Nationstar Mortgage Holdings Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - Nationstar Mortgage Holdings Inc.	a09302015exhibit311.htm
EX-32.2 - EXHIBIT 32.2 - Nationstar Mortgage Holdings Inc.	a09302015exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - Nationstar Mortgage Holdings Inc.	a09302015exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - Nationstar Mortgage Holdings Inc.	a09302015exhibit312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended September 30, 2015



¨	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: 001-35449

Nationstar Mortgage Holdings Inc.

(Exact name of registrant as specified in its charter)



Delaware		45-2156869
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

Registrant’s telephone number, including area code:

(469) 549-2000

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

Indicate by check mark whether the registrant has submitted electronically 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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 12(b)-2 of the Exchange Act



Large Accelerated Filer	x	Accelerated Filer	¨

Non-Accelerated Filer	¨ (Do not check if a smaller reporting company.)	Smaller reporting company	¨

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

Number of shares of common stock, $0.01 par value, outstanding as of September 30, 2015: 109,826,176

NATIONSTAR MORTGAGE HOLDINGS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS



		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets – September 30, 2015 (unaudited) and December 31, 2014	3

	Consolidated Statements of Income and Comprehensive Income (unaudited) - For the three and nine months ended September 30, 2015 and 2014	4

	Consolidated Statements of Stockholders’ Equity - For the nine months ended September 30, 2015 (unaudited) and year ended December 31, 2014	5

	Consolidated Statements of Cash Flows (unaudited) - For the nine months ended September 30, 2015 and 2014	6

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	51

Item 3.	Quantitative and Qualitative Disclosure About Market Risks	76

Item 4.	Controls and Procedures	76

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	77

Item 1A.	Risk Factors	77

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77

Item 3.	Defaults Upon Senior Securities	78

Item 4.	Mine Safety Disclosures	78

Item 5.	Other Information	78

Item 6.	Exhibits	79

Signatures

Exhibits

PART I. Financial Information

Item 1. Consolidated Financial Statements

NATIONSTAR MORTGAGE HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands)



	September 30, 2015			December 31, 2014
	(unaudited)
Assets
Cash and cash equivalents	$	596,607		$	299,002
Restricted cash	477,232			285,530
Mortgage servicing rights, $3,233,041 and $2,949,739 at fair value, respectively	3,242,356			2,961,321
Advances	2,127,064			2,546,362
Reverse mortgage interests	7,433,716			2,453,069
Mortgage loans held for sale	1,885,605			1,277,931
Mortgage loans held for investment, net of allowance for loan losses of $3,549 and $3,531, respectively	178,988			191,569
Property and equipment, net of accumulated depreciation of $98,931 and $69,721, respectively	137,869			129,611
Derivative financial instruments	98,364			91,051
Other assets	859,139			877,229
Total assets	$	17,036,940		$	11,112,675
Liabilities and stockholders' equity
Unsecured senior notes	$	2,157,973		$	2,159,231
Advance facilities	1,750,437			1,901,783
Warehouse facilities	2,303,564			1,572,622
Payables and accrued liabilities	1,291,528			1,322,078
MSR related liabilities - nonrecourse	1,172,471			1,080,465
Derivative financial instruments	28,525			18,525
Mortgage servicing liabilities	27,624			65,382
Other nonrecourse debt	6,608,895			1,768,311
Total liabilities	15,341,017			9,888,397
Commitments and contingencies	—			—
Preferred stock at $0.01 par value - 300,000 shares authorized, no shares issued and outstanding	—			—
Common stock at $0.01 par value - 1,000,000 shares authorized, 109,826 shares and 90,999 shares issued, respectively	1,085			910
Additional paid-in-capital	1,101,464			587,446
Retained earnings	602,961			643,059
Treasury shares; 927 shares and 602 shares at cost, respectively	(18,633		)	(12,433		)
Total Nationstar stockholders' equity	1,686,877			1,218,982
Noncontrolling interest	9,046			5,296
Total equity	1,695,923			1,224,278
Total liabilities and equity	$	17,036,940		$	11,112,675

See accompanying notes to the unaudited consolidated financial statements.

NATIONSTAR MORTGAGE HOLDINGS INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(amounts in thousands, except for earnings per share data)



	For the three months ended September 30,						For the nine months ended September 30,
	2015			2014			2015			2014
Revenues:
Service related	$	211,311		$	361,509		$	884,157		$	1,080,037
Net gain on mortgage loans held for sale	185,872			142,815			516,752			443,667
Total revenues	397,183			504,324			1,400,909			1,523,704
Expenses:
Salaries, wages and benefits	200,600			160,757			577,712			471,404
General and administrative	245,621			166,467			693,337			523,664
Total expenses	446,221			327,224			1,271,049			995,068
Other income (expense):
Interest income	112,503			43,314			243,432			130,198
Interest expense	(175,798		)	(116,673		)	(439,309		)	(412,695		)
Gain on disposal of property	—			4,898			—			4,898
Gain (loss) on interest rate swaps and caps	109			940			(563		)	2,808
Total other income (expense)	(63,186		)	(67,521		)	(196,440		)	(274,791		)
(Loss) income before taxes	(112,224		)	109,579			(66,580		)	253,845
Income tax (benefit) expense	(47,295		)	(1,700		)	(30,649		)	52,242
Net (loss) income	(64,929		)	111,279			(35,931		)	201,603
Less: Net gain (loss) attributable to non-controlling interests	1,413			54			4,167			(113		)
Net (loss) income attributable to Nationstar	(66,342		)	111,225			(40,098		)	201,716
Other comprehensive income, net of tax:
Change in value of designated cash flow hedge, net of tax of $0 and ($1,183), respectively	—			—			—			(1,963		)
Comprehensive (loss) income	$	(66,342	)	$	111,225		$	(40,098	)	$	199,753

(Loss) Earnings per share:
Basic (loss) earnings per share	$	(0.62	)	$	1.23		$	(0.39	)	$	2.24
Diluted (loss) earnings per share	$	(0.62	)	$	1.22		$	(0.39	)	$	2.22
Weighted average shares:
Basic	107,568			90,120			101,797			89,990
Dilutive effect of stock awards	—			1,001			—			690
Diluted	107,568			91,121			101,797			90,680
Dividends declared per share	$	—		$	—		$	—		$	—

See accompanying notes to the unaudited consolidated financial statements.

NATIONSTAR MORTGAGE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(amounts in thousands)



	Number of Shares	Amount
	Common Stock	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Share Amount			Total Nationstar Stockholders' Equity			Non-controlling Interests			Total Equity
Balance at December 31, 2013	90,330	$	906	$	566,642		$	422,341		$	(6,944	)	$	984,908		$	4,990		$	989,898
Shares (including forfeitures) issued under incentive plan	1,271	4		(4		)	—			—			—			—			—
Change in the value of cash flow hedge, net of tax of $1,183	—	—		—			—			—			(1,963		)	—			(1,963		)
Share-based compensation	—	—		18,565			—			—			18,565			—			18,565
Excess tax benefit from share-based compensation	—	—		2,243			—			—			2,243			—			2,243
Shares acquired by Nationstar related to incentive compensation awards	—	—		—			—			(5,489		)	(5,489		)	—			(5,489		)
Net income	—	—		—			220,718			—			220,718			306			221,024
Balance at December 31, 2014	$91,601	$910		$587,446			$643,059			$	(12,433	)	$1,218,982			$5,296			$1,224,278
(unaudited)
Shares (including forfeitures) issued under incentive plan	725	—		—			—			—			—			—			—
Acquisition of non-controlling interest in subsidiaries	—	—		—			—			—			—			(417		)	(417		)
Currency translation adjustment	—	—		—			—			—			—			—			—
Share-based compensation	—	—		15,337			—			—			15,337			—			15,337
Issuance of common stock, net	17,500	175		497,586			—			—			497,761			—			497,761
Excess tax benefit from share-based compensation	—	—		1,095			—			—			1,095			—			1,095
Withholding tax related to share based settlement of common stock by management	—	—		—			—			(6,200		)	(6,200		)	—			(6,200		)
Net (loss) income	—	—		—			(40,098		)	—			(40,098		)	4,167			(35,931		)
Balance at September 30, 2015	109,826	$	1,085	$	1,101,464		$	602,961		$	(18,633	)	$	1,686,877		$	9,046		$	1,695,923

See accompanying notes to the unaudited consolidated financial statements.

NATIONSTAR MORTGAGE HOLDINGS INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)



	For the nine months ended September 30,
	2015			2014
Operating Activities
Net (loss) income attributable to Nationstar	$	(40,098	)	$	201,716
Reconciliation of net (loss) income to net cash attributable to operating activities:
Noncontrolling interest	4,167			306
Share-based compensation	15,337			11,344
Excess tax benefit from share-based compensation	(1,095		)	(2,197		)
Net gain on mortgage loans held for sale	(516,752		)	(443,667		)
Mortgage loans originated and purchased, net of fees	(13,970,035		)	(13,272,856		)
Repurchases of loans and foreclosures out of Ginnie Mae securitizations	(1,392,858		)	(3,284,336		)
Proceeds on sale of and payments of mortgage loans held for sale and held for investment	15,048,814			17,616,711
(Gain) loss on interest rate swaps and caps	563			(2,808		)
Cash settlement on derivative financial instruments	—			1,352
Depreciation and amortization	41,266			29,963
Amortization (accretion) of premiums (discounts)	(7,395		)	16,660
Fair value changes in excess spread financing	(23,357		)	61,080
Fair value changes and amortization/accretion of mortgage servicing rights	499,905			128,227
Fair value change in mortgage servicing rights financing liability	7,093			(38,260		)
Changes in assets and liabilities:
Advances	419,298			664,311
Reverse mortgage interests	(164,963		)	(630,139		)
Other assets	145,707			273,464
Payables and accrued liabilities	(126,955		)	(25,461		)
Net cash attributable to operating activities	(61,358		)	1,305,410

Investing Activities
Property and equipment additions, net of disposals	(44,069		)	(41,567		)
Purchase of forward mortgage servicing rights, net of liabilities incurred	(614,602		)	(317,247		)
Sale of forward mortgage servicing rights	41,197			—
Purchase of reverse mortgage interests, net of participations sold	(4,815,684		)	—
Proceeds on sale of servicer advances	—			512,527
Proceeds from sale of building	—			10,412
Acquisitions, net	(44,858		)	(18,000		)
Net cash attributable to investing activities	(5,478,016		)	146,125

Continued on following page.

NATIONSTAR MORTGAGE HOLDINGS INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

(amounts in thousands)



	For the nine months ended September 30,
	2015			2014
Financing Activities
Transfers (to) from restricted cash, net	(191,702		)	282,289
Issuance of common stock, net of issuance costs	497,761			—
Debt financing costs	(10,668		)	(11,461		)
Increase (decrease) in warehouse facilities	730,942			(1,439,738		)
Increase (decrease) in advance facilities	(151,346		)	(502,403		)
Proceeds from HECM securitizations	342,403			—
Repayment of HECM securitizations	(102,687		)	—
Issuance of excess spread financing	262,976			150,951
Repayment of excess spread financing	(154,706		)	(135,897		)
Increase in participating interest financing in reverse mortgage interests	4,629,380			279,636
Proceeds from mortgage servicing rights financing	—			52,835
Repayment of nonrecourse debt – Legacy assets	(10,269		)	(12,356		)
Repayment of unsecured senior notes	—			(285,000		)
Excess tax benefit from share-based compensation	1,095			2,197
Surrender of shares relating to stock vesting	(6,200		)	(4,755		)
Net cash attributable to financing activities	5,836,979			(1,623,702		)
Net increase (decrease) in cash and cash equivalents	297,605			(172,167		)
Cash and cash equivalents at beginning of period	299,002			441,902
Cash and cash equivalents at end of period	$	596,607		$	269,735

Supplemental disclosures of cash activities
Cash paid for interest expense	$	319,353		$	385,739
Net cash (received from) paid for income taxes	30,772			(15,847		)
Supplemental disclosures of non-cash activities
Transfer of mortgage loans held for investment to REO at fair value	$	2,082		$	2,901
Claims made to third parties	(45,537		)	(145,480		)
Mortgage servicing rights resulting from sale or securitization of mortgage loans	169,406			185,822
Payable to seller of forward mortgage servicing rights	80,466			63,231

See accompanying notes to the unaudited consolidated financial statements.

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

1. Nature of Business and Basis of Presentation

Nature of Business

Nationstar Mortgage Holdings Inc., a Delaware corporation, including its consolidated subsidiaries (collectively, Nationstar or the Company), earns fees through the delivery of servicing, origination and transaction based services related principally to single-family residences throughout the United States.

Basis of Presentation

The consolidated financial statements include the accounts of Nationstar, its wholly-owned subsidiaries, and other entities in which the Company has a controlling financial interest, and those variable interest entities (VIEs) where Nationstar's wholly-owned subsidiaries are the primary beneficiaries. Nationstar applies the equity method of accounting to investments when the entity is a VIE and Nationstar is able to exercise significant influence, but not control, over the policies and procedures of the entity but owns less than 50% of the voting interests. Intercompany balances and transactions have been eliminated. Results of operations, assets and liabilities of VIEs are included from the date that Nationstar became the primary beneficiary through the date Nationstar ceases to be the primary beneficiary.

The interim consolidated financial statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results of the interim periods have been included. The consolidated interim financial statements of Nationstar have been prepared in accordance with generally accepted accounting principles (GAAP) for interim information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (SEC). Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in Nationstar's Annual Report on Form 10-K filed on February 27, 2015. The results of operations for the interim periods disclosed are not necessarily indicative of the results that may be expected for the full year or any future period. Certain prior period amounts have been reclassified to conform to the current period presentation. Nationstar evaluated subsequent events through the date these interim consolidated financial statements were issued.

Recent Accounting Developments

Effective January 1, 2015, the Company adopted Accounting Standards Update No. 2014-14, Receivables — Troubled Debt Restructurings by Creditors (Subtopic 310-40), Classification of Certain Government-Guaranteed Loans Upon Foreclosure (ASU 2014-14). This update requires that foreclosed mortgage loans guaranteed by the government be derecognized and a separate other receivable recognized if certain conditions are met. Upon adoption of this ASU, foreclosed loans backed by government guarantees that were previously recorded as a component of Real Estate Owned in Other Assets were reclassified to Reverse Mortgage Interests on the Company's consolidated balance sheet. Consistent with the Company's adoption of ASU 2014-14, $69.4 million from the prior year was reclassified to be in conformity with the current year presentation. The adoption of ASU 2014-14 was limited to balance sheet reclassification, and did not impact the Company's financial condition, liquidity or results of operations.

Effective January 1, 2015, the Company adopted Accounting Standards Update No. 2014-04, Receivables — Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure (ASU 2014-04). This update requires disclosure of consumer mortgage loans collateralized by residential real estate for which formal foreclosure proceedings are in process. Consistent with the Company's adoption of ASU 2014-04, the Company made the required disclosure for the current and prior year in the Mortgage Loans Held for Sale and Investment footnote. The adoption of ASU 2014-04 was limited to balance sheet reclassification, and did not impact the Company's financial condition, liquidity or results of operations.

Accounting Standards Update 2015-02: Consolidation (Topic 810) — Amendments to the Consolidation Analysis (ASU 2015-02) changes the analysis that a reporting entity must perform when deciding to consolidate a legal entity. This amendment changes the evaluation of whether limited partnerships are variable interest entities or voting interest entities and eliminates the presumption that a general partner should consolidate a limited partnership. This amendment also changes the analysis for entities that are involved with variable interest entities and provides an exception for companies with interests in entities that are required to comply with requirements of the Investment Company Act of 1940 for registered money market funds. The amendment is effective for fiscal years and interim periods beginning after December 15, 2015. The adoption of ASU 2015-12 is not expected to have a material impact on our financial condition, liquidity or results of operations.

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

Accounting Standards Update 2015-03: Interest — Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03) requires that debt issuance costs be included in the carrying value of the related debt liability, when recognized, on the face of the balance sheet. This amendment is effective for fiscal years beginning after December 15, 2015. The adoption of ASU 2015-03 will be limited to balance sheet reclassification, and will not impact the Company's financial condition, liquidity or results of operations.

Accounting Standards Update 2015-05 - Intangibles — Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015-05) was created to eliminate diversity in the reporting of fees paid by a customer in a cloud computing arrangement caused by lack of guidance. This update provides that if a cloud computing arrangement includes a software license, the license element should be accounted for as other acquired software licenses. If the cloud computing arrangement does not include a software license, then the fees should be accounted for as a service contract. This amendment is effective for annual periods beginning after December 15, 2015. The adoption of ASU 2015-05 is not expected to have a material impact on our financial condition, liquidity or results of operations.

Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), creates consistency in the disclosures made by an entity when there is doubt that the entity will continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016. The adoption of ASU 2014-15 is not expected to have a material impact on our financial condition, liquidity or results of operations.

ASU No. 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASU 2014-12), requires that a performance target that affects vesting that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The adoption of ASU 2014-12 is not expected to have a material impact on our financial condition, liquidity or results of operation.

Accounting Standards Update 2015-01: Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (ASU 2015-01) eliminates the concept of extraordinary items from GAAP. ASU 2015-01 is effective for fiscal years beginning after December 15, 2015. The adoption of

ASU 2015-01 is not expected to have a material impact on our financial condition, liquidity or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. This ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects consideration to which the company expects to be entitled in exchange for those goods or services. The ASU was postponed resulting in effective commencement with Nationstar's quarter ending March 31, 2018. The company is currently assessing the potential impact on the consolidated financial statements.

2. Mortgage Servicing Rights (MSR) and Related Liabilities



MSRs and Related Liabilities	September 30, 2015		December 31, 2014
MSRs - fair value	$	3,233,041	$	2,949,739
MSRs - LOCOM	9,315		11,582
Mortgage servicing rights	3,242,356		2,961,321

Mortgage servicing liabilities	27,624		65,382

Excess spread financing - fair value	1,115,949		1,031,035
Mortgage servicing rights financing liability - fair value	56,522		49,430
MSR related liabilities (nonrecourse)	$	1,172,471	$	1,080,465

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

Mortgage Servicing Rights - Fair Value

MSRs - Fair Value consists of rights the Company owns and records as assets to service traditional residential mortgage loans for others either as a result of a purchase transaction or from the sale and securitization of loans originated. MSRs - Fair Value comprise both agency and non-Agency loans. The Company segregates MSRs - Fair Value between credit sensitive and interest sensitive pools. Interest sensitive pools are primarily impacted by changes in forecasted interest rates, which in turn impact voluntary prepayment speeds. Credit sensitive pools are primarily impacted by borrower performance under specified repayment terms, which most directly impacts involuntary prepayments and delinquency rates.

The Company assesses whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition. The Company considers numerous factors in making this assessment, including loan-to-value ratios, FICO scores, percentage of portfolio previously modified, portfolio seasoning and similar criteria. Once the determination for a pool is made, it is not changed over time.

Interest sensitive portfolios consist of lower delinquency single-family conforming residential forward mortgage agency loans. Credit sensitive portfolios primarily consist of higher delinquency single-family non-conforming residential forward mortgage loans serviced for agency and non-Agency investors.

The following table provides a breakdown of the total credit and interest sensitive unpaid principal balances (UPBs) for Nationstar's forward owned MSRs.



	September 30, 2015				December 31, 2014
	UPB		Fair Value		UPB		Fair Value
Credit sensitive	$	235,392,069	$	1,987,356	$	241,769,601	$	1,919,290
Interest sensitive	119,251,923		1,245,685		91,843,044		1,030,449
	$	354,643,992	$	3,233,041	$	333,612,645	$	2,949,739

The activity of MSRs carried at fair value is as follows for the dates indicated:



	For the three months ended September 30,						For the nine months ended September 30,
MSRs - Fair Value	2015			2014			2015			2014
Fair value at the beginning of the period	$	3,350,298		$	2,678,134		$	2,949,739		$	2,488,283
Additions:
Servicing resulting from transfers of financial assets	63,900			65,610			169,406			185,822
Purchases of servicing assets	200,922			159,773			695,067			353,450
Dispositions:
Dispositions	(45,774		)	—			(45,774		)	—
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model	(215,384		)	89,528			(197,037		)	114,349
Other changes in fair value	(120,921		)	(94,836		)	(338,360		)	(243,695		)
Fair value at the end of the period	$	3,233,041		$	2,898,209		$	3,233,041		$	2,898,209

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

During the third quarter of 2015, Nationstar executed a sale of MSRs with an unpaid principal balance of $4.6 billion.. Nationstar will continue to subservice the loans.

Nationstar used the following weighted average assumptions in estimating the fair value of MSRs for the dates indicated:



Credit Sensitive	September 30, 2015		December 31, 2014
Discount rate	11.63	%	11.96	%
Total prepayment speeds	17.17	%	18.58	%
Expected weighted-average life	5.71 years		5.39 years
Interest Sensitive	September 30, 2015		December 31, 2014
Discount rate	9.13	%	9.09	%
Total prepayment speeds	13.56	%	11.27	%
Expected weighted-average life	5.68 years		6.49 years

The following table shows the hypothetical effect on the fair value of the MSRs using certain unfavorable variations of the expected levels of key assumptions used in valuing these assets at September 30, 2015 and December 31, 2014:



	Discount Rate						Total Prepayment Speeds
	100 bps Adverse Change			200 bps Adverse Change			10% Adverse Change			20% Adverse Change
September 30, 2015
Mortgage servicing rights	$	(106,438	)	$	(205,891	)	$	(163,547	)	$	(236,670	)
December 31, 2014
Mortgage servicing rights	$	(110,900	)	$	(207,295	)	$	(112,603	)	$	(199,078	)

These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, the changes in the fair value of Nationstar's excess spread financing liability partially offsets the change in the fair value of Nationstar's mortgage service rights.

MSRs - Lower of Cost or Market (LOCOM)

Nationstar owns the right to service certain reverse mortgages with an unpaid principal balance of $30.7 billion and $28.0 billion as of September 30, 2015 and December 31, 2014, respectively. Nationstar carries these mortgage servicing rights at the lower of cost or market and performs an impairment analysis at the end of each reporting period. In determining fair value for the purpose of impairment, Nationstar utilizes a variety of assumptions, with the primary assumptions being discount rates, prepayment speeds, home price index, collateral values and the expected weighted average life. Nationstar classifies these as Level 3. At September 30, 2015 and December 31, 2014, no impairment was identified. Interest and servicing fees collected on reverse mortgage interests are included as a component of either interest income or service related revenues based on whether Nationstar acquired the related borrower draws from a predecessor servicer or funded borrower draws under its obligation to service the related Home Equity Conversion Mortgages (HECMs) subsequent to the acquisition of the rights to service these loans.

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

The activity of MSRs carried at amortized cost is as follows for the dates indicated:



	For the nine months ended September 30,
	2015						2014
	Assets			Liabilities			Assets			Liabilities
Activity of MSRs at Amortized Cost
Balance at the beginning of the period	$	11,582		$	65,382		$	14,879		$	82,521
Additions:
Purchase /Assumptions of servicing rights/obligations	—			—			—			—
Deductions:
Amortization/Accretion	(2,267		)	(37,759		)	(2,448		)	(3,567		)
Balance at end of the period	$	9,315		$	27,623		$	12,431		$	78,954
Fair value at end of period	$	30,147		$	11,438		$	35,475		$	61,853

For the nine month periods ended September 30, 2015 and 2014, the Company accreted $37.8 million and $3.6 million, respectively, of the mortgage servicing liability. The increase in amortization/accretion was primarily due to increased realized losses incurred during 2015. Issuers of HECMs are responsible for repurchasing any loans out of the HMBS pool when the outstanding principal balance of the related HECM loan is equal to or greater than 98% of the lesser of the appraised value of the underlying property at origination or $625 thousand.

Excess Spread Financing at Fair Value

In order to finance the acquisition of certain MSRs on various pools of residential mortgage loans (the Portfolios), Nationstar entered into multiple sale and assignment agreements with certain entities formed by New Residential Investment Corp. (New Residential) in which New Residential and/or certain funds managed by Fortress Investment Group LLC (Fortress) own an interest. Nationstar, in transactions accounted for as financing arrangements, sold to such entities the right to receive a specified percentage of the excess cash flow generated from the Portfolios after receipt of a fixed basic servicing fee per loan. Nationstar has elected fair value accounting for these financing agreements.

Servicing fees associated with a traditional MSR can be segregated into a base servicing fee and an excess servicing fee. The base servicing fee, along with ancillary income, is meant to cover costs incurred to service the specified pool plus a reasonable profit margin. The remaining servicing fee is considered excess.

Nationstar retains all the base servicing fee and ancillary revenues associated with servicing the Portfolios and a retained portion of the excess servicing fee. Nationstar continues to be the servicer of the Portfolios and provides all servicing and advancing functions.

Contemporaneous with the above, Nationstar entered into refinanced loan agreements with New Residential. Should Nationstar refinance any loan in the Portfolios, subject to certain limitations, Nationstar will be required to transfer the new loan or a replacement loan of similar economic characteristics into the Portfolios. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above.

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

The range of various assumptions used in Nationstar's valuation of Excess Spread financing were as follows:



Excess Spread Financing	Prepayment Speeds	Average Life (years)	Discount Rate	Recapture Rate
September 30, 2015
Low	8.0%	3.9 years	8.5%	6.8%
High	18.7%	7.6 years	14.2%	30.3%
Weighted-average	12.3%	5.72 years	11.2%	17.5%
December 31, 2014
Low	6.2%	4.0 years	8.5%	6.7%
High	19.4%	7.1 years	14.2%	31.3%
Weighted-average	12.5%	5.6 years	11.5%	16.8%

The following table shows the hypothetical effect on the fair value of excess spread financing using certain unfavorable variations of the expected levels of key assumptions used in valuing these liabilities at the dates indicated:



	Discount Rate				Total Prepayment Speeds
	100 bps Adverse Change		200 bps Adverse Change		10% Adverse Change		20% Adverse Change
September 30, 2015
Excess spread financing	$	40,456	$	84,079	$	38,419	$	80,733
December 31, 2014
Excess spread financing	$	36,632	$	75,964	$	33,618	$	70,379

As the cash flow assumptions utilized in determining the fair value amounts in the excess spread financing are based on the related cash flow assumptions utilized in the financed MSRs, any fair value changes recognized in the MSRs would inherently have an inverse impact on the carrying amount in the related excess spread financing. For example, while an increase in discount rates would negatively impact the value of the Company's MSRs, it would reduce the carrying value of the associated excess spread financing liability.

These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Also, a positive change in the above assumptions would not necessarily correlate with the corresponding decrease in the net carrying amount of the excess spread financing.

Mortgage Servicing Rights Financing

From December 2013 through June 2014, Nationstar entered into agreements to sell a contractually specified base fee component of certain MSRs and servicer advances under specified terms to New Residential and certain unaffiliated third-parties. Nationstar continues to be the named servicer and, for accounting purposes, ownership of the mortgage servicing rights continues to reside with Nationstar. Nationstar continues to account for the MSRs on its consolidated balance sheets. In addition, Nationstar records a MSRs financing liability associated with this financing transaction. See Note 18, Disclosures Related to Transactions with Affiliates of Fortress Investment Group LLC for additional information.

Nationstar elected to measure the mortgage servicing rights financings at fair value with all changes in fair value recorded as a charge or credit to servicing related revenue in the consolidated statements of income and comprehensive income. The weighted average assumptions used in Nationstar's valuation of Mortgage Servicing Rights Financing were as follows:

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



	September 30, 2015		December 31, 2014
Advance financing rates	2.86	%	2.79	%
Annual advance recovery rates	24.67	%	27.55	%

3. Advances, Net



	September 30, 2015		December 31, 2014
Agency	$	1,273,618	$	1,805,412
Non-agency	$	853,446	$	740,950
Total advances, net	$	2,127,064	$	2,546,362

Servicing advances on agency securities represent a receivable from the respective agency and are recovered from cash collections in a securitization trust and/or a requested reimbursement from the agency.

Servicing advances on non-agency securities are typically recovered first at a loan-level from proceeds of the mortgage loans for which the advance was made, and then if loan-level funds are determined to be ultimately insufficient, from cash collected from all borrowers in a securitization trust.

Nationstar accretes purchase discounts related to specific advances into interest income as the related servicer advances are recovered. During the three and nine month periods ended September 30, 2015, the Company accreted $1.3 million and $1.7 million, respectively, of the purchase discounts from recovered servicer advances. During the three and nine month periods ended September 30, 2014, the Company accreted zero and $8.4 million respectively, of the purchase discounts from recovered servicer advanced into interest income. At September 30, 2015, there is $3.4 million that Nationstar expects to accrete into future interest income from remaining purchase discounts.

As of September 30, 2015 and December 31, 2014, Nationstar carried an allowance for uncollectible servicer advances of $19.3 million and $9.2 million, respectively. Advances balances are reflected net of these reserves.

4. Reverse Mortgage Interests



	September 30, 2015			December 31, 2014
Participating interests	$	5,957,413		$	1,363,225
Other interests securitized	514,378			341,268
Unsecuritized interests	990,998			752,801
Reserve for servicing losses	(29,073		)	(4,225		)
Total reverse mortgage interests	$	7,433,716		$	2,453,069

Participating interests consists of Nationstar HECM loans and related advances that have been securitized through the issuance of Home Equity Conversion Mortgage Backed Securities (HMBS) guaranteed by Ginnie Mae to third party security holders.

Other interests securitized consists of reverse mortgage interests which have been transferred to private securitization trusts and are subject to nonrecourse debt. Nationstar evaluated these trusts and concluded that they meet the definition of a VIE and Nationstar is the primary beneficiary. Accordingly, these transactions are treated as secured borrowings and both the reverse mortgage interests and the related indebtedness are retained on Nationstar’s balance sheet. See Note 8, Indebtedness and Note 10, Securitizations and Financing for additional information.

Unsecuritized interests consist primarily of (1) recently funded borrower draws; (2) Ginnie Mae HECMs that have been repurchased out of a Ginnie Mae HECM securitization that have reached a minimum of 98% of the maximum claim amount; (3) repurchased Ginnie Mae HECM interests that have been assigned to the FHA for reimbursement; (4) foreclosed assets; (5) advances made on inactive loans that cannot be securitized due to the delinquency status; and (6) accounts receivable related to FHA claims. Under the Ginnie Mae HMBS program, the Company is required to repurchase a HECM loan from the HMBS pool when the outstanding

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

principal balance of the HECM loan is equal to or greater than 98% of the maximum claim amount. Nationstar routinely securitizes eligible reverse mortgage interests. As stated above, these transactions are treated as secured borrowings with both the reverse mortgage interests and related indebtedness retained on Nationstar’s balance sheet. See Note 8, Indebtedness for additional information.

During May 2015, the Company entered into an asset acquisition and paid $192 million funded from cash on hand to Generation Mortgage and received of $4.9 billion of UPB assets and $4.6 billion of assumed liabilities. Nationstar recorded both the asset and corresponding liability gross for HMBS securities previously issued by Generation Mortgage as an assumed liability recorded to non-recourse debt.

5. Mortgage Loans Held for Sale and Investment

Mortgage loans held for sale

Nationstar maintains a strategy of originating mortgage loan products primarily for the purpose of selling to government-sponsored enterprises (GSEs) or other third-party investors, primarily Ginnie Mae, in the secondary market. Nationstar primarily focuses on assisting customers currently in the Company's servicing portfolio with refinances of loans or new home purchases (referred to as recapture). Generally, all newly originated mortgage loans held for sale are securitized and transferred to GSEs or delivered to third-party purchasers shortly after origination on a servicing-retained basis.

Mortgage loans held for sale consist of the following for the dates indicated:



	September 30, 2015		December 31, 2014
Mortgage loans held for sale – unpaid principal balance	$	1,802,914	$	1,218,596
Mark-to-market adjustment⁽¹⁾	82,691		59,335
Total mortgage loans held for sale	$	1,885,605	$	1,277,931

⁽¹⁾ The mark-to-market adjustment is reflected in net gain on mortgage loans held for sale on our consolidated statements of income and comprehensive income.

Nationstar accrues interest income as earned. Nationstar places loans on non-accrual status after any portion of principal or interest has been delinquent for more than 90 days. When Nationstar places a loan on non-accrual status, Nationstar reverses the interest that had been accrued but not yet received.

The total UPB of mortgage loans held for sale on nonaccrual status was as follows for the dates indicated:



	September 30, 2015				December 31, 2014
Mortgage Loans Held for Sale - Unpaid Principal Balance	UPB		Fair Value		UPB		Fair Value
Nonaccrual	$	27,672	$	25,037	$	31,968	$	26,022

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

The total UPB of mortgage loans held for sale for which the Company has begun formal foreclosure proceedings was as follows for the dates indicated:



Mortgage Loans Held for Sale - Unpaid Principal Balance	September 30, 2015		December 31, 2014
Foreclosure	$	20,773	$	17,493

A reconciliation of the changes in mortgage loans held for sale for the dates indicated is presented in the following table:



	For the nine months ended September 30,
	2015			2014
Mortgage loans held for sale – beginning balance	$	1,277,931		$	2,603,380
Mortgage loans originated and purchased, net of fees	13,970,035			13,272,856
Repurchase of loans out of Ginnie Mae securitizations	1,368,547			3,275,202
Claims made to third parties⁽¹⁾	(45,537		)	(145,480		)
Proceeds on sale of and payments of mortgage loans held for sale	(15,034,841		)	(17,601,712		)
Gain on sale of mortgage loans⁽²⁾	349,470			292,795
Mortgage loans held for sale – ending balance	$	1,885,605		$	1,697,041

⁽¹⁾This is comprised of claims made on certain government guaranteed mortgage loans upon foreclosure based on the adoption of ASU 2014-14.

⁽²⁾The gain on sale of mortgage loans is reflected in net gain on mortgage loans held for sale on our consolidated statements of income and comprehensive income.

Included in Mortgage loans originated and purchased, net of fees are loans repurchased out of Ginnie Mae pools primarily in connection with loan modifications and loan resolution activity as part of Nationstar's contractual obligations as the servicer of the loans. Nationstar has the right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. The majority of Ginnie Mae repurchased loans are repurchased solely with the intent to re-pool into new Ginnie Mae securitizations or to otherwise sell to third-party investors. During the nine months ended September 30, 2015 and September 30, 2014, Nationstar repurchased loans from Ginnie Mae securitization pools of $1.4 billion and $3.3 billion of mortgage loans, respectively.

Mortgage loans held for investment, net

Mortgage loans held for investment, net as of the dates indicated include:



	September 30, 2015			December 31, 2014
Mortgage loans held for investment, net – unpaid principal balance	$	257,763		$	276,820
Transfer discount:
Accretable	(14,586		)	(15,503		)
Non-accretable	(60,640		)	(66,217		)
Allowance for loan losses	(3,549		)	(3,531		)
Total mortgage loans held for investment, net	$	178,988		$	191,569

The changes in accretable yield on loans transferred to mortgage loans held for investment, net were as follows:

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



	For the nine months ended September 30, 2015			For the year ended December 31, 2014
Accretable Yield
Balance at the beginning of the period	$	15,503		$	17,362
Accretion	(2,081		)	(2,955		)
Reclassifications from (to) nonaccretable discount	1,164			1,096
Balance at the end of the period	$	14,586		$	15,503

Nationstar may periodically modify the terms of any outstanding mortgage loans held for investment, net for loans that are either in default or in imminent default. Modifications often involve reduced payments by borrowers, modification of the original terms of the mortgage loans, forgiveness of debt and/or modified servicing advances. As a result of the volume of modification agreements entered into, the estimated average outstanding life in this pool of mortgage loans has been extended. Nationstar records interest income on the transferred loans on a level-yield method. To maintain a level-yield on these transferred loans over the estimated extended life, Nationstar reclassified approximately $1.2 million of transfer discount to non-accretable yield during the nine months ended September 30, 2015 and $1.1 million during the year ended December 31, 2014. Furthermore, Nationstar considers the decrease in principal, interest, and other cash flows expected to be collected arising from the transferred loans as an impairment.

Loan delinquency and Loan-to-Value Ratio (LTV) are common credit quality indicators that Nationstar monitors and utilizes in

its evaluation of the adequacy of the allowance for loan losses, of which the primary indicator of credit quality is loan delinquency status. LTV refers to the ratio of the loan’s unpaid principal balance to the property’s collateral value. Loan delinquencies and unpaid principal balances are updated monthly based upon collection activity. Collateral values are updated from third party providers on a periodic basis. The collateral values used to derive LTVs are obtained at various dates, but the majority were within the last twenty-four months. For an event requiring a decision based at least in part on the collateral value, the Company takes its last known value provided by a third party and then adjusts the value based on the applicable home price index. The total UPB of mortgage loans held for investment for which the Company has begun formal foreclosure proceedings was as follows for the dates indicated:



Mortgage Loans Held for Investment - Unpaid Principal Balance	September 30, 2015		December 31, 2014
Foreclosure	$	46,914	$	52,769

6. Other Assets

Other assets consisted of the following:



	September 30, 2015		December 31, 2014
Receivables from trusts, agencies and prior servicers, net¹	$	373,248	$	386,166
Accrued revenues	174,611		154,436
Loans subject to repurchase right from Ginnie Mae	96,574		131,592
Goodwill	68,537		54,701
Intangible assets	43,498		19,622
Deferred financing costs	40,183		46,986
Prepaid expenses	18,424		9,837
Collateral deposits on derivative instruments	13,684		9,810
Real estate owned (REO), net	2,310		1,625
Accrued interest	887		1,890
Other	27,183		60,564
Total other assets	$	859,139	$	877,229
¹Net of reserves of $153 million and $108 million as of September 30, 2015 and December 31, 2014, respectively.

Receivables from trusts, agencies and prior services, net is primarily comprised of prior servicer receivables and custodial receivables acquired in asset acquisitions.

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

Accrued revenues is primarily comprised of service fees earned but not received.

For certain loans that Nationstar sold to Ginnie Mae, Nationstar as the issuer has the unilateral right to repurchase, without Ginnie Mae’s prior authorization, any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. Once Nationstar has the unilateral right to repurchase a delinquent loan, Nationstar has effectively regained control over the loan and under GAAP, must re-recognize the loan on its consolidated balance sheets and establish a corresponding repurchase liability regardless of Nationstar’s intention to repurchase the loan. Nationstar’s re-recognized loans included in other assets and the corresponding liability in payables and accrued liabilities was $96.6 million at September 30, 2015 and $131.6 million at December 31, 2014.

Acquisitions

In January 2015, Xome Holdings LLC (previously known as Solutionstar Holdings LLC hereafter referred to as Xome), a wholly owned subsidiary of Nationstar, acquired Experience 1, Inc., the holding company for Title365, Xome Signing (previously known as Trusted Signing), and technology subsidiaries Xome Labs (previously known as X1 Labs) and Xome Analytics (previously known as X1 Analytics) (collectively, Title365), a title agency and technology services provider for title insurance and escrow services. The total consideration was $36.0 million in cash. Related to the acquisition, the Company recorded $16.8 million in goodwill and $14.9 million in intangible assets as well as $4.3 million of other net assets. The recognized intangible assets primarily relate to customer relationships, trade names and technology.

In May 2015, Xome acquired Quantarium, LLC, a real estate analytics company that has developed industry-leading automated home valuation models utilizing advanced statistical methods and complex proprietary algorithms. Total consideration paid was $12 million. In June 2015, Xome acquired substantially all of the assets of GoPaperless Solutions, a leader in digital signature and document management Software-as-a-Service solutions. GoPaperless will be integrated into the Xome platform during the fourth quarter. Total consideration paid was $2 million. Related to the acquisitions, the Company tentatively recorded an additional $3.8 million in goodwill and $10 million in intangible assets pending a final valuation.

7. Derivative Financial Instruments

Derivatives instruments utilized by Nationstar primarily include interest rate lock commitments (IRLCs), Loan Purchase Commitments (LPCs), Forward MBS trades, Eurodollar futures, interest rate swap agreements and interest rate caps.

Nationstar enters into IRLCs with prospective borrowers. These commitments are carried at fair value, with any changes in fair value recorded in earnings as a component of net gain on mortgage loans held for sale. The estimated fair values of IRLCs are based on the fair value of the related mortgage loans which is based on observable market data and is recorded in derivative financial instruments within the consolidated balance sheets. Nationstar adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded.

Nationstar actively manages the risk profiles of its IRLCs and mortgage loans held for sale on a daily basis. To manage the price risk associated with IRLCs, Nationstar enters into forward sales of MBS in an amount equal to the portion of the IRLC expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, Nationstar enters into forward sale commitments to deliver mortgage loan inventory to investors. The estimated fair values of forward sales of MBS and forward sale commitments are based on exchange prices or the dealer market price and are recorded as a component of derivative financial instruments in the consolidated balance sheets. The changes in value on forward sales of MBS and forward sale commitments are recorded as a charge or credit to net gain on mortgage loans held for sale.

Associated with the Company's forward MBS trades are $13.7 million and $9.8 million in collateral deposits on derivative instruments recorded in other assets on the Company's balance sheets as of September 30, 2015 and December 31, 2014, respectively. The Company does not offset fair value amounts recognized for derivative instruments and the amounts collected and/or deposited on derivative instruments in its consolidated balance sheets.

Nationstar occasionally enters into contracts with other mortgage lenders to purchase residential mortgage loans at a future date, which are referred to as LPCs. LPCs are accounted for as derivatives and recorded at fair value in derivative financial instruments on Nationstar's consolidated balance sheet. Changes in LPCs are recorded as a charge or credit to net gain on mortgage loans held for sale.

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

In addition, Nationstar enters into Eurodollar futures contracts to replicate the economic hedging results achieved with interest rate swaps or offset the changes in value of its forward sales of certain agency securities. The Company has not designated its futures contracts as hedges for accounting purposes. Eurodollar futures are accounted for as derivatives and recorded at fair value in derivative financial instruments. Realized and unrealized changes in fair value are recorded as a charge or credit to net gain on mortgage loans held for sale.

Periodically, Nationstar has entered into interest rate swap agreements to hedge the interest payment on the warehouse debt and

securitization of its mortgage loans held for sale. These interest rate swap agreements generally require Nationstar to pay a fixed interest rate and receive a variable interest rate based on LIBOR. Interest rate swaps are accounted for as derivative financial instruments. Unless designated as an accounting hedge, Nationstar records gains and losses on interest rate swaps as a component of gain/(loss) on interest rate swaps and caps in Nationstar’s consolidated statements of income (loss) and comprehensive income (loss). Unrealized losses on designated interest rate derivatives are separately disclosed under operating activities in the consolidated statements of cash flows.

During the second quarter of 2015, Nationstar entered into two interest rate caps with notional values of $800 million and $400 million, respectively, to mitigate interest rate risk associated with servicing advance facilities. Expenses associated with interest rate caps are recorded as a gain/(loss) on interest rate swaps and caps in Nationstar's consolidated statements of income (loss). The interest rate caps expire during 2016.

The following tables provide the outstanding notional balances and fair values of outstanding positions for the dates indicated, and recorded gains/(losses) during the periods indicated:

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



	Expiration Dates	Outstanding Notional		Fair Value			Recorded Gains / (Losses)
For the nine months ended September 30, 2015
Assets
Mortgage loans held for sale
Loan sale commitments	2015	$	417	$	4		$	8
Derivative financial instruments
IRLCs	2015	2,764,748		89,965			2,064
Forward MBS trades	2015	252,400		115			(169		)
LPCs	2015	766,474		8,280			6,281
Interest rate swaps and caps	2015-2016	1,200,000		4			—
Liabilities
Derivative financial instruments
IRLCs	2015	2,856		12			(5		)
Forward MBS trades	2015	3,929,100		26,561			(8,202		)
LPCs	2015	207,530		1,630			(1,582		)
Interest rate swaps and caps	2017	27,412		48			(563		)
Eurodollar futures	2015-2020	298,000		274			(267		)

For the year ended December 31, 2014
Assets
Mortgage loans held for sale
Loan sale commitments	2015	$	1,666	$	(4	)	$	(11	)
Derivative financial instruments
IRLCs	2015	2,556,169		87,902			774
Forward MBS trades	2015	319,112		284			(31,982		)
LPCs	2015	287,089		1,999			1,206
Interest rate swaps and caps	2017	124,650		865			(1,673		)
Eurodollar futures	2015-2017	40,000		1			1
Liabilities
Derivative financial instruments
IRLCs	2015	865		7			2,691
Interest rate swaps on ABS debt	2015-2017	105,681		103			731
Forward MBS trades	2015	2,958,700		18,360			(15,055		)
LPCs	2015	30,494		48			1,641
Eurodollar futures	2015-2017	80,000		7			(7		)

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

8. Indebtedness

Notes Payable



						September 30, 2015				December 31, 2014
	Interest Rate	Maturity Date	Collateral	Capacity Amount		Outstanding		Collateral Pledged		Outstanding		Collateral pledged
Advance Facilities
MBS advance financing facility	LIBOR+2.50% to 4.00%	March 2016	Servicing advance receivables	$	130,000	$	73,707	$	80,839	$	363,014	$	418,126
Securities repurchase facility (2011)	LIBOR +3.50%	90 day revolving	Nonrecourse debt - Legacy Assets	—		33,973		55,603		34,613		55,603
Nationstar agency advance financing facility ⁽¹⁾	LIBOR+1.20% to 3.75%	December 2015	Servicing advance receivables	1,300,000		1,114,608		1,243,797		805,706		885,115
MBS advance financing facility (2012)	LIBOR+5.00%	April 2016	Servicing advance receivables	50,000		48,822		58,439		42,472		50,758
Nationstar mortgage advance receivable trust	LIBOR+1.15% to 5.30%	June 2018	Servicing advance receivables	500,000		262,677		305,279		419,170		471,243
MBS servicer advance facility (2014)	LIBOR+3.50%	August 2016	Servicing advance receivables	125,000		123,108		184,084		79,084		138,010
Nationstar servicer advance receivables trust 2014 - BC	LIBOR+1.50% to 3.00%	November 2015	Servicing advance receivables	200,000		93,542		106,012		106,115		121,030
Securities repurchase facility (2014)	LIBOR+1.50% to 2.00%	November 2017	Securities	—		—		—		51,609		74,525
						$	1,750,437	$	2,034,053	$	1,901,783	$	2,214,410

						September 30, 2015				December 31, 2014
	Interest Rate	Maturity Date	Collateral	Capacity Amount		Outstanding		Collateral Pledged		Outstanding		Collateral pledged
Warehouse Facilities
$1.3 billion warehouse facility	LIBOR+2.00% to 2.875%	October 2016	Mortgage loans or MBS	$	1,300,000	$	874,514	$	931,140	$	663,167	$	697,257
$1.0 billion warehouse facility	LIBOR+1.75% to 3.25%	June 2016	Mortgage loans or MBS	1,000,000		603,348		658,317		307,294		320,285
$500 million warehouse facility	LIBOR+1.75% to 2.75%	September 2016	Mortgage loans or MBS	500,000		233,941		239,266		176,194		179,994
$500 million warehouse facility	LIBOR+ 1.50% to 2.00%	November 2015	Mortgage loans or MBS	500,000		241,655		255,152		183,290		192,990
$350 million warehouse facility	LIBOR+2.20% to 4.50%	March 2016	Mortgage loans or MBS	350,000		119,460		131,923		210,049		223,849
$200 million warehouse facility	LIBOR+1.50%	April 2016	Mortgage loans or MBS	200,000		98,028		100,420		—		—
$75 million warehouse facility (HCM) ⁽²⁾	LIBOR+ 2.25% to 2.875%	October 2016	Mortgage loans or MBS	75,000		66,537		68,424		23,949		29,324
$100 million warehouse facility (HCM)	LIBOR + 2.50% to 2.75%	November 2015	Mortgage loans or MBS	100,000		66,081		69,699		8,679		9,044
ASAP+ facility	LIBOR+1.50%	Up to 45 days	GSE mortgage loans or GSE MBS	—		—		—		—		—
						$	2,303,564	$	2,454,341	$	1,572,622	$	1,652,743

Mortgage loans						$	1,806,622	$	1,905,288	$	1,196,956	$	1,241,043
Reverse mortgage interests						$	496,942	$	549,053	$	375,666	$	411,700

⁽¹⁾ This facility has both variable funding notes (VFN) and term notes. Nationstar issued $300.0 million in term notes to institutional investors of which $100.0 million remains outstanding. The notes have a weighted average interest rate of 2.07% and a weighted average term of 5 years.

⁽²⁾ This facility is a sublimit of the $1.3 billion facility specific to Home Community Mortgage (HCM).

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

During the fourth quarter of 2015, Nationstar created a new variable interest entity called the Nationstar Advance Agency Receivables Trust, with $550 million of borrowing capacity. See Note 19, Subsequent Events for additional information.

Unsecured Senior Notes

A summary of the balances of Unsecured Senior Notes is presented below:



	September 30, 2015		December 31, 2014
$475 million face value, 6.500% interest rate payable semi-annually, due August 2018	$	475,000	$	475,000
$375 million face value, 9.625% interest rate payable semi-annually, due May 2019	377,951		378,555
$400 million face value, 7.875% interest rate payable semi-annually, due October 2020	400,472		400,541
$600 million face value, 6.500% interest rate payable semi-annually, due July 2021	604,550		605,135
$300 million face value, 6.500% interest rate payable semi-annually, due June 2022	300,000		300,000
Total	$	2,157,973	$	2,159,231

The indentures for the Unsecured Senior Notes contain various covenants and restrictions that limit Nationstar's ability to incur additional indebtedness, pay dividends, make certain investments, create liens, consolidate, merge or sell substantially all of its assets, or enter into certain transactions with affiliates. The indentures contain certain events of default, including (subject, in some cases, to customary cure periods and materiality thresholds) defaults based on (i) the failure to make payments under the indenture when due, (ii) breach of covenants, (iii) cross-defaults to certain other indebtedness, (iv) certain bankruptcy or insolvency events, (v) material judgments and (vi) invalidity of material guarantees.

The indentures for the Unsecured Senior Notes provide that Nationstar may redeem all or a portion of the notes prior to certain fixed dates by paying a make-whole premium plus accrued and unpaid interest and additional interest, if any, to the redemption dates. In addition, Nationstar may redeem all or a portion of the senior notes at any time on or after certain fixed dates at the applicable redemption prices set forth in the indentures plus accrued and unpaid interest and additional interest, if any, to the redemption dates.

Additionally, the indentures provide that on or before certain fixed dates, Nationstar may redeem up to 35% of the aggregate principal amount of the senior notes with the net proceeds of certain equity offerings at fixed redemption prices, plus accrued and unpaid interest and additional interest, if any, to the redemption dates, subject to compliance with certain conditions.

The ratios included in the indentures for the Unsecured senior notes are incurrence-based compared to the customary ratio covenants that are often found in credit agreements that require a company to maintain a certain ratio.

At September 30, 2015, the expected maturities of Nationstar's Unsecured Senior Notes based on contractual maturities are as follows:



Year	Amount
2015	$	—
2016	—
2017	—
2018	475,000
2019	375,000
Thereafter	1,300,000
Total	$	2,150,000

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

Other Nonrecourse Debt

A summary of the balances of other nonrecourse debt is presented below:



	September 30, 2015		December 31, 2014
Participating interest financing	$	6,042,589	$	1,433,145
2014-1 HECM securitization	249,745		259,328
2015-1 HECM securitization	248,664		—
Nonrecourse debt - legacy assets	67,897		75,838
Total	$	6,608,895	$	1,768,311

Participating Interest Financing

Participating interest financing represents the issuance of pools of HMBS to third-party security holders which are guaranteed by GSEs. Nationstar has accounted for the securitization of these advances in the related HECM loans as secured borrowings, retaining the initial reverse mortgage interests on its consolidated balance sheet, and recording the pooled HMBS as participating interest financing liabilities on the Company’s consolidated balance sheet. Monthly cash flows generated from the HECM loans are used to service the HMBS through securitization of advances on the HECM loans. The increase in participating interest financing and related reverse mortgage interests during the nine months period ending September 30, 2015 is due to the Generation Mortgage asset acquisition. See Note 4, Reverse Mortgage Interests for additional information in connection with the Generation Mortgage asset acquisition. The interest rate is based on the underlying HMBS rate with a range of 0.48% to 6.98%. The participating interest financing was $6.0 billion and $1.4 billion at September 30, 2015 and December 31, 2014, respectively.

HECM Securitizations

From time to time, Nationstar securitizes its interests in reverse mortgages. The transactions provide investors with the ability to invest in a pool of non-performing home equity conversion reverse mortgage loans that are covered by Federal Housing Administration (FHA) insurance and secured by one to four-family residential properties and a pool of REO properties acquired through foreclosure or grant of a deed in lieu of foreclosure in connection with reverse mortgage loans that are covered by FHA insurance. The transactions provide Nationstar with access to liquidity for the acquired non-performing HECM loan portfolio, ongoing servicing fees, and potential residual returns. The transactions are structured as secured borrowings with the reverse mortgage loans included in the consolidated financial statements as Reverse Mortgage Interests and the related financing included in other nonrecourse debt. The nonrecourse debt totaled $498.4 million and $259.3 million at September 30, 2015 and December 31, 2014, respectively.

During December 2014, Nationstar Mortgage LLC completed the securitization of approximately $343.6 million in Nationstar HECM Loan Trust 2014-1 Mortgage Backed Securities. The notes were issued under two separate classes, comprised of Class A Notes and Class M Notes. As part of the securitization, Nationstar retained a portion of the offered Class A notes of approximately $70.4 million as well as the Class M Notes with an outstanding note balance of $36.2 million. A portion of the notes retained by Nationstar represent subordinated beneficial interests. During the first quarter 2015, the Company sold the remaining retained portions of the Class A and the Class M notes for total proceeds of $73.1 million.

During June 2015, Nationstar Mortgage LLC completed the securitization of approximately $269.4 million in Nationstar HECM Loan Trust 2015-1 Mortgage Backed Securities. The notes were issued under two separate classes, comprised of Class A Notes and Class M Notes. This transaction was accounted for as a secured borrowing, the related financial assets are recorded at lower of cost or market with a corresponding liability to other non-recourse debt. The notes have a final maturity date of May 2018. No portion of the notes were retained by the Company as of September 30, 2015.

Nationstar evaluates its reverse mortgage interests on a periodic basis. During the three and nine months ended September 30, 2015, no impairment was recorded.

Nonrecourse Debt–Legacy Assets

During November 2009, Nationstar completed the securitization of approximately $222.0 million of Asset Backed Securities (ABS), which was accounted for as a secured borrowing. This structure resulted in Nationstar carrying the securitized mortgage loans on Nationstar’s consolidated balance sheet and recognizing the asset-backed certificates acquired by third parties as nonrecourse debt of $67.9 million at September 30, 2015 and $75.8 million at December 31, 2014. The principal and interest on these notes are paid using the cash flows from the underlying mortgage loans, which serve as collateral for the debt. The interest

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

rate paid on the outstanding securities is 7.50%, which is subject to an available funds cap. The total outstanding principal balance on the underlying mortgage loans serving as collateral for the debt was approximately $246.7 million and $268.2 million at September 30, 2015 and December 31, 2014, respectively. The timing of the principal payments on this nonrecourse debt is dependent on the payments received on the underlying mortgage loans. The unpaid principal balance on the outstanding notes was $78.9 million and $88.2 million at September 30, 2015 and December 31, 2014, respectively.

Financial Covenants

The Company's borrowing arrangements and credit facilities contain various financial covenants which primarily relate to required tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements. At September 30, 2015, management believes Nationstar was in compliance with its financial covenants.

Nationstar is required to maintain a minimum tangible net worth of at least $682 million as of each quarter-end related to its outstanding Master Repurchase Agreements on its outstanding repurchase facilities. At September 30, 2015, Nationstar was in compliance with these minimum tangible net worth requirements.

9. Payables and Accrued Liabilities

Payables and accrued liabilities consist of the following:



	September 30, 2015		December 31, 2014
Payables to servicing and subservicing investors	$	432,092	$	329,306
Payables to GSEs	101,128		67,311
Payables to securitization trusts	105,708		99,137
Loans subject to repurchase from Ginnie Mae	96,574		131,592
Accrued bonus and payroll	92,356		85,366
MSR purchases payable including advances	80,466		45,697
Payable to insurance carriers and insurance cancellation reserves	78,417		163,381
Accrued interest	64,809		59,708
Taxes	31,965		96,237
Repurchase reserves	28,086		29,165
Other	179,927		215,178
Total payables and accrued liabilities	$	1,291,528	$	1,322,078

Payables to servicing and subservicing investors

Payables to servicing and subservicing investors represent amounts due to investors in connection with loans serviced and that

are paid from collections of the underlying loans, insurance proceeds or at time of property disposal.

Payable to insurance carriers and insurance cancellation reserves

Payable to insurance carriers and insurance cancellation reserves consist of insurance premiums received from borrower payments awaiting disbursement to the insurance carrier and/or amounts due to third party investors on liquidated loans.

Loans subject to repurchase from Ginnie Mae

See Note 6, Other Assets for a description of assets and liabilities related to Loans subject to repurchase from Ginnie Mae.

10. Securitizations and Financings

Variable Interest Entities

In the normal course of business, Nationstar enters into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which primarily consists of securitization trusts established for a limited purpose. Generally, these SPEs are formed for the purpose of securitization transactions in which Nationstar transfers assets to an SPE, which then issues to investors various forms of interests in those assets. In these securitization transactions, Nationstar typically receives cash and/or other interests in

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

the SPE as proceeds for the transferred assets. Nationstar will typically retain the right to service the transferred receivables and to repurchase the transferred receivables from the SPE if the outstanding balance of the receivables falls to a level where the cost exceeds the benefits of servicing the transferred receivables.

Nationstar evaluates its interests in certain entities to determine if these entities meet the definition of a VIE and whether the Company is the primary beneficiary and should consolidate the entity based on the variable interests it held both at inception and when there is a change in circumstances that require a reconsideration. Nationstar evaluates its interests in each SPE for classification as a Variable Interest Entity (VIE). When an SPE meets the definition of a VIE and the Company determines that Nationstar is the primary beneficiary, the Company includes the SPE in its consolidated financial statements.

Nationstar has determined that the SPEs created in connection with the (i) Nationstar Home Equity Loan Trust 2009-A, (ii) Nationstar Mortgage Advance Receivables Trust, (iii) Nationstar Agency Advance Financing Trust (NAAFT), and (iv) Nationstar Servicer Advance Receivables Trust, 2014 BC should be consolidated as Nationstar is the primary beneficiary. Also, Nationstar consolidates two reverse mortgage SPEs which are (v) Nationstar HECM Loan Trust 2014-1 and (vi) Nationstar HECM Loan Trust 2015-1 as Nationstar has determined that it is the primary beneficiary.

During the third quarter of 2015, the NAAFT variable financing capacity was reduced from $1.2 billion to $900 million to lower the cost of borrowing and diversify the lending base.

A summary of the assets and liabilities of Nationstar’s transactions with VIEs included in the Company’s consolidated financial statements is presented below for the periods indicated:



	September 30, 2015				December 31, 2014
	Transfers Accounted for as Secured Borrowings		Reverse Secured Borrowings		Transfers Accounted for as Secured Borrowings		Reverse Secured Borrowings
Assets
Restricted cash	$	262,527	$	24,882	$	90,068	$	15,578
Reverse mortgage interests	—		6,471,791		—		1,642,789
Advances	1,655,087		—		1,477,388		—
Mortgage loans held for investment, net	178,037		—		189,456		—
Derivative financial instruments	99		—		865		—
Other assets	3,309		—		2,678		—
Total assets	$	2,099,059	$	6,496,673	$	1,760,455	$	1,658,367
Liabilities
Advance facilities	$	1,470,827	$	—	$	1,330,991	$	—
Payables and accrued liabilities	1,580		380		1,596		186
Nonrecourse debt–legacy assets	67,896		—		75,838		—
2014-1 HECM securitization	—		249,745		—		259,328
2015-1 HECM Securitization	—		248,664		—		—
Participating interest financing	—		6,042,589		—		1,433,145
Total liabilities	$	1,540,303	$	6,541,378	$	1,408,425	$	1,692,659

Securitizations Treated as Sales

When Nationstar sells mortgage loans in securitization transactions structured as sales, it may retain one or more bond classes and servicing rights in the securitization. Gains and losses on the assets transferred are recognized based on the carrying amount of the financial assets involved in the transfer, allocated between the assets transferred and the retained interests based on their relative fair value at the date of transfer, other than MSRs. Retained MSRs are recorded at their fair value on the transfer date.

A summary of the outstanding collateral and certificate balances for securitization trusts for which Nationstar was the transferor, including any retained beneficial interests and MSRs, that were not consolidated by Nationstar for the periods indicated are as follows:

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



	September 30, 2015		December 31, 2014
Total collateral balances	$	3,218,013	$	3,258,472
Total certificate balances	2,903,368		3,297,256

Nationstar has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of September 30, 2015 or December 31, 2014, and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs.

A summary of mortgage loans transferred by Nationstar to unconsolidated securitization trusts that are 60 days or more past due

and the credit losses incurred in the unconsolidated securitization trusts are presented below:



Principal Amount of Loans 60 Days or More Past Due	September 30, 2015		December 31, 2014
Unconsolidated securitization trusts	$	775,915	$	861,419



	For the three months ended September 30,				For the nine months ended September 30,
Credit Losses	2015		2014		2015		2014
Unconsolidated securitization trusts	$	61,344	$	71,575	$	176,564	$	219,189

Certain cash flows received from securitization trusts related to the transfer of mortgage loans accounted for as sales for the dates indicated were as follows:



	For the three months ended September 30,								For the nine months ended September 30,
	2015				2014				2015				2014
	Servicing Fees Received		Loan Repurchases		Servicing Fees Received		Loan Repurchases		Servicing Fees Received		Loan Repurchases		Servicing Fees Received		Loan Repurchases
Unconsolidated securitization trusts	$	5,590	$	—	$	2,632	$	—	$	18,453	$	—	$	20,818	$	—

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

11. Stockholders' Equity

During March 2015, Nationstar completed an equity offering of 17.5 million shares for a total of $497.8 million in cash proceeds. Nationstar used and intends to continue to use the net proceeds from this offering for general corporate purposes, including acquisitions, transfers of servicing portfolios, funding of advances and repayment of obligations.

During the first, second and third quarters of 2015, certain employees of Xome were granted 1.1 million stock appreciation rights (SARs) which can be settled in cash or units of Xome Holdings LLC (at the election of Xome). The SARs generally vest over three years and have a ten year term. The SARs become exercisable upon a liquidity event at Xome which includes a change in control or an initial public offering of Xome. The Company did not recognize expense related to the share-based awards during the nine months ended September 30, 2015.

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

12. Income Taxes

Income tax (benefit) expense was as follows:



	For the three months ended September 30,						For the nine months ended September 30,
	2015			2014			2015			2014
Income tax (benefit) expense	$	(47,295	)	$	(1,700	)	$	(30,649	)	$	52,242

Effective tax rate	42.1		%	(1.6		)%	46.0		%	20.6		%

The primary reasons for the significant variation in the expected tax rate and the actual tax rate are the year-to-date book loss, the partial release of the deferred tax valuation allowance that was previously recorded against the Company’s loss carry forwards, and the elimination of the book income of the KB Homes joint venture. The company released a valuation allowance in the amount of $4.2 million in the quarter ended September 30, 2015 and a valuation allowance in the amount of $44.2 million in the quarter ended September 30, 2014. Excluding the release of the valuation allowance, the Company’s effective tax rate would have been 38.4% for the three months ended September 30, 2015, 38.8% for the three months ended September 30, 2014, 39.8% for the nine months ended September 30, 2015 and 38.0% for the nine months ended September 30, 2014.

The elimination of the book income attributable to the KB Home joint venture is treated as a permanent difference and reduces taxable income. When the Company is in a net income position, this adjustment reduces the effective tax rate and the corresponding income tax expense. When the Company is in a net loss position, this adjustment increases the effective tax rate and the corresponding income tax benefit. Because the Company is in a net loss position for the three months ended September 30, 2015 and for the nine months ended September 30, 2015, the book income attributable to the KB Homes joint venture increases the effective tax rate and the income tax benefit relative to the comparable quarter.

The Company regularly reviews the carrying amount of its deferred tax assets to determine if a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company's deferred tax assets will not be realized in future periods, a valuation allowance is established. Management considers all available evidence, both positive and negative, in evaluating the need for a valuation allowance. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. The Company's evaluation is based on current tax laws as well as management's expectations of future performance. At the date of the Company’s initial public offering, the Company was in a three year cumulative loss and the Company concluded it was not more likely than not that the net operating loss would be used. Accordingly, a valuation allowance was recorded against the deferred tax assets. The Company has generated significant pre-tax income over the past three years as well as increasing the size of its servicing portfolio over that same time period. As a result, $44.2 million of the valuation allowance recorded against deferred tax assets was released in the quarter ended September 30, 2014. In August 2015, the Company amended its 2012 and 2013 Federal tax returns to characterize $16.5 million in losses arising from loan modifications and REO liquidation in its Legacy portfolio (primarily consisting of subprime mortgage loans originated in the latter portion of 2006 through 2007 acquired from Nationstar's predecessors) as ordinary losses. Approximately $5.0 million of these losses are limited by IRC Section 382 as a result of the Company’s reorganization in March 2012. The remaining post reorganization NOL of $11.5 million may be offset against the Company’s ordinary income without limitation. As a result, the Company has released $4.2 million of the valuation allowance recorded against the deferred tax asset that was previously characterized as a capital loss carryforward. The Company has not released the valuation allowance recorded against the remaining $5.0 million pre-reorganization loss because it is expected to expire unutilized. Accordingly, a valuation allowance of $2.2 million remains as of September 30, 2015.

The Company has federal net operating loss carryforwards (NOL) of approximately $182.9 million that will begin to expire in 2027, if unused. The Company also has immaterial state NOLs that will begin to expire in 2015 if unused. The amount of the state NOLs varies by state based on whether the NOL is derived from the pre-apportioned Federal NOL or calculated based on the apportioned Federal NOL. The Federal NOL is limited under Sections 382 and 383 of the Internal Revenue Code as a result of a reorganization that occurred in advance of the Company’s initial public offering. The annual limitation is approximately $11.0 million. The Company expects that future income will be sufficient to utilize all net operating losses generated subsequent to the initial public offering in 2012.

The Company had a net deferred tax liability of $104.0 million at September 30, 2015 and $109.8 million at December 31, 2014. A valuation allowance of $2.2 million and $6.4 million was recorded against deferred tax assets at September 30, 2015 and

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

December 31, 2014, respectively, as management believes that it is more likely than not that not all of the deferred tax assets will be realized.

13. Fair Value Measurements

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).

The following describes the methods and assumptions used by Nationstar in estimating fair values:

Cash and Cash Equivalents, Restricted Cash (Level 1) – The carrying amount reported in the consolidated balance sheets approximates fair value.

Mortgage Loans Held for Sale (Level 2) – Nationstar originates mortgage loans in the U.S. that it intends to sell to Fannie Mae, Freddie Mac, and Ginnie Mae (collectively, the Agencies). Additionally, Nationstar holds mortgage loans that it intends to sell into the secondary markets via whole loan sales or securitizations. Nationstar measures newly originated prime residential mortgage loans held for sale at fair value.

Mortgage loans held for sale are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality. Mortgage loans held for sale are valued on a recurring basis using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, Nationstar classifies these valuations as Level 2 in the fair value disclosures.

The Company may acquire mortgage loans held for sale from various securitization trusts for which it acts as servicer through the exercise of various clean-up call options as permitted through the respective pooling and servicing agreements. The Company has elected to account for these loans at the lower of cost or market. Nationstar classifies these valuations as Level 2 in the fair value disclosures.

Nationstar may also purchase loans out of a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. Nationstar has elected to carry these loans at fair value.

Mortgage Loans Held for Investment, net (Level 3) – Nationstar determines the fair value of loans held for investment, net, using internally developed valuation models. These valuation models estimate the exit price Nationstar expects to receive in the loan’s principal market. Although Nationstar utilizes and gives priority to observable market inputs such as interest rates and market spreads within these models, Nationstar typically is required to utilize internal inputs, such as prepayment speeds and discount rates. These internal inputs require the use of judgment by Nationstar and can have a significant impact on the determination of the loan’s fair value. As these prices are derived from internally developed models, Nationstar classifies these valuations as Level 3 in the fair value disclosures.

Mortgage Servicing Rights – Fair Value (Level 3) – Nationstar estimates the fair value of its forward MSRs on a recurring basis using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, discount rates, ancillary revenues and costs to service. These assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency and coupon dispersion. These assumptions require the use of judgment by Nationstar and can have a significant impact on the fair value of the MSRs. Quarterly, management obtains third party valuations to assess the reasonableness of the fair value calculations provided by the internal cash flow model. Because of the nature of the valuation inputs, Nationstar classifies these valuations as Level 3 in the fair value disclosures.

Reverse Mortgage Interests (Level 3) – Nationstar’s reverse mortgage interests consist of fees paid to taxing authorities for borrowers' unpaid taxes and insurance, and payments made to borrowers for line of credit draws on reverse mortgages. These interests are carried at lower of cost or market in the financial statements. Nationstar estimates the fair value using a market

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

approach by utilizing the fair value of securities backed by similar reverse mortgage loans, adjusted for certain factors. As the adjustments to factors require the use of judgment, Nationstar classifies these valuations as Level 3 in the fair value disclosures.

Derivative Financial Instruments (Level 2) – Nationstar enters into a variety of derivative financial instruments as part of its hedging strategy and measures these instruments at fair value on a recurring basis in the balance sheet. The majority of these derivatives are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, Nationstar utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 2. In addition, Nationstar enters into IRLCs and LPCs with prospective borrowers and other loan originators. These commitments are carried at fair value based on the fair value of underlying mortgage loans which are based on observable market data. Nationstar adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. IRLCs and LPCs are recorded in derivative financial instruments in the consolidated balance sheets. These commitments are classified as Level 2 in the fair value disclosures, as the valuations are based on market observable inputs. Nationstar has entered into Eurodollar futures contracts as part of its hedging strategy. The future contracts are measured at fair value on a recurring basis and classified as Level 2 in the fair value disclosures as the valuation is based on market observable data.

Notes Payable (Level 2) – Notes payable consists of outstanding borrowings on Nationstar's warehouse and advance financing facilities. As the underlying warehouse and advance finance facilities bear interest at a rate that is periodically adjusted based on a market index, the carrying amount reported on the consolidated balance sheets approximates fair value.

Unsecured Senior Notes (Level 1) – The fair value of Unsecured Senior Notes, which are carried at amortized cost, is based on quoted market prices and is considered Level 1 from the market observable inputs used to determine fair value.

Nonrecourse Debt – Legacy Assets (Level 3) – Nationstar estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. These prices are derived from a combination of internally developed valuation models and quoted market prices, and are classified as Level 3.

Excess Spread Financing (Level 3) – Nationstar estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value on a recurring basis for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, average life, recapture rates and discount rate. Changes in fair value of the excess spread financing are recorded as a component of service related revenue in Nationstar's consolidated statements of income and comprehensive income. As these prices are derived from a combination of internally developed valuation models based on the value of the underlying MSRs, Nationstar classifies these valuations as Level 3 in the fair value disclosures.

Mortgage Servicing Rights Financing Liability (Level 3) - Nationstar estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value on a recurring basis for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being advance financing rates, annual advance recovery rates and working capital. Changes in fair value of the mortgage servicing rights financing liability are recorded as a component of service related revenues in Nationstar’s consolidated statements of income and comprehensive income. As these prices are derived from a combination of internally developed valuation models based on the value of the underlying MSRs, Nationstar classifies these valuations as Level 3 in the fair value disclosures.

Participating Interest Financing (Level 2) – Nationstar estimates the fair value using a market approach by utilizing the fair value of securities backed by similar participating interests in reverse mortgage loans. Nationstar classifies these valuations as Level 2 in the fair value disclosures.

HECM Securitizations (Level 3) – Nationstar estimates fair value of the non-recourse debt related to HECM securitizations based on the present value of future expected discounted cash flows with the discount rate approximating that of similar financial instruments. As the prices are derived from both internal models and other observable inputs, Nationstar classifies this as Level 3 in the fair value disclosures.

The estimated carrying amount and fair value of Nationstar’s financial instruments and other assets and liabilities measured at fair value on a recurring basis is as follows for the dates indicated:

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



			September 30, 2015
			Recurring Fair Value Measurements
	Total Fair Value		Level 1		Level 2		Level 3
ASSETS
Mortgage loans held for sale⁽¹⁾	$	1,885,605	$	—	$	1,885,605	$	—
Mortgage servicing rights⁽¹⁾	3,233,041		—		—		3,233,041
Derivative financial instruments:
IRLCs	89,965		—		89,965		—
Forward MBS trades	115		—		115		—
LPCs	8,280		—		8,280		—
Interest rate swaps and caps	4		—		4		—
Total assets	$	5,217,010	$	—	$	1,983,969	$	3,233,041
LIABILITIES
Derivative financial instruments
IRLCs	12		—		12		—
Interest rate swaps and caps	48		—		48		—
Forward MBS trades	26,561		—		26,561		—
LPCs	1,630		—		1,630		—
Eurodollar futures	274		—		274		—
Mortgage servicing rights financing	56,522		—		—		56,522
Excess spread financing	1,115,949		—		—		1,115,949
Total liabilities	$	1,200,996	$	—	$	28,525	$	1,172,471

			December 31, 2014
			Recurring Fair Value Measurements
	Total Fair Value		Level 1		Level 2		Level 3
ASSETS
Mortgage loans held for sale⁽¹⁾	$	1,277,931	$	—	$	1,277,931	$	—
Mortgage servicing rights⁽¹⁾	2,949,739		—		—		2,949,739
Derivative financial instruments:
IRLCs	87,902		—		87,902		—
Forward MBS trades	284		—		284		—
LPCs	1,999		—		1,999		—
Interest rate swaps and caps	865		—		865		—
Eurodollar futures	1		—		1		—
Total assets	$	4,318,721	$	—	$	1,368,982	$	2,949,739
LIABILITIES
Derivative financial instruments
IRLCs	$	7	$	—	$	7	$	—
Interest rate swaps and caps	103		—		103		—
Forward MBS trades	18,360		—		18,360		—
LPCs	48		—		48		—
Eurodollar futures	7		—		7		—
Mortgage servicing rights financing	49,430		—		—		49,430
Excess spread financing	1,031,035		—		—		1,031,035
Total liabilities	$	1,098,990	$	—	$	18,525	$	1,080,465

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)


⁽¹⁾	Based on the nature and risks of these assets and liabilities, the Company has determined that presenting them as a single class is appropriate.

The table below presents a reconciliation for all of Nationstar’s Level 3 assets and liabilities measured at fair value on a recurring basis for the dates indicated:



	ASSETS			LIABILITIES
For the nine months ended September 30, 2015	Mortgage servicing rights			Excess spread financing			Mortgage servicing rights financing
Beginning balance	$	2,949,739		$	1,031,035		$	49,430
Transfers into Level 3	—			—			—
Transfers out of Level 3	—			—			—
Total gains or losses
Included in earnings	(535,397		)	(23,356		)	7,092
Included in other comprehensive income	—			—			—
Purchases, issuances, sales and settlements
Purchases	695,067			—			—
Issuances	169,406			262,976			—
Sales	—			—			—
Settlements	—			(154,706		)	—
Dispositions	(45,774		)	—			—
Ending balance	$	3,233,041		$	1,115,949		$	56,522



	ASSETS			LIABILITIES
For the year ended December 31, 2014	Mortgage servicing rights			Excess spread financing			Mortgage servicing rights financing
Beginning balance	$	2,488,283		$	986,410		$	29,874
Transfers into Level 3	—			—			—
Transfers out of Level 3	—			—			—
Total gains or losses
Included in earnings	(247,379		)	57,554			(33,279		)
Included in other comprehensive income	—			—			—
Purchases, issuances, sales and settlements
Purchases	470,543			—			—
Issuances	238,292			171,317			52,835
Sales	—			—			—
Settlements	—			(184,246		)	—
Ending balance	$	2,949,739		$	1,031,035		$	49,430

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

The table below presents a summary of the estimated carrying amount and fair value of Nationstar’s financial instruments.



	September 30, 2015
	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	596,607	$	596,607	$	—	$	—
Restricted cash	477,232		477,232		—		—
Mortgage loans held for sale	1,885,605		—		1,885,605		—
Mortgage loans held for investment, net	178,988		—		—		176,829
Reverse mortgage interests	7,433,716		—		—		7,445,241
Derivative financial instruments	98,364		—		98,364		—
Financial liabilities:
Unsecured senior notes	2,157,973		2,012,223		—		—
Advance facilities	1,750,437		—		1,750,437		—
Warehouse facilities	2,303,564		—		2,303,564		—
Derivative financial instruments	28,525		—		28,525		—
Excess spread financing	1,115,949		—		—		1,115,949
Mortgage servicing rights financing liability	56,522		—		—		56,522
Nonrecourse debt - legacy assets	67,897		—		—		78,228
Participating interest financing	6,042,589		—		6,011,914		—
2014-1 HECM securitization	249,745		—		—		317,103
2015-1 HECM securitization	248,664		—		—		308,625

	December 31, 2014
	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	299,002	$	299,002	$	—	$	—
Restricted cash	285,530		285,530		—		—
Mortgage loans held for sale	1,277,931		—		1,277,931		—
Mortgage loans held for investment, net	191,569		—		—		192,865
Reverse mortgage interests	2,453,069		—		—		2,432,735
Derivative financial instruments	91,051		—		91,051		—
Financial liabilities:
Unsecured senior notes	2,159,231		2,057,038		—		—
Advance facilities	1,901,783		—		1,901,783		—
Warehouse facilities	1,572,622		—		1,572,622		—
Derivative financial instruments	18,525		—		18,525		—
Excess spread financing	1,031,035		—		—		1,031,035
Mortgage servicing rights financing liability	49,430		—		—		49,430
Nonrecourse debt - legacy assets	75,838		—		—		86,570
Participating interest financing	1,433,145		—		1,423,291		—
2014-1 HECM securitization	259,328		—		—		259,328

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

14. Capital Requirements

Certain of Nationstar's secondary market investors require minimum net worth (capital) requirements, as specified in the respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated requirements to approve large servicing transfers. To the extent that these requirements are not met, Nationstar's secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of Nationstar's selling and servicing agreements, which would prohibit Nationstar from further originating or securitizing these specific types of mortgage loans or being an approved servicer.

Among Nationstar's various capital requirements related to its outstanding selling and servicing agreements, the most restrictive of these requires Nationstar to maintain a minimum adjusted net worth balance of $1.2 billion. As of September 30, 2015 Nationstar was in compliance with its selling and servicing capital requirements.

15. Commitments and Contingencies

Litigation and Regulatory Matters

Nationstar and its affiliates are routinely and currently involved in a significant number of legal proceedings concerning matters that arise in the ordinary course of business, including putative class actions and other litigation. These actions and proceedings are generally based on alleged violations of consumer protection, securities, employment, contract and other laws, including, without limitation, the Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, Service members Civil Relief Act, Telephone Consumer Protection Act, Truth in Lending Act, Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), unfair, deceptive or abusive acts or practices in violation of the Dodd-Frank Act, the Securities Exchange Act of 1934, as amended, the Home Mortgage Disclosure Act and the Bankruptcy Code and False Claims Act. Additionally, along with others in its industry, the Company is subject to repurchase and indemnification claims and may continue to receive claims in the future, relating to the sale of mortgage loans and/or the servicing of mortgage loans and securitizations. The Company is also subject to legal actions or proceedings related to loss sharing and indemnification provisions of its various acquisitions. Certain of the actual legal actions and proceedings include claims for substantial compensatory, punitive and/or statutory damages or claims for an indeterminate amount of damages. The outcome of such proceedings is difficult to predict or estimate until late in the proceedings, which may last several years. In particular, ongoing and other legal proceedings brought under federal or state consumer protection laws may result in a separate fine for each violation of the laws, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amount earned from the underlying activities and that could have a material adverse effect on the Company's liquidity and financial position. The certification of any putative class action could substantially increase the Company's exposure to damages.

Further, in the ordinary course of business the Company and its subsidiaries can be or are involved in governmental and regulatory examinations, information gathering requests, investigations and proceedings (both formal and informal), regarding the Company’s business, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Such inquiries may include those into servicer loan originations, servicing, bankruptcy, foreclosure processes and procedures and lender-placed insurance.

The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best interest of the Company and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal and regulatory proceedings utilizing the latest information available. Where available information indicates that it is probable a liability has been incurred and the Company can reasonably estimate the amount of the loss, an accrued liability is established. The actual costs of resolving these proceedings may be substantially higher or lower than the amounts accrued.

As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable. Once the matter is deemed to be both probable and reasonably estimable, the Company will establish an accrued liability and record a corresponding amount to litigation related

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Litigation related expense, which includes legal settlements and the fees paid to external legal service providers, of $13.9 million and $37.3 million for the three and nine months ended September 30, 2015, and $3.6 million and $18.8 million for the three and nine months ended September 30, 2014, respectively, was included in general and administrative expenses on the consolidated statements of income and comprehensive income.

For a number of matters for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material litigation and regulatory matters on an ongoing basis, in conjunction with any outside counsel handling the matter. For those matters for which an estimate is possible, management currently believes the aggregate range of reasonably possible loss is $8.1 million to $19.5 million in excess of the accrued liability (if any) related to those matters as of September 30, 2015. This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within the estimated range. Therefore, this estimated range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company's maximum loss exposure.

Based on current knowledge, and after consultation with counsel, management believes that the current legal accrued liability is appropriate, and the amount of any incremental liability arising from these matters is not expected to have a material effect on the financial statements of the Company, although the outcome of such proceedings could be material to the Company’s financial statements for a particular period depending, on among other things, the level of the Company’s revenues or income for such period. However, in the event of significant developments on existing cases, it is possible that the ultimate resolution, if unfavorable, may be material to the Company’s consolidated financial statements.

During the course of a routine regulatory examination, the Company agreed with a regulator to make refunds of approximately $16.2 million to certain borrowers related to delays in consummating their loan modifications that were transferred from prior servicers from 2012 through February 2015. The Company will be seeking recourse for some portion of these charges from various counterparties. While the Company has made changes to certain practices regarding the transfer of loan modifications, there can be no assurance that additional amounts will not be assessed as restitution to the borrowers or as a penalty.

Loan and Other Commitments

Nationstar enters into IRLCs with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rates to the borrower. Nationstar also enters into LPCs with prospective sellers. These loan commitments are treated as derivatives and are carried at fair value (See Note 7 - Derivative Financial Instruments).

Nationstar has certain MSRs related to approximately $30.7 billion of UPB in reverse mortgage loans. As servicer for these reverse mortgage loans, among other things, the Company is obligated to make advances to the loan customers as required. At September 30, 2015, the Company’s maximum unfunded advance obligation related to these MSRs was approximately $3.3 billion. Upon funding any portion of these advances, the Company expects to securitize and sell the advances in transactions that will be accounted for as a financing arrangement.

16. Business Segment Reporting

Nationstar presents financial performance utilizing reportable segments aligned with how the operations are managed. The Servicing segment reflects the results of operations attributable to MSRs originated internally, acquired from third parties and loans subserviced for third-parties. The Xome (formerly known as Solutionstar) segment reflects financial performance related to real estate services (e.g., collateral valuation, title, closing services) and real estate exchange, including our Xome.comend-to-end digital platform and HomeSearch.com residential auction portal. The Originations segment includes fees associated with loan originations and gains from the sale and securitization of loans. The originations segment includes the Home Community Mortgage (HCM) joint venture, which Nationstar consolidates. The joint venture partner's share of earnings is reflected in Net gain (loss) attributable to noncontrolling interests. The Corporate and Other segment encompasses certain identified corporate costs as well as the 'Legacy' portfolio which includes primarily subprime mortgage loans originated in the latter portion of 2006 and 2007 or acquired from Nationstar's predecessor.

Nationstar’s segments are based upon an organizational structure that focuses primarily on the services offered. The accounting policies of each reportable segment are the same as those of Nationstar except for 1) expenses for consolidated back-office operations and general overhead-type expenses such as executive administration and accounting, and 2) revenues generated on inter-segment services performed. Expenses are allocated to individual segments based on the estimated value of services performed, including estimated

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

utilization of square footage and corporate personnel as well as the equity invested in each segment. Revenues generated on inter-segment services performed are valued based on similar services provided to external parties.

To reconcile to Nationstar’s consolidated results, certain inter-segment revenues and expenses are eliminated in the “Eliminations” column in the following tables.

Effective April 1, 2015, Nationstar reclassified a small portion of Xome segment activity involved with loss recovery to the Servicing segment to better align with how our chief operating decision maker internally reviews and operates this business. All periods presented reflect this reclassification. During the three and nine months ending September 30, 2014, and $3.4 million and $5.8 million of net income was reclassified from our Xome segment to our Servicing segment, respectively.

The following tables are a presentation of financial information by segment for the periods indicated:



	For the three months ended September 30, 2015
	Servicing			Originations			Xome			Total Operating Segments			Corporate and Other			Eliminations		Consolidated
REVENUES:
Service related	$	84,641		$	17,017		$	109,449		$	211,107		$	204		$	—	$	211,311
Net gain on mortgage loans held for sale	22,957			162,918			—			185,875			(3		)	—		185,872
Total revenues	107,598			179,935			109,449			396,982			201			—		397,183
Total expenses	208,103			131,300			92,380			431,783			14,438					446,221
Other income (expense):
Interest income	89,097			18,937			—			108,034			4,469			—		112,503
Interest expense	(115,307		)	(17,382		)	(27		)	(132,716		)	(43,082		)	—		(175,798		)
Gain on sale of property	—			—			—			—			—			—		—
Gain (loss) on interest rate swaps and caps	99			—			—			99			10			—		109
Total other income (expense)	(26,111		)	1,555			(27		)	(24,583		)	(38,603		)	—		(63,186		)
Income (loss) before taxes	$	(126,616	)	$	50,190		$	17,042		$	(59,384	)	$	(52,840	)	$	—	$	(112,224	)
Depreciation and amortization	$	4,150		$	3,674		$	4,274		$	12,098		$	2,548		$	—	$	14,646
Total assets	$	14,129,465		$	1,902,485		$	285,294		$	16,317,244		$	719,696		$	—	$	17,036,940

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



	For the three months ended September 30, 2014
	Servicing			Originations			Xome			Total Operating Segments			Corporate and Other			Eliminations			Consolidated
REVENUES:
Service related	$	323,459		$	10,439		$	79,938		$	413,836		$	1,133		$	(53,460	)	$	361,509
Net gain on mortgage loans held for sale	(37,474		)	128,355			—			90,881			(1,172		)	53,106			142,815
Total revenues	285,985			138,794			79,938			504,717			(39		)	(354		)	504,324
Total expenses	163,144			89,369			47,837			300,350			26,874			—			327,224
Other income (expense):
Interest income	18,369			18,904			—			37,273			5,687			354			43,314
Interest expense	(48,651		)	(17,085		)	(352		)	(66,088		)	(50,585		)	—			(116,673		)
Gain on sale of property	—			—			—			—			4,898			—			4,898
Gain (loss) on interest rate swaps and caps	795			—			—			795			145			—			940
Total other income (expense)	(29,487		)	1,819			(352		)	(28,020		)	(39,855		)	354			(67,521		)
Income (loss) before taxes	$	93,354		$	51,244		$	31,749		$	176,347		$	(66,768	)	$	—		$	109,579
Depreciation and amortization	$	2,866		$	1,049		$	942		$	4,857		$	4,705		$	—		$	9,562
Total assets	$	8,387,116		$	1,929,239		$	303,489		$	10,619,844		$	257,200		$	—		$	10,877,044



	For the nine months ended September 30, 2015
	Servicing			Originations			Xome			Total Operating Segments			Corporate and Other			Eliminations			Consolidated
REVENUES:
Service related	$	505,290		$	37,507		$	339,239		$	882,036		$	2,561		$	(440	)	$	884,157
Net gain on mortgage loans held for sale	44,807			470,287			—			515,094			1,658			—			516,752
Total revenues	550,097			507,794			339,239			1,397,130			4,219			(440		)	1,400,909
Total expenses	600,039			348,708			266,203			1,214,950			56,099			—			1,271,049
Other income (expense):
Interest income	180,657			51,066			2			231,725			11,267			440			243,432
Interest expense	(263,473		)	(46,621		)	(91		)	(310,185		)	(129,124		)	—			(439,309		)
Gain (loss) on sale of property	—			—			—			—			—			—			—
Gain (loss) on interest rate swaps and caps	(618		)	—			—			(618		)	55			—			(563		)
Total other income (expense)	(83,434		)	4,445			(89		)	(79,078		)	(117,802		)	440			(196,440		)
Income (loss) before taxes	$	(133,376	)	$	163,531		$	72,947		$	103,102		$	(169,682	)	$	—		$	(66,580	)
Depreciation and amortization	$	12,088		$	8,835		$	11,582		$	32,505		$	8,761		$	—		$	41,266
Total assets	$	14,129,465		$	1,902,485		$	285,294		$	16,317,244		$	719,696		$	—		$	17,036,940

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



	For the nine months ended September 30, 2014
	Servicing			Originations			Xome			Total Operating Segments			Corporate and Other			Eliminations			Consolidated
REVENUES:
Service related	$	870,502		$	38,388		$	223,078		$	1,131,968		$	2,275		$	(54,206	)	$	1,080,037
Net gain on mortgage loans held for sale	(2,972		)	395,756			—			392,784			(2,223		)	53,106			443,667
Total revenues	867,530			434,144			223,078			1,524,752			52			(1,100		)	1,523,704
Total expenses	517,044			291,503			129,679			938,226			56,842			—			995,068
Other income (expense):
Interest income	59,191			57,752			—			116,943			12,155			1,100			130,198
Interest expense	(199,464		)	(56,333		)	(496		)	(256,293		)	(156,402		)	—			(412,695		)
Gain on sale of property	—			—			—			—			4,898			—			4,898
Gain (loss) on interest rate swaps and caps	2,156			—			—			2,156			652			—			2,808
Total other income (expense)	(138,117		)	1,419			(496		)	(137,194		)	(138,697		)	1,100			(274,791		)
Income (loss) before taxes	$	212,369		$	144,060		$	92,903		$	449,332		$	(195,487	)	$	—		$	253,845
Depreciation and amortization	$	11,453		$	7,754		$	2,764		$	21,971		$	7,992		$	—		$	29,963
Total assets	$	8,387,116		$	1,929,239		$	303,489		$	10,619,844		$	257,200		$	—		$	10,877,044

17. Guarantor Financial Statement Information

As of September 30, 2015, Nationstar Mortgage LLC and Nationstar Capital Corporation⁽¹⁾(collectively, the Issuer), both wholly-owned subsidiaries of Nationstar, have issued $2.2 billion aggregate principal amount of Unsecured Senior Notes which mature on various dates through June 1, 2022. The Unsecured Senior Notes are unconditionally guaranteed, jointly and severally, by all of Nationstar Mortgage LLC’s existing and future domestic subsidiaries other than its securitization and certain finance subsidiaries, certain other restricted subsidiaries, excluded restricted subsidiaries and subsidiaries that in the future Nationstar Mortgage LLC designates as unrestricted subsidiaries. All guarantor subsidiaries are 100% owned by Nationstar Mortgage LLC. Nationstar and its two direct wholly-owned subsidiaries are guarantors of the Unsecured Senior Notes as well. Presented below are the consolidating financial statements of Nationstar, Nationstar Mortgage LLC and the guarantor subsidiaries for the periods indicated.

In the consolidating financial statements presented below, Nationstar allocates income tax expense to Nationstar Mortgage LLC as if it were a separate tax payer entity pursuant to ASC 740, Income Taxes.

⁽¹⁾Nationstar Capital Corporation has no assets, operations or liabilities other than being a co-obliger of the Unsecured Senior Notes.

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

NATIONSTAR MORTGAGE HOLDINGS INC. CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2015

	Nationstar		Issuer		Guarantor (Subsidiaries)		Non-Guarantor (Subsidiaries)		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—	$	575,045	$	3,802	$	17,760	$	—		$	596,607
Restricted cash	—		186,363		3		290,866		—			477,232
Mortgage servicing rights	—		3,242,356		—		—		—			3,242,356
Advances	—		2,127,044		—		20		—			2,127,064
Reverse mortgage interests	—		6,919,338		—		514,378		—			7,433,716
Mortgage loans held for sale	—		1,742,100		—		143,505		—			1,885,605
Mortgage loans held for investment, net	—		951		—		178,037		—			178,988
Property and equipment, net	—		110,064		870		26,935		—			137,869
Derivative financial instruments	—		92,960		—		5,404		—			98,364
Other assets	10,205		932,014		297,521		1,378,894		(1,759,495		)	859,139
Investment in subsidiaries	1,685,718		511,268		—		—		(2,196,986		)	—
Total assets	$	1,695,923	$	16,439,503	$	302,196	$	2,555,799	$	(3,956,481	)	$	17,036,940
Liabilities and stockholders’ equity
Unsecured senior notes	$	—	$	2,157,973	$	—	$	—	$	—		$	2,157,973
Advance facilities	—		279,610		—		1,470,827		—			1,750,437
Warehouse facilities	—		2,170,945		—		132,619		—			2,303,564
Payables and accrued liabilities	—		1,236,858		1,597		53,073		—			1,291,528
MSR related liabilities - nonrecourse	—		1,172,471		—		—		—			1,172,471
Derivative financial instruments	—		28,525		—		—		—			28,525
Mortgage servicing liabilities	—		27,624		—		—		—			27,624
Payables to affiliates	—		1,637,189		894		121,412		(1,759,495		)	—
Other nonrecourse debt	—		6,042,590		—		566,305		—			6,608,895
Total liabilities	—		14,753,785		2,491		2,344,236		(1,759,495		)	15,341,017
Total equity	1,695,923		1,685,718		299,705		211,563		(2,196,986		)	1,695,923
Total liabilities and equity	$	1,695,923	$	16,439,503	$	302,196	$	2,555,799	$	(3,956,481	)	$	17,036,940

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



NATIONSTAR MORTGAGE HOLDINGS INC. CONSOLIDATING STATEMENT OF INCOME (LOSS) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015
	Nationstar			Issuer			Guarantor (Subsidiaries)			Non-Guarantor (Subsidiaries)			Eliminations		Consolidated
Revenues:
Service related	$	—		$	96,086		$	15,672		$	99,553				$	211,311
Net gain on mortgage loans held for sale	—			174,127			—			11,745			—		185,872
Total revenues	—			270,213			15,672			111,298			—		397,183
Expenses:
Salaries, wages and benefits	—			141,254			3,199			56,147			—		200,600
General and administrative	—			199,900			1,734			43,987			—		245,621
Total expenses	—			341,154			4,933			100,134			—		446,221
Other income/(expense):
Interest income	—			101,613			—			10,890					112,503
Interest expense	—			(157,197		)	—			(18,601		)	—		(175,798		)
Gain on interest rate swaps and caps	—			10			—			99			—		109
Gain/(loss) from subsidiaries	(66,342		)	15,241			—			—			51,101		—
Total other income/(expense)	(66,342		)	(40,333		)	—			(7,612		)	51,101		(63,186		)
Income/(loss) before taxes	(66,342		)	(111,274		)	10,739			3,552			51,101		(112,224		)
Income tax expense/(benefit)	—			(45,974		)	(1,323		)	2			—		(47,295		)
Net income/(loss)	(66,342		)	(65,300		)	12,062			3,550			51,101		(64,929		)
Less: net gain attributable to noncontrolling interests	—			1,042			—			371			—		1,413
Net income/(loss) excluding noncontrolling interests	$	(66,342	)	$	(66,342	)	$	12,062		$	3,179		$	51,101	$	(66,342	)

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



NATIONSTAR MORTGAGE HOLDINGS INC. CONSOLIDATING STATEMENT OF INCOME (LOSS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
	Nationstar			Issuer			Guarantor (Subsidiaries)		Non-Guarantor (Subsidiaries)			Eliminations			Consolidated
Revenues:
Service related	$	—		$	528,839		$	13,033	$	342,285		$	—		$	884,157
Net gain on mortgage loans held for sale	—			483,922			—		32,830			—			516,752
Total revenues	—			1,012,761			13,033		375,115			—			1,400,909
Expenses:
Salaries, wages and benefits	—			411,017			3,626		163,069			—			577,712
General and administrative	—			557,847			1,928		133,562			—			693,337
Total expenses	—			968,864			5,554		296,631			—			1,271,049
Other income/(expense):
Interest income	—			215,663			—		27,769			—			243,432
Interest expense	—			(388,024		)	—		(51,285		)	—			(439,309		)
Gain on interest rate swaps and caps	—			55			—		(618		)	—			(563		)
Gain/(loss) from subsidiaries	(40,098		)	61,615			—		—			(21,517		)	—
Total other income/(expense)	(40,098		)	(110,691		)	—		(24,134		)	(21,517		)	(196,440		)
Income/(loss) before taxes	(40,098		)	(66,794		)	7,479		54,350			(21,517		)	(66,580		)
Income tax expense/(benefit)	—			(30,659		)	—		10			—			(30,649		)
Net income/(loss)	(40,098		)	(36,135		)	7,479		54,340			(21,517		)	(35,931		)
Less: net gain attributable to noncontrolling interests	—			3,963			—		204			—			4,167
Net income/(loss) excluding noncontrolling interests	$	(40,098	)	$	(40,098	)	$	7,479	$	54,136		$	(21,517	)	$	(40,098	)

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

NATIONSTAR MORTGAGE HOLDINGS INC. CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

	Nationstar			Issuer (Parent)			Guarantor (Subsidiaries)			Non-Guarantor (Subsidiaries)			Eliminations			Consolidated
Operating Activities:
Net income/(loss)	$	(40,098	)	$	(40,098	)	$	7,479		$	54,136		$	(21,517	)	$	(40,098	)
Reconciliation of net income to net cash attributable to operating activities:
(Gain)/loss from subsidiaries	40,098			(61,615		)	—			—			21,517			—
Noncontrolling interest				3,963			204									4,167
Share-based compensation	—			8,476			—			6,861			—			15,337
Net tax effect of stock grants	—			(1,095		)	—			—			—			(1,095		)
Loss on foreclosed real estate and other	—			—			—			—			—			—
Gain on mortgage loans held for sale	—			(481,039		)	—			(35,713		)	—			(516,752		)
Mortgage loans originated and purchased, net of fees	—			(13,136,799		)	—			(833,236		)	—			(13,970,035		)
Repurchases of loans and foreclosures out of Ginnie Mae securitizations	—			(1,392,858		)	—			—			—			(1,392,858		)
Proceeds on sale of and payments of mortgage loans held for sale	—			14,277,068			—			771,746			—			15,048,814
(Gain)/loss on derivatives including ineffectiveness	—			(55		)	—			618			—			563
Depreciation and amortization	—			29,672			—			11,594			—			41,266
Amortization/(accretion) of premiums/(discounts)	—			(4,028		)	—			(3,367		)	—			(7,395		)
Fair value changes in excess spread financing	—			(23,357		)	—			—			—			(23,357		)
Fair value changes and amortization/accretion of mortgage servicing rights	—			499,905			—			—			—			499,905
Fair value change in mortgage servicing rights financing liability	—			7,093			—			—			—			7,093
Changes in assets and liabilities:
Advances	—			417,021			—			2,277			—			419,298
Reverse mortgage interests	—			8,147			—			(173,110		)	—			(164,963		)
Other assets	6,200			167,774			(5,703		)	(22,564		)	—			145,707
Payables and accrued liabilities	—			(125,407		)	1,572			(3,120		)	—			(126,955		)
Net cash attributable to operating activities	$	6,200		$	152,768		$	3,552		$	(223,878	)	$	—		$	(61,358	)

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



	Nationstar			Issuer (Parent)			Guarantor (Subsidiaries)			Non-Guarantor (Subsidiaries)			Eliminations		Consolidated
Investing activities:
Property and equipment additions, net of disposals	—			(23,446		)	(35		)	(20,588		)	—		(44,069		)
Purchase of forward mortgage servicing rights, net of liabilities incurred	—			(4,815,684		)	—			—			—		(4,815,684		)
Purchases of reverse mortgage servicing rights and interests	—			(614,602		)	—			—			—		(614,602		)
Sale of forward service rights	—			41,197			—			—			—		41,197
Acquisitions, net	—			—			—			(44,858		)	—		(44,858		)
Net cash attributable to investing activities	—			(5,412,535		)	(35		)	(65,446		)	—		(5,478,016		)
Financing activities:
Transfers to/from restricted cash, net	—			(9,273		)	(3		)	(182,426		)	—		(191,702		)
Issuance of common stock, net of issuance cost	—			497,761			—			—			—		497,761
Debt financing costs	—			(10,668		)	—			—			—		(10,668		)
Increase (decrease) advance facilities	—			630,952			—			99,990			—		730,942
Increase (decrease) warehouse facilities	—			(291,182		)	—			139,836			—		(151,346		)
Proceeds from HECM Securitizations	—			—			—			342,403			—		342,403
Repayment of HECM Securitizations	—			—			—			(102,687		)	—		(102,687		)
Issuance of excess spread financing	—			262,976			—			—			—		262,976
Repayment of excess spread financing	—			(154,706		)	—			—			—		(154,706		)
Increase in participating interest financing in reverse mortgage interests	—			4,629,380			—			—			—		4,629,380
Repayment of nonrecourse debt–Legacy assets	—			(1,293		)	—			(8,976		)	—		(10,269		)
Net tax benefit for stock grants issued	—			1,095			—			—			—		1,095
Redemption of shares for stock vesting	(6,200		)	—			—			—			—		(6,200		)
Net cash attributable to financing activities	(6,200		)	5,555,042			(3		)	288,140			—		5,836,979
Net increase/(decrease) in cash	—			295,275			3,514			(1,184		)	—		297,605
Cash and cash equivalents at beginning of period	$	—		$	279,770		$	288		$	18,944		$	—	$	299,002
Cash and cash equivalents at end of period	$	—		$	575,045		$	3,802		$	17,760		$	—	$	596,607

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

NATIONSTAR MORTGAGE HOLDINGS INC. CONSOLIDATING BALANCE SHEET DECEMBER 31, 2014

	Nationstar		Issuer		Guarantor (Subsidiaries)		Non-Guarantor (Subsidiaries)		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—	$	279,770	$	288	$	18,944	$	—		$	299,002
Restricted cash	—		177,090		—		108,440		—			285,530
Mortgage servicing rights	—		2,961,321		—		—		—			2,961,321
Advances	—		2,544,065		—		2,297		—			2,546,362
Reverse mortgage interests	—		2,111,801		—		341,268		—			2,453,069
Mortgage loans held for sale	—		1,243,700		—		34,231		—			1,277,931
Mortgage loans held for investment, net	—		1,945		—		189,624		—			191,569
Property and equipment, net	—		114,903		835		13,873		—			129,611
Derivative financial instruments	—		87,911		—		3,140		—			91,051
Other assets	16,383		1,069,061		272,654		1,328,078		(1,808,947		)	877,229
Investment in subsidiaries	1,207,895		450,363		—		—		(1,658,258		)	—
Total Assets	$	1,224,278	$	11,041,930	$	273,777	$	2,039,895	$	(3,467,205	)	$	11,112,675
Liabilities and members’ equity
Advance facilities	$	—	$	570,792	$	—	$	1,330,991	$	—		$	1,901,783
Warehouse facilities	—		1,539,994		—		32,628		—			1,572,622
Unsecured senior notes	—		2,159,231		—		—		—			2,159,231
Payables and accrued liabilities	—		1,282,895		25		39,158		—			1,322,078
Payables to affiliates	—		1,683,606		894		124,447		(1,808,947		)	—
Derivative financial instruments	—		18,525		—		—		—			18,525
MSR related liabilities - nonrecourse	—		1,080,465		—		—		—			1,080,465
Mortgage servicing liabilities	—		65,382		—		—		—			65,382
Other nonrecourse debt	—		1,433,145		—		335,166		—			1,768,311
Total liabilities	—		9,834,035		919		1,862,390		(1,808,947		)	9,888,397
Total equity	1,224,278		1,207,895		272,858		177,505		(1,658,258		)	1,224,278
Total liabilities and equity	$	1,224,278	$	11,041,930	$	273,777	$	2,039,895	$	(3,467,205	)	$	11,112,675

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



NATIONSTAR MORTGAGE HOLDINGS INC. CONSOLIDATING STATEMENT OF INCOME (LOSS) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014
	Nationstar		Issuer			Guarantor (Subsidiaries)			Non-Guarantor (Subsidiaries)			Eliminations			Consolidated
Revenues:
Service related	$	—	$	310,821		$	(12,969	)	$	80,790		$	(17,133	)	$	361,509
Net gain on mortgage loans held for sale	—		121,912			—			4,124			16,779			142,815
Total revenues	—		432,733			(12,969		)	84,914			(354		)	504,324
Expenses:
Salaries, wages and benefits	—		135,686			750			24,321			—			160,757
General and administrative	—		137,192			(2,958		)	32,233			—			166,467
Total expenses	—		272,878			(2,208		)	56,554			—			327,224
Other income/(expense):
Interest income	—		38,403			—			4,557			354			43,314
Interest expense	—		(106,771		)	—			(9,902		)	—			(116,673		)
Gain on disposal of property	—		4,898			—			—			—			4,898
Gain/(loss) on interest rate swaps and caps	—		145			—			795			—			940
Gain/(loss) from subsidiaries	111,225		13,049			—			—			(124,274		)	—
Total other income/(expense)	111,225		(50,276		)	—			(4,550		)	(123,920		)	(67,521		)
Income before taxes	111,225		109,579			(10,761		)	23,810			(124,274		)	109,579
Income tax expense/(benefit)	—		(1,700		)	—			—			—			(1,700		)
Net Income/(loss)	111,225		111,279			(10,761		)	23,810			(124,274		)	111,279
Less: net gain attributable to noncontrolling interests	—		54			—			—			—			54
Net income/(loss) excluding noncontrolling interests	$	111,225	$	111,225		$	(10,761	)	$	23,810		$	(124,274	)	$	111,225

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



NATIONSTAR MORTGAGE HOLDINGS INC. CONSOLIDATING STATEMENT OF INCOME (LOSS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
	Nationstar		Issuer			Guarantor (Subsidiaries)		Non-Guarantor (Subsidiaries)			Eliminations			Consolidated
Revenues:
Service related	$	—	$	878,169		$	45,586	$	210,488		$	(54,206	)	$	1,080,037
Net gain on mortgage loans held for sale	—		386,461			—		4,100			53,106			443,667
Total revenues	—		1,264,630			45,586		214,588			(1,100		)	1,523,704
Expenses:
Salaries, wages and benefits	—		418,190			4,257		48,957			—			471,404
General and administrative	—		427,669			1,738		94,257			—			523,664
Total expenses	—		845,859			5,995		143,214			—			995,068
Other income/(expense):
Interest income	—		116,258			—		12,840			1,100			130,198
Interest expense	—		(367,784		)	—		(44,911		)	—			(412,695		)
Gain on disposal of property	—		4,898			—		—			—			4,898
Gain/(loss) on interest rate swaps and caps	—		652			—		2,156			—			2,808
Gain/(loss) from subsidiaries	201,716		81,050			—		—			(282,766		)	—
Total other income/(expense)	201,716		(164,926		)	—		(29,915		)	(281,666		)	(274,791		)
Income before taxes	201,716		253,845			39,591		41,459			(282,766		)	253,845
Income tax expense/(benefit)	—		52,242			—		—			—			52,242
Net Income/(loss)	201,716		201,603			39,591		41,459			(282,766		)	201,603
Less: net gain attributable to noncontrolling interests	—		(113		)	—		—			—			(113		)
Net income/(loss) excluding noncontrolling interests	$	201,716	$	201,716		$	39,591	$	41,459		$	(282,766	)	$	201,716

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



NATIONSTAR MORTGAGE HOLDINGS INC. CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
	Nationstar			Issuer (Parent)			Guarantor (Subsidiaries)			Non-Guarantor (Subsidiaries)			Eliminations			Consolidated
Operating activities:
Net income/(loss)	$	201,716		$	201,716		$	39,591		$	41,459		$	(282,766	)	$	201,716
Reconciliation of net income to net cash attributable to operating activities:
(Gain)/loss from subsidiaries	(201,716		)	(81,050		)	—			—			282,766			—
Noncontrolling interest	—			306			—			—			—			306
Share-based compensation	—			11,344			—			—			—			11,344
Excess tax benefit from share based compensation	—			(2,197		)	—			—			—			(2,197		)
Net (gain)/loss on mortgage loans held for sale	—			(386,461		)	—			(4,100		)	(53,106		)	(443,667		)
Mortgage loans originated and purchased, net of fees	—			(13,272,856		)	—			—			—			(13,272,856		)
Repurchases of loans and foreclosures out of Ginnie Mae securitizations	—			(3,284,336		)	—			—			—			(3,284,336		)
Proceeds on sale of and payments of mortgage loans held for sale and held for investment	—			17,589,098			—			(25,493		)	53,106			17,616,711
(Gain)/loss on swaps and caps	—			(652		)	—			(2,156		)	—			(2,808		)
Cash settlement on derivative financial instruments	—			—			—			1,352			—			1,352
Depreciation and amortization	—			27,148			89			2,726			—			29,963
Amortization/(accretion) of premiums/(discounts)	—			18,578			—			(1,918		)	—			16,660
Fair value changes in excess spread financing	—			61,080			—			—			—			61,080
Fair value changes and amortization/accretion of mortgage servicing rights	—			128,227			—			—			—			128,227
Fair value change in mortgage servicing rights financing liability	—			(38,260		)	—			—			—			(38,260		)
Changes in assets and liabilities:
Advances	—			(3,332,289		)	467			3,996,133			—			664,311
Reverse mortgage interests	—			(630,139		)	—			—			—			(630,139		)
Other assets	4,755			1,864,514			(37,347		)	(1,558,527		)	69			273,464
Payables and accrued liabilities	—			(38,453		)	(5,950		)	19,011			(69		)	(25,461		)
Net cash attributable to operating activities	$	4,755		$	(1,164,682	)	$	(3,150	)	$	2,468,487		$	—		$	1,305,410

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)



	Nationstar			Issuer (Parent)			Guarantor (Subsidiaries)			Non-Guarantor (Subsidiaries)			Eliminations		Consolidated
Investing activities:
Property and equipment additions, net of disposals	—			(29,517		)	(69		)	(11,981		)	—		(41,567		)
Gain on disposal of building	—			10,412			—			—			—		10,412
Purchase of forward mortgage servicing rights, net of liabilities incurred	—			(317,247		)	—			—			—		(317,247		)
Proceeds from sale of servicer advances	—			512,527			—			—			—		512,527
Proceeds from sales of REO	—			—			—			—			—		—
Acquisitions, net	—			(18,000		)	—			—			—		(18,000		)
Net cash attributable to investing activities	—			158,175			(69		)	(11,981		)	—		146,125
Financing activities:
Transfers to/from restricted cash	—			100,185			3			182,101			—		282,289
Repayment of unsecured senior notes	—			(285,000		)	—			—			—		(285,000		)
Debt financing costs	—			(11,461		)	—			—			—		(11,461		)
Increase/(decrease) in advance facilities	—			687,306			—			(2,127,044		)	—		(1,439,738		)
Increase/(decrease) in warehouse facilities	—			—			—			(502,403		)	—		(502,403		)
Issuance of excess spread financing	—			150,951			—			—			—		150,951
Repayment of excess servicing spread financing	—			(135,897		)	—			—			—		(135,897		)
Increase in participating interest financing in reverse mortgage interests	—			279,636			—			—			—		279,636
Proceeds from mortgage servicing rights financing	—			52,835			—			—			—		52,835
Repayment of nonrecourse debt–Legacy assets	—			—			—			(12,356		)	—		(12,356		)
Excess tax benefit from share-based compensation	—			2,197			—			—			—		2,197
Surrender of shares relating to stock vesting	(4,755		)	—			—			—			—		(4,755		)
Net cash attributable to financing activities	(4,755		)	840,752			3			(2,459,702		)	—		(1,623,702		)
Net increase in cash and cash equivalents	—			(165,755		)	(3,216		)	(3,196		)	—		(172,167		)
Cash and cash equivalents at beginning of period	—			422,268			3,907			15,727			—		441,902
Cash and cash equivalents at end of period	$	—		$	256,513		$	691		$	12,531		$	—	$	269,735

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

18. Disclosures Related to Transactions with Affiliates of Fortress Investment Group LLC

Newcastle Investment Corp. (Newcastle)

Nationstar is the servicer for several securitized loan portfolios managed by Newcastle, which is managed by an affiliate of Fortress, for which Nationstar receives a monthly net servicing fee equal to 0.50% per annum on the unpaid principal balance of the portfolios, which was $0.7 billion and $0.8 billion, at September 30, 2015 and December 31, 2014, respectively. During the three months ended September 30, 2015 and 2014, Nationstar received servicing fees and other performance incentive fees of $0.9 million and $1.0 million, respectively. During the nine months ended September 30, 2015 and 2014, Nationstar received servicing fees and other performance incentive fees of $2.7 million and $3.1 million, respectively.

New Residential Investment Corp. (New Residential)

Excess Spread Financing

Nationstar has entered into several agreements with certain entities formed by New Residential, in which New Residential and/or certain funds managed by Fortress own an interest (each a New Residential Entity), where Nationstar sold to the related New Residential Entity the right to receive a portion of the excess cash flow generated from certain acquired MSRs after receipt of a fixed basic servicing fee per loan. Nationstar retains the fixed base servicing fee, all ancillary revenues associated with servicing such MSRs and the retained portion of the excess servicing fee. Nationstar is the servicer of the loans and provides all servicing and advancing functions for the portfolio. The related New Residential Entity does not have prior or ongoing obligations associated with these MSR portfolios. Furthermore, should Nationstar refinance any loan in such portfolios, subject to certain limitations, Nationstar will be required to transfer the new loan or a replacement loan of similar economic characteristics into the portfolios. The new or replacement loan will be governed by the same terms set forth in the agreements described above.

In addition, from inception in 2012 through September 30, 2015, Nationstar paid $29.7 million to New Residential for delinquent service fees in advance of the contractual due date. This amount will be ultimately netted against future remittances as related to service fee amounts. This amount is recorded as an offset to outstanding excess spread financing in our financial statements.

The fair value on the outstanding liability related to these agreements was $1.1 billion and $1.0 billion at September 30, 2015 and December 31, 2014, respectively.

Mortgage Servicing Rights Financing Liability

During December 2013, Nationstar entered into a Master Servicing Rights Purchase Agreement and three related Sale Supplements (collectively, the Sale Agreement) with a joint venture entity (Purchaser) capitalized by New Residential in which New Residential and/or certain third party co-investors own an interest. Under the Sale Agreement, Nationstar sold to the Purchaser the right to repayment on certain outstanding servicer advances outstanding on non-Agency mortgage loans. In addition, Nationstar also sold the right to receive the base fee component on the related mortgage servicing rights, in exchange for the Purchaser remitting a portion of the base fee to Nationstar in exchange for Nationstar continuing to service the mortgage loans. Nationstar will continue to act as named servicer under each servicing agreement until servicing is transferred to the Purchaser. Once the servicing is transferred under any servicing agreement to the Purchaser, Nationstar will subservice the applicable mortgage loans. While the transfer of the mortgage servicing rights to New Residential is intended to achieve the economic result of a sale of mortgage servicing rights, the Company accounts for the transactions as financings.

The fair value of the outstanding liability related to the Sale Agreement was $56.5 million and $49.4 million at September 30, 2015 and December 31, 2014, respectively.

Other

During May 2014, Nationstar entered into a servicing arrangement with New Residential whereby Nationstar will service residential mortgage loans that New Residential and/or its various affiliates and trust entities acquire. The terms and fees of this servicing arrangement generally conform with industry standards for stand-alone residential mortgage loan servicing. During the three and nine months ended September 30, 2015, Nationstar recognized revenue of $0.9 million and $3.0 million, respectively, related to these servicing arrangements.

19. Subsequent Events

NATIONSTAR MORTGAGE HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, unless otherwise stated)

During October 2015, Nationstar created a new VIE called Nationstar Advance Agency Receivables Trust (NAART), with $550 million of borrowing capacity, which will engage in forward mortgage securitization activity.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis of financial condition and results of operations (MD&A) is a supplement to and should be read in conjunction with the accompanying unaudited consolidated financial statements.

OVERVIEW

We are an integrated servicer, originator and provider of transaction based services for residential mortgages in the United States. Our success depends on working with customers, investors and GSEs to deliver quality services and solutions that foster and preserve home ownership.

Third Quarter 2015 Highlights

Some of the major highlights for the third quarter of 2015 include:


•	Achieved 3.6 basis points profitability in Servicing as compared to 2.3 basis points during the second quarter of 2015.


•	Earned $50.2 million in originations funding including more than 25,696 loans during the quarter.


•	Improved recapture rate to 28% from 25% in second quarter.


•	Acquired $19.0 billion of mortgage servicing rights (MSRs) during the quarter.


•	Our delinquency rate, measured as loans that are 60 or more days behind in payments, declined to 7.2% from 9.9% at the start of the year.


•	Provided over 16,340 solutions to our mortgage servicing customers, reflecting our continued commitment to foster and preserve homeownership.


•	Funded $5.0 billion mortgage loans including $3.0 billion related to retaining customers from our servicing portfolio.


•	Refinanced $1.4 billion in HARP loans, providing relief to 8,368 customers.

Capital and Liquidity

We had cash on hand of $596.7 million as of September 30, 2015 and $299.0 million as of December 31, 2014, respectively. This included amounts paid for the acquisition of $19.0 billion of MSRs during the third quarter. In addition, we had total equity of $1.8 billion as of September 30, 2015 and $1.2 billion as of December 31, 2014, respectively. We believe we have sufficient capital and liquidity to conduct our operations, including the acquisition of new portfolios that meet our return requirements.

Purchase of MSRs / Fair Value

During the third quarter, we completed the sale of MSRs associated with $4.6 billion in unpaid principal balance (UPB) and retained subservicing rights. This sale of MSRs is another capital alternative within our capital budgeting strategy.

We purchased MSRs primarily with cash on hand and the use of additional excess spread financings with New Residential and funds managed by Fortress Investment Group, all of which are affiliated companies. For additional information see Note 2, Mortgage Servicing Rights and Related Liabilities and Note 18, Transactions with Affiliates of Fortress.

Warehouse facilities

As a result of the increased activity in our Originations segment, our Mortgage Loans Held for Sale increased to $1.8 billion as of September 30, 2015 compared to $1.3 billion as of December 31, 2014. We have sufficient warehouse capacity to support our Originations segment including anticipated growth. As of September 30, 2015, we were in compliance with all covenants related to our borrowing facilities.

Additional focus areas are provided below as we discuss the results of each of our segments.

RESULTS OF OPERATIONS

Consolidated Results



Table 1. Consolidated Operations	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015				2014

Revenues - Operational	$	549		$	460		$	1,581			$	1,429
Revenues - MTM	(152		)	44			(180		)		95
Total revenues	397			504			1,401			1,524	1,524
Expenses	(446		)	(327		)	(1,271		)		(995		)
Other income (expense), net	(63		)	(68		)	(196		)		(275		)
Income before taxes	(112		)	109			(66		)		254
Income tax expense (benefit)	(47		)	(2		)	(31		)		52
Less: net gain (loss) attributable to noncontrolling interests	1			—			5				—
Net income attributable to Nationstar	$	(66	)	$	111		$	(40	)		$	202

During the three months ended September 30, 2015 as compared to the same period in 2014, the decrease in net income was predominantly due to fair value marks as a result of fluctuations in interest rates. Operationally, Servicing declined compared to the prior year principally as a result of higher legal and regulatory costs. Originations earnings were comparable and Xome saw a decline in net income as we continued our investments in technology and, to a lesser extent, building out the corporate infrastructure.

During the nine months ended September 30, 2015, the primary impact to net income attributable to Nationstar was fair value marks associated with mortgage servicing rights and related liabilities as a result of fluctuations in interest rates. From an operational perspective, servicing declined year-to-date when compared to the prior period principally as a result of higher legal and regulatory costs as well as higher claims losses principally in the first quarter. In addition, the prior year benefited from clean-up calls that have not occurred in the current year. Originations has continued to benefit from the interest rate environment and is currently 14% ahead in earnings this year compared to same time last year. Finally, Xome is down year over year due principally to investments in technology and corporate infrastructure which did not really begin until late fourth quarter 2014.



Table 2. Revenues	For the three months ended September 30,					For the nine months ended September 30,
(in millions)	2015			2014		2015			2014
Servicing - Operational	$	260		$	241	$	730		$	772
Servicing - MTM	(152		)	44		(180		)	95
Total servicing revenue	108			285		550			867
Originations	180			139		508			434
Xome	109			80		339			223
Corporate and other, including eliminations	—			—		4			—
Total revenues	$	397		$	504	$	1,401		$	1,524

Operational revenues for the three months ended September 30, 2015, increased for all segments. Servicing operational revenues are principally driven by higher base servicing fees as a result of improved portfolio performance and changes to customer contact strategies. Originations continues to benefit from the favorable interest rate environment. Xome revenues declined with respect to REO revenues; however overall were higher as a result of the acquisition of Title 365 and increase in third-party revenues year over year.

Operational revenues for the nine months ended September 30, 2015 was up for all segments when compared to the prior year period. Servicing was driven principally by improvements in the underlying portfolio as delinquency rates continue to decline as well as an increase in average UPB due to the boarding of portfolios throughout the year. Originations have benefited from increased interest rates which have led to strong locks and highest volume of funded loans since 2013. Xome has benefited from both organic growth as well as increased revenues as a result of acquisitions.



Table 3. Expenses	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Servicing	$	(208	)	$	(163	)	$	(600	)	$	(517	)
Originations	(131		)	(89		)	(349		)	(291		)
Xome	(92		)	(48		)	(266		)	(130		)
Corporate and other, including eliminations	(15		)	(27		)	(56		)	(57		)
Total expenses	$	(446	)	$	(327	)	$	(1,271	)	$	(995	)

Total expense during the three months ended September 30, 2015, which increased across all three segments, was primarily due to growth in the Originations and Xome segments. Servicing expenses is up primarily attributable to increased legal and regulatory expenses. Expenses increased in our Originations segment on higher funded volume and increased compliance costs in anticipation of regulatory changes including those related to new integrated disclosures. Expenses increased in our Xome segment principally due to the growth in technology and service offerings including a significant increase in title operations, related investments in personnel, marketing, technology and infrastructure including operations in India. This was partially offset by lower Corporate and other expenses due to lower compensation from restructuring in first half of 2015 and alignment of compensation plans.

On a year to date basis, expenses increased in all segments relative to the comparable period. Expenses increased in our Xome segment principally due to the growth in technology and service offerings including a significant increase in title operations, related investments in personnel, marketing, technology and infrastructure including operations in India. The increase in Originations expense is primarily attributable to higher lock and funded volumes and increased compliance expense in advance of pending regulatory changes related to disclosures. The increase in Servicing expense is primarily attributable to increased legal and regulatory expenses as well as severance incurred during second quarter of 2015.



Table 4. Other (Expense) Income, Net	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Reverse interest income	$	90		$	20		$	181		$	57
Other interest income	23			23			62			74
Interest income	113			43			243			131
Reverse interest expense	(65		)	(9		)	(126		)	(22		)
Advance interest expense	(16		)	(14		)	(41		)	(90		)
Corporate debt interest expense	(40		)	(47		)	(121		)	(147		)
Other interest expense	(55		)	(42		)	(150		)	(150		)
Interest expense	(176		)	(112		)	(438		)	(409		)
Gain (loss) on interest rate swaps and caps	—			1			(1		)	3
Total other (expense) income, net	$	(63	)	$	(68	)	$	(196	)	$	(275	)

Total other (expense) income, net declined during the three months ended September 30, 2015 versus the three months ended September 30, 2014 primarily due to higher reverse interest income due to the Generation Mortgage asset acquisition during the second quarter of 2015 triggering reverse interest income accretion. This was partially offset by higher reverse interest expense, also due to the Generation Mortgage asset acquisition. Also impacting the decline was lower interest expense due to the redemption of Unsecured Senior Notes in July 2014, lowering the cost of borrowing.

Total other (expense) income, net declined during the nine months ended September 30, 2015 versus the nine months ended September 30, 2014 primarily due to lower interest expense on Advances. Also impacting lower expense was the redemption of Unsecured Senior Notes in July 2014 as well as higher reverse interest income, net stemming from the Generations Mortgage asset acquisition.



Table 5. Income before Taxes	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Servicing	$	(127	)	$	93		$	(133	)	$	212
Originations	50			51			164			144
Xome	17			32			73			93
Corporate and other, including eliminations	(52		)	(67		)	(170		)	(195		)
Total income before taxes	$	(112	)	$	109		$	(66	)	$	254

The decrease in Income before taxes for the three months ended September 30, 2015 versus the three months ended September 30, 2014 is driven primarily by the decrease in pre-tax income in our Servicing segment as a result of unfavorable mark to market adjustments on MSRs. Income before taxes for Xome declined in the current period principally due to additional investments in technology and corporate infrastructure.

On a year to date basis, the decrease in pre-tax income relative to the comparable period is primarily attributable to our Servicing segment due to the cumulative mark to market loss on MSRs. Also impacting the decrease was higher Xome costs as we invested in new technologies and built the corporate infrastructure.



Table 6. Income Tax (Benefit) Expense	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Income tax (benefit) expense	$	(47	)	$	(2	)	$	(31	)	$	52

During the three months and nine months ended September 30, 2015, the income tax benefit increased due to the pretax loss primarily due to unfavorable mark to market adjustments on MSRs.

Segment Results

Revenues generated on inter-segment services performed are valued based on estimated market value. Expenses are allocated to individual segments based on the estimated value of services performed, total revenue contributions, personnel headcount or the equity invested in each segment based on the type of expense allocated. Expenses for consolidated back-office operations and general overhead expenses such as executive administration and accounting are not allocated to the business segments.

Servicing Segment



Table 7. Servicing - Operations	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Revenues - operational	$	260		$	241		$	730		$	772
Revenues - mark-to-market	(152		)	44			(180		)	95
Total revenues	108			285			550			867
Expenses	(208		)	(163		)	(600		)	(517		)
Other income (expense), net	(27		)	(29		)	$	(83	)	(138		)
Total income (loss) before taxes - servicing	$	(127	)	$	93		$	(133	)	$	212
Income (loss) before taxes margin excluding mark-to-market	9.6		%	20.3		%	6.4		%	15.2		%
Income (loss) before taxes margin including mark-to-market	(117.6		)%	32.6		%	(24.2		)%	24.5		%

Our Nationstar Mortgage and Champion Mortgage brands together service approximately 2.4 million customers with an outstanding principal balance in excess of $400 billion. As of September 30, 2015, the outstanding principle balance consisted of approximately

$377 billion in forward servicing and $31 billion in reverse servicing. We earn fees for collecting monthly mortgage payments from homeowners, processing those payments and passing them on to investors who ultimately own the mortgage.

Our servicing portfolio generates reliable and recurring cash flows although earnings may vary period to period principally as a result of mark-to-market adjustments on our MSRs. In addition, our servicing portfolio provides a lead source to augment our Originations and Xome businesses. We have a proven track record of reducing the delinquencies within our portfolios and ultimately extending the duration of our overall MSR loan pool which in turn increases the future earnings potential of such loan pools. Our ability to deploy loss mitigation strategies, modify nonperforming loans, assist our existing customers with a refinance or new home purchase enables us to take advantage of MSR and subservicing opportunities that lead to replenishing and modestly growing our servicing portfolio. MSR opportunities come in the form of MSR retention on originated loans or bulk and flow opportunities.

We generally acquire MSRs utilizing cash on hand or via a model in which financial partners co-invest in “excess MSRs.” Typically, we utilize cash on hand to pay for smaller acquisitions of MSRs however, we believe we can access debt and equity markets for larger opportunities when prudent. Subservicing represents another means of growing our servicing business, as subservicing contracts are typically awarded on a no upfront-cost basis and generally do not require substantial capital outlays. Subservicing contracts can span multiple years and allow for growth as our clients' new customers become part of our servicing portfolio.

During 2015, we remain focused on resolving complaints timely and, more importantly, reducing the overall number of complaints. Finally, we will continue to invest in technology, people and procedures that should allow us to drive costs per loan lower and continue to improve the scalability of our operations. We will also continue to invest in our compliance management systems.

Effective April 1, 2015, we reclassified a small portion of Xome segment activity involved with loss recovery to the Servicing segment to better align with how management is operating this business. All periods presented reflect this reclassification.

The following table provides a rollforward of our forward servicing portfolio UPB, including loans subserviced for others:



Table 8. Forward Servicing Portfolio UPB Rollforward	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Balance at the beginning of the period	$	372,198		$	349,779		$	353,094		$	361,779
Additions:
Originations	3,337			2,450			12,311			8,557
Acquisitions	3,284			9,426			51,400			28,394
Deductions:
Dispositions	(4,647		)	—			(4,647		)	—
Principal reductions and other	(2,899		)	(7,044		)	(8,480		)	(11,799		)
Voluntary reductions	(13,301		)	(9,138		)	(36,407		)	(25,937		)
Involuntary reductions	(2,598		)	(3,155		)	(8,456		)	(9,034		)
Net changes in loans serviced by others	21,797			7,104			18,356			(2,538		)
Balance at the end of period	$	377,171		$	349,422		$	377,171		$	349,422

During the three months ended September 30, 2015, our servicing portfolio's unpaid principal balance increased as a result of continued MSR acquisitions in excess of liquidations and principal payments, portions of which is currently reflected in net changes in loans serviced by others. Additionally, we acquired $3.3 billion of servicing rights through originations during the three month period ended September 30, 2015.

The following table provides the composition of revenues for the Servicing segment for the periods presented as well as information useful in evaluating revenues:



Table 9. Servicing - Revenues	For the three months ended September 30,								For the nine months ended September 30,
	2015				2014				2015				2014
($ in millions)	Amounts			bps⁽¹⁾	Amounts			bps⁽¹⁾	Amounts			bps⁽¹⁾	Amounts			bps⁽¹⁾
MSR - Fair Value Revenue
Base servicing fees	$	274		28	247			26	798			27	758			26
Modification fees	16			2	14			1	45			2	55			2
Incentive fees	5			1	11			1	29			1	31			1
Late payment fees	18			2	16			2	52			2	49			2
Other ancillary revenue	59			6	65			7	151			5	175			6
Other revenues	9			1	7			1	32			1	23			1
Total MSR fair value revenue	381			40	360			38	1,107			38	1,091			38
Subservicing⁽²⁾	6			1	8			1	20			1	30			1
MSRs - LOCOM	32			3	13			1	75			3	41			—
Total servicing fee revenue	419			44	381			40	1,202			42	1,162			39
Amortization
MSR scheduled and prepayment amortization	(130		)	(13)	(102		)	(10)	(370		)	(13)	(264		)	(9)
Excess spread accretion	48			5	42			5	126			4	113			4
LOCOM amortization	—			—	3			—	(3		)	—	1			—
Total amortization	(82		)	(8)	(57		)	(5)	(247		)	(9)	(150		)	(5)
MSR financing liability payments	(30		)	(3)	(42		)	(4)	(96		)	(3)	(124		)	(4)
Excess spread payments - principal	(47		)	(5)	(41		)	(4)	(129		)	(4)	(116		)	(4)
Total operational revenue	260			28	241			27	730			26	772			26
Mark-to-market Revenue
MSR MTM⁽³⁾	(216		)	(22)	90			9	(200		)	(7)	115			3
Excess spread / financing MTM	64			6	(46		)	(5)	20			1	(20		)	(2)
Total MTM revenue	(152		)	(16)	44			4	(180		)	(6)	95			1
Total revenues - servicing	$	108		12	$	285		31	$	550		20	$	867		27

⁽¹⁾ Calculated bps are as follows: Annualized $ amount/Average UPB X 10000.

⁽²⁾ Subservicing amounts includes amounts serviced for other MSR owners, whole loans serviced for other investors and our owned whole loans.

⁽³⁾ MSR mark-to-market includes value changes related to MSR and whole loan assets.

Higher base servicing fees during the nine months ended September 30, 2015 was principally due to a $25.6 billion increase in the average unpaid principal balance of our servicing portfolio as well as improved delinquency ratios. The 60 plus day delinquency rate declined from 10.6% as of September 30, 2014 to 7.2% as of September 30, 2015.

During the three months ended September 30, 2015, the decrease in total servicing revenue versus the comparable period was principally driven by mark-to-market losses on our MSRs as well as higher amortization, partially offset by increases in base servicing fees. The decrease in mark to market gains was principally driven by decrease in interest rates.

On a year to date basis, servicing revenue before MSR fair value adjustments and amortization are higher versus the comparable period due to an increase in the servicing portfolio as well as higher reverse mortgage MSRs. Total servicing revenues are lower due to the cumulative mark-to-market loss recorded on our MSRs, driven primarily by increased prepayments in the sustained low interest rate environment.

For information regarding fair value adjustments, see the Mortgage Servicing Rights and Related Liabilities section provided below.



Table 10. Servicing Portfolio - Unpaid Principal Balances	September 30,
($ in millions)	2015		2014
Average UPB:
MSRs - fair value	$	354,025	$	321,782
Subservicing	20,659		27,302
MSRs - LOCOM	29,540		28,697
Total average UPB	404,224		377,781

Ending UPB:
MSRs - fair value
Agency	250,461		201,208
Non-agency	104,183		117,764
Total MSRs - fair value	354,644		318,972
Subservicing⁽¹⁾
Agency	18,293		21,426
Non-agency	4,234		9,026
Total subservicing	22,527		30,452

MSRs - LOCOM	30,689		28,361
Total ending UPB	$	407,860	$	377,785

⁽¹⁾ Subservicing and Other amounts include (1) loans we service for others, (2) residential mortgage loans originated but have yet to be sold, and (3) agency REO balances for which we own the mortgage servicing rights.

Information about modifications and workout units is presented in the table below.



Table 11. Modifications and Workout Units	For the three months ended September 30,		For the nine months ended September 30,
	2015	2014	2015	2014
Modifications and workout units:
HAMP modifications	4,248	3,857	12,509	15,271
Non HAMP modifications	6,262	7,072	18,763	26,543
Workouts	5,830	7,446	18,431	24,330
Total modification and workout units	16,340	18,375	49,703	66,144

Total modifications and workouts decreased during the three month and nine months ended September 30, 2015 compared to the prior year comparable periods primarily due to the overall performance of borrowers within the servicing portfolio continuing to improve. See the table below for more detailed delinquency information.



Table 12. Key Performance Metrics - Forward Servicing Portfolio⁽¹⁾	September 30,
	2015			2014
Loan count-servicing	2,188,332			1,897,640
Average loan amount	$	163,928		$	171,478
Average coupon - Credit sensitive⁽²⁾	4.6		%	4.7		%
Average coupon - Interest sensitive⁽²⁾	4.1		%	4.1		%
60+ delinquent (% of loans)⁽³⁾	7.2		%	10.6		%
90+ delinquent (% of loans)⁽³⁾	6.6		%	10.2		%
120+ delinquent (% of loans)⁽³⁾	6.2		%	9.5		%
Total prepayment speed (12 month constant pre-payment rate)	16.2		%	13.6		%

⁽¹⁾ Characteristics and key performance metrics of our servicing portfolio excludes UPB and loan counts acquired but not yet boarded and currently serviced by others.

⁽²⁾ The weighted average coupon amounts for our credit and interest sensitive pools presented in the table above are only reflective of our owned forward MSR portfolio that is reported at fair value.

⁽³⁾ Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan.

The table below provides the expense break out between Salaries, wages and benefits and General and administrative expenses in the Servicing segment. For the three and nine months ended September 30, 2015 versus the comparable periods in 2014, expenses were up due to growth in forward and reverse loans serviced.



Table 13. Servicing - Expenses	For the three months ended September 30,						For the nine months ended September 30,
	2015			2014			2015			2014
($ in millions)	Amounts		bps	Amounts		bps	Amounts		bps	Amounts		bps
Salaries, wages and benefits	$	63	7	$	70	7	$	198	10	$	217	11
General and administrative	145		15	93		10	402		21	300		16
Total expenses - servicing	$	208	22	$	163	17	$	600	31	$	517	27

The table below provides additional detail on our total general and administrative expenses recorded in our Servicing segment.



Table 14. General and Administrative Expenses	For the three months ended September 30,						For the nine months ended September 30,
	2015			2014			2015			2014
($ in millions)	Amounts		bps	Amounts		bps	Amounts		bps	Amounts		bps
Operational losses⁽¹⁾	$	63	6	$	30	3	$	161	8	$	105	5
Direct operating costs⁽²⁾	41		4	29		3	120		6	92		5
Offshoring costs	13		1	12		1	36		2	34		2
Corporate allocation charges	22		2	13		1	66		3	38		2
Subservicing	6		1	9		2	19		1	31		2
Total general and administrative expenses - servicing	$	145	14	$	93	10	$	402	20	$	300	16

⁽¹⁾Operational losses include compensatory fees, claims losses and similar expenses.

⁽²⁾ Direct Operating Costs are normal costs of servicing, including filing fees, postage, delivery and similar expenses.

During the three months ended September 30, 2015 versus the three months ended September 30, 2014, general and administrative costs increased due to higher direct operating costs impacted by increased prepayments, increased on-boarding activity, and increased legal costs. Within the operational loss increase is a $21 million additional release of mortgage servicing liabilities which have an offset to revenue. Also impacting the increase was higher corporate allocation charges due to increase in investor reporting and litigation expenses. This was partially offset by lower salaries, wages and benefits due to lower staffing levels along with a decrease in subservicing expense as we transferred mortgage servicing that was previously subserviced.

During the nine months ending September 30, 2015, the primary drivers of the increased general and administrative expense were higher operational losses and direct operating costs. Within operational losses is a $46 million release of mortgage servicing liabilities which has an offset to revenue. Direct operating costs were impacted by increased prepayments, foreclosure related activity, on-boarding activity, legal expenses and outsourcing costs.



Table 15. Servicing - Other (Expense) Income, Net	For the three months ended September 30,										For the nine months ended September 30,
	2015					2014					2015					2014
($ in millions)	Amounts			bps		Amounts			bps		Amounts			bps		Amounts			bps
Reverse interest income	$	90		9		$	20		2		$	181		19		$	57		6
Other interest income	(1		)	—		$	(2	)	—		$	—		—		$	3		—
Interest income	$	89		9		$	18		2		$	181		19		$	60		6
Reverse interest expense	(65		)	(7	)	(9		)	(1	)	(126		)	(13	)	(22		)	(2	)
Advance interest expense	(16		)	(2	)	(14		)	(2	)	(41		)	(4	)	(90		)	(9	)
Other interest expense	(35		)	(3	)	(25		)	(3	)	(97		)	(10	)	(87		)	(9	)
Interest expense	(116		)	(12	)	(48		)	(6	)	(264		)	(27	)	(199		)	(20	)
Gain (loss) on interest rate swaps and cap	—			—		1			—		(1		)	—		2			2
Total other (expense) income, net - servicing	$	(27	)	(3	)	$	(29	)	(4	)	$	(85	)	(8	)	$	(137	)	(12	)

WAC - advance facilities	2.5		%			2.5		%			2.5		%			2.2		%
WAC - excess spread financing	9.0		%			9.1		%			9.2		%			9.1		%

We earn reverse interest income on the accretable excess yield from reverse mortgage interests as well as outstanding principal balance of the HECM mortgage loans for reverse mortgages treated as secured borrowings. We also earn other interest income principally on funds held in escrow (e.g., tax, insurance).

During the three months and nine months ended September 30, 2015 versus the comparable periods in 2014, the principal driver of increased reverse interest income was the Generations Mortgage asset acquisition during the second quarter of 2015 and subsequent reverse interest income accretion. This was partially offset by increased reverse interest expense also stemming from the Generations Mortgage acquisition. Also, other interest expense increased due to higher compensating interest expenses when loans are paid off early but interest expense for the full month is incurred. The decreases in advance interest expense during the nine months ended September 30, 2015 were principally the result of the sale of advances to New Residential as part of the MSR Financing Liability transaction. See Note 2, Mortgage Servicing Rights and Related Liabilities, for further information.

Originations Segment

Our Originations segment comprises both the Greenlight Loans and Nationstar brands. We originate primarily conventional agency (GSE) and government-insured residential mortgage loans and, to mitigate credit risk, typically sell these loans within approximately 30 to 60 days while retaining the associated servicing rights. Our primary focus is assisting customers currently in our servicing portfolio with refinances or loans for new home purchases (or recapture). This increases our origination margins by reducing marketing and other costs to acquire customers as well as replenishment of our servicing portfolio.



Table 16. Originations - Operations	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Revenues	$	180		$	139		$	508		$	434
Expenses	(131		)	(89		)	(349		)	(291		)
Other income (expense), net	1			1			4			1
Income before taxes	$	50		$	51		$	163		$	144
Income before taxes margin	27.8		%	36.7		%	32.1		%	33.2		%



Table 17. Originations - Revenues	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Service related	$	17		$	10		$	38		$	38

Gain on loans sold	208			237			579			812
Fair value mark-to-market on loans held for sale	(49		)	(150		)	(204		)	(423		)
Mark-to-market on locks and commitments⁽¹⁾	(52		)	(15		)	(51		)	(149		)
Provision for repurchases	(4		)	(5		)	(13		)	(19		)
Capitalized servicing rights	60			62			159			175
Net gain on mortgage loans held for sale	163			129			470			396

Total revenues - originations	$	180		$	139		$	508		$	434

Key Metrics
Consumer direct locked volume	$	2,888		$	2,439		$	8,922		$	7,499
Other locked volume	1,924			1,649			5,446			4,986
Funded volume, total	4,948			4,139			13,969			13,262
Funded HARP volume, total	1,436			1,460			3,977			5,646
Recapture percentage	28.1		%	30.0		%	26.4		%	36.0		%
Purchase percentage of funded volume	27.3		%	36.0		%	26.2		%	32.0		%
Value of capitalized servicing	121 bps			136 bps			114 bps			125 bps

⁽¹⁾ Mark-to-market on locks and commitments includes our fair value mark-to-market adjustments on our IRLCs, forward loan commitments, and any associated pair-off amounts.

In evaluating performance, we combine gain on loans sold, fair value mark-to-market adjustments on loans held for sale and mark-to-market on locks and commitments. When considered together, the Company had total revenues of $179 million and $507 million during the three and nine months ended September 30, 2015, versus $139 million and $434 million during the comparable periods in 2014. The increase was primarily driven by higher locked volumes and operational focus on funding current locked pipeline. Decreases in revenue margin basis points (as a percentage of locked volumes) was driven by lower HARP volumes, partially mitigated through higher overall volumes in our Direct to Consumer channel.



Table 18. Originations - Expenses	For the three months ended September 30,				For the nine months ended September 30,
(in millions)	2015		2014		2015		2014

Salaries, wages and benefits	$	79	$	58	$	213	$	183
General and administrative	52		31		136		108
Total expenses - originations	$	131	$	89	$	349	$	291

Salaries, wages and benefits increased during the three and nine months periods ended September 30, 2015 due to headcount growth aligned with higher lock and funded volumes. General and administrative expense was higher in both periods due to higher operating costs associated with the headcount growth, higher loan related costs as a result of increased volumes, including marketing expense.



Table 19. Originations - Other Income (Expense), net	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Interest income	$	19		$	19		$	51		$	58
Interest expense	(17		)	(18		)	(47		)	(57		)
Other income (expense), net - originations	$	2		$	1		$	4		$	1

WA coupon - mortgage loans held for sale	4.2		%	4.4		%	4.1		%	4.5		%
WA cost of funds (excluding facility fees)	2.5		%	2.6		%	2.4		%	2.8		%

Interest income relates principally to Mortgage Loans Held for Sale. Interest expense is associated with the warehouse facilities utilized to originate new loans. Interest income principally declined as a result of lower coupon rates on originated loans. Interest expense declined principally as a result of lower costs of borrowing.

Indemnification Reserves

The activity of the outstanding repurchase reserves were as follows:



Table 20. Repurchase Reserves	For the nine months ended September 30,
	2015			2014
Repurchase reserves, beginning of period	$	28,791		$	40,695
Provisions	7,047			15,376
Charge-offs and releases	(8,395		)	(7,819		)
Repurchase reserves, end of period	$	27,443		$	48,252

The provision for repurchases represents estimate of losses to be incurred on the repurchase or indemnification of purchasers of loans. Certain sale contracts and GSE standards require us to repurchase a loan or indemnify the purchaser or insurer for losses if a borrower fails to make initial loan payments or if the accompanying mortgage loan fails to meet certain customary representations and warranties, such as the manner of origination, the nature and extent of underwriting standards.

In the event of a breach of the representations and warranties, we may be required to either repurchase the loan or indemnify the purchaser for losses it sustains on the loan. In addition, an investor may request that we refund a portion of the premium paid on

the sale of mortgage loans if a loan is prepaid within a certain amount of time from the date of sale. We record a provision for estimated repurchases, loss indemnification and premium recapture on loans sold, which is charged to net gain on mortgage loans held for sale.

During 2012, a selling representation and warranty framework was introduced by the GSEs that helps to address concerns of loan sellers with respect to loan repurchase risk. Under the framework, which was enhanced in 2014, the GSEs will not exercise its remedies, including the issuance of repurchase requests, for breaches of certain selling representations and warranties if a mortgage meets certain eligibility requirements. In general, for loans sold to GSEs on or after January 1, 2013, repurchase risk for HARP loans is lowered if the borrower stays current in the loan for 12 months and representation and warranty risks are limited for non-HARP loans that stay current for 36 months.

Xome Segment



Table 21. Xome - Operations	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Revenues	$	109		$	80		$	339		$	223
Expenses	(92		)	(48		)	(266		)	(130		)
Other income (expense), net	—			—			—			—
Income before taxes	$	17		$	32		$	73		$	93
Income before taxes margin	15.6		%	40.0		%	21.5		%	41.7		%

In June 2015, we rebranded our Solutionstar segment as Xome (pronounced “Zome”) and launched the Xome real estate platform, along with related mobile applications. We believe Xome is the world’s first truly integrated, end-to-end digital platform for real estate connecting every major touch point in the transaction process from finding a home to closing the deal. The launch of the Xome platform was a significant step in the transformation of the Xome segment from a provider of refinance and default related residential mortgage services to a provider of technology and data enhanced solutions to home buyers, home sellers, real estate professionals and companies engaged in the origination and/or servicing of mortgage loans.

Through our Xome platform, we intend to enhance the home buying, selling and renting experience via smart investments in innovative technology and a sharp focus on customer service to make the home transaction experience simpler, more transparent and more accessible for all market participants. The Xome platform is a combination of a web platform and an easy to use mobile applications, giving customers instant access to over 80% of all active MLS listings in the United States. Revenues earned from the Xome platform are included as a component of Real Estate Exchange.

During the quarter, we continued to operate HomeSearch.com, our Residential Real Estate exchange for distressed properties, designed to increase transparency, reduce fraud risk and provide better execution for property sales as evidenced generally by higher sales price and lower average days to sell compared to traditional sales.

With respect to our Real Estate Services, we are focused on the creation and delivery of high quality services (e.g., title and close, collateral valuation, asset management) for purchase, refinance and default transactions. Our primary focus to date has been to serve existing third-party customers and capture refinance and default transactions generated by our servicing and originations platform. Today, significant opportunity still exists with respect to penetration of our own operations and current customers. In addition, in January 2015, we completed the acquisition of Title365, a significant investment in purchase title related services with a major footprint in the California market. In addition, Title365 also added a significant amount of third party revenue from new customers.



Table 22. Xome - Revenues	For the three months ended September 30,						For the nine months ended September 30,
($ in millions, except metrics data)	2015			2014			2015			2014

Revenues
Real estate exchange	$	51		$	43		$	161		$	108
Real estate services	58			37			178			115
Total revenues - Xome	$	109		$	80		$	339		$	223

Key Metrics
Properties sold	4,913			5,310			16,527			15,511
REO inventory at period end	8,008			9,639			8,008			9,639
Fulfillment orders	167,174			157,400			508,251			476,435
Third party business percentage	34.3		%	13.7		%	31.8		%	13.4		%

During the three months ended September 30, 2015, revenue related to our Real Estate Exchange grew principally due to higher average sales price per unit over prior year quarter. During the nine months ended September 30, 2015, revenue related to our Real Estate Exchange grew principally due to an 7% increase in the volume of properties sold, coupled with a higher average sales price per unit over prior year.

Real Estate Services revenue growth was driven by our acquisition of Experience 1, Title365 and related entities in January 2015, which contributed $32.2 million and $86.3 million in additional revenue during the three and nine months ended September 30, 2015, respectively.



Table 23. Xome - Expenses	For the three months ended September 30,				For the nine months ended September 30,
(in millions)	2015		2014		2015		2014

Salaries, wages and benefits	$	49	$	20	$	140	$	43
General and administrative	43		28		126		87
Total expenses - Xome	$	92	$	48	$	266	$	130

During the three months and nine months ended September 30, 2015, the increase in expenses versus the comparable period is due largely to an increase in personnel related costs driven by the acquisitions of Experience 1, as well as expansion of our service offerings. Our personnel costs increased due to increased hiring to support our initiatives and acquisitions. Additionally, in connection with our acquisition of Real Estate Digital, we are reflecting nine months or $5 million in additional personnel related expense year to date associated with the transaction versus three months in the prior year.

General and administrative costs increased primarily due to the acquisition of Experience 1 as well as marketing and technology spend associated with our Xome rebranding and launch of the Xome platform. We continue to make significant investments in engineering personnel to support our development objectives.

Corporate and Other



Table 24. Corporate and Other - Operations	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Revenues	$	—		$	—		$	4		$	—
Expenses	(14		)	(27		)	(56		)	(58		)
Other income (expense), net	(39		)	(40		)	(117		)	(138		)
Total income (loss) before taxes - corporate and other	$	(53	)	$	(67	)	$	(169	)	$	(196	)



Table 25. Income before taxes components	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Interest expense on Unsecured senior notes	$	(40	)	$	(47	)	$	(121	)	$	(147	)
Legacy	2			—			1			(1		)
Other corporate	(15		)	(20		)	(49		)	(48		)
Total income (loss) before taxes - corporate and other	$	(53	)	$	(67	)	$	(169	)	$	(196	)

Our Corporate and Other reporting unit consists of (1) net income from our Legacy portfolio consisting of non-prime and nonconforming residential mortgage loans transferred to a securitization trust in 2009 that was structured as a secured borrowing resulting in our carrying the securitized loans as mortgage loans on our consolidated balance sheets and recognizing the asset-backed certificates as nonrecourse debt, (2) interest expense on our Unsecured Senior Notes; and, (3) corporate expenses that are not directly attributable to our operating segments.

Our Interest expense on Unsecured Senior Notes declined during the three and nine months ended September 30, 2015 versus the comparable periods due to the redemption of $285 million of notes in July 2014. Our legacy net income was flat for both the three and nine months ended September 30, 2015 and the comparable period as losses on REO dispositions offset interest income.



Table 26. Legacy Portfolio	As of September 30,		As of December 31,
(in millions)	2015		2014

Performing - UPB	$	183	$	196
Nonperforming (90+ delinquency) - UPB	73		80
REO - estimated Fair Value	7		2
Total legacy portfolio	$	263	$	278



Table 27. Corporate and Other - Expenses	For the three months ended September 30,				For the nine months ended September 30,
(in millions)	2015		2014		2015		2014

Salaries, wages and benefits	$	8	$	14	$	28	$	28
General and administrative	6		13		28		30
Total expenses - corporate and other	$	14	$	27	$	56	$	58

Expenses decreased for the three and nine months ended September 30, 2015 versus the comparable period in 2014 due to lower compensation and related expenses resulting from an organizational restructuring in the first half of 2015 and lower REO losses and servicing expense in our legacy portfolio. These reductions were offset by severance expense recorded in the 2nd quarter of 2015.

Our unallocated Other Corporate expense was lower during the three months and nine months ended September 30, 2015 relative to the comparable periods in 2014 primarily due to lower compensation and related expenses resulting from a corporate restructuring in the first half of 2015.



Table 28. Corporate and Other - Other Income (Expense), Net	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Interest income, legacy portfolio	$	4		$	4		$	11		$	13
Interest expense, legacy portfolio	(2		)	(2		)	(6		)	(7		)
Interest Expense, unsecured senior notes	(40		)	(47		)	(121		)	(147		)
Other	(1		)	5			(2		)	3
Other expense, net - corporate and other	$	(39	)	$	(40	)	$	(118	)	$	(138	)

WAC - unsecured senior notes	7.3		%	8.2		%	7.3		%	8.5		%

Other expense, net includes interest expense associated with our Unsecured Senior Notes and the interest income and expense from our Legacy portfolio. The decline in Other expense for the three and nine months ended September 30, 2015 versus the comparable periods in 2014 is primarily due to the redemption of $285 million of notes in July 2014.

MORTGAGE SERVICING RIGHTS AND RELATED LIABILITIES

MSRs - Fair Value consists of rights we own to service traditional forward residential mortgage loans owned by both agencies and non-agencies.

MSRs - LOCOM, consists of rights to service reverse residential mortgage loans primarily owned by Fannie Mae. We also carry a mortgage servicing rights liability carried at LOCOM, which consists of the obligation to service reverse residential mortgage loans primarily owned by Ginnie Mae. The following tables provide key elements of these MSRs and related liabilities.



Table 29. MSRs and Related Liabilities	As of September 30, 2015						As of December 31, 2014
(in millions)	UPB		Carrying Amount		Weighted Avg. Coupon		UPB		Carrying Amount		Weighted Avg. Coupon
Agency	$	250,461	$	2,330	4.45	%	$	215,303	$	2,069	4.49	%
Non-agency	104,183		903		4.56	%	118,310		881		4.66	%
MSRs - fair value	354,644		3,233		4.49	%	333,613		2,950		4.55	%
Subservicingand Other⁽¹⁾
Agency	18,293		N/A		N/A		15,008		N/A		N/A
Non-agency	4,234		N/A		N/A		4,473		N/A		N/A
Total subservicing and other⁽¹⁾	22,527		—		N/A		19,481		—		N/A

MSRs - LOCOM⁽²⁾	30,689		9		N/A		27,982		11		N/A
Total servicing portfolio unpaid principal balance	$	407,860	$	3,242	N/A		$	381,076	$	2,961	N/A

⁽²⁾Our MSRs - LOCOM also includes approximately $27.6 million and $65.4 million of mortgage servicing liabilities carried at amortized cost as of September 30, 2015 and December 31, 2014, respectively.

Our servicing portfolio consists of credit sensitive MSRs, primarily acquired through bulk acquisitions, and interest rate sensitive MSRs, principally consisting of MSRs acquired via flow transactions or transferred from our origination activities. For MSRs marked at fair value that are interest rate sensitive, typically servicing values are correlated to interest rates such that when interest rates rise, the value of the servicing portfolio also increases principally as a result of lower prepayments. Credit sensitive MSRs

are less influenced by movement in interest rates and more influenced by changes in loan performance factors which impact involuntary prepayment speeds.

We assess whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition. As part of the assessment, we consider numerous factors in making this assessment, with the primary factors consisting of the overall portfolio delinquency characteristics, portfolio seasoning and residential mortgage loan composition. Interest sensitive portfolios typically consist of single-family conforming residential forward mortgage loans serviced for GSEs or other third-party investors. Credit sensitive portfolio primarily consists of higher delinquency single-family non-conforming residential forward mortgage loans in private label securitizations.



Table 30. Fair Value MSR Valuation	As of September 30, 2015					As of December 31, 2014
($ in millions)	UPB		Carrying Amount		Bps	UPB		Carrying Amount		Bps

MSRs - Fair Value
Credit sensitive	$	235,392	$	1,987	84	$	241,770	$	1,919	79
Interest sensitive	119,252		1,246		104	91,843		1,030		112
Total MSRs - fair value	$	354,644	$	3,233	91	$	333,613	$	2,949	88

The value in our credit sensitive fair value MSRs increased as a result of the overall portfolio performance which led to decreased delinquencies in this portfolio. The value in our interest sensitive fair value MSRs decrease is consistent with our increased prepayment assumptions as a result of the lower interest rate environment.

The following table provides information on the fair value of our owned forward MSR portfolio:



Table 31. MSRs - Fair Value, Rollforward	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Fair value at the beginning of the period	$	3,350		$	2,678		$	2,950		$	2,488
Additions:
Servicing retained from whole loan sales	64			67			170			186
Purchases of servicing assets	201			160			695			353
Sale of servicing assets	(46		)	—			(46		)	—
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model
Credit sensitive	(113		)	194			(35		)	242
Interest sensitive	(102		)	(105		)	(162		)	(125		)
Other changes in fair value
Scheduled principal payments	(20		)	(26		)	(55		)	(65		)
Prepayments
Voluntary prepayments
Credit sensitive	(64		)	(59		)	(162		)	(170		)
Interest sensitive	(33		)	(16		)	(103		)	(41		)
Involuntary prepayments
Credit sensitive	(4		)	7			(18		)	33
Interest sensitive	—			(1		)	(1		)	(2		)
Fair value at the end of the period	$	3,233		$	2,899		$	3,233		$	2,899

During the fourth quarter of 2014, we revised our approach in calculating Other Changes in Fair Value in the above rollforward. Under the revised approach, we began incorporating voluntary principal payments, which were previously included as a component in the Due to changes in valuation inputs or assumptions line, as a component of Other changes in fair value in Table 31. We have

reclassified the amounts presented in the September 30, 2014 rollforwards to conform to the current presentation. While amounts were reclassed in the 2014 period, there was no impact to net income or to the total changes in fair value in the prior period.

We used the following weighted average assumptions in estimating the fair value of MSRs for the dates indicated:



	September 30,
Table 32. MSRs - Fair Value, Weighted Average Assumptions	2015		2014

Credit Sensitive MSRs
Discount rate	11.63	%	12.15	%
Total prepayment speeds	17.17	%	17.24	%
Expected weighted-average life (years)	5.71		5.59
Interest Sensitive MSRs
Discount rate	9.13	%	9.60	%
Total prepayment speeds	13.56	%	9.77	%
Expected weighted average life (years)	5.68		7.01

Discount rate reductions for both credit and interest sensitive MSR are attributable primarily to lower yields on new acquisitions driving down the weighted average rate. Prepay speed reduction and WAL improvement for credit sensitive MSR is attributable to collateral improvement. Prepay speed increase and WAL decline for interest sensitive MSR is attributable to net interest rate reductions period over period.

The discount rate is used to determine the present value of estimated future net servicing income, which is based on the required rate of return market investors would expect for an asset with similar risk characteristics. We determine the discount rate through review of recent market transactions as well as comparing our discount rate to those utilized by third party valuation specialists. Total prepayment speeds represent the annual rate at which borrowers are forecasted to repay their mortgage loan principal, which includes estimates for both voluntary and involuntary borrower liquidations. The expected weighted-average life represents the total expected years in which we expect to service the MSR.

As a result of the lower interest rate environment, we adjusted our total prepayment speeds, primarily in our interest rate sensitive portfolio, as refinance volume continues to drive high prepayments. The higher prepayment speeds were slightly offset by decreases in our expected prepayment speeds related to our credit sensitive portfolio as a result of our improved portfolio performance and overall lower delinquencies.

Excess Spread Financing

As further disclosed in Note 2, Mortgage Servicing Rights and Related Liabilities and Note 18, Disclosures Related to Transactions with Affiliates of Fortress Investment Group LLC, we entered into sale and assignment agreements treated as financing arrangements whereby the acquirer has the right to receive a specified percentage of the excess cash flow generated from an MSR.

The servicing fees associated with an MSR for both book and tax purposes can be segregated into (i) a base servicing fee and (ii) an excess servicing fee. The base servicing fee, along with ancillary income and other revenues, is meant to cover costs incurred to service the specified pool plus a reasonable margin. The remaining servicing fee is considered excess. We will then 'sell' a percentage of the excess fee, typically 67% for agency MSRs, as a method for efficiently financing acquired MSRs. Excess Spread Financings are presently applicable only to acquired MSRs; however, they can be entered into at any time for both acquired and originated MSRs. To date, the acquirer has been New Residential and certain funds managed by Fortress Investment Group, all of which are affiliated companies.

The impact on future revenues and capital resources from executed Excess Spread Agreements varies principally due to (i) prepayment speeds and (ii) our ability to recapture prepayments through the origination platform. In Note 2, Mortgage Servicing Rights and Related Liabilities, we disclose the range of assumptions for prepayment speeds, average life, discount rate and recapture rate. In addition, we provide sensitivities for discount rate and prepayment speeds.



Table 33. Excess Spread Financing	For the three months ended September 30,				For the nine months ended September 30,
(in millions)	2015		2014		2015		2014

Fair value at the beginning of the period	$1,228		$1,036		$1,031		$986
Additions:
New financings	5		40		262		151
Deductions:
Settlements	(55	)	(51	)	(154	)	(136	)
Fair value changes
Credit Sensitive	(53	)	30		(18	)	54
Interest Sensitive	(9	)	8		(5	)	8
Fair value at the end of the period	$1,116		$1,063		$1,116		$1,063

Weighted-Average Assumptions:
Mortgage prepayment speeds	12.3	%	12.8	%	12.3	%	12.8	%
Average life of mortgage loans	5.72 years		5.75 years		5.72 years		5.75 years
Discount rate	11.2	%	11.8	%	11.2	%	11.8	%

Credit Sensitive:
Mortgage prepayment spreads	12.3	%	13.2	%	12.3	%	13.2	%
Average life of mortgage loans	5.76 years		5.64 years		5.76 years		5.64 years
Discount rate	11.5	%	12.0	%	11.5	%	12.0	%

Interest Sensitive:
Mortgage prepayment spreads	11.7	%	7.3	%	11.7	%	7.3	%
Average life of mortgage loans	5.35 years		7.29 years		5.35 years		7.29 years
Discount rate	8.8	%	9.1	%	8.8	%	9.1	%

Another component of our service related revenues is the fair value changes in our excess spread financings. In conjunction with various MSR acquisitions, we have entered into sale and assignment agreements, which we account for as financings, whereby we sell the right to receive a portion of the excess cash flow generated from certain underlying MSR portfolios, including taking into consideration recapture for loans modified or otherwise disposed, after receipt of a fixed basic servicing fee per loan. We measure these financing arrangements at fair value. The fair value on excess spread financing is based on the present value of future expected discounted cash flows with the discount rate approximately current market value for similar financial instruments.

Mortgage Servicing Rights Financing Liability



Table 34. MSRs Financing Liability - Rollforward	For the three months ended September 30,						For the nine months ended September 30,
(in millions)	2015			2014			2015			2014

Fair value at the beginning of the period	$	59		$	33		$	49		$	30
Additions:
New financings	—			—			—			52
Deductions:
Settlements:	—			—			—			—
Changes in fair value ⁽¹⁾:	(3		)	11			7			(38		)
Fair value at the end of the period	$	56		$	44		$	56		$	44

Weighted-Average Assumptions:
Advance financing rates	2.86		%	2.72		%	2.86		%	2.72		%
Annual advance recovery rates	24.67		%	24.60		%	24.67		%	24.60		%

⁽¹⁾ The changes in fair value related to our MSRs financing liability primarily relate to both scheduled and unscheduled principal payments reflected in the underlying MSRs offset by fair value model assumption changes.

We estimate fair value of the MSR financing liability based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions at September 30, 2015 and September 30, 2014 being advance financing rates and advance recovery rates.

In December 2013, we agreed to sell to a joint venture entity capitalized by New Residential, an affiliated party, and other independent third-party investors, certain advances and the associated MSRs for non-Agency mortgage loans held in private label securities, including the right to receive the basic service fee component. We are not a party to the joint venture. For accounting purposes, the advances associated with the transaction are treated as sold whereas the MSRs associated with the transaction are treated as a financing.

Fair value changes in our mortgage servicing rights financing liability also impact service related revenues. In conjunction with this servicing acquisition structure, we entered into several sale agreements on our outstanding advances whereby we sold the right to repayment on outstanding private label servicer advances. We also sold the right to receive the base fee component on the related MSRs. We continue to service the loans in exchange for a portion of the base fee. We measure these financings at fair value.

The following table provides an overview of our forward servicing portfolio and amounts that have been previously transferred to our co-invest partners for the periods indicated.



Table 35. Leveraged Portfolio Characteristics	September 30,		December 31,
(in millions)	2015		2014

Owned forward servicing portfolio - unencumbered	$	106,286	$	93,673
Owned forward servicing portfolio - encumbered	248,358		239,940
Subserviced forward servicing portfolio and other	22,527		19,481
Total unpaid principal balance	$	377,171	$	353,094

Our encumbered forward servicing portfolio consists of residential mortgage loans included within our Excess Spread Financing transactions and our MSR Financing Liability. Subserviced and Other amounts include (1) loans we service for others, (2) residential mortgage loans originated but have yet to be sold, and (3) agency REO balances for which we own the mortgage servicing rights.

MSRs - LOCOM

The table below provides detail of the characteristics and key performance metrics of our reverse servicing portfolio, which is included in MSRs - LOCOM, at the periods indicated:



Table 36. Reverse Portfolio Characteristics	September 30,			December 31,
($ in millions, except for average loan amount)	2015			2014

Loan count	181,386			159,704
Ending unpaid principal balance	$	31,453		$	27,982
Average loan amount	$	171,581		$	175,212
Average coupon	3.25		%	2.94		%
Average borrower age	79			79

We acquire reverse MSRs and funded unsecuritized advances from third parties. We record the assets acquired and obligations assumed at fair value on the acquisition date, which include the funded advances and a servicing asset or liability, net of cash paid or received. Any premium or discount associated with the recording of the funded advances is accreted into interest income as the underlying HECMs are liquidated. The year over year increase in UPB and ending principal amount are a result of the previously discussed $4.9 billion Generation mortgage transaction.

We use the lower of cost or market to value reverse MSRs with the capitalized cost of the MSRs amortized in proportion and over the period of the estimated net future servicing income and recognized as an adjustment to servicing fee income for our reverse MSRs.

This class of MSRs is periodically evaluated for impairment. For purposes of measuring impairment, MSRs are stratified based on predominant risk characteristics of the underlying serviced loans. Impairment, if any, represents the excess of amortized cost of an individual stratum over its estimated fair value and is recognized through a valuation allowance. Based on our computations, there was no impairment on this asset as of September 30, 2015 or December 31, 2014.

Analysis of Items on Consolidated Balance Sheet



Table 37. Assets	September 30, 2015		December 31, 2014		% Change
(in millions)
Cash and cash equivalents	$	597	$	299	100	%
Mortgage servicing rights	3,242		2,961		9	%
Advances	2,127		2,546		(16	)%
Reverse mortgage interests	7,434		2,453		203	%
Mortgage loans held for sale	1,886		1,278		48	%
Other assets	1,751		1,576		11	%
Total assets	$	17,037	$	11,113	53	%

Our total assets as of September 30, 2015 increased to $17.0 billion. The increase was primarily due to the $4.9 billion acquisition of reverse mortgage interests from Generation Mortgage during the second quarter of 2015. We also had an increase in our mortgage loans held for sale as we originated over $14.0 billion in mortgage loans during the nine month period ended September 30, 2015 as a result of the continued low interest rate environment and cash increase as a result of our equity offering in the first quarter of 2015. Our advance balances declined as the delinquency rates in the portfolio continued to decline.



Table 38. Liabilities and Stockholders' Equity Analysis	September 30, 2015		December 31, 2014		% Change
(in millions)
Unsecured senior notes	$	2,158	$	2,159	—	%
Advance facilities	1,750		1,902		(8	)%
Warehouse facilities	2,304		1,573		46	%
MSR related liabilities - nonrecourse	1,172		1,080		9	%
Other nonrecourse debt	6,609		1,768		274	%
Other liabilities	1,348		1,406		(4	)%
Total liabilities	15,341		9,888		55	%
Total equity	1,696		1,225		38	%
Total liabilities and equity	$	17,037	$	11,113	53	%

Total liabilities and equity increased to $17.0 billion as of September 30, 2015. This increase was primarily the result of the financing of our reverse mortgage acquisition from Generation Mortgage included in other liabilities. Total equity increased primarily as a result of the equity raise during the first quarter of 2015.

CAPITAL AND LIQUIDITY

In May 2015, the Federal Housing Finance Agency (FHFA) issued final financial eligibility requirements for Fannie Mae and Freddie Mac Seller/Servicers. The minimum financial requirements include net worth, capital ratio and liquidity criteria as described below.

Minimum Net Worth


▪	Base of $2.5 million plus 25 basis points of UPB for total loans serviced.

Minimum Capital Ratio


▪	Tangible Net Worth/Total Asset greater than 6%.

Minimum Liquidity


▪	3.5 basis points of total Agency servicing (Fannie Mae, Freddie Mac, Ginnie Mae) plus ,


▪	Incremental 200 basis points of total nonperforming Agency, measured as 90+ delinquencies, servicing in excess of 6% of the total Agency servicing UPB.


▪	Allowable assets for liquidity may including: cash and cash equivalents (unrestricted), available for sale or held for trading investment grade securities (e.g., Agency MBS, Obligations of GSEs, US Treasury Obligations); and unused/available portion of committed servicing advance lines.

We were complaint with the new thresholds as of September 30, 2015.

Liquidity

Sources and Uses of Cash

Our primary sources of funds for liquidity include: (i) servicing fees and ancillary revenues; (ii) payments received from sale or securitization of loans; (iii) proceeds received from the sale of mortgage loans held for sale; (iv) payments from the liquidation or securitization of our outstanding participating interests in reverse mortgage loans; (v) lines of credit, other secured borrowings and the Unsecured Senior Notes; and (vi) payments received in connection with the sale of advance receivables and excess spread.

Our primary uses of funds for liquidity include: (i) funding of servicing advances; (ii) originations of loans; (iii) payment of interest expenses; (iv) payment of operating expenses; (v) repayment of borrowings; (vi) payments for acquisitions of MSRs; and (vii) scheduled and unscheduled draws on our serviced reverse residential mortgage loans.

We believe that our cash flows from operating activities, as well as capacity with existing facilities, provide us with adequate resources to fund our anticipated ongoing cash requirements. We anticipate that future debt maturities will be funded with cash and cash equivalents, cash flow from operating activities and, if necessary, future access to capital markets. During the third quarter of 2014, we redeemed $285 million of senior notes that were due in July of 2015 as cash flow from operations improved and our

access to credit on favorable terms continues to expand. We continue to optimize the use of balance sheet cash to avoid unnecessary interest carrying costs.

We intend to continue to seek opportunities to acquire loan servicing portfolios and/or businesses that engage in loan servicing and/or loan originations. Any future acquisitions could require substantial additional capital in excess of cash from operations. We are also subject to capital requirements from GSE's and secondary market investors that are subject to change and may be subject to additional capital requirements in connection with future acquisitions. See Note 14, Capital Requirements. If needed, we would expect to finance the necessary capital through a combination of additional issuances of equity, corporate indebtedness, asset backed acquisition financing and/or cash from operations.

We may continue to access external financing from time to time depending on our cash requirements, assessments of current and anticipated market conditions and after-tax cost of capital. Our access to capital markets can be impacted by factors outside our control, including economic conditions, however, we believe that our strong cash flows, balance sheet and existing facilities provide us adequate access to funding given our expected cash needs.

Cash Flows



Table 39. Cash	September 30,		December 31,
(in millions)	2015		2014

Cash and cash equivalents	$	597	$	299

Our cash balance increased to $597 million as of September 30, 2015 from $299 million as of December 31, 2014, primarily due to our equity raise during the first quarter of 2015. This increase was partially offset by investments in mortgage servicing rights and acquisitions in our Xome segment.



Table 40. Operating Cash Flow	For the nine months ended September 30,
(in millions)	2015			2014

Net cash attributable to operating activities	$	(61	)	$	1,305

The $61 million net outflow was primarily due to the timing differences of cash paid to originate residential mortgage loans versus cash received from the sale of residential mortgage loans, resulting in a $3.3 billion net outflow versus the nine months ended September 30, 2014. This was partially offset by $1.9 billion less repurchases from Ginnie Mae securitization pools reflecting higher repurchases in the beginning of 2014 as the company initiated an option to launch a new repurchase and sell program. Also offsetting the decrease was a net reduction in advance balances during the period.

Our business is subject to extensive regulation, investigations and reviews by various federal, state and local regulatory and enforcement agencies. We are also subject to various legal proceedings in the ordinary course of our business. Addressing these regulations, reviews and legal proceedings and implementing any resulting remedial measures may require us to devote substantial resources to legal and regulatory compliance or to make other changes to our business practices, resulting in higher costs which may adversely affect our cash flows.



Table 41. Investing Cash Flow	For the nine months ended September 30,
(in millions)	2015			2014

Net cash attributable to investing activities	$	(5,478	)	$	146

Our investing activities used $5.5 billion and provided $137 million during the nine months ended September 30, 2015 and 2014, respectively. The primary increase is related to the acquisition of the $4.9 billion acquisition of reverse mortgage interest from Generation Mortgage during the second quarter of 2015. Other comparative increases in cash outflows are related to $513 million of inflows from the sale of servicer advances received during the nine months ended September 30, 2014 that did not reoccur during the nine months ended September 30, 2015.



Table 42. Financing Cash Flow	For the nine months ended September 30,
(in millions)	2015		2014

Net cash attributable to financing activities	$	5,837	$	(1,624	)

Our financing activities provided $6.0 billion and used $1.6 billion of cash flow during the nine months ended September 30, 2015 and 2014, respectively. The primary driver of the increase versus the comparable period is the financing of the acquisition of the $4.9 billion Generation Mortgage reverse mortgage interests. Additional increases are primarily attributable to increased cash flows of $2.7 billion from outstanding warehouse and advance facilities combined, an increase of $498 million in cash proceeds from the issuance of common stock in March 2015, and an increase of $263 million from the sale of excess spread financing. During the nine months ended September 30, 2014, the $1.6 billion outflow was primarily due to decreases to advance facilities payable and warehouse notes payables due to paying down debt.

Capital Resources

Capital Structure and Debt



Table 43. Debt	September 30,		December 31,
(in millions)	2015		2014

Advance facilities	$	1,750	$	1,902
Warehouse facilities	2,304		1,573
Unsecured senior notes	2,158		2,159

Financial Covenants

Our advance and warehouse facilities contain various financial covenants which primarily relate to tangible net worth amounts, liquidity reserves, leverage requirements, and profitability requirements. As of September 30, 2015, management believes Nationstar was in compliance with its financial covenants on its borrowing arrangements and credit facilities. These covenants generally relate to Nationstar’s tangible net worth, liquidity reserves, and leverage requirements.

Advance facilities

Our servicing agreements impose on us various rights and obligations that affect our liquidity. Among the most significant of these obligations is the requirement that we advance our own funds to meet contractual principal and interest payments for certain investors and to pay taxes, insurance, foreclosure costs and various other items that are required to preserve the assets being serviced. Delinquency rates and prepayment speeds affect the size of servicing advance balances along with stop advance policies. As part of our normal course of business, we borrow money to fund servicing advances. We rely upon several counterparties to provide us with financing facilities to fund a portion of our servicing advances. During 2013 and 2014, we sold approximately $2.5 billion of servicer advances to New Residential Investment Corp. (New Residential) and others. Pursuant to the terms of our agreements with New Residential, for these pools of loans, New Residential now has the obligation to fund future advances on the related loans. We also sold the related notes payable facilities associated with financing these advances.

As servicer for reverse mortgage loans, among other things, we are required to make advances to borrowers. We typically hold the participation interests, which are made up of the related advances for approximately 30 days while we pool the participation interests into a government securitization.

Warehouse facilities

Loan origination activities generally require short-term liquidity in excess of that generated by our operations. The loans we originate are financed through several warehouse lines on a short-term basis. We typically hold the loans for approximately 30 days and then sell the loans or place them in government securitizations and repay the borrowings under the warehouse lines. Our ability to fund current operations depends upon our ability to secure these types of short-term financings on acceptable terms and to renew or replace the financings as they expire.

Unsecured Senior Notes

From 2010 through 2013, we completed offerings of $2.4 billion of Unsecured Senior Notes, with maturity dates ranging from August 2018 to June 2022. We pay interest semi-annually to the holders of these notes at interest rates ranging from 6.5% to 9.6%. During July 2014, redeemed all of our outstanding 10.875% Senior Notes due 2015 on July 25, 2014 (the Redemption Date)

at a redemption price of 100% of the principal amount of the notes, plus accrued and unpaid interest on the notes redeemed to, but not including, the Redemption Date.

As of September 30, 2015, the expected maturities of Nationstar's Unsecured Senior Notes based on contractual maturities are as follows (in millions):



Table 44. Contractual Maturities - Unsecured Senior Notes
Year	Amount
2015	$	—
2016	—
2017	—
2018	475
2019	375
Thereafter	1,300
Total	$	2,150

Contractual Obligations

There were no material changes to our outstanding contractual obligations as of September 30, 2015, from amounts previously disclosed in on our Form 10-K filed on February 27, 2015.

CRITICAL ACCOUNTING POLICIES

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified four policies that, due to the judgment, estimates and assumptions inherent in those policies, are critical to an understanding of our consolidated financial statements. These policies relate to fair value measurements, particularly those valued using significant unobservable inputs including (i) the valuation of MSRs, (ii) the valuation of excess spread financing, and (iii) the valuation of mortgage servicing rights financing liability, and (iv) valuation of deferred tax assets. We believe that the judgment, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. For further information on our critical accounting policies, please refer to our Annual Report on Form 10-K for the year ended December 31, 2014. There have been no material changes to our critical accounting policies since December 31, 2014.

Recent Accounting Developments

See Note 1, Nature of Business and Basis of Presentation, of the notes to the consolidated financial statements for details of recently issued accounting pronouncements and their expected impact on our consolidated financial statements, which is incorporated herein.

Impact of Inflation and Changing Prices

Our consolidated financial statements and notes thereto presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflations. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Variable Interest Entities and Off Balance Sheet Arrangements

See Note 10, Securitizations and Financings, in the Consolidated Financial Statements in Item 8 Financial Statements and Supplementary Data, which is incorporated herein, for a summary of Nationstar's transactions with VIEs and details of their impact on our consolidated financial statements.

Derivatives

See Note 7, Derivative Financial Instruments, in the Consolidated Financial Statements in Item 8 Financial Statements and Supplementary Data, which is incorporated herein, for a summary of Nationstar's derivative transactions.

CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. When used in this discussion, the words "anticipate," "appears," "believe," "foresee," "intend," "should," "expect," "estimate," "project," "plan," "may," "could," "will," "are likely" and similar expressions are intended to identify forward-looking statements. These statements involve predictions of our future financial condition, performance, plans and strategies, and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or incorrect. Specific factors that may impact performance or other predictions of future actions have, in many but not all cases, been identified in connection with specific forward-looking statements.

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to:


•	our ability to refinance existing loans and maintain our loan originations volume;


•	our ability to increase recapture voluntary prepayments related to our existing servicing portfolio;


•	our ability to maintain or grow the size of our servicing portfolio;


•	our ability to successfully enhance the home buying experience;


•	the success of our customer-for-life initiatives;


•	delays in our ability to collect or be reimbursed for servicing advances;


•	our ability to obtain sufficient capital to meet our financing requirements;


•	changes in prevailing interest rates;


•	changes in our business relationships or changes in guidelines with Fannie Mae, Freddie Mac and Ginnie Mae;


•	our ability to effectively develop, market, sell and implement new technology;


•	our ability to realize all of the anticipated benefits of previous and potential future acquisitions;


•	increased legal and regulatory investigations and proceedings, compliance requirements and related costs; and


•	loss of our licenses.

These factors should not be construed as exhaustive and should be read with the other cautionary statements that are included or incorporated by reference. All of the factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assess the effect of each such new factor on our business. Although we believe that the assumptions underlying the forward-looking statements 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. Please refer to Item 1A. Risk Factors included in our Annual Report on Form 10-K filed February 27, 2015 for further information on these and other risk factors affecting us.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Refer to the discussion of market risks included in Part II, Item 7A of our Form 10-K filed February 27, 2015, which is herein incorporated by reference. There has been no material change in the types of market risks faced by us since December 31, 2014.

We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on fair values based on hypothetical changes (increases and decreases) in interest rates.

We use a duration-based model in determining the impact of interest rate shifts on our loan portfolio, certain other interest-bearing liabilities measured at fair value and interest rate derivatives portfolios. The primary assumption used in these models is that an increase or decrease in the benchmark interest rate produces a parallel shift in the yield curve across all maturities.

We utilize discounted cash flows and analysis to determine the fair value of MSRs and the impact of parallel interest rate shifts on MSRs. The primary assumptions in this model are prepayment speeds, market discount rates and cost to service. However, this analysis ignores the impact of interest rate changes on certain material variables, such as the benefit or detriment on the value of future loan originations, non-parallel shifts in the spread relationships between MBS, swaps and U.S. Treasury rates and changes in primary and secondary mortgage market spreads. For mortgage loans, IRLCs and forward delivery commitments on MBS, we rely on a model in determining the impact of interest rate shifts. In addition, for IRLCs, the borrower’s propensity to close their mortgage loans under the commitment is used as a primary assumption.

Our total market risk is influenced by a wide variety of factors including market volatility and the liquidity of the markets. There are certain limitations inherent in the sensitivity analysis presented, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled.

We use market rates on our instruments to perform the sensitivity analysis. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. 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. We do not believe that on the whole that our estimated net changes to the fair value of our assets and liabilities at September 30, 2015 would be materially different than previously presented.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (Exchange Act), as of September 30, 2015.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2015, our disclosure controls and procedures are effective. Disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit 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 our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2015, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, Nationstar is party to various legal proceedings that have arisen in the normal course of conducting business. In addition, in the ordinary course of business the Company and its subsidiaries can be or are involved in governmental and regulatory examinations, information gathering requests, investigations and proceedings. Although the outcome of these proceedings cannot be predicted with certainty, management does not currently expect any of the proceedings pending against us, individually or in the aggregate, to have a material effect on our business, financial condition and results of operations (see Note 15 - Commitments and Contingencies).

Shareholder Litigation

On June 2, 2015, a shareholder class action complaint captioned City of St Clair Shores Police and Fire Retirement System v.

Nationstar Mortgage Holdings Inc., 15 Civ. 61170. (S.D. Fla.) was filed in the United States District Court for the Southern District of Florida against us and certain of our executive officers asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended. On October 16, 2015, an amended class action complaint was filed that adds (i) claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended and (ii) additional defendants, comprising our former Chief Financial Officer, certain directors and underwriters for our secondary public offering of our common stock on March 26, 2015. The amended complaint alleges that the offering materials contained materially false and misleading statements and material omissions regarding the negative impact of declining interest rates on our overall financial results and the contrasting impact of declining interest rates on our servicing business on the one hand and our originations business on the other. The amended complaint also alleges that between May 8, 2014 and May 4, 2015, the Company and certain of the individual defendants made materially false and misleading statements to investors designed to create the perception of growth in our originations business. The plaintiff seeks class certification for purchasers of our common stock and unspecified damages and other relief. We intend to vigorously defend the action.

Regulatory Matters

Nationstar is a state licensed, non-bank mortgage lender and servicer. Our business is subject to extensive regulation, investigations and reviews by various federal, state and local regulatory and enforcement agencies, including without limitation, the CFPB, the Securities and Exchange Commission, the Department of Justice, the US Trustee Program, the multistate coalition of mortgage banking regulators (the “MMC”) and the State Attorneys General. As a result, we are subject to various legal proceedings, regulatory examinations, inquiries and requests for documentation in the ordinary course of our business. Nationstar has historically had a number of open investigations with various State Attorneys General and other regulators, and the Company expects this trend will continue due to interest in mortgage banking generally and non-bank mortgage lenders and servicers specifically.

We have seen a significant increase in these activities in recent periods. Like many other companies in the mortgage industry, Nationstar is currently the subject of various regulatory investigations, subpoenas, examinations and inquiries related to its residential loan servicing and origination practices, bankruptcy and collections practices and other aspects of its businesses. Several large mortgage originators or servicers have been subject to similar matters, which have resulted in the payment of fines and penalties, changes to business practices and which have resulted in the entry of consent decrees or settlements. Nationstar continues to manage its response to each matter, but it is not possible for the Company to confidently or reliably predict the outcome of any of them, including predicting any possible losses resulting from any judgments or fines. Responding to these matters requires us to devote substantial legal and regulatory resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase our operating expenses and reduce our revenues, require us to change business practices and limit our ability to grow and otherwise materially and adversely affect our business, reputation, financial condition or results of operation.

Item 1A. Risk Factors

There have been no material changes or additions to the risk factors previously disclosed under “Risk Factors” included in our Annual Report on Form 10-K filed with the SEC on February 27, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchase of Equity Securities By the Issuer and Affiliated Purchasers



(shares in thousands)
Period	(a) Total Number of Shares (or Units) Purchased¹	(b) Average Price Paid per Share (or Unit)		(b) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Appropriate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Program
July 1, 2015 - July 31, 2015	6,551	$	16.88	—	$	—
August 1, 2015 - August 31, 2015	1,372	$	19.1	—	$	—
September 1, 2015 - September 30, 2015	2,333	$	16.70	—	$	—
Total	10,256

⁽¹⁾ The shares of Nationstar reported herein represent the surrender of these shares to Nationstar in an amount equal to the amount of tax withheld by Nationstar in satisfaction of the withholding obligations of certain employees in connection with the vesting of restricted shares. As of the date of this report, Nationstar has no publicly announced plans or programs to repurchase Nationstar common stock.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



		Incorporated by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed or Furnished Herewith

31.1	Certification by Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification by Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

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.



		NATIONSTAR MORTGAGE HOLDINGS INC.

November 6, 2015		/s/ Jay Bray
Date		Jay Bray Chief Executive Officer (Principal Executive Officer)

November 6, 2015		/s/ Robert D. Stiles
Date		Robert D. Stiles Chief Financial Officer (Principal Accounting and Financial Officer)

Exhibit Index



		Incorporated by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed or Furnished Herewith

31.1	Certification by Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification by Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

Attached files

Stock widget

Investing forum

Nationstar Mortgage Holdings Inc. Reports

Also read