DITECH HOLDING Corp - FORM 10-Q

DITECH HOLDING Corp - FORM 10-Q - May 3, 2016

Attached files

Attached files

DITECH HOLDING Corp Reports

file	filename
EX-32 - EXHIBIT 32 - DITECH HOLDING Corp	a32fy2016q1.htm
EX-10.3 - EXHIBIT 10.3 - DITECH HOLDING Corp	a103fy2016q1.htm
EX-31.1 - EXHIBIT 31.1 - DITECH HOLDING Corp	a311fy2016q1.htm
EX-10.1 - EXHIBIT 10.1 - DITECH HOLDING Corp	a101fy2016q1.htm
EX-31.2 - EXHIBIT 31.2 - DITECH HOLDING Corp	a312fy2016q1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_______________________________________________________________________________________

Form 10-Q

_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________



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

For the quarterly period ended March 31, 2016



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

For the transition period from __________ to __________

Commission file number: 001-13417

_______________________________________________________________________________________

Walter Investment Management Corp.

(Exact name of registrant as specified in its charter)

_______________________________________________________________________________________



Maryland		13-3950486
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3000 Bayport Drive, Suite 1100 Tampa, FL		33607
(Address of principal executive offices)		(Zip Code)

(813) 421-7600

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No 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.

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

The registrant had 35,741,532 shares of common stock outstanding as of April 28, 2016.

_______________________________________________________________________________________

WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

FORM 10-Q

INDEX




		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements		3
Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015		3
Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2016 and 2015 (unaudited)		5
Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 2016 (unaudited)		6
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (unaudited)		7
Notes to Consolidated Financial Statements (unaudited)		9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		46
Item 3. Quantitative and Qualitative Disclosures About Market Risk		94
Item 4. Controls and Procedures		96

PART II. OTHER INFORMATION
Item 1. Legal Proceedings		97
Item 1A. Risk Factors		98
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		100
Item 3. Defaults Upon Senior Securities		100
Item 4. Mine Safety Disclosures		100
Item 5. Other Information		100
Item 6. Exhibits		100
Signatures		101

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)



	March 31, 2016		December 31, 2015
	(unaudited)
ASSETS
Cash and cash equivalents	$	194,418	$	202,828
Restricted cash and cash equivalents	723,280		708,099
Residential loans at amortized cost, net (includes $4,554 and $4,457 in allowance for loan losses at March 31, 2016 and December 31, 2015, respectively)	549,078		541,406
Residential loans at fair value	12,543,396		12,673,439
Receivables, net (includes $14,118 and $16,542 at fair value at March 31, 2016 and December 31, 2015, respectively)	227,146		214,398
Servicer and protective advances, net (includes $120,082 and $120,338 in allowance for uncollectible advances at March 31, 2016 and December 31, 2015, respectively)	1,586,188		1,595,911
Servicing rights, net (includes $1,427,331 and $1,682,016 at fair value at March 31, 2016 and December 31, 2015, respectively)	1,528,044		1,788,576
Goodwill	371,695		367,911
Intangible assets, net	80,907		84,038
Premises and equipment, net	104,364		106,481
Deferred tax assets, net	148,214		108,050
Other assets (includes $68,364 and $58,512 at fair value at March 31, 2016 and December 31, 2015, respectively)	223,205		200,364
Total assets	$	18,279,935	$	18,591,501

LIABILITIES AND STOCKHOLDERS' EQUITY
Payables and accrued liabilities (includes $20,795 and $6,475 at fair value at March 31, 2016 and December 31, 2015, respectively)	$	629,753	$	639,980
Servicer payables	630,267		603,692
Servicing advance liabilities	1,202,036		1,229,280
Warehouse borrowings	1,201,788		1,340,388
Servicing rights related liabilities at fair value	105,559		117,000
Corporate debt	2,155,356		2,157,424
Mortgage-backed debt (includes $564,832 and $582,340 at fair value at March 31, 2016 and December 31, 2015, respectively)	1,025,704		1,051,679
HMBS related obligations at fair value	10,697,435		10,647,382
Total liabilities	17,647,898		17,786,825
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, $0.01 par value per share:
Authorized - 10,000,000 shares
Issued and outstanding - 0 shares at March 31, 2016 and December 31, 2015	—		—
Common stock, $0.01 par value per share:
Authorized - 90,000,000 shares
Issued and outstanding - 35,632,811 and 35,573,405 shares at March 31,2016 and December 31, 2015, respectively	356		355
Additional paid-in capital	591,491		591,454
Retained earnings	39,352		212,054
Accumulated other comprehensive income	838		813
Total stockholders' equity	632,037		804,676
Total liabilities and stockholders' equity	$	18,279,935	$	18,591,501

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The following table presents the assets and liabilities of the Company’s consolidated variable interest entities, which are included on the consolidated balance sheets above. The assets in the table below include those assets that can only be used to settle obligations of the consolidated variable interest entities. The liabilities in the table below include third-party liabilities of the consolidated variable interest entities only, and for which creditors or beneficial interest holders do not have recourse to the Company, and exclude intercompany balances that eliminate in consolidation.



	March 31, 2016		December 31, 2015
ASSETS OF CONSOLIDATED VARIABLE INTEREST ENTITIES THAT CAN ONLY BE USED TO SETTLE THE OBLIGATIONS OF CONSOLIDATED VARIABLE INTEREST ENTITIES:	(unaudited)
Restricted cash and cash equivalents	$	58,678	$	59,705
Residential loans at amortized cost, net	493,965		500,563
Residential loans at fair value	578,539		526,016
Receivables	14,277		16,542
Servicer and protective advances, net	1,120,276		1,136,246
Other assets	14,667		12,170
Total assets	$	2,280,402	$	2,251,242

LIABILITIES OF THE CONSOLIDATED VARIABLE INTEREST ENTITIES FOR WHICH CREDITORS OR BENEFICIAL INTEREST HOLDERS DO NOT HAVE RECOURSE TO THE COMPANY:
Payables and accrued liabilities	$	3,489	$	3,435
Servicing advance liabilities	973,514		992,769
Mortgage-backed debt (includes $564,832 and $582,340 at fair value at March 31, 2016 and December 31, 2015, respectively)	1,025,704		1,051,679
Total liabilities	$	2,002,707	$	2,047,883

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except per share data)



	For the Three Months Ended March 31,
	2016			2015
REVENUES
Net servicing revenue and fees	$	(105,762	)	$	90,887
Net gains on sales of loans	84,477			125,227
Net fair value gains on reverse loans and related HMBS obligations	35,208			30,774
Interest income on loans	12,171			31,941
Insurance revenue	10,367			14,131
Other revenues	30,310			17,897
Total revenues	66,771			310,857

EXPENSES
Salaries and benefits	132,639			147,228
General and administrative	129,606			128,647
Interest expense	64,248			74,871
Depreciation and amortization	14,423			16,632
Other expenses, net	2,506			4,047
Total expenses	343,422			371,425

OTHER GAINS (LOSSES)
Gain on extinguishment	928			—
Other net fair value losses	(2,144		)	(872		)
Other	(1,024		)	11,762
Total other gains (losses)	(2,240		)	10,890

Loss before income taxes	(278,891		)	(49,678		)
Income tax benefit	(106,189		)	(18,670		)
Net loss	$	(172,702	)	$	(31,008	)

Comprehensive loss	$	(172,677	)	$	(30,981	)

Net loss	$	(172,702	)	$	(31,008	)

Basic loss per common and common equivalent share	$	(4.85	)	$	(0.82	)
Diluted loss per common and common equivalent share	(4.85		)	(0.82		)

Weighted-average common and common equivalent shares outstanding — basic	35,579			37,718
Weighted-average common and common equivalent shares outstanding — diluted	35,579			37,718

The accompanying notes are an integral part of the consolidated financial statements.

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WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands, except share data)



	Common Stock			Additional Paid- In Capital			Retained Earnings			Accumulated Other Comprehensive Income
	Shares	Amount		Additional Paid- In Capital			Retained Earnings			Accumulated Other Comprehensive Income		Total
Balance at January 1, 2016	35,573,405	$	355	$	591,454		$	212,054		$	813	$	804,676
Net loss	—	—		—			(172,702		)	—		(172,702		)
Other comprehensive income, net of tax	—	—		—			—			25		25
Share-based compensation	—	—		859			—			—		859
Tax shortfall on share-based compensation	—	—		(656		)	—			—		(656		)
Issuance of shares under incentive plans, net	59,406	1		(166		)	—			—		(165		)
Balance at March 31, 2016	35,632,811	$	356	$	591,491		$	39,352		$	838	$	632,037

The accompanying notes are an integral part of the consolidated financial statements.

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WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



	For the Three Months Ended March 31,
	2016			2015
Operating activities
Net loss	$	(172,702	)	$	(31,008	)

Adjustments to reconcile net loss to net cash provided by operating activities
Net fair value gains on reverse loans and related HMBS obligations	(35,208		)	(30,774		)
Amortization of servicing rights	4,611			7,013
Change in fair value of servicing rights	326,580			129,235
Change in fair value of servicing rights related liabilities	(7,191		)	(763		)
Change in fair value of charged-off loans	(10,939		)	—
Other net fair value losses	4,606			3,642
Accretion of discounts on residential loans and advances	(928		)	(3,608		)
Accretion of discounts on debt and amortization of deferred debt issuance costs	7,964			7,785
Provision for uncollectible advances	8,558			11,977
Depreciation and amortization of premises and equipment and intangible assets	14,423			16,632
Benefit for deferred income taxes	(40,819		)	(5,595		)
Share-based compensation	859			3,423
Purchases and originations of residential loans held for sale	(5,158,411		)	(5,633,936		)
Proceeds from sales of and payments on residential loans held for sale	5,422,461			5,649,119
Net gains on sales of loans	(84,477		)	(125,227		)
Gain on sale of investment	—			(11,762		)
Other	3,622			(1,059		)

Changes in assets and liabilities
Increase in receivables	(17,600		)	(34,348		)
Decrease in servicer and protective advances	1,705			136,173
Decrease (increase) in other assets	(9,201		)	2,758
Increase (decrease) in payables and accrued liabilities	(55,851		)	25,914
Increase in servicer payables, net of change in restricted cash	673			5,459
Cash flows provided by operating activities	202,735			121,050

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WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)

	For the Three Months Ended March 31,
	2016			2015
Investing activities
Purchases and originations of reverse loans held for investment	(181,167		)	(428,350		)
Principal payments received on reverse loans held for investment	197,883			152,195
Principal payments received on mortgage loans held for investment	22,325			41,427
Payments received on charged-off loans held for investment	7,000			6,372
Payments received on receivables related to Non-Residual Trusts	1,957			2,020
Proceeds from sales of real estate owned, net	21,409			17,711
Purchases of premises and equipment	(11,653		)	(3,686		)
Decrease in restricted cash and cash equivalents	9,048			242
Payments for acquisitions of businesses	(1,947		)	(2,809		)
Acquisitions of servicing rights, net	(6,571		)	(53,919		)
Proceeds from sale of investment	—			14,376
Other	(337		)	13,098
Cash flows provided by (used in) investing activities	57,947			(241,323		)

Financing activities
Payments on corporate debt	(210		)	(4,272		)
Extinguishments and settlement of debt	(6,327		)	—
Proceeds from securitizations of reverse loans	202,947			457,448
Payments on HMBS related obligations	(271,013		)	(195,783		)
Issuances of servicing advance liabilities	441,924			175,725
Payments on servicing advance liabilities	(469,835		)	(256,806		)
Net change in warehouse borrowings related to mortgage loans	(214,510		)	29,235
Net change in warehouse borrowings related to reverse loans	75,910			(18,648		)
Proceeds from sale of servicing rights	2,968			—
Payments on servicing rights related liabilities	(4,250		)	(2,199		)
Payments on mortgage-backed debt	(25,203		)	(45,050		)
Other debt issuance costs paid	(1,031		)	(1,618		)
Other	(462		)	556
Cash flows provided by (used in) financing activities	(269,092		)	138,588

Net increase (decrease) in cash and cash equivalents	(8,410		)	18,315
Cash and cash equivalents at beginning of the period	202,828			320,175
Cash and cash equivalents at end of the period	$	194,418		$	338,490

Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	53,901		$	63,517
Cash received for taxes	16			1,071

The accompanying notes are an integral part of the consolidated financial statements.

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WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Basis of Presentation

Walter Investment Management Corp. and its subsidiaries, or the Company, is a mortgage banking firm focused primarily on servicing and originating residential loans, including reverse loans. The Company services loans for its own portfolio and for GSEs, government agencies, third-party securitization trusts and other credit owners. In addition, the Company operates several other businesses that include managing a portfolio of credit-challenged, non-conforming residential mortgage loans; an insurance agency serving borrowers and credit owners of its servicing portfolio; a post charge-off collection agency; and an asset management business. The Company operates throughout the U.S.

The Company operates through three reportable segments, Servicing, Originations, and Reverse Mortgage. Refer to Note 10 for additional information.

Certain acronyms and terms throughout these notes are defined in the Glossary of Terms in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

RCS Asset Purchase Agreement

On December 8, 2015, the Company entered into an asset purchase agreement with RCS, which closed on January 28, 2016. Pursuant to the terms of the agreement, on or about the closing date, among other things: (i) the Company became obligated to purchase certain assets from, and assume certain liabilities of, RCS; (ii) the Company entered into a residential mortgage loan sub-servicing agreement with RCS pursuant to which the Company will sub-service residential mortgage loans for RCS; and (iii) RCS became obligated to transfer to the Company certain of its existing residential mortgage loan sub-servicing agreements (collectively, the sub-servicing assets). The Company gained control over the purchased assets on March 1, 2016, which is the date that the Company purchased and RCS transferred to the Company certain assets, including servicer and protective advances, and certain liabilities, including employee-related liabilities. In connection with the acquisition, the Company recorded $3.8 million in goodwill, which is included in the Servicing segment.

Interim Financial Reporting

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and related notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although management is not currently aware of any factors that would significantly change its estimates and assumptions, actual results may differ from these estimates.

Recent Accounting Guidance

In August 2014, the FASB issued an accounting standards update intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. This update is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements.

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In April 2015, the FASB issued an accounting standards update that provides guidance regarding whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the entity should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015 with early adoption permitted. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements.

In September 2015, the FASB issued an accounting standards update that provides updated guidance regarding simplifying the accounting for recognizing adjustments to provisional amounts identified during the measurement period in a business combination. To simplify the accounting for these adjustments, the amendments in this update eliminate the requirement to retrospectively account for the adjustments and to recognize them in the period that they are identified. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015 with early adoption permitted. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements.

In January 2016, the FASB issued an accounting standards update that amends the guidance on the classification and measurement of financial instruments. The new standard revises an entity's accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements.

In February 2016, the FASB issued an accounting standards update that requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset to not recognize lease assets and lease liabilities. In transition, lessees are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. This guidance is effective for fiscal years beginning after December 15, 2018, with early application permitted. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements.

In March 2016, the FASB issued an accounting standards update that provides updated guidance for improvements to employee share-based payment accounting. The new standard revises an entity's accounting for income taxes on share-based-compensation, such that all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements.

In March 2016, the FASB issued an accounting standards update that provides guidance for improvements for equity method investments. It requires that the equity method investor add the cost of acquiring additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. It also requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements.

In March 2016, the FASB issued an accounting standards update to clarify the implementation guidance on principal versus agent considerations for revenue from contracts with customers. This update further amends the revenue recognition guidance issued in May 2014, which supersedes most industry specific guidance but does exclude insurance contracts and financial instruments. Under the new revenue recognition guidance, entities are required to identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when the entity satisfies a performance obligation. In April 2015, the FASB voted for a one-year deferral of the effective date of the May 2014 revenue recognition standards update, resulting in this new guidance being effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements.

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2. Variable Interest Entities

Consolidated Variable Interest Entities

Included in Note 4 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 are descriptions of the Company’s Consolidated VIEs.

Revolving Credit Facilities-Related VIEs

Certain revolving credit facilities utilize subsidiaries and/or trusts, collectively referred to as the entities, which are considered VIEs. The Company transfers certain assets into the entities created as a mechanism for holding assets as collateral for the revolving credit facilities in order to facilitate the pledging of assets to the revolving credit facilities. The entities have no equity investment at risk, making them variable interest entities. The Company’s continuing involvement with the entities is in the form of servicing the assets and through holding the ownership interests of the entities. Accordingly, the Company concluded that it is the primary beneficiary of the entities and, therefore, the Company consolidated the entities. All of the subsidiaries and/or trusts are separate legal entities and the collateral held by the entities are owned by them and are not available to other creditors.

During the three months ended March 31, 2016, the Reverse Mortgage VIEs were funded with HECMs and real estate owned that were repurchased from GNMA securitization pools utilizing warehouse facilities. These assets collateralize certain master repurchase agreements. Refer to additional information at Note 8.

Included in the tables below are summaries of the carrying amounts of the assets and liabilities of consolidated VIEs (in thousands):



	March 31, 2016
	Residual Trusts		Non-Residual Trusts		Servicer and Protective Advance Financing VIEs		Reverse Mortgage VIEs		Total
Assets
Restricted cash and cash equivalents	$	13,539	$	11,993	$	33,146	$	—	$	58,678
Residential loans at amortized cost, net	493,965		—		—		—		493,965
Residential loans at fair value	—		506,337		—		72,202		578,539
Receivables	—		14,118		—		159		14,277
Servicer and protective advances, net	—		—		1,120,276		—		1,120,276
Other assets	7,839		642		1,673		4,513		14,667
Total assets	$	515,343	$	533,090	$	1,155,095	$	76,874	$	2,280,402

Liabilities
Payables and accrued liabilities	$	2,106	$	—	$	1,383	$	—	3,489
Servicing advance liabilities	—		—		973,514		—		973,514
Mortgage-backed debt	460,872		564,832		—		—		1,025,704
Total liabilities	$	462,978	$	564,832	$	974,897	$	—	$	2,002,707

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	December 31, 2015
	Residual Trusts		Non-Residual Trusts		Servicer and Protective Advance Financing VIEs		Total
Assets
Restricted cash and cash equivalents	$	13,369	$	11,388	$	34,948	$	59,705
Residential loans at amortized cost, net	500,563		—		—		500,563
Residential loans at fair value	—		526,016		—		526,016
Receivables	—		16,542		—		16,542
Servicer and protective advances, net	—		—		1,136,246		1,136,246
Other assets	9,357		558		2,255		12,170
Total assets	$	523,289	$	554,504	$	1,173,449	$	2,251,242

Liabilities
Payables and accrued liabilities	$	2,084	$	—	$	1,351	$	3,435
Servicing advance liabilities	—		—		992,769		992,769
Mortgage-backed debt	469,339		582,340		—		1,051,679
Total liabilities	$	471,423	$	582,340	$	994,120	$	2,047,883

Unconsolidated Variable Interest Entities

Included in Note 4 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 are descriptions of the Company’s variable interests in VIEs relating to servicing arrangements with an LOC reimbursement obligation and other servicing arrangements that it does not consolidate as it has determined that it is not the primary beneficiary of such VIEs. For information on transactions with WCO, refer to Note 13.

3. Transfers of Residential Loans

Sales of Mortgage Loans

As part of its originations activities, the Company sells substantially all of its originated or purchased mortgage loans into the secondary market for securitization or to private investors as whole loans. The Company sells conventional-conforming and government-backed mortgage loans through GSE and agency-sponsored securitizations in which mortgage-backed securities are created and sold to third-party investors. The Company also sells non-conforming mortgage loans to private investors. The Company accounts for these transfers as sales, and in most, but not all, cases, retains the servicing rights associated with the sold loans. If the servicing rights are retained, the Company receives a servicing fee for servicing the sold loans, which represents continuing involvement.

Certain guarantees arise from agreements associated with the sale of the Company's residential loans. Under these agreements, the Company may be obligated to repurchase loans, or otherwise indemnify or reimburse the credit owner or insurer for losses incurred, due to a breach of contractual representations and warranties. Refer to Note 11 for further information.

The following table presents the carrying amounts of the Company’s assets that relate to its continuing involvement with mortgage loans that have been sold with servicing rights retained and the unpaid principal balance of these loans (in thousands):



	Carrying Value of Assets Recorded on the Consolidated Balance Sheets						Unpaid Principal Balance of Sold Loans
	Servicing Rights, Net		Servicer and Protective Advances, Net		Total		Unpaid Principal Balance of Sold Loans
March 31, 2016	$	463,964	$	25,327	$	489,291	$	50,438,643
December 31, 2015	509,785		25,078		534,863		46,983,388

At March 31, 2016 and December 31, 2015, 0.6% and 0.5%, respectively, of mortgage loans sold and serviced by the Company were 60 days or more past due.

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The Company has elected to measure mortgage loans held for sale at fair value. The gains and losses on the sale of mortgage loans held for sale are included in net gains on sales of loans on the consolidated statements of comprehensive loss. Also included in net gains on sales of loans is interest income earned during the period the loans were held, the change in fair value of loans, and the gain or loss on the related freestanding derivatives. All activity related to mortgage loans held for sale and the related freestanding derivatives are included in operating activities on the consolidated statements of cash flows.

The following table presents a summary of cash flows related to sales of mortgage loans (in thousands):



	For the Three Months Ended March 31,
	2016		2015
Cash proceeds received from sales, net of fees	$	5,464,865	$	5,659,144
Servicing fees collected ⁽¹⁾	34,772		22,222
Repurchases of previously sold loans	5,932		3,130

__________


(1)	Represents servicing fees collected on all loans sold whereby the Company has continuing involvement.

In connection with these sales, the Company recorded servicing rights using a fair value model that utilizes Level 3 unobservable inputs. Refer to Note 6 for information relating to servicing of residential loans.

Transfers of Reverse Loans

The Company, through RMS, is an approved issuer of Ginnie Mae HMBS. The HMBS are guaranteed by Ginnie Mae and collateralized by participation interests in HECMs insured by the FHA. The Company both originates and purchases HECMs that are pooled and securitized into HMBS that the Company sells into the secondary market with servicing rights retained. Based upon the structure of the Ginnie Mae securitization program, the Company has determined that it has not met all of the requirements for sale accounting and accounts for these transfers as secured borrowings. Under this accounting treatment, the reverse loans remain on the consolidated balance sheets as residential loans. The proceeds from the transfer of reverse loans are recorded as HMBS related obligations with no gain or loss recognized on the transfer. Ginnie Mae, as guarantor of the HMBS, is obligated to the holders of the HMBS in an instance of RMS default on its servicing obligations, or when the proceeds realized on HECMs are insufficient to repay all outstanding HMBS related obligations. Ginnie Mae has recourse to RMS to the extent of the participation interests in HECMs serving as collateral to the HMBS, but does not have recourse to the general assets of the Company, except that Ginnie Mae has recourse to RMS in connection with certain claims relating to the performance and obligations of RMS as both an issuer of HMBS and a servicer of HECMs underlying HMBS.

At March 31, 2016, the unpaid principal balance and the carrying value associated with both the reverse loans and the real estate owned pledged as collateral to the securitization pools were $10.0 billion and $10.7 billion, respectively.

4. Fair Value

Basis for Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A three-tier fair value hierarchy is used to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The three levels of the fair value hierarchy are as follows:

Level 1 — Valuation is based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 — Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 — Valuation is based on inputs that are both significant to the fair value measurement and unobservable.

The accounting guidance concerning fair value allows the Company to elect to measure financial instruments at fair value and report the changes in fair value through net income or loss. This election can only be made at certain specified dates and is irrevocable once made. Other than mortgage loans held for sale, which the Company has elected to measure at fair value, the Company does not have a fair value election policy, but rather makes the election on an instrument-by-instrument basis as assets and liabilities are acquired or incurred, other than for those assets and liabilities that are required to be recorded and subsequently measured at fair value.

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Transfers into and out of the fair value hierarchy levels are assumed to be as of the end of the quarter in which the transfer occurred. There were no transfers between levels during the three months ended March 31, 2016 and 2015.

Items Measured at Fair Value on a Recurring Basis

The following table summarizes the assets and liabilities in each level of the fair value hierarchy (in thousands). There were no assets or liabilities measured at fair value on a recurring basis utilizing Level 1 assumptions.



	March 31, 2016		December 31, 2015
Level 2
Assets
Mortgage loans held for sale	$	1,110,922	$	1,334,300
Freestanding derivative instruments	3,957		6,993
Level 2 assets	$	1,114,879	$	1,341,293
Liabilities
Freestanding derivative instruments	$	20,540	$	5,405
Level 2 liabilities	$	20,540	$	5,405

Level 3
Assets
Reverse loans	$	10,872,891	$	10,763,816
Mortgage loans related to Non-Residual Trusts	506,337		526,016
Charged-off loans	53,246		49,307
Receivables related to Non-Residual Trusts	14,118		16,542
Servicing rights carried at fair value	1,427,331		1,682,016
Freestanding derivative instruments (IRLCs)	64,407		51,519
Level 3 assets	$	12,938,330	$	13,089,216
Liabilities
Freestanding derivative instruments (IRLCs)	$	255	$	1,070
Servicing rights related liabilities	105,559		117,000
Mortgage-backed debt related to Non-Residual Trusts	564,832		582,340
HMBS related obligations	10,697,435		10,647,382
Level 3 liabilities	$	11,368,081	$	11,347,792

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The following assets and liabilities are measured on the consolidated balance sheets at fair value on a recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation. The following tables provide a reconciliation of the beginning and ending balances of these assets and liabilities (in thousands):



	For the Three Months Ended March 31, 2016
	Fair Value January 1, 2016			Total Gains (Losses) Included in Comprehensive Loss			Purchases		Originations / Issuances			Settlements			Fair Value March 31, 2016
Assets
Reverse loans	$	10,763,816		$	154,834		$	54,020	$	127,151		$	(226,930	)	$	10,872,891
Mortgage loans related to Non-Residual Trusts	526,016			5,163			—		—			(24,842		)	506,337
Charged-off loans ⁽¹⁾	49,307			14,376			—		—			(10,437		)	53,246
Receivables related to Non-Residual Trusts	16,542			(467		)	—		—			(1,957		)	14,118
Servicing rights carried at fair value	1,682,016			(326,580		)	19,637		52,258			—			1,427,331
Freestanding derivative instruments (IRLCs)	51,519			13,102			—		—			(214		)	64,407
Total assets	$	13,089,216		$	(139,572	)	$	73,657	$	179,409		$	(264,380	)	$	12,938,330

Liabilities
Freestanding derivative instruments (IRLCs)	$	(1,070	)	$	815		$	—	$	—		$	—		$	(255	)
Servicing rights related liabilities	(117,000		)	3,294			—		—			8,147			(105,559		)
Mortgage-backed debt related to Non-Residual Trusts	(582,340		)	(6,932		)	—		—			24,440			(564,832		)
HMBS related obligations	(10,647,382		)	(119,626		)	—		(202,947		)	272,520			(10,697,435		)
Total liabilities	$	(11,347,792	)	$	(122,449	)	$	—	$	(202,947	)	$	305,107		$	(11,368,081	)

__________


(1)	Included in gains on charged-off loans are gains from instrument-specific credit risk of $10.9 million, which primarily result from changes in assumptions related to collection rates and discount rates.

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	For the Three Months Ended March 31, 2015
	Fair Value January 1, 2015			Total Gains (Losses) Included in Comprehensive Loss			Purchases		Sales			Originations / Issuances			Settlements			Fair Value March 31, 2015
Assets
Reverse loans ⁽¹⁾	$	10,064,365		$	122,909		$	239,375	$	(16,592	)	$	189,510		$	(169,674	)	$	10,429,893
Mortgage loans related to Non-Residual Trusts	586,433			8,164			—		—			—			(26,685		)	567,912
Charged-off loans	57,217			5,984			—		—			—			(12,356		)	50,845
Receivables related to Non-Residual Trusts	25,201			(246		)	—		—			—			(2,020		)	22,935
Servicing rights carried at fair value	1,599,541			(129,235		)	27,713		—			72,301			—			1,570,320
Freestanding derivative instruments (IRLCs)	60,400			24,724			—		—			—			(199		)	84,925
Total assets	$	12,393,157		$	32,300		$	267,088	$	(16,592	)	$	261,811		$	(210,934	)	$	12,726,830

Liabilities
Freestanding derivative instruments (IRLCs)	$	(263	)	$	59		$	—	$	—		$	—		$	—		$	(204	)
Servicing rights related liabilities	(66,311		)	(1,818		)	—		—			—			4,780			(63,349		)
Mortgage-backed debt related to Non-Residual Trusts	(653,167		)	(8,556		)	—		—			—			26,484			(635,239		)
HMBS related obligations	(9,951,895		)	(92,233		)	—		—			(457,448		)	197,192			(10,304,384		)
Total liabilities	$	(10,671,636	)	$	(102,548	)	$	—	$	—		$	(457,448	)	$	228,456		$	(11,003,176	)

__________


(1)	During the three months ended March 31, 2015, the Company sold $16.6 million in reverse loans and recognized $0.1 million in net losses on sales of loans.

All gains and losses on assets and liabilities measured at fair value on a recurring basis and classified as Level 3 within the fair value hierarchy, with the exception of gains and losses on charged-off loans, IRLCs, servicing rights carried at fair value, and servicing rights related liabilities, are recognized in either other net fair value losses or net fair value gains on reverse loans and related HMBS obligations on the consolidated statements of comprehensive loss. Gains and losses related to charged-off loans are recorded in other revenues, while gains and losses relating to IRLCs are recorded in net gains on sales of loans on the consolidated statements of comprehensive loss. The change in fair value of servicing rights carried at fair value and servicing rights related liabilities are recorded in net servicing revenue and fees on the consolidated statements of comprehensive loss. Total gains and losses included in the financial statement line items disclosed above include interest income and interest expense at the stated rate for interest-bearing assets and liabilities, respectively, accretion and amortization, and the impact of the changes in valuation inputs and assumptions.

The Company’s Valuation Committee determines and approves valuation policies and unobservable inputs used to estimate the fair value of items measured at fair value on a recurring basis. The Valuation Committee, consisting of certain members of the senior executive management team, meets on a quarterly basis to review the assets and liabilities that require fair value measurement, including how each asset and liability has actually performed in comparison to the unobservable inputs and the projected performance. The Valuation Committee also reviews related available market data.

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The following is a description of the methods used to estimate the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis, as well as the basis for classifying these assets and liabilities as Level 2 or 3 within the fair value hierarchy. The Company’s valuations consider assumptions that it believes a market participant would consider in valuing the assets and liabilities, the most significant of which are disclosed below. The Company reassesses and periodically adjusts the underlying inputs and assumptions used in the valuations for recent historical experience, as well as for current and expected relevant market conditions.

Residential loans

•

Reverse loans, mortgage loans related to Non-Residual Trusts and charged-off loans — These loans are not traded in an active, open market with readily observable prices. Accordingly, the Company estimates fair value using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the loans. The discount rate assumption for these assets considers, as applicable, collateral and credit risk characteristics of the loans, collection rates, current market interest rates, expected duration, and current market yields.


•	Mortgage loans held for sale — These loans are valued using a market approach by utilizing observable quoted market prices, where available, or prices for other whole loans with similar characteristics. The Company classifies these loans as Level 2 within the fair value hierarchy.

Receivables related to Non-Residual Trusts — The Company estimates the fair value of these receivables using the net present value of expected cash flows from the LOCs to be used to pay bondholders over the remaining life of the securitization trusts and applies Level 3 unobservable market inputs in its valuation. Receivables related to Non-Residual Trusts are recorded in receivables, net on the consolidated balance sheets.

Servicing rights carried at fair value — The Company accounts for servicing rights associated with the risk-managed loan class at fair value. The Company uses a discounted cash flow model to estimate the fair value of these assets. The assumptions vary based on collateral stratifications including product type, remittance type, geography, delinquency, and coupon dispersion of the underlying loan portfolio. The Company classifies servicing rights within Level 3 of the fair value hierarchy.

Freestanding derivative instruments — Fair values of IRLCs are derived using valuation models incorporating market pricing for instruments with similar characteristics and by estimating the fair value of the servicing rights expected to be recorded at sale of the loan. The fair values are then adjusted for anticipated loan funding probability. Both the fair value of servicing rights expected to be recorded at the date of sale of the loan and anticipated loan funding probability are significant unobservable inputs and, as a result, IRLCs are classified as Level 3 within the fair value hierarchy. The loan funding probability ratio represents the aggregate likelihood that loans currently in a lock position will ultimately close, which is largely dependent on the loan processing stage that a loan is currently in and changes in interest rates from the time of the rate lock through the time a loan is closed. IRLCs have positive fair value at inception and change in value as interest rates and loan funding probability change. Rising interest rates have a positive effect on the fair value of the servicing rights component of the IRLC fair value and increase the loan funding probability. An increase in loan funding probability (i.e., higher aggregate likelihood of loans estimated to close) will result in the fair value of the IRLC increasing if in a gain position, or decreasing, to a lower loss, if in a loss position. A significant increase (decrease) to the fair value of servicing rights component in isolation could result in a significantly higher (lower) fair value measurement.

The fair value of forward sales commitments and MBS purchase commitments is determined based on observed market pricing for similar instruments; therefore, these contracts are classified as Level 2 within the fair value hierarchy. Counterparty credit risk is taken into account when determining fair value, although the impact is diminished by daily margin posting on all forward sales and purchase commitments. Refer to Note 5 for additional information on freestanding derivative financial instruments.

Servicing rights related liabilities — The Company uses a discounted cash flow model to estimate the fair value of both its excess servicing spread liabilities and its servicing rights financing. The assumptions utilized are based on collateral stratifications including product type, remittance type, geography, delinquency, and coupon dispersion of the underlying loan portfolio. The Company classifies its servicing rights related liabilities as Level 3 within the fair value hierarchy.

Mortgage-backed debt related to Non-Residual Trusts — This debt is not traded in an active, open market with readily observable prices. Accordingly, the Company estimates fair value using Level 3 unobservable market inputs. The estimated fair value of the debt is based on the net present value of the projected principal and interest payments owed for the estimated remaining life of the securitization trusts. An analysis of the credit assumptions for the underlying collateral in each of the securitization trusts is performed to determine the required payments to bondholders.

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HMBS related obligations — These obligations are not traded in an active, open market with readily observable prices. Accordingly, the Company estimates fair value using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liabilities. The discount rate assumption for these liabilities is based on an assessment of current market yields for HMBS, expected duration, and current market interest rates. The yield on seasoned HMBS is adjusted based on the duration of each HMBS and assuming a constant spread to LIBOR.

The following tables present the significant unobservable inputs used in the fair value measurement of the assets and liabilities described above. The Company utilizes a discounted cash flow model to estimate the fair value of all Level 3 assets and liabilities included on the consolidated financial statements at fair value on a recurring basis, with the exception of IRLCs for which the Company utilizes a market approach. Significant increases or decreases in any of the inputs disclosed below could result in a significantly lower or higher fair value measurement.



		March 31, 2016			December 31, 2015
	Significant Unobservable Input ^{(1) (2)}	Range of Input ⁽³⁾	Weighted Average of Input ⁽³⁾		Range of Input ⁽³⁾	Weighted Average of Input ⁽³⁾
Assets
Reverse loans	Weighted-average remaining life in years⁽⁴⁾	0.9 - 9.8	4.0		1.1 - 10.0	4.1
	Conditional repayment rate	13.54% - 55.93%	26.32	%	13.53% - 52.94%	25.59	%
	Discount rate	1.34% - 2.92%	2.44	%	2.08% - 3.56%	2.84	%
Mortgage loans related to Non-Residual Trusts	Conditional prepayment rate	2.84% - 3.90%	3.29	%	2.67% - 4.66%	3.52	%
	Conditional default rate	1.67% - 2.47%	2.05	%	1.47% - 2.74%	2.05	%
	Loss severity	78.31% - 95.17%	90.32	%	73.07% - 95.88%	88.72	%
	Discount rate	8.00%	8.00	%	8.00%	8.00	%
Charged-off loans	Collection rate	2.56% - 4.10%	2.65	%	2.15% - 3.54%	2.23	%
	Discount rate	28.00%	28.00	%	28.00%	28.00	%
Receivables related to Non-Residual Trusts	Conditional prepayment rate	2.31% - 3.04%	2.72	%	1.93% - 3.62%	2.90	%
	Conditional default rate	1.79% - 2.71%	2.21	%	1.66% - 2.98%	2.30	%
	Loss severity	74.86% - 92.26%	87.24	%	70.33% - 93.46%	85.63	%
	Discount rate	0.50%	0.50	%	0.50%	0.50	%
Servicing rights carried at fair value	Weighted-average remaining life in years⁽⁴⁾	2.5 - 7.5	5.6		5.2 - 9.0	6.3
	Discount rate	10.00% - 13.29%	10.96	%	10.00% - 14.34%	10.88	%
	Conditional prepayment rate	5.84% - 23.34%	11.31	%	6.07% - 13.15%	9.94	%
	Conditional default rate	0.02% - 3.49%	0.92	%	0.05% - 2.49%	1.06	%
Interest rate lock commitments	Loan funding probability	12.51% - 100.00%	76.10	%	2.34% - 100.00%	79.42	%
	Fair value of initial servicing rights multiple ⁽⁵⁾	0.04 - 6.09	3.17		0.05 - 7.06	3.71

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		March 31, 2016			December 31, 2015
	Significant Unobservable Input ^{(1) (2)}	Range of Input ⁽³⁾	Weighted Average of Input ⁽³⁾		Range of Input ⁽³⁾	Weighted Average of Input ⁽³⁾
Liabilities
Interest rate lock commitments	Loan funding probability	20.00% - 100.00%	80.87	%	38.00% - 100.00%	83.28	%
	Fair value of initial servicing rights multiple⁽⁵⁾	1.08 - 4.92	3.53		0.11 - 5.88	4.00
Servicing rights related liabilities	Weighted-average remaining life in years⁽⁴⁾	2.1 - 7.3	5.8		6.3 - 7.4	6.6
	Discount rate	11.67% - 13.85%	13.23	%	11.67% - 13.85%	13.24	%
	Conditional prepayment rate	6.60% - 16.38%	10.64	%	8.32% - 11.28%	9.98	%
	Conditional default rate	0.01% - 3.41%	0.56	%	0.11% - 1.06%	0.58	%
Mortgage-backed debt related to Non-Residual Trusts	Conditional prepayment rate	2.31% - 3.04%	2.72	%	1.93% - 3.62%	2.90	%
	Conditional default rate	1.79% - 2.71%	2.21	%	1.66% - 2.98%	2.30	%
	Loss severity	74.86% - 92.26%	87.24	%	70.33% - 93.46%	85.63	%
	Discount rate	6.00%	6.00	%	6.00%	6.00	%
HMBS related obligations	Weighted-average remaining life in years ⁽⁴⁾	0.7 - 6.6	3.4		0.9 - 6.6	3.5
	Conditional repayment rate	12.37% - 59.92%	25.72	%	12.06% - 55.49%	24.70	%
	Discount rate	1.68% - 2.56%	2.15	%	1.73% - 3.08%	2.39	%

__________


(1)	Conditional repayment rate includes assumptions for both voluntary and involuntary rates as well as assumptions for the assignment of HECMs to HUD, in accordance with obligations as servicer.


(2)	Voluntary and involuntary prepayment rates have been presented as conditional prepayment rate and conditional default rate, respectively.

(3)

With the exception of loss severity, fair value of initial servicing rights embedded in IRLCs and discount rate on charged-off loans, all significant unobservable inputs above are based on the related unpaid principal balance of the underlying collateral, or in the case of HMBS related obligations, the balance outstanding. Loss severity is based on projected liquidations. Fair value of servicing rights embedded in IRLCs represents a multiple of the annual servicing fee. The discount rate on charged-off loans is based on the loan balance at fair value.


(4)	Represents the remaining weighted-average life of the related unpaid principal balance or balance outstanding of the underlying collateral adjusted for assumptions for conditional repayment rate, conditional prepayment rate and conditional default rate, as applicable.


(5)	Fair value of servicing rights embedded in IRLCs, which represents a multiple of the annual servicing fee, excludes the impact of IRLCs identified as servicing released.

Fair Value Option

With the exception of freestanding derivative instruments, the Company has elected the fair value option for the assets and liabilities described above as measured at fair value on a recurring basis. The fair value option was elected for these assets and liabilities as the Company believes fair value best reflects their expected future economic performance.

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Presented in the table below is the estimated fair value and unpaid principal balance of loans and debt instruments that have contractual principal amounts and for which the Company has elected the fair value option (in thousands):



	March 31, 2016				December 31, 2015
	Estimated Fair Value		Unpaid Principal Balance		Estimated Fair Value		Unpaid Principal Balance
Loans at fair value under the fair value option
Reverse loans ⁽¹⁾	$	10,872,891	$	10,246,001	$	10,763,816	$	10,187,521
Mortgage loans held for sale ⁽¹⁾	1,110,922		1,057,804		1,334,300		1,285,582
Mortgage loans related to Non-Residual Trusts	506,337		563,061		526,016		580,695
Charged-off loans	53,246		2,833,960		49,307		2,887,367
Total	$	12,543,396	$	14,700,826	$	12,673,439	$	14,941,165

Debt instruments at fair value under the fair value option
Mortgage-backed debt related to Non-Residual Trusts	$	564,832	$	569,200	$	582,340	$	585,939
HMBS related obligations ⁽²⁾	10,697,435		10,031,182		10,647,382		10,012,283
Total	$	11,262,267	$	10,600,382	$	11,229,722	$	10,598,222

__________


(1)	Includes loans that collateralize master repurchase agreements. Refer to Note 8 for additional information.


(2)	For HMBS related obligations, the unpaid principal balance represents the balance outstanding.

Included in mortgage loans related to Non-Residual Trusts are loans that are 90 days or more past due that had a fair value of $2.3 million and $2.6 million at March 31, 2016 and December 31, 2015, respectively, and an unpaid principal balance of $16.2 million at March 31, 2016 and December 31, 2015. Mortgage loans held for sale that are 90 days or more past due are insignificant at March 31, 2016 and December 31, 2015. Charged-off loans are predominantly 90 days or more past due.

Items Measured at Fair Value on a Non-Recurring Basis

The Company held real estate owned, net of $82.4 million and $77.4 million at March 31, 2016 and December 31, 2015, respectively. In addition, the Company had loans that were in the process of foreclosure of $409.6 million and $244.9 million at March 31, 2016 and December 31, 2015, respectively, which are included in residential loans at amortized cost, net and residential loans at fair value on the consolidated balance sheets. Real estate owned, net is included on the consolidated balance sheets within other assets and is measured at net realizable value on a non-recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation.

The following table presents the significant unobservable input used in the fair value measurement of real estate owned, net:



		March 31, 2016			December 31, 2015
	Significant Unobservable Input	Range of Input	Weighted Average of Input		Range of Input	Weighted Average of Input
Real estate owned, net	Loss severity ⁽¹⁾	0.00% - 87.36%	8.26	%	0.00% - 72.58%	8.25	%

__________


(1)	Loss severity is based on the unpaid principal balance of the related loan at time of foreclosure.

The Company held real estate owned, net in the Reverse Mortgage and Servicing segments and Other non-reportable segment of $72.9 million, $8.9 million and $0.6 million at March 31, 2016, respectively and $66.4 million, $10.4 million and $0.6 million at December 31, 2015, respectively. In determining fair value, the Company either obtains appraisals or performs a review of historical severity rates of real estate owned previously sold by the Company. When utilizing historical severity rates, the properties are stratified by collateral type and/or geographical concentration and length of time held by the Company. The severity rates are reviewed for reasonableness by comparison to third-party market trends and fair value is determined by applying severity rates to the stratified population. In the determination of fair value of real estate owned associated with reverse mortgages, the Company considers amounts typically covered by FHA insurance. Management approves valuations that have been determined using the historical severity rate method.

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Fair Value of Other Financial Instruments

The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value on a recurring or non-recurring basis and their respective levels within the fair value hierarchy (in thousands). This table excludes cash and cash equivalents, restricted cash and cash equivalents, servicer payables and warehouse borrowings as these financial instruments are highly liquid or short-term in nature and as a result, their carrying amounts approximate fair value.



		March 31, 2016				December 31, 2015
	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets
Residential loans at amortized cost, net	Level 3	$	549,078	$	563,851	$	541,406	$	554,664
Insurance premium receivables	Level 3	82,697		80,358		90,053		87,152
Servicer and protective advances, net	Level 3	1,586,188		1,498,002		1,595,911		1,513,076

Financial liabilities
Payables to insurance carriers	Level 3	58,441		56,592		63,410		62,694
Servicing advance liabilities ⁽¹⁾	Level 3	1,200,141		1,203,983		1,226,898		1,232,147
Corporate debt ⁽²⁾	Level 2	2,150,233		1,772,098		2,152,031		1,904,467
Mortgage-backed debt carried at amortized cost	Level 3	460,872		467,140		469,339		475,347

__________


(1)	The carrying amounts of servicing advance liabilities are net of deferred issuance costs, including those relating to line-of-credit arrangements, which are recorded in other assets.


(2)	The carrying amounts of corporate debt in the table above are net of the 2013 Revolver deferred issuance costs, which are recorded in other assets on the consolidated balance sheets.

The following is a description of the methods and significant assumptions used in estimating the fair value of the Company’s financial instruments that are not measured at fair value on a recurring or non-recurring basis.

Residential loans at amortized cost, net — The methods and assumptions used to estimate the fair value of residential loans carried at amortized cost are the same as those described above for mortgage loans related to Non-Residual Trusts.

Insurance premium receivables — The estimated fair value of these receivables is based on the net present value of the expected cash flows. The determination of fair value includes assumptions related to the underlying collateral serviced by the Company, such as delinquency and default rates, as the insurance premiums are collected as part of the borrowers’ loan payments or from the related trusts.

Servicer and protective advances, net — The estimated fair value of these advances is based on the net present value of expected cash flows. The determination of expected cash flows includes consideration of recoverability clauses in the Company’s servicing agreements, as well as assumptions related to the underlying collateral and when proceeds may be used to recover these receivables.

Payables to insurance carriers — The estimated fair value of these liabilities is based on the net present value of the expected carrier payments over the life of the payables.

Servicing advance liabilities — The estimated fair value of the majority of these liabilities approximates carrying value as these liabilities bear interest at a rate that is adjusted regularly based on a market index.

Corporate debt — The Company’s 2013 Term Loan, Convertible Notes, and Senior Notes are not traded in an active, open market with readily observable prices. The estimated fair value of corporate debt is primarily based on an average of broker quotes.

Mortgage-backed debt carried at amortized cost — The methods and assumptions used to estimate the fair value of mortgage-backed debt carried at amortized cost are the same as those described above for mortgage-backed debt related to Non-Residual Trusts.

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Net Gains on Sales of Loans

Provided in the table below is a summary of the components of net gains on sales of loans (in thousands):



	For the Three Months Ended March 31,
	2016			2015
Realized gains on sales of loans	$	80,080		$	61,379
Change in unrealized gains on loans held for sale	10,291			1,389
Gains on interest rate lock commitments	13,917			24,782
Losses on forward sales commitments	(66,953		)	(38,648		)
Losses on MBS purchase commitments	(10,796		)	(5,679		)
Capitalized servicing rights	52,258			72,301
Provision for repurchases	(4,713		)	(2,025		)
Interest income	10,393			11,728
Net gains on sales of loans	$	84,477		$	125,227

Net Fair Value Gains on Reverse Loans and Related HMBS Obligations

Provided in the table below is a summary of the components of net fair value gains on reverse loans and related HMBS obligations (in thousands):



	For the Three Months Ended March 31,
	2016			2015
Interest income on reverse loans	$	110,594		$	106,280
Change in fair value of reverse loans	44,240			16,727
Net fair value gains on reverse loans	154,834			123,007

Interest expense on HMBS related obligations	(103,254		)	(98,536		)
Change in fair value of HMBS related obligations	(16,372		)	6,303
Net fair value losses on HMBS related obligations	(119,626		)	(92,233		)
Net fair value gains on reverse loans and related HMBS obligations	$	35,208		$	30,774

5. Freestanding Derivative Financial Instruments

The following table provides the total notional or contractual amounts and related fair values of derivative assets and liabilities as well as cash margin (in thousands):



	March 31, 2016						December 31, 2015
	Notional/ Contractual Amount		Fair Value				Notional/ Contractual Amount		Fair Value
	Notional/ Contractual Amount		Derivative Assets		Derivative Liabilities		Notional/ Contractual Amount		Derivative Assets		Derivative Liabilities
Interest rate lock commitments	$	2,828,407	$	64,407	$	255	$	3,398,892	$	51,519	$	1,070
Forward sales commitments	4,220,920		168		20,540		4,650,000		6,427		4,871
MBS purchase commitments	957,000		3,789		—		703,000		566		534
Total derivative instruments			$	68,364	$	20,795			$	58,512	$	6,475
Cash margin			$	11,414	$	3,958			$	209	$	10,101

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Derivative positions subject to netting arrangements include all forward sale commitments, MBS purchase commitments, and cash margin, as reflected in the table above, and allow the Company to net settle asset and liability positions, as well as cash margin, with the same counterparty. After consideration of these netting arrangements and offsetting positions by counterparty, the total net settlement amount as it relates to these positions were asset positions of $0.2 million and $0.3 million, and liability positions of $9.4 million and $8.6 million, at March 31, 2016 and December 31, 2015, respectively. A master netting arrangement with one of the Company’s counterparties also allows for offsetting derivative positions and margin against amounts associated with the master repurchase agreement with that same counterparty. At March 31, 2016, the Company’s net derivative liability position with that counterparty of $0.1 million was comprised of a net derivative liability position of $1.2 million and cash margin received of $4.0 million, partially offset by $5.1 million of over-collateralized positions associated with the master repurchase agreement.

During the first quarter of 2016 the Company entered into a master netting arrangement with another of the Company’s counterparties, which also allows for offsetting derivative positions and margin against amounts associated with the master repurchase agreement with the same counterparty. At March 31, 2016, the Company’s net derivative liability position with that counterparty was $0.3 million. Under the master netting arrangement, the Company is able to utilize certain over-collateralized positions and excess cash deposited with the counterparty associated with the master repurchase agreement to reduce potential cash margin posting requirements on derivative transactions. At March 31, 2016 there were $17.7 million of over-collateralized positions and $55.6 million in excess cash deposited with the counterparty related to the master repurchase agreement. The master netting agreement does not obligate the counterparty to transfer cash margin to the Company related to the master repurchase agreement over-collateralization and excess cash positions.

Over collateralized positions on master repurchase agreements are not reflected as margin in the table above. Refer to Note 4 for a summary of the gains and losses on freestanding derivatives.

6. Servicing of Residential Loans

The Company provides servicing of residential loans and real estate owned for itself and third-party credit owners. The Company’s total servicing portfolio consists of accounts serviced for others for which servicing rights have been capitalized, accounts sub-serviced for others, as well as residential loans and real estate owned recognized on the consolidated balance sheets.

Provided below is a summary of the Company’s total servicing portfolio (dollars in thousands):



	March 31, 2016			December 31, 2015
	Number of Accounts	Unpaid Principal Balance		Number of Accounts	Unpaid Principal Balance
Third-party credit owners ⁽¹⁾
Capitalized servicing rights ⁽²⁾	1,635,264	$	198,048,307	1,637,541	$	197,154,579
Capitalized sub-servicing ⁽³⁾	153,069	8,744,644		159,368	9,053,755
Sub-servicing ⁽⁴⁾	387,366	56,351,498		346,755	47,734,378
Total third-party servicing portfolio	2,175,699	263,144,449		2,143,664	253,942,712
On-balance sheet residential loans and real estate owned	99,689	12,529,075		102,044	12,705,532
Total servicing portfolio ⁽⁵⁾	2,275,388	$	275,673,524	2,245,708	$	266,648,244

__________


(1)	Includes real estate owned serviced for third parties.


(2)	At March 31, 2016 and December 31, 2015, includes $1.7 billion in unpaid principal balance associated with servicing rights sold legally to WCO.


(3)	Consists of sub-servicing contracts acquired through business combinations whereby the benefits from the contract are greater than adequate compensation for performing the servicing.


(4)	Includes $6.5 billion and $6.6 billion in unpaid principal balance of sub-servicing performed for WCO at March 31, 2016 and December 31, 2015, respectively.


(5)	Excludes charged-off loans managed by the Servicing segment.

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Net Servicing Revenue and Fees

The Company services loans for itself, as well as for third parties, and earns servicing income from its third-party servicing portfolio. The following table presents the components of net servicing revenue and fees, which includes revenues earned by the Servicing and Reverse Mortgage segments (in thousands):



	For the Three Months Ended March 31,
	2016			2015
Servicing fees ^{(1) (2)}	$	177,754		$	171,732
Incentive and performance fees ⁽¹⁾	19,772			31,738
Ancillary and other fees ^{(1) (3)}	24,609			25,483
Servicing revenue and fees	222,135			228,953
Amortization of servicing rights ⁽⁴⁾	(4,611		)	(7,013		)
Change in fair value of servicing rights	(326,580		)	(129,235		)
Change in fair value of servicing rights related liabilities ^{(2) (5)}	3,294			(1,818		)
Net servicing revenue and fees	$	(105,762	)	$	90,887

__________


(1)	Includes sub-servicing fees, incentive and performance fees, and ancillary and other fees related to servicing assets held by WCO of $1.0 million, less than $0.1 million and $0.1 million, respectively, for the three months ended March 31, 2016.


(2)	The three months ended March 31, 2016 includes a pass-through of $1.2 million relating to servicing rights sold to WCO.


(3)	Includes late fees of $15.8 million and $14.5 million for the three months ended March 31, 2016 and 2015, respectively.


(4)	The three months ended March 31, 2016 include $1.2 million in amortization of a servicing liability.


(5)	Includes interest expense on servicing rights related liabilities which represents the accretion of fair value of $3.9 million and $2.6 million, for the three months ended March 31, 2016 and 2015, respectively.

Servicing Rights

Servicing Rights Carried at Amortized Cost

The following table summarizes the activity in the carrying value of servicing rights carried at amortized cost by class (in thousands):



	For the Three Months Ended March 31, 2016						For the Three Months Ended March 31, 2015
	Mortgage Loan			Reverse Loan			Mortgage Loan			Reverse Loan
Balance at beginning of the period	$	99,302		$	7,258		$	121,364		$	9,311
Amortization of servicing rights	(5,387		)	(460		)	(6,458		)	(555		)
Balance at end of the period	$	93,915		$	6,798		$	114,906		$	8,756

Servicing rights accounted for at amortized cost are evaluated for impairment by strata based on their estimated fair values. The risk characteristics used to stratify servicing rights for purposes of measuring impairment are the type of loan products, which consist of manufactured housing loans, first lien residential mortgages and second lien residential mortgages for the mortgage loan class, and reverse mortgages for the reverse loan class. At March 31, 2016, the fair value of servicing rights for the mortgage loan class and the reverse loan class was $111.5 million and $11.1 million, respectively. At December 31, 2015, the fair value of servicing rights for the mortgage loan class and the reverse loan class was $117.3 million and $11.1 million, respectively. Fair value was estimated using the present value of projected cash flows over the estimated period of net servicing income.

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The estimation of fair value requires significant judgment and uses key economic inputs and assumptions, which are provided in the table below:



	March 31, 2016
	Mortgage Loan		Reverse Loan
Weighted-average remaining life in years⁽¹⁾	5.4		2.9
Weighted-average discount rate	12.06	%	15.00	%
Conditional prepayment rate⁽²⁾	6.92	%	N/A
Conditional default rate ⁽²⁾	2.29	%	N/A
Conditional repayment rate ⁽³⁾	N/A		29.37	%

__________


(1)	Represents the remaining weighted-average life of the related unpaid principal balance of the underlying collateral adjusted for assumptions for conditional repayment rate, conditional prepayment rate and conditional default rate, as applicable.


(2)	Voluntary and involuntary prepayment rates have been presented as conditional prepayment rate and conditional default rate, respectively.


(3)	Conditional repayment rate includes assumptions for both voluntary and involuntary rates as well as assumptions for the assignment of HECMs to HUD, in accordance with obligations as servicer.

The valuation of servicing rights is affected by the underlying assumptions above. Should the actual performance and timing differ materially from the Company’s projected assumptions, the estimate of fair value of the servicing rights could be materially different.

Servicing Rights Carried at Fair Value

The following table summarizes the activity in servicing rights carried at fair value (in thousands):



	For the Three Months Ended March 31,
	2016			2015
Balance at beginning of the period ⁽¹⁾	$	1,682,016		$	1,599,541
Purchases	19,637			27,713
Servicing rights capitalized upon sales of loans	52,258			72,301
Change in fair value due to:
Changes in valuation inputs or other assumptions ⁽²⁾	(258,460		)	(74,534		)
Other changes in fair value ⁽³⁾	(68,120		)	(54,701		)
Total change in fair value	(326,580		)	(129,235		)
Balance at end of the period ⁽¹⁾	$	1,427,331		$	1,570,320

__________


(1)	At March 31, 2016 and December 31, 2015, includes $13.8 million and $16.9 million, respectively, in servicing rights that were sold to WCO and accounted for as a financing.


(2)	Represents the change in fair value resulting primarily from market-driven changes in interest rates and prepayment speeds.


(3)	Represents the realization of expected cash flows over time.

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The fair value of servicing rights accounted for at fair value was estimated using the present value of projected cash flows over the estimated period of net servicing income. The estimation of fair value requires significant judgment and uses key economic inputs and assumptions which are described at Note 4. Should the actual performance and timing differ materially from the Company's projected assumptions, the estimate of fair value of the servicing rights could be materially different.

The following table summarizes the hypothetical effect on the fair value of servicing rights carried at fair value using adverse changes of 10% and 20% to the weighted average of the significant assumptions used in valuing these assets (dollars in thousands):



	March 31, 2016								December 31, 2015
			Decline in fair value due to								Decline in fair value due to
	Assumption		10% adverse change			20% adverse change			Assumption		10% adverse change			20% adverse change
Weighted-average discount rate	10.96	%	$	(57,789	)	$	(111,248	)	10.88	%	$	(68,874	)	$	(132,645	)
Weighted-average conditional prepayment rate	11.31	%	(65,022		)	(124,985		)	9.94	%	(63,884		)	(123,173		)
Weighted-average conditional default rate	0.92	%	(26,090		)	(53,175		)	1.06	%	(21,208		)	(43,576		)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a particular assumption on the fair value of the servicing rights is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another, which may either magnify or counteract the effect of the change.

Fair Value of Originated Servicing Rights

For mortgage loans sold with servicing retained, the Company used the following inputs and assumptions to determine the fair value of servicing rights at the dates of sale. These servicing rights are included in servicing rights capitalized upon sales of loans in the table presented above that summarizes the activity in servicing rights accounted for at fair value.



	For the Three Months Ended March 31,
	2016	2015
Weighted-average life in years	6.1	6.8
Weighted-average discount rate	13.19%	9.38%
Weighted-average conditional prepayment rate	9.68%	7.98%
Weighted-average conditional default rate	0.32%	0.77%

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7. Payables and Accrued Liabilities

Payables and accrued liabilities consists of the following (in thousands):



	March 31, 2016		December 31, 2015
Accounts payable and accrued liabilities	$	145,507	$	113,325
Curtailment liability	114,957		115,453
Employee-related liabilities	60,629		95,926
Payables to insurance carriers	58,441		63,410
Originations liability	54,866		48,930
Loans subject to repurchase from Ginnie Mae	36,913		22,507
Servicing rights and related advance purchases payable	36,153		21,649
Accrued interest payable	23,826		9,819
Derivative instruments	20,795		6,475
Uncertain tax positions ⁽¹⁾	11,111		64,554
Margin payable on derivative instruments	3,958		10,101
Acquisition related escrow funds payable to sellers	2,156		10,236
Other	60,441		57,595
Total payables and accrued liabilities	$	629,753	$	639,980

__________

(1)

During the year ended December 31, 2015, the Company determined that a tax accounting method as employed was not more likely than not to be realized, and therefore derecognized the tax position with an offsetting deferred tax asset recorded related to servicing rights. The Company filed for an accounting method change with the IRS during the first quarter of 2016 and, as a result, this uncertain tax position was reversed.

Costs Associated with Exit Activities

During 2015, the Company took distinct actions to improve efficiencies within the organization, which included re-branding its mortgage loan originations business by consolidating Ditech Mortgage Corp and Green Tree Servicing into one legal entity with one brand, Ditech, a Walter Company. Additionally, the Company took measures to restructure its mortgage loan servicing operations and improve the profitability of the reverse mortgage business by streamlining its geographic footprint and strengthening its retail originations channel. These actions resulted in costs relating to the closing of offices and the termination of certain employees as well as other expenses to institute efficiencies. The Company completed these activities in the fourth quarter of 2015.

In the fourth quarter of 2015, the Company made a decision to exit the consumer retail channel of the Originations segment beginning in January 2016. As a result of this decision, the Company incurred $1.2 million in costs during the fourth quarter of 2015 and $1.8 million in costs during the three months ended March 31, 2016. The Company expects to incur additional costs relating to such exit of approximately $0.6 million during the second quarter of 2016. The actions to improve efficiencies, re-brand the originations business, restructure the servicing operations and exit from the consumer retail channel are collectively referred to as the 2015 Actions herein.

In addition, during the first quarter of 2016, the Company initiated actions in connection with its continued efforts to enhance efficiencies and streamline processes which included various organizational changes to scale the Company's leadership team and support functions to further align with the Company's business needs. These actions resulted in costs relating to the termination of certain employees. The Company will continue to evaluate other opportunities for further cost reductions which may result in future costs associated with exit activities being incurred. These actions are collectively referred to as the 2016 Actions herein.

The costs resulting from the 2015 Actions and the 2016 Actions are recorded in salaries and benefits and general and administrative expenses on the Company's consolidated statements of comprehensive loss.

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The following table presents the current period activity in the accrued restructuring liability resulting from each of the 2015 Actions and 2016 Actions described above, which is included in payables and accrued liabilities on the consolidated balance sheets, and the related charges and cash payments and other settlements associated with these actions (in thousands):



	For the Three Months Ended March 31, 2016
	2015 Actions			2016 Actions			Total
Balance at January 1, 2016	$	4,183		$	—		$	4,183
Charges
Severance and related costs	1,261			2,094			3,355
Office closures and other costs	549			—			549
Total charges	1,810			2,094			3,904
Cash payments or other settlements
Severance and related costs	(2,299		)	(1,165		)	(3,464		)
Office closures and other costs	(1,046		)	—			(1,046		)
Total cash payments or other settlements	(3,345		)	(1,165		)	(4,510		)
Balance at March 31, 2016	$	2,648		$	929		$	3,577

Cumulative charges incurred
Severance and related costs	$	7,267		$	2,094		$	9,361
Office closures and other costs	6,104			—			6,104
Total cumulative charges incurred	$	13,371		$	2,094		$	15,465

Total expected costs to be incurred	$	13,948		$	2,094		$	16,042

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The following table presents the current period activity for each of the 2015 Actions and 2016 Actions described above by reportable segment (in thousands):



	For the Three Months Ended March 31, 2016
	Servicing			Originations			Reverse Mortgage			Other			Total Consolidated
Balance at January 1, 2016
2015 Actions	$	1,174		$	1,663		$	1,346		$	—		$	4,183
2016 Actions	—			—			—			—			—
Total balance at January 1, 2016	1,174			1,663			1,346			—			4,183
Charges
2015 Actions	14			1,796			—			—			1,810
2016 Actions	1,867			—			—			227			2,094
Total charges	1,881			1,796			—			227			3,904
Cash payments or other settlements
2015 Actions	(436		)	(1,747		)	(1,162		)	—			(3,345		)
2016 Actions	(1,103		)	—			—			(62		)	(1,165		)
Total cash payments or other settlements	(1,539		)	(1,747		)	(1,162		)	(62		)	(4,510		)
Balance at March 31, 2016
2015 Actions	752			1,712			184			—			2,648
2016 Actions	764			—			—			165			929
Total balance at March 31, 2016	$	1,516		$	1,712		$	184		$	165		$	3,577

Total cumulative charges incurred
2015 Actions	$	6,476		$	4,404		$	1,640		$	851		$	13,371
2016 Actions	1,867			—			—			227			2,094
Total cumulative charges incurred	$	8,343		$	4,404		$	1,640		$	1,078		$	15,465

Total expected costs to be incurred
2015 Actions	$	6,476		$	4,981		$	1,640		$	851		$	13,948
2016 Actions	1,867			—			—			227			2,094
Total expected costs to be incurred	$	8,343		$	4,981		$	1,640		$	1,078		$	16,042

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8. Warehouse Borrowings

The Company's subsidiaries enter into master repurchase agreements with lenders providing warehouse facilities. The warehouse facilities are used to fund the origination and purchase of residential loans, as well as the repurchase of certain HECMs and real estate owned from Ginnie Mae securitization pools. The facilities had an aggregate funding capacity of $2.5 billion at March 31, 2016 and are secured by certain residential loans and real estate owned. At March 31, 2016, the interest rates on the facilities are primarily based on LIBOR plus between 2.10% and 3.13%, and have various expiration dates through March 2017. At March 31, 2016, $1.0 billion of the outstanding borrowings were secured by $1.1 billion in originated and purchased residential loans and $164.6 million of outstanding borrowings were secured by $189.7 million in repurchased HECMs and real estate owned.

Borrowings utilized to fund the origination and purchase of residential loans are due upon the earlier of sale or securitization of the loan or within 60 to 90 days of borrowing. On average, the Company sells or securitizes these loans within 20 days of borrowing. Borrowings utilized to repurchase HECMs and real estate owned are due upon the earlier of receipt of claim proceeds from HUD or receipt of proceeds from liquidation of the related real estate owned. In any event, borrowings associated with repurchased HECMs are due within 364 days of borrowing while borrowings relating to repurchased real estate owned are due, depending on the agreement, within 180 days or 364 days. In accordance with the terms of the agreements, the Company may be required to post cash collateral should the fair value of the pledged assets decrease below certain contractual thresholds. The Company is exposed to counterparty credit risk associated with the repurchase agreements in the event of non-performance by the counterparties. The amount at risk during the term of the repurchase agreement is equal to the difference between the amount borrowed by the Company and the fair value of the pledged assets. The Company mitigates this risk through counterparty monitoring procedures, including monitoring of the counterparties' credit ratings and review of their financial statements.

All of the Company’s master repurchase agreements contain customary events of default and covenants, the most significant of which are financial covenants. Financial covenants most sensitive to the Company’s operating results and financial position are minimum tangible net worth requirements, indebtedness to tangible net worth ratio requirements, and minimum liquidity and profitability requirements.

For the quarter ended March 31, 2016, two of Ditech Financial's master repurchase agreements were amended to allow for an adjusted pre-tax loss (as determined pursuant to each respective agreement) not to exceed a specified maximum adjusted pre-tax loss for the current quarter under their respective minimum profitability covenants. Without these amendments, Ditech Financial would have been required to have earned a specified adjusted pre-tax income as defined in the terms of each agreement for the quarter ended March 31, 2016 under such covenants and, therefore, would not have been in compliance with these covenants for the quarter.

As a result of Ditech Financial obtaining these amendments, Ditech Financial was in compliance with all financial covenants relating to master repurchase agreements at March 31, 2016.

For the quarter ended March 31, 2016, one of RMS’s master repurchase agreements was amended to allow for a lower adjusted EBITDA (as determined pursuant to this agreement) for each of the first quarter and second quarter of 2016 under such agreement’s profitability covenant. Without this amendment, RMS would have been required to have a higher adjusted EBITDA as defined in the agreement for the quarter ended March 31, 2016 under this covenant and, therefore, would not have been in compliance with such covenant for the current quarter.

As a result of RMS obtaining this amendment, RMS was in compliance with all financial covenants relating to master repurchase agreements at March 31, 2016.

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9. Earnings (Loss) Per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted loss per share computations shown on the consolidated statements of comprehensive loss (in thousands, except per share data):



	For the Three Months Ended March 31,
	2016			2015
Basic loss per share
Net loss available to common stockholders (numerator)	$	(172,702	)	$	(31,008	)
Weighted-average common shares outstanding (denominator)	35,579			37,718
Basic loss per common and common equivalent share	$	(4.85	)	$	(0.82	)

Diluted loss per share
Net loss available to common stockholders (numerator)	$	(172,702	)	$	(31,008	)
Weighted-average common shares outstanding	35,579			37,718
Add: Effect of dilutive stock options, non-participating securities, and convertible notes	—			—
Diluted weighted-average common shares outstanding (denominator)	35,579			37,718
Diluted loss per common and common equivalent share	$	(4.85	)	$	(0.82	)

A portion of the Company’s unvested RSUs during the three months ended March 31, 2015 were participating securities. During periods of net income, the calculation of earnings per share for common stock is adjusted to exclude the income attributable to the participating securities from the numerator and exclude the dilutive impact of those shares from the denominator. During periods of net loss, as was the case for the period above, no effect is given to the participating securities because they do not share in the losses of the Company.

The following table summarizes anti-dilutive securities excluded from the computation of dilutive loss per share (in thousands):



	For the Three Months Ended March 31,
	2016	2015
Outstanding share-based compensation awards
Stock options	2,876	2,290
Performance shares ⁽¹⁾	—	—
Restricted stock units	631	208
Assumed conversion of Convertible Notes	4,932	4,932

__________


(1)	Performance shares represent the number of shares expected to be issued based on the performance percentage as of the end of the reporting periods above.

The Convertible Notes are antidilutive when calculating earnings (loss) per share when the Company's average stock price is less than $58.80. Upon conversion of the Convertible Notes, the Company may pay or deliver, at its option, cash, shares of the Company’s common stock, or a combination of cash and shares of common stock. It is the Company’s intent to settle all conversions through combination settlement, which involves repayment of an amount of cash equal to the principal amount and any excess of conversion value over the principal amount in shares of common stock.

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10. Segment Reporting

Management has organized the Company into three reportable segments based primarily on its services as follows:

•

Servicing — consists of operations that perform servicing for third-party credit owners of mortgage loans for a fee and the Company’s own mortgage loan portfolio. The Servicing segment also operates complementary businesses consisting of an insurance agency serving residential loan borrowers and credit owners and a collections agency which performs collections of post charge-off deficiency balances for third parties and the Company. In addition, the Servicing segment holds the assets and mortgage-backed debt of the Residual Trusts.


•	Originations — consists of operations that originate and purchase mortgage loans that are intended for sale to third parties.


•	Reverse Mortgage — consists of operations that purchase and originate HECMs that are securitized, but remain on the consolidated balance sheet as collateral for secured borrowings. This segment performs servicing for third-party credit owners and the Company and provides other complementary services for the reverse mortgage market, such as real estate owned property management and disposition.

The following tables present select financial information of reportable segments (in thousands). The Company has presented the revenue and expenses of the Non-Residual Trusts and other non-reportable operating segments, as well as certain corporate expenses that have not been allocated to the business segments, in Other. Intersegment servicing revenues and expenses have been eliminated. Intersegment revenues are recognized on the same basis of accounting as such revenue is recognized on the consolidated statements of comprehensive loss.



	For the Three Months Ended March 31, 2016
	Servicing			Originations		Reverse Mortgage		Other			Eliminations			Total Consolidated
Total revenues ^{(1) (2) (3)}	$	(63,255	)	$	100,277	$	44,095	$	30		$	(14,376	)	$	66,771
Income (loss) before income taxes	(256,321		)	16,401		5,027		(43,998		)	—			(278,891		)



	For the Three Months Ended March 31, 2015
	Servicing			Originations		Reverse Mortgage			Other			Eliminations			Total Consolidated
Total revenues ^{(1) (2)}	$	143,763		$	130,300	$	43,927		$	3,293		$	(10,426	)	$	310,857
Income (loss) before income taxes	(50,672		)	41,798		(13,457		)	(27,347		)	—			(49,678		)

__________

(1)

With the exception of $3.2 million and $2.3 million for the three months ended March 31, 2016 and 2015, respectively, associated with intercompany activity with the Originations segment and the Other non-reportable segment, all net servicing revenue and fees of the Servicing segment were derived from external customers, including WCO. Included in these revenues for the three months ended March 31, 2016, are late fees of $1.0 million recorded by the Servicing segment which were waived as an incentive for borrowers refinancing their loans. These fees reduced the gain on sale of loans recognized by the Originations segment. All net servicing revenue and fees of the Company's Reverse Mortgage segment were derived from external customers.

(2)

The Company's Servicing segment includes other revenues of $11.5 million and $8.1 million for the three months ended March 31, 2016 and 2015, respectively, associated with fees earned for certain loan originations completed by the Originations segment from leads generated through the Servicing segment's servicing portfolio. Beginning in the first quarter of 2016, the Servicing segment increased the fee per origination charged to the Originations segment to reflect current market pricing. As a result of the change in fee, these intersegment revenues increased by $3.5 million.


(3)	The Company’s Originations segment includes other revenues of $0.7 million for the three months ended March 31, 2016 associated with fees earned for supporting the Servicing segment in administrative functions relating to the acquisition of certain servicing rights.

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11. Commitments and Contingencies

Letter of Credit Reimbursement Obligation

As part of an agreement to service the loans in seven securitization trusts, the Company has an obligation to reimburse a third party for the final $165.0 million drawn under LOCs issued by such third party as credit enhancements to such trusts. The total amount available on these LOCs for these trusts was $258.9 million at March 31, 2016. The securitization trusts will draw on these LOCs if there are insufficient cash flows from the underlying collateral to pay the bondholders of the securitization trusts. Based on the Company’s estimates of the underlying performance of the collateral in the securitization trusts, the Company does not expect that the final $165.0 million of capacity under the LOCs will be drawn and, therefore, no liability for the fair value of this obligation has been recorded on the Company’s consolidated balance sheets, although actual performance may differ from this estimate in the future.

Mandatory Clean-Up Call Obligation

The Company is obligated to exercise the mandatory clean-up call obligations assumed as part of an agreement to acquire the rights to service the loans in the Non-Residual Trusts. The Company determined that it is the primary beneficiary of these securitization trusts and as a result, has consolidated these trusts. The Company is required to call these securitizations when each loan pool falls to 10% of the original principal amount and expects to begin to make such calls in 2017 and continuing through 2019. The total outstanding balance of the residential loans expected to be called at the respective call dates is $417.7 million. The Company estimates call obligations of $101.1 million, $253.2 million and $63.4 million during the years ending December 31, 2017, 2018 and 2019, respectively.

Unfunded Commitments

Reverse Mortgage Loans

At March 31, 2016, the Company had floating-rate reverse loans in which the borrowers have additional borrowing capacity of $1.3 billion and similar commitments on fixed-rate reverse loans of $0.8 million, primarily in the form of undrawn lines-of-credit. The borrowing capacity includes $965.4 million in capacity that was available to be drawn by borrowers at March 31, 2016 and $331.0 million in capacity that will become eligible to be drawn by borrowers through the period ending April 1, 2017 assuming the loans remain performing. In addition, the Company has other commitments of $10.1 million to fund taxes and insurance on borrowers’ properties to the extent of amounts that were set aside for such purpose upon the origination of the related reverse loan. There is no termination date for these drawings so long as the loan remains performing. The Company also had short-term commitments to lend $16.4 million and commitments to purchase and sell loans totaling $14.0 million and $42.0 million, respectively, at March 31, 2016, as well as other commitments to lend of $11.0 million.

Mortgage Loans

The Company had short-term commitments to lend $2.7 billion and commitments to purchase loans totaling $94.1 million at March 31, 2016. In addition, the Company had commitments to sell $4.2 billion and purchase $1.0 billion in mortgage-backed securities at March 31, 2016.

HMBS Issuer Obligations

As an HMBS issuer, the Company assumes certain obligations related to each security issued. The most significant obligation is the requirement to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM is equal to or greater than 98% of the maximum claim amount. Performing repurchased loans are conveyed to HUD and payment is received from HUD typically within 30 days of repurchase. Non-performing repurchased loans are generally liquidated through foreclosure and subsequent sale of real estate owned. The Company relies upon certain master repurchase agreements and operating cash flows, to the extent necessary, to repurchase loans. The timing and amount of the Company's obligation to repurchase HECMs is uncertain as repurchase is predicated on certain factors such as whether or not a borrower event of default occurs prior to the HECM reaching the mandatory repurchase threshold under which the Company is obligated to repurchase the loan. During the three months ended March 31, 2016 and 2015, the Company repurchased $127.0 million and $56.6 million, respectively, in reverse loans and real estate owned from securitization pools. At March 31, 2016, the Company had $290.0 million in repurchased reverse loans and real estate owned. Repurchases of reverse loans and real estate owned have increased significantly as compared to prior periods and are expected to continue to increase due to the increased flow of defaulted HECMs and real estate owned that have moved through the buyout process.

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Mortgage Origination Contingencies

The Company sells substantially all of its originated or purchased mortgage loans into the secondary market for securitization or to private investors as whole loans. The Company sells conventional-conforming and government-backed mortgage loans through GSE and agency-sponsored securitizations in which mortgage-backed securities are created and sold to third-party investors. The Company also sells non-conforming mortgage loans to private investors. In doing so, representations and warranties regarding certain attributes of the loans are made to the third-party investor. Subsequent to the sale, if it is determined that a loan sold is in breach of these representations or warranties, the Company generally has an obligation to cure the breach. In general, if the Company is unable to cure such breach, the purchaser of the loan may require the Company to repurchase such loan for the unpaid principal balance, accrued interest, and related advances, and in any event, the Company must indemnify such purchaser for certain losses and expenses incurred by such purchaser in connection with such breach. The Company’s credit loss may be reduced by any recourse it has to correspondent lenders that, in turn, have sold such residential loans to the Company and breached similar or other representations and warranties.

The Company's representations and warranties are generally not subject to stated limits of exposure with the exception of certain loans originated under HARP, which limits exposure based on payment history of the loan. At March 31, 2016, the Company’s maximum exposure to repurchases due to potential breaches of representations and warranties was $55.1 billion, and was based on the original unpaid principal balance of loans sold from the beginning of 2013 through March 31, 2016 adjusted for voluntary payments made by the borrower on loans for which the Company performs servicing. A majority of the Company's loan sales were servicing retained.

The Company’s obligations vary based upon the nature of the repurchase demand and the current status of the mortgage loan. The Company’s estimate of the liability associated with representations and warranties exposure was $27.1 million at March 31, 2016 and is included in originations liability as part of payables and accrued liabilities on the consolidated balance sheet.

Servicing Contingencies

The Company’s servicing obligations are set forth in industry regulations established by HUD, the FHA, the VA, and other government agencies and in servicing and sub-servicing agreements with the applicable counterparties, such as Fannie Mae, Freddie Mac and other credit owners. Both the regulations and the servicing agreements provide that the servicer may be liable for failure to perform its servicing obligations and further provide remedies for certain servicer breaches.

Reverse Mortgage Loans

FHA regulations provide that servicers meet a series of event-specific timeframes during the default, foreclosure, conveyance, and mortgage insurance claim cycles. Failure to timely meet any processing deadline may stop the accrual of debenture interest otherwise payable in satisfaction of a claim under the FHA mortgage insurance contract and the servicer may be responsible to HUD for debenture interest that is not self-curtailed by the servicer, or for making the credit owner whole for any interest curtailed by FHA due to not meeting the required event-specific timeframes. The Company had a curtailment obligation liability of $107.3 million at March 31, 2016 related to the foregoing which reflects management’s best estimate of the probable incurred claim. The curtailment liability is recorded in payables and accrued liabilities on the consolidated balance sheets. During the three months ended March 31, 2016, the Company recorded a provision, net of expected third party recoveries, related to the curtailment liability of $1.8 million. The Company has potential estimated maximum financial statement exposure for an additional $140.6 million related to similar claims, which are reasonably possible, but which the Company believes are the responsibility of third parties (e.g., prior servicers and/or credit owners).

Mortgage Loans

The Company had a curtailment obligation liability of $7.7 million at March 31, 2016 related to mortgage loan servicing which it assumed through an acquisition of servicing rights. The Company is obligated to service the related mortgage loans in accordance with Ginnie Mae requirements, including repayment to credit owners for corporate advances and interest curtailment. The curtailment liability is recorded in payables and accrued liabilities on the consolidated balance sheets.

Litigation and Regulatory Matters

In the ordinary course of business, the Parent Company and its subsidiaries are defendants in, or parties to, pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. Many of these actions and proceedings are based on alleged violations of consumer protection laws governing the Company's servicing and origination activities. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company.

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The Company, in the ordinary course of business, is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations and threatened legal actions and proceedings. In connection with formal and informal inquiries, the Company receives numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of the Company’s activities.

In view of the inherent difficulty of predicting outcomes of such litigation, regulatory and governmental matters, particularly where the claimants seek very large or indeterminate restitution, penalties or damages, or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be.

Reserves are established for pending or threatened litigation, regulatory and governmental matters when it is probable that a loss has been incurred and the amount of such loss can be reasonably estimated. In light of the inherent uncertainties involved in litigation and other legal proceedings, it is not always possible to determine a reasonable estimate of the amount of a probable loss, and the Company may estimate a range of possible loss for consideration in its estimated accruals. The estimates are based upon currently available information, including advice of counsel, and involve significant judgment taking into account the varying stages and inherent uncertainties of such matters. Accordingly, the Company’s estimates may change from time to time and such changes may be material to the consolidated financial results.

At March 31, 2016, the Company’s recorded reserves associated with legal and regulatory contingencies for which a loss is probable and can be reasonably estimated were approximately $52 million. In addition, the Company has recorded a receivable for a loss recovery where a recovery is deemed probable of $24 million due from insurers relating to the shareholder class action complaint detailed further below. There can be no assurance that the ultimate resolution of the Company’s pending or threatened litigation, claims or assessments will not result in losses in excess of the Company’s recorded reserves. As a result, the ultimate resolution of any particular legal matter, or matters, could be material to the Company’s results of operations or cash flows for the period in which such matter is resolved.

For matters involving a probable loss where the Company can estimate the range but not a specific loss amount, the aggregate estimated amount of reasonably possible losses in excess of the recorded liability was $0 to approximately $13 million at March 31, 2016. Given the inherent uncertainties and status of the Company’s outstanding legal and regulatory matters, the range of reasonably possible losses cannot be estimated for all matters; therefore, this estimated range does not represent the Company’s maximum loss exposure. As new information becomes available, the matters for which the Company is able to estimate, as well as the estimates themselves, will be adjusted accordingly.

The following is a description of certain litigation and regulatory matters:

The Company has received various subpoenas for testimony and documents, motions for examinations pursuant to Federal Rule of Bankruptcy Procedure 2004, and other information requests from certain Offices of the United States Trustees, acting through trial counsel in various federal judicial districts, seeking information regarding an array of the Company’s policies, procedures and practices in servicing loans to borrowers who are in bankruptcy and the Company's compliance with bankruptcy laws and rules. The information has been provided in response to these subpoenas and requests and the Company's management have met with representatives of certain Offices of the United States Trustees to discuss various issues that have arisen in the course of these inquiries, including compliance with bankruptcy laws and rules. The outcome of the aforementioned proceedings and investigations cannot be predicted, which could result in requests for damages, fines, sanctions, or other remediation. The Company could face further legal proceedings in connection with these matters, and may seek to enter into one or more agreements to resolve these matters. Any such agreement may require the Company to pay fines or other amounts for alleged breaches of law and to change or otherwise remediate the Company's business practices.

On March 7, 2014, a putative shareholder class action complaint was filed in the United States District Court for the Southern District of Florida against the Company, Mark O’Brien, Charles Cauthen, Denmar Dixon, Marc Helm and Robert Yeary captioned Beck v. Walter Investment Management Corp., et al., No. 1:14-cv-20880 (S.D. Fla.). On July 7, 2014, an amended class action complaint was filed. The amended complaint named as defendants the Company, Mark O’Brien, Charles Cauthen, Denmar Dixon, Keith Anderson, Brian Corey and Mark Helm, and is captioned Thorpe, et al. v. Walter Investment Management Corp., et al. No. 1:14-cv-20880-UU. The amended complaint asserted federal securities law claims against the Company and the individual defendants under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. Additional claims are asserted against the individual defendants under Section 20(a) of the Exchange Act. On December 23, 2014, the court granted the defendants’ motions to dismiss and dismissed the amended complaint without prejudice. On January 6, 2015, plaintiffs filed a second amended complaint. The second amended complaint asserted the same legal claims and alleged that between May 9, 2012 and August 11, 2014 the Company and the individual defendants made material misstatements or omissions relating to the Company’s internal controls over financial reporting, the processes and procedures for compliance with applicable regulatory and

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legal requirements by Ditech Financial, the liabilities associated with the Company’s acquisition of RMS, and RMS's internal controls. The complaint sought class certification and an unspecified amount of damages on behalf of all persons who purchased the Company’s securities between May 9, 2012 and August 11, 2014. On January 23, 2015, all defendants moved to dismiss the second amended complaint. On June 30, 2015, the court issued a decision that granted the motions to dismiss in part and denied the motions in part. Among other things, the court dismissed the claims against Messrs. O’Brien, Cauthen, Dixon and Helm and the claims relating to statements about the Company’s acquisition of RMS. On July 10, 2015, plaintiffs filed a third amended complaint that, among other things, added certain allegations concerning the Company’s settlement with the FTC and CFPB. On July 24, 2015, the Company and Messrs. Anderson and Corey filed an answer to the third amended complaint, which denied the substantive allegations and asserted various defenses. On August 30, 2015, Plaintiffs filed a motion for class certification, which the court granted in substantial part on March 16, 2016. On April 15, 2016, the parties entered into an agreement to fully resolve all claims that were asserted or could have been asserted in the action for a total payment of $24 million, which is inclusive of plaintiffs’ attorneys’ fees and all other costs associated with the proposed settlement. Certain insurers for the Company have agreed to pay the full amount of the proposed settlement. The proposed settlement, which is subject to court approval, provides that defendants, including the Company, are not making any admission of liability or wrongdoing. The court has scheduled a hearing for June 10, 2016 to consider, among other things, the parties’ request to notify potential members of the class and to set a date for a final hearing to decide whether to approve the proposed settlement. The Company cannot provide any assurance as to the outcome of the action or that such an outcome will not have a material adverse effect on its reputation, business, prospects, results of operations, liquidity or financial condition.

Ditech Financial is subject to several putative class action lawsuits related to lender-placed insurance. These actions allege that Ditech Financial and its affiliates improperly received benefits from lender-placed insurance providers in the form of commissions for work not performed, services provided at a reduced cost, and expense reimbursements that did not reflect the actual cost of the services rendered. Plaintiffs in these suits assert various theories of recovery and seek remedies including compensatory, actual, punitive, statutory and treble damages, return of unjust benefits, and injunctive relief. One such matter is Circeo-Loudon v. Green Tree Servicing, LLC et al. filed in the United States District Court for the Southern District of Florida on April 17, 2014 and amended on October 16, 2014. A settlement agreement was reached between the parties in the Circeo-Loudon matter on September 11, 2015. This settlement received preliminary approval by the court on December 8, 2015 and a hearing for final approval has been scheduled for May 12, 2016. Pursuant to the settlement agreement, all of the defendants collectively, including Ditech Financial, are required to pay damages to class members who timely file a claim, administrative costs to effectuate the settlement and attorneys' fees and costs. The Company believes it has accrued the full amount expected to be paid under the settlement agreement in its consolidated financial statements as of December 31, 2015. The settlement agreement also provides that Ditech Financial and its subsidiary, Green Tree Insurance Agency, Inc., and their affiliates will be released from certain claims and may no longer receive commissions on the placement of certain lender-placed insurance for a period of five years commencing 120 days from the effective date of the settlement. The Company expects that this settlement, if approved by the court, will lead to the ultimate resolution of the other putative class action lawsuits related to lender-placed insurance to which Ditech Financial is currently subject, although the proposed settlement does not apply to potential claims by class members who opt out of the proposed settlement.

From time to time, federal and state authorities investigate or examine aspects of the Company's business activities, such as its mortgage origination, servicing, collection and bankruptcy practices, among other things. It is the Company's general policy to cooperate with such investigations, and the Company has been responding to information requests and otherwise cooperating with various ongoing investigations and examinations by such authorities. The Company cannot predict the outcome of any of the ongoing proceedings and cannot provide assurances that investigations and examinations will not have a material adverse effect on the Company.

Walter Energy Matters

The Company may become liable for U.S. federal income taxes allegedly owed by the Walter Energy consolidated group for the 2009 and prior tax years. Under federal law, each member of a consolidated group for U.S. federal income tax purposes is severally liable for the federal income tax liability of each other member of the consolidated group for any year in which it was a member of the consolidated group at any time during such year. Certain former subsidiaries of the Company (which were subsequently merged or otherwise consolidated with certain current subsidiaries of the Company) were part of the Walter Energy consolidated tax group prior to the Company's spin-off from Walter Energy on April 17, 2009. As a result, if the Walter Energy consolidated group’s federal income taxes (including penalties and interest) for such tax years are not discharged by Walter Energy or otherwise, the Company could be liable for such amounts.

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Walter Energy Tax Matters. According to Walter Energy’s Form 10-Q, or the Walter Energy Form 10-Q, for the quarter ended September 30, 2015 (filed with the SEC on November 5, 2015) and certain other public filings made by Walter Energy in its bankruptcy proceedings currently pending in Alabama, described below, certain tax matters with respect to certain tax years prior to and including the year of the Company's spin-off from Walter Energy remain unresolved, including certain tax matters relating to: (i) a “proof of claim” for a substantial amount of taxes, interest and penalties with respect to Walter Energy’s fiscal years ended August 31, 1983 through May 31, 1994, which was filed by the IRS in connection with Walter Energy’s bankruptcy filing on December 27, 1989 in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division; (ii) an IRS audit of Walter Energy’s federal income tax returns for the years ended May 31, 2000 through December 31, 2008; and (iii) an IRS audit of Walter Energy’s federal income tax returns for the 2009 through 2013 tax years. It is unclear how these tax matters will be impacted, if at all, by Walter Energy’s recent Chapter 11 bankruptcy filing in Alabama, which is discussed below.

Walter Energy 2015 Bankruptcy Filing. On July 15, 2015, Walter Energy filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Northern District of Alabama and, in connection therewith, filed a motion to assume a pre-petition RSA between Walter Energy and certain holders of its funded indebtedness. Under the RSA, the parties thereto agreed to pursue confirmation of a plan of reorganization unless certain events occur, in which case Walter Energy will abandon the plan process and pursue a sale of its assets in accordance with Section 363 of the Bankruptcy Code. There was no indication in the RSA of the amount of anticipated tax claims. According to the Walter Energy Form 10-Q, Walter Energy intended to seek a comprehensive resolution of all outstanding federal tax issues including, to the extent possible, issues relating to the “proof of claim” described above, in connection with its recent Chapter 11 bankruptcy filing in Alabama.

On August 18, 2015, Walter Energy filed a motion with the Florida bankruptcy court requesting that the court transfer venue of its disputes with the IRS to the Alabama bankruptcy court. In that motion, Walter Energy asserted that it believed the liability for the years at issue "will be materially, if not completely, offset by the [r]efunds" asserted by Walter Energy against the IRS. The Florida bankruptcy court transferred venue of the matter to the Alabama bankruptcy court, where it remains pending.

In accordance with the RSA, on August 26, 2015, Walter Energy filed with the Alabama bankruptcy court a proposed plan of reorganization and accompanying disclosure statement. There was no indication in the plan or disclosure statement of the amount of anticipated tax claims. No such information was contained in Walter Energy's schedules of assets and liabilities and statement of financial affairs, filed with the Alabama bankruptcy court on August 28, 2015. As a result of certain disputes in the Alabama bankruptcy court, on September 28, 2015, the Alabama bankruptcy court entered an order confirming that the RSA had been terminated.

On November 5, 2015, Walter Energy together with certain of its subsidiaries, entered into the Walter Energy Asset Purchase Agreement with Coal Acquisition, a Delaware limited liability company formed by members of Walter Energy’s senior lender group, pursuant to which, among other things, Coal Acquisition agreed to acquire substantially all of Walter Energy’s assets and assume certain liabilities, subject to, among other things, a number of closing conditions set forth therein. On January 8, 2016, after conducting a hearing, the Bankruptcy Court entered an order approving the sale of Walter Energy's assets to Coal Acquisition free and clear of all liens, claims, interests and encumbrances of the Debtors. The sale of such assets pursuant to the Walter Energy Asset Purchase Agreement was completed on March 31, 2016 and was conducted under the provisions of Sections 105, 363 and 365 of the Bankruptcy Code.

The Company cannot predict whether or to what extent it may become liable for federal income taxes of the Walter Energy consolidated group, in part because it believes, based on publicly available information, that: (i) the amount of taxes owed by the Walter Energy consolidated group for the periods from 1983 through 2009 remains unresolved; (ii) in light of Walter Energy’s 2015 Chapter 11 bankruptcy filing, it is unclear (a) whether Walter Energy will be obligated or able to pay any or all of such amounts owed and (b) what portion of the IRS claims against the Walter Energy consolidated group for 2009 and prior tax years are attributable to tax, interest and/or penalties and what priority, if any, the IRS will receive in the Alabama bankruptcy proceedings with respect to its claims against Walter Energy; and (iii) it cannot predict whether, in the event Walter Energy does not discharge all tax obligations for the consolidated group, the IRS will seek to enforce tax claims against former members of the Walter Energy consolidated group. Further, because the Company cannot currently estimate its liability, if any, relating to the federal income tax liability of Walter Energy’s consolidated tax group during the tax years in which it was a part of such group, it cannot determine whether such liabilities, if any, could have a material adverse effect on its business, financial condition, liquidity and/or results of operations.

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Tax Separation Agreement. In connection with the Company's spin-off from Walter Energy, the Company and Walter Energy entered into a Tax Separation Agreement, dated April 17, 2009. Notwithstanding any several liability the Company may have under federal tax law described above, under the Tax Separation Agreement, Walter Energy agreed to retain full liability for all U.S. federal income or state combined income taxes of the Walter Energy consolidated group for 2009 and prior tax years (including any interest, additional taxes or penalties applicable thereto), subject to limited exceptions. Accordingly, the Company filed "proofs of claim" in the Alabama bankruptcy proceedings asserting claims for any such amounts to the extent the Company is ultimately held liable for the same.

It is unclear whether claims made by the Company under the Tax Separation Agreement would be enforceable against Walter Energy in connection with, or following the conclusion of, the various Walter Energy bankruptcy proceedings described above or if such claims would be rejected or disallowed under bankruptcy law, and whether Walter Energy will have the ability to satisfy in part or in full the amount of any claims made by the Company under the Tax Separation Agreement or otherwise.

Furthermore, the Tax Separation Agreement provides that Walter Energy has, in its sole discretion, the exclusive right to represent the interests of the consolidated group in any audit, court proceeding or settlement of a claim with the IRS for the tax years in which certain of the Company’s former subsidiaries were a member of the Walter Energy consolidated group for U.S. federal income tax purposes. Moreover, the Tax Separation Agreement obligates the Company to take certain tax positions that are consistent with those taken historically by Walter Energy. In the event the Company does not take such positions, it could be liable to Walter Energy to the extent our failure to do so results in an increased tax liability or the reduction of any tax asset of Walter Energy. These arrangements may result in conflicts of interests between the Company and Walter Energy, particularly with regard to the Walter Energy bankruptcy proceedings described above.

Lastly, according to its public filings, Walter Energy’s 2009 tax year is currently under audit. Accordingly, if it is determined that certain distribution taxes and other amounts are owed related to the Company's spin-off from Walter Energy in 2009, the Company may be liable under the Tax Separation Agreement for all or a portion of such amounts.

The Company is unable to estimate reasonably possible losses for the matter described above.

12. Separate Financial Information of Subsidiary Guarantors of Indebtedness

In accordance with the Senior Notes Indenture, certain existing and future 100% owned domestic subsidiaries of the Parent Company have fully and unconditionally guaranteed the Senior Notes on a joint and several basis. These guarantor subsidiaries also guarantee the Parent Company's obligations under the 2013 Secured Credit Facilities. The indenture governing the Senior Notes contains customary exceptions under which a guarantor subsidiary may be released from its guarantee without the consent of the holders of the Senior Notes, including (i) the permitted sale, transfer or other disposition of all or substantially all of a guarantor subsidiary's assets or common stock; (ii) the designation of a restricted guarantor subsidiary as an unrestricted subsidiary; (iii) the release of a guarantor subsidiary from its obligation under the 2013 Secured Credit Facilities and its guarantee of all other indebtedness of the Parent Company and other guarantor subsidiaries; and (iv) the defeasance of the obligations of the guarantor subsidiary by payment of the Senior Notes.

Presented below are the condensed consolidating financial information of the Parent Company, the guarantor subsidiaries on a combined basis, and the non-guarantor subsidiaries on a combined basis.

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Condensed Consolidating Balance Sheet
March 31, 2016
Unaudited
(in thousands)

	Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries and VIEs		Eliminations and Reclassifications			Consolidated
ASSETS
Cash and cash equivalents	$	4,188	$	188,230	$	2,000	$	—		$	194,418
Restricted cash and cash equivalents	1,501		664,118		57,661		—			723,280
Residential loans at amortized cost, net	13,849		41,264		493,965		—			549,078
Residential loans at fair value	—		11,964,857		578,539		—			12,543,396
Receivables, net	47,159		164,767		15,220		—			227,146
Servicer and protective advances, net	—		484,733		1,067,663		33,792			1,586,188
Servicing rights, net	—		1,528,044		—		—			1,528,044
Goodwill	—		371,695		—		—			371,695
Intangible assets, net	—		75,570		5,337		—			80,907
Premises and equipment, net	1,737		102,627		—		—			104,364
Deferred tax assets, net	—		162,606		—		(14,392		)	148,214
Other assets	34,010		174,528		14,667		—			223,205
Due from affiliates, net	640,059		—		—		(640,059		)	—
Investments in consolidated subsidiaries and VIEs	2,127,943		136,746		—		(2,264,689		)	—
Total assets	$	2,870,446	$	16,059,785	$	2,235,052	$	(2,885,348	)	$	18,279,935

LIABILITIES AND STOCKHOLDERS' EQUITY
Payables and accrued liabilities	$	67,076	$	563,001	$	6,625	$	(6,949	)	$	629,753
Servicer payables	—		630,267		—		—			630,267
Servicing advance liabilities	—		228,522		973,514		—			1,202,036
Warehouse borrowings	—		1,201,788		—		—			1,201,788
Servicing rights related liabilities at fair value	—		105,559		—		—			105,559
Corporate debt	2,154,360		996		—		—			2,155,356
Mortgage-backed debt	—		—		1,025,704		—			1,025,704
HMBS related obligations at fair value	—		10,697,435		—		—			10,697,435
Deferred tax liabilities, net	16,973		—		595		(17,568		)	—
Obligation to fund Non-Guarantor VIEs	—		39,990		—		(39,990		)	—
Due to affiliates, net	—		549,036		91,023		(640,059		)	—
Total liabilities	2,238,409		14,016,594		2,097,461		(704,566		)	17,647,898

Stockholders' equity:
Total stockholders' equity	632,037		2,043,191		137,591		(2,180,782		)	632,037
Total liabilities and stockholders' equity	$	2,870,446	$	16,059,785	$	2,235,052	$	(2,885,348	)	$	18,279,935

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Condensed Consolidating Balance Sheet
December 31, 2015
(in thousands)

	Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries and VIEs		Eliminations and Reclassifications			Consolidated
ASSETS
Cash and cash equivalents	$	4,016	$	196,812	$	2,000	$	—		$	202,828
Restricted cash and cash equivalents	10,512		639,151		58,436		—			708,099
Residential loans at amortized cost, net	14,130		26,713		500,563		—			541,406
Residential loans at fair value	—		12,147,423		526,016		—			12,673,439
Receivables, net	11,465		185,435		17,498		—			214,398
Servicer and protective advances, net	—		479,059		1,082,405		34,447			1,595,911
Servicing rights, net	—		1,788,576		—		—			1,788,576
Goodwill	—		367,911		—		—			367,911
Intangible assets, net	—		78,523		5,515		—			84,038
Premises and equipment, net	1,559		104,922		—		—			106,481
Deferred tax assets, net	—		132,687		—		(24,637		)	108,050
Other assets	37,724		150,470		12,170		—			200,364
Due from affiliates, net	674,139		—		—		(674,139		)	—
Investments in consolidated subsidiaries and VIEs	2,278,009		54,810		—		(2,332,819		)	—
Total assets	$	3,031,554	$	16,352,492	$	2,204,603	$	(2,997,148	)	$	18,591,501

LIABILITIES AND STOCKHOLDERS' EQUITY
Payables and accrued liabilities	$	43,778	$	596,764	$	5,206	$	(5,768	)	$	639,980
Servicer payables	—		603,692		—		—			603,692
Servicing advance liabilities	—		236,511		992,769		—			1,229,280
Warehouse borrowings	—		1,340,388		—		—			1,340,388
Servicing rights related liabilities at fair value	—		117,000		—		—			117,000
Corporate debt	2,156,944		480		—		—			2,157,424
Mortgage-backed debt	—		—		1,051,679		—			1,051,679
HMBS related obligations at fair value	—		10,647,382		—		—			10,647,382
Deferred tax liabilities, net	26,156		—		1,746		(27,902		)	—
Obligation to fund Non-Guarantor VIEs	—		36,048		—		(36,048		)	—
Due to affiliates, net	—		579,715		94,423		(674,138		)	—
Total liabilities	2,226,878		14,157,980		2,145,823		(743,856		)	17,786,825

Stockholders' equity:
Total stockholders' equity	804,676		2,194,512		58,780		(2,253,292		)	804,676
Total liabilities and stockholders' equity	$	3,031,554	$	16,352,492	$	2,204,603	$	(2,997,148	)	$	18,591,501

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Condensed Consolidating Statement of Comprehensive Loss
For the Three Months Ended March 31, 2016
Unaudited
(in thousands)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries and VIEs			Eliminations and Reclassifications			Consolidated
REVENUES
Net servicing revenue and fees	$	—		$	(103,475	)	$	—		$	(2,287	)	$	(105,762	)
Net gains on sales of loans	—			84,477			—			—			84,477
Interest income on loans	317			104			11,750			—			12,171
Net fair value gains on reverse loans and related HMBS obligations	—			35,208			—			—			35,208
Insurance revenue	—			9,495			1,068			(196		)	10,367
Other revenues	(406		)	31,514			15,616			(16,414		)	30,310
Total revenues	(89		)	57,323			28,434			(18,897		)	66,771

EXPENSES
Salaries and benefits	12,510			120,129			—			—			132,639
General and administrative	11,241			133,817			3,135			(18,587		)	129,606
Interest expense	35,896			11,573			17,616			(837		)	64,248
Depreciation and amortization	189			14,055			179			—			14,423
Corporate allocations	(21,868		)	21,868			—			—			—
Other expenses, net	271			1,239			996			—			2,506
Total expenses	38,239			302,681			21,926			(19,424		)	343,422

OTHER GAINS (LOSSES)
Gain on extinguishment	928			—			—			—			928
Other net fair value gains (losses)	—			216			(2,360		)	—			(2,144		)
Other	—			(1,024		)	—			—			(1,024		)
Total other gains (losses)	928			(808		)	(2,360		)	—			(2,240		)

Income (loss) before income taxes	(37,400		)	(246,166		)	4,148			527			(278,891		)
Income tax expense (benefit)	2,534			(109,872		)	948			201			(106,189		)
Income (loss) before equity in earnings (losses) of consolidated subsidiaries and VIEs	(39,934		)	(136,294		)	3,200			326			(172,702		)
Equity in earnings (losses) of consolidated subsidiaries and VIEs	(132,768		)	373			—			132,395			—
Net income (loss)	$	(172,702	)	$	(135,921	)	$	3,200		$	132,721		$	(172,702	)

Comprehensive income (loss)	$	(172,677	)	$	(135,921	)	$	3,200		$	132,721		$	(172,677	)

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Condensed Consolidating Statement of Comprehensive Loss
For the Three Months Ended March 31, 2015
Unaudited
(in thousands)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries and VIEs			Eliminations and Reclassifications			Consolidated
REVENUES
Net servicing revenue and fees	$	—		$	95,053		$	56		$	(4,222	)	$	90,887
Net gains on sales of loans	—			125,227			—			—			125,227
Interest income on loans	260			62			31,619			—			31,941
Net fair value gains on reverse loans and related HMBS obligations	—			30,774			—			—			30,774
Insurance revenue	—			12,922			1,422			(213		)	14,131
Other revenues	2,978			15,625			18,877			(19,583		)	17,897
Total revenues	3,238			279,663			51,974			(24,018		)	310,857

EXPENSES
Salaries and benefits	5,113			142,061			54			—			147,228
General and administrative	8,652			129,111			5,715			(14,831		)	128,647
Interest expense	36,734			10,944			27,951			(758		)	74,871
Depreciation and amortization	30			16,413			189			—			16,632
Corporate allocations	(12,744		)	12,744			—			—			—
Other expenses, net	273			930			2,844			—			4,047
Total expenses	38,058			312,203			36,753			(15,589		)	371,425

OTHER GAINS (LOSSES)
Other net fair value losses	—			(234		)	(638		)	—			(872		)
Other	11,762			—			—			—			11,762
Total other gains (losses)	11,762			(234		)	(638		)	—			10,890

Income (loss) before income taxes	(23,058		)	(32,774		)	14,583			(8,429		)	(49,678		)
Income tax expense (benefit)	(4,892		)	(11,478		)	1,068			(3,368		)	(18,670		)
Income (loss) before equity in earnings (loss) of consolidated subsidiaries and VIEs	(18,166		)	(21,296		)	13,515			(5,061		)	(31,008		)
Equity in earnings (loss) of consolidated subsidiaries and VIEs	(12,842		)	5,823			—			7,019			—
Net income (loss)	$	(31,008	)	$	(15,473	)	$	13,515		$	1,958		$	(31,008	)

Comprehensive income (loss)	$	(30,981	)	$	(15,473	)	$	13,515		$	1,958		$	(30,981	)

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Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2016
Unaudited
(in thousands)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries and VIEs			Eliminations and Reclassifications			Consolidated
Cash flows provided by (used in) operating activities	$	(38,544	)	$	215,307		$	25,972		$	—		$	202,735

Investing activities
Purchases and originations of reverse loans held for investment	—			(181,167		)	—			—			(181,167		)
Principal payments received on reverse loans held for investment	—			197,883			—			—			197,883
Principal payments received on mortgage loans held for investment	266			—			22,059			—			22,325
Payments received on charged-off loans held for investment	—			7,000			—			—			7,000
Payments received on receivables related to Non-Residual Trusts	—			—			1,957			—			1,957
Proceeds from sales of real estate owned, net	(38		)	20,510			937			—			21,409
Purchases of premises and equipment	(411		)	(11,242		)	—			—			(11,653		)
Decrease (increase) in restricted cash and cash equivalents	9,011			207			(170		)	—			9,048
Payment for acquisition of business	—			(1,947		)	—			—			(1,947		)
Acquisitions of servicing rights, net	—			(6,571		)	—			—			(6,571		)
Capital contributions to subsidiaries and VIEs	—			(651		)	—			651			—
Returns of capital from subsidiaries and VIEs	2,114			670			—			(2,784		)	—
Change in due from affiliates	33,543			(1,176		)	(3,196		)	(29,171		)	—
Other	82			(419		)	—			—			(337		)
Cash flows provided by investing activities	44,567			23,097			21,587			(31,304		)	57,947

Financing activities
Payments on corporate debt	—			(210		)	—			—			(210		)
Extinguishments and settlement of debt	(6,327		)	—			—			—			(6,327		)
Proceeds from securitizations of reverse loans	—			202,947			—			—			202,947
Payments on HMBS related obligations	—			(271,013		)	—			—			(271,013		)
Issuances of servicing advance liabilities	—			68,035			373,889			—			441,924
Payments on servicing advance liabilities	—			(76,024		)	(393,811		)	—			(469,835		)
Net change in warehouse borrowings related to mortgage loans	—			(214,510		)	—			—			(214,510		)
Net change in warehouse borrowings related to reverse loans	—			75,910			—			—			75,910
Proceeds from sale of servicing rights	—			2,968			—			—			2,968
Payments on servicing rights related liabilities	—			(4,250		)	—			—			(4,250		)
Payments on mortgage-backed debt	—			—			(25,203		)	—			(25,203		)
Other debt issuance costs paid	—			(1,000		)	(31		)	—			(1,031		)
Capital contributions	—			—			651			(651		)	—
Capital distributions	—			(69		)	(2,715		)	2,784			—
Change in due to affiliates	641			(29,643		)	(169		)	29,171			—
Other	(165		)	(127		)	(170		)	—			(462		)
Cash flows used in financing activities	(5,851		)	(246,986		)	(47,559		)	31,304			(269,092		)

Net increase (decrease) in cash and cash equivalents	172			(8,582		)	—			—			(8,410		)
Cash and cash equivalents at the beginning of the period	4,016			196,812			2,000			—			202,828
Cash and cash equivalents at the end of the period	$	4,188		$	188,230		$	2,000		$	—		$	194,418

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Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2015
Unaudited
(in thousands)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries and VIEs			Eliminations and Reclassifications			Consolidated
Cash flows provided by (used in) operating activities	$	(28,684	)	$	57,882		$	91,852		$	—		$	121,050

Investing activities
Purchases and originations of reverse loans held for investment	—			(428,350		)	—			—			(428,350		)
Principal payments received on reverse loans held for investment	—			152,195			—			—			152,195
Principal payments received on mortgage loans held for investment	336			—			41,091			—			41,427
Payments received on charged-off loans held for investment	—			6,372			—			—			6,372
Payments received on receivables related to Non-Residual Trusts	—			—			2,020			—			2,020
Proceeds from sales of real estate owned, net	(5		)	15,195			2,521			—			17,711
Purchases of premises and equipment	(45		)	(3,641		)	—			—			(3,686		)
Decrease (increase) in restricted cash and cash equivalents	(1		)	1,223			(980		)	—			242
Payments for acquisitions of businesses	—			(2,809		)	—			—			(2,809		)
Acquisitions of servicing rights, net	—			(53,919		)	—			—			(53,919		)
Proceeds from sale of investment	14,376			—			—			—			14,376
Capital contributions to subsidiaries and VIEs	(4,211		)	(3,082		)	—			7,293			—
Returns of capital from subsidiaries and VIEs	8,067			4,397			—			(12,464		)	—
Change in due from affiliates	17,981			13,612			(14,440		)	(17,153		)	—
Other	11,662			1,436			—			—			13,098
Cash flows provided by (used in) investing activities	48,160			(297,371		)	30,212			(22,324		)	(241,323		)

Financing activities
Payments on corporate debt	(3,750		)	(522		)	—			—			(4,272		)
Proceeds from securitizations of reverse loans	—			457,448			—			—			457,448
Payments on HMBS related obligations	—			(195,783		)	—			—			(195,783		)
Issuances of servicing advance liabilities	—			56,730			118,995			—			175,725
Payments on servicing advance liabilities	—			(68,246		)	(188,560		)	—			(256,806		)
Net change in warehouse borrowings related to mortgage loans	—			29,235			—			—			29,235
Net change in warehouse borrowings related to reverse loans	—			(18,648		)	—			—			(18,648		)
Payments on servicing rights related liabilities	—			(2,199		)	—			—			(2,199		)
Payments on mortgage-backed debt	—			—			(45,050		)	—			(45,050		)
Other debt issuance costs paid	—			(1,462		)	(156		)	—			(1,618		)
Capital contributions	—			4,135			3,158			(7,293		)	—
Capital distributions	—			(1,479		)	(10,985		)	12,464			—
Change in due to affiliates	827			(18,142		)	162			17,153			—
Other	138			—			418			—			556
Cash flows provided by (used in) financing activities	(2,785		)	241,067			(122,018		)	22,324			138,588

Net increase in cash and cash equivalents	16,691			1,578			46			—			18,315
Cash and cash equivalents at the beginning of the period	3,162			311,810			5,203			—			320,175
Cash and cash equivalents at the end of the period	$	19,853		$	313,388		$	5,249		$	—		$	338,490

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13. Related-Party Transactions

WCO was established to invest in mortgage-related assets. The Company's investment in WCO was $21.1 million and $22.6 million at March 31, 2016 and December 31, 2015, respectively. For the three months ended March 31, 2016 and 2015, the Company recorded a loss of $0.5 million and income of $0.2 million, respectively, relating to its investment in WCO. Additionally, the Company received a dividend of $1.0 million from WCO during the three months ended March 31, 2016.

The Company’s subsidiary, GTIM, earns fees for providing investment advisory and management services to WCO and administering its business activities and day-to-day operations. During the three months ended March 31, 2016 and 2015, the Company earned $0.4 million and $0.1 million, respectively, in fees associated with these activities which are recorded in other revenues on the consolidated statements of comprehensive loss. The Company had $0.4 million in receivables related to fees earned for investment advisory and management services provided to WCO included in receivables, net on the consolidated balance sheets at March 31, 2016 and December 31, 2015.

The Company, in exchange for a servicing fee, services certain assets held by WCO. The Company also has servicing rights related liabilities for the sales to WCO of beneficial interests in certain portions of contractual servicing fees associated with mortgage loans serviced by the Company as well as for the sale of servicing rights. The Company is engaged by WCO to offer refinancing options to borrowers with mortgage loans underlying the excess servicing spread and servicing rights transactions that occurred during the year ended December 31, 2015. In addition, the Company has a similar arrangement with WCO with respect to certain other servicing rights held by WCO. These arrangements were made for purposes of reducing portfolio runoff. Further, the Company entered into various other ancillary agreements with WCO pursuant to which, among other things, WCO has the right to make the first offer to purchase servicing rights relating to certain mortgage loans originated by the Company and certain excess servicing spread that the Company may create from time to time.

WCO is not obligated to purchase excess servicing spread or servicing rights from the Company, and is not obligated to engage the Company to perform servicing activities; however, the Company anticipates that it will enter into additional arrangements of this nature with WCO in the future, subject to mutual agreement on the terms of any such arrangements.

Sub-servicing fees from WCO were $1.0 million during the three months ended March 31, 2016 and are included in net servicing revenue and fees on the consolidated statement of comprehensive loss. In addition, the Company earned incentive and performance fees and ancillary and other fees related to servicing assets held by WCO of $0.2 million for the three months ended March 31, 2016, which are included in net servicing revenue and fees on the consolidated statement of comprehensive loss.

WCO lacks sufficient equity at risk to finance its activities without subordinated financial support and as such is a VIE. WCO’s board of directors have decision making authority as it relates to the activities that most significantly impact the economic performance of WCO, including making decisions related to significant investments, servicing, capital and debt financing. As a result, the Company is not deemed to be the primary beneficiary of WCO as it does not have the power to direct the activities that most significantly impact WCO’s economic performance.

The following table presents the carrying amounts of the Company’s assets and liabilities that relate to WCO, as well as the size of the unconsolidated VIE (in thousands):



	Carrying Value of Assets and Liabilities Recorded on the Consolidated Balance Sheet
	Servicing Rights, Net		Servicer and Protective Advances, Net		Receivables, Net		Other Assets ⁽¹⁾		Payables and Accrued Liabilities			Servicing Rights Related Liabilities			Net Liabilities ⁽²⁾			Size of VIE ⁽³⁾
March 31, 2016	$	13,763	$	6,303	$	7,344	$	22,110	$	(5,140	)	$	(105,559	)	$	(61,179	)	$	214,975
December 31, 2015	16,889		7,015		9,814		$	23,578	$	(4,500	)	(117,000		)	(64,204		)	228,361

__________


(1)	Other assets at March 31, 2016 and December 31, 2015 primarily include the Company's investment in WCO.


(2)	At March 31, 2016 and December 31, 2015, the Company had no net exposure to loss as it relates to transactions with WCO as a result of its net liabilities due to WCO.


(3)	The size of the VIE is deemed to be WCO's net assets.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The terms "Walter Investment," the "Company," "we," "us," and "our" as used throughout this report refer to Walter Investment Management Corp. and its consolidated subsidiaries. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 29, 2016 and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in that Annual Report on Form 10-K. Historical results and trends discussed herein and therein may not be indicative of future operations, particularly in light of regulatory developments. Our results of operations and financial condition, as reflected in the accompanying consolidated financial statements and related footnotes, reflect management’s evaluation and interpretation of business conditions, changing capital market conditions, and other factors. We use certain acronyms and terms throughout this Quarterly Report on Form 10-Q that are defined in the Glossary of Terms of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Our website can be found at www.walterinvestment.com. We make available free of charge on our website or provide a link on our website to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the SEC. To access these filings, go to our website, click on “Investor Relations” and then click on "SEC Filings." We also make available through our website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as our Code of Conduct and Ethics, our Corporate Governance Guidelines, and charters for our Audit Committee, Compensation and Human Resources Committee, Nominating and Corporate Governance Committee, Finance Committee, and Compliance Committee. In addition, our website may include disclosure relating to certain non-GAAP financial measures that we may make public orally, telephonically, by webcast, by broadcast, or by similar means from time to time.

From time to time, we may use our website as a channel of distribution of material company information. Financial and other material information regarding the Company is routinely posted on and accessible at http://investor.walterinvestment.com.

Any information on our website or obtained through our website is not part of this Quarterly Report on Form 10-Q.

Our Investor Relations Department can be contacted at 3000 Bayport Drive, Suite 1100, Tampa, Florida 33607, Attn: Investor Relations, telephone (813) 421-7694.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

Certain statements in this report, including matters discussed under this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Part II, Item 1. Legal Proceedings, and elsewhere in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that are not historical fact are forward-looking statements. Certain of these forward-looking statements can be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “assumes,” “may,” “should,” “will,” “targets,” or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, and our actual results, performance or achievements could differ materially from future results, performance or achievements expressed in these forward-looking statements. These forward-looking statements are based on our current beliefs, intentions and expectations. These statements are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described below and in more detail under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015, this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016 and in our other filings with the SEC.

In particular (but not by way of limitation), the following important factors, risks and uncertainties could affect our future results, performance and achievements and could cause actual results, performance and achievements to differ materially from those expressed in the forward-looking statements:


•	our ability to operate our business in compliance with existing and future rules and regulations affecting our business, including those relating to the origination and servicing of residential loans, the management of third-party assets and the insurance industry (including lender-placed insurance), and changes to, and/or more stringent enforcement of, such rules and regulations;


•	increased scrutiny and potential enforcement actions by federal and state authorities;

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•	the substantial resources (including senior management time and attention) we devote to, and the significant compliance costs we incur in connection with, regulatory compliance and regulatory examinations and inquiries, and any consumer redress, fines, penalties or similar payments we make in connection with resolving such matters;


•	uncertainties relating to interest curtailment obligations and any related financial and litigation exposure (including exposure relating to false claims);


•	potential costs and uncertainties, including the effect on future revenues, associated with and arising from litigation, regulatory investigations and other legal proceedings;

•

our dependence on U.S. government-sponsored entities (especially Fannie Mae) and agencies and their residential loan programs and our ability to maintain relationships with, and remain qualified to participate in programs sponsored by, such entities, our ability to satisfy various existing or future GSE, agency and other capital, net worth, liquidity and other financial requirements applicable to our business, and our ability to remain qualified as a GSE approved seller, servicer or component servicer, including the ability to continue to comply with the GSEs’ respective residential loan and selling and servicing guides;


•	uncertainties relating to the status and future role of GSEs, and the effects of any changes to the origination and/or servicing requirements of the GSEs or various regulatory authorities or the servicing compensation structure for mortgage servicers pursuant to programs of GSEs or various regulatory authorities;


•	our ability to maintain our loan servicing, loan origination, insurance agency or collection agency licenses, or any other licenses necessary to operate our businesses, or changes to, or our ability to comply with, our licensing requirements;


•	our ability to comply with the terms of the stipulated order resolving allegations arising from an FTC and CFPB investigation of Ditech Financial;


•	operational risks inherent in the mortgage servicing and mortgage originations businesses, including our ability to comply with the various contracts to which we are a party and reputational risks;


•	risks related to our substantial levels of indebtedness, including our ability to comply with covenants contained in our debt agreements, generate sufficient cash to service such indebtedness and refinance such indebtedness on favorable terms, as well as our ability to incur substantially more debt;


•	our ability to renew advance financing facilities or warehouse facilities and maintain borrowing capacity under such facilities;


•	our ability to maintain or grow our servicing business and our residential loan originations business;

•

our ability to achieve our strategic initiatives, particularly our ability to: execute and complete balance sheet management activities; execute and realize improvements relating to our re-engineering project; make arrangements with potential capital partners; complete sales of assets to, and enter into other arrangements with, WCO; increase the mix of our fee-for-service business; reduce our debt; enhance efficiencies and streamline processes; and develop new business, including acquisitions of MSRs or entering into new sub-servicing arrangements;


•	uncertainties relating to the potential sale of substantially all of our insurance business, including (i) the outcome of an on-going review of aspects of such potential sale by certain regulatory authorities, (ii) our ability to finalize and execute agreements relating to such potential sale, and (iii) our ability to complete such potential sale;


•	changes in prepayment rates and delinquency rates on the loans we service or sub-service;


•	the ability of our clients and credit owners to transfer or otherwise terminate our servicing or sub-servicing rights;


•	a downgrade of, or other adverse change relating to, our servicer ratings or credit ratings;


•	our ability to collect reimbursements for servicing advances and earn and timely receive incentive payments and ancillary fees on our servicing portfolio;


•	our ability to collect indemnification payments and enforce repurchase obligations relating to mortgage loans we purchase from our correspondent clients and our ability to collect in a timely manner indemnification payments relating to servicing rights we purchase from prior servicers;


•	local, regional, national and global economic trends and developments in general, and local, regional and national real estate and residential mortgage market trends in particular, including the volume and pricing of home sales and uncertainty regarding the levels of mortgage originations and prepayments;

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•	uncertainty as to the volume of originations activity we will benefit from prior to, and following, the expiration of HARP, which is scheduled to occur on December 31, 2016, including uncertainty as to the number of "in-the-money" accounts we may be able to refinance;

•

risks associated with the origination, securitization and servicing of reverse mortgages, including changes to reverse mortgage programs operated by FHA, HUD or Ginnie Mae, our ability to accurately estimate interest curtailment liabilities, continued demand for HECM loans and other reverse mortgages, our ability to fund HECM repurchase obligations, our ability to fund principal additions on our HECM loans, and our ability to securitize our HECM loans and tails;


•	our ability to realize all anticipated benefits of past, pending or potential future acquisitions or joint venture investments;


•	the effects of competition on our existing and potential future business, including the impact of competitors with greater financial resources and broader scopes of operation;


•	changes in interest rates and the effectiveness of any hedge we may employ against such changes;


•	risks and potential costs associated with technology and cybersecurity, including: the risks of technology failures and of cyber-attacks against us or our vendors; our ability to adequately respond to actual or alleged cyber-attacks; and our ability to implement adequate internal security measures and protect confidential borrower information;


•	risks and potential costs associated with the implementation of new technology such as MSP, the use of vendors or the transfer of our servers or other infrastructure to new data center facilities;


•	our ability to comply with evolving and complex accounting rules, many of which involve significant judgment and assumptions;


•	uncertainties regarding impairment charges relating to our goodwill or other intangible assets;


•	our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures;


•	our ability to manage conflicts of interest relating to our investment in WCO and maintain our relationship with WCO; and

•

risks related to our relationship with Walter Energy and uncertainties arising from or relating to its bankruptcy filings, including potential liability for any taxes, interest and/or penalties owed by the Walter Energy consolidated group for the full or partial tax years during which certain of the Company's former subsidiaries were a part of such consolidated group and certain other tax risks allocated to us in connection with our spin-off from Walter Energy.

All of the above factors, risks and uncertainties are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors, risks and uncertainties emerge from time to time, and it is not possible for our management to predict all such factors, risks and uncertainties.

Although we believe that the assumptions underlying the forward-looking statements (including those relating to our outlook) contained herein are reasonable, any of the assumptions could be inaccurate, and therefore any of these statements included herein may prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made, except as otherwise required under the federal securities laws. If we were in any particular instance to update or correct a forward-looking statement, investors and others should not conclude that we would make additional updates or corrections thereafter except as otherwise required under the federal securities laws.

In addition, this report may contain statements of opinion or belief concerning market conditions and similar matters. In certain instances, those opinions and beliefs could be based upon general observations by members of our management, anecdotal evidence and/or our experience in the conduct of our business, without specific investigation or statistical analyses. Therefore, while such statements reflect our view of the industries and markets in which we are involved, they should not be viewed as reflecting verifiable views and such views may not be shared by all who are involved in those industries or markets.

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Executive Summary

The Company

We are a diversified mortgage banking firm focused primarily on servicing and originating residential loans, including reverse loans. We service a wide array of loans across the credit spectrum for our own portfolio and for GSEs, government agencies, third-party securitization trusts and other credit owners. Through our consumer and correspondent lending channels, we originate and purchase residential loans that we predominantly sell to GSEs and government entities. In addition, we operate several other complementary businesses that include managing a portfolio of credit-challenged, non-conforming residential mortgage loans; an insurance agency serving borrowers and credit owners of our servicing portfolio; a post charge-off collection agency; and an asset management business through our SEC registered investment advisor. These supplemental businesses allow us to leverage our core servicing capabilities and consumer base to generate complementary revenue streams.

At March 31, 2016, we serviced 2.3 million residential loans with a total unpaid principal balance of $275.7 billion. We have been one of the 10 largest residential loan servicers in the U.S. by unpaid principal balance for the past three years according to Inside Mortgage Finance. Our originations business originated $5.0 billion in mortgage loan volume during the first quarter of 2016, ranking it in the top 20 originators nationally by unpaid principal balance according to Inside Mortgage Finance. Our reverse mortgage business is a leading integrated franchise in the reverse mortgage sector and, according to an industry source, was the sixth leading issuer of HMBS during the first quarter of 2016.

During the three months ended March 31, 2016, we added to the unpaid principal balance of our third-party mortgage loan servicing portfolio: $4.4 billion relating to acquired servicing rights, $9.9 billion relating to sub-servicing contracts and $3.5 billion relating to servicing rights capitalized upon sales of mortgage loans, while also adding $664.4 million to our third-party reverse loan servicing portfolio. Our third-party mortgage loan and reverse mortgage servicing portfolio was reduced by $9.2 billion of unpaid principal balance in payoffs and sales, net of recapture activities, during the three months ended March 31, 2016. In the same period, we originated and purchased $184.4 million in reverse mortgage volume and issued $187.9 million in HMBS.

Our mortgage loan originations business diversifies our revenue base and offers various sources for replenishing and growing the Company's servicing portfolio. During the three months ended March 31, 2016, we originated $1.8 billion of mortgage loans, the majority of which resulted from retention activities associated with our existing servicing portfolio. Through our retention activities, we assist consumers in refinancing their loans, which reduces the runoff on our existing servicing portfolio. In addition, we purchased $3.2 billion of mortgage loans through our correspondent channel during the three months ended March 31, 2016. Substantially all of these purchased and originated mortgage loans were added to our servicing portfolio upon loan sale.

We manage our Company in three reportable segments: Servicing, Originations, and Reverse Mortgage. A description of the business conducted by each of these segments is provided below:

Servicing — Our Servicing segment consists of operations that perform servicing for third-party credit owners of mortgage loans for a fee and the Company’s own mortgage loan portfolio. The Servicing segment also operates complementary businesses consisting of an insurance agency serving residential loan borrowers and credit owners and a collections agency which performs collections of post charge-off deficiency balances for third parties and the Company. In addition, the Servicing segment holds the assets and mortgage-backed debt of the Residual Trusts.

Originations — Our Originations segment consists of operations that originate and purchase mortgage loans that are intended for sale to third parties. During the three months ended March 31, 2016, the mix of mortgage loans sold by our Originations segment, based on unpaid principal balance, consisted of (i) 47% Fannie Mae conventional conforming loans, (ii) 39% Ginnie Mae loans, and (iii) 14% Freddie Mac conventional conforming loans.

Reverse Mortgage — Our Reverse Mortgage segment consists of operations that purchase and originate HECMs that are securitized, but remain on the consolidated balance sheet as collateral for secured borrowings. This segment performs servicing for third-party credit owners and the Company and provides other complementary services for the reverse mortgage market, such as real estate owned property management and disposition.

Other — Our Other non-reportable segment primarily consists of the assets and liabilities of the Non-Residual Trusts, corporate debt and our asset management business, which we operate through GTIM.

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Overview

Our profitability is dependent on our ability to generate revenue, primarily from our servicing and originations businesses. Our Servicing segment revenue is primarily impacted by the size and mix of our capitalized servicing and sub-servicing portfolios and is generated through servicing of mortgage loans for clients and/or credit owners. Net servicing revenue and fees includes the change in fair value of servicing rights carried at fair value and the amortization of all other servicing rights. Our servicing fee income generation is influenced by the level and timing of entrance into sub-servicing contracts and purchases and sales of servicing rights. The fair value of our servicing rights is largely dependent on the size of the related portfolio, discount rates and prepayment and default speeds. Our Originations segment revenue, which is primarily gains on sales of loans, is impacted by interest rates and the volume of loans locked as well as the margins earned in our origination channels. Gains on sales of loans include the cost of additions to the representations and warranties reserve. Our Reverse Mortgage segment is impacted by new origination reverse loan volume, draws on existing reverse loans and the fair value of reverse loans and HMBS.

Our results of operations are also affected by expenses such as salaries and benefits, information technology, occupancy, legal and professional fees, the provision for uncollectible advances, curtailment, interest expense and other operating expenses. Refer to the Financial Highlights, Results of Operations and Business Segment Results sections below for further information.

Our principal sources of liquidity are the cash flows generated from our business segments and funds available from our 2013 Revolver, master repurchase agreements, mortgage loan servicing advance facilities, issuance of HMBS and excess servicing spread financing arrangements. We may generate additional liquidity through sales of MSRs, any portion thereof, or other assets.

Financial Highlights

Total revenues for the three months ended March 31, 2016 were $66.8 million, which represented a decline of $244.1 million, or 79%, as compared to the same period of 2015. The decrease in revenue reflects a decrease of $196.6 million in net servicing revenue and fees, primarily driven by $197.3 million in higher fair value losses on servicing rights; $40.8 million in lower net gains on sales of loans; and $19.8 million in lower interest income on loans. These decreases were partially offset by a $12.4 million increase in other revenues, combined with $4.4 million in higher net fair value gains on reverse loans and related HMBS obligations.

We recorded fair value losses on our servicing rights carried at fair value primarily as a result of a higher assumed conditional prepayment rate used to value our servicing rights and higher realization of expected cash flows driven by declining interest rates. We had lower net gains on sales of loans due primarily to a lower volume of locked loans, offset partially by a shift in mix from the lower margin correspondent channel to the higher margin consumer channel. We had lower interest income on loans primarily due to the sale of our residual interest in seven of the Residual Trusts in the second quarter of 2015.

Total expenses for the three months ended March 31, 2016 were $343.4 million, which represented a decline of $28.0 million, or 8%, as compared to the same period of 2015. We incurred $14.6 million in lower salaries and benefits primarily due to a decrease in compensation, benefits and incentives resulting from a lower average headcount, a decrease in commissions due to lower originations volume, a decrease in health benefits related to lower claims experience for our self-insured plan, and a decrease in share-based compensation due to higher forfeitures, partially offset by an increase in severance. In addition, we incurred $11.0 million in lower interest expense related to mortgage-backed debt primarily due to the aforementioned sale of our residual interest in seven of the Residual Trusts.

Our cash flows provided by operating activities were $202.7 million during the three months ended March 31, 2016. We finished the three months ended March 31, 2016 with $194.4 million in cash and cash equivalents. Cash flows provided by operating activities increased by $81.7 million during the three months ended March 31, 2016 as compared to the same period of 2015. The increase in cash provided by operating activities was primarily a result of an increase in cash provided by originations activities, resulting from a higher volume of loans sold in relation to originated loans. This increase was offset in part by a decrease in cash related to changes in assets and liabilities, including lower net collections of servicer and protective advances and a decrease in payables and accrued expenses.

Refer to the Results of Operations and Business Segment Results sections below for further information on the changes addressed above. Also included in our Business Segment Results is a discussion of changes in our non-GAAP financial measures. A description of our non-GAAP financial measures is included in the Non-GAAP Financial Measures section below.

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Strategy

Capital Efficiency

We are focused on using our capital efficiently. We continue to pursue three main strategies to bolster our servicing portfolio. First, we use our originations platform to refinance and retain loans in our current servicing portfolio as well as to generate new loans to add to our servicing portfolio. Second, we are planning to increase over time the portion of our servicing portfolio that is associated with sub-servicing contracts, which generate fee income for us with lower capital outlay, as compared to purchasing servicing rights. We expect certain banks and other owners of mortgage servicing rights (including potentially WCO) will seek to engage sub-servicers to assist with certain servicing portfolios, including portfolios of credit-sensitive and defaulted loans. We believe we are well-positioned to compete for such sub-servicing engagements, given the scale and track record of our servicing platform. Third, we may also, from time to time, consider acquiring mortgage servicing rights.

Although we remain committed to expanding our servicing portfolio, we expect to limit our investment in mortgage servicing rights. We plan to seek to sell mortgage servicing rights owned by us to WCO or to other third parties. We generally seek to sell such assets on the basis that we are retained by the buyer to sub-service such rights; however, from time to time we may sell the servicing rights with servicing released. We may also seek to sell excess servicing spread or other similar assets. Our strategy for growing our servicing portfolio generally depends on being able to collaborate with owners of servicing rights in this manner. Our ability to effect such collaborations will depend on various factors such as the capital available to such parties, their ability to purchase servicing rights at a price attractive to them and agreement between us and them on the price and terms for our sub-servicing engagement. In April 2016, we signed a letter of intent to sell Fannie Mae mortgage servicing rights associated with an unpaid principal loan balance of $4.6 billion to a third party and expect to release servicing with respect to such mortgage servicing rights should this transaction be consummated. We expect to close on this transaction in the second quarter of 2016, subject to satisfaction of customary closing conditions.

In 2015, in connection with our focus on efficient use of capital, we monetized certain non-core assets. In April 2015, we sold the residual interests in seven of the Residual Trusts and in the first quarter of 2015 we sold an equity method investment, as described in Business Segment Results. Further, we continue to work on a potential sale of substantially all of our insurance business. We have entered into a non-binding letter of intent relating to such sale, and are in the process of negotiating final sale and other ancillary agreements with the buyer. Pursuant to such draft agreements we would, among other things, receive approximately $150 million from the buyer, which cash purchase price may be adjusted as specified in the draft agreements. We have also sought guidance on aspects of the proposed transaction from certain regulatory authorities and, once we have received sufficient input from such authorities, we will seek to finalize and execute the draft agreements. Because events could occur that could cause the proposed transaction to be modified or canceled, there can be no assurance that the sale will be consummated as currently contemplated under the draft agreements relating thereto, or at all. We may consider other asset sale opportunities if they arise.

During the three months ended March 31, 2016, we repurchased $7.2 million in principal balance of the 2013 Term Loan for $6.3 million as part of our efforts to strengthen the capital structure of the Company. We intend to pursue opportunities designed to further strengthen the Company’s capital structure through the efficient deployment of capital generated from contemplated future actions including the aforementioned potential sale of the insurance business, potential sales of mortgage servicing rights or excess servicing spread or other assets, as well as cash generated from our operations.

From time to time, we may look to selectively grow and add to our complementary businesses which leverage our core servicing portfolio and mortgage banking platform.

Operational Efficiency

In conjunction with our exit from the Originations segment's consumer retail channel in January 2016, we continued our expense reduction efforts and further reorganized Ditech Financial in an attempt to improve our efficiency. One-time costs associated with the measures taken in January 2016 were approximately $4 million. The consumer retail channel incurred a direct margin loss of approximately $11 million in 2015. In addition to the elimination of this loss in future annual periods, the January 2016 reorganization activities are expected to result in additional annual cost savings of approximately $17 million, with approximately $15 million to be realized in 2016. Further, as part of our ongoing technology improvement and customer experience enhancement initiatives, we commenced a project in February 2016 to review many of our operating processes. We expect to complete our initial review of such processes in the second quarter of 2016 and plan to move forward with implementation of identified action items thereafter.

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While we have been successful in implementing certain cost saving initiatives and we plan to continue to take actions across our businesses to improve efficiency and reduce expense, certain other costs have risen or are expected to rise. For example, we have been making investments and taking other measures to enhance the structure and effectiveness of our compliance and risk processes and associated programs across the Company, with a view to driving continuous improvement in our compliance results. The mortgage industry generally, including our Company, is subject to extensive and evolving regulation and continues to be under scrutiny from federal and state regulators and other government agencies. This oversight has led, in our case, to ongoing investigations and examinations of several of our business areas, and we have been and will be required to dedicate internal and external resources to providing information to and otherwise cooperating with such regulators and government agencies. In addition, we have incurred, and expect that in the future we will incur, expenses (i) associated with the remediation or other resolution of findings or concerns raised by regulators, government agencies and customers, (ii) to enhance the effectiveness of our risk and compliance program and (iii) to otherwise rectify instances of operational issues and other events of noncompliance discovered through our compliance program or otherwise. These investments to enhance our compliance and risk processes are also intended to result in an improved customer experience and competitive advantage for our business.

Walter Capital Opportunity Corp.

In 2014, we established WCO, a company formed to invest in mortgage-related assets, including MSRs, excess servicing spread related to MSRs, residential whole loans, agency mortgage-backed securities and other real estate-related securities and related derivatives, (i) to facilitate our transition toward a business model in which, where appropriate and feasible, we sub-service and manage mortgage-related assets owned by third parties rather than by us, and (ii) to grow our investment management business.

As of March 31, 2016, WCO had aggregate total capital commitments of $245.0 million, of which approximately $220.0 million had been funded, including the entirety of our $20.0 million capital commitment. We also own warrants to purchase additional equity in WCO.

Concurrently with the first funding of WCO capital commitments in July 2014:

(i)

we entered into a management agreement with WCO pursuant to which GTIM was appointed the manager of WCO. Under the management agreement, GTIM provides investment advisory and management services to WCO and administers its business activities and day-to-day operations, including providing the management team of WCO (which is comprised of persons that are also officers and/or employees of the Company) and counseling WCO regarding its qualification as a REIT. GTIM provides its services under the management agreement subject to the supervision of WCO’s board of directors, which was comprised of four members as of March 31, 2016, one of which is also a director and officer of Walter Investment. Pursuant to the management agreement, GTIM is entitled to earn a base management fee and certain performance-based incentive fees. The management agreement has an initial four-year term, with automatic one-year renewal periods;

(ii)

we entered into a contribution agreement with WCO, which was subsequently amended, and pursuant thereto, in May 2015, contributed 100% of the equity of Marix to WCO (Marix holds certain state licenses to own MSRs and is an approved Freddie Mac and Fannie Mae servicer; however, any transfer to Marix of an MSR relating to a GSE mortgage loan would require the consent of the applicable GSE, and potentially other approvals);


(iii)	we sold to WCO a portion of the excess servicing spread associated with certain mortgage loans serviced by us for $75.4 million; and


(iv)	we entered into various other ancillary agreements with WCO pursuant to which, among other things, WCO has the right to make the first offer to purchase servicing rights relating to certain mortgage loans we originate and certain excess servicing spread that we may create from time to time.

In November 2015, we entered into additional arrangements with WCO:


(i)	we sold to WCO excess servicing spread associated with certain mortgage loans serviced by us for $46.8 million;


(ii)	we sold mortgage servicing rights originated by Ditech Financial to WCO for $17.8 million;


(iii)	we entered into a sub-servicing arrangement with WCO pursuant to which we sub-service the mortgage loans underlying the mortgage servicing rights sold by Ditech Financial to WCO in exchange for a sub-servicing fee; and


(iv)	Ditech Financial was engaged by WCO to offer refinancing options to borrowers with mortgage loans underlying the aforementioned excess spread sale transaction and mortgage servicing rights transaction for purposes of minimizing portfolio runoff.

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In addition, we have entered into servicing and sub-servicing arrangements with WCO pursuant to which we service residential whole loans acquired by WCO from a third party in exchange for a servicing fee and sub-service GSE mortgage loans underlying mortgage servicing rights acquired by WCO from a third party in exchange for a sub-servicing fee. Ditech Financial was also engaged by WCO to offer refinancing options to borrowers with mortgage loans underlying the aforementioned sub-servicing arrangement for purposes of minimizing portfolio runoff.

We have sold excess servicing spread and servicing rights to WCO and have been engaged by WCO to service whole loans and sub-service mortgage loans underlying mortgage servicing rights owned by WCO. We anticipate that we may enter into additional arrangements of this nature with WCO in the future, subject to mutual agreement on the terms of any such arrangements. However, WCO is not obligated to purchase excess servicing spread or servicing rights from us, to utilize us to service any whole loans it may acquire, or to utilize us to sub-service any servicing rights it may acquire from us or others. WCO has been seeking to raise additional debt and equity capital and has been considering other potential strategic transactions, including potential mergers and asset acquisitions. There can be no assurance WCO will successfully consummate any of these strategic transactions, and the impact, if any, of any such transactions on our business, financial condition and liquidity is uncertain.

Regulatory Developments

Our business is subject to extensive regulation by federal, state and local authorities, including the CFPB, HUD, VA, the SEC and various state agencies that license, audit and conduct examinations of our mortgage servicing and mortgage originations businesses. We are also subject to a variety of regulatory and contractual obligations imposed by credit owners, investors, insurers and guarantors of the mortgages we originate and service, including, but not limited to, Fannie Mae, Freddie Mac, Ginnie Mae, FHFA and the VA/FHA. Furthermore, our industry has been under increased scrutiny by federal and state regulators over the past several years. We expect this scrutiny to continue. Laws, rules, regulations and practices that have been in place for many years may be changed, and new laws, rules, regulations and administrative guidance have been, and may continue to be, introduced in order to address real and perceived problems in our industry. We expect to incur ongoing operational, legal and system costs in order to comply with these rules and regulations.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information about the regulatory framework under which we operate.

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Results of Operations — Comparison of Consolidated Results of Operations (dollars in thousands)



	For the Three Months Ended March 31,						Variance
	2016			2015			$			%
REVENUES
Net servicing revenue and fees	$	(105,762	)	$	90,887		$	(196,649	)	(216	)%
Net gains on sales of loans	84,477			125,227			(40,750		)	(33	)%
Net fair value gains on reverse loans and related HMBS obligations	35,208			30,774			4,434			14	%
Interest income on loans	12,171			31,941			(19,770		)	(62	)%
Insurance revenue	10,367			14,131			(3,764		)	(27	)%
Other revenues	30,310			17,897			12,413			69	%
Total revenues	66,771			310,857			(244,086		)	(79	)%

EXPENSES
Salaries and benefits	132,639			147,228			(14,589		)	(10	)%
General and administrative	129,606			128,647			959			1	%
Interest expense	64,248			74,871			(10,623		)	(14	)%
Depreciation and amortization	14,423			16,632			(2,209		)	(13	)%
Other expenses, net	2,506			4,047			(1,541		)	(38	)%
Total expenses	343,422			371,425			(28,003		)	(8	)%

OTHER GAINS (LOSSES)
Gain on extinguishment	928			—			928			n/m
Other net fair value losses	(2,144		)	(872		)	(1,272		)	146	%
Other	(1,024		)	11,762			(12,786		)	(109	)%
Total other gains (losses)	(2,240		)	10,890			(13,130		)	(121	)%

Loss before income taxes	(278,891		)	(49,678		)	(229,213		)	461	%
Income tax benefit	(106,189		)	(18,670		)	(87,519		)	469	%
Net loss	$	(172,702	)	$	(31,008	)	$	(141,694	)	457	%

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Net Servicing Revenue and Fees

A summary of net servicing revenue and fees is provided below (dollars in thousands):



	For the Three Months Ended March 31,						Variance
	2016			2015			$			%
Servicing fees	$	177,754		$	171,732		$	6,022		4	%
Incentive and performance fees	19,772			31,738			(11,966		)	(38	)%
Ancillary and other fees	24,609			25,483			(874		)	(3	)%
Servicing revenue and fees	222,135			228,953			(6,818		)	(3	)%
Changes in valuation inputs or other assumptions ⁽¹⁾	(258,460		)	(74,534		)	(183,926		)	247	%
Other changes in fair value ⁽²⁾	(68,120		)	(54,701		)	(13,419		)	25	%
Change in fair value of servicing rights	(326,580		)	(129,235		)	(197,345		)	153	%
Amortization of servicing rights	(4,611		)	(7,013		)	2,402			(34	)%
Change in fair value of servicing rights related liabilities	3,294			(1,818		)	5,112			(281	)%
Net servicing revenue and fees	$	(105,762	)	$	90,887		$	(196,649	)	(216	)%

__________


(1)	Represents the net change in servicing rights carried at fair value resulting primarily from market-driven changes in interest rates and prepayment speeds.


(2)	Represents the realization of expected cash flows over time.

We recognize servicing revenue and fees on servicing performed for third parties in which we either own the servicing right or act as sub-servicer. This revenue includes contractual fees earned on the serviced loans, incentive and performance fees earned based on the performance of certain loans or loan portfolios serviced by us, and loan modification fees. Servicing revenue and fees also includes asset recovery income, which is included in incentive and performance fees, and ancillary fees such as late fees and expedited payment fees. Servicing revenue and fees are adjusted for the amortization and change in fair value of servicing rights and the change in fair value of the servicing rights related liabilities.

Servicing fees increased $6.0 million in the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to growth in the third-party servicing portfolio resulting from portfolio acquisitions and servicing rights capitalized as a result of our loan origination activities, partially offset by runoff of the servicing portfolio. Incentive and performance fees decreased $12.0 million in the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to lower modification fees, fees earned under HAMP, asset recovery income and real estate owned management fees. Ancillary and other fees remained relatively flat for the three months ended March 31, 2016 as compared to the same period of 2015. Refer to the Servicing segment section under our Business Segment Results section below for additional information on the changes in fair value relating to servicing rights and our servicing rights related liabilities.

Net Gains on Sales of Loans

Net gains on sales of loans include realized and unrealized gains and losses on loans held for sale, fair value adjustments on IRLCs and other related freestanding derivatives, values of the initial capitalized servicing rights, and a provision for the repurchase of loans. Net gains on sales of loans decreased $40.8 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily due to a lower volume of locked loans. Additionally, we had lower capitalized servicing rights due primarily to a lower volume of loans sold with servicing retained, coupled with a reduction in excess servicing retained on our sales transactions.

Interest Income on Loans

We earn interest income on the residential loans held in the Residual Trusts and on our unencumbered mortgage loans, both of which are accounted for at amortized cost. During April 2015, we sold our residual interest in seven of the Residual Trusts, or sale of residual interests, and deconsolidated the assets and liabilities of these trusts. Interest income decreased $19.8 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily due to the aforementioned sale of our residual interests in 2015, runoff of the overall mortgage loan portfolio and a lower average yield on loans due to an increase in delinquencies that are 90 days or more past due.

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Provided below is a summary of the average balances of residential loans carried at amortized cost and the related interest income and average yields (dollars in thousands):



	For the Three Months Ended March 31,
	2016			2015			Variance
Residential loans at amortized cost
Interest income	$	12,171		$	31,941		$	(19,770	)
Average balance ⁽¹⁾	549,878			1,316,410			(766,532		)
Annualized average yield	8.85		%	9.71		%	(0.86		)%

__________


(1)	Average balance is calculated as the average recorded investment in the loans at the beginning of each month during the period.

Net Fair Value Gains on Reverse Loans and Related HMBS Obligations

Net fair value gains on reverse loans and related HMBS obligations include the contractual interest income earned on reverse loans, including those not yet securitized or bought out of securitization pools, net of interest expense on HMBS related obligations, and the change in fair value of these assets and liabilities. Refer to the Reverse Mortgage segment discussion under our Business Segment Results section below for additional information including a detailed breakout of the components of net fair value gains on reverse loans and related HMBS obligations.

Net fair value gains on reverse loans and related HMBS obligations increased $4.4 million during the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to a larger decrease in the interest rate curve in 2016 as compared to 2015, offset in part by lower origination volumes. Reverse loans and related HMBS obligations are generally subject to net fair value gains when interest rates decline primarily as a result of a longer duration of reverse loans as compared to HMBS related obligations. Our reverse loans have longer durations primarily as a result of our obligations as issuer of HMBS, which includes the requirement to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM is equal to or greater than 98% of the maximum claim amount.

Insurance Revenue

Insurance revenue consists of commission income and fees earned on voluntary and lender-placed insurance policies issued and other products sold to borrowers, net of estimated future policy cancellations. Commission income is based on a percentage of the premium of the insurance policy issued, which varies based on the type of policy. Insurance revenue decreased $3.8 million for the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to the runoff of existing policies. In addition, in September 2015 we entered into an agreement to settle a litigation matter (which agreement remains subject to final court approval) pursuant to which we have agreed not to receive commissions as a result of the placement of certain lender-placed insurance policies for five years commencing 120 days from the effective date of the settlement.

Other Revenues

Other revenues consist primarily of the change in fair value of charged-off loans, origination fee income and other interest income. Other revenues increased $12.4 million for the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to $8.4 million in higher fair value gains relating to charged-off loans resulting from an increase in expected collections over time, and an increase in origination fee income of $7.0 million resulting from our having waived certain fees charged to borrowers refinancing mortgage loans during the first quarter of 2015, partially offset by a $2.9 million decrease in other interest income. Origination fee income was $11.6 million and $4.6 million for the three months ended March 31, 2016 and 2015, respectively.

Salaries and Benefits

Salaries and benefits decreased $14.6 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily due to a decrease in compensation, benefits and incentives resulting from a lower average headcount. In addition, we had a decrease in commissions due to lower originations volume, a decrease in health benefits related to lower claims experience for our self-insured plan, and a decrease in share-based compensation due to higher forfeitures, partially offset by an increase in severance. Headcount decreased by approximately 300 full time employees from approximately 6,000 at March 31, 2015 to approximately 5,700 at March 31, 2016.

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General and Administrative

Refer to the Business Segment Results section below for additional information regarding general and administrative expenses for each of our segments.

Interest Expense

We incur interest expense on our corporate debt, mortgage-backed debt issued by the Residual Trusts, master repurchase agreements and servicing advance liabilities, all of which are accounted for at amortized cost. Interest expense decreased for the three months ended March 31, 2016 as compared to the same period of 2015 driven by a decrease in interest expense related to mortgage-backed debt primarily as a result of the sale of our residual interests in April 2015, which required the deconsolidation of the related mortgage-backed debt, and the runoff of the overall related mortgage loan portfolio. Refer to the Liquidity and Capital Resources section below for additional information on our debt.

Provided below is a summary of the average balances of our corporate debt, servicing advance liabilities, master repurchase agreements, and mortgage-backed debt of the Residual Trusts, as well as the related interest expense and average rates (dollars in thousands):



	For the Three Months Ended March 31,
	2016			2015			Variance
Corporate debt ⁽¹⁾
Interest expense	$	35,897		$	36,750		$	(853	)
Average balance ⁽⁴⁾	2,184,415			2,269,144			(84,729		)
Annualized average rate	6.57		%	6.48		%	0.09		%

Servicing advance liabilities ⁽²⁾
Interest expense	$	11,182		$	10,873		$	309
Average balance ⁽⁴⁾	1,234,580			1,343,368			(108,788		)
Annualized average rate	3.62		%	3.24		%	0.38		%

Master repurchase agreements ⁽³⁾
Interest expense	$	9,860		$	8,911		$	949
Average balance ⁽⁴⁾	1,166,837			1,215,318			(48,481		)
Annualized average rate	3.38		%	2.93		%	0.45		%

Mortgage-backed debt of the Residual Trusts ⁽²⁾
Interest expense	$	7,309		$	18,337		$	(11,028	)
Average balance ⁽⁵⁾	468,861			1,111,987			(643,126		)
Annualized average rate	6.24		%	6.60		%	(0.36		)%

__________


(1)	Corporate debt includes our 2013 Term Loan, Senior Notes, and Convertible Notes. Corporate debt activities are included in the Other non-reportable segment.


(2)	Mortgage-backed debt of the Residual Trusts and servicing advance liabilities are held by our Servicing segment.


(3)	Master repurchase agreements are held by the Originations and Reverse Mortgage segments.


(4)	Average balance for corporate debt, servicing advance liabilities and master repurchase agreements is calculated as the average daily carrying value.


(5)	Average balance for mortgage-backed debt is calculated as the average carrying value at the beginning of each month during the period.

Gain on Extinguishment

During the three months ended March 31, 2016, we repurchased $7.2 million in principal balance of the 2013 Term Loan for $6.3 million resulting in a gain on extinguishment of $0.9 million.

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Other Gains (Losses)

Other gains of $11.8 million for the three months ended March 31, 2015 relate to the sale of an investment accounted for using the equity method.

Income Tax Benefit

We calculate income tax benefit based on our estimated annual effective tax rate which takes into account all expected ordinary activity for the calendar year. Our effective tax rate will always differ from the U.S. statutory tax rate of 35% due to state and local taxes and non-deductible expenses.

Income tax benefit increased $87.5 million for the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to an increase in loss before income taxes.

Non-GAAP Financial Measures

We manage our Company in three reportable segments: Servicing, Originations and Reverse Mortgage. We measure the performance of our business segments through the following measures: income (loss) before income taxes, Adjusted Earnings (Loss), and Adjusted EBITDA. Management considers Adjusted Earnings (Loss) and Adjusted EBITDA, both non-GAAP financial measures, to be important in the evaluation of our business segments and of the Company as a whole, as well as for allocating capital resources to our segments. Adjusted Earnings (Loss) and Adjusted EBITDA are supplemental metrics utilized by management to assess the underlying key drivers and operational performance of the continuing operations of the business. In addition, analysts, investors, and creditors may use these measures when analyzing our operating performance. Adjusted Earnings (Loss) and Adjusted EBITDA are not presentations made in accordance with GAAP and our use of these measures and terms may vary from other companies in our industry.

Adjusted Earnings (Loss) is defined as income (loss) before income taxes plus changes in fair value due to changes in valuation inputs and other assumptions; certain depreciation and amortization costs related to the increased basis in assets (including servicing rights and sub-servicing contracts) acquired within business combination transactions (or step-up depreciation and amortization); goodwill impairment, if any; a portion of the provision for curtailment expense, net of expected third-party recoveries; share-based compensation expense; non-cash interest expense; restructuring costs; estimated settlements and costs for certain legal and regulatory matters; fair value to cash adjustments for reverse loans; and select other cash and non-cash adjustments primarily including severance; gain or loss on extinguishment of debt; the net impact of the Non-Residual Trusts; transaction and integration costs; and certain non-recurring costs. Adjusted Earnings (Loss) excludes unrealized changes in fair value of MSRs that are based on projections of expected future cash flows and prepayments. Adjusted Earnings (Loss) includes both cash and non-cash gains from mortgage loan origination activities. Non-cash gains are net of non-cash charges or reserves provided. Adjusted Earnings (Loss) includes cash generated from reverse mortgage origination activities. Adjusted Earnings (Loss) may from time to time also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors with a supplemental means of evaluating our operating performance.

Adjusted EBITDA eliminates the effects of financing, income taxes and depreciation and amortization. Adjusted EBITDA is defined as income (loss) before income taxes; amortization of servicing rights and other fair value adjustments; interest expense on corporate debt; depreciation and amortization; goodwill impairment, if any; a portion of the provision for curtailment expense, net of expected third-party recoveries; share-based compensation expense; restructuring costs; estimated settlements and costs for certain legal and regulatory matters; fair value to cash adjustments for reverse loans; and select other cash and non-cash adjustments primarily the net provision for the repurchase of loans sold; non-cash interest income; severance; gain or loss on extinguishment of debt; interest income on unrestricted cash and cash equivalents; the net impact of the Non-Residual Trusts; the provision for loan losses; Residual Trust cash flows; transaction and integration costs; servicing fee economics; and certain non-recurring costs. Adjusted EBITDA includes both cash and non-cash gains from mortgage loan origination activities. Adjusted EBITDA excludes the impact of fair value option accounting on certain assets and liabilities and includes cash generated from reverse mortgage origination activities. Adjusted EBITDA may also include other adjustments, as applicable based upon facts and circumstances, consistent with the intent of providing investors a supplemental means of evaluating our operating performance.

Adjusted Earnings (Loss) and Adjusted EBITDA should not be considered as alternatives to (i) net income (loss) or any other performance measures determined in accordance with GAAP or (ii) operating cash flows determined in accordance with GAAP. Adjusted Earnings (Loss) and Adjusted EBITDA have important limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. Some of the limitations of these metrics are:


•	Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect cash expenditures for long-term assets and other items that have been and will be incurred, future requirements for capital expenditures or contractual commitments;

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•	Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;


•	Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect certain tax payments that represent reductions in cash available to us;


•	Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future;


•	Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect non-cash compensation which is and will remain a key element of our overall long-term incentive compensation package;


•	Adjusted Earnings (Loss) and Adjusted EBITDA do not reflect the change in fair value due to changes in valuation inputs and other assumptions;


•	Adjusted EBITDA does not reflect the change in fair value resulting from the realization of expected cash flows; and


•	Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our servicing rights related liabilities and corporate debt, although it does reflect interest expense associated with our servicing advance liabilities, master repurchase agreements, mortgage-backed debt, and HMBS related obligations.

Because of these limitations, Adjusted Earnings (Loss) and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted Earnings (Loss) and Adjusted EBITDA only as supplements. Users of our financial statements are cautioned not to place undue reliance on Adjusted Earnings (Loss) and Adjusted EBITDA.

The following tables reconcile Adjusted Earnings (Loss) and Adjusted EBITDA to loss before income taxes, which we consider to be the most directly comparable GAAP financial measure to Adjusted Earnings (Loss) and Adjusted EBITDA (in thousands):

Adjusted Loss



	For the Three Months Ended March 31, 2016
Loss before income taxes	$	(278,891	)
Adjustments to loss
Changes in fair value due to changes in valuation inputs and other assumptions ⁽¹⁾	240,329
Fair value to cash adjustment for reverse loans ⁽²⁾	(17,709		)
Step-up depreciation and amortization⁽³⁾	10,853
Restructuring costs ⁽⁴⁾	3,904
Non-cash interest expense	2,838
Share-based compensation expense	859
Other ⁽⁵⁾	9,155
Sub-total	250,229
Adjusted Loss	$	(28,662	)

__________


(1)	Consists of the change in fair value due to changes in valuation inputs and other assumptions relating to servicing rights, servicing rights related liabilities and charged-off loans.


(2)	Represents the non-cash fair value adjustment to arrive at cash generated from reverse mortgage origination activities.


(3)	Represents depreciation and amortization costs related to the increased basis in assets, including servicing and sub-servicing rights, acquired within business combination transactions.

(4)

Restructuring costs include expenses related to the closing of offices and the termination of certain employees as well as other expenses to institute efficiencies. Restructuring costs incurred in the three months ended March 31, 2016 include those relating to our exit from the consumer retail channel of the Originations segment and actions initiated in 2015 and 2016 in connection with our continued efforts to enhance efficiencies and streamline processes of the organization. Refer to Note 7 in the Notes to Consolidated Financial Statements included in Item 1 for additional information.


(5)	Includes severance, gain on extinguishment of debt, the net impact of the Non-Residual Trusts; transaction and integration costs; and certain non-recurring costs.

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Adjusted EBITDA



	For the Three Months Ended March 31, 2016
Loss before income taxes	$	(278,891	)
Adjustments to EBITDA
Amortization of servicing rights and other fair value adjustments ⁽¹⁾	313,059
Interest expense	38,603
Fair value to cash adjustment for reverse loans⁽²⁾	(17,709		)
Depreciation and amortization	14,423
Restructuring costs ⁽³⁾	3,904
Share-based compensation expense	859
Other ⁽⁴⁾	12,832
Sub-total	365,971
Adjusted EBITDA	$	87,080

__________


(1)	Consists of the change in fair value due to changes in valuation inputs and other assumptions relating to servicing rights, servicing rights related liabilities and charged-off loans as well as the amortization of servicing rights and the realization of expected cash flows relating to servicing rights carried at fair value.


(2)	Represents the non-cash fair value adjustment to arrive at cash generated from reverse mortgage origination activities.

(3)


(4)	Includes the net provision for the repurchase of loans sold, non-cash interest income, severance, gain on extinguishment of debt, interest income on unrestricted cash and cash equivalents, the net impact of the Non-Residual Trusts, the provision for loan losses, Residual Trust cash flows, transaction and integration costs; servicing fee economics; and certain non-recurring costs.

Business Segment Results

In calculating income (loss) before income taxes for our segments, we allocate indirect expenses to our business segments. Indirect expenses are allocated to our Servicing, Originations, Reverse Mortgage and certain non-reportable segments based on headcount.

We reconcile our income (loss) before income taxes for our business segments to our GAAP consolidated income (loss) before taxes and report the financial results of our Non-Residual Trusts, other non-reportable operating segments and certain corporate expenses as other activity. Refer below for further information on the results of operations for our Servicing, Originations and Reverse Mortgage segments. For a reconciliation of our income (loss) before income taxes for our business segments to our GAAP consolidated loss before income taxes, refer to Note 10 in the Notes to Consolidated Financial Statements.

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Reconciliation of GAAP Income (Loss) Before Income Taxes to Adjusted Earnings (Loss) and Adjusted EBITDA (in thousands):



	For the Three Months Ended March 31, 2016
	Servicing			Originations			Reverse Mortgage			Other			Total Consolidated
Income (loss) before income taxes	$	(256,321	)	$	16,401		$	5,027		$	(43,998	)	$	(278,891	)

Adjustments to income (loss)
Changes in fair value due to changes in valuation inputs and other assumptions	240,329			—			—			—			240,329
Fair value to cash adjustment for reverse loans	—			—			(17,709		)	—			(17,709		)
Step-up depreciation and amortization	6,734			295			895			—			7,924
Restructuring costs	1,881			1,796			—			227			3,904
Step-up amortization of sub-servicing rights	2,929			—			—			—			2,929
Non-cash interest expense	(29		)	—			—			2,867			2,838
Share-based compensation expense	781			(587		)	313			352			859
Other	2,504			—			1,048			5,603			9,155
Total adjustments	255,129			1,504			(15,453		)	9,049			250,229
Adjusted Earnings (Loss)	(1,192		)	17,905			(10,426		)	(34,949		)	(28,662		)

EBITDA adjustments
Amortization of servicing rights and other fair value adjustments	69,341			—			460			—			69,801
Interest expense on debt	2,735			—			—			33,030			35,765
Depreciation and amortization	4,047			2,050			393			9			6,499
Other	(335		)	3,801			33			178			3,677
Total adjustments	75,788			5,851			886			33,217			115,742
Adjusted EBITDA	$	74,596		$	23,756		$	(9,540	)	$	(1,732	)	$	87,080

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	For the Three Months Ended March 31, 2015
	Servicing			Originations		Reverse Mortgage			Other			Total Consolidated
Income (loss) before income taxes	$	(50,672	)	$	41,798	$	(13,457	)	$	(27,347	)	$	(49,678	)

Adjustments to income (loss)
Changes in fair value due to changes in valuation inputs and other assumptions	73,771			—		—			—			73,771
Curtailment expense	—			—		16,074			—			16,074
Fair value to cash adjustment for reverse loans	—			—		(4,355		)	—			(4,355		)
Step-up depreciation and amortization	7,044			1,170		1,328			—			9,542
Restructuring costs	405			191		—			540			1,136
Step-up amortization of sub-servicing rights	4,887			—		—			—			4,887
Non-cash interest expense	755			—		—			2,564			3,319
Share-based compensation expense	2,005			797		536			85			3,423
Other	1,946			337		(1,399		)	2,789			3,673
Total adjustments	90,813			2,495		12,184			5,978			111,470
Adjusted Earnings (Loss)	40,141			44,293		(1,273		)	(21,369		)	61,792

EBITDA adjustments
Amortization of servicing rights and other fair value adjustments	56,272			—		555			—			56,827
Interest expense on debt	2,596			—		1			34,170			36,767
Depreciation and amortization	4,429			2,017		640			4			7,090
Other	(318		)	403		74			61			220
Total adjustments	62,979			2,420		1,270			34,235			100,904
Adjusted EBITDA	$	103,120		$	46,713	$	(3	)	$	12,866		$	162,696

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Servicing

Provided below is a summary of results of operations, Adjusted Earnings (Loss) and Adjusted EBITDA for our Servicing segment (dollars in thousands):



	For the Three Months Ended March 31,						Variance
	2016			2015			$			%
Net servicing revenue and fees
Third parties	$	(112,671	)	$	79,481		$	(192,152	)	(242	)%
Intercompany	3,151			2,346			805			34	%
Total net servicing revenue and fees	(109,520		)	81,827			(191,347		)	(234	)%
Interest income on loans	12,158			31,916			(19,758		)	(62	)%
Insurance revenue	10,367			14,131			(3,764		)	(27	)%
Intersegment retention revenue	11,533			8,081			3,452			43	%
Net losses on sales of loans	(4,536		)	(91		)	(4,445		)	n/m
Other revenues	16,743			7,899			8,844			112	%
Total revenues	(63,255		)	143,763			(207,018		)	(144	)%
General and administrative and allocated indirect expenses	94,980			80,590			14,390			18	%
Salaries and benefits	67,620			69,823			(2,203		)	(3	)%
Interest expense	18,562			29,225			(10,663		)	(36	)%
Depreciation and amortization	10,781			11,473			(692		)	(6	)%
Other expenses, net	1,214			3,090			(1,876		)	(61	)%
Total expenses	193,157			194,201			(1,044		)	(1	)%
Other net fair value gains (losses)	91			(234		)	325			(139	)%
Loss before income taxes	(256,321		)	(50,672		)	(205,649		)	406	%

Adjustments to loss
Changes in fair value due to changes in valuation inputs and other assumptions	240,329			73,771			166,558			226	%
Step-up depreciation and amortization	6,734			7,044			(310		)	(4	)%
Step-up amortization of sub-servicing rights	2,929			4,887			(1,958		)	(40	)%
Restructuring costs	1,881			405			1,476			364	%
Share-based compensation expense	781			2,005			(1,224		)	(61	)%
Non-cash interest expense	(29		)	755			(784		)	(104	)%
Other	2,504			1,946			558			29	%
Total adjustments	255,129			90,813			164,316			181	%
Adjusted Earnings (Loss)	(1,192		)	40,141			(41,333		)	(103	)%

EBITDA adjustments
Amortization of servicing rights and other fair value adjustments	69,341			56,272			13,069			23	%
Depreciation and amortization	4,047			4,429			(382		)	(9	)%
Interest expense on debt	2,735			2,596			139			5	%
Other	(335		)	(318		)	(17		)	5	%
Total adjustments	75,788			62,979			12,809			20	%
Adjusted EBITDA	$	74,596		$	103,120		$	(28,524	)	(28	)%

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Mortgage Loan Servicing Portfolio

Our Servicing segment services loans for which we own the servicing right and on behalf of other servicing right or mortgage loan owners, which we refer to as “sub-servicing.” A sub-servicing asset (or liability) is recognized on our consolidated balance sheets when the sub-servicing fee is deemed to be greater (or lower) than adequate compensation for the servicing activities performed by the Company. No sub-servicing asset or liability is recorded if the amounts earned represent adequate compensation. Generally, no servicing asset or liability is recognized when we enter into new sub-servicing contracts; however, previously existing contracts acquired in a business combination may be deemed to provide greater (or lower) than adequate compensation as compared to market conditions at the time of the transaction.

Provided below are summaries of the activity in our mortgage loan servicing portfolio (dollars in thousands):



	For the Three Months Ended March 31, 2016					For the Three Months Ended March 31, 2015
	Number of Accounts		Unpaid Principal Balance			Number of Accounts		Unpaid Principal Balance
Third-party servicing portfolio ⁽¹⁾
Balance at beginning of the period	2,087,618		$	244,124,312		2,142,689		$	234,905,729
Loan sales with servicing retained	16,557		3,469,469			16,626		3,803,663
Other new business added ⁽²⁾	78,849		14,264,595			14,340		3,541,923
Payoffs and sales, net ⁽²⁾ ⁽³⁾	(64,316	)	(8,766,833		)	(69,459	)	(8,971,933		)
Balance at end of the period	2,118,708		253,091,543			2,104,196		233,279,382
On-balance sheet residential loans and real estate owned ⁽⁴⁾	35,080		2,197,230			55,648		3,146,850
Total mortgage loan servicing portfolio	2,153,788		$	255,288,773		2,159,844		$	236,426,232

__________


(1)	Third-party servicing includes servicing rights capitalized, sub-servicing rights capitalized and sub-servicing rights not capitalized. Sub-servicing rights capitalized consist of contracts acquired through business combinations whereby the benefits from the contract are greater than adequate compensation for performing the servicing.


(2)	Consists of activities associated with servicing and sub-servicing contracts.


(3)	Amounts presented are net of loan sales associated with servicing retained multi-channel recapture activities of $1.7 billion and $1.6 billion for the three months ended March 31, 2016 and 2015, respectively.


(4)	On-balance sheet residential loans and real estate owned primarily includes mortgage loans held for sale as well as assets of the Non-Residual Trusts and Residual Trusts.

The annualized portfolio disappearance rate, consisting of contractual payments, voluntary prepayments, and defaults, of the total mortgage loan portfolio was 12.98% and 13.79% for the three months ended March 31, 2016 and 2015, respectively.

The Servicing segment receives intercompany servicing fees related to on-balance sheet assets of the Originations segment and the Other non-reportable segment. Provided below are summaries of the composition of our mortgage loan servicing portfolio (dollars in thousands):



	At March 31, 2016
	Number of Accounts	Unpaid Principal Balance		Weighted Average Contractual Servicing Fee		30 Days or More Past Due ⁽¹⁾
Third-party servicing portfolio
First lien mortgages	1,724,425	$	241,108,201	0.27	%	9.31	%
Second lien mortgages	170,672	5,541,112		0.44	%	3.24	%
Manufactured housing and other	223,611	6,442,230		1.09	%	5.87	%
Total accounts serviced for third parties ^{(2) (3)}	2,118,708	253,091,543		0.29	%	9.09	%
On-balance sheet residential loans and real estate owned ⁽⁴⁾	35,080	2,197,230				5.94	%
Total mortgage loan servicing portfolio	2,153,788	$	255,288,773			9.06	%

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	At December 31, 2015
	Number of Accounts	Unpaid Principal Balance		Weighted Average Contractual Servicing Fee		30 Days or More Past Due ⁽¹⁾
Third-party servicing portfolio
First lien mortgages	1,676,307	$	231,637,730	0.27	%	9.09	%
Second lien mortgages	179,594	5,823,302		0.46	%	3.41	%
Manufactured housing and other	231,717	6,663,280		1.09	%	6.42	%
Total accounts serviced for third parties ^{(2) (3)}	2,087,618	244,124,312		0.30	%	8.88	%
On-balance sheet residential loans and real estate owned ⁽⁴⁾	36,857	2,439,806				5.07	%
Total mortgage loan servicing portfolio	2,124,475	$	246,564,118			8.85	%

__________

(1)

Past due status is measured based on either the MBA method or the OTS method as specified in the servicing agreement. Under the MBA method, a loan is considered past due if its monthly payment is not received by the end of the day immediately preceding the loan's next due date. Under the OTS method, a loan is considered past due if its monthly payment is not received by the loan's due date in the following month. Past due status is based on the current contractual due date of the loan, except in the case of an approved repayment plan, including a plan approved by the bankruptcy court, or a completed loan modification, in which case past due status is based on the modified due date or status of the loan.


(2)	Consists of $195.8 billion and $57.3 billion in unpaid principal balance associated with servicing and sub-servicing contracts, respectively, at March 31, 2016 and $194.8 billion and $49.3 billion, respectively, at December 31, 2015.


(3)	Includes $6.5 billion and $6.6 billion in unpaid principal balance of sub-servicing performed for WCO at March 31, 2016 and December 31, 2015, respectively, and $1.7 billion associated with servicing rights sold to WCO at March 31, 2016 and December 31, 2015. Refer to Note 13 for further information.


(4)	Includes residential loans and real estate owned held by the Servicing segment for which it does not recognize servicing fees.

The unpaid principal balance of our third-party servicing portfolio increased $9.0 billion at March 31, 2016 as compared to December 31, 2015 primarily due to our originations sales with servicing retained and servicing and sub-servicing portfolio acquisitions, partially offset by runoff of the portfolio. Sub-servicing portfolio acquisitions include servicing acquired through the RCS asset acquisition and new sub-servicing performed for WCO. The decrease in the unpaid principal balance of our on-balance sheet residential loans and real estate owned of $242.6 million can be attributed to a decrease in mortgage loans held for sale of $227.8 million and portfolio runoff of the assets held by the Residual and Non-Residual Trusts.

The delinquencies associated with our first lien mortgages increased at March 31, 2016 as compared to December 31, 2015 as a result of the addition of delinquent loans to our servicing portfolio, offset in part by the favorable impact of seasonality as delinquencies tend to decrease in the first quarter. The delinquencies associated with our second lien mortgages and manufactured housing and other categories have decreased as a result of the favorable impact of seasonality. The delinquencies associated with our on-balance sheet residential loans and real estate owned have increased as a result of the increase in delinquent mortgage loans whereby we have the unilateral right to repurchase from Ginnie Mae that we are required to record on our consolidated balance sheet, partially offset by the favorable impact of seasonality.

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Net Servicing Revenue and Fees

A summary of net servicing revenue and fees for our Servicing segment is provided below (dollars in thousands):



	For the Three Months Ended March 31,						Variance
	2016			2015			$			%
Servicing fees	$	176,355		$	170,706		$	5,649		3	%
Incentive and performance fees	17,418			25,109			(7,691		)	(31	)%
Ancillary and other fees	24,144			23,523			621			3	%
Servicing revenue and fees	217,917			219,338			(1,421		)	(1	)%
Changes in valuation inputs or other assumptions ⁽¹⁾	(258,460		)	(74,534		)	(183,926		)	247	%
Other changes in fair value ⁽²⁾	(68,120		)	(54,701		)	(13,419		)	25	%
Change in fair value of servicing rights	(326,580		)	(129,235		)	(197,345		)	153	%
Amortization of servicing rights	(4,151		)	(6,458		)	2,307			(36	)%
Change in fair value of servicing rights related liabilities ⁽³⁾	3,294			(1,818		)	5,112			(281	)%
Net servicing revenue and fees	$	(109,520	)	$	81,827		$	(191,347	)	(234	)%

__________


(1)	Represents the net change in servicing rights carried at fair value resulting primarily from market-driven changes in interest rates and prepayment speeds.


(2)	Represents the realization of expected cash flows over time.


(3)	Includes interest expense on servicing rights related liabilities, which represents the accretion of fair value, of $3.9 million and $2.6 million for the three months ended March 31, 2016 and 2015, respectively.

Servicing fees increased $5.6 million during the three months ended March 31, 2016 as compared to the same period of 2015 primarily due to growth in the third-party servicing portfolio resulting from portfolio acquisitions and servicing rights capitalized as a result of our loan origination activities, partially offset by runoff of the servicing portfolio. Average loans serviced increased by $12.8 billion, or 5%, for the three months ended March 31, 2016 as compared to the same period of 2015.

Incentive and performance fees include modification fees, fees earned under HAMP, asset recovery income, and other incentives. Modification fees and fees earned under HAMP decreased $5.9 million for the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to a lower volume of completed modifications and lower fees for maintenance of performing modified loans no longer eligible for HAMP incentive fees. We expect to modify fewer loans in the future as a result of the scheduled termination of HAMP in December 2016 and there being a fewer number of loans in our servicing portfolio eligible for modification. In addition, asset recovery income decreased $2.7 million for the three months ended March 31, 2016 as compared to the same period of 2015 as a result of lower gross collections due primarily to the runoff of the related loans managed for third parties by the Servicing segment. Incentives relating to the performance of certain loan pools serviced by us increased $0.9 million for the three months ended March 31, 2016 as compared to the same period of 2015. We expect incentives relating to the performance of loan pools serviced by us to decline as a result of market and other factors, including changes in incentive programs, runoff of the related loan portfolio and improving economic conditions, which may reduce the opportunity to earn these incentives.

Provided below is a summary of the average unpaid principal balance of loans serviced and the related average servicing fee for our Servicing segment (dollars in thousands):



	For the Three Months Ended March 31,
	2016			2015			Variance
Average unpaid principal balance of loans serviced ⁽¹⁾	$	251,633,612		$	238,877,151		$	12,756,461
Annualized average servicing fee⁽²⁾	0.28		%	0.29		%	(0.01		)%

__________


(1)	Average unpaid principal balance of loans serviced is calculated as the average of the average monthly unpaid principal balances. The average unpaid principal balance presented above includes on-balance sheet loans owned by the Servicing segment for which it does not earn a servicing fee.


(2)	Average servicing fee is calculated by dividing gross servicing fees by the average unpaid principal balance of loans serviced.

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Servicing Rights Carried at Fair Value

Changes in the fair value of servicing rights, which reflect our quarterly valuation process, have a significant effect on net servicing revenue and fees. A summary of key economic inputs and assumptions used in estimating the fair value of servicing rights carried at fair value is presented below (dollars in thousands):



	March 31, 2016			December 31, 2015			Variance
Servicing rights at fair value	$	1,427,331		$	1,682,016		$	(254,685	)
Unpaid principal balance of accounts serviced	184,941,850			183,506,006			1,435,844
Inputs and assumptions
Weighted-average remaining life in years	5.6			6.3			(0.7		)
Weighted-average stated borrower interest rate on underlying collateral	4.13		%	4.31		%	(0.18		)%
Weighted-average discount rate	10.96		%	10.88		%	0.08		%
Weighted-average conditional prepayment rate	11.31		%	9.94		%	1.37		%
Weighted-average conditional default rate	0.92		%	1.06		%	(0.14		)%

We recognized a reduction to the fair value of servicing rights during the three months ended March 31, 2016 comprised of a loss of $258.5 million in changes in valuation inputs or other assumptions and a loss of $68.1 million in other changes in fair value which reflect the impact of the realization of expected cash flows resulting from both regularly scheduled and unscheduled payments and payoffs of loan principal.

The loss resulting from changes in valuation inputs or other assumptions during the three months ended March 31, 2016 was due primarily to a higher assumed conditional prepayment rate and discount rate at March 31, 2016 as compared to December 31, 2015. The higher assumed conditional prepayment rate was primarily due to declining interest rates and forward projections of interest rate curves. The increase in discount rate was primarily due to a change in mix of loans underlying the servicing rights to more Ginnie Mae loans coupled with recent portfolio acquisitions with higher yields.

The change in fair value of servicing rights resulting from the realization of expected cash flows increased $13.4 million for the three months ended March 31, 2016 as compared to the same period of 2015 was due primarily to faster prepayment speeds and a larger servicing portfolio resulting from acquisitions of servicing rights, including those from loan origination activities.

Servicing Rights Related Liabilities

The favorable change in fair value relating to servicing rights related liabilities of $5.1 million for the three months ended March 31, 2016 as compared to the same period of 2015 was due primarily to a higher assumed conditional prepayment rate resulting from the low interest rate environment, partially offset by higher interest expense.

Interest Income on Loans

Interest income decreased $19.8 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily due to the sale of our residual interests in 2015, runoff of the overall mortgage loan portfolio and a lower average yield on loans due to an increase in delinquencies that are 90 days or more past due.

Insurance Revenue

Insurance revenue decreased $3.8 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily as a result of the runoff of existing policies.

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Intersegment Retention Revenue

Intersegment retention revenue relates to fees the Servicing segment charges to our Originations segment for loan originations completed that resulted from access to the Servicing segment’s servicing portfolio for which there was a related capitalized servicing right. The increase in intersegment retention revenue of $3.5 million during the three months ended March 31, 2016 as compared to the same period of 2015 was due primarily to a higher fee per origination charged by the Servicing segment beginning in 2016 to reflect current market pricing.

Net Losses on Sales of Loans

Net gains or losses on sales of loans for the Company includes realized and unrealized gains and losses on loans as well as the changes in fair value of our IRLCs and other freestanding derivatives. A substantial portion of the gain or loss on sales of loans is recognized at the time we commit to originate or purchase a loan at specified terms as we recognize the value of the IRLC at the time of commitment. The fair value of the IRLC includes an estimate of the fair value of the servicing right we expect to receive upon sale of the loan.

The Originations segment recognizes the initial fair value of the entire commitment, including the servicing rights component, on the date of the commitment, while the Servicing segment recognizes the change in fair value of the servicing rights component of our IRLCs and loans held for sale that occurs subsequent to the date of our commitment through the sale of the loan. Net losses on sale of loans for the Servicing segment consists of this change in fair value as well as net gains or losses on sales of loans to third parties.

Other Revenues

Other revenues increased $8.8 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily as a result of $8.4 million in higher fair value gains relating to charged-off loans resulting from an increase in expected collections over time and $0.5 million higher other interest income.

General and Administrative and Allocated Indirect Expenses

General and administrative and allocated indirect expenses increased $14.4 million for the three months ended March 31, 2016 as compared to the same period of 2015 resulting primarily from $5.0 million in higher legal accruals for loss contingencies and legal expenses for defense litigation, $4.6 million in additional costs to support efficiency and technology-related initiatives including our servicing platform conversion, and $2.2 million in higher loan servicing and default costs resulting from growth in the servicing portfolio.

Interest Expense

Interest expense decreased $10.7 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily as a result of the sale of our residual interests and the runoff the overall related mortgage loan portfolio.

Provided below is a summary of our Servicing segment's margin (in basis points):



	For the Three Months Ended March 31,
	2016	2015	Variance
Annualized Adjusted Earnings (Loss) margin ⁽¹⁾	—	7	(7	)
Annualized Adjusted EBITDA margin ⁽¹⁾	12	17	(5	)

__________


(1)	Margins are calculated by dividing the applicable non-GAAP measure by the average unpaid principal balance of loans serviced during the period.

Adjusted Earnings (Loss)

Adjusted Earnings (Loss) margin decreased 7 basis points for the three months ended March 31, 2016 as compared to the same period of 2015 primarily due to lower revenues (adjusted for the impact of the change in fair value driven by changes in valuation inputs) per loan serviced, partially offset by lower expenses per loan serviced. These lower expenses include lower interest expense offset partially by higher general and administrative and allocated indirect expenses. The decline in revenues per loan serviced is primarily due to the increase in realization of expected cash flows due mainly to faster prepayment speeds and a larger servicing portfolio, and the decline in incentive and performance fees and interest income.

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Adjusted EBITDA

Adjusted EBITDA decreased 5 basis points for the three months ended March 31, 2016 as compared to the same period of 2015 primarily due to lower revenues (adjusted for the impact of the change in fair value) per loan serviced, partially offset by lower expenses per loan serviced. These lower expenses include lower interest expense offset partially by higher general and administrative and allocated indirect expenses. The decline in revenues per loan serviced is primarily due to the decline in incentive and performance fees and interest income.

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Originations

Provided below is a summary of results of operations, Adjusted Earnings and Adjusted EBITDA for our Originations segment (dollars in thousands):



	For the Three Months Ended March 31,					Variance
	2016			2015		$			%
Net gains on sales of loans	$	87,982		$	125,416	$	(37,434	)	(30	)%
Other revenues	12,295			4,884		7,411			152	%
Total revenues	100,277			130,300		(30,023		)	(23	)%
Salaries and benefits	33,077			40,595		(7,518		)	(19	)%
General and administrative and allocated indirect expenses	28,646			28,826		(180		)	(1	)%
Intersegment retention expense	11,533			8,081		3,452			43	%
Interest expense	8,275			7,813		462			6	%
Depreciation and amortization	2,345			3,187		(842		)	(26	)%
Total expenses	83,876			88,502		(4,626		)	(5	)%
Income before income taxes	16,401			41,798		(25,397		)	(61	)%

Adjustments to income
Restructuring costs	1,796			191		1,605			840	%
Step-up depreciation and amortization	295			1,170		(875		)	(75	)%
Share-based compensation expense	(587		)	797		(1,384		)	(174	)%
Other	—			337		(337		)	(100	)%
Total adjustments	1,504			2,495		(991		)	(40	)%
Adjusted Earnings	17,905			44,293		(26,388		)	(60	)%

EBITDA adjustments
Depreciation and amortization	2,050			2,017		33			2	%
Other	3,801			403		3,398			843	%
Total adjustments	5,851			2,420		3,431			142	%
Adjusted EBITDA	$	23,756		$	46,713	$	(22,957	)	(49	)%

The volume of our originations activity and changes in market rates primarily govern the fluctuations in revenues and expenses of our Originations segment. Provided below are summaries of our originations volume by channel (in thousands):



	For the Three Months Ended March 31, 2016						For the Three Months Ended March 31, 2015
	Locked Volume ⁽¹⁾		Funded Volume		Sold Volume		Locked Volume ⁽¹⁾		Funded Volume		Sold Volume
Correspondent	$	3,021,753	$	3,159,742	$	3,297,128	$	4,873,048	$	3,650,742	$	3,675,542
Consumer	1,548,157		1,793,257		1,833,090		1,935,493		1,730,938		1,695,371
Retail ⁽²⁾	10,923		14,883		64,144		122,140		85,862		76,926
Total	$	4,580,833	$	4,967,882	$	5,194,362	$	6,930,681	$	5,467,542	$	5,447,839

__________


(1)	Volume has been adjusted by the percentage of mortgage loans not expected to close based on previous historical experience and change in interest rates.


(2)	We exited the consumer retail channel in January 2016.

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Net Gains on Sales of Loans

Net gains on sales of loans include realized and unrealized gains and losses on loans, the initial fair value of the capitalized servicing rights upon loan sales, as well as the changes in fair value of our IRLCs and other freestanding derivatives. The amount of net gains on sales of loans is a function of the volume and margin of our originations activity and is impacted by fluctuations in interest rates. A substantial portion of our gains on sales of loans is recognized at the time we commit to originate or purchase a loan at specified terms, as we recognize the value of the IRLC at the time of commitment. The fair value of the IRLC includes our estimate of the fair value of the servicing right we expect to receive upon sale of the loan. We recognize loan origination costs as incurred, which typically align with the date of loan funding for consumer originations and the date of loan purchase for correspondent lending. These expenses are primarily included in general and administrative expenses and salaries and benefits on the consolidated statements of comprehensive loss. In addition, we record a provision for losses relating to representations and warranties made as part of the loan sale transaction at the time the loan is sold.

The volatility in the gain on sale spread is attributable to market pricing, which changes with demand, channel mix, and the general level of interest rates. While many factors may affect consumer demand for mortgages, generally, pricing competition on mortgage loans is lower in periods of low or declining interest rates, as consumer demand is greater. This provides opportunities for originators to increase volume and earn wider margins. Conversely, pricing competition increases when interest rates rise as consumer demand lessens. This reduces overall origination volume and may lead originators to reduce margins. The level and direction of interest rates are not the sole determinant of consumer demand for mortgages. Other factors such as secondary market conditions, home prices, credit spreads or legislative activity may impact consumer demand more significantly than interest rates in any given period.

Net gains on sales of loans for our Originations segment consist of the following (dollars in thousands):



	For the Three Months Ended March 31,						Variance
	2016			2015			$			%
Realized gains on sales of loans	$	77,266		$	61,437		$	15,829		26	%
Change in unrealized gains on loans held for sale	11,293			1,389			9,904			713	%
Gains on interest rate lock commitments ⁽¹⁾	15,159			24,483			(9,324		)	(38	)%
Losses on forward sales commitments ⁽¹⁾	(66,953		)	(38,648		)	(28,305		)	73	%
Losses on MBS purchase commitments ⁽¹⁾	(10,796		)	(5,679		)	(5,117		)	90	%
Capitalized servicing rights	56,370			72,731			(16,361		)	(22	)%
Provision for repurchases	(4,713		)	(2,025		)	(2,688		)	133	%
Interest income	10,356			11,728			(1,372		)	(12	)%
Net gains on sales of loans	$	87,982		$	125,416		$	(37,434	)	(30	)%

__________


(1)	Realized losses on freestanding derivatives were $59.4 million and $44.2 million for the three months ended March 31, 2016 and 2015, respectively.

The decrease in net gains on sales of loans for the three months ended March 31, 2016 as compared to the same period of 2015 was primarily due to a lower volume of locked loans, partially offset by a slight shift in mix from the lower margin correspondent channel to the higher margin consumer channel during the 2016 period. The decline in volume is largely due to an increase in market competition, an increase in our return hurdles for servicing rights acquired through our correspondent channel and lower HARP volume, as well as a slight market shift towards more home purchase volume as opposed to refinancing volume. We had lower capitalized servicing rights during the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to a lower volume of loans sold with servicing retained, coupled with a reduction in excess servicing retained on our sales transactions. Additionally, we had a higher provision for repurchases due to higher defect rates on correspondent loan sales.

The three months ended March 31, 2016 and 2015 included the benefit of higher margins from HARP, which is scheduled to expire on December 31, 2016. HARP is a federal program of the U.S. which helps homeowners refinance their mortgage. Our strategy includes significant efforts to maintain retention volumes through traditional refinancing opportunities and HARP, although we believe peak HARP refinancing occurred in prior periods.

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Provided below is a summary of origination economics for all channels (in basis points):



	For the Three Months Ended March 31,				Variance
	2016		2015		Amount		%
Gain on sale of loans ⁽¹⁾	192		181		11		6	%
Fee income⁽²⁾	25		9		16		178	%
Direct expenses ⁽²⁾	(137	)	(121	)	(16	)	13	%
Direct margin	80		69		11		16	%

__________


(1)	Calculated on pull-through adjusted lock volume.


(2)	Calculated on funded volume.

The increase in direct margin for the three months ended March 31, 2016 as compared to the same period of 2015 was primarily due to a slight shift in mix from the lower margin correspondent channel to the higher margin consumer channel as well as higher origination fees. This increase was partially offset by higher intersegment retention charges. During the three months ended March 31, 2016, our correspondent volume represented 66% of total pull-through adjusted locked volume as compared to 70% during the three months ended March 31, 2015.

Other Revenues

Other revenues, which consists primarily of origination fee income and interest on cash equivalents, increased $7.4 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily as a result of higher origination fees due to having waived certain fees charged to borrowers refinancing mortgage loans during the three months ended March 31, 2015.

Salaries and Benefits

Salaries and benefits decreased $7.5 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily due to a lower average headcount as well as lower commissions due to a decrease in funded volume.

Intersegment Retention Expense

Intersegment retention expense relates to fees charged by the Servicing segment to the Originations segment in relation to loan originations completed that resulted from access to the Servicing segment’s servicing portfolio for which there was a related capitalized servicing right. The increase in intersegment retention expense of $3.5 million during the three months ended March 31, 2016 as compared to the same period of 2015 was due primarily to a higher fee per origination charged by the Servicing segment beginning in 2016 to reflect current market pricing.

Interest Expense

Interest expense increased $0.5 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily as a result of a higher average cost of debt, partially offset by lower average borrowings on master repurchase agreements due to a lower volume of loan fundings.

Adjusted Earnings

Adjusted Earnings decreased $26.4 million for the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to lower net gains on sales of loans, offset partially by higher origination fee income and lower expenses.

Adjusted EBITDA

Adjusted EBITDA decreased $23.0 million for the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to lower net gains on sales of loans, offset partially by higher origination fee income and lower expenses. We had a higher net provision for the repurchase of loans due primarily to higher defect rates on correspondent loans.

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Reverse Mortgage

Provided below is a summary of results of operations, Adjusted Loss and Adjusted EBITDA for our Reverse Mortgage segment (dollars in thousands):



	For the Three Months Ended March 31,						Variance
	2016			2015			$			%
Net fair value gains on reverse loans and related HMBS obligations	$	35,208		$	30,774		$	4,434		14	%
Net servicing revenue and fees	6,909			11,406			(4,497		)	(39	)%
Net losses on sales of loans	—			(98		)	98			(100	)%
Other revenues	1,978			1,845			133			7	%
Total revenues	44,095			43,927			168			—	%
Salaries and benefits	18,048			24,540			(6,492		)	(26	)%
General and administrative and allocated indirect expenses	15,995			28,893			(12,898		)	(45	)%
Interest expense	1,515			1,099			416			38	%
Depreciation and amortization	1,288			1,968			(680		)	(35	)%
Other expenses, net	1,198			884			314			36	%
Total expenses	38,044			57,384			(19,340		)	(34	)%
Other losses	(1,024		)	—			(1,024		)	n/m
Income (loss) before income taxes	5,027			(13,457		)	18,484			(137	)%

Adjustments to income (loss)
Fair value to cash adjustment for reverse loans	(17,709		)	(4,355		)	(13,354		)	307	%
Step-up depreciation and amortization	895			1,328			(433		)	(33	)%
Share-based compensation expense	313			536			(223		)	(42	)%
Curtailment expense	—			16,074			(16,074		)	(100	)%
Other	1,048			(1,399		)	2,447			(175	)%
Total adjustments	(15,453		)	12,184			(27,637		)	(227	)%
Adjusted Loss	(10,426		)	(1,273		)	(9,153		)	719	%

EBITDA adjustments
Amortization of servicing rights	460			555			(95		)	(17	)%
Depreciation and amortization	393			640			(247		)	(39	)%
Interest expense on debt	—			1			(1		)	(100	)%
Other	33			74			(41		)	(55	)%
Total adjustments	886			1,270			(384		)	(30	)%
Adjusted EBITDA	$	(9,540	)	$	(3	)	$	(9,537	)	n/m

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Reverse Mortgage Servicing Portfolio

Provided below are summaries of the activity in our third-party servicing portfolio for our reverse mortgage business, which includes accounts serviced for third parties for which we earn servicing revenue and, thus, excludes servicing performed related to reverse loans and real estate owned that have been recognized on our consolidated balance sheets, as the reverse loan transfer was accounted for as a secured borrowing (dollars in thousands):



	For the Three Months Ended March 31, 2016					For the Three Months Ended March 31, 2015
	Number of Accounts		Unpaid Principal Balance			Number of Accounts		Unpaid Principal Balance
Third-party servicing portfolio
Balance at beginning of the period	56,046		$	9,818,400		50,196		$	8,626,946
New business added	2,903		476,047			2,942		440,625
Other additions ⁽¹⁾	—		188,374			—		141,946
Payoffs and sales	(1,958	)	(429,915		)	(1,408	)	(284,149		)
Balance at end of the period	56,991		$	10,052,906		51,730		$	8,925,368

__________


(1)	Other additions include additions to the principal balance serviced related to draws on lines-of-credit, interest, servicing fees, mortgage insurance and advances owed by the existing borrower.

Provided below are summaries of our reverse loan servicing portfolio (dollars in thousands):



	At March 31, 2016			At December 31, 2015
	Number of Accounts	Unpaid Principal Balance		Number of Accounts	Unpaid Principal Balance
Third-party servicing portfolio ⁽¹⁾	56,991	$	10,052,906	56,046	$	9,818,400
On-balance sheet residential loans and real estate owned	64,609	10,331,845		65,187	10,265,726
Total reverse loan servicing portfolio	121,600	$	20,384,751	121,233	$	20,084,126

__________


(1)	We earn a fixed dollar amount per loan on a majority of our third-party reverse loan servicing portfolio. The weighted-average contractual servicing fee for our third-party servicing portfolio was 0.14% at both March 31, 2016 and December 31, 2015.

Net Fair Value Gains on Reverse Loans and Related HMBS Obligations

Provided in the table below is a summary of the components of net fair value gains on reverse loans and related HMBS obligations (dollars in thousands):



	For the Three Months Ended March 31,						Variance
	2016			2015			$			%
Interest income on reverse loans	$	110,594		$	106,280		$	4,314		4%
Interest expense on HMBS related obligations	(103,254		)	(98,536		)	(4,718		)	5%
Net interest income on reverse loans and HMBS related obligations	7,340			7,744			(404		)	(5)%

Change in fair value of reverse loans	44,240			16,727			27,513			164%
Change in fair value of HMBS related obligations	(16,372		)	6,303			(22,675		)	(360)%
Net change in fair value on reverse loans and HMBS related obligations	27,868			23,030			4,838			21%
Net fair value gains on reverse loans and related HMBS obligations	$	35,208		$	30,774		$	4,434		14%

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Net fair value gains on reverse loans and related HMBS obligations include the contractual interest income earned on reverse loans, including those not yet securitized or no longer in securitization pools, net of interest expense on HMBS related obligations, and the change in fair value of these assets and liabilities. Included in the change in fair value are gains due to loan originations that include "tails." Tails are participations in previously securitized HECMs and are created by additions to principal for borrower draws on lines-of-credit, interest, servicing fees, and mortgage insurance premiums. Economic gains and losses result from the pricing of an aggregated pool of loans exceeding the cost of the origination or acquisition of the loan as well as the change in fair value resulting from changes to market pricing on HECMs and HMBS. No gain or loss is recognized as a result of the securitization of reverse loans as these transactions are accounted for as secured borrowings. However, HECMs and HMBS related obligations are marked to fair value, which can result in a net gain or loss related to changes in market pricing.

Net interest income decreased $0.4 million for the three months ended March 31, 2016 as compared to the same period of 2015 primarily as a result of the increase in nonperforming reverse loans which have lower interest rates than performing loans, offset partially by growth in both reverse loans and HMBS related obligations. Cash generated by origination, purchase and securitization of HECMs included in the change in fair value decreased $8.5 million during the three months ended March 31, 2016 as compared to the same period of 2015 primarily as a result of overall lower origination volumes, partially offset by a shift in mix from lower margin new originations to higher margin tails. Net non-cash fair value gains included in the change in fair value increased by $13.4 million during the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to a larger decrease in the interest rate curve in 2016 as compared to 2015. Reverse loans and related HMBS obligations are generally subject to net fair value gains when interest rates decline primarily as a result of a longer duration of reverse loans as compared to HMBS related obligations. Our reverse loans have longer durations primarily as a result of our obligations as issuer of HMBS which includes the requirement to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM is equal to or greater than 98% of the maximum claim amount. The conditional repayment rate utilized in the valuation of reverse loans and HMBS related obligations has increased from 25.59% and 24.70%, respectively, at December 31, 2015 to 26.32% and 25.72%, respectively, at March 31, 2016 primarily due to the aging of the portfolio.

Provided below are summaries of our funded volume, which represent purchases and originations of reverse loans, and volume of securitizations into HMBS (dollars in thousands):



	For the Three Months Ended March 31,				Variance
	2016		2015		$			%
Funded volume	$	184,390	$	410,874	$	(226,484	)	(55	)%
Securitized volume ⁽¹⁾	187,879		413,047		(225,168		)	(55	)%

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(1)	Securitized volume includes $115.3 million and $95.7 million of tails securitized for the three months ended March 31, 2016 and 2015, respectively. Tail draws associated with the HECM IDL product were $65.4 million and $41.3 million during the three months ended March 31, 2016 and 2015, respectively.

Funded and securitized volumes decreased during the three months ended March 31, 2016 as compared to the same period of 2015 as volumes were negatively impacted by the financial assessment rules and the effects of other regulatory changes, as well as operational disruption in the reverse mortgage retail channel and a decision to reduce participation in the correspondent market based on current pricing levels.

Net Servicing Revenue and Fees

A summary of net servicing revenue and fees for our Reverse Mortgage segment is provided below (dollars in thousands):



	For the Three Months Ended March 31,						Variance
	2016			2015			$			%
Servicing fees	$	3,518		$	3,372		$	146		4	%
Incentive and performance fees	2,354			6,629			(4,275		)	(64	)%
Ancillary and other fees	1,497			1,960			(463		)	(24	)%
Servicing revenue and fees	7,369			11,961			(4,592		)	(38	)%
Amortization of servicing rights	(460		)	(555		)	95			(17	)%
Net servicing revenue and fees	$	6,909		$	11,406		$	(4,497	)	(39	)%

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The decline in net servicing revenue and fees of $4.5 million for the three months ended March 31, 2016 as compared to the same period in 2015 was due primarily to a decrease in incentive and performance fees for the management of real estate owned relating to the termination of an agreement to manage such real estate owned. In March 2015, we entered into an agreement with a counterparty to phase out one of our larger arrangements for the management of real estate owned through October 1, 2015.

Salaries and Benefits

Salaries and benefits expense decreased $6.5 million for the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to lower commissions and bonuses as a result of lower origination volume combined with a lower average headcount during the three months ended March 31, 2016.

General and Administrative and Allocated Indirect Expenses

General and administrative and allocated indirect expenses were $12.9 million lower for the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to certain regulatory developments during 2015, which led to additional charges around curtailable events and to accrual adjustments associated with legal and regulatory matters outside of the normal course of business. This reduction was offset in part by the impact of changes in the provisions on uncollectible receivables and advances.

Adjusted Loss and Adjusted EBITDA

Adjusted Loss and Adjusted EBITDA changed by $9.2 million and $9.5 million, respectively, for the three months ended March 31, 2016 as compared to the same period of 2015. The change in these non-GAAP financial measures was due primarily to the decline in cash generated from origination, purchase and securitization of HECMs, net servicing revenue and fees and expenses, primarily salaries and benefits.

Other Non-Reportable

Other revenues for our Other non-reportable segment consist primarily of asset management advisory fees and other interest income. Revenues decreased $3.3 million for the three months ended March 31, 2016 as compared to the same period of 2015 as a result of the settlement of a receivable that was repaid in conjunction with the sale of an investment accounted for using the equity method during 2015, while expenses for the same periods remained relatively flat. During the three months ended March 31, 2015, we had total other gains of $11.1 million, which was primarily comprised of an $11.8 million gain on sale of the aforementioned investment. During the three months ended March 31, 2016, we repurchased $7.2 million in principal balance on the 2013 Term Loan for $6.3 million resulting in a gain on extinguishment of $0.9 million.

Liquidity and Capital Resources

Overview

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay debt and meet the financial obligations of our operations including funding acquisitions; mortgage loan and reverse loan servicing advances; obligations associated with the repurchase of reverse loans from securitization pools; funding additional borrowing capacity on reverse loans; origination of mortgage loans; and other general business needs, including the cost of compliance with changing legislation and related rules. Our liquidity is measured as our consolidated cash and cash equivalents excluding subsidiary minimum cash requirement balances, which are typically associated with our servicer licensing or financing agreements with third parties. At March 31, 2016, our liquidity was $248.3 million, the cash portion of which was $123.6 million. The borrowing capacity available under the 2013 Revolver was $124.7 million at March 31, 2016. Our ability to draw upon the 2013 Revolver is contingent upon our continued satisfaction of certain financial and other covenants. We were in compliance with all covenants contained in our 2013 Secured Credit Facilities at March 31, 2016. At March 31, 2016, we had contractual obligations, subject to certain conditions and adjustments, to utilize approximately $18.5 million of our liquidity to fund acquisitions of servicing rights, including related servicer and protective advances.

We endeavor to maintain our liquidity at a level sufficient to fund certain known or expected payments and to fund our working capital needs. Our principal sources of liquidity are the cash flows generated from our business segments and funds available from our 2013 Revolver, master repurchase agreements, mortgage loan servicing advance facilities, issuance of HMBS and excess servicing spread financing arrangements. We may generate additional liquidity through sales of MSRs, any portion thereof, or other assets.

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We believe that, based on current forecasts and anticipated market conditions, our current liquidity, along with the funds generated from our principal sources of liquidity discussed above, will allow for financial flexibility to meet anticipated cash requirements to fund operating needs and expenses, servicing advances, loan originations and repurchases of mortgage loans and HECMs, planned capital expenditures, current committed business and asset acquisitions, and all required debt service obligations for the next 12 months. We expect that significant acquisitions of servicing rights and other opportunities to grow by acquisition would need to be funded primarily through, or in collaboration with, external capital sources. Our operating cash flows and liquidity are significantly influenced by numerous factors, including interest rates and continued availability of financing. Our liquidity outlook assumes the renewal of existing mortgage loan servicing advance facilities, mortgage loan and reverse loan master repurchase agreements and reverse loan master repurchase agreements to fund repurchases of HECMs. In addition, management from time to time pursues other financing facilities. We may access the capital markets from time to time, in public or in private transactions, to augment our liquidity position, fund growth opportunities or for other reasons. We continually monitor our cash flows and liquidity in order to be responsive to changing conditions.

We have an effective universal shelf registration statement on file with the SEC. Under this universal shelf registration statement, we have the capacity to offer and sell from time to time an indeterminate number of our securities, including common stock, debt securities, preferred stock, warrants and units, having an aggregate initial offering price not to exceed $1.5 billion. This universal shelf registration statement expires on or about January 13, 2018.

Share Repurchase Plan

On May 6, 2015, the Board of Directors of the Company authorized us to repurchase up to $50.0 million of shares of our common stock, during the period beginning on May 11, 2015 and ending on May 31, 2016. Repurchases may be made from time to time based upon our discretion through one or more open market or privately negotiated transactions, and pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act. The timing and amounts of any such repurchases will depend on a variety of factors, including the market price of our shares and general market and economic conditions. The share repurchase program may be extended, suspended or discontinued at any time without notice.

At March 31, 2016, we had repurchased 2,382,733 shares of common stock pursuant to our share repurchase plan at an aggregate cost of $28.1 million, or an average cost of $11.78 per share. Shares of common stock that we repurchase are canceled and return to the status of authorized but unissued shares. We did not repurchase any shares of common stock pursuant to our share repurchase plan during the three months ended March 31, 2016.

Mortgage Loan Servicing Business

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 pay taxes, insurance and foreclosure costs and various other items, referred to as protective advances. Protective advances are required to preserve the collateral underlying the residential loans being serviced. In addition, we advance our own funds to meet contractual payment requirements for credit owners. As a result of bulk servicing right acquisitions in 2013 and 2014, we experienced and continue to incur an elevated level of advance requirements. Sub-servicers are generally reimbursed for advances in the month following the advance, so our advance funding requirements may be reduced if we succeed in increasing the fee-for-service mix in our servicing portfolio. In the normal course of business, we borrow money from various counterparties who provide us with financing to fund a portion of our mortgage loan related servicing advances on a short-term basis or provide for reimbursement within an agreed-upon period. Our ability to fund servicing advances is a significant factor that affects our liquidity, and to operate and grow our servicing portfolio we depend upon our ability to secure these types of arrangements on acceptable terms and to renew or replace existing financing facilities as they expire. However, there can be no assurance that these facilities will be available to us in the future. The servicing advance financing agreements that support our servicing operations are discussed below.

Servicing Advance Liabilities

We have four servicing advance facilities through several lenders and an Early Advance Reimbursement Agreement with Fannie Mae which, in each case, are used to fund servicer and protective advances that are our responsibility under certain servicing agreements. The servicing advance facilities and the Early Advance Reimbursement Agreement had an aggregate capacity amount of $1.5 billion at March 31, 2016. The interest rates are either fixed or are primarily based on LIBOR plus between 2.30% and 4.40% and have various expiration dates through October 2018. Payments on the amounts due under these agreements are paid from proceeds received by the subsidiaries (i) in connection with the liquidation of mortgaged properties, (ii) from repayments received from mortgagors, or (iii) from reimbursements received from the owners of the mortgage loans, such as Fannie Mae, Freddie Mac and private label securitization trusts. Accordingly, repayment of the servicing advance liabilities is dependent on the proceeds that are received on the underlying advances associated with the agreements. Two of the servicing advance facilities, with total borrowing capacity of $1.2 billion, are non-recourse to the Company.

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Servicing Advance Facilities

At March 31, 2016, we had $1.1 billion outstanding under all servicing advance facilities which have an aggregate capacity of $1.3 billion. The servicing advance facilities contain customary events of default and covenants, including financial covenants. Financial covenants most sensitive to our operating results and financial position are the requirements that a subsidiary maintain minimum tangible net worth, indebtedness to tangible net worth and minimum liquidity. Our subsidiary was in compliance with these financial covenants at March 31, 2016.

We are party to a servicer advance financing facility that provides funding for servicer and protective advances made by Ditech Financial in connection with its servicing of certain Fannie Mae and Freddie Mac mortgage loans. On October 21, 2015, this facility was amended and restated to provide for the issuance of $500.0 million aggregate principal amount of term notes consisting of Series 2015-T1 one-year term notes with an initial aggregate principal balance of $360.0 million and Series 2015-T2 three-year term notes with an initial aggregate principal balance of $140.0 million; to extend the commitment for up to $600.0 million of previously issued Series 2014-VF2 variable funding notes until October 2016; and to reduce total borrowing capacity under this facility by $100.0 million to $1.1 billion in the aggregate. The proceeds from the issuance of the Series 2015-T1 term notes and the Series 2015-T2 term notes were used to reduce the outstanding principal balance of the Series 2014-VF2 variable funding notes and to pay certain transaction fees, costs and expenses.

The maximum permitted principal balance of the variable funding notes that can be drawn at any given time is dependent upon the amount of eligible collateral owned by the issuer of the notes and, after giving effect to the issuance of the Series 2015-T1 term notes and the Series 2015-T2 term notes, may not exceed $600.0 million in the aggregate.

The collateral securing the term notes and the variable funding notes consists primarily of rights to reimbursement for servicer and protective advances in respect of certain mortgage loans serviced by Ditech Financial on behalf of Freddie Mac and Fannie Mae.

Each series of term notes and variable funding notes were issued in four classes. Interest on the term notes is based on a fixed rate per annum ranging from approximately 2.30% to 3.93% for the Series 2015-T1 term notes and 3.09% to 4.67% for the Series 2015-T2 term notes. The interest on the variable funding notes is based on one-month LIBOR, (or, in certain circumstances, the higher of (i) the prime rate and (ii) the federal funds rate plus 0.50%) plus a per annum margin ranging from approximately 2.34% to 4.36%.

If the Series 2015-T1 term notes are not redeemed or refinanced on or prior to October 17, 2016, and the Series 2015-T2 term notes are not redeemed or refinanced on or prior to October 15, 2018, one-twelfth of the related note balances will be required to be repaid on each monthly payment date thereafter. Failure to make any such one-twelfth payment will result in an event of default. We may repay and redraw the variable funding notes issued for 364-days from and including October 21, 2015, subject to the satisfaction of various funding conditions. If such 364-day period is not extended, the variable funding notes will become due and payable on October 19, 2016.

Under this facility, creditors of the issuer and depositor entities (including the holders of the term notes and variable funding notes) have no recourse to any assets or revenues of Ditech Financial or the Parent Company other than to the limited extent of Ditech Financial’s or the Parent Company’s obligations with respect to various representations and warranties, covenants and indemnities under this facility and the Parent Company’s obligations as a guarantor of certain of Ditech Financial's representations, warranties, covenants and indemnities under the facility. Creditors of the Parent Company and Ditech Financial do not have recourse to any assets or revenues of either the issuer or depositor entities under the facility.

The facility's base indenture and indenture supplements include facility events of default and target amortization events customary for financings of this type, including but not limited to target amortization events related to breaches of covenants, defaults under certain other material indebtedness, material judgments, certain tests related to the collection and performance of the receivables securing the notes issued pursuant to the base indenture and the applicable indenture supplement, and with respect to the variable funding notes, certain financial tests and change of control. Upon the occurrence of an event of default, specified percentages of noteholders have the right to terminate all commitments and accelerate the notes under the base indenture, enforce their rights with respect to the collateral and take certain other actions. The events of default include, among other events, the occurrence of any failure to make payments (subject to certain cure periods and including balances due after the occurrence of a target amortization event), failure of Ditech Financial to satisfy various deposit and remittance obligations as servicer of certain mortgage loans, the requirement of a subsidiary, Green Tree Agency Advance Funding Trust I, to be registered as an “investment company” under the Investment Company Act of 1940, as amended, certain tests related to the collection and performance of the receivables securing the notes issued pursuant to the base indenture and applicable indenture supplement, removal of Ditech Financial’s status as an approved seller or servicer by either Fannie Mae or Freddie Mac and bankruptcy events.

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In connection with this facility, we entered into an acknowledgment with Fannie Mae, dated as of December 19, 2014, and an amended and restated consent agreement with Freddie Mac, dated as of October 21, 2015, which (i) in the case of Fannie Mae, waived or (ii) in the case of Freddie Mac, subordinated, their respective rights of set-off against rights to reimbursement for certain servicer advances and delinquency advances subject to this facility. The Fannie Mae acknowledgment agreement remains in effect unless Fannie Mae withdraws its consent (i) at each yearly anniversary of the agreement by providing thirty days' advance written notice or (ii) upon certain other specified events. The Freddie Mac consent agreement automatically renews for successive annual terms; however, Freddie Mac may terminate its consent on 30 days' written notice. If either Fannie Mae or Freddie Mac were to withdraw such waiver or subordination, as applicable, of its respective rights of set-off, our ability to increase the draws on the variable funding notes or maintain the drawn balances thereunder could be materially limited or eliminated.

Early Advance Reimbursement Agreement

Ditech Financial's Early Advance Reimbursement Agreement with Fannie Mae is used exclusively to fund certain principal and interest, servicer and protective advances that are the responsibility of Ditech Financial under its Fannie Mae servicing agreements. This agreement was renewed in March 2016 and now expires in March 2017. If not renewed, there will be no additional funding by Fannie Mae of new advances under the agreement. In addition, collections recovered during the 18 months following the expiration of the agreement are to be remitted to Fannie Mae to settle any remaining outstanding balance due under such agreement. Upon expiration of the 18 month period, any remaining balance would become due and payable. At March 31, 2016, we had borrowings of $151.6 million under the Early Advance Reimbursement Agreement, which has a capacity of $200.0 million.

Mortgage Loan Originations Business

Master Repurchase Agreements

We utilize master repurchase agreements to support our origination or purchase of mortgage loans. These agreements were entered into by Ditech Financial. The five facilities had an aggregate capacity of $2.2 billion at March 31, 2016. At March 31, 2016, the interest rates on the facilities were primarily based on LIBOR plus between 2.10% and 3.00% and have various expiration dates through March 2017. These facilities provide creditors a security interest in the mortgage loans that meet the eligibility requirements under the terms of the particular facility in exchange for cash proceeds used to originate or purchase mortgage loans. We agree to repay borrowings under these facilities within a specified timeframe, and the source of repayment is typically from the sale or securitization of the underlying loans into the secondary mortgage market. We evaluate our needs under these facilities based on forecasted mortgage loan origination volume; however, there can be no assurance that these facilities will be available to us in the future. The aggregate capacity includes $1.0 billion of committed funds and $1.2 billion of uncommitted funds. To the extent uncommitted funds are requested to purchase or originate mortgage loans, the counterparties have no obligation to fulfill such request. All obligations of Ditech Financial under the master repurchase agreements are guaranteed by the Parent Company. We had $1.0 billion of short-term borrowings under these master repurchase agreements at March 31, 2016, which included $249.9 million of borrowings utilizing uncommitted funds.

All of our master repurchase agreements contain customary events of default and covenants, the most significant of which are financial covenants. Financial covenants that are most sensitive to the operating results and resulting financial position are minimum tangible net worth requirements, indebtedness to tangible net worth ratio requirements, and minimum liquidity and profitability requirements.

As a result of Ditech Financial obtaining these amendments, Ditech Financial was in compliance with all financial covenants relating to master repurchase agreements at March 31, 2016.

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Representations and Warranties

In conjunction with our originations business, we provide representations and warranties on loan sales. We sell substantially all of our originated or purchased mortgage loans into the secondary market for securitization or to private investors as whole loans. We sell conventional conforming and government-backed mortgage loans through GSE and agency-sponsored securitizations in which mortgage-backed securities are created and sold to third-party investors. We also sell non-conforming mortgage loans to private investors. In doing so, representations and warranties regarding certain attributes of the loans are made to the third-party investor. Subsequent to the sale, if it is determined that a loan sold is in breach of these representations or warranties, we generally have an obligation to cure such breach. In general, if we are unable to cure such breach, the purchaser of the loan may require us to repurchase such loan for the unpaid principal balance, accrued interest, and related advances, and in any event, we must indemnify such purchaser for certain losses and expenses incurred by such purchaser in connection with such breach. Our credit loss may be reduced by any recourse we have to correspondent lenders that, in turn, have sold such residential loans to us and breached similar or other representations and warranties.

Our representations and warranties are generally not subject to stated limits of exposure with the exception of certain loans originated under HARP, which limits exposure based on payment history of the loan. At March 31, 2016, our maximum exposure to repurchases due to potential breaches of representations and warranties was $55.1 billion, and was based on the original unpaid principal balance of loans sold from the beginning of 2013 through March 31, 2016 adjusted for voluntary payments made by the borrower on loans for which we perform the servicing. A majority of our loan sales were servicing retained.

Rollforwards of the liability associated with representations and warranties are included below (in thousands):



	For the Three Months Ended March 31,
	2016			2015
Balance at beginning of the period	$	23,145		$	10,959
Provision for new sales	4,713			2,025
Change in estimate of existing reserves	(673		)	(635		)
Net realized losses on repurchases	(79		)	(217		)
Balance at end of the period	$	27,106		$	12,132

Rollforwards of loan repurchase requests based on the original unpaid principal balance are included below (dollars in thousands):



	For the Three Months Ended March 31, 2016					For the Three Months Ended March 31, 2015
	No. of Loans		Unpaid Principal Balance			No. of Loans		Unpaid Principal Balance
Balance at beginning of the period	30		$	6,225		48		$	11,509
Repurchases and indemnifications	(10	)	(1,846		)	(19	)	(3,980		)
Claims initiated	49		11,834			101		21,329
Rescinded	(29	)	(5,747		)	(37	)	(8,155		)
Balance at end of the period	40		$	10,466		93		$	20,703

The following table presents our maximum exposure to repurchases due to potential breaches of representations and warranties at March 31, 2016 based on the original unpaid principal balance of loans sold adjusted for voluntary payments made by the borrower on loans for which we perform the servicing by vintage year (in thousands):



	Unpaid Principal Balance
2013	$	11,268
2014	14,934
2015	23,758
2016	5,185
Total	$	55,145

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Reverse Mortgage Business

Master Repurchase Agreements

Through RMS's warehouse facilities under master repurchase agreements we finance the origination or purchase of reverse loans and repurchases of certain HECMs and real estate owned from Ginnie Mae securitization pools. At March 31, 2016, the three facilities had an aggregate capacity of $325.0 million, which includes $200.0 million of capacity that could be used to repurchase HECMs and real estate owned from Ginnie Mae securitization pools. The interest rates on the facilities are primarily based on LIBOR plus between 2.50% and 3.13%, and have expiration dates through March 2017. These facilities are secured by the underlying asset and provide creditors a security interest in the assets that meet the eligibility requirements under the terms of the particular facility. We agree to repay the borrowings under these facilities within a specified timeframe, and the source of repayment is typically from proceeds received on the securitization of the underlying reverse loans, claim proceeds received from HUD or liquidation proceeds from the sale of real estate owned. We evaluate our needs under these facilities based on forecasted reverse loan origination volume and repurchases; however, there can be no assurance that these facilities will be available to us in the future. At March 31, 2016, $225.0 million of the aggregate capacity has been provided on an uncommitted basis, and as such, to the extent these funds are requested to purchase or originate reverse loans or repurchase HECMs and real estate owned from Ginnie Mae securitization pools, the counterparties have no obligation to fulfill such request. All obligations of RMS under the master repurchase agreements are guaranteed by the Parent Company. We had $198.2 million of borrowings under these master repurchase agreements at March 31, 2016, which included $98.2 million of borrowings utilizing uncommitted funds. At March 31, 2016, we had borrowings of $164.6 million related to repurchases of HECMs and real estate owned.

In April 2016, we entered into an agreement to increase the capacity by $100.0 million on an existing warehouse facility utilized to fund the repurchase of certain HECMs and real estate owned from Ginnie Mae securitization pools. After giving effect to this increase, we have an aggregate capacity of $425.0 million, which includes $300.0 million of capacity that can be used to repurchase HECMS and real estate owned.

As a result of RMS obtaining this amendment, RMS was in compliance with all financial covenants relating to master repurchase agreements at March 31, 2016.

Reverse Loan Securitizations

We transfer reverse loans that we have originated or purchased through the Ginnie Mae HMBS issuance process. The proceeds from the transfer of the HMBS are accounted for as a secured borrowing and are classified on the consolidated balance sheets as HMBS related obligations. The proceeds from the transfer are used to repay borrowings under our master repurchase agreements. At March 31, 2016, we had $10.0 billion in unpaid principal balance outstanding on the HMBS related obligations. At March 31, 2016, $10.0 billion in unpaid principal balance of reverse loans and real estate owned was pledged as collateral to the HMBS beneficial interest holders, and are not available to satisfy the claims of our creditors. Ginnie Mae, as guarantor of the HMBS, is obligated to the holders of the HMBS in an instance of RMS default on its servicing obligations, or when the proceeds realized on HECMs are insufficient to repay all outstanding HMBS related obligations. Ginnie Mae has recourse to RMS in connection with certain claims relating to the performance and obligations of RMS as both an issuer of HMBS and a servicer of HECMs underlying HMBS.

Borrower remittances received on the reverse loans, if any, proceeds received from the sale of real estate owned and our funds used to repurchase reverse loans are used to reduce the HMBS related obligations by making payments to Ginnie Mae, who will then remit the payments to the holders of the HMBS. The maturity of the HMBS related obligations is directly affected by the liquidation of the reverse loans or liquidation of real estate owned and events of default as stipulated in the reverse loan agreements with borrowers. Refer to the below for additional information on repurchases of reverse loans.

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HMBS Issuer Obligations

As an HMBS issuer, we assume certain obligations related to each security issued. The most significant obligation is the requirement to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM is equal to or greater than 98% of the maximum claim amount. Performing repurchased loans are conveyed to HUD and payment is received from HUD typically within 30 days of repurchase. Non-performing repurchased loans are generally liquidated through foreclosure and subsequent sale of real estate owned. Loans are considered non-performing upon events such as, but not limited to, the death of the mortgagor, the mortgagor no longer occupying the property as their principal residence, or the property taxes or insurance not being paid. We rely upon certain master repurchase agreements and operating cash flows, to the extent necessary, to repurchase loans. The timing and amount of our obligation to repurchase HECMs is uncertain as repurchase is predicated on certain factors such as whether or not a borrower event of default occurs prior to the HECM reaching the mandatory repurchase threshold under which we are obligated to repurchase the loan.

Rollforwards of reverse loan and real estate owned repurchase activity (by unpaid principal balance) are included below (in thousands):



	For the Three Months Ended March 31,
	2016			2015
Balance at beginning of the period	$	233,594		$	114,727
Repurchases and other additions ⁽¹⁾	126,980			56,597
Liquidations	(70,594		)	(21,665		)
Balance at end of the period	$	289,980		$	149,659

__________


(1)	Other additions include additions to the principal balance related to interest, servicing fees, mortgage insurance and advances.

Our repurchases of reverse loans and real estate owned have increased significantly during the three months ended March 31, 2016 as compared to the same period of 2015. We expect a continued increase to repurchase requirements due to the increased flow of HECMs and real estate owned that have moved through the buyout process as a result of these assets reaching 98% of their maximum claim amount.

Reverse Loan Servicer Obligations

Similar to our mortgage loan servicing business, our reverse mortgage servicing agreements impose on us obligations to advance our own funds to meet contractual payment requirements for customers and credit owners and to pay protective advances, which are required to preserve the collateral underlying the residential loans being serviced. We rely upon operating cash flows to fund these obligations.

As servicer of reverse loans, we are also obligated to fund additional borrowing capacity in the form of undrawn lines of credit on floating rate and fixed rate reverse loans. We rely upon our operating cash flows to fund these additional borrowings on a short-term basis prior to securitization (when performing services of both the issuer and servicer) or reimbursement by the issuer (when providing third-party servicing). The additional fundings made by us, as issuer and servicer, are generally securitized within 30 days after funding. Similarly, the additional fundings made by us, as third-party servicer, are typically reimbursed by the issuer within 30 days after funding. Our commitment to fund additional borrowing capacity was $1.3 billion at March 31, 2016, which includes $965.4 million in capacity that was available to be drawn by borrowers at March 31, 2016 and $331.0 million in capacity that will become eligible to be drawn by borrowers throughout the period ending April 1, 2017 assuming the loans remain performing. There is no termination date for these drawings so long as the loan remains performing. The obligation to fund these additional borrowings could have a significant impact on our liquidity.

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Servicing Rights Related Liabilities

Excess Servicing Spread Liabilities

In July 2014, we completed an excess servicing spread transaction with WCO whereby we sold 70% of the excess servicing spread from a pool of servicing rights, with an unpaid principal balance of $25.2 billion, to WCO for a sales price of $75.4 million. In November 2015, we completed an additional excess servicing spread transaction with WCO whereby we sold 100% of excess servicing spread from a pool of servicing rights, with an unpaid principal balance of $7.5 billion, to WCO for a sales price of $46.8 million. We recognized the proceeds from the sales of the excess servicing spreads as financing arrangements. We elected to record the excess servicing spread liabilities at fair value similar to the related servicing rights. At March 31, 2016, the carrying value of our excess servicing spread liabilities was $91.8 million, the repayment of which is based on future servicing fees received from the residential loans underlying the servicing rights.

Servicing Rights Financing

In November 2015, we completed the sale of servicing rights, with an unpaid principal balance of $1.8 billion, to WCO for a sales price of $17.8 million. We recognized the proceeds from the sale of the servicing rights as a financing arrangement. We elected to record the servicing rights financing at fair value similar to the related servicing rights. The repayment of such financing is based on future servicing fees received from the residential loans underlying the servicing rights. At March 31, 2016, the carrying value of our servicing rights financing and the related servicing rights was $13.8 million. We have a receivable due from WCO for this sale of $5.9 million at March 31, 2016. In November 2015, we also entered into a sub-servicing arrangement with WCO pursuant to which we will sub-service the residential loans underlying such servicing rights in exchange for a sub-servicing fee.

Corporate Debt

Term Loans and Revolver

We have a $1.5 billion 2013 Term Loan and a $125.0 million 2013 Revolver. Our obligations under the 2013 Secured Credit Facilities are guaranteed by substantially all of our subsidiaries and secured by substantially all of our assets subject to certain exceptions, such as the assets of the consolidated Residual and Non-Residual Trusts and consolidated financing entities, as well as the residential loans and real estate owned of the Ginnie Mae securitization pools that have been recorded on our consolidated balance sheets.

The material terms of our 2013 Secured Credit Facilities are summarized in the table below:



Debt Agreement	Interest Rate	Amortization	Maturity/Expiration
$1.5 billion 2013 Term Loan	LIBOR plus 3.75% LIBOR floor of 1.00%	1.00% per annum beginning 1st quarter of 2014; remainder at final maturity	December 18, 2020
$125.0 million 2013 Revolver	LIBOR plus 3.75%	Bullet payment at maturity	December 19, 2018

An amount of up to $25.0 million under the 2013 Revolver is available to be used for the issuance of LOCs. Any amounts outstanding in issued LOCs reduce availability for cash borrowings under the 2013 Revolver. There have been no borrowings under the 2013 Revolver. At March 31, 2016, we had $0.3 million outstanding in an issued LOC with remaining availability under the 2013 Revolver of $124.7 million. The commitment fee on the unused portion of the 2013 Revolver is 0.50% per year. During the three months ended March 31, 2016, we repurchased $7.2 million in principal balance of the 2013 Term Loan for $6.3 million resulting in a gain on extinguishment of $0.9 million. The balance outstanding on the 2013 Term Loan was $1.4 billion at March 31, 2016.

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The 2013 Secured Credit Facilities contain restrictive covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends on or redeem or repurchase our capital stock, make certain types of investments, create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries, incur certain liens, sell or otherwise dispose of certain assets, enter into transactions with affiliates, enter into sale and leaseback transactions, and consolidate or merge with or into, or sell all or substantially all of our assets to, another person. These covenants are subject to a number of important limitations and exceptions. The 2013 Secured Credit Facilities also contain customary events of default, including the failure to make timely payments on the 2013 Term Loan and 2013 Revolver or other material indebtedness, the failure to satisfy certain covenants and specified events of bankruptcy and insolvency. Our ability to draw upon the 2013 Revolver is contingent upon our continued satisfaction of certain financial and other covenants. We were in compliance with all covenants contained in our 2013 Secured Credit Facilities at March 31, 2016.

Senior Notes

In December 2013, we completed the sale of $575.0 million aggregate principal amount of Senior Notes, which pay interest semi-annually at an interest rate of 7.875% and mature on December 15, 2021. The balance outstanding on the Senior Notes was $538.7 million at March 31, 2016.

The Senior Notes were offered and sold in a transaction exempt from the registration requirements under the Securities Act, and resold to qualified institutional buyers in reliance on Rule 144A and Regulation S under the Securities Act. The Senior Notes were issued pursuant to an indenture, dated as of December 17, 2013, among the Company, the guarantor parties thereto and Wells Fargo Bank, National Association, as trustee. The Senior Notes are guaranteed on an unsecured senior basis by each of our current and future wholly-owned domestic subsidiaries that guarantee our obligations under our 2013 Term Loan. On October 14, 2014, we filed with the SEC a registration statement under the Securities Act so as to allow holders of the Senior Notes to exchange their Senior Notes for the same principal amount of a new issue of notes with identical terms, except that the exchange notes are not subject to certain restrictions on transfer. The registration statement was declared effective by the SEC on October 27, 2014, the exchange offer expired on November 25, 2014, and settlement occurred on December 2, 2014.

On or prior to December 15, 2016, we may on any one or more occasions redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of certain equity offerings at 107.875% of their aggregate principal amount plus accrued and unpaid interest as of the redemption date. Prior to December 15, 2016, we may redeem some or all of the Senior Notes at a make-whole premium plus accrued and unpaid interest, if any, as of the redemption date.

On or after December 15, 2016, we may on any one or more occasions redeem some or all of the Senior Notes at a purchase price equal to 105.906% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, as of the redemption date, such optional redemption prices decreasing to 103.938% on or after December 15, 2017, 101.969% on or after December 15, 2018 and 100.000% on or after December 15, 2019.

If a change of control, as defined under the Senior Notes Indenture, occurs, the holders of our Senior Notes may require that we purchase with cash all or a portion of these Senior Notes at a purchase price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest to the redemption date.

The Senior Notes Indenture contains restrictive covenants that, among other things, limits our ability and the ability of our restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends on or redeem or repurchase our capital stock, make certain types of investments, create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries, incur certain liens, sell or otherwise dispose of certain assets, enter into transactions with affiliates, enter into sale and leaseback transactions, and consolidate or merge with or into, or sell all or substantially all of our assets to, another person. These covenants are subject to a number of important limitations and exceptions. The Senior Notes Indenture also contains customary events of default, including the failure to make timely payments on the Senior Notes or other material indebtedness, the failure to satisfy certain covenants and specified events of bankruptcy and insolvency. We were in compliance with all covenants contained in the Senior Notes Indenture at March 31, 2016.

Convertible Notes

In October 2012, we closed on a registered underwritten public offering of $290.0 million aggregate principal amount of Convertible Notes. The Convertible Notes pay interest semi-annually on May 1 and November 1, commencing on May 1, 2013, at a rate of 4.50% per annum, and mature on November 1, 2019.

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Prior to May 1, 2019, the Convertible Notes will be convertible only upon specified events and during specified periods, and, on or after May 1, 2019, at any time. The Convertible Notes will initially be convertible at a conversion rate of 17.0068 shares of our common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $58.80 per share. Upon conversion, we may pay or deliver, at our option, cash, shares of our common stock, or a combination of cash and shares of common stock. It is our intent to settle all conversions through combination settlement, which involves payment of an amount of cash equal to the principal amount and any excess of conversion value over the principal amount in shares of common stock.

As market conditions warrant, we may from time to time, subject to limitations as stated in our 2013 Secured Credit Facilities, repurchase debt securities issued by us, in the open market, in privately negotiated transactions, by tender offer or otherwise.

Mortgage-Backed Debt

We funded the residential loan portfolio in the consolidated Residual Trusts through the securitization market. We record on our consolidated balance sheets the assets and liabilities, including mortgage-backed debt, of the Non-Residual Trusts as a result of certain obligations to exercise mandatory clean-up calls for each of these trusts at their earliest exercisable dates. The total unpaid principal balance of mortgage-backed debt was $1.0 billion at March 31, 2016.

At March 31, 2016, mortgage-backed debt was collateralized by $1.0 billion of assets including residential loans, receivables related to the Non-Residual Trusts, real estate owned and restricted cash and cash equivalents. All of the mortgage-backed debt is non-recourse and not cross-collateralized and, therefore, must be satisfied exclusively with the proceeds from the residential loans and real estate owned held in each securitization trust and also from draws on the LOCs of certain Non-Residual Trusts.

Borrower remittances received on the residential loans of the Residual and Non-Residual Trusts collateralizing this debt and draws under LOCs issued by a third-party and serving as credit enhancements to certain of the Non-Residual Trusts are used to make payments on the mortgage-backed debt. The maturity of the mortgage-backed debt is directly affected by the rate of principal prepayments on the collateral. As a result, the actual maturity of the mortgage-backed debt is likely to occur earlier than the stated maturity. Certain of our mortgage-backed debt issued by the Residual Trusts is also subject to voluntary redemption according to the specific terms of the respective indenture agreements, including an option by us to exercise a clean-up call. The mortgage-backed debt issued by the Non-Residual Trusts is subject to mandatory clean-up call provisions pursuant to which we are required to purchase the related mortgage loans from the trusts at the earliest of their exercisable call dates, which is the date each loan pool falls to 10% of the original principal amount. We anticipate the mandatory call obligations to settle beginning in 2017 and continuing through 2019 based upon our current cash flow projections for the Non-Residual Trusts. At March 31, 2016, the total estimated outstanding balance of the residential loans expected to be called at the respective call dates is $417.7 million. We estimate call obligations of $101.1 million, $253.2 million and $63.4 million during the years ending December 31, 2017, 2018 and 2019, respectively. We expect to finance the capital required to exercise the mandatory clean-up call primarily through cash on hand, asset-backed financing or in partnership with a capital provider, or through any combination of the foregoing. However, there can be no assurance that we will be able to sell the loans or obtain financing when needed. Our obligation for the mandatory clean-up call could have a significant impact on our liquidity.

Certain Capital Requirements and Guarantees

We, including our subsidiaries, are required to comply with requirements under federal and state laws and regulations, including requirements imposed in connection with certain licenses and approvals, as well as requirements of federal, state, GSE, Ginnie Mae and other business partner loan programs, some of which are financial covenants related to minimum levels of net worth and other financial requirements. If these mandatory imposed capital requirements are not met, our selling and servicing agreements could be terminated and lending and servicing licenses could be suspended or revoked. For further information relating to these requirements, including certain Ginnie Mae and Fannie Mae waivers and certain guarantees provided by the Parent Company, refer to Note 28 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Noncompliance with those requirements for which we have not received a waiver could have a negative impact on our company which could include suspension or termination of the selling and servicing agreements which would prohibit future origination or securitization of mortgage loans or being an approved seller or servicer for the applicable GSE.

After taking into account the waivers for RMS discussed in Note 28 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015, all of our subsidiaries were in compliance with all of their capital requirements at March 31, 2016.

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We also have financial covenant requirements relating to our servicing advance facilities and master repurchase agreements. Refer to additional information at the Mortgage Loan Servicing Business, Mortgage Loan Originations Business and Reverse Mortgage Business sections above for further information.

Dividends

We have no current plans to pay any cash dividends on our common stock. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our Board of Directors may deem relevant. In addition, our ability to pay dividends is limited by covenants in our 2013 Credit Agreement and the Senior Notes Indenture. Refer to the Corporate Debt section above.

Sources and Uses of Cash

The following table sets forth selected consolidated cash flow information (in thousands):



	For the Three Months Ended March 31,
	2016			2015			Variance
Cash flows provided by operating activities:
Net loss adjusted for non-cash operating activities	$	18,959		$	(30,089	)	$	49,048
Changes in assets and liabilities	(80,274		)	135,956			(216,230		)
Net cash provided by originations activities ⁽¹⁾	264,050			15,183			248,867
Cash flows provided by operating activities	202,735			121,050			81,685
Cash flows provided by (used in) investing activities	57,947			(241,323		)	299,270
Cash flows provided by (used in) financing activities	(269,092		)	138,588			(407,680		)
Net increase (decrease) in cash and cash equivalents	$	(8,410	)	$	18,315		$	(26,725	)

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(1)	Represents purchases and originations of residential loans held for sale, net of proceeds from sale and payments.

Operating Activities

The primary sources and uses of cash for operating activities are purchases, originations and sales activity of residential loans held for sale, changes in assets and liabilities, or operating working capital, and net loss adjusted for non-cash items. Cash provided by operating activities increased $81.7 million during the three months ended March 31, 2016 as compared to the same period of 2015. The increase in cash provided by operating activities was primarily a result of an increase in cash provided by originations activities, resulting from a higher volume of loans sold in relation to originated loans. This increase was offset in part by a decrease in cash related to changes in assets and liabilities, including lower net collections of servicer and protective advances and a decrease in payables and accrued expenses.

Investing Activities

The primary sources and uses of cash for investing activities relate to purchases, originations and payment activity on reverse loans, payments received on mortgage loans held for investment, and payments made for business and servicing rights acquisitions. Net cash provided by (used in) investing activities increased $299.3 million during the three months ended March 31, 2016 as compared to the same period of 2015. Cash used for purchases and originations of reverse loans held for investment, net of payments received, decreased $292.9 million primarily as a result of a lower funded volume, offset in part by higher principal repayments and payments received for loans conveyed to HUD. Cash paid for business acquisitions and purchases of servicing rights decreased $48.2 million.

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Financing Activities

The primary sources and uses of cash for financing activities relate to securing cash for our originations, reverse mortgage and servicing businesses, as well as for our corporate investing activities. Net cash provided by (used in) financing activities decreased $407.7 million during the three months ended March 31, 2016 as compared to the same period of 2015. Cash generated from the securitization of reverse loans, net of payments on HMBS related obligations, decreased $329.7 million primarily as a result of a lower volume of loan securitizations, offset in part by an increase in the repurchase of certain HECMs and real estate owned from securitization pools. Net cash borrowings from warehouse borrowings used to fund purchases and originations of mortgage loans and reverse loans decreased $149.2 million primarily as a result of a lower funded volume. Payments on servicing advance liabilities, net of related issuances, decreased $53.2 million primarily as a result of a lower net level of funded advances needed at March 31, 2016 as compared to March 31, 2015. Nonetheless, we had higher funding of advances and collections of advances during the three months ended March 31, 2016 as compared to the same period of 2015 due primarily to a higher volume of servicer advance requirements during 2016. Servicer advances typically have a quicker turnover rate than protective advances.

Credit Risk Management

Consumer Credit Risk

In conjunction with our originations business, we provide representations and warranties on loan sales. Subsequent to the sale, if it is determined that a loan sold is in breach of these representations or warranties, we generally have an obligation to cure such breach. In general, if we are unable to cure such breach, the purchaser of the loan may require us to repurchase such loan for the unpaid principal balance, accrued interest, and related advances, and in any event, we must indemnify such purchaser for certain losses and expenses incurred by such purchaser in connection with such breach. In the case we repurchase the loan, the Company bears any subsequent credit loss on the loan. Our credit loss may be reduced by any recourse we have to correspondent lenders that, in turn, have sold such residential loans to us and breached similar or other representations and warranties. We maintain a reserve for losses on our representations and warranties obligations. Refer to Notes 3 and 11 in the Notes to Consolidated Financial Statements included in Item 1 and to the Liquidity and Capital Resources section for additional information. At March 31, 2016, we held $4.7 million in repurchased loans.

We are also subject to credit risk associated with mortgage loans that we purchase and originate during the period of time prior to the sale of these loans. We consider the credit risk associated with these loans to be insignificant as we hold the loans for a short period of time, typically less than 20 days, and the market for these loans continues to be highly liquid.

Counterparty Credit Risk

We are exposed to counterparty credit risk in the event of non-performance by counterparties to various agreements, including our forward sales and MBS purchase commitments. We attempt to minimize this risk through monitoring procedures, including monitoring of our counterparties’ credit ratings, review of our counterparties' financial statements, and establishment of collateral requirements. Counterparty credit risk, as well as our own credit risk, is taken into account when determining fair value, although its impact is diminished by daily cash margin posting on the majority of our forward sales and MBS purchase commitments and other collateral requirements.

Counterparty credit risk also exists with our third-party originators from whom we purchase originated mortgage loans and certain third-party originators from whom we acquire servicing rights. The third-party originators incur a representation and warranty obligation when they sell the mortgage loan to us or another third party, and they agree to reimburse us for any losses incurred due to an origination defect. We become exposed to losses for origination defects if the third-party originator is not able to reimburse us for losses incurred for indemnification or repurchase. We attempt to mitigate this risk by conducting quality control reviews of the third-party originators, reviewing compliance by third-party originators with applicable underwriting standards and our client guide, and evaluating the credit worthiness of third-party originators on a periodic basis.

Real Estate Market Risk

We include on our consolidated balance sheets assets secured by real property and property obtained directly as a result of foreclosures. Residential property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses.

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We held real estate owned, net of $72.9 million, $8.9 million and $0.6 million in the Reverse Mortgage and Servicing segments and Other non-reportable segment, respectively, at March 31, 2016. We held real estate owned, net of $66.4 million, $10.4 million and $0.6 million in the Reverse Mortgage and Servicing segments and Other non-reportable segment, respectively, at December 31, 2015.

A non-performing reverse loan whose maximum claim amount has not been met is generally foreclosed upon on behalf of Ginnie Mae with the real estate owned remaining in the securitization pool until liquidation. Although performing and non-performing loans are covered by FHA insurance, we may incur expenses and losses in the process of repurchasing and liquidating these loans that are not reimbursable by FHA in accordance with program guidelines. In addition, in certain circumstances, we may be subject to real estate price risk to the extent we are unable to liquidate real estate owned within the FHA program guidelines. We attempt to mitigate this risk by monitoring the aging of real estate owned and managing our marketing and sales program based on this aging. The growth in the real estate owned portfolio held by the Reverse Mortgage segment was due to the increased flow of HECMs that move through the foreclosure process.

Ratings

We receive various credit and servicer ratings as set forth below. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating agency, and each rating should be evaluated independently of any other rating. Rating agency ratings are not a recommendation to buy, sell or hold any security.

Credit Ratings

Credit ratings are intended to be an indicator of the creditworthiness of a particular company, security or obligation and are considered by lenders in connection with the setting of interest rates and terms for a company's borrowings. The following table summarizes our credit ratings and outlook as of the date of this report.



	Moody's	S&P
Corporate / CCR	B3	B+
Senior Secured Debt	B3	BB-
Senior Unsecured Debt	Caa1	B-
Outlook	Stable	Stable
Date of Last Action	March 2016	October 2015

Servicer Ratings

Residential loan and manufactured housing servicer ratings reflect the applicable rating agency's assessment of a servicer’s operational risk and how the quality and experience of the servicer affect loan performance. The following table summarizes the servicer ratings and outlook assigned to certain of our servicer subsidiaries as of the date of this report. Unless otherwise specified, these servicer ratings relate to Ditech Financial as a servicer of mortgage loans.



	Moody's	S&P
Residential Prime Servicer	—	—
Residential Subprime Servicer	SQ3+	Above Average
Residential Special Servicer	—	Above Average
Residential Second/Subordinated Lien Servicer	SQ2-	Above Average
Manufactured Housing Servicer	SQ2-	Above Average
Residential HLTV Servicer	—	—
Residential HELOC Servicer	—	—
Residential Reverse Mortgage Servicer	—	Strong ⁽¹⁾
Outlook	Not on review	Stable
Date of Last Action	December 2015	October 2015

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(1)	S&P last affirmed its rating for RMS as a residential reverse mortgage servicer in November 2015 with a stable outlook.

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Following an internal review of our servicer ratings in 2015, including the servicer rating requirements contained in our contracts, we decided to no longer solicit servicer ratings from Fitch. On April 29, 2016, Fitch issued a press release stating it has withdrawn all servicer ratings and outlooks for Ditech Financial and will no longer provide servicer ratings for Ditech Financial.

Cybersecurity

We devote significant resources to maintain and regularly update our systems and processes that are designed to protect the security of our computer systems, software, networks and other technology assets against attempts by unauthorized parties to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage. From time to time we, our vendors and other companies that store or process confidential borrower personal and transactional data are targeted by unauthorized parties using malicious code and viruses or otherwise attempting to breach the security of our or our vendors’ systems and data. We employ extensive layered security at all levels within our organization to help us detect malicious activity, both from within the organization and from external sources. It is company protocol to investigate the cause and extent of all instances of cyber-attack, potential or confirmed, and take any additional necessary actions including: conducting additional internal investigation; engaging third-party forensic experts; updating our defenses; and involving senior management. We have established, and continue to establish on an ongoing basis, defenses to identify and mitigate these cyber-attacks, and although these cyber-attacks have on occasion penetrated certain defenses, they have not, to date, resulted in any material disruption to our operations and have not had a material adverse effect on our results of operations. However, loss, unauthorized access to, or misuse of confidential or personal information could disrupt our operations, damage our reputation, and expose us to claims from customers, financial institutions, regulators, employees and other persons, any of which could have an adverse effect on our business, financial condition and results of operations.

In addition to our vendors, other third parties with whom we do business or that facilitate our business activities (e.g., GSEs, transaction counterparties and financial intermediaries) could also be sources of cybersecurity risk to us, including with respect to breakdowns or failures of their systems, misconduct by the employees of such parties, or cyber-attacks which could affect their ability to deliver a product or service to us or result in lost or compromised information of us or our consumers. We work with our vendors and other third parties with whom we do business, to enhance our defenses and improve resiliency to cybersecurity threats. Systems failures could result in reputational damage to our business and cause us to incur significant costs and third-party liability, and this could adversely affect our business, financial condition and results of operations.

Off-Balance Sheet Arrangements

We have certain off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources.

We have exposure to representations and warranty obligations as a result of our loans sales activities. If it is determined that loans sold are in breach of these representations or warranties and we are unable to cure such breach, we generally have an obligation to either repurchase the loan for the unpaid principal balance, accrued interest, and related advances, and in any event, we must indemnify the purchaser of the loans for certain losses and expenses incurred by such purchaser in connection with such breach. Our credit loss may be reduced by any recourse we have to correspondent lenders that, in turn, have sold such residential loans to us and breached similar or other representations and warranties. We record an estimate of the liability associated with our representations and warranties exposure on our consolidated balance sheet. Refer to Notes 3 and 11 in the Notes to Consolidated Financial Statements included in Item 1 for the financial effect of these arrangements and to the Liquidity and Capital Resources section for additional information.

We have a variable interest in WCO which provided financing to us during 2014 and 2015 through the sales of excess servicing spreads and servicing rights. The repayment of the excess servicing spread liabilities and servicing rights financing is based on future servicing fees received from the residential loans underlying the servicing rights. In addition, we perform sub-servicing for WCO. Refer to Notes 6 and 13 in the Notes to Consolidated Financial Statements included in Item 1 for additional information on servicing activities and transactions with WCO. We also have other variable interests in other entities that we do not consolidate as we have determined we are not the primary beneficiary. Included in Note 4 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 are descriptions of the Company’s variable interests in VIEs that it does not consolidate as it has determined that it is not the primary beneficiary of such VIEs for additional information.

Critical Accounting Estimates

The critical accounting estimates used in preparation of our consolidated financial statements are described in the Critical Accounting Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 29, 2016. Provided below is a summary of goodwill as described in such Annual Report on Form 10-K and significant updates. Except as provided below, there have been no material changes to our critical accounting policies or estimates and the methodologies or assumptions we apply under them.

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Goodwill

As a result of our various acquisitions, we have recorded goodwill, which represents the excess of the consideration paid for a business combination over the fair value of the identifiable net assets acquired. Goodwill is initially recorded at fair value and is subsequently evaluated at least annually for impairment. We perform this annual test at the reporting unit level as of October 1 of each year, or whenever events or circumstances indicate potential impairment. Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value. A reporting unit is a business segment or one level below. We have identified five reporting units, which constitute businesses: (i) Servicing; (ii) ARM; (iii) Insurance; (iv) Originations; and (v) Reverse Mortgage. Segment management regularly reviews discrete financial information for these reporting units.

We have the option of performing a qualitative assessment to determine whether any further quantitative testing for a potential impairment is necessary. Our qualitative assessment will use judgments including, but not limited to, changes in the general economic environment, industry and regulatory considerations, current economic performance compared to historical economic performance, entity-specific events, events affecting our reporting units, and sustained changes in our stock price, where applicable. If we elect to bypass the qualitative assessment or if we determine, based upon our assessment of those qualitative factors that it is more likely than not that the fair value of the reporting unit is less than its net carrying value, a quantitative assessment is required. The quantitative test is a two-step test. The first step identifies whether there is potential impairment by comparing the fair value of a reporting unit to the carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, the second step of the impairment test is required to measure the amount of impairment loss, if any. As part of the second step, we allocate the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value allocated to goodwill (implied fair value of goodwill). If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of such goodwill, we recognize an impairment loss in an amount equal to that excess up to the carrying value of goodwill.

Similar to 2014 and 2015, our share price continued to experience volatility during the first quarter of 2016, which has been impacted by continued challenges in our industry, market developments, as well as the impact these factors have had on certain Company specific matters. We completed a qualitative assessment of any potential goodwill impairment as of March 31, 2016, and believe that based on our qualitative assessment, the fair value of our reporting units in excess of our market capitalization is temporary in nature due to the current regulatory environment and market developments in our industry. We believe that the downward pressures on our share price do not reflect a reduction in the current or long-term value of our individual reporting units with goodwill. Declines in expected future cash flows, reductions in expected future growth rates, or an increase in the risk-adjusted discount rate used to estimate fair value may result in a determination that an impairment adjustment is required, resulting in a change to earnings in a future period. At March 31, 2016, the Servicing, Originations and ARM reporting units had goodwill of $285.0 million, $47.7 million and $34.5 million, respectively.

We are likely to continue to be impacted in the near term by overall market performance within the sector, a continued level of regulatory scrutiny and other Company specific matters. As a result, we have and will continue to regularly monitor, among other things, our market capitalization, overall economic and sector conditions and other events or circumstances, including the ability to develop new business opportunities within the ARM reporting unit that may result in an impairment of goodwill in the future.

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Glossary of Terms

This Glossary of Terms includes acronyms and defined terms that are used throughout this Quarterly Report on Form 10-Q.


2013 Credit Agreement	Credit Agreement entered into on December 19, 2013 among the Company, Credit Suisse AG, as administrative agent and collateral agent, the lenders from time to time party thereto and other parties thereto


2013 Revolver	$125 million senior secured revolving credit facility entered into on December 19, 2013


2013 Term Loan	$1.5 billion senior secured first lien term loan entered into on December 19, 2013


2013 Secured Credit Facilities	2013 Term Loan and 2013 Revolver, collectively


Adjusted EBITDA	Adjusted earnings before interest, taxes, depreciation and amortization, a non-GAAP financial measure, refer to Non-GAAP Financial Measures section under Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for a description of this metric


Adjusted Earnings (Loss)	Adjusted earnings or loss before taxes, a non-GAAP financial measure, refer to Non-GAAP Financial Measures section under Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for a description of this metric


Borrowers	Borrowers under residential mortgage loans and installment obligors under residential retail installment agreements


Bps	Basis points


CCR	Corporate credit rating


CFPB	Consumer Financial Protection Bureau


Charged-off loans	Defaulted consumer and residential loans acquired by the Company at substantial discounts to face value acquired during 2014, which are also referred to as post charge-off deficiency balances


CID	Civil investigative demand


Coal Acquisition	Warrior Met Coal, LLC (f/k/a Coal Acquisition LLC)


Consolidated Financial Statements	The consolidated financial statements of Walter Investment Management Corp. and its subsidiaries and the notes thereto included in Item 1 of this Form 10-Q


Convertible Notes	$290 million aggregate principal amount of 4.50% convertible senior subordinated notes sold in a registered underwritten public offering on October 23, 2012


Distribution taxes	Taxes imposed on Walter Energy or a Walter Energy shareholder as a result of the potential determination that the Company's spin-off from Walter Energy was not tax-free pursuant to Section 355 of the Code


Ditech Financial	Ditech Financial LLC, formerly Green Tree Servicing LLC, an indirect wholly-owned subsidiary of the Company


Ditech Mortgage Corp	Formerly an indirect wholly-owned subsidiary of the Company; Ditech Mortgage Corp and DT Holdings LLC were merged with and into Green Tree Servicing LLC, with Green Tree Servicing LLC continuing as the surviving entity, which was renamed Ditech Financial LLC


EBITDA	Earnings before interest, taxes, depreciation, and amortization


Early Advance Reimbursement	$200 million financing facility with Fannie Mae

Agreement


ECOA	Equal Credit Opportunity Act


EFTA	Electronic Fund Transfer Act


Exchange Act	Securities Exchange Act of 1934, as amended


Exchange Notes	New issue of registered notes with identical terms of the Company's $575 million aggregate principal amount of 7.875% Senior Notes due 2021, except that they will not be subject to certain restrictions on transfer


Fannie Mae	Federal National Mortgage Association


FASB	Financial Accounting Standards Board


FHA	Federal Housing Administration


FHFA	Federal Housing Finance Agency

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Fitch	Fitch Ratings Inc., a nationally recognized statistical rating organization designated by the SEC


Forward sales commitments	Forward sales of agency to-be-announced securities, a freestanding derivative financial instrument


Freddie Mac	Federal Home Loan Mortgage Corporation


FTC	Federal Trade Commission


GAAP	United States Generally Accepted Accounting Principles


Ginnie Mae	Government National Mortgage Association


Green Tree Servicing	Green Tree Servicing LLC; former name of Ditech Financial. Ditech Mortgage Corp and DT Holdings LLC were merged with and into Green Tree Servicing LLC, with Green Tree Servicing LLC continuing as the surviving entity, which was renamed Ditech Financial LLC


GSE	Government-sponsored entity


GTIM	Green Tree Investment Management, LLC, an indirect wholly-owned subsidiary of the Company


HAMP	Home Affordable Modification Program


HARP	Home Affordable Refinance Program


HECM	Home Equity Conversion Mortgage


HECM IDL	Home Equity Conversion Mortgage Initial Disbursement Limit


HELOC	Home equity line of credit


HLTV	High loan to value


HMBS	Home Equity Conversion Mortgage-Backed Securities


HUD	U.S. Department of Housing and Urban Development


IRLC	Interest rate lock commitment, a freestanding derivative financial instrument


IRS	Internal Revenue Service


Lender-placed	Also referred to as "force-placed"


LIBOR	London Interbank Offered Rate


LOC	Letter of Credit


Marix	Marix Servicing LLC


MBA	Mortgage Bankers Association


MBS	Mortgage-backed securities


MBS purchase commitments	Commitments to purchase mortgage-backed securities, a freestanding derivative financial instrument


Moody's	Moody's Investors Service Limited, a nationally recognized statistical rating organization designated by the SEC


Mortgage loans	Traditional mortgage loans and residential retail installment agreements, which include manufactured housing loans as well as consumer loans


MSP	A mortgage and consumer loan servicing platform licensed from Black Knight Financial Services, LLC


MSR	Mortgage servicing rights


Net realizable value	Fair value less cost to sell


n/m	Not meaningful


Non-Residual Trusts	Securitization trusts that the Company consolidates and in which the Company does not hold residual interests


OTS	Office of Thrift Supervision


Parent Company	Walter Investment Management Corp.


RCS	Residential Credit Solutions, Inc., a Delaware corporation


REIT	Real estate investment trust


Residential loans	Residential mortgage loans, including traditional mortgage loans, reverse mortgage loans and residential retail installment agreements, which include manufactured housing loans as well as consumer loans

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Residual Trusts	Securitization trusts that the Company consolidates and in which it holds a residual interest


RESPA	Real Estate Settlement Procedures Act


Reverse loans	Reverse mortgage loans, including HECMs


RMS	Reverse Mortgage Solutions, Inc., an indirect wholly-owned subsidiary of the Company


RSA	Restructuring support agreement, dated as of July 15, 2015, by and between Walter Energy and its affiliated debtors and debtors-in-possession and the holders of its first lien claims party thereto, relating to Walter Energy’s Chapter 11 bankruptcy filed on July 15, 2015 in the United States Bankruptcy Court for the Northern District of Alabama


RSU	Restricted stock unit


SEC	U.S. Securities and Exchange Commission


Securities Act	Securities Act of 1933, as amended


Senior Notes	$575 million aggregate principal amount of 7.875% senior notes due 2021 issued on December 17, 2013


Senior Notes Indenture	Indenture for the 7.875% Senior Notes due 2021 dated as of December 17, 2013 among the Company, the guarantors and Wells Fargo Bank, National Association, as trustee


S&P	Standard and Poor's Ratings Services, a nationally recognized statistical rating organization designated by the SEC


TBAs	To-be-announced securities


TCPA	Telephone Consumer Protection Act


TILA	Truth in Lending Act


U.S.	United States of America


VA	United States Department of Veteran Affairs


VIE	Variable interest entity


Walter Energy	Walter Energy, Inc.

Walter Energy Asset Purchase


Agreement	Stalking horse asset purchase agreement entered into by Walter Energy, together with certain of its subsidiaries, and Coal Acquisition on November 5, 2015 and amended and restated on March 31, 2016


Warehouse borrowings	Borrowings under master repurchase agreements


WCO	Walter Capital Opportunity Corp. and its consolidated subsidiaries

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We seek to manage the risks inherent in our business — including, but not limited to, credit risk, liquidity risk, real estate market risk, and interest rate risk — in a prudent manner designed to enhance our earnings and preserve our capital. In general, we seek to assume risks that can be quantified from historical experience, to actively manage such risks, and to maintain capital levels consistent with these risks. For information regarding our credit risk, real estate market risk and liquidity risk, refer to the Credit Risk Management, Real Estate Market Risk and Liquidity and Capital Resources sections above in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Interest Rate Risk

Interest rate risk is the risk of loss of future earnings or fair value due to changes in interest rates. Our principal market exposure associated with interest rate risk relates to changes in long-term Treasury and mortgage interest rates and LIBOR.

We provide sensitivity analysis surrounding changes in interest rates in the Servicing, Originations and Reverse Mortgage Segments and Other Financial Instruments sections below. However, there are certain limitations inherent in any sensitivity analysis, 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.

Servicing, Originations and Reverse Mortgage Segments

Sensitivity Analysis

The following tables summarize the estimated change in the fair value of certain assets and liabilities given hypothetical instantaneous parallel shifts in the interest rate yield curve (in thousands):



	March 31, 2016
	Down 50 bps			Down 25 bps			Up 25 bps			Up 50 bps
Servicing segment
Servicing rights carried at fair value	$	(279,066	)	$	(145,526	)	$	125,390		$	223,002
Servicing rights related liabilities	10,241			5,308			(4,627		)	(8,516		)
Net change in fair value - Servicing segment	$	(268,825	)	$	(140,218	)	$	120,763		$	214,486

Originations segment
Residential loans held for sale	$	13,894		$	8,437		$	(10,540	)	$	(23,817	)
Freestanding derivatives ⁽¹⁾	(24,104		)	(12,924		)	13,075			27,768
Net change in fair value - Originations segment	$	(10,210	)	$	(4,487	)	$	2,535		$	3,951

Reverse Mortgage segment
Reverse loans	$	122,909		$	61,427		$	(60,561	)	$	(120,256	)
HMBS related obligations	(102,787		)	(51,539		)	50,996			101,449
Net change in fair value - Reverse Mortgage segment	$	20,122		$	9,888		$	(9,565	)	$	(18,807	)

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	December 31, 2015
	Down 50 bps			Down 25 bps			Up 25 bps			Up 50 bps
Servicing segment
Servicing rights carried at fair value	$	(227,315	)	$	(99,025	)	$	78,064		$	145,147
Servicing rights related liabilities	8,408			4,005			(3,662		)	(7,011		)
Net change in fair value - Servicing segment	$	(218,907	)	$	(95,020	)	$	74,402		$	138,136

Originations segment
Residential loans held for sale	$	29,695		$	15,759		$	(17,443	)	$	(36,162	)
Freestanding derivatives ⁽¹⁾	(35,817		)	(18,457		)	18,404			37,024
Net change in fair value - Originations segment	$	(6,122	)	$	(2,698	)	$	961		$	862

Reverse Mortgage segment
Reverse loans	$	128,204		$	64,074		$	(63,184	)	$	(125,508	)
HMBS related obligations	(108,500		)	(54,385		)	53,808			107,053
Net change in fair value - Reverse Mortgage segment	$	19,704		$	9,689		$	(9,376	)	$	(18,455	)

__________


(1)	Consists of IRLCs, forward sales commitments and MBS purchase commitments.

We used March 31, 2016 and December 31, 2015 market rates on our instruments to perform the sensitivity analysis. These sensitivities measure the potential impact on fair value, are hypothetical, and presented for illustrative purposes only. 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 complex market reactions that normally would arise from the market shifts modeled. 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. 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 can have an effect on other factors (i.e., a decrease in total prepayment speeds may result in an increase in credit losses), which could impact the above hypothetical effects.

Servicing Rights

Servicing rights are subject to prepayment risk as the mortgage loans underlying the servicing rights permit the borrowers to prepay the loans. Consequently, the value of these servicing rights generally tend to diminish in periods of declining interest rates (as prepayments increase) and tend to increase in periods of rising interest rates (as prepayments decrease). This analysis ignores the impact of changes on certain material variables, such as non-parallel shifts in interest rates, or changing consumer behavior to incremental changes in interest rates.

Although the level of interest rates is a key driver of prepayment activity, there are other factors that influence prepayments, including home prices, underwriting standards, availability of government-sponsored refinance programs and other product characteristics. Since our Originations segment’s results of operations are positively impacted when interest rates decline, our Originations segment’s results of operations may partially offset the change in fair value of servicing rights over time. The interaction between the results of operations of these activities is a core component of our overall interest rate risk assessment. We take into account the estimated benefit of originations on our Originations segment’s results of operations to determine the impact on net economic value from a decline in interest rates, and we continuously assess our ability to replenish lost value of servicing rights and cash flow due to increased prepayments. The Company does not currently use derivative instruments to hedge the interest rate risk inherent in the value of servicing rights. The Company may choose to use such instruments in the future. The amount and composition of derivatives used to hedge the value of servicing rights, if any, will depend on the exposure to loss of value on the servicing rights, the expected cost of the derivatives, expected liquidity needs, and the expected increase to earnings generated by the origination of new loans resulting from the decline in interest rates. The servicing rights sensitivity to interest rate changes increased at March 31, 2016 from December 31, 2015 due primarily to a lower interest rate environment.

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Servicing Rights Related Liabilities

Servicing rights related liabilities consists of excess servicing spread liabilities and a servicing rights financing. Servicing rights related liabilities are generally subject to fair value losses when interest rates rise. Increasing interest rates typically slow down refinancing activity. Decreased refinancing activity increases the life of the loans underlying the servicing rights related liabilities, thereby increasing the fair value of the servicing rights related liabilities. As the fair value of the servicing rights related liabilities are related to the future economic performance of certain servicing rights, any adverse changes in those servicing rights would inherently benefit the fair value of the servicing rights related liabilities by decreasing our obligation, while any beneficial changes in the assumptions used to value servicing rights would negatively impact the fair value of the servicing rights related liabilities by increasing our obligation.

Residential Loans Held for Sale and Related Freestanding Derivatives

We are subject to interest rate and price risk on mortgage loans held for sale during the short time from the loan funding date until the date the loan is sold into the secondary market. Interest rate lock commitments represent an agreement to extend credit to a mortgage loan applicant or to purchase loans from a third-party originator, collectively referred to as IRLC, whereby the interest rate of the loan is set prior to funding or purchase. IRLCs, which are considered freestanding derivatives, are subject to interest rate risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. Loan commitments generally range from 35 to 50 days from lock to funding of the mortgage loan; our holding period from funding to sale is typically less than 20 days.

An integral component of our interest rate risk management strategy is our use of freestanding derivative instruments to minimize significant fluctuations in earnings caused by changes in interest rates that affect the value of our IRLCs and mortgage loans held for sale. The derivatives utilized to hedge the interest rate risk are forward sales commitments, which are forward sales of agency TBAs. These TBAs are primarily used to fix the forward sales price that will be realized upon the sale of the mortgage loans into the secondary market. We also enter into commitments to purchase MBS as part of our overall hedging strategy.

Reverse Loans and HMBS Related Obligations

We are subject to interest rate risk on our reverse loans and HMBS related obligations as a result of different expected cash flows and longer expected durations for loans as compared to HMBS related obligations. Our reverse loans have longer durations primarily as a result of our obligations as issuer of HMBS which includes the requirement to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM is equal to or greater than 98% of the maximum claim amount.

Other Financial Instruments

For quantitative and qualitative disclosures about interest rate risk on other financial instruments, refer to Part II, Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" of our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 29, 2016. These risks have not changed materially since December 31, 2015.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2016. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2016, the design and operation of the Company's disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2016 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is, and expects that, from time to time, it will continue to become, involved in litigation, arbitration, examinations, inquiries, investigations and claims. These include pending examinations, inquiries and investigations by governmental and regulatory agencies, including but not limited to the SEC, IRS, state attorneys general and other state regulators, Offices of the United States Trustees and the CFPB, into whether certain of the Company's residential loan servicing and originations practices, bankruptcy practices and other aspects of its business comply with applicable laws and regulatory requirements.

From time to time, the Company has received and may in the future receive subpoenas and other information requests from federal and state governmental and regulatory agencies that are examining or investigating the Company. The Company, Mark O’Brien, Denmar Dixon and certain current and former Company officers have received subpoenas from the SEC requesting documents, testimony and/or other information in connection with an investigation concerning trading in the Company’s securities. The Company and the aforementioned individuals are cooperating with the investigation. In addition, Ditech Financial has received a letter from the SEC requesting a voluntary production of documents and other information in connection with an investigation relating to mortgage loan servicer use of collection agents. We believe a similar letter was also sent to other companies in the industry. Ditech Financial is cooperating with the investigation. The Company cannot provide any assurance as to the outcome of the aforementioned investigations or that such outcomes will not have a material adverse effect on its reputation, business, prospects, results of operations, liquidity or financial condition.

On August 28, 2015, RMS received a CID from the CFPB to produce certain documents and answer questions relating to RMS’s marketing and provision of reverse mortgage products and services. RMS is cooperating with the CFPB by responding to the CID. To date, the CFPB has not advised RMS of any adverse findings in its investigation. However, RMS is unable to predict the outcome of the investigation or the amount of loss, if any, that would result from an adverse resolution of this matter.

The Company has received various subpoenas for testimony and documents, motions for examinations pursuant to Federal Rule of Bankruptcy Procedure 2004, and other information requests from certain Offices of the United States Trustees, acting through trial counsel in various federal judicial districts, seeking information regarding an array of the Company’s policies, procedures and practices in servicing loans to borrowers who are in bankruptcy and the Company's compliance with bankruptcy laws and rules. We have provided information in response to these subpoenas and requests and have met with representatives of certain Offices of the United States Trustees to discuss various issues that have arisen in the course of these inquiries, including our compliance with bankruptcy laws and rules. We cannot predict the outcome of the aforementioned proceedings and investigations, which could result in requests for damages, fines, sanctions, or other remediation. We could face further legal proceedings in connection with these matters. We may seek to enter into one or more agreements to resolve these matters. Any such agreement may require us to pay fines or other amounts for alleged breaches of law and to change or otherwise remediate our business practices. Legal proceedings relating to these matters and the terms of any settlement agreement could have a material adverse effect on the Company’s reputation, business, prospects, results of operations, liquidity and financial condition.

Since mid-2014, we have received subpoenas for documents and other information requests from the offices of various state attorneys general who have, as a group and individually, been investigating our mortgage servicing practices. We have provided information in response to these subpoenas and requests and have had discussions with representatives of the states involved in the investigations to explain our practices. We may seek to reach an agreement to resolve these matters with one or more states. Any such agreement may include, among other things, enhanced servicing standards, monitoring and testing obligations, injunctive relief and payments for remediation, consumer relief, penalties and other amounts. We cannot predict whether litigation or other legal proceedings will be commenced by one or more states in relation to these investigations. Any legal proceedings and any agreement resolving these matters could have a material adverse effect on the Company’s reputation, business, prospects, results of operation, liquidity and financial condition.

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The Company is involved in litigation, including putative class actions, and other legal proceedings concerning, among other things, lender-placed insurance, private mortgage insurance, bankruptcy practices, employment practices, the Consumer Financial Protection Act, the Fair Debt Collection Practices Act, the TCPA, the Fair Credit Reporting Act, TILA, RESPA, EFTA, the ECOA, and other federal and state laws and statutes. For example, in Sanford Buckles v. Green Tree Servicing LLC and Walter Investment Management Corporation, filed on August 18, 2015 in the U.S. District Court for the District of Nevada, the Parent Company and Ditech Financial are subject to a putative class action suit alleging that the Parent Company and Ditech Financial improperly recorded phone calls received from, and/or made to, Nevada residents without their prior consent in violation of Nevada state law. The plaintiff in this suit, on behalf of himself and others similarly situated, seeks punitive and statutory damages, and attorneys’ fees. Ditech Financial is also subject to several purported class action suits alleging violations of the TCPA for placing phone calls to plaintiffs’ cell phones using an automatic telephone dialing system without their prior consent. The plaintiffs in these suits, on behalf of themselves and others similarly situated, seek statutory damages for both negligent and knowing or willful violations of the TCPA and, in one case, attorneys' fees.

The outcome of all of the Company's legal proceedings is uncertain, and it is possible that adverse results in such proceedings (which could include restitution, penalties, punitive damages and injunctive relief affecting the Company's business practices) and the terms of any settlements of such proceedings could have a material adverse effect on the Company's reputation, business, prospects, results of operations, liquidity or financial condition. In addition, governmental and regulatory agency examinations, inquiries and investigations may result in the commencement of lawsuits or other proceedings against us or our personnel. Although the Company has historically been able to resolve the preponderance of its ordinary course litigations on terms it considered favorable and without a material effect, this pattern may not continue and, in any event, individual cases could have unexpected materially adverse outcomes, requiring payments or other expenses in excess of amounts already accrued. The Company cannot predict whether or how any legal proceeding will affect the Company's business relationship with actual or potential customers, the Company's creditors, rating agencies and others. In addition, cooperating in, defending and resolving these legal proceedings consume significant amounts of management time and attention and could cause the Company to incur substantial legal, consulting and other expenses and to change the Company's business practices, even in cases where there is no determination that the Company's conduct failed to meet applicable legal or regulatory requirements.

For a description of certain legal proceedings, please see Note 11 to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report, which is incorporated by reference herein.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully review and consider the risks and uncertainties described below and under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, which are the risks and uncertainties that could materially adversely affect our business, prospects, financial condition, cash flows, liquidity, results of operations, our ability to pay dividends to our stockholders and/or our stock price. In addition, to the extent that any of the information contained in this report or in the aforementioned periodic report constitutes forward-looking information, the risk factors set forth below and in such periodic report are cautionary statements identifying important factors that could cause our actual results for various financial reporting periods to differ materially from those expressed in any forward-looking statements made by or on our behalf.

Risks Related to Our Relationship with Walter Energy

We may become liable for U.S. federal income taxes allegedly owed by the Walter Energy consolidated group for 2009 and prior tax years. We cannot predict how Walter Energy’s recent bankruptcy filing in Alabama may affect the outcome of these matters.

We may become liable for U.S. federal income taxes allegedly owed by the Walter Energy consolidated group for 2009 and prior tax years. Under federal law, each member of a consolidated group for U.S. federal income tax purposes is severally liable for the federal income tax liability of each other member of the consolidated group for any year in which it was a member of the consolidated group at any time during such year. Certain former subsidiaries of the Company (which were subsequently merged or otherwise consolidated with certain current subsidiaries of the Company) were part of the Walter Energy consolidated tax group prior to our spin-off from Walter Energy on April 17, 2009. As a result, if the Walter Energy consolidated group’s federal income taxes (including penalties and interest) for such tax years are not discharged by Walter Energy or otherwise, we could be liable for such amounts.

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We cannot predict whether or to what extent we may become liable for federal income taxes of the Walter Energy consolidated group, in part because we believe, based on publicly available information, that: (i) the amount of taxes owed by the Walter Energy consolidated group for the periods from 1983 through 2009 remains unresolved; (ii) in light of Walter Energy’s 2015 Chapter 11 bankruptcy filing, it is unclear (a) whether Walter Energy will be obligated or able to pay any or all of such amounts owed and (b) what portion of the IRS claims against the Walter Energy consolidated group for 2009 and prior tax years are attributable to tax, interest and/or penalties and what priority, if any, the IRS will receive in the Alabama bankruptcy proceedings with respect to its claims against Walter Energy; and (iii) we cannot predict whether, in the event Walter Energy does not discharge all tax obligations for the consolidated group, the IRS will seek to enforce tax claims against former members of the Walter Energy consolidated group. Further, because we cannot currently estimate our liability, if any, relating to the federal income tax liability of Walter Energy’s consolidated tax group during the tax years in which we were a part of such group, we cannot determine whether such liabilities, if any, could have a material adverse effect on our business, financial condition, liquidity and/or results of operations.

Tax Separation Agreement. In connection with our spin-off from Walter Energy, the Company and Walter Energy entered into a Tax Separation Agreement, dated April 17, 2009. Notwithstanding any several liability the Company may have under federal tax law described above, under the Tax Separation Agreement, Walter Energy agreed to retain full liability for all U.S. federal income or state combined income taxes of the Walter Energy consolidated group for 2009 and prior tax years (including any interest, additional taxes or penalties applicable thereto), subject to limited exceptions. Accordingly, we filed "proofs of claim" in the Alabama bankruptcy proceedings asserting claims for any such amounts to the extent we are ultimately held liable for the same.

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Furthermore, the Tax Separation Agreement provides that Walter Energy has, in its sole discretion, the exclusive right to represent the interests of the consolidated group in any audit, court proceeding or settlement of a claim with the IRS for the tax years in which certain of the Company's former subsidiaries were a member of the Walter Energy consolidated group for U.S. federal income tax purposes. Moreover, the Tax Separation Agreement obligates us to take certain tax positions that are consistent with those taken historically by Walter Energy. In the event we do not take such positions, we could be liable to Walter Energy to the extent our failure to do so results in an increased tax liability or the reduction of any tax asset of Walter Energy. These arrangements may result in conflicts of interests between us and Walter Energy, particularly with regard to the Walter Energy bankruptcy proceedings described above.

Lastly, according to its public filings, Walter Energy’s 2009 tax year is currently under audit. Accordingly, if it is determined that certain distribution taxes and other amounts are owed related to our spin-off from Walter Energy in 2009, we may be liable under the Tax Separation Agreement for all or a portion of such amounts.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


a)	Not applicable.


b)	Not applicable.


c)	Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The Index to Exhibits, which appears immediately following the signature page below, is incorporated by reference herein.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	WALTER INVESTMENT MANAGEMENT CORP.

Dated: May 3, 2016	By:	/s/ Denmar J. Dixon
		Denmar J. Dixon
		Vice Chairman, President and Chief Executive Officer (Principal Executive Officer and Authorized Signatory)

Dated: May 3, 2016	By:	/s/ Gary L. Tillett
		Gary L. Tillett
		Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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INDEX TO EXHIBITS



Exhibit No.	Note	Description

10.1	(1)	Fourth Amended and Restated Consent Agreement, dated as of March 16, 2016, among Ditech Financial LLC, Green Tree Agency Advance Funding Trust I, Green Tree Advance Receivables III LLC, Wells Fargo Bank, N.A., as Indenture Trustee, Barclays Bank PLC, as administrative agent, and the Federal Home Loan Mortgage Corporation.

10.2		Employment Agreement, by and between Walter Investment Management Corp. and Denmar J. Dixon, entered into as of April 4, 2016 (Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K/A as filed with the Securities and Exchange Commission on April 6, 2016).

10.3	(1)	Amendment No. 9 to Receivables Loan Agreement, dated as of April 22, 2016, by and among Green Tree Advance Receivables II LLC, as borrower, Ditech Financial LLC, as administrator, the financial institutions identified on the signature pages thereto, as lenders, Wells Fargo Bank, National Association, as Calculation Agent, Account Bank, Verification Agent and Securities Intermediary, and Wells Fargo Capital Finance, LLC, as agent for the lenders.

31.1	(1)	Certification by Denmar J. Dixon pursuant to Securities Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	(1)	Certification by Gary L. Tillett pursuant to Securities Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	(1)	Certification by Denmar J. Dixon and Gary L. Tillett pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	(1)	XBRL (Extensible Business Reporting Language) — The following materials from Walter Investment Management Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (Extensible Business Reporting Language); (i) Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015; (ii) Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2016 and 2015; (iii) Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2016; (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015; and (v) Notes to Consolidated Financial Statements.



Note		Notes to Exhibit Index

(1)		Filed or furnished herewith.

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Large accelerated filer

Accelerated filer

Non-accelerated filer

o (Do not check if a smaller reporting company)

Smaller reporting company