be affected from changes in
credit losses than from interest rate movement. The remaining
forward loans underlying Nationstars MSRs held at fair
value are prime agency and government conforming residential
mortgage loans for which the value of these MSRs is more likely
to be affected from interest rate movement than changes in
credit losses.
F-26
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
8.
|
Mortgage
Servicing Rights (MSRs) (continued)
|
Nationstar used the following weighted average assumptions in
estimating the fair value of MSRs for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Credit Sensitive MSRs
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
25.71%
|
|
|
|
24.96%
|
|
Total prepayment speeds
|
|
|
15.80%
|
|
|
|
18.13%
|
|
Expected weighted-average life
|
|
|
5.15 years
|
|
|
|
4.90 years
|
|
Credit losses
|
|
|
35.42%
|
|
|
|
36.71%
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Interest Rate Sensitive MSRs
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
10.46%
|
|
|
|
13.57%
|
|
Total prepayment speeds
|
|
|
19.02%
|
|
|
|
17.19%
|
|
Expected weighted-average life
|
|
|
5.04 years
|
|
|
|
5.12 years
|
|
Credit losses
|
|
|
9.73%
|
|
|
|
8.80%
|
|
The activity of MSRs carried at fair value is as follows for the
year ended December 31, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Fair value at the beginning of the period
|
|
|
$145,062
|
|
|
|
$114,605
|
|
Additions:
|
|
|
|
|
|
|
|
|
Servicing resulting from transfers of financial assets
|
|
|
36,474
|
|
|
|
26,253
|
|
Recognition of servicing assets from derecognition of variable
interest entities
|
|
|
5,714
|
|
|
|
2,866
|
|
Purchases of servicing assets
|
|
|
102,800
|
|
|
|
17,812
|
|
Deductions:
|
|
|
|
|
|
|
|
|
Derecognition of servicing assets due to new accounting guidance
on consolidation of variable interest entities
|
|
|
|
|
|
|
(10,431
|
)
|
Changes in fair value:
|
|
|
|
|
|
|
|
|
Due to changes in valuation inputs or assumptions used in the
valuation model
|
|
|
(14,207
|
)
|
|
|
9,455
|
|
Other changes in fair value
|
|
|
(24,793
|
)
|
|
|
(15,498
|
)
|
|
|
|
|
|
|
|
|
|
Fair value at the end of the period
|
|
|
$251,050
|
|
|
|
$145,062
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance of forward loans serviced for
others
|
|
|
|
|
|
|
|
|
Originated or purchased mortgage loans
|
|
|
|
|
|
|
|
|
Credit sensitive loans
|
|
|
$32,408,623
|
|
|
|
$24,964,329
|
|
Interest sensitive loans
|
|
|
11,844,831
|
|
|
|
6,722,312
|
|
|
|
|
|
|
|
|
|
|
Total owned loans
|
|
|
$44,253,454
|
|
|
|
$31,686,641
|
|
|
|
|
|
|
|
|
|
|
F-27
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
8.
|
Mortgage
Servicing Rights (MSRs) (continued)
|
The following table shows the hypothetical effect on the fair
value of the MSRs using various unfavorable variations of the
expected levels of certain key assumptions used in valuing these
assets at December 31, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Prepayment
|
|
|
|
|
|
|
Discount Rate
|
|
|
Speeds
|
|
|
Credit Losses
|
|
|
|
100 bps
|
|
|
200 bps
|
|
|
10%
|
|
|
20%
|
|
|
10%
|
|
|
20%
|
|
|
|
Adverse
|
|
|
Adverse
|
|
|
Adverse
|
|
|
Adverse
|
|
|
Adverse
|
|
|
Adverse
|
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
$(6,640
|
)
|
|
|
$(12,929
|
)
|
|
|
$(13,281
|
)
|
|
|
$(25,215
|
)
|
|
|
$(5,081
|
)
|
|
|
$(10,944
|
)
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
$(3,828
|
)
|
|
|
$(7,458
|
)
|
|
|
$(8,175
|
)
|
|
|
$(16,042
|
)
|
|
|
$(4,310
|
)
|
|
|
$(9,326
|
)
|
These sensitivities are hypothetical and should be evaluated
with care. The effect on fair value of a 10% variation 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 (e.g., a decrease in
total prepayment speeds may result in an increase in credit
losses), which could impact the above hypothetical effects.
In November 2008, Nationstar acquired MSRs on a portfolio of
residential mortgage loans with an aggregate unpaid principal
balance of $12.7 billion from a third-party servicer.
Nationstars share of the acquisition price was
$35.4 million. An additional amount was paid by a
third-party investor in the underlying loans to the previous
servicer. Contemporaneously, Nationstar and the third-party
investor entered into a supplemental servicing agreement, which,
among other matters, established that any sale by Nationstar of
these servicing rights had to be approved by the investor and
that if Nationstar were to sell the MSRs in the five-year period
following the acquisition transaction, Nationstar would be
entitled to the proceeds from the sale of up to a specified
amount of the then existing aggregate unpaid principal balance
of the underlying mortgage loans, the investor would be entitled
to a specified amount, and the remaining excess proceeds, if
any, over and above these allocations would be retained by
Nationstar. In October 2009, Nationstar acquired MSRs on a
portfolio of residential mortgage loans with an aggregate unpaid
principal balance of $12.3 billion from another third party
servicer. Nationstars share of the acquisition price of
these servicing rights was $23.4 million. An additional
amount was paid by a third-party investor in the underlying
loans to the previous servicer. Contemporaneously, Nationstar
and the third-party investor entered into a supplemental
servicing agreement, which, among other matters, established
that any sale by Nationstar of these servicing rights had to be
approved by the investor and that if Nationstar were to sell the
MSRs following the acquisition transaction, Nationstar would be
entitled to the proceeds from the sale of up to a specified
amount of the then existing aggregate unpaid principal balance
of the underlying mortgage loans, the investor would be entitled
to a specified amount, and the remaining excess proceeds, if
any, over and above these allocations would be retained by
Nationstar. Nationstar carries these MSRs at their estimated
fair value, which includes consideration of the effect of the
restriction on any sale by Nationstar due to the investors
right to approve such sale. Under the supplemental servicing
agreement, Nationstar is entitled to all of the contractually
specified servicing fees, ancillary fees and also certain
incentive fees, if certain performance conditions are met, and
does not share these servicing revenues with the investor.
F-28
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
8.
|
Mortgage
Servicing Rights (MSRs) (continued)
|
MSRs at
amortized cost
In December 2011 Nationstar entered into a contract to acquire
certain reverse mortgage MSRs with an unpaid principal balance
of $7.8 billion. These MSR assets or liabilities will
initially be recorded at their fair value and subsequently
accounted for using the amortization method. The acquisition was
completed in January 2012.
Subserviced
loans
In addition to the two classes of MSRs that the Company services
for others, Nationstar also subservices loans on behalf of
owners of MSRs or loans for a fee. The Company has no recorded
value for its subservicing arrangements. At December 31,
2011 and 2010, the unpaid principal balances under subservicing
arrangements were $53.7 billion and $30.6 billion,
respectively.
Total servicing and ancillary fees from Nationstars
servicing portfolio of residential mortgage loans are presented
in the following table for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Servicing fees
|
|
|
$191,652
|
|
|
|
$103,690
|
|
|
|
$89,893
|
|
Ancillary fees
|
|
|
82,099
|
|
|
|
70,130
|
|
|
|
28,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total servicing and ancillary fees
|
|
|
$273,751
|
|
|
|
$173,820
|
|
|
|
$118,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Property
and Equipment, Net
|
Property and equipment, net (in thousands), and the
corresponding ranges of estimated useful lives were as follows.
Software in development will be substantially deployed in 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Range of Estimated
|
|
|
2011
|
|
|
2010
|
|
|
Useful Life
|
|
Furniture, fixtures and equipment
|
|
|
$33,334
|
|
|
|
$26,733
|
|
|
3-5 years
|
Capitalized software costs
|
|
|
14,356
|
|
|
|
10,272
|
|
|
5 years
|
Building and leasehold improvements
|
|
|
7,887
|
|
|
|
5,507
|
|
|
1-5 years
|
Software in development and other
|
|
|
6,862
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,439
|
|
|
|
42,905
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(39,201
|
)
|
|
|
(35,346
|
)
|
|
|
Plus: Land
|
|
|
835
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
$24,073
|
|
|
|
$8,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
2011
|
|
|
2010
|
|
|
Derivative financial instruments
|
|
|
$11,302
|
|
|
|
$8,666
|
|
Deferred financing costs
|
|
|
12,059
|
|
|
|
14,396
|
|
Deposits pending on servicing rights acquisitions
|
|
|
28,904
|
|
|
|
|
|
Loans subject to repurchase right from Ginnie Mae
|
|
|
35,735
|
|
|
|
|
|
Equity method investment
|
|
|
6,493
|
|
|
|
|
|
Margin call deposits
|
|
|
4,518
|
|
|
|
|
|
Prepaid expenses
|
|
|
4,286
|
|
|
|
3,379
|
|
Unsecured loans
|
|
|
1,827
|
|
|
|
2,064
|
|
Other
|
|
|
1,057
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
$106,181
|
|
|
|
$29,395
|
|
|
|
|
|
|
|
|
|
|
Deposits pending on servicing rights acquisitions primarily
consist of amounts transferred to third parties for the future
acquisition of mortgage servicing. In December 2011, the Company
entered into an agreement with a financial institution to
acquire the rights to service reverse mortgages with an unpaid
principal balance of approximately $9.5 billion, of which
the underlying reserve mortgages are currently owned by an
unaffiliated government-sponsored entity. The purchase of these
acquired servicing rights will be executed pending the approval
of the government-sponsored entity. Upon execution of the
purchase, Nationstar will assume responsibility for advance
obligations on the underlying reverse mortgage loans. At
December 31, 2011, the maximum unfunded advance obligation
was approximately $1.9 billion. Nationstar deposited $9.0
million with the financial institution for the purchase of these
servicing rights. As of December 31, 2011, Nationstar has
placed in escrow $17.9 million relating to the purchase of
the mortgage servicing rights and related outstanding advance
balances with the same financial institution. Such purchase was
completed in January 2012. In addition, the Company has entered
into separate agreements to purchase forward mortgage servicing
rights. These amounts are carried as deposits on acquired
servicing rights acquisitions until the underlying forward
residential mortgage loan balances are transferred to
Nationstar. As of December 31, 2011, Nationstar has
deposited $2.0 million with a counterparty for servicing
rights on forward mortgages that are expected to be originated
and transferred to Nationstar during the first quarter of 2012.
For certain loans sold to GNMA (Ginnie Mae), Nationstar as the
servicer has the unilateral right to repurchase without Ginnie
Maes prior authorization any individual loan in a Ginnie
Mae securitization pool if that loan meets certain criteria,
including being delinquent greater than 90 days. Once
Nationstar has the unilateral right to repurchase the delinquent
loan, Nationstar has effectively regained control over the loan
and under GAAP, must re-recognize the loan on its balance sheet
and establish a corresponding repurchase liability as well
regardless of Nationstars intention to repurchase the
loan. At December 31, 2011 the Companys re-recognized
loans included in other assets and the corresponding liability
in payables and accrued liabilities was $35.7 million.
In March 2011, Nationstar acquired a 22% interest in ANC
Acquisition LLC (ANC) for an initial investment of
$6.6 million. ANC is the parent company of National Real
Estate Information Services, LP (NREIS) a real estate services
company. As Nationstar is able to exercise significant
influence, but not control, over the policies and procedures of
the entity, and Nationstar owns less than 50% of the voting
interests, Nationstar applies the equity method of accounting.
F-30
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
10.
|
Other
Assets (continued)
|
NREIS, an ancillary real estate services and vendor management
company, offers comprehensive settlement and property valuation
services for both originations and default management channels.
Direct or indirect product offerings include title insurance
agency, tax searches, flood certification, default valuations,
full appraisals and broker price opinions.
A summary of the assets, liabilities, and operations of ANC as
of December 31, 2011 are presented in the following tables
(in thousands):
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
|
ASSETS
|
|
|
|
|
Cash
|
|
|
$2,486
|
|
Accounts receivable
|
|
|
5,296
|
|
Receivables from affiliates
|
|
|
92
|
|
Equity method investments
|
|
|
2,788
|
|
Property and equipment, net
|
|
|
1,995
|
|
Goodwill and other intangible assets
|
|
|
33,876
|
|
Other assets
|
|
|
590
|
|
|
|
|
|
|
Total Assets
|
|
|
$47,123
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Notes payable
|
|
|
$4,724
|
|
Payables and accrued liabilities
|
|
|
13,236
|
|
|
|
|
|
|
Total Liabilities
|
|
|
$17,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Acquisition
|
|
|
|
through
|
|
|
|
December 31, 2011
|
|
|
REVENUES
|
|
|
|
|
Sales
|
|
|
$40,479
|
|
Cost of sales
|
|
|
(34,047
|
)
|
|
|
|
|
|
Net sales revenues
|
|
|
6,432
|
|
OTHER INCOME/(EXPENSE)
|
|
|
|
|
Operating costs
|
|
|
(12,805
|
)
|
Income from equity method investments
|
|
|
1,810
|
|
Depreciation and amortization
|
|
|
(1,105
|
)
|
Other income / (expenses)
|
|
|
244
|
|
Gain due to reversal of contingent consideration
|
|
|
5,000
|
|
Loss from discontinued operations
|
|
|
(60
|
)
|
|
|
|
|
|
Total other income/(expense)
|
|
|
(6,916
|
)
|
|
|
|
|
|
Net loss
|
|
|
$(484
|
)
|
|
|
|
|
|
Nationstar recorded a net charge to earnings of
$0.1 million for the year ended December 31, 2011,
related to loss on equity method investments, which is included
as a component of other fee income in Nationstars
consolidated statement of operations.
F-31
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
11.
|
Derivative
Financial Instruments
|
The following table shows the effect of derivative financial
instruments that were designated as accounting hedges for the
years ended December 31, 2011 and 2010, respectively.
The
Effect of Derivative Instruments on the Statement of
Operations
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Income on
|
|
|
|
|
|
|
Amount of
|
|
|
Location of
|
|
|
Amount of
|
|
|
Derivative
|
|
|
Amount of
|
|
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
|
(Ineffective
|
|
|
Gain (Loss)
|
|
|
|
Recognized
|
|
|
Reclassified
|
|
|
Reclassified
|
|
|
Portion and
|
|
|
Recognized
|
|
|
|
in OCI on
|
|
|
from Accumulated
|
|
|
from Accumulated
|
|
|
Amount
|
|
|
in Income on
|
|
Derivatives in
|
|
Derivative
|
|
|
OCI into Income
|
|
|
OCI into Income
|
|
|
Excluded from
|
|
|
Derivative
|
|
ASC 815 Cash Flow
|
|
(Effective
|
|
|
(Effective
|
|
|
(Effective
|
|
|
Effectiveness
|
|
|
(Ineffective
|
|
Hedging Relationships
|
|
Portion)
|
|
|
Portion)
|
|
|
Portion)
|
|
|
Testing)
|
|
|
Portion)
|
|
|
For the year ended December 31, 2011
|
Interest Rate Swap
|
|
|
$(1,071
|
)
|
|
|
Interest Expense
|
|
|
|
$165
|
|
|
|
Interest Expense
|
|
|
|
$2,032
|
|
|
For the year ended December 31, 2010
|
Interest Rate Swap
|
|
|
$1,071
|
|
|
|
Interest Expense
|
|
|
|
$
|
|
|
|
Interest Expense
|
|
|
|
$930
|
|
The following tables provide the outstanding notional balances
and fair values of outstanding positions for the dates
indicated, and recorded gains/(losses) during the periods
indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
Expiration
|
|
Outstanding
|
|
|
|
|
|
Gains /
|
|
|
|
Dates
|
|
Notional
|
|
|
Fair Value
|
|
|
(Losses)
|
|
|
Year ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MORTGAGE LOANS HELD FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan sale commitments
|
|
2012
|
|
|
$28,047
|
|
|
|
$634
|
|
|
|
$592
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs
|
|
2012
|
|
|
736,377
|
|
|
|
11,302
|
|
|
|
6,598
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps and caps
|
|
2012-2015
|
|
|
193,500
|
|
|
|
6,540
|
|
|
|
1,261
|
|
Forward MBS trades
|
|
2012
|
|
|
691,725
|
|
|
|
5,830
|
|
|
|
(9,792
|
)
|
Interest rate swap, subject to ABS nonrecourse debt(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MORTGAGE LOANS HELD FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan sale commitments
|
|
2011
|
|
|
$28,641
|
|
|
|
$42
|
|
|
|
$(1,397
|
)
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs
|
|
2011
|
|
|
391,990
|
|
|
|
4,703
|
|
|
|
2,289
|
|
Forward MBS trades
|
|
2011
|
|
|
546,500
|
|
|
|
3,963
|
|
|
|
580
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps and caps
|
|
2011-2013
|
|
|
429,000
|
|
|
|
7,801
|
|
|
|
8,872
|
|
Interest rate swap, subject to ABS nonrecourse debt
|
|
2013
|
|
|
245,119
|
|
|
|
18,781
|
|
|
|
2,049
|
|
|
|
|
(1) |
|
In December 2011, Nationstar sold its remaining variable
interest in a securitization trust that had been a consolidated
VIE since January 1, 2010 and deconsolidated the VIE. Upon
deconsolidation of this VIE, Nationstar derecognized the related
ABS nonrecourse debt and therefore the underlying interest rate
swap, subject to ABS nonrecourse debt. |
F-32
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Notes
Payable
A summary of the balances of notes payable for the dates
indicated is presented below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Collateral
|
|
|
|
|
|
Collateral
|
|
|
|
Outstanding
|
|
|
Pledged
|
|
|
Outstanding
|
|
|
Pledged
|
|
|
$50 million warehouse facility
|
|
|
$7,310
|
|
|
|
$7,672
|
|
|
|
$
|
|
|
|
$
|
|
$175 million warehouse facility
|
|
|
46,810
|
|
|
|
51,040
|
|
|
|
43,059
|
|
|
|
45,429
|
|
$300 million warehouse facility
|
|
|
251,722
|
|
|
|
265,083
|
|
|
|
209,477
|
|
|
|
223,119
|
|
$100 million warehouse facility
|
|
|
16,047
|
|
|
|
16,715
|
|
|
|
39,014
|
|
|
|
40,640
|
|
Securities repurchase facility (2011)
|
|
|
11,774
|
|
|
|
55,603
|
|
|
|
|
|
|
|
|
|
ABS advance financing facility (2009)
|
|
|
|
|
|
|
|
|
|
|
236,808
|
|
|
|
285,226
|
|
2010-ABS
advance facility
|
|
|
219,563
|
|
|
|
249,499
|
|
|
|
|
|
|
|
|
|
2011-Agency
advance facility
|
|
|
25,011
|
|
|
|
28,811
|
|
|
|
|
|
|
|
|
|
MSR note
|
|
|
10,180
|
|
|
|
16,230
|
|
|
|
15,733
|
|
|
|
18,951
|
|
ASAP+ facility
|
|
|
104,858
|
|
|
|
104,006
|
|
|
|
51,105
|
|
|
|
53,230
|
|
MBS advance financing facility
|
|
|
179,904
|
|
|
|
182,096
|
|
|
|
114,562
|
|
|
|
142,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
$873,179
|
|
|
|
$976,755
|
|
|
|
$709,758
|
|
|
|
$808,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2011, Nationstar executed a Master Repurchase Agreement
(MRA) with a financial institution, under which Nationstar may
enter into transactions, for an aggregate amount of
$50 million, in which Nationstar agrees to transfer to the
same financial institution certain mortgage loans and certain
securities against the transfer of funds by the same financial
institution, with a simultaneous agreement by the same financial
institution to transfer such mortgage loans and securities to
Nationstar at a date certain, or on demand by Nationstar,
against the transfer of funds from Nationstar. The interest rate
is based on LIBOR plus a spread of 1.45% to 3.95%, which varies
based on the underlying transferred collateral. The maturity
date of this MRA is March 2012.
In February 2010, Nationstar executed an MRA with a financial
institution, which was set to expire in October 2011, but was
extended through January 2013. The amended MRA states that from
time to time Nationstar may enter into transactions, for an
aggregate amount of $175 million, in which Nationstar
agrees to transfer to the same financial institution certain
mortgage loans against the transfer of funds by the same
financial institution, with a simultaneous agreement by the same
financial institution to transfer such mortgage loans to
Nationstar at a date certain, or on demand by Nationstar,
against the transfer of funds from Nationstar. The amended
interest rate is based on LIBOR plus a spread ranging from 1.75%
to 2.50%.
Nationstar has an MRA with a financial services company, which
was amended in February 2012 to expire in February 2013 and
reduce the committed amount to $150 million. The MRA states
that from time to time Nationstar may enter into transactions,
for an aggregate amount of $300 million, in which
Nationstar agrees to transfer to the financial services company
certain mortgage loans or MBS against the transfer of funds by
the financial services company, with a simultaneous agreement by
the financial services company to transfer such mortgage loans
or MBS to Nationstar at a certain date, or on demand by
Nationstar, against the transfer of funds from Nationstar. The
interest rate is based on LIBOR plus a margin of 3.25%.
F-33
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
12.
|
Indebtedness
(continued)
|
In October 2009, Nationstar executed an MRA with a financial
institution. This MRA states that from time to time Nationstar
may enter into transactions, for an aggregate amount of
$100 million, in which Nationstar agrees to transfer to the
financial institution certain mortgage loans against the
transfer of funds by the financial institution, with a
simultaneous agreement by the financial institution to transfer
such mortgage loans to Nationstar at a certain date, or on
demand by Nationstar, against the transfer of funds from
Nationstar. The interest rate is based on LIBOR plus a spread of
3.50%. The maturity date of this MRA with the financial
institution is January 2013.
In December 2011, Nationstar entered into a securities
repurchase facility with a financial services company that
expires in March 2012. The MRA states that Nationstar may from
time to time transfer to the financial services company eligible
securities against the transfer of funds by the financial
services company, with a simultaneous agreement by the financial
services company to transfer such securities to Nationstar at a
certain date, or on demand by Nationstar, against the transfer
of funds from Nationstar. Additionally, the financial services
company may elect to extend the transfer date for an additional
90 days at mutually agreed upon terms. The interest rate is
based on LIBOR plus a margin of 3.50%. As of December 31,
2011, Nationstar has pledged the Companys
$55.6 million outstanding retained interest in the
outstanding Nonrecourse debtLegacy Assets securitization
which was structured as a financing.
Nationstar maintains its
2009-ABS
Advance Financing Facility with a financial services company.
This facility has the capacity to purchase up to
$350 million of advance receivables. The interest rate is
based on LIBOR plus a spread ranging from 3.00% to 12.00%. The
maturity date of this facility with the financial services
company is December 2011. This debt is nonrecourse to
Nationstar. In October 2011 this facility was repaid and
replaced with the
2010-ABS
Advance Financing Facility described below.
In December 2010, Nationstar executed the
2010-ABS
Advance Financing Facility with a financial institution. This
facility has the capacity to purchase up to $300 million of
advance receivables. The interest rate is based on LIBOR plus a
spread of 3.00%. This facility was amended in October 2011, and
matures in May 2014. In conjunction with this amendment
Nationstar paid off the
2009-ABS
Advance Financing Facility and transferred the related
collateral to the amended
2010-ABS
Advance Financing Facility. This debt is nonrecourse to
Nationstar.
In October 2011, Nationstar executed the
2011-Agency
Advance Financing Facility with a financial institution. This
facility has the capacity to borrow up to $75 million and
the interest rate is based on LIBOR plus a spread of 2.50%. The
maturity date of this facility is October 2012. This facility is
secured by servicing advance receivables and is nonrecourse to
Nationstar.
In connection with the October 2009 MSR acquisition, Nationstar
executed a four-year note agreement with a government-sponsored
enterprise (GSE). As collateral for this note, Nationstar has
pledged Nationstars rights, title, and interest in the
acquired servicing portfolio. The interest rate is based on
LIBOR plus 2.50%. The maturity date of this facility is October
2013.
During 2009, Nationstar began executing As Soon As Pooled Plus
agreements with a GSE, under which Nationstar transfers to the
GSE eligible mortgage loans that are to be pooled into the GSE
MBS against the transfer of funds by the GSE. The interest rate
is based on LIBOR plus a spread of 1.50%. These agreements
typically have a maturity of up to 45 days.
In September 2009, Nationstar executed a one-year committed
facility agreement with a GSE, under which Nationstar agrees to
transfer to the GSE certain servicing advance receivables
against the transfer of
F-34
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
12.
|
Indebtedness
(continued)
|
funds by the GSE. This facility has the capacity to purchase up
to $275 million in eligible servicing advance receivables.
The interest rate is based on LIBOR plus a spread of 2.50%. The
maturity date of this facility was amended in December 2011 to
extend the maturity through December 2012.
Unsecured
Senior Notes
In March 2010, Nationstar completed the offering of
$250 million of unsecured senior notes, which were issued
with an issue discount of $7.0 million for net cash
proceeds of $243.0 million, with a maturity date of April
2015. These unsecured senior notes pay interest semi-annually at
an interest rate of 10.875%. In September 2011, Nationstar
completed an exchange offer of the $250.0 million in
10.875% unsecured senior notes for new notes that have been
registered under the Securities Act of 1933. The exchange notes
are identical in all material respects to the privately issued
notes, except for the transfer restrictions and registrations
rights that do not apply to the exchanged notes, and different
administrative terms.
The indenture for the unsecured senior notes contains various
covenants and restrictions that limit Nationstars, or
certain of its subsidiaries, ability to incur additional
indebtedness, pay dividends, make certain investments, create
liens, consolidate, merge or sell substantially all of their
assets, or enter into certain transactions with affiliates.
In December 2011, Nationstar completed an additional offering of
$35 million of unsecured senior notes. The additional
offering was issued with an issue discount of $0.3 million
for net cash proceeds of $34.7 million, with a maturity
date of April 2015.
The additional notes will rank equally in right of payment with
all of our existing and future senior debt and will rank senior
in right of payment to all of our existing and future
subordinated debt. The additional notes will be effectively
junior in right of payment to all of our existing and future
senior secured debt to the extent of the assets securing such
debt and to any existing and future liabilities of our
non-guarantor subsidiaries.
Nonrecourse
DebtLegacy Assets
In November 2009, Nationstar completed the securitization of
approximately $222 million of ABS, which was structured as
a secured borrowing. This structure resulted in Nationstar
carrying the securitized loans as mortgages on Nationstars
consolidated balance sheet and recognizing the asset-backed
certificates acquired by third parties as nonrecourse debt,
totaling approximately $112.5 million and
$138.7 million at December 31, 2011 and 2010,
respectively. The principal and interest on these notes are paid
using the cash flows from the underlying mortgage loans, which
serve as collateral for the debt. The interest rate paid on the
outstanding securities is 7.50%, which is subject to an
available funds cap. The total outstanding principal balance on
the underlying mortgage loans serving as collateral for the debt
was approximately $373.1 million and $430.0 million at
December 31, 2011 and 2010, respectively. Accordingly, the
timing of the principal payments on this nonrecourse debt is
dependent on the payments received on the underlying mortgage
loans. The unpaid principal balance on the outstanding notes was
$130.8 million and $161.2 million at December 31,
2011 and 2010, respectively.
ABS
Nonrecourse Debt
Effective January 1, 2010, new accounting guidance
eliminated the concept of a QSPE, and all existing
securitization trusts are considered VIEs and are subject to new
consolidation guidance provided in
F-35
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
12.
|
Indebtedness
(continued)
|
ASC 810. Upon consolidation of these VIEs, Nationstar
derecognized all previously recognized beneficial interests
obtained as part of the securitization. In addition, Nationstar
recognized the securitized mortgage loans as mortgage loans held
for investment, subject to ABS nonrecourse debt, and the related
asset-backed certificates acquired by third parties as ABS
nonrecourse debt on Nationstars consolidated balance sheet
(see Note 3, Variable Interest Entities and
Securitizations). Additionally, Nationstar elected the fair
value option provided for by
ASC 825-10.
The principal and interest on these notes are paid using the
cash flows from the underlying mortgage loans, which serve as
collateral for the debt. The interest rate paid on the
outstanding securities is based on LIBOR plus a spread ranging
from 0.13% to 2.00%, which is subject to an interest rate cap.
In December 2011, Nationstar sold its remaining variable
interest in a securitization trust that had been a consolidated
VIE since January 1, 2010 and deconsolidated the VIE. Upon
deconsolidation of this VIE, Nationstar derecognized the
securitized mortgage loans held for investment, subject to ABS
nonrecourse debt, the related ABS nonrecourse debt, as well as
certain other assets and liabilities of the securitization
trust, and recognized any mortgage servicing rights on the
consolidated balance sheet. The total outstanding principal
balance on the underlying mortgage loans and REO serving as
collateral for the debt was approximately $1,025.3 million
at December 31, 2010. The timing of the principal payments
on this ABS nonrecourse debt is dependent on the payments
received on the underlying mortgage loans. The outstanding
principal balance on the outstanding notes related to these
consolidated securitization trusts was $1,037.9 million at
December 31, 2010.
Excess
Spread Financing Debt at Fair Value
Nationstar acquired mortgage servicing rights on a pool of
agency residential mortgage loans (the Portfolio) on
September 30, 2011. In December 2011, Nationstar entered
into a sale and assignment agreement which is treated as a
financing with an indirect wholly owned subsidiary of Newcastle
Investment Corp. (Newcastle). Nationstar is an affiliate of
Newcastles manager. Nationstar, in a transaction accounted
for as a financing arrangement, sold to Newcastle the right to
receive 65% of the excess cash flow generated from the Portfolio
after receipt of a fixed basic servicing fee per loan. The sale
price was $43.7 million. Nationstar will retain all
ancillary income associated with servicing the Portfolio and 35%
of the excess cash flow after receipt of the fixed basic
servicing fee. Nationstar will continue to be the servicer of
the Portfolio and will provide all servicing and advancing
functions. Newcastle will not have prior or ongoing obligations
associated with the Portfolio.
Contemporaneous with the above, Nationstar entered into a
refinanced loan agreement with Newcastle. Should Nationstar
refinance any loan in the Portfolio, subject to certain
limitations, Nationstar will be required to transfer the new
loan or a replacement loan of similar economic characteristics
into the Portfolio. The new or replacement loan will be governed
by the same terms set forth in the sale and assignment agreement
described above.
Nationstar records acquired servicing rights on forward
residential mortgages at fair value, with all subsequent changes
in fair value recorded as a charge or credit to servicing fee
income in the consolidated statement of operations. Nationstar
estimates the fair value of its forward mortgage servicing
rights and the excess servicing spread financing using a process
that combines the use of a discounted cash flow model and
analysis of current market data to arrive at an estimate of fair
value. Nationstar elected to measure this financing arrangement
at fair value, as permitted under Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 825,
Financial Instruments to more accurately represent the
future
F-36
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
12.
|
Indebtedness
(continued)
|
economic performance of the acquired MSRs and related excess
servicing financing. The fair value of the agreement was
$44.6 million at December 31, 2011. This financing is
nonrecourse to Nationstar.
Financial
Covenants
As of December 31, 2011, Nationstar was in compliance with
its covenants on Nationstars borrowing arrangements and
credit facilities. These covenants generally relate to
Nationstars tangible net worth, liquidity reserves, and
leverage requirements.
Certain whole loan sale contracts include provisions requiring
Nationstar to repurchase a loan if a borrower fails to make
certain initial loan payments due to the acquirer or if the
accompanying mortgage loan fails to meet customary
representations and warranties. These representations and
warranties are made to the loan purchasers about various
characteristics of the loans, such as manner of origination, the
nature and extent of underwriting standards applied and the
types of documentation being provided and typically are in place
for the life of the loan. In the event of a breach of the
representations and warranties, the Company may be required to
either repurchase the loan or indemnify the purchaser for losses
it sustains on the loan. In addition, an investor may request
that Nationstar refund a portion of the premium paid on the sale
of mortgage loans if a loan is prepaid within a certain amount
of time from the date of sale. Nationstar records a provision
for estimated repurchases and premium recapture on loans sold,
which is charged to gain (loss) on mortgage loans held for sale.
The reserve for repurchases is included as a component of
payables and accrued liabilities. The current unpaid principal
balance of loans sold by Nationstar represents the maximum
potential exposure to repurchases related to representations and
warranties. Reserve levels are a function of expected losses
based on actual pending and expected claims, repurchase
requests, historical experience, and loan volume. While the
amount of repurchases and premium recapture is uncertain,
Nationstar considers the liability to be adequate.
The activity of the outstanding repurchase reserves were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Repurchase reserves, beginning of period
|
|
|
$7,321
|
|
|
|
$3,648
|
|
|
|
$3,965
|
|
Additions
|
|
|
5,534
|
|
|
|
4,649
|
|
|
|
820
|
|
Charge-offs
|
|
|
(2,829
|
)
|
|
|
(976
|
)
|
|
|
(1,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase reserves, end of period
|
|
|
$10,026
|
|
|
|
$7,321
|
|
|
|
$3,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
14.
|
General
and Administrative Expenses
|
General and administrative expense consists of the following for
the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Depreciation and amortization
|
|
|
$4,063
|
|
|
|
$2,117
|
|
|
|
$1,767
|
|
Advertising
|
|
|
4,723
|
|
|
|
4,559
|
|
|
|
3,882
|
|
Equipment
|
|
|
4,605
|
|
|
|
3,862
|
|
|
|
3,300
|
|
Servicing
|
|
|
21,014
|
|
|
|
14,122
|
|
|
|
1,951
|
|
Telecommunications
|
|
|
3,832
|
|
|
|
2,347
|
|
|
|
1,590
|
|
Legal and professional fees
|
|
|
16,130
|
|
|
|
14,736
|
|
|
|
9,610
|
|
Postage
|
|
|
5,978
|
|
|
|
4,220
|
|
|
|
2,315
|
|
Stationary and supplies
|
|
|
3,964
|
|
|
|
2,594
|
|
|
|
1,500
|
|
Travel
|
|
|
3,491
|
|
|
|
2,231
|
|
|
|
827
|
|
Dues and fees
|
|
|
5,404
|
|
|
|
4,114
|
|
|
|
2,264
|
|
Insurance, Taxes, and Other
|
|
|
8,979
|
|
|
|
4,011
|
|
|
|
1,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expense
|
|
|
$82,183
|
|
|
|
$58,913
|
|
|
|
$30,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Fair
Value Measurements
|
ASC 820, Fair Value Measurements and Disclosures,
provides a definition of fair value, establishes a framework
for measuring fair value, and requires expanded disclosures
about fair value measurements. The standard applies when GAAP
requires or allows assets or liabilities to be measured at fair
value and, therefore, does not expand the use of fair value in
any new circumstance.
ASC 820 emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. Therefore, a
fair value measurement should be determined based on the
assumptions that market participants would use in pricing the
asset or liability. As a basis for considering market
participant assumptions in fair value measurements, ASC 820
establishes a three-tiered fair value hierarchy based on the
level of observable inputs used in the measurement of fair value
(e.g., Level 1 representing quoted prices for identical
assets or liabilities in an active market; Level 2
representing values using observable inputs other than quoted
prices included within Level 1; and Level 3
representing estimated values based on significant unobservable
inputs). In addition, ASC 820 requires an entity to
consider all aspects of nonperformance risk, including its own
credit standing, when measuring the fair value of a liability.
Under ASC 820, related disclosures are segregated for
assets and liabilities measured at fair value based on the level
used within the hierarchy to determine their fair values.
The following describes the methods and assumptions used by
Nationstar in estimating fair values:
Cash and Cash Equivalents, Restricted Cash, Notes
PayableThe carrying amount reported in the
consolidated balance sheets approximates fair value.
Mortgage Loans Held for SaleNationstar originates
mortgage loans in the U.S. that it intends to sell to
Fannie Mae, Freddie Mac, and Ginnie Mae (collectively, the
Agencies). Additionally, Nationstar holds mortgage loans that it
intends to sell into the secondary markets via whole loan sales
or securitizations. Nationstar measures newly originated prime
residential mortgage loans held for sale at fair value.
F-38
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
15.
|
Fair
Value Measurements (continued)
|
Mortgage loans held for sale are typically pooled together and
sold into certain exit markets, depending upon underlying
attributes of the loan, such as agency eligibility, product
type, interest rate, and credit quality.
Mortgage loans held for sale are valued using a market approach
by utilizing either: (i) the fair value of securities
backed by similar mortgage loans, adjusted for certain factors
to approximate the fair value of a whole mortgage loan,
including the value attributable to mortgage servicing and
credit risk, (ii) current commitments to purchase loans or
(iii) recent observable market trades for similar loans,
adjusted for credit risk and other individual loan
characteristics. As these prices are derived from quoted market
prices, Nationstar classifies these valuations as Level 2
in the fair value disclosures.
Mortgage Loans Held for Investment, subject to nonrecourse
debtLegacy AssetsNationstar determines the fair
value of loans held for investment, subject to nonrecourse
debtLegacy Assets using internally developed valuation
models. These valuation models estimate the exit price
Nationstar expects to receive in the loans principal
market. Although Nationstar utilizes and gives priority to
observable market inputs such as interest rates and market
spreads within these models, Nationstar typically is required to
utilize internal inputs, such as prepayment speeds, credit
losses, and discount rates. These internal inputs require the
use of judgment by Nationstar and can have a significant impact
on the determination of the loans fair value. As these
prices are derived from a combination of internally developed
valuation models and quoted market prices, Nationstar classifies
these valuations as Level 3 in the fair value disclosures.
Mortgage Loans Held for Investment, subject to ABS
nonrecourse debtNationstar determines the fair value
of loans held for investment, subject to ABS nonrecourse debt
using internally developed valuation models. These valuation
models estimate the exit price Nationstar expects to receive in
the loans principal market. Although Nationstar utilizes
and gives priority to observable market inputs such as interest
rates and market spreads within these models, Nationstar
typically is required to utilize internal inputs, such as
prepayment speeds, credit losses, and discount rates. These
internal inputs require the use of judgment by Nationstar and
can have a significant impact on the determination of the
loans fair value. As these prices are derived from a
combination of internally developed valuation models and quoted
market prices, Nationstar classifies these valuations as
Level 3 in the fair value disclosures. In December 2011,
Nationstar sold its remaining variable interest in a
securitization trust that had been a consolidated VIE since
January 1, 2010 and deconsolidated the VIE. Upon
deconsolidation of this VIE, Nationstar derecognized the
securitized mortgage loans held for investment, subject to ABS
nonrecourse debt.
Mortgage Servicing RightsFair ValueNationstar
will typically retain the servicing rights when it sells forward
loans into the secondary market. Nationstar estimates the fair
value of its forward MSRs using a process that combines the use
of a discounted cash flow model and analysis of current market
data to arrive at an estimate of fair 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 rates. These assumptions
are generated and applied based on collateral stratifications
including product type, remittance type, geography, delinquency
and coupon dispersion. These assumptions require the use of
judgment by Nationstar and can have a significant impact on the
determination of the MSRs fair value. Periodically,
management obtains third party valuations of a portion of the
portfolio to assess the reasonableness of the fair value
calculations provided by the cash flow model. Because of the
nature of the valuation inputs, Nationstar classifies these
valuations as Level 3 in the fair value disclosures.
REONationstar determines the fair value of REO
properties through the use of third party appraisals and broker
price opinions, adjusted for estimated selling costs. Such
estimated selling costs include
F-39
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
15.
|
Fair
Value Measurements (continued)
|
realtor fees and other anticipated closing costs. These values
are adjusted to take into account factors that could cause the
actual liquidation value of foreclosed properties to be
different than the appraised values. This valuation adjustment
is based upon Nationstars historical experience with REO.
REO is classified as Level 3 in the fair value disclosures.
Derivative InstrumentsNationstar enters into a
variety of derivative financial instruments as part of its
hedging strategy. The majority of these derivatives are
exchange-traded or traded within highly active dealer markets.
In order to determine the fair value of these instruments,
Nationstar utilizes the exchange price or dealer market price
for the particular derivative contract; therefore, these
contracts are classified as Level 2. In addition,
Nationstar enters into IRLCs with prospective borrowers. These
commitments are carried at fair value based on fair value of
related mortgage loans which is based on observable market data.
Nationstar adjusts the outstanding IRLCs with prospective
borrowers based on an expectation that it will be exercised and
the loan will be funded. IRLCs are recorded in other assets in
the consolidated balance sheets. These IRLCs are classified as
Level 2 in the fair value disclosures.
Unsecured Senior NotesThe fair value of unsecured
senior notes is based on quoted market prices and is considered
Level 1 from the market observable inputs used to determine
fair value.
Nonrecourse DebtLegacy AssetsNationstar
estimates fair value based on the present value of future
expected discounted cash flows with the discount rate
approximating current market value for similar financial
instruments. These prices are derived from a combination of
internally developed valuation models and quoted market prices.
Excess Spread FinancingNationstar estimates fair
value based on the present value of future expected discounted
cash flows with the discount rate approximating current market
value for similar financial instruments. As these prices are
derived from a combination of internally developed valuation
models and quoted market prices based on the value of the
underlying MSRs, Nationstar classifies these valuations as
Level 3 in the fair value disclosures.
ABS Nonrecourse DebtNationstar estimates fair value
based on the present value of future expected discounted cash
flows with the discount rate approximating current market value
for similar financial instruments. As these prices are derived
from a combination of internally developed valuation models and
quoted market prices, Nationstar classifies these valuations as
Level 3 in the fair value disclosures. Effective December
2011, Nationstar sold its remaining variable interest in a
securitization trust that had been a consolidated VIE since
January 1, 2010 and deconsolidated the VIE. Upon
deconsolidation of this VIE, Nationstar derecognized the related
ABS nonrecourse debt.
F-40
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
15.
|
Fair
Value Measurements (continued)
|
The estimated carrying amount and fair value of
Nationstars financial instruments and other assets and
liabilities measured at fair value on a recurring basis is as
follows for the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Total
|
|
|
Recurring Fair Value Measurements
|
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale(1)
|
|
|
$458,626
|
|
|
|
$
|
|
|
|
$458,626
|
|
|
|
$
|
|
Mortgage servicing rightsfair value(1)
|
|
|
251,050
|
|
|
|
|
|
|
|
|
|
|
|
251,050
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs
|
|
|
11,302
|
|
|
|
|
|
|
|
11,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$720,978
|
|
|
|
$
|
|
|
|
$469,928
|
|
|
|
$251,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps and caps
|
|
|
$6,540
|
|
|
|
$
|
|
|
|
$6,540
|
|
|
|
$
|
|
Forward MBS trades
|
|
|
5,830
|
|
|
|
|
|
|
|
5,830
|
|
|
|
|
|
Excess spread financing
|
|
|
44,595
|
|
|
|
|
|
|
|
|
|
|
|
44,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
$56,965
|
|
|
|
$
|
|
|
|
$12,370
|
|
|
|
$44,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on the nature and risks of these assets and liabilities,
the Company has determined that presenting them as a single
class is appropriate. |
F-41
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
15.
|
Fair
Value Measurements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Total
|
|
|
Recurring Fair Value Measurements
|
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale(1)
|
|
|
$369,617
|
|
|
|
$
|
|
|
|
$369,617
|
|
|
|
$
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debt(1)
|
|
|
538,440
|
|
|
|
|
|
|
|
|
|
|
|
538,440
|
|
Mortgage servicing rights(1)
|
|
|
145,062
|
|
|
|
|
|
|
|
|
|
|
|
145,062
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs
|
|
|
4,703
|
|
|
|
|
|
|
|
4,703
|
|
|
|
|
|
Forward MBS trades
|
|
|
3,963
|
|
|
|
|
|
|
|
3,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$1,061,785
|
|
|
|
$
|
|
|
|
$378,283
|
|
|
|
$683,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps and caps
|
|
|
$7,801
|
|
|
|
$
|
|
|
|
$7,801
|
|
|
|
$
|
|
Derivative financial instruments, subject to ABS nonrecourse debt
|
|
|
18,781
|
|
|
|
|
|
|
|
18,781
|
|
|
|
|
|
ABS nonrecourse debt(1)
|
|
|
496,692
|
|
|
|
|
|
|
|
|
|
|
|
496,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
$523,274
|
|
|
|
$
|
|
|
|
$26,582
|
|
|
|
$496,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on the nature and risks of these assets and liabilities,
the Company has determined that presenting them as a single
class is appropriate. |
F-42
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
15.
|
Fair
Value Measurements (continued)
|
The table below presents a reconciliation for all of
Nationstars Level 3 assets and liabilities measured
at fair value on a recurring basis for the dates indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Mortgage
|
|
|
LIABILITIES
|
|
|
|
Servicing
|
|
|
Excess
|
|
|
|
Rights
|
|
|
Spread Financing
|
|
|
Year ended December 31, 2011
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
$145,062
|
|
|
|
$
|
|
Transfers into Level 3
|
|
|
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
|
|
|
|
|
|
Total gains or losses
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(39,000
|
)
|
|
|
3,060
|
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
Purchases, issuances, sales and settlements
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
102,800
|
|
|
|
|
|
Issuances
|
|
|
36,474
|
|
|
|
43,742
|
|
Sales
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
5,714
|
|
|
|
(2,207
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
$251,050
|
|
|
|
$44,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
LIABILITIES
|
|
|
|
Mortgage Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for Investment,
|
|
|
Mortgage
|
|
|
|
|
|
ABS
|
|
|
|
Subject to ABS
|
|
|
Servicing
|
|
|
Total
|
|
|
Non-recourse
|
|
|
|
Nonrecourse Debt
|
|
|
Rights
|
|
|
Assets
|
|
|
Debt
|
|
|
Year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance(1)
|
|
|
$928,891
|
|
|
|
$104,174
|
|
|
|
$1,033,065
|
|
|
|
$884,846
|
|
Transfers into Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
71,239
|
|
|
|
(6,043
|
)
|
|
|
65,196
|
|
|
|
16,938
|
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, issuances, sales and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
17,812
|
|
|
|
17,812
|
|
|
|
|
|
Issuances
|
|
|
|
|
|
|
26,253
|
|
|
|
26,253
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
(461,690
|
)
|
|
|
2,866
|
|
|
|
(458,824
|
)
|
|
|
(405,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
$538,440
|
|
|
|
$145,062
|
|
|
|
$683,502
|
|
|
|
$496,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include derecognition of previously retained beneficial
interests and mortgage servicing rights upon adoption of
ASC 810 related to consolidation of certain VIEs. |
F-43
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
15.
|
Fair
Value Measurements (continued)
|
The table below presents the items which Nationstar measures at
fair value on a nonrecurring basis (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring
|
|
|
|
|
|
Total
|
|
|
|
Fair Value Measurements
|
|
|
Total Estimated
|
|
|
Gains (Losses)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
Included in Earnings
|
|
|
Year ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO(1)
|
|
|
$
|
|
|
|
$
|
|
|
|
$3,668
|
|
|
|
$3,668
|
|
|
|
$(6,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
|
|
|
$
|
|
|
|
$3,668
|
|
|
|
$3,668
|
|
|
|
$(6,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO(1)
|
|
|
$
|
|
|
|
$
|
|
|
|
$27,337
|
|
|
|
$27,337
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
|
|
|
$
|
|
|
|
$27,337
|
|
|
|
$27,337
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on the nature and risks of these assets and liabilities,
the Company has determined that presenting them as a single
class is appropriate. |
The table below presents a summary of the estimated carrying
amount and fair value of Nationstars financial instruments
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$62,445
|
|
|
|
$62,445
|
|
|
|
$21,223
|
|
|
|
$21,223
|
|
Restricted cash
|
|
|
71,499
|
|
|
|
71,499
|
|
|
|
91,125
|
|
|
|
91,125
|
|
Mortgage loans held for sale
|
|
|
458,626
|
|
|
|
458,626
|
|
|
|
369,617
|
|
|
|
369,617
|
|
Mortgage loans held for investment, subject to nonrecourse
debtLegacy assets
|
|
|
243,480
|
|
|
|
226,890
|
|
|
|
266,320
|
|
|
|
238,515
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debt
|
|
|
|
|
|
|
|
|
|
|
538,440
|
|
|
|
538,440
|
|
Derivative instruments
|
|
|
11,302
|
|
|
|
11,302
|
|
|
|
8,666
|
|
|
|
8,666
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
873,179
|
|
|
|
873,179
|
|
|
|
709,758
|
|
|
|
709,758
|
|
Unsecured senior notes
|
|
|
280,199
|
|
|
|
282,150
|
|
|
|
244,061
|
|
|
|
244,375
|
|
Derivative financial instruments
|
|
|
12,370
|
|
|
|
12,370
|
|
|
|
7,801
|
|
|
|
7,801
|
|
Derivative instruments, subject to ABS nonrecourse debt
|
|
|
|
|
|
|
|
|
|
|
18,781
|
|
|
|
18,781
|
|
Nonrecourse debtLegacy assets
|
|
|
112,490
|
|
|
|
114,037
|
|
|
|
138,662
|
|
|
|
140,197
|
|
Excess spread financing
|
|
|
44,595
|
|
|
|
44,595
|
|
|
|
|
|
|
|
|
|
ABS nonrecourse debt
|
|
|
|
|
|
|
|
|
|
|
496,692
|
|
|
|
496,692
|
|
F-44
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Nationstar holds a contributory defined contribution plan
(401(k) plan) that covers substantially all full-time employees.
Nationstar matches 50% of participant contributions, up to 6% of
each participants total eligible annual base compensation.
Matching contributions totaled approximately $2.3 million,
$1.5 million, and $1.0 million for the years ended
December 31, 2011, 2010, and 2009, respectively.
The limited liability company interests in FIF HE Holdings LLC
are represented by four separate classes of units, Class A
Units, Class B Units, Class C Preferred Units and
Class D Preferred Units, as defined in the FIF HE Holdings
LLC Amended and Restated Limited Liability Company Agreement
dated December 31, 2008 (the Agreement). Class A Units
have voting rights and Class B Units, Class C
Preferred Units and Class D Preferred Units have no voting
rights. Distributions and allocations of profits and losses to
members are made in accordance with the Agreement. Class C
Preferred Units and Class D Preferred Units represent
preferred priority return units, accruing distribution
preference on any contributions at an annual rate of 15% and
20%, respectively.
A total of 100,887 Class A Units were granted to certain
management members on the date of Nationstars acquisition
by FIF. No consideration was paid for the Class A Units,
and these units vest in accordance with the Vesting Schedule per
the Agreement, generally in years three through five after grant
date. All of these outstanding units were completely vested as
of July 11, 2011.
Effective September 17, 2010, FIF HE Holdings LLC executed
the FIF HE Holdings LLC Fifth Amended and Restated Limited
Liability Company Agreement (the Fifth Agreement). This Fifth
Agreement provided for a total of 457,526 Class A Units to
be granted to certain management members. No consideration was
paid for the granted units, and the units vest in accordance
with the Vesting Schedule per the Fifth Agreement.
Simultaneously with the execution of the Fifth Agreement, FIF HE
Holdings LLC executed several Restricted Series I Preferred
Stock Unit Award Agreements (PRSU Agreements). These Agreements
provided for a total of 3,304,000 Class C Units and
3,348,000 Class D Units to be granted to certain management
members. No consideration was paid for the granted units, and
the units vest in accordance with the Vesting Schedule per the
PRSU Agreements.
These awards were valued using a sum of the parts analysis in
computing the fair value of the Companys equity. The
analysis adds the value of the servicing and originations
businesses to the value of the assets and securities that
Nationstar owns. The value of the servicing and originations
businesses is derived using both a market approach and an income
approach. The market approach considers market multiples from
public company examples in the industry. The income approach
employs a discounted cash flow analysis that utilizes several
factors to capture the ongoing cash flows of the business and
then is discounted with an assumed equity cost of capital. The
valuation of the assets applies a net asset value method
utilizing a variety of assumptions, including assumptions for
prepayments, cumulative losses and other variables. Recent
market transactions, experience with similar assets and
securities, current business combinations and analysis of the
underlying collateral, as available, are considered in the
valuation.
F-45
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
17.
|
Members
Equity (continued)
|
The Class A, Class C and Class D Units were
scheduled to vest over 1.8 years. The vesting schedule of
these Units is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 17, 2010
|
|
|
June 30, 2011
|
|
|
June 30, 2012
|
|
|
Total
|
|
|
Class A Units
|
|
|
93,494
|
|
|
|
182,016
|
|
|
|
182,016
|
|
|
|
457,526
|
|
Class C Units
|
|
|
1,101,332
|
|
|
|
1,101,334
|
|
|
|
1,101,334
|
|
|
|
3,304,000
|
|
Class D Units
|
|
|
1,116,000
|
|
|
|
1,116,000
|
|
|
|
1,116,000
|
|
|
|
3,348,000
|
|
The weighted average grant date fair value of the Units was
$4.23. Effective during 2011, the Company filed an offering
document with the Securities and Exchange Commission. As a
result, the Company revalued the preferred unit awards based on
the fair value of the repurchase option at the balance sheet
date. Subsequent to December 31, 2011, Nationstar expects
to recognize $3.9 million of compensation expense in the
first six months of 2012 for employee and non-employee awards.
Total share-based compensation expense, net of forfeitures,
recognized for the years ended, December 31, 2011, 2010 and
2009 is provided in the table below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
2011
|
|
2010
|
|
2009
|
|
|
$14,815
|
|
|
|
$12,856
|
|
|
|
$827
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of Nationstars secondary market investors require
various capital adequacy requirements, as specified in the
respective selling and servicing agreements. To the extent that
these mandatory, imposed capital requirements are not met,
Nationstars secondary market investors may ultimately
terminate Nationstars selling and servicing agreements,
which would prohibit Nationstar from further originating or
securitizing these specific types of mortgage loans. In
addition, these secondary market investors may impose additional
net worth or financial condition requirements based on an
assessment of market conditions or other relevant factors.
Among Nationstars various capital requirements related to
its outstanding selling and servicing agreements, the most
restrictive of these requires Nationstar to maintain a minimum
adjusted net worth balance of $132.3 million. As of
December 31, 2011, Nationstar was in compliance with all of
its selling and servicing capital requirements.
Additionally, Nationstar is required to maintain a minimum
tangible net worth of at least $175 million as of each
quarter-end related to its outstanding Master Repurchase
Agreements on its outstanding repurchase facilities. As of
December 31, 2011, Nationstar was in compliance with these
minimum tangible net worth requirements.
|
|
19.
|
Commitments
and Contingencies
|
Litigation
and Regulatory Matters
In the ordinary course of business, Nationstar and its
subsidiaries and current and former officers and employees (for
the purposes of this section, sometimes collectively referred to
as the Company and Related
F-46
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
19.
|
Commitments
and Contingencies (continued)
|
Parties) are routinely named as defendants in various legal
actions, including class actions and other litigation, arising
in connection with activities related to a national mortgage
servicer and lender. Certain of the actual or threatened legal
actions include claims for substantial compensatory, punitive
and/or, statutory damages or claims for an indeterminate amount
of damages. Further, in the ordinary course of business the
Company and Related Parties can be or are involved in
governmental and regulatory examinations, information gathering
requests, investigations and proceedings (both formal and
informal), regarding the Companys business, certain of
which may result in adverse judgments, settlements, fines,
penalties, injunctions or other relief.
The Company seeks to resolve all litigation and regulatory
matters in the manner management believes is in the best
interest of the Company and contests liability, allegations of
wrongdoing and, where applicable, the amount of damages or scope
of any penalties or other relief sought as appropriate in each
pending matter. On at least a quarterly basis, the Company
assesses its liabilities and contingencies in connection with
outstanding legal and regulatory proceedings utilizing the
latest information available. Where available information
indicates that it is probable a liability has been incurred and
the Company can reasonably estimate the amount of that loss an
accrued liability is established. The actual costs of resolving
these proceedings may be substantially higher or lower than the
amounts accrued.
A 50 state task force of attorneys general as well as
certain federal agencies are investigating issues related to the
conduct of certain mortgage servicing companies and related
service providers, in connection with mortgage foreclosures.
While the Company is not involved in the investigation or
negotiations regarding a settlement, the ultimate outcome could
have a material impact on other mortgage servicers, including
the Company.
When a loss contingency is not both probable and estimable, the
Company does not establish an accrued liability. As a litigation
or regulatory matter develops, the Company, in conjunction with
any outside counsel handling the matter, evaluates on an ongoing
basis whether such matter presents a loss contingency that is
probable and estimable. If, at the time of evaluation, the loss
contingency is not both probable and estimable, the matter will
continue to be monitored for further developments that would
make such loss contingency both probable and estimable. Once the
matter is deemed to be both probable and estimable, the Company
will establish an accrued liability and record a corresponding
amount to litigation related expense. The Company will continue
to monitor the matter for further developments that could affect
the amount of the accrued liability that has been previously
established. Litigation related expense, which includes the fees
paid to external legal providers, of $9.3 million,
$9.4 million and $4.9 million were included in general
and administrative expense on the consolidated statements of
operations for the years ended December 31, 2011, 2010 and
2009, respectively.
For a number of matters for which a loss is probable or
reasonably possible in future periods, whether in excess of a
related accrued liability or where there is no accrued
liability, the Company may be able to estimate a range of
possible loss. In determining whether it is possible to provide
an estimate of loss or range of possible loss, the Company
reviews and evaluates its material litigation and regulatory
matters on an ongoing basis, in conjunction with any outside
counsel handling the matter. For those matters for which an
estimate is possible, management currently believes the
aggregate range of reasonably possible loss is $0.5 million
to $3.2 million in excess of the accrued liability (if any)
related to those matters. This estimated range of possible loss
is based upon currently available information and is subject to
significant judgment, numerous assumptions and known and unknown
uncertainties. The matters underlying the estimated range will
change from time to time, and actual results may vary
substantially from the current estimate. Those matters for which
an estimate is not possible are not included within this
estimated range. Therefore, this estimated
F-47
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
19.
|
Commitments
and Contingencies (continued)
|
range of possible loss represents what management believes to be
an estimate of possible loss only for certain matters meeting
these criteria. It does not represent the Companys maximum
loss exposure.
Based on current knowledge, and after consultation with counsel,
management believes that the current legal accrued liability is
appropriate, and the amount of any incremental liability arising
from these matters is not expected to have a material adverse
affect on the consolidated financial condition of the Company,
although the outcome of such proceedings could be material to
the Companys operating results and cash flows for a
particular period depending on among other things, the level of
the Companys revenues or income for such period. However,
in the event of significant developments on existing cases, it
is possible that the ultimate resolution, if unfavorable, may be
material to the Companys consolidated financial statements.
Lease
Commitments
Nationstar leases various office facilities under non-cancelable
lease agreements with primary terms extending through 2017.
These lease agreements generally provide for market-rate renewal
options and may provide for escalations in minimum rentals over
the lease term (see Note 22, Restructuring Charges).
Minimum annual rental commitments for office leases with
unrelated parties and with initial or remaining terms of one
year or more, net of sublease payments, are presented below (in
thousands).
|
|
|
|
|
2012
|
|
$
|
9,756
|
|
2013
|
|
|
9,922
|
|
2014
|
|
|
7,351
|
|
2015
|
|
|
4,854
|
|
2016
|
|
|
3,255
|
|
Thereafter
|
|
|
727
|
|
|
|
|
|
|
Total
|
|
$
|
35,865
|
|
|
|
|
|
|
Loan
and Other Commitments
Nationstar enters into IRLCs with prospective borrowers whereby
the Company commits to lend a certain loan amount under specific
terms and interest rates to the borrower. These IRLCs are
treated as derivatives and are carried at fair value (See
Note 15, Fair Value Measures).
In January 2012, the Company completed its acquisition of
certain MSRs related to approximately $7.8 billion of
unpaid principal balance of reverse mortgage loans from a
financial services company. As servicer for these reverse
mortgage loans, among other things, the Company is obligated to
make advances to the loan customers as required. At
January 1, 2012, the Companys maximum unfunded
advance obligation related to these MSRs was approximately
$1.5 billion. Upon funding any portion of these advances,
the Company expects to securitize and sell the advances in
transactions that will be accounted for as financing
arrangements.
Other
Contingencies
In June 2011, the Company entered into an agreement to
subservice loans for a financial services company. The Company
began to subservice these loans in July and August 2011. This
subservicing agreement included, among other things, a loss
incentive and sharing arrangement. Under this arrangement, the
Company can earn incentive fees of up to $2.5 million for
successfully mitigating losses within a specific
F-48
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
19.
|
Commitments
and Contingencies (continued)
|
subserviced population of loans. This incentive fee would be
recognized when earned. For this same population of loans, the
Company is subject to loss sharing under certain conditions.
Should losses in this population of loans exceed a specified
level, the Company would be required to share a portion of the
losses on such loans up to a maximum of $10.0 million.
Losses under this arrangement would be recognized at the point
at which the Company determines that a liability is expected to
be incurred. At December 31, 2011, the Company has
estimated no liability under this agreement.
During December 2009, Nationstar entered into a strategic
relationship with a major mortgage market participant, which
contemplates, among other things, significant mortgage servicing
rights and subservicing transfers to Nationstar upon terms to be
determined. Under this arrangement, if certain delivery
thresholds have been met, the market participant may require
Nationstar to establish an operating division or newly created
subsidiary with separate, dedicated employees within a specified
timeline to service such mortgage servicing rights and
subservicing. After a specified time period, this market
participant may purchase the subsidiary at an agreed upon price.
Since December 2010, all of the required delivery thresholds
with this market participant have been met, but the market
participant has not required the Company to establish an
operating division or newly created subsidiary with separate,
dedicated employees.
|
|
20.
|
Termination
of Company
|
The duration of Nationstars existence is indefinite per
the Agreement and shall continue until dissolved in accordance
with the terms of the Agreement and the Delaware Limited
Liability Company Act (DLLCA).
|
|
21.
|
Limited
Liability of Members
|
The members of a Delaware limited liability company are
generally not liable for the acts and omissions of the company,
much in the same manner as the shareholders, officers and
directors of a corporation are generally limited by the
provisions of the DLLCA and by applicable case law.
|
|
22.
|
Restructuring
Charges
|
To respond to the decreased demand in the home equity mortgage
market and other market conditions, Nationstar initiated a
program to reduce costs and improve operating effectiveness in
2007. This program included the closing of several offices and
the termination of a large portion of Nationstars
workforce. As part of this plan, Nationstar expected to incur
lease and other contract termination costs.
Nationstar recorded restructuring charges totaling
$1.1 million, $2.3 million, and $2.2 million for
the years ended December 31, 2011, 2010, and 2009,
respectively, related to cancelled lease expenses that are
F-49
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
22.
|
Restructuring
Charges (continued)
|
reflected in general and administrative expenses. The following
table summarizes, by category, the Companys restructuring
charge activity for the periods noted below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance
|
|
|
Restructuring
|
|
|
Restructuring
|
|
|
Liability Balance
|
|
|
|
at January 1
|
|
|
Adjustments
|
|
|
Settlements
|
|
|
at December 31
|
|
|
Year-ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease terminations
|
|
$
|
10,903
|
|
|
$
|
2,222
|
|
|
$
|
(3,660
|
)
|
|
$
|
9,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,903
|
|
|
$
|
2,222
|
|
|
$
|
(3,660
|
)
|
|
$
|
9,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease terminations
|
|
$
|
9,465
|
|
|
$
|
2,287
|
|
|
$
|
(2,569
|
)
|
|
$
|
9,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,465
|
|
|
$
|
2,287
|
|
|
$
|
(2,569
|
)
|
|
$
|
9,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease terminations
|
|
$
|
9,183
|
|
|
$
|
1,084
|
|
|
$
|
(1,807
|
)
|
|
$
|
8,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,183
|
|
|
$
|
1,084
|
|
|
$
|
(1,807
|
)
|
|
$
|
8,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.
|
Concentrations
of Credit Risk
|
Properties collateralizing mortgage loans held for investment
and REO were geographically disbursed throughout the United
States (measured by principal balance and expressed as a percent
of the total outstanding mortgage loans held for investment and
REO).
The following table details the geographical concentration of
mortgage loans held for investment and REO by state for the
dates indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Unpaid
|
|
|
% of
|
|
|
Unpaid
|
|
|
% of
|
|
|
|
Principal
|
|
|
Total
|
|
|
Principal
|
|
|
Total
|
|
State
|
|
Balance
|
|
|
Outstanding
|
|
|
Balance
|
|
|
Outstanding
|
|
|
Florida
|
|
$
|
54,199
|
|
|
|
14.2
|
%
|
|
$
|
62,775
|
|
|
|
14.4
|
%
|
Texas
|
|
|
52,620
|
|
|
|
13.7
|
%
|
|
|
58,815
|
|
|
|
13.4
|
%
|
California
|
|
|
32,684
|
|
|
|
8.5
|
%
|
|
|
41,019
|
|
|
|
9.4
|
%
|
All other states(1)
|
|
|
243,377
|
|
|
|
63.6
|
%
|
|
|
274,235
|
|
|
|
62.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
382,880
|
|
|
|
100.0
|
%
|
|
$
|
436,844
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
No other state contains more than 5.0% of the total outstanding. |
F-50
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
23.
|
Concentrations
of Credit Risk (continued)
|
Additionally, certain loan products contractual terms may
give rise to a concentration of credit risk and increase
Nationstars exposure to risk of nonpayment or realization.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Amortizing ARMs:
|
|
|
|
|
|
|
|
|
2/28
|
|
$
|
68,993
|
|
|
$
|
118,815
|
|
3/27
|
|
|
6,402
|
|
|
|
8,952
|
|
All other ARMs
|
|
|
14,343
|
|
|
|
10,221
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,738
|
|
|
$
|
137,988
|
|
|
|
|
|
|
|
|
|
|
|
|
24.
|
Business
Segment Reporting
|
Nationstar currently conducts business in two separate operating
segments: Servicing and Originations. The Servicing segment
provides loan servicing on Nationstars total servicing
portfolio, including the collection of principal and interest
payments and the assessment of ancillary fees related to the
servicing of mortgage loans. The Originations segment involves
the origination, packaging, and sale of agency mortgage loans
into the secondary markets via whole loan sales or
securitizations. Nationstar reports the activity not related to
either operating segment in the Legacy Portfolio and Other
column. The Legacy Portfolio and Other column includes primarily
all subprime mortgage loans originated in the latter portion of
2006 and during 2007 or acquired from Nationstars
predecessor and consolidated VIEs which were consolidated
pursuant to the adoption of new consolidation guidance related
to VIEs adopted on January 1, 2010.
Nationstars segments are based upon Nationstars
organizational structure which focuses primarily on the services
offered. The accounting policies of each reportable segment are
the same as those of Nationstar except for 1) expenses for
consolidated back-office operations and general overhead-type
expenses such as executive administration and accounting and
2) revenues generated on inter-segment services performed.
Expenses are allocated to individual segments based on the
estimated value of services performed, including estimated
utilization of square footage and corporate personnel as well as
the equity invested in each segment. Revenues generated or
inter-segment services performed are valued based on similar
services provided to external parties.
F-51
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
24.
|
Business
Segment Reporting (continued)
|
To reconcile to Nationstars consolidated results, certain
inter-segment revenues and expenses are eliminated in the
Elimination column in the following tables.
The following tables are a presentation of financial information
by segment for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Legacy Portfolio
|
|
|
|
|
|
|
|
|
|
Servicing
|
|
|
Originations
|
|
|
Segments
|
|
|
and Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$238,394
|
|
|
|
$
|
|
|
|
$238,394
|
|
|
|
$1,972
|
|
|
|
$(6,955
|
)
|
|
|
$233,411
|
|
Other fee income
|
|
|
17,082
|
|
|
|
14,109
|
|
|
|
31,191
|
|
|
|
3,996
|
|
|
|
|
|
|
|
35,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
255,476
|
|
|
|
14,109
|
|
|
|
269,585
|
|
|
|
5,968
|
|
|
|
(6,955
|
)
|
|
|
268,598
|
|
Gain/(loss) on mortgage loans held for sale
|
|
|
|
|
|
|
109,431
|
|
|
|
109,431
|
|
|
|
|
|
|
|
(295
|
)
|
|
|
109,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
255,476
|
|
|
|
123,540
|
|
|
|
379,016
|
|
|
|
5,968
|
|
|
|
(7,250
|
)
|
|
|
377,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
177,930
|
|
|
|
101,607
|
|
|
|
279,537
|
|
|
|
26,941
|
|
|
|
(295
|
)
|
|
|
306,183
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,263
|
|
|
|
12,718
|
|
|
|
14,981
|
|
|
|
44,866
|
|
|
|
6,955
|
|
|
|
66,802
|
|
Interest expense
|
|
|
(58,024
|
)
|
|
|
(10,955
|
)
|
|
|
(68,979
|
)
|
|
|
(36,396
|
)
|
|
|
|
|
|
|
(105,375
|
)
|
Gain on interest rate swaps and caps
|
|
|
298
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
298
|
|
Fair value changesABS securitizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,389
|
)
|
|
|
|
|
|
|
(12,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(55,463
|
)
|
|
|
1,763
|
|
|
|
(53,700
|
)
|
|
|
(3,919
|
)
|
|
|
6,955
|
|
|
|
(50,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
$22,083
|
|
|
|
$23,696
|
|
|
|
$45,779
|
|
|
|
$(24,892
|
)
|
|
|
$
|
|
|
|
$20,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
$2,089
|
|
|
|
$1,306
|
|
|
|
$3,395
|
|
|
|
$668
|
|
|
|
$
|
|
|
|
$4,063
|
|
Total assets
|
|
|
909,992
|
|
|
|
600,105
|
|
|
|
1,510,097
|
|
|
|
277,834
|
|
|
|
|
|
|
|
1,787,931
|
|
F-52
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
24.
|
Business
Segment Reporting (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Legacy Portfolio
|
|
|
|
|
|
|
|
|
|
Servicing
|
|
|
Originations
|
|
|
Segments
|
|
|
and Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$175,569
|
|
|
|
$
|
|
|
|
$175,569
|
|
|
|
$820
|
|
|
|
$(9,263
|
)
|
|
|
$167,126
|
|
Other fee income
|
|
|
7,273
|
|
|
|
7,042
|
|
|
|
14,315
|
|
|
|
2,643
|
|
|
|
|
|
|
|
16,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
182,842
|
|
|
|
7,042
|
|
|
|
189,884
|
|
|
|
3,463
|
|
|
|
(9,263
|
)
|
|
|
184,084
|
|
Gain (loss) on mortgage loans held for sale
|
|
|
|
|
|
|
77,498
|
|
|
|
77,498
|
|
|
|
|
|
|
|
(154
|
)
|
|
|
77,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
182,842
|
|
|
|
84,540
|
|
|
|
267,382
|
|
|
|
3,463
|
|
|
|
(9,417
|
)
|
|
|
261,428
|
|
Total expenses and impairments
|
|
|
107,283
|
|
|
|
86,920
|
|
|
|
194,203
|
|
|
|
26,927
|
|
|
|
(154
|
)
|
|
|
220,976
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
263
|
|
|
|
11,848
|
|
|
|
12,111
|
|
|
|
77,521
|
|
|
|
9,263
|
|
|
|
98,895
|
|
Interest expense
|
|
|
(51,791
|
)
|
|
|
(8,806
|
)
|
|
|
(60,597
|
)
|
|
|
(55,566
|
)
|
|
|
|
|
|
|
(116,163
|
)
|
Loss on interest rate swaps
|
|
|
(9,801
|
)
|
|
|
|
|
|
|
(9,801
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,801
|
)
|
Fair value changesABS securitizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,297
|
)
|
|
|
|
|
|
|
(23,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(61,329
|
)
|
|
|
3,042
|
|
|
|
(58,287
|
)
|
|
|
(1,342
|
)
|
|
|
9,263
|
|
|
|
(50,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
$14,230
|
|
|
|
$662
|
|
|
|
$14,892
|
|
|
|
$(24,806
|
)
|
|
|
$
|
|
|
|
$(9,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
$1,092
|
|
|
|
$781
|
|
|
|
$1,873
|
|
|
|
$244
|
|
|
|
$
|
|
|
|
$2,117
|
|
Total assets
|
|
|
689,923
|
|
|
|
402,627
|
|
|
|
1,092,550
|
|
|
|
854,631
|
|
|
|
|
|
|
|
1,947,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Legacy Portfolio
|
|
|
|
|
|
|
|
|
|
Servicing
|
|
|
Originations
|
|
|
Segments
|
|
|
and Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$91,266
|
|
|
|
$
|
|
|
|
$91,266
|
|
|
|
$
|
|
|
|
$(1,071
|
)
|
|
|
$90,195
|
|
Other fee income
|
|
|
8,867
|
|
|
|
1,156
|
|
|
|
10,023
|
|
|
|
|
|
|
|
|
|
|
|
10,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
100,133
|
|
|
|
1,156
|
|
|
|
101,289
|
|
|
|
|
|
|
|
(1,071
|
)
|
|
|
100,218
|
|
Gain (loss) on mortgage loans held for sale
|
|
|
|
|
|
|
54,437
|
|
|
|
54,437
|
|
|
|
(75,786
|
)
|
|
|
|
|
|
|
(21,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100,133
|
|
|
|
55,593
|
|
|
|
155,726
|
|
|
|
(75,786
|
)
|
|
|
(1,071
|
)
|
|
|
78,869
|
|
Total expenses and impairments
|
|
|
70,897
|
|
|
|
47,532
|
|
|
|
118,429
|
|
|
|
25,009
|
|
|
|
(1,071
|
)
|
|
|
142,367
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4,143
|
|
|
|
4,261
|
|
|
|
8,404
|
|
|
|
44,114
|
|
|
|
|
|
|
|
52,518
|
|
Interest expense
|
|
|
(25,877
|
)
|
|
|
(3,438
|
)
|
|
|
(29,315
|
)
|
|
|
(40,568
|
)
|
|
|
|
|
|
|
(69,883
|
)
|
Loss on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(14
|
)
|
Fair value changesABS securitizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(21,734
|
)
|
|
|
823
|
|
|
|
(20,911
|
)
|
|
|
3,532
|
|
|
|
|
|
|
|
(17,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
$7,502
|
|
|
|
$8,884
|
|
|
|
$16,386
|
|
|
|
$(97,263
|
)
|
|
|
$
|
|
|
|
$(80,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
$1,004
|
|
|
|
$538
|
|
|
|
$1,542
|
|
|
|
$225
|
|
|
|
$
|
|
|
|
$1,767
|
|
Total assets
|
|
|
681,543
|
|
|
|
239,202
|
|
|
|
920,745
|
|
|
|
359,440
|
|
|
|
|
|
|
|
1,280,185
|
|
|
|
25.
|
Guarantor
Financial Statement Information
|
Nationstar has $285.0 million aggregate principal amount of
10.875% unsecured senior notes which mature on April 1,
2015. The notes are jointly and severally guaranteed on an
unsecured senior basis by all of
F-53
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
Nationstars existing and future wholly-owned domestic
restricted subsidiaries, with certain exceptions. All guarantor
subsidiaries are 100% owned by Nationstar. Presented below are
consolidating financial statements of Nationstar and the
guarantor subsidiaries for the periods indicated.
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
BALANCE SHEET
December 31,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$62,201
|
|
|
|
$244
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$62,445
|
|
Restricted cash
|
|
|
49,180
|
|
|
|
3
|
|
|
|
22,316
|
|
|
|
|
|
|
|
71,499
|
|
Accounts receivable, net
|
|
|
281,782
|
|
|
|
7
|
|
|
|
280,511
|
|
|
|
|
|
|
|
562,300
|
|
Mortgage loans held for sale
|
|
|
458,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
458,626
|
|
Mortgage loans held for investment, subject to nonrecourse
debtLegacy Asset, net
|
|
|
5,984
|
|
|
|
|
|
|
|
237,496
|
|
|
|
|
|
|
|
243,480
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debt (at fair value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from affiliates
|
|
|
41,961
|
|
|
|
70,541
|
|
|
|
|
|
|
|
(107,893
|
)
|
|
|
4,609
|
|
Mortgage servicing rightsfair value
|
|
|
251,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,050
|
|
Investment in subsidiaries
|
|
|
140,880
|
|
|
|
|
|
|
|
|
|
|
|
(140,880
|
)
|
|
|
|
|
Property and equipment, net
|
|
|
23,238
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
24,073
|
|
REO, net
|
|
|
|
|
|
|
|
|
|
|
3,668
|
|
|
|
|
|
|
|
3,668
|
|
Other assets
|
|
|
106,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$1,421,083
|
|
|
|
$71,630
|
|
|
|
$543,991
|
|
|
|
$(248,773
|
)
|
|
|
$1,787,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and members equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
$628,605
|
|
|
|
$
|
|
|
|
$244,574
|
|
|
|
$
|
|
|
|
$873,179
|
|
Unsecured senior notes
|
|
|
280,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,199
|
|
Payables and accrued liabilities
|
|
|
180,545
|
|
|
|
|
|
|
|
3,244
|
|
|
|
|
|
|
|
183,789
|
|
Payables to affiliates
|
|
|
|
|
|
|
|
|
|
|
107,893
|
|
|
|
(107,893
|
)
|
|
|
|
|
Derivative financial instruments
|
|
|
5,830
|
|
|
|
|
|
|
|
6,540
|
|
|
|
|
|
|
|
12,370
|
|
Derivative financial instruments, subject to ABS nonrecourse debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecourse debtLegacy Assets
|
|
|
|
|
|
|
|
|
|
|
112,490
|
|
|
|
|
|
|
|
112,490
|
|
Excess spread financing (at fair value)
|
|
|
44,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,595
|
|
ABS nonrecourse debt (at fair value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,139,774
|
|
|
|
|
|
|
|
474,741
|
|
|
|
(107,893
|
)
|
|
|
1,506,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
281,309
|
|
|
|
71,630
|
|
|
|
69,250
|
|
|
|
(140,880
|
)
|
|
|
281,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
|
$1,421,083
|
|
|
|
$71,630
|
|
|
|
$543,991
|
|
|
|
$(248,773
|
)
|
|
|
$1,787,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED DECEMBER 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$234,135
|
|
|
|
$
|
|
|
|
$6,231
|
|
|
|
$(6,955
|
)
|
|
|
$233,411
|
|
Other fee income
|
|
|
17,782
|
|
|
|
15,313
|
|
|
|
2,092
|
|
|
|
|
|
|
|
35,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
251,917
|
|
|
|
15,313
|
|
|
|
8,323
|
|
|
|
(6,955
|
)
|
|
|
268,598
|
|
Gain on mortgage loans held for sale
|
|
|
109,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
361,053
|
|
|
|
15,313
|
|
|
|
8,323
|
|
|
|
(6,955
|
)
|
|
|
377,734
|
|
Expenses and impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
198,703
|
|
|
|
3,587
|
|
|
|
|
|
|
|
|
|
|
|
202,290
|
|
General and administrative
|
|
|
72,654
|
|
|
|
3,207
|
|
|
|
6,322
|
|
|
|
|
|
|
|
82,183
|
|
Provision for loan losses
|
|
|
1,346
|
|
|
|
|
|
|
|
2,191
|
|
|
|
|
|
|
|
3,537
|
|
Loss on foreclosed real estate and other
|
|
|
2,613
|
|
|
|
|
|
|
|
4,220
|
|
|
|
|
|
|
|
6,833
|
|
Occupancy
|
|
|
11,163
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
11,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
286,479
|
|
|
|
6,971
|
|
|
|
12,733
|
|
|
|
|
|
|
|
306,183
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
14,880
|
|
|
|
|
|
|
|
44,967
|
|
|
|
6,955
|
|
|
|
66,802
|
|
Interest expense
|
|
|
(58,452
|
)
|
|
|
|
|
|
|
(46,923
|
)
|
|
|
|
|
|
|
(105,375
|
)
|
Gain/(Loss) on interest rate swaps and caps
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
298
|
|
Fair value changes in ABS securitizations
|
|
|
7,695
|
|
|
|
|
|
|
|
(20,084
|
)
|
|
|
|
|
|
|
(12,389
|
)
|
Gain/(loss) from subsidiaries
|
|
|
(17,810
|
)
|
|
|
|
|
|
|
|
|
|
|
17,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(53,687
|
)
|
|
|
|
|
|
|
(21,742
|
)
|
|
|
24,765
|
|
|
|
(50,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
$20,887
|
|
|
|
$8,342
|
|
|
|
$(26,152
|
)
|
|
|
$17,810
|
|
|
|
$20,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
STATEMENT OF CASH FLOWS
FOR THE
YEAR ENDED DECEMBER 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
20,887
|
|
|
$
|
8,342
|
|
|
$
|
(26,152
|
)
|
|
$
|
17,810
|
|
|
$
|
20,887
|
|
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from subsidiaries
|
|
|
17,810
|
|
|
|
|
|
|
|
|
|
|
|
(17,810
|
)
|
|
|
|
|
Share-based compensation
|
|
|
14,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,815
|
|
(Gain)/loss on mortgage loans held for sale
|
|
|
(109,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109,136
|
)
|
Provision for loan losses
|
|
|
1,346
|
|
|
|
|
|
|
|
2,191
|
|
|
|
|
|
|
|
3,537
|
|
Loss on foreclosed real estate and other
|
|
|
2,613
|
|
|
|
|
|
|
|
4,220
|
|
|
|
|
|
|
|
6,833
|
|
Loss on equity method investments
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
(Gain)/loss on ineffectiveness on interest rate swaps and cap
|
|
|
|
|
|
|
|
|
|
|
(2,331
|
)
|
|
|
|
|
|
|
(2,331
|
)
|
Fair value changes in ABS securitizations
|
|
|
(7,695
|
)
|
|
|
|
|
|
|
20,084
|
|
|
|
|
|
|
|
12,389
|
|
Fair value changes in excess spread financing
|
|
|
3,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,060
|
|
Depreciation and amortization
|
|
|
4,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,063
|
|
Change in fair value of mortgage servicing rights
|
|
|
39,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,000
|
|
Amortization of debt discount
|
|
|
9,070
|
|
|
|
|
|
|
|
4,261
|
|
|
|
|
|
|
|
13,331
|
|
Amortization of premiums/(discounts)
|
|
|
|
|
|
|
|
|
|
|
(5,042
|
)
|
|
|
|
|
|
|
(5,042
|
)
|
Mortgage loans originated and purchased, net of fees
|
|
|
(3,412,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,412,185
|
)
|
Cost of loans sold, net of fees
|
|
|
3,339,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,339,859
|
|
Principal payments/prepayments received and other changes in
mortgage loans originated as held for sale
|
|
|
36,919
|
|
|
|
|
|
|
|
26,659
|
|
|
|
|
|
|
|
63,578
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
162,980
|
|
|
|
(7
|
)
|
|
|
(246,106
|
)
|
|
|
|
|
|
|
(83,133
|
)
|
Receivables from/(payables to) affiliates
|
|
|
(227,455
|
)
|
|
|
(8,407
|
)
|
|
|
240,246
|
|
|
|
|
|
|
|
4,384
|
|
Other assets
|
|
|
(44,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,576
|
)
|
Accounts payable and accrued liabilities
|
|
|
99,602
|
|
|
|
|
|
|
|
2,055
|
|
|
|
|
|
|
|
101,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) operating activities
|
|
|
(48,916
|
)
|
|
|
(72
|
)
|
|
|
20,085
|
|
|
|
|
|
|
|
(28,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued on following
page.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
STATEMENT OF CASH FLOWS (continued)
FOR THE
YEAR ENDED DECEMBER 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments received and other changes on mortgage loans
held for investment, subject to ABS nonrecourse debt
|
|
|
$
|
|
|
|
$
|
|
|
|
$40,000
|
|
|
|
$
|
|
|
|
$40,000
|
|
Property and equipment additions, net of disposals
|
|
|
(19,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,742
|
)
|
Acquisition of equity method investment
|
|
|
(6,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,600
|
)
|
Deposit on reverse mortgage servicing rights
|
|
|
(26,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,893
|
)
|
Deposit on / purchase of mortgage servicing rights
|
|
|
(96,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96,467
|
)
|
Proceeds from sales of REO
|
|
|
15,566
|
|
|
|
|
|
|
|
12,257
|
|
|
|
|
|
|
|
27,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities
|
|
|
(134,136
|
)
|
|
|
|
|
|
|
52,257
|
|
|
|
|
|
|
|
(81,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to/from restricted cash
|
|
|
8,399
|
|
|
|
(3
|
)
|
|
|
8,416
|
|
|
|
|
|
|
|
16,812
|
|
Issuance of unsecured senior notes
|
|
|
35,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,166
|
|
Issuance of excess spread financing
|
|
|
40,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,492
|
|
Decrease in notes payable, net
|
|
|
155,655
|
|
|
|
|
|
|
|
7,766
|
|
|
|
|
|
|
|
163,421
|
|
Repayment of nonrecourse debtLegacy assets
|
|
|
|
|
|
|
|
|
|
|
(30,433
|
)
|
|
|
|
|
|
|
(30,433
|
)
|
Repayment of ABS nonrecourse debt
|
|
|
|
|
|
|
|
|
|
|
(58,091
|
)
|
|
|
|
|
|
|
(58,091
|
)
|
Repayment of excess servicing spread financing
|
|
|
(2,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,207
|
)
|
Distribution to parent
|
|
|
(4,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,348
|
)
|
Debt financing costs
|
|
|
(3,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,462
|
)
|
Tax related share-based settlement of units by members
|
|
|
(5,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) financing activities
|
|
|
224,349
|
|
|
|
(3
|
)
|
|
|
(72,342
|
)
|
|
|
|
|
|
|
152,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash
|
|
|
41,297
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
41,222
|
|
Cash and cash equivalents at beginning of period
|
|
|
20,904
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
21,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
$62,201
|
|
|
|
$244
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$62,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
BALANCE SHEET
DECEMBER
31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$20,904
|
|
|
|
$319
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$21,223
|
|
Restricted cash
|
|
|
57,579
|
|
|
|
|
|
|
|
33,546
|
|
|
|
|
|
|
|
91,125
|
|
Accounts receivable, net
|
|
|
437,300
|
|
|
|
|
|
|
|
3,975
|
|
|
|
|
|
|
|
441,275
|
|
Mortgage loans held for sale
|
|
|
369,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
369,617
|
|
Mortgage loans held for investment, subject to nonrecourse debt,
Legacy Assets, net
|
|
|
5,016
|
|
|
|
|
|
|
|
261,304
|
|
|
|
|
|
|
|
266,320
|
|
Mortgage loans held for investment, subject to ABS nonrecourse
debt (at fair value)
|
|
|
|
|
|
|
|
|
|
|
538,440
|
|
|
|
|
|
|
|
538,440
|
|
Investment in debt
securitiesavailable-for-sale
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
(597
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
158,276
|
|
|
|
|
|
|
|
|
|
|
|
(158,276
|
)
|
|
|
|
|
Receivables from affiliates
|
|
|
|
|
|
|
62,171
|
|
|
|
132,353
|
|
|
|
(185,531
|
)
|
|
|
8,993
|
|
Mortgage servicing rights
|
|
|
145,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,062
|
|
Property and equipment, net
|
|
|
7,559
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
8,394
|
|
REO, net
|
|
|
323
|
|
|
|
|
|
|
|
27,014
|
|
|
|
|
|
|
|
27,337
|
|
Other assets
|
|
|
29,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$1,231,628
|
|
|
|
$63,325
|
|
|
|
$996,632
|
|
|
|
$(344,404
|
)
|
|
|
$1,947,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and members equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
$472,950
|
|
|
|
$
|
|
|
|
$236,808
|
|
|
|
$
|
|
|
|
$709,758
|
|
Unsecured senior notes
|
|
|
244,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,061
|
|
Payables and accrued liabilities
|
|
|
73,785
|
|
|
|
|
|
|
|
1,269
|
|
|
|
|
|
|
|
75,054
|
|
Payables to affiliates
|
|
|
185,531
|
|
|
|
|
|
|
|
|
|
|
|
(185,531
|
)
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
7,801
|
|
|
|
|
|
|
|
7,801
|
|
Derivative financial instruments, subject to ABS nonrecourse debt
|
|
|
|
|
|
|
|
|
|
|
18,781
|
|
|
|
|
|
|
|
18,781
|
|
Nonrecourse debtLegacy Assets
|
|
|
|
|
|
|
|
|
|
|
138,662
|
|
|
|
|
|
|
|
138,662
|
|
ABS nonrecourse debt (at fair value)
|
|
|
|
|
|
|
|
|
|
|
497,289
|
|
|
|
(597
|
)
|
|
|
496,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
976,327
|
|
|
|
|
|
|
|
900,610
|
|
|
|
(186,128
|
)
|
|
|
1,690,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
255,301
|
|
|
|
63,325
|
|
|
|
96,022
|
|
|
|
(158,276
|
)
|
|
|
256,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
|
$1,231,628
|
|
|
|
$63,325
|
|
|
|
$996,632
|
|
|
|
$(344,404
|
)
|
|
|
$1,947,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-58
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non- Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$174,660
|
|
|
|
$1,730
|
|
|
|
$
|
|
|
|
$(9,264
|
)
|
|
|
$167,126
|
|
Other fee income
|
|
|
8,259
|
|
|
|
7,551
|
|
|
|
1,148
|
|
|
|
|
|
|
|
16,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
182,919
|
|
|
|
9,281
|
|
|
|
1,148
|
|
|
|
(9,264
|
)
|
|
|
184,084
|
|
Gain on mortgage loans held for sale
|
|
|
77,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
260,263
|
|
|
|
9,281
|
|
|
|
1,148
|
|
|
|
(9,264
|
)
|
|
|
261,428
|
|
Expenses and impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
146,746
|
|
|
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
149,115
|
|
General and administrative
|
|
|
57,329
|
|
|
|
1,642
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
58,913
|
|
Loss on mortgage loans held for investment and foreclosed real
estate
|
|
|
1,558
|
|
|
|
|
|
|
|
1,945
|
|
|
|
|
|
|
|
3,503
|
|
Occupancy
|
|
|
9,289
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
9,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
214,922
|
|
|
|
4,167
|
|
|
|
1,887
|
|
|
|
|
|
|
|
220,976
|
|
Other income / (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
17,019
|
|
|
|
6
|
|
|
|
72,606
|
|
|
|
9,264
|
|
|
|
98,895
|
|
Interest expense
|
|
|
(54,075
|
)
|
|
|
|
|
|
|
(62,088
|
)
|
|
|
|
|
|
|
(116,163
|
)
|
Loss on interest rate swaps and caps
|
|
|
|
|
|
|
|
|
|
|
(9,801
|
)
|
|
|
|
|
|
|
(9,801
|
)
|
Fair value changes in ABS securitizations
|
|
|
|
|
|
|
|
|
|
|
(23,748
|
)
|
|
|
451
|
|
|
|
(23,297
|
)
|
Gain / (loss) from subsidiaries
|
|
|
(18,650
|
)
|
|
|
|
|
|
|
|
|
|
|
18,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income / (expense)
|
|
|
(55,706
|
)
|
|
|
6
|
|
|
|
(23,031
|
)
|
|
|
28,365
|
|
|
|
(50,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss)
|
|
|
$(10,365
|
)
|
|
|
$5,120
|
|
|
|
$(23,770
|
)
|
|
|
$19,101
|
|
|
|
$(9,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-59
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
STATEMENT OF CASH FLOWS
FOR THE
YEAR ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
$(10,365
|
)
|
|
|
$5,120
|
|
|
|
$(23,770
|
)
|
|
|
$19,101
|
|
|
|
$(9,914
|
)
|
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
12,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,856
|
|
Gain on mortgage loans held for sale
|
|
|
(77,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,344
|
)
|
Provision for loan losses
|
|
|
1,558
|
|
|
|
|
|
|
|
1,740
|
|
|
|
|
|
|
|
3,298
|
|
Loss on foreclosed real estate and other
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
205
|
|
(Gain)/loss on ineffectiveness on interest rate swaps and cap
|
|
|
|
|
|
|
|
|
|
|
8,872
|
|
|
|
|
|
|
|
8,872
|
|
Fair value changes in ABS securitizations
|
|
|
|
|
|
|
|
|
|
|
23,297
|
|
|
|
|
|
|
|
23,297
|
|
Loss from subsidiaries
|
|
|
18,650
|
|
|
|
|
|
|
|
|
|
|
|
(18,650
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
2,104
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
2,117
|
|
Change in fair value of mortgage servicing rights
|
|
|
6,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,043
|
|
Amortization of debt discount
|
|
|
12,380
|
|
|
|
|
|
|
|
6,351
|
|
|
|
|
|
|
|
18,731
|
|
Amortization of premiums/(discounts)
|
|
|
|
|
|
|
|
|
|
|
(4,526
|
)
|
|
|
|
|
|
|
(4,526
|
)
|
Mortgage loans originated and purchased, net of fees
|
|
|
(2,791,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,791,639
|
)
|
Cost of loans sold, net of fees
|
|
|
2,621,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,621,275
|
|
Principal payments/prepayments received and other changes in
mortgage loans originated as held for sale
|
|
|
49,302
|
|
|
|
|
|
|
|
(16,634
|
)
|
|
|
|
|
|
|
32,668
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
73,124
|
|
|
|
3
|
|
|
|
(31,979
|
)
|
|
|
|
|
|
|
41,148
|
|
Receivables from/(payables to) affiliates
|
|
|
(52,594
|
)
|
|
|
(5,110
|
)
|
|
|
61,662
|
|
|
|
|
|
|
|
3,958
|
|
Other assets
|
|
|
(861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(861
|
)
|
Accounts payable and accrued liabilities
|
|
|
8,444
|
|
|
|
(96
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
8,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used) in operating activities
|
|
|
(127,067
|
)
|
|
|
(70
|
)
|
|
|
25,033
|
|
|
|
451
|
|
|
|
(101,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued on following page.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
STATEMENT OF CASH FLOWS (continued)
FOR THE
YEAR ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments received and other changes on mortgage loans
held for investment, subject to ABS nonrecourse debt
|
|
|
$
|
|
|
|
$
|
|
|
|
$48,838
|
|
|
|
$
|
|
|
|
$48,838
|
|
Property and equipment additions, net of disposals
|
|
|
(3,923
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,936
|
)
|
Purchase of mortgage servicing rights
|
|
|
(17,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,812
|
)
|
Proceeds from sales of REO
|
|
|
504
|
|
|
|
|
|
|
|
73,603
|
|
|
|
|
|
|
|
74,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used) in investing activities
|
|
|
(21,231
|
)
|
|
|
(13
|
)
|
|
|
122,441
|
|
|
|
|
|
|
|
101,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to/from restricted cash
|
|
|
(38,617
|
)
|
|
|
|
|
|
|
4,886
|
|
|
|
|
|
|
|
(33,731
|
)
|
Issuance of unsecured notes, net of issue discount
|
|
|
243,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,013
|
|
Decrease in notes payable, net
|
|
|
(57,972
|
)
|
|
|
|
|
|
|
(4,127
|
)
|
|
|
|
|
|
|
(62,099
|
)
|
Repayment of nonrecourse debtLegacy assets
|
|
|
|
|
|
|
|
|
|
|
(45,364
|
)
|
|
|
|
|
|
|
(45,364
|
)
|
Repayment of ABS nonrecourse debt
|
|
|
(146
|
)
|
|
|
|
|
|
|
(102,869
|
)
|
|
|
(451
|
)
|
|
|
(103,466
|
)
|
Debt financing costs
|
|
|
(14,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,923
|
)
|
Tax related share-based settlement of units by members
|
|
|
(3,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used) in financing activities
|
|
|
127,959
|
|
|
|
|
|
|
|
(147,474
|
)
|
|
|
(451
|
)
|
|
|
(19,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash
|
|
|
(20,339
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,422
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
41,243
|
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
41,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
$20,904
|
|
|
|
$319
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$21,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-61
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fee income
|
|
|
$89,151
|
|
|
|
$1,044
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$90,195
|
|
Other fee income
|
|
|
4,823
|
|
|
|
5,200
|
|
|
|
|
|
|
|
|
|
|
|
10,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee income
|
|
|
93,974
|
|
|
|
6,244
|
|
|
|
|
|
|
|
|
|
|
|
100,218
|
|
Loss on mortgage loans held for sale
|
|
|
(21,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
72,625
|
|
|
|
6,244
|
|
|
|
|
|
|
|
|
|
|
|
78,869
|
|
Expenses and impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
88,075
|
|
|
|
2,614
|
|
|
|
|
|
|
|
|
|
|
|
90,689
|
|
General and administrative
|
|
|
30,111
|
|
|
|
379
|
|
|
|
4
|
|
|
|
|
|
|
|
30,494
|
|
Loss on mortgage loans held for investment and foreclosed real
estate
|
|
|
(1,352
|
)
|
|
|
(10,925
|
)
|
|
|
19,789
|
|
|
|
|
|
|
|
7,512
|
|
Occupancy
|
|
|
6,621
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
6,863
|
|
Loss on
available-for-sale-securities-other-than-temporary
|
|
|
6,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and impairments
|
|
|
130,264
|
|
|
|
(7,690
|
)
|
|
|
19,793
|
|
|
|
|
|
|
|
142,367
|
|
Other income / (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
42,160
|
|
|
|
233
|
|
|
|
10,125
|
|
|
|
|
|
|
|
52,518
|
|
Interest expense
|
|
|
(52,810
|
)
|
|
|
(2,694
|
)
|
|
|
(14,379
|
)
|
|
|
|
|
|
|
(69,883
|
)
|
Loss on interest rate swaps and caps
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Gain / (loss) from subsidiaries
|
|
|
(12,574
|
)
|
|
|
|
|
|
|
|
|
|
|
12,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income / (expense)
|
|
|
(23,238
|
)
|
|
|
(2,461
|
)
|
|
|
(4,254
|
)
|
|
|
12,574
|
|
|
|
(17,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss)
|
|
|
$(80,877
|
)
|
|
|
$11,473
|
|
|
|
$(24,047
|
)
|
|
|
$12,574
|
|
|
|
$(80,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-62
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
STATEMENT OF CASH FLOWS
FOR THE
YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
$(80,877
|
)
|
|
|
$11,473
|
|
|
|
$(24,047
|
)
|
|
|
$12,574
|
|
|
|
$(80,877
|
)
|
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
827
|
|
(Gain)/loss on mortgage loans held for sale
|
|
|
21,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,349
|
|
Loss on foreclosed real estate and other
|
|
|
(1,352
|
)
|
|
|
(10,925
|
)
|
|
|
19,789
|
|
|
|
|
|
|
|
7,512
|
|
(Gain)/loss on ineffectiveness on interest rate swaps and cap
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Loss from subsidiaries
|
|
|
12,574
|
|
|
|
|
|
|
|
|
|
|
|
(12,574
|
)
|
|
|
|
|
Unrealized gain on derivative financial instruments
|
|
|
(2,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,436
|
)
|
Impairment of investments in debt securities
|
|
|
6,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,809
|
|
Depreciation and amortization
|
|
|
1,728
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
1,767
|
|
Change in fair value of mortgage servicing rights
|
|
|
27,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,915
|
|
Amortization of debt discount
|
|
|
19,075
|
|
|
|
|
|
|
|
2,212
|
|
|
|
|
|
|
|
21,287
|
|
Amortization of premiums/(discounts)
|
|
|
(1,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,394
|
)
|
Mortgage loans originated and purchased, net of fees
|
|
|
(1,480,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,480,549
|
)
|
Cost of loans sold, net of fees
|
|
|
1,007,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,007,369
|
|
Principal payments/prepayments received and other changes in
mortgage loans originated as held for sale
|
|
|
405,066
|
|
|
|
|
|
|
|
66,816
|
|
|
|
|
|
|
|
471,882
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(155,566
|
)
|
|
|
1,113
|
|
|
|
(3,511
|
)
|
|
|
|
|
|
|
(157,964
|
)
|
Receivables from/(payables to) affiliates
|
|
|
247,676
|
|
|
|
(47,397
|
)
|
|
|
(133,339
|
)
|
|
|
|
|
|
|
66,940
|
|
Other assets
|
|
|
(6,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,961
|
)
|
Accounts payable and accrued liabilities
|
|
|
11,550
|
|
|
|
(12
|
)
|
|
|
1,331
|
|
|
|
|
|
|
|
12,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used) in operating activities
|
|
|
32,817
|
|
|
|
(45,709
|
)
|
|
|
(70,749
|
)
|
|
|
|
|
|
|
(83,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued on following page.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-63
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
25.
|
Guarantor
Financial Statement Information (continued)
|
NATIONSTAR
MORTGAGE LLC
CONSOLIDATING
STATEMENT OF CASH FLOWS (continued)
FOR THE
YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
(Subsidiaries)
|
|
|
(Subsidiaries)
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment additions, net of disposals
|
|
|
$(2,990
|
)
|
|
|
$(39
|
)
|
|
|
$
|
|
|
|
$
|
|
|
|
$(3,029
|
)
|
Purchase of mortgage servicing rights
|
|
|
(1,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,169
|
)
|
Proceeds from sales of REO
|
|
|
1,896
|
|
|
|
32,202
|
|
|
|
83
|
|
|
|
|
|
|
|
34,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used) in investing activities
|
|
|
(2,263
|
)
|
|
|
32,163
|
|
|
|
83
|
|
|
|
|
|
|
|
29,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to/from restricted cash
|
|
|
(18,444
|
)
|
|
|
13,737
|
|
|
|
(27,056
|
)
|
|
|
|
|
|
|
(31,763
|
)
|
Issuance of nonrecourse debt
|
|
|
|
|
|
|
|
|
|
|
191,272
|
|
|
|
|
|
|
|
191,272
|
|
Decrease in notes payable, net
|
|
|
17,346
|
|
|
|
|
|
|
|
(77,741
|
)
|
|
|
|
|
|
|
(60,395
|
)
|
Repayment of nonrecourse debtLegacy assets
|
|
|
|
|
|
|
|
|
|
|
(15,809
|
)
|
|
|
|
|
|
|
(15,809
|
)
|
Debt financing costs
|
|
|
(18,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,059
|
)
|
Capital contributions from members
|
|
|
20,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used) in financing activities
|
|
|
1,543
|
|
|
|
13,737
|
|
|
|
70,666
|
|
|
|
|
|
|
|
85,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash
|
|
|
32,097
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
32,288
|
|
Cash and cash equivalents at beginning of period
|
|
|
9,146
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
9,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
$41,243
|
|
|
|
$402
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$41,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.
|
Related
Party Disclosures
|
In September 2010, Nationstar entered into a marketing agreement
with Springleaf Home Equity, Inc., formerly known as American
General Home Equity, Inc., Springleaf General Financial Services
of Arkansas, Inc., formerly known as American General Financial
Services of Arkansas, Inc. and MorEquity, Inc. (collectively
Springleaf), each of which are indirectly owned by
investment funds managed by affiliates of Fortress Investment
Group LLC. Pursuant to this agreement, Nationstar markets
mortgage originations products to customers of Springleaf, and
is compensated by the originations fees of loans that Nationstar
refinances.
Additionally, in January 2011, Nationstar entered into three
agreements to act as the loan subservicer for Springleaf for a
whole loan portfolio and two securitized loan portfolios
totaling $4.4 billion for which Nationstar receives a
monthly per loan subservicing fee and other performance
incentive fees subject to the agreements with Springleaf. For
the year ended December 31, 2011, Nationstar recognized
revenue of $9.9 million in additional servicing and other
performance incentive fees related to these portfolios. At
December 31, 2011, Nationstar had an outstanding receivable
from Springleaf of $0.6 million which was included as a
component of accounts receivable.
F-64
NATIONSTAR
MORTGAGE LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
26.
|
Related
Party Disclosures (continued)
|
Nationstar is the loan servicer for two securitized loan
portfolios managed by Newcastle Investment Corp. (Newcastle),
which is managed by an affiliate of Fortress Investment Group
LLC, for which Nationstar receives a monthly net servicing fee
equal to 0.50% per annum on the unpaid principal balance of the
portfolios, which was $1.1 billion, $1.2 billion, and
$1.4 billion for the years ended December 31, 2011,
2010, and 2009, respectively. For the year ended
December 31, 2011, 2010, and 2009 Nationstar received
servicing fees and other performance incentive fees of
$5.8 million, $6.5 million, and $7.5 million,
respectively.
Additionally, in December 2011, Nationstar entered into another
agreement with Newcastle, where Nationstar sold to Newcastle the
right to receive 65% of the excess cash flow generated from
certain MSRs acquired on September 30, 2011 after receipt
of a fixed basic servicing fee per loan. The sale price was
$43.7 million. Nationstar will retain all ancillary income
associated with servicing such MSRs and 35% of the excess cash
flow after receipt of the fixed basic servicing fee. Nationstar
will continue to be the servicer of the loans and provide all
servicing and advancing functions for the portfolio. Newcastle
will not have prior or ongoing obligations associated with this
MSR portfolio. Furthermore, should Nationstar refinance any loan
in such portfolio, subject to certain limitations, Nationstar
will be required to transfer the new loan or a replacement loan
of similar economic characteristics into the portfolio. The new
or replacement loan will be governed by the same terms set forth
in the agreement described above. The fair value on the
outstanding liability related to this agreement was
$44.6 million at December 31, 2011. Additionally, as a
component of the underlying agreement, Newcastle held back a
portion of the sales price, amounting to $3.3 million,
pending certain conditions being satisfied by Nationstar. Such
amount is recorded in accounts receivable.
In March 2011, Nationstar entered into a limited partnership
agreement with ANC. ANC is the parent company of NREIS, which
through the ANC partnership we hold a non-controlling interest
in NREIS, an ancillary real estate services and vendor
management company that directly and indirectly provides title
agency settlement or valuation services for loan originations
and default management. As Nationstar is able to exercise
significant influence, but not control, over the policies and
procedures of the entity, and Nationstar owns less than 50% of
the voting interests, Nationstar applies the equity method of
accounting. During the year ending December 31, 2011
Nationstar disbursed $4.9 million for servicing-related
advances.
|
|
27.
|
Unaudited
Pro Forma Tax Information
|
Nationstar has elected to be a disregarded entity for federal
tax purposes and is treated as a branch of its parent, FIF. FIF
is taxed as a partnership, whereby all income is taxed at the
member (partner) level. Historically, Nationstar has generated
net operating losses for federal and state income tax purposes
but has incurred de minimis amounts of state capital,
franchise and minimum tax. It is expected that Nationstar will
become a wholly owned indirect subsidiary of Nationstar Mortgage
Holdings Inc., a new C corporation, upon the Restructuring. (See
Note 1Nature of Business and Basis of Presentation)
It is anticipated that Nationstar Mortgage Holdings Inc.,
Nationstar and all affiliates will join in a consolidated income
tax return for US purposes.
Nationstars pro forma effective tax rate for 2011 is 0%.
The pro forma tax provision, before utilization of tax benefits,
is $11,448 on pre-tax income of $20,887. Nationstar expects to
assume certain tax attributes of certain parent entities of FIF
HE Holding LLC as a result of the restructuring, including
approximately $196 million of net operating loss carry
forwards as of December 31, 2011. Nationstar expects to
record a full valuation allowance against any resulting deferred
tax asset. The utilization of these tax attributes will be
limited pursuant to Sections 382 and 383 of the Internal
Revenue Code.
F-65
Through and
including ,
2012 (the
25th day
after the date of this prospectus), all dealers effecting
transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This
is in addition to each dealers obligation to deliver a
prospectus when acting as underwriter, and with respect to its
unsold allotments or subscriptions.
16,666,667 Shares
Nationstar Mortgage Holdings
Inc.
Common Stock
PROSPECTUS
BofA Merrill Lynch
Citigroup
Credit Suisse
Wells Fargo
Securities
Allen & Company
LLC
Barclays Capital
J.P. Morgan
Keefe, Bruyette &
Woods
Sterne Agee
, 2012
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The following table sets forth the estimated fees and expenses
(except for the SEC registration fee, the Financial Industry
Regulatory Authority, Inc. (FINRA), filing fee and
the NYSE listing fee) payable by the registrant in connection
with the distribution of our common stock:
|
|
|
|
|
SEC registration fee
|
|
$
|
46,440
|
|
FINRA filing fee
|
|
|
40,500
|
|
NYSE listing fee
|
|
|
250,000
|
|
Printing and engraving expenses
|
|
|
550,000
|
|
Legal fees and expenses
|
|
|
2,450,000
|
|
Accounting fees and expenses
|
|
|
350,000
|
|
Transfer agent and registrar fees and expenses
|
|
|
6,000
|
|
Blue Sky fees and expenses
|
|
|
10,000
|
|
Miscellaneous
|
|
|
100,000
|
|
|
|
|
|
|
Total
|
|
$
|
3,802,940
|
|
|
|
|
|
|
We will bear all of the expenses shown above.
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
Section 102 of the Delaware General Corporation Law, as
amended, or the DGCL, allows a corporation to eliminate the
personal liability of directors to a corporation or its
stockholders for monetary damages for a breach of a fiduciary
duty as a director, except where the director breached his duty
of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment
of a dividend or approved a stock repurchase or redemption in
violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that
a corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than an action by or
in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the corporations
request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys fees,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with the action,
suit or proceeding. The power to indemnify applies if
(i) such person is successful on the merits or otherwise in
defense of any action, suit or proceeding or (ii) such
person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The power to indemnify applies to actions brought by
or in the right of the corporation as well, but only to the
extent of defense expenses (including attorneys fees but
excluding amounts paid in settlement) actually and reasonably
incurred and not to any satisfaction of judgment or settlement
of the claim itself, and with the further limitation that in
such actions no indemnification shall be made in the event of
any adjudication of negligence or misconduct in the performance
of his duties to the corporation, unless a court believes that
in light of all the circumstances indemnification should apply.
II-1
Section 174 of the DGCL provides, among other things, that
a director who willfully and negligently approves of an unlawful
payment of dividends or an unlawful stock purchase or redemption
may be held liable for such actions. A director who was either
absent when the unlawful actions were approved or dissented at
the time, may avoid liability by causing his or her dissent to
such actions to be entered in the books containing the minutes
of the meetings of the board of directors at the time the action
occurred or immediately after the absent director receives
notice of the unlawful acts.
The Companys amended and restated certificate of
incorporation states that no director shall be personally liable
to us or any of our stockholders for monetary damages for breach
of fiduciary duty as a director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the DGCL as it exists or may be amended. A director is
also not exempt from liability for any transaction from which he
or she derived an improper personal benefit, or for violations
of Section 174 of the DGCL. To the maximum extent permitted
under Section 145 of the DGCL, our amended and restated
certificate of incorporation authorizes us to indemnify any and
all persons whom we have the power to indemnify under the law.
Our amended and restated bylaws provide that the Company will
indemnify, to the fullest extent permitted by the DGCL, each
person who was or is made a party or is threatened to be made a
party in any legal proceeding by reason of the fact that he or
she is or was a director or officer of the Company or is or was
a director or officer of the Company serving at the request of
the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise. However, such indemnification is permitted only if
such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such
persons conduct was unlawful. Indemnification is
authorized on a
case-by-case
basis by (1) our board of directors by a majority vote of
disinterested directors, (2) a committee of the
disinterested directors, (3) independent legal counsel in a
written opinion if (1) and (2) are not available, or
if disinterested directors so direct, or (4) the
stockholders. Indemnification of former directors or officers
shall be determined by any person authorized to act on the
matter on our behalf. Expenses incurred by a director or officer
in defending against such legal proceedings are payable before
the final disposition of the action, provided that the director
or officer undertakes to repay us if it is later determined that
he or she is not entitled to indemnification.
Prior to completion of this offering, the Company intends to
enter into separate indemnification agreements with its
directors and officers. Each indemnification agreement will
provide, among other things, for indemnification to the fullest
extent permitted by law and our amended and restated certificate
of incorporation and amended and restated bylaws against any and
all expenses, judgments, fines, penalties and amounts paid in
settlement of any claim. The indemnification agreements will
provide for the advancement or payment of all expenses to the
indemnitee and for reimbursement to us if it is found that such
indemnitee is not entitled to such indemnification under
applicable law and our amended and restated certificate of
incorporation and amended and restated bylaws.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion
of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
We maintain directors and officers liability
insurance for our officers and directors.
The Company maintains standard policies of insurance under which
coverage is provided (a) to its directors and officers
against loss rising from claims made by reason of breach of duty
or other wrongful act, and (b) to the Company with respect
to payments which may be made by the Company to such officers
and directors pursuant to the above indemnification provision or
otherwise as a matter of law.
II-2
|
|
Item 15.
|
Recent
Sales of Unregistered Securities.
|
In the last three years, we have not issued or sold any
unregistered securities.
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules.
|
(a) Exhibits: The list of exhibits is set forth in
beginning on page II-6 of this Registration Statement and
is incorporated herein by reference.
(b) Financial Statement Schedules: No financial statement
schedules are provided because the information called for is not
applicable or is shown in the financial statements or notes
thereto.
* (f) The undersigned registrant hereby undertakes to
provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
* (h) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers, and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
* (i) The undersigned registrant hereby undertakes that:
|
|
|
|
|
For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by us
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
|
|
|
|
For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
|
|
|
|
* |
|
Paragraph references correspond to those of
Regulation S-K,
Item 512. |
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lewisville, State of Texas on
March 6, 2012.
Nationstar Mortgage Holdings Inc.
|
|
|
|
Title:
|
Executive Vice President and
General Counsel
|
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by
the following persons in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
*
Jay
Bray
|
|
Chief Executive Officer and Director
(principal executive officer)
|
|
March 6, 2012
|
|
|
|
|
|
/s/ David
C. Hisey
David
C. Hisey
|
|
Executive Vice President
and Chief Financial Officer
(principal financial and accounting officer)
|
|
March 6, 2012
|
|
|
|
|
|
*
Wesley
R. Edens
|
|
Chairman and Director
|
|
March 6, 2012
|
|
|
|
|
|
*
Robert
Gidel
|
|
Director
|
|
March 6, 2012
|
|
|
|
|
|
*
Roy
Guthrie
|
|
Director
|
|
March 6, 2012
|
|
|
|
|
|
*
Brett
Hawkins
|
|
Director
|
|
March 6, 2012
|
|
|
|
|
|
*
Michael
D. Malone
|
|
Director
|
|
March 6, 2012
|
|
|
|
|
|
|
|
|
|
|
*By: /s/ Anthony
W. Villani
Anthony
W. Villani
as Attorney-in-Fact
|
|
|
|
|
II-4
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement
|
|
2
|
.1
|
|
Master Pre-IPO Restructuring Agreement, dated as of
February 17, 2012, by and among FIF HE Holdings LLC,
Nationstar Mortgage Holdings Inc., Nationstar Mortgage LLC and
the other parties thereto.
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Nationstar
Mortgage Holdings Inc.
|
|
3
|
.2
|
|
Amended and Restated Bylaws of Nationstar Mortgage Holdings Inc.
|
|
3
|
.3
|
|
Certificate of Incorporation of Nationstar Mortgage Holdings Inc.
|
|
3
|
.4
|
|
Bylaws of Nationstar Mortgage Holdings Inc.
|
|
4
|
.1
|
|
Stockholders Agreement, dated as of February 17, 2012, by
and among Nationstar Mortgage Holdings Inc and FIF HE Holdings
LLC.
|
|
4
|
.2
|
|
Indenture, dated as of March 26, 2010, among Nationstar
Mortgage LLC, Nationstar Capital Corporation, and Wells Fargo
Bank, N.A., as trustee, including the form of 10.875% Senior
Note due 2015 (incorporated by reference to Exhibit 4.1 to
Nationstar Mortgage LLCs Registration Statement on
Form S-4 filed with the SEC on December 23, 2010).
|
|
4
|
.3
|
|
Supplemental Indenture, dated as of August 31, 2010, among
NSM Recovery Services Inc, a subsidiary of Nationstar Mortgage
LLC, and Wells Fargo Bank, National Association, as trustee
(incorporated by reference to Exhibit 4.2 to Nationstar
Mortgage LLCs Registration Statement on Form S-4
filed with the SEC on December 23, 2010).
|
|
4
|
.4
|
|
Supplemental Indenture, dated as of December 13, 2010,
among NSM Foreclosure Services Inc, a subsidiary of Nationstar
Mortgage LLC, and Wells Fargo Bank, National Association, as
trustee (incorporated by reference to Exhibit 4.3 to
Nationstar Mortgage LLCs Registration Statement on
Form S-4 filed with the SEC on December 23, 2010).
|
|
4
|
.5
|
|
Supplemental Indenture, dated as of December 19, 2011,
among Nationstar Mortgage LLC, Nationstar Capital Corporation,
Centex Land Vista Ridge Lewisville III General Partner, LLC,
Centex Land Vista Ridge Lewisville III, L.P., Harwood Service
Company LLC, Harwood Insurance Services, LLC, Harwood Service
Company of Georgia, LLC, Harwood Service Company of New Jersey,
LLC, Homeselect Settlement Solutions, LLC, Nationstar 2009
Equity Corporation, Nationstar Equity Corporation, Nationstar
Industrial Loan Company, Nationstar Industrial Loan Corporation,
NSM Recovery Services, Inc., NSM Foreclosure Services, Inc., and
Wells Fargo Bank, National Association, as trustee (incorporated
by reference to Exhibit 4.1 to Nationstar Mortgage
LLCs Current Report on Form 8-K filed with the SEC on
December 19, 2011).
|
|
4
|
.6
|
|
Registration Rights Agreement, dated as of March 26, 2010,
among Nationstar Mortgage LLC, Nationstar Capital Corporation,
Barclays Capital Inc., Banc of America Securities LLC, Deutsche
Bank Securities Inc. and RBS Securities Inc. (incorporated by
reference to Exhibit 4.4 to Nationstar Mortgage LLCs
Registration Statement on Form S-4 filed with the SEC on
December 23, 2010).
|
|
4
|
.7
|
|
Registration Rights Agreement, dated as of March 26, 2010,
among Nationstar Mortgage LLC, Nationstar Capital Corporation,
Barclays Capital Inc., Banc of America Securities LLC, Deutsche
Bank Securities Inc. and RBS Securities Inc. (incorporated by
reference to Exhibit 10.1 to Nationstar Mortgage LLCs
Current Report on Form 8-K filed with the SEC on
December 19, 2011).
|
|
4
|
.8
|
|
Form of Stock Certificate
|
|
5
|
.1
|
|
Opinion of Cleary Gottlieb Steen & Hamilton LLP.
|
|
10
|
.1
|
|
Amended and Restated Servicer Advance Early Reimbursement
Addendum, dated as of August 16, 2010, between Nationstar
Mortgage LLC and Fannie Mae (incorporated by reference to
Exhibit 10.1 to Nationstar Mortgage LLCs Registration
Statement on Form S-4 filed with the SEC on December 23, 2010).
|
|
10
|
.2
|
|
Fifth Amended and Restated Master Repurchase Agreement, dated as
of January 27, 2010, between The Royal Bank of Scotland plc, as
buyer, and Nationstar Mortgage LLC, as seller (incorporated by
reference to Exhibit 10.2 to Nationstar Mortgage LLCs
Registration Statement on Form S-4 filed with the SEC on
December 23, 2010).
|
II-5
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.3
|
|
Amendment Number One to Fifth Amended and Restated Master
Repurchase Agreement, and Amendment Number One to Fifth Amended
and Restated Pricing Side Letter, both dated as of April 6,
2010, between The Royal Bank of Scotland plc and Nationstar
Mortgage LLC. (incorporated by reference to Exhibit 10.3 to
Amendment No. 3 to Nationstar Mortgage LLCs
Registration Statement on Form S-4 filed with the SEC on
April 27, 2011).
|
|
10
|
.4
|
|
Amendment Number Two to Fifth Amended and Restated Master
Repurchase Agreement, and Amendment Number Two to Fifth Amended
and Restated Pricing Side Letter, both dated as of February 25,
2011, between The Royal Bank of Scotland plc and Nationstar
Mortgage LLC. (incorporated by reference to Exhibit 10.4 to
Amendment No. 3 to Nationstar Mortgage LLCs Registration
Statement on Form S-4 filed with the SEC on April 27, 2011).
|
|
10
|
.5
|
|
Subservicing Agreement, dated as of October 29, 2010, between
Fannie Mae and Nationstar Mortgage LLC (incorporated by
reference to Exhibit 10.3 to Amendment No. 1 to Nationstar
Mortgage LLCs Registration Statement on Form S-4 filed
with the SEC on February 9, 2011).
|
|
10
|
.6
|
|
Strategic Relationship Agreement, dated as of December 16, 2009,
between Fannie Mae and Nationstar Mortgage LLC (incorporated by
reference to Exhibit 10.4 to Nationstar Mortgage LLCs
Registration Statement on Form S-4 filed with the SEC on
December 23, 2010).
|
|
10
|
.7
|
|
Subservicing Agreement, dated as of February 1, 2011, among
MorEquity, Inc., American General Financial Services of
Arkansas, Inc. and American General Home Equity, Inc. as owners
and as servicers, and Nationstar Mortgage LLC, as subservicer.
(incorporated by reference to Exhibit 10.5 to Amendment No. 2 to
Nationstar Mortgage LLCs Registration Statement on Form
S-4 filed with the SEC on March 28, 2011).
|
|
10
|
.8
|
|
Subservicing Agreement (American General Mortgage Loan Trust
2006-1), dated as of February 1, 2011, between MorEquity, Inc.,
as servicer, and Nationstar Mortgage LLC, as subservicer
(incorporated by reference to Exhibit 10.6 to Amendment No. 2 to
Nationstar Mortgage LLCs Registration Statement on Form
S-4 filed with the SEC on March 28, 2011).
|
|
10
|
.9
|
|
Subservicing Agreement (American General Mortgage Loan Trust
2010-1), dated as of February 1, 2011, between MorEquity, Inc.,
as servicer, and Nationstar Mortgage LLC, as subservicer.
(incorporated by reference to Exhibit 10.7 to Amendment No. 2 to
Nationstar Mortgage LLCs Registration Statement on Form
S-4 filed with the SEC on March 28, 2011).
|
|
10
|
.10
|
|
Sale and Servicing Agreement, dated as of April 6, 2006, between
The Financial Asset Securities Corp., as Depositor, Centex Home
Equity Company, LLC, as Originator and Servicer, Newcastle
Mortgage Securities Trust 2006-1, as Issuer, and JPMorgan Chase
Bank, N.A. (incorporated by reference to Exhibit 10.10 to
Amendment No. 5 to Nationstar Mortgage LLCs Registration
Statement on Form S-4 filed with the SEC on June 10, 2011).
|
|
10
|
.11
|
|
Sale and Servicing Agreement, dated as of July 12, 2007, between
Bear Stearns Asset-Backed Securities I LLC, as Depositor,
Nationstar Mortgage LLC, as Servicer, Newcastle Mortgage
Securities Trust 2007-1, as Issuing Entity, Wells Fargo Bank,
N.A., as Master Servicer, Securities Administrator and
Custodian, and The Bank of New York, as Indenture Trustee.
(incorporated by reference to Exhibit 10.11 to Amendment No. 5
to Nationstar Mortgage LLCs Registration Statement on Form
S-4 filed with the SEC on June 10, 2011).
|
|
10
|
.12
|
|
Subservicing Agreement, effective as of June 21, 2011, between
First Tennessee Bank National Association, as Owner and Master
Servicer, and Nationstar Mortgage LLC, as Servicer and
Subservicer (incorporated by reference to Exhibit 10.12 to
Amendment No. 6 to Nationstar Mortgage LLCs Registration
Statement on Form S-4 filed with the SEC on June 30, 2011).
|
|
10
|
.13
|
|
Employment Agreement, dated as of January 29, 2008, by and
between Nationstar Mortgage LLC and Robert L. Appel
(incorporated by reference to Exhibit 10.5 to Nationstar
Mortgage LLCs Registration Statement on Form S-4 filed
with the SEC on December 23, 2010).
|
II-6
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.14
|
|
Amendment, dated as of September 17, 2010, to Employment
Agreement dated January 29, 2008 by and between Nationstar
Mortgage LLC and Robert L. Appel (incorporated by reference to
Exhibit 10.6 to Nationstar Mortgage LLCs Registration
Statement on Form S-4 filed with the SEC on December 23, 2010).
|
|
10
|
.15
|
|
Employment Agreement, dated as of February 19, 2009, by and
between Nationstar Mortgage LLC and Douglas Krueger
(incorporated by reference to Exhibit 10.7 to Nationstar
Mortgage LLCs Registration Statement on Form S-4 filed
with the SEC on December 23, 2010).
|
|
10
|
.16
|
|
Employment Agreement, dated as of September 17, 2010, by and
between Nationstar Mortgage LLC and Anthony H. Barone
(incorporated by reference to Exhibit 10.8 to Nationstar
Mortgage LLCs Registration Statement on Form S-4 filed
with the SEC on December 23, 2010).
|
|
10
|
.17
|
|
Employment Agreement, dated as of September 17, 2010, by and
between the Company and Jesse K. Bray (incorporated by reference
to Exhibit 10.9 to Nationstar Mortgage LLCs Registration
Statement on Form S-4 filed with the SEC on December 23, 2010).
|
|
10
|
.18
|
|
Employment Agreement, dated as of September 17, 2010, by and
between Nationstar Mortgage LLC and Amar Patel (incorporated by
reference to Exhibit 10.10 to Nationstar Mortgage LLCs
Registration Statement on Form S-4 filed with the SEC on
December 23, 2010).
|
|
10
|
.19
|
|
Form of Restricted Series 1 Preferred Unit Award Agreement under
FIF HE Holdings LLC Fifth Amended and Restated Limited Liability
Company Agreement (incorporated by reference to Exhibit 10.11 to
Nationstar Mortgage LLCs Registration Statement on Form
S-4 filed with the SEC on December 23, 2010).
|
|
10
|
.20
|
|
Form of Series 1 Class A Unit Award Agreement under FIF HE
Holdings LLC Fifth Amended and Restated Limited Liability
Company (incorporated by reference to Exhibit 10.12 to
Nationstar Mortgage LLCs Registration Statement on Form
S-4 filed with the SEC on December 23, 2010).
|
|
10
|
.21
|
|
Form of Series 2 Class A Unit Award Agreement under FIF HE
Holdings LLC Fifth Amended and Restated Limited Liability
Company (incorporated by reference to Exhibit 10.13 to
Nationstar Mortgage LLCs Registration Statement on Form
S-4 filed with the SEC on December 23, 2010).
|
|
10
|
.22
|
|
Nationstar Mortgage LLC Annual Incentive Compensation Plan
(incorporated by reference to Exhibit 10.14 to Nationstar
Mortgage LLCs Registration Statement on Form S-4 filed
with the SEC on December 23, 2010).
|
|
10
|
.23
|
|
Nationstar Mortgage LLC Incentive Program Summary (incorporated
by reference to Exhibit 10.15 to Nationstar Mortgage
LLCs Registration Statement on Form S-4 filed with the SEC
on December 23, 2010).
|
|
10
|
.24
|
|
Nationstar Mortgage LLC Long-Term Incentive Plan for Mr.
Krueger. (incorporated by reference to Exhibit 10.16 to
Nationstar Mortgage LLCs Registration Statement on Form
S-4 filed with the SEC on December 23, 2010).
|
|
10
|
.25
|
|
Fifth Amended and Restated Limited Liability Company Agreement
of FIF HE HOLDINGS LLC (incorporated by reference to Exhibit
10.25 to Amendment No. 6 to Nationstar Mortgage LLCs
Registration Statement on Form S-4 filed with the SEC on June
30, 2011).
|
|
10
|
.26
|
|
Mortgage Servicing Rights Purchase and Sale Agreement, dated and
effective as of September 30, 2011, between Bank of
America, National Association, as seller, and Nationstar
Mortgage LLC, as buyer (incorporated by reference to
Exhibit 2.1 to Nationstar Mortgage LLCs Quarterly
Report on Form 10-Q filed with the SEC on November 14,
2011).
|
|
10
|
.27
|
|
Servicer Rights Sale and Issuer Transfer Agreement, dated
December 5, 2011, between Bank of America, National
Association, as seller, and Nationstar Mortgage LLC, as buyer.
|
|
10
|
.28
|
|
Sale Agreement, dated December 8, 2011, between Newcastle
Investment Corp., as buyer, and Nationstar Mortgage LLC, as
seller.
|
|
10
|
.29
|
|
Replacement Agreement, dated December 8, 2011, between
Newcastle Investment Corp. and Nationstar Mortgage LLC.
|
II-7
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.30
|
|
As Soon As Pooled Plus Agreement, dated March 24, 2009,
between Fannie Mae and Nationstar Mortgage LLC.
|
|
10
|
.31
|
|
Amended and Restated Master Repurchase Agreement, dated October
21, 2010, between Bank of America, N.A., as buyer, and
Nationstar Mortgage LLC, as seller.
|
|
10
|
.32**
|
|
Amended and Restated Transactions Terms Letter, dated October
21, 2010, between Bank of America, N.A., as buyer, and
Nationstar Mortgage LLC, as seller.
|
|
10
|
.33
|
|
Amendment Number One to the Amended and Restated Master
Repurchase Agreement, dated November 24, 2010, between Bank of
America, N.A., as buyer, and Nationstar Mortgage LLC, as seller.
|
|
10
|
.34
|
|
Amendment Number Two to the Amended and Restated Master
Repurchase Agreement, dated October 20, 2011, between Bank of
America, N.A., as buyer, and Nationstar Mortgage LLC, as seller.
|
|
10
|
.35
|
|
Amendment Number Three to the Amended and Restated Master
Repurchase Agreement, dated January 17, 2012, between Bank
of America, N.A., as buyer, and Nationstar Mortgage LLC, as
seller.
|
|
10
|
.36**
|
|
Amendment Number Three to the Amended and Restated Transactions
Terms Letter, dated January 17, 2012, between Bank of
America, N.A., as buyer, and Nationstar Mortgage LLC, as seller.
|
|
10
|
.37
|
|
Mortgage Selling and Servicing Contract, dated July 31,
1997, between Fannie Mae and Centex Home Equity Corp.
|
|
10
|
.38
|
|
Addendum to Mortgage Selling and Servicing Contract, dated
September 12, 2006, between Fannie Mae and Nationstar
Mortgage LLC.
|
|
10
|
.39
|
|
Consulting Agreement, dated as of February 20, 2012, between
Anthony Barone, as consultant, and Nationstar Mortgage LLC.
|
|
10
|
.40
|
|
Letter Agreement, dated as of February 20, 2012, between Anthony
Barone, Nationstar Mortgage LLC, and FIF HE Holdings LLC.
|
|
10
|
.41**
|
|
Further Amended and Restated Servicer Advance Early
Reimbursement Mechanics Addendum, dated as of May 1, 2011,
between Nationstar Mortgage LLC and Fannie Mae.
|
|
10
|
.42
|
|
Corrected and Restated Amendment to Amended and Restated
Servicer Advance Early Reimbursement Mechanics Addendum, dated
as of September 1, 2011, between Nationstar Mortgage LLC and
Fannie Mae.
|
|
10
|
.43
|
|
Third Amendment to Amended and Restated Servicer Advance Early
Reimbursement Mechanics Addendum, dated as of December 20, 2011,
between Nationstar Mortgage LLC and Fannie Mae.
|
|
10
|
.44
|
|
Amendment Number Three to Fifth Amended and Restated Master
Repurchase Agreement, dated as of December 5, 2011, between The
Royal Bank of Scotland plc and Nationstar Mortgage LLC.
|
|
10
|
.45
|
|
Amendment to Strategic Relationship Agreement, dated as of
November 17, 2011, between Fannie Mae and Nationstar Mortgage
LLC.
|
|
10
|
.46
|
|
First Amendment to Subservicing Agreement, dated as of September
30, 2011, between Fannie Mae and Nationstar Mortgage LLC.
|
|
10
|
.47**
|
|
Second Amendment to Subservicing Agreement, dated as of December
5, 2011, between Fannie Mae and Nationstar Mortgage LLC.
|
|
10
|
.48**
|
|
Third Amendment to Subservicing Agreement, dated as of December
20, 2011, between Fannie Mae and Nationstar Mortgage LLC.
|
|
10
|
.49
|
|
Amendment to the Fifth Amended and Restated Master Repurchase
Agreement, dated as of February 21, 2012, between Nationstar
Mortgage LLC and The Royal Bank of Scotland plc.
|
|
10
|
.50
|
|
Amendment and Waiver to the Amended and Restated Master
Repurchase Agreement and the Transition Subservicing Agreement,
dated as of February 21, 2012 between Nationstar Mortgage LLC
and Bank of America, N.A.
|
|
10
|
.51
|
|
Receivables Purchase Agreement, dated as of November 15, 2010,
among Nationstar Mortgage Advance Receivables Trust 2010-ADV1,
Nationstar Advance Funding LLC, and Nationstar Mortgage LLC.
|
II-8
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.52
|
|
Form of Indemnification Agreement with directors and officers.
|
|
10
|
.53
|
|
Lease Agreement, dated as of May 20, 2003, between Centex
Office Vista Ridge Lewisville II L.P. and Centex Home
Equity Company, LLC.
|
|
10
|
.54
|
|
First Amendment to Lease Agreement, dated as of May 31, 2004,
between Centex Office Vista Ridge Lewisville II, L.P. and
Centex Home Equity Company, LLC.
|
|
10
|
.55
|
|
Lease Agreement, dated as of October 8, 2001, between
Centex Office Vista Ridge Lewisville I, L.P. and Centex
Home Equity Company, LLC.
|
|
10
|
.56
|
|
First Amendment to Lease Agreement, dated as of August 28,
2002, between Centex Office Vista Ridge Lewisville I, L.P. and
Centex Home Equity Home Equity Company, LLC.
|
|
10
|
.57
|
|
Nationstar Mortgage Holdings 2012 Incentive Compensation Plan
|
|
10
|
.58
|
|
Amendment Number Four to Fifth Amended and Restated Master
Repurchase Agreement, dated as of February 25, 2012,
between The Royal Bank of Scotland plc and Nationstar Mortgage
LLC.
|
|
10
|
.59
|
|
Asset Purchase Agreement, dated as of March 6, 2012, among
Aurora Bank FSB, Aurora Loan Services LLC and Nationstar
Mortgage LLC (incorporated by reference to Exhibit 10.1 to
Nationstar Mortgage LLCs Current Report on
Form 8-K
filed with the SEC on March 6, 2012).
|
|
10
|
.60
|
|
Current Excess Servicing Spread Acquisition Agreement for FNMA
Mortgage Loans, dated as of March 6, 2012, between
Nationstar Mortgage LLC and NIC MSR II LLC (incorporated by
reference to Exhibit 10.2 to Nationstar Mortgage LLCs
Current Report on
Form 8-K
filed with the SEC on March 6, 2012).
|
|
10
|
.61
|
|
Future Spread Agreement for FNMA Mortgage Loans, dated
March 6, 2012, between Nationstar Mortgage LLC and NIC MSR
II LLC (incorporated by reference to Exhibit 10.3 to
Nationstar Mortgage LLCs Current Report on
Form 8-K
filed with the SEC on March 6, 2012).
|
|
10
|
.62
|
|
Current Excess Servicing Spread Acquisition Agreement for FHLMC
Mortgage Loans, dated as of March 6, 2012, between
Nationstar Mortgage LLC and NIC MSR II LLC (incorporated by
reference to Exhibit 10.4 to Nationstar Mortgage LLCs
Current Report on
Form 8-K
filed with the SEC on March 6, 2012).
|
|
10
|
.63
|
|
Future Spread Agreement for FHLMC Mortgage Loans, dated
March 6, 2012, between Nationstar Mortgage LLC and NIC MSR
II LLC (incorporated by reference to Exhibit 10.5 to
Nationstar Mortgage LLCs Current Report on
Form 8-K
filed with the SEC on March 6, 2012).
|
|
10
|
.64
|
|
Current Excess Servicing Spread Acquisition Agreement for
Non-Agency Mortgage Loans, dated as of March 6, 2012,
between Nationstar Mortgage LLC and NIC MSR II LLC (incorporated
by reference to Exhibit 10.6 to Nationstar Mortgage
LLCs Current Report on
Form 8-K
filed with the SEC on March 6, 2012).
|
|
10
|
.65
|
|
Future Spread Agreement for Non-Agency Mortgage Loans, dated
March 6, 2012, between Nationstar Mortgage LLC and NIC MSR
II LLC (incorporated by reference to Exhibit 10.7 to
Nationstar Mortgage LLCs Current Report on
Form 8-K
filed with the SEC on March 6, 2012).
|
|
21
|
.1
|
|
List of subsidiaries of Nationstar Mortgage Holdings Inc., upon
completion of this offering.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, Independent Registered Public
Accounting Firm.
|
|
23
|
.2
|
|
Consent of Cleary Gottlieb Steen & Hamilton LLP (included
in Exhibit 5.1).
|
|
24
|
.1
|
|
Powers of Attorney (included on signature page)
|
|
24
|
.2
|
|
Power of Attorney
|
|
|
|
** |
|
Certain portions of this exhibit have been omitted and have been
filed separately with the SEC pursuant to a request for
confidential treatment under Rule 406 as promulgated under
the Securities Act. |
II-9