Mr. Cooper Group(COOP) - 2025 Q2 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements Presents unaudited condensed consolidated financial statements and detailed notes on business, accounting, and valuations Condensed Consolidated Balance Sheets Total assets and liabilities decreased from December 2024 to June 2025, while total stockholders' equity increased | Metric | Dec 31, 2024 (millions $) | Jun 30, 2025 (millions $) | Change (millions $) | | :----- | :------------------------ | :------------------------ | :------------------ | | Total Assets | 18,939 | 18,499 | (440) | | Total Liabilities | 14,126 | 13,400 | (726) | | Total Stockholders' Equity | 4,813 | 5,099 | 286 | Condensed Consolidated Statements of Operations Net income for the six months ended June 30, 2025, decreased due to higher expenses despite a slight revenue increase | Metric | 6 Months Ended Jun 30, 2025 (millions $) | 6 Months Ended Jun 30, 2024 (millions $) | Change (millions $) | | :----- | :--------------------------------------- | :--------------------------------------- | :------------------ | | Total Revenues | 1,168 | 1,147 | 21 | | Total Expenses | 760 | 617 | 143 | | Net Income | 286 | 385 | (99) | | Basic EPS | 4.48 | 5.96 | (1.48) | | Diluted EPS | 4.40 | 5.83 | (1.43) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased, driven by net income and partially offset by share-based compensation adjustments | Metric | Jan 1, 2025 (millions $) | Jun 30, 2025 (millions $) | Change (millions $) | | :----- | :----------------------- | :----------------------- | :------------------ | | Total Stockholders' Equity | 4,813 | 5,099 | 286 | | Retained Earnings | 4,971 | 5,257 | 286 | | Additional Paid-in Capital | 1,077 | 1,063 | (14) | Condensed Consolidated Statements of Cash Flows Operating cash flow improved significantly, while financing activities used cash due to debt repayments | Activity | 6 Months Ended Jun 30, 2025 (millions $) | 6 Months Ended Jun 30, 2024 (millions $) | Change (millions $) | | :------- | :--------------------------------------- | :--------------------------------------- | :------------------ | | Operating Activities | 525 | (136) | 661 | | Investing Activities | (150) | (1,273) | 1,123 | | Financing Activities | (397) | 1,473 | (1,870) | | Net (decrease) increase in cash, cash equivalents, and restricted cash | (22) | 64 | (86) | Notes to Condensed Consolidated Financial Statements (unaudited) Provides detailed disclosures on the company's business, M&A activities, accounting policies, and financial compliance 1. Nature of Business and Basis of Presentation Mr Cooper Group Inc provides servicing and origination services for single-family residences in the U S - Mr. Cooper is the largest home loan servicer and a major mortgage originator in the country, operating under primary brands: Mr. Cooper®, Xome® and Rushmore Servicing®[22] - The interim condensed consolidated financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information[24][25] 2. Merger and Acquisition Details the pending acquisition by Rocket Companies and the completed acquisition of operations from Flagstar Bank - Rocket Companies, Inc. to acquire Mr. Cooper Group Inc. in an all-stock transaction for $9.4 billion, expected to close in the fourth quarter of 2025[29] - Acquired certain mortgage operations from Flagstar Bank, N.A. in Q4 2024 for approximately $1.3 billion in cash, primarily consisting of MSRs and client relationship intangibles[30] 3. Mortgage Servicing Rights and Related Liabilities Mortgage Servicing Rights (MSRs) at fair value decreased, with a negative change in fair value due to valuation inputs | Metric | Jun 30, 2025 (millions $) | Dec 31, 2024 (millions $) | Change (millions $) | | :----- | :------------------------ | :------------------------ | :------------------ | | MSRs at fair value | 11,431 | 11,736 | (305) | | Excess spread financing at fair value | 357 | 386 | (29) | | Mortgage servicing rights financing at fair value | 24 | 32 | (8) | | MSR Activity (Fair Value) | 6 Months Ended Jun 30, 2025 (millions $) | 6 Months Ended Jun 30, 2024 (millions $) | | :------------------------ | :--------------------------------------- | :--------------------------------------- | | Balance - beginning of period | 11,736 | 9,090 | | Additions (Servicing retained & Purchases) | 654 | 1,540 | | Dispositions (Sales) | (250) | (237) | | Changes in fair value (MSR MTM) | (210) | 344 | | Changes in valuation due to amortization | (518) | (405) | | Balance - end of period | 11,431 | 10,352 | - Hypothetical sensitivities show MSR fair value decreases by $456 million with a 100 bps adverse change in Option Adjusted Spread and by $321 million with a 10% adverse change in Total Prepayment Speeds as of June 30, 2025[37] 4. Advances and Other Receivables Net advances and other receivables decreased, while the provision for servicing reserves increased | Metric | Jun 30, 2025 (millions $) | Dec 31, 2024 (millions $) | Change (millions $) | | :----- | :------------------------ | :------------------------ | :------------------ | | Servicing advances, net | 1,202 | 1,410 | (208) | | Reserves | (116) | (112) | (4) | | Total advances and other receivables, net | 1,124 | 1,345 | (221) | | Reserves for Advances and Other Receivables | 6 Months Ended Jun 30, 2025 (millions $) | 6 Months Ended Jun 30, 2024 (millions $) | | :---------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Balance - beginning of period | 112 | 170 | | Provision | 36 | 11 | | Write-offs | (27) | (49) | | Balance - end of period | 116 | 149 | 5. Mortgage Loans Held for Sale Mortgage loans held for sale at fair value increased, driven by higher mortgage loan originations and purchases | Metric | Jun 30, 2025 (millions $) | Dec 31, 2024 (millions $) | Change (millions $) | | :----- | :------------------------ | :------------------------ | :------------------ | | Mortgage loans held for sale – UPB | 2,419 | 2,187 | 232 | | Mark-to-market adjustment | 56 | 24 | 32 | | Total mortgage loans held for sale | 2,475 | 2,211 | 264 | | Mortgage Loans Held for Sale Activity | 6 Months Ended Jun 30, 2025 (millions $) | 6 Months Ended Jun 30, 2024 (millions $) | | :------------------------------------ | :--------------------------------------- | :--------------------------------------- | | Balance - beginning of period | 2,211 | 927 | | Loans sold and payments received | (18,565) | (6,923) | | Mortgage loans originated and purchased, net of fees | 17,844 | 6,786 | | Repurchase of loans out of Ginnie Mae securitizations | 947 | 744 | | Balance - end of period | 2,475 | 1,539 | 6. Loans Subject to Repurchase from Ginnie Mae Loans subject to repurchase from Ginnie Mae, representing delinquent loans, decreased from December 2024 - Loans subject to repurchase from Ginnie Mae decreased by $66 million from December 31, 2024, to June 30, 2025[51] - The Company recognizes these rights to the loan on its balance sheets and establishes a corresponding repurchase liability once it has the unilateral right to repurchase a delinquent loan[51] 7. Goodwill and Intangible Assets Goodwill remained constant, while intangible assets decreased from December 2024 to June 2025 | Metric | Jun 30, 2025 (millions $) | Dec 31, 2024 (millions $) | Change (millions $) | | :----- | :------------------------ | :------------------------ | :------------------ | | Goodwill | 141 | 141 | 0 | | Intangible Assets | 101 | 119 | (18) | 8. Derivative Financial Instruments The Company uses various derivative instruments to manage interest rate risks for its MSR portfolio and loans held for sale - Derivative instruments are used to manage exposure to interest rate risks related to mortgage loans held for sale and the MSR portfolio[53] | Derivative Type (Assets) | Outstanding Notional (millions $) Jun 30, 2025 | Fair Value (millions $) Jun 30, 2025 | Gain/(Loss) (millions $) 6 Months Ended Jun 30, 2025 | | :----------------------- | :------------------------------------------- | :----------------------------------- | :------------------------------------------------ | | Forward MBS trades | 8,369 | 118 | 232 | | Treasury futures | 4,272 | 79 | 79 | | IRLCs | 1,106 | 41 | 19 | | LPCs | 1,597 | 12 | 7 | | Total Assets | 15,344 | 250 | 337 | | Derivative Type (Liabilities) | Outstanding Notional (millions $) Jun 30, 2025 | Fair Value (millions $) Jun 30, 2025 | Gain/(Loss) (millions $) 6 Months Ended Jun 30, 2025 | | :---------------------------- | :------------------------------------------- | :----------------------------------- | :------------------------------------------------ | | Forward MBS trades | 4,226 | 34 | (186) | | LPCs | 187 | 1 | 6 | | IRLCs | 3 | 0 | 0 | | Total Liabilities | 4,416 | 35 | (180) | 9. Indebtedness Total principal of advance, warehouse, and MSR facilities decreased, while unsecured senior notes remained constant | Debt Type | Jun 30, 2025 (millions $) | Dec 31, 2024 (millions $) | Change (millions $) | | :-------- | :------------------------ | :------------------------ | :------------------ | | Advance facilities | 627 | 849 | (222) | | Warehouse facilities | 2,287 | 2,016 | 271 | | MSR facilities | 3,260 | 3,650 | (390) | | Unsecured senior notes | 4,950 | 4,950 | 0 | - The weighted average interest rate for advance facilities decreased from 7.7% for the three months ended June 30, 2024, to 6.8% for the same period in 2025[59] - The weighted average interest rate for warehouse and MSR facilities decreased from 7.8% for the three months ended June 30, 2024, to 6.5% for the same period in 2025[59] 10. Securitizations and Financings The Company consolidates certain Variable Interest Entities (VIEs) and has no significant exposure to unconsolidated trusts | Consolidated Transactions with VIEs | Jun 30, 2025 (millions $) | Dec 31, 2024 (millions $) | | :-------------------------------- | :------------------------ | :------------------------ | | Total Assets | 910 | 1,208 | | Total Liabilities | 1,710 | 1,296 | - The Company has not retained any variable interests in unconsolidated securitization trusts and therefore does not have a significant exposure to loss related to these entities[65] 11. Earnings Per Share Both basic and diluted Earnings Per Share (EPS) decreased for the six months ended June 30, 2025, compared to 2024 | Metric | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change | | :----- | :-------------------------- | :-------------------------- | :----- | | Basic EPS | $4.48 | $5.96 | $(1.48) | | Diluted EPS | $4.40 | $5.83 | $(1.43) | | Weighted average shares outstanding (Basic, in thousands) | 63,851 | 64,621 | (770) | | Weighted average shares outstanding (Diluted, in thousands) | 65,062 | 66,022 | (960) | 12. Income Taxes The effective tax rate for the six months ended June 30, 2025, decreased compared to the prior year | Period | Effective Tax Rate 2025 | Effective Tax Rate 2024 | Change | | :----- | :---------------------- | :---------------------- | :----- | | 3 Months Ended Jun 30 | 28.6% | 26.3% | 2.3% | | 6 Months Ended Jun 30 | 23.1% | 24.3% | (1.2)% | - The change in effective tax rate is primarily attributable to the impact of state legislative changes and quarterly discrete tax items for the respective period, including state income taxes[70] 13. Fair Value Measurements Financial instruments are measured at fair value using a three-tiered hierarchy, with MSRs classified as Level 3 - Mortgage servicing rights (MSRs) are classified as Level 3 assets, with a total fair value of $11,431 million as of June 30, 2025[73] - Mortgage loans held for sale are primarily Level 2 ($2,411 million) and Level 3 ($64 million) as of June 30, 2025[73] - Key unobservable inputs for MSRs include Option Adjusted Spread (weighted average 7.6%) and Prepayment Speed (weighted average 8.4%) as of June 30, 2025[76] 14. Capital Requirements The Company was in compliance with all minimum net worth, liquidity, and capital ratio requirements as of June 30, 2025 - The Company was in compliance with its required financial covenants as of June 30, 2025[78] - Nationstar Mortgage LLC and Cypress Loan Servicing LLC are subject to minimum net worth, liquidity, and capital ratio requirements established by FHFA and Ginnie Mae[161][162][163][165][167] 15. Commitments and Contingencies The Company is involved in various legal proceedings, including a class action lawsuit related to a cybersecurity incident - A putative class action lawsuit, Cabezas v. Mr. Cooper Group, Inc., was filed against the Company regarding a cybersecurity incident that occurred on October 31, 2023[81] - Management currently believes the aggregate range of reasonably possible loss is $7 million to $15 million in excess of the accrued liability related to these matters as of June 30, 2025[82] - The repurchase reserve liability related to customary representations and warranties on mortgage loan sales was $46 million as of June 30, 2025, down from $62 million at December 31, 2024[84] 16. Segment Information The Company operates through Servicing and Originations segments, with Servicing contributing the majority of income - The Servicing segment performs operational activities on behalf of investors or owners of underlying mortgages and MSRs[86] - The Originations segment originates residential mortgage loans through its direct-to-consumer and correspondent channels[87] | Segment (6 Months Ended Jun 30, 2025) | Total Revenues (millions $) | Total Expenses (millions $) | Income (loss) before income tax expense (benefit) (millions $) | Total Assets (millions $) | | :------------------------------------ | :-------------------------- | :-------------------------- | :------------------------------------------------------------- | :------------------------ | | Servicing | 837 | 388 | 578 | 14,412 | | Originations | 298 | 195 | 109 | 2,481 | | Corporate/Other | 33 | 177 | (315) | 1,606 | | Consolidated | 1,168 | 760 | 372 | 18,499 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial condition, results of operations, business strategy, and liquidity CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS Highlights that the report contains forward-looking statements susceptible to uncertainty and changes in circumstances - Forward-looking statements are inherently susceptible to uncertainty and changes in circumstances, and the company disclaims any obligation to update or alter them[95] - Factors that might cause future results to differ materially include macroeconomic conditions, interest rate changes, ability to maintain/grow servicing/originations, cyber risks, liquidity, and the merger with Rocket Companies, Inc[97] Overview Mr Cooper is the largest residential mortgage servicer, aiming for sustained growth and a high return on tangible equity - Mr. Cooper is the country's largest residential mortgage servicer and a major originator, with its servicing portfolio UPB expanded to $1.5 trillion as of June 30, 2025[100] - Key strategic initiatives include strengthening the balance sheet, improving efficiency, growing the servicing portfolio, sustaining refinance recapture rates, delighting customers, using mortgage-centric AI, and maintaining strong relationships with stakeholders[103] - The merger with Rocket Companies, Inc. is expected to close in the fourth quarter of 2025[101] Results of Operations (Consolidated) Total revenues increased slightly, but net income decreased due to higher expenses and negative mark-to-market adjustments | Metric | 3 Months Ended Jun 30, 2025 (millions $) | 3 Months Ended Jun 30, 2024 (millions $) | Change (millions $) | | :----- | :--------------------------------------- | :--------------------------------------- | :------------------ | | Total Revenues | 608 | 583 | 25 | | Revenues - operational | 577 | 514 | 63 | | Revenues - mark-to-market | 31 | 69 | (38) | | Total Expenses | 330 | 300 | 30 | | Net Income | 198 | 204 | (6) | - Total expenses increased primarily due to higher salaries, wages and benefits, general and administrative costs (including merger and Flagstar transaction costs), and amortization for intangible assets acquired in the Flagstar transaction[105] - Net income decreased by $99 million for the six months ended June 30, 2025, compared to 2024, primarily due to increased expenses and a negative shift in mark-to-market adjustments[104] Segment Results Performance varied across segments, with Servicing income decreasing for the six-month period while Originations grew Servicing Segment The Servicing segment's income before tax decreased for the six-month period due to negative MSR mark-to-market adjustments - Servicing segment income before income tax expense increased by $10 million for the three months ended June 30, 2025, compared to 2024, but decreased by $89 million for the six months ended June 30, 2025, compared to 2024[112][119] - Total average UPB for the servicing and subservicing portfolio increased to $1,509,813 million for the three months ended June 30, 2025, from $1,170,818 million for the same period in 2024[126] - The decrease in MSR MTM was primarily due to lesser impact from the increase in mortgage rates in 2025 compared to 2024 (Q2) and a decrease in mortgage rates in 2025 compared to an increase in 2024 (H1)[115][122] Originations Segment The Originations segment's income before tax increased, driven by higher lock and funded volumes - Originations segment income before income tax expense increased by $26 million for the three months ended June 30, 2025, and by $39 million for the six months ended June 30, 2025, compared to the respective prior periods[140] | Metric | 3 Months Ended Jun 30, 2025 (millions $) | 3 Months Ended Jun 30, 2024 (millions $) | Change (millions $) | | :----- | :--------------------------------------- | :--------------------------------------- | :------------------ | | Total PTA lock volume | 9,733 | 4,473 | 5,260 | | Total funded volume | 9,443 | 3,794 | 5,649 | - The Originations Margin for the six months ended June 30, 2025, decreased to 0.54% from 0.73% in 2024, primarily due to lower margins from a shift in channel mix from higher margin direct-to-consumer to lower margin correspondent[147] Corporate/Other The Corporate/Other segment saw decreased revenues and increased expenses due to lower Xome volume and transaction costs - Total revenues decreased primarily due to a decline in Xome revenues as the average exchange volume decreased[150] - Total expenses increased primarily attributable to transaction costs related to the merger with Rocket and transition costs associated with the Flagstar Transaction[150] - Interest expense increased due to the issuance of the 2032 Notes in February 2024 and the 2029 Notes in August 2024[151] Liquidity and Capital Resources The Company maintains liquidity through cash and available borrowings and was in compliance with all financial covenants - Cash and cash equivalents on hand increased to $783 million as of June 30, 2025, compared to $753 million as of December 31, 2024[153] - Total available borrowing capacity for advance, warehouse, and MSR facilities was $15,101 million, of which $3,058 million was collateralized and immediately available to draw as of June 30, 2025[153] - The Company was in compliance with its required financial covenants and seller/servicer financial requirements as of June 30, 2025[160][168] Cash Flows Operating activities generated significant cash, while financing activities used cash due to net debt payments | Activity | 6 Months Ended Jun 30, 2025 (millions $) | 6 Months Ended Jun 30, 2024 (millions $) | Change (millions $) | | :------- | :--------------------------------------- | :--------------------------------------- | :------------------ | | Operating activities | 525 | (136) | 661 | | Investing activities | (150) | (1,273) | 1,123 | | Financing activities | (397) | 1,473 | (1,870) | - Operating activities generated $525 million in cash, an increase of $661 million compared to cash used in 2024, primarily due to an increase of $552 million in cash generated from originations net sales activities[156] - Cash used in investing activities decreased by $1,123 million, primarily due to a reduction of $1,147 million in cash used for the purchase of mortgage servicing rights in 2025[157] Capital Resources The Company's capital structure includes various credit facilities and senior notes, with compliance to all covenants - The Company's credit facilities contain various financial covenants, including tangible net worth, liquidity reserves, leverage, and profitability requirements, with which it was in compliance as of June 30, 2025[160] - Ginnie Mae requires a Risk-based Capital Ratio (RBCR) of at least 6%[167] - FHFA requires an annual capital and liquidity plan that includes MSR stress tests[168] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment, particularly for fair value measurements of Level 3 assets - Critical accounting policies are inherently subject to estimation techniques, valuation assumptions, and subjective assessments, particularly for Level 3 fair value measurements (MSRs, excess spread financing) and valuation of deferred tax assets[178] - There have been no material changes to the Company's critical accounting policies and estimates since December 31, 2024[178] Other Matters The Company is currently evaluating recently issued accounting pronouncements for their impact on disclosures - The Company is evaluating Accounting Standards Update 2023-09, Income Taxes (Topic 740), which is expected to impact disclosures but not materially affect condensed consolidated financial statements[180] - The Company is evaluating Accounting Standards Update 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures, to determine its impact on disclosures[181] GLOSSARY OF TERMS Provides definitions for industry-specific and other terms used throughout the report to aid in understanding - Defines 'Mortgage Servicing Right (MSRs)' as the right and obligation to service a loan or pool of loans and to receive a servicing fee as well as certain ancillary income[206] - Explains 'Originations' as the process through which a lender provides a mortgage loan to a customer[210] - Describes 'Warehouse Facility' as a type of line of credit facility used to temporarily finance mortgage loan originations to be sold in the secondary market[226] Item 3. Quantitative and Qualitative Disclosures about Market Risk Assesses market risk using sensitivity analysis, focusing on interest rate changes and their impact on fair values - Market risk is assessed based on changes in interest rates utilizing a sensitivity analysis, measuring the potential impact on fair values[229] - A discounted cash flow analysis is utilized to determine the fair value of MSRs and the impact of parallel interest rate shifts, incorporating prepayment speeds, OAS, and costs to service[231] | Metric (June 30, 2025) | Down 25 bps (millions $) | Up 25 bps (millions $) | | :--------------------- | :----------------------- | :--------------------- | | Mortgage servicing rights at fair value | (257) | 230 | | Total change in assets | (60) | 26 | | Total change in liabilities | 20 | (27) | | Total, net change | (80) | 53 | Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025 - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective as of June 30, 2025[237] - No changes in internal control over financial reporting occurred during the three months ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[238] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is routinely involved in legal proceedings not expected to have a material adverse effect on its financials - The Company and its subsidiaries are routinely involved in legal proceedings, but management does not believe any will have a material adverse effect on the financial position, results of operations, or cash flows[240] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the 2024 Annual Report on Form 10-K - No material changes or additions to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[241] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds As of June 30, 2025, $190 million remained available for repurchase under the stock repurchase program - As of June 30, 2025, $190 million of common stock remained available for repurchase under the authorized stock repurchase program[242] - No shares of common stock were repurchased during the three months ended June 30, 2025[242] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - No defaults upon senior securities[243] Item 4. Mine Safety Disclosures This section is not applicable to the Company's operations - Mine Safety Disclosures are not applicable[244] Item 5. Other Information Discloses a Rule 10b5-1 trading plan for the CEO and the retirement of the CEO of Xome - Jay Bray, Chairman and Chief Executive Officer, entered into a pre-arranged stock trading plan (10b5-1 Plan) to sell up to 240,000 shares between October 2, 2025, and October 2, 2026[245] - Mike Rawls, EVP & Chief Executive Officer of Xome, retired on June 30, 2025, and was approved for a pro-rated Executive Management Incentive Program bonus of $540,000 and 18 months of COBRA coverage[246] Item 6. Exhibits Lists the exhibits filed with the Form 10-Q, including loan agreement amendments and officer certifications - Exhibits include Amendment Number 10 to Mortgage Loan Participation Sale Agreement and Amendment Number Five to Second Amended and Restated Loan and Security Agreement[247] - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) (Section 302) and 18 U.S.C. Section 1350 (Section 906) of the Sarbanes-Oxley Act of 2002 are included[247] SIGNATURES The report is duly signed by the Chief Executive Officer and Chief Financial Officer on July 23, 2025 - The report was signed by Jay Bray, Chief Executive Officer, and Kurt Johnson, Executive Vice President & Chief Financial Officer, on July 23, 2025[252][253]