NSMH INC 3.31.2013 10-Q
Table of Contents

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 March 31, 2013
or
¨
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.)
 
 
350 Highland Drive
Lewisville, TX
 
75067
(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 or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12(b)-2 of the Exchange Act (check one)
Large Accelerated Filer
¨
Accelerated Filer
¨
 
 
 
 
Non-Accelerated Filer
x (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 April 30, 2013: 90,570,864

Table of Contents


NATIONSTAR MORTGAGE HOLDINGS INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
 
 
Page
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risks
 
 
 
Item 4.
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.

 
 
 
Item 3.

 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 


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CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. 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:

•
the delay in our foreclosure proceedings due to inquiries by certain state attorneys general, court administrators, and state and federal government agencies;

•
the impact of the ongoing implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), including rules issued by the Consumer Financial Protection Bureau (CFPB) relating to mortgage servicing and originations and the continuing examination of our business begun by the CFPB, on our business activities and practices, costs of operations and overall results of operations;

•
the impact on our servicing practices of enforcement consent orders against, and agreements entered into by certain federal and state agencies with, the largest mortgage servicers and ongoing inquiries regarding other non-bank mortgage servicers;

•
increased legal proceedings and related costs;

•
the continued uncertainty of the residential mortgage market, increase in monthly payments on adjustable rate mortgage loans, adverse economic conditions, decrease in property values and increase in delinquencies and defaults;

•
the deterioration of the market for reverse mortgages and increase in foreclosure rates for reverse mortgages;

•
our ability to efficiently service higher risk loans;

•
our ability to mitigate the increased risks related to servicing reverse mortgages;

•
our ability to compete successfully in the mortgage loan servicing and mortgage loan originations industries;

•
our ability to maintain or grow the size of our servicing portfolio and realize our significant investments in personnel and our technology platform by successfully identifying attractive acquisition opportunities, including mortgage servicing rights (MSRs), subservicing contracts, servicing platforms and originations platforms;

•
our ability to scale-up appropriately and integrate our acquisitions to realize the anticipated benefits of any such potential future acquisitions, including potentially significant acquisitions;

•
our substantial indebtedness may limit our financial and operating activities and our ability to incur additional debt to fund future needs;

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

•
our ability to grow our loan originations volume;

•
the termination of our servicing rights and subservicing contracts;

•
changes to federal, state and local laws and regulations concerning loan servicing, loan origination, loan modification or the licensing of entities that engage in these activities;


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•
changes in state and federal laws that are adverse to mortgage servicers which increase costs and operational complexity and impose significant penalties for violation;

•
loss of our licenses;

•
our ability to meet certain criteria or characteristics under the indentures governing our securitized pools of loans;

•
our ability to follow the specific guidelines of government-sponsored enterprises (GSEs) or a significant change in such guidelines;

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

•
changes to Home Affordable Modification Program (HAMP), Home Affordable Refinance Program, Making Home Affordable Plan or other similar government programs;

•
changes in our business relationships with the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the Government National Mortgage Association (“Ginnie Mae”) and others that facilitate the issuance of mortgage-backed securities (MBS);

•
changes to the nature of the guarantees of Fannie Mae and Freddie Mac and the market implications of such changes;

•
errors in our financial models or changes in assumptions;

•
requirements to write down the value of certain assets;

•
changes in prevailing interest rates;

•
our ability to successfully mitigate our risks through hedging strategies;

•
changes to our servicer ratings;

•
the accuracy and completeness of information about borrowers and counterparties;

•
our ability to maintain our technology systems and our ability to adapt such systems for future operating environments;

•
failure of our internal security measures or breach of our privacy protections;

•
failure of our vendors to comply with servicing criteria;

•
the loss of the services of our senior managers;

•
failure to attract and retain a highly skilled work force;

•
changes in public opinion concerning mortgage originators or debt collectors;

•
changes in accounting standards; and

•
conflicts of interest with our principal stockholder.
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 of Nationstar Mortgage Holdings Inc.'s Annual Report on Form 10-K filed on March 15, 2013 for further information on these and other factors affecting us.
 

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PART I. Financial Information

Item 1. Consolidated Financial Statements
NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
 
March 31,
2013
 
December 31,
2012
 
(unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
220,039

 
$
152,649

Restricted cash
360,467

 
393,190

Accounts receivable
3,614,827

 
3,043,606

Mortgage loans held for sale
1,703,709

 
1,480,537

Mortgage loans held for investment, subject to nonrecourse debt - Legacy Assets, net of allowance for loan losses of $5,206 and $4,390, respectively
235,915

 
238,907

Reverse mortgage interests
978,652

 
750,273

Receivables from affiliates
8,927

 
12,604

Mortgage servicing rights – fair value
1,289,643

 
635,860

Mortgage servicing rights – amortized cost
10,941

 
10,973

Property and equipment, net of accumulated depreciation of $54,026 and $48,806, respectively
77,407

 
75,026

Real estate owned (REO), net
15,487

 
10,467

Other assets
369,551

 
322,051

Total assets
$
8,885,565

 
$
7,126,143

Liabilities and stockholders' equity
 
 
 
Notes payable
$
3,409,886

 
$
3,601,586

Unsecured senior notes
1,669,146

 
1,062,635

Payables and accrued liabilities
1,529,898

 
631,431

Derivative financial instruments
26,895

 
20,026

Mortgage servicing liabilities
82,931

 
83,238

Nonrecourse debt - Legacy Assets
98,388

 
100,620

Excess spread financing - fair value
498,906

 
288,089

Participating interest financing
745,263

 
580,836

Total liabilities
8,061,313

 
6,368,461

Commitments and contingencies – See Note 18
—

 
—

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, 90,769 shares and 90,480 shares issued at March 31, 2013 and December 31, 2012, respectively
908

 
905

Additional paid-in-capital
561,571

 
556,056

Retained earnings
267,903

 
205,287

Treasury shares; 162 shares at cost
(6,554
)
 
—

Common shares held by subsidiary; 212 shares at cost
(4,566
)
 
(4,566
)
Total Nationstar Inc. stockholders' equity
819,262

 
757,682

Noncontrolling interest
4,990

 
—

Total equity
824,252

 
757,682

Total liabilities and equity
$
8,885,565

 
$
7,126,143

See accompanying notes to the consolidated financial statements.

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NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(amounts in thousands, except for earnings per share data)

 
For the three months ended March 31,
 
2013
 
2012
Revenues:
 
 
 
Servicing fee income
$
197,596

 
$
86,190

Other fee income
44,879

 
7,370

Total fee income
242,475

 
93,560

Gain on mortgage loans held for sale
188,587

 
70,512

Total revenues
431,062

 
164,072

Expenses and impairments:
 
 
 
Salaries, wages and benefits
134,987

 
61,665

General and administrative
125,642

 
29,112

Provision for loan losses
915

 
753

Loss on foreclosed real estate
1,092

 
2,265

Occupancy
5,935

 
2,782

Total expenses and impairments
268,571

 
96,577

Other income (expense):
 
 
 
Interest income
29,608

 
11,201

Interest expense
(92,374
)
 
(24,980
)
Loss on equity method investments
—

 
(117
)
Gain (loss) on interest rate swaps and caps
1,268

 
(268
)
Total other income (expense)
(61,498
)
 
(14,164
)
Income before taxes
100,993

 
53,331

Income tax expense
38,377

 
3,145

Net income
62,616

 
50,186

Less: Net income attributable to noncontrolling interests
—

 
—

Net income and comprehensive income attributable to Nationstar Inc.
$
62,616

 
$
50,186

 
 
 
 
Earnings per share:
 
 
 
Basic earnings per share
$
0.70

 
$
0.67

Diluted earnings per share
$
0.70

 
$
0.67

Weighted average shares:

 

       Basic
89,293

 
74,388

       Dilutive effect of stock awards
649

 
173

       Diluted
89,942

 
74,561

Dividends declared per share
$
—

 
$
—

See accompanying notes to the consolidated financial statements.

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NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands)
 
Common Shares
 
Members’
Units
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury shares
 
Common shares held by subsidiary
 
Total Nationstar Inc. Equity
 
Non-controlling interests
 
Total
Stockholders’  Equity
Balance at December 31, 2011
—

 
$
281,309

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
281,309

 
$
—

 
$
281,309

Contributions from parent – FIF HE
—

 
12,764

 
—

 
—

 
—

 
—

 
—

 
12,764

 
—

 
12,764

LLC conversion of equity to common shares
70,000

 
(294,073
)
 
700

 
293,373

 
—

 
—

 
—

 
—

 
—

 
—

Common stock issuance
19,167

 
—

 
192

 
246,508

 
—

 
—

 
—

 
246,700

 
—

 
246,700

Shares issued under incentive plan
1,293

 
—

 
13

 
(13
)
 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation
—

 
—

 
—

 
13,342

 
—

 
—

 
—

 
13,342

 
—

 
13,342

Excess tax benefit from share-based compensation
—

 
—

 
—

 
2,846

 
—

 
—

 
—

 
2,846

 
—

 
2,846

Withholding tax related to share based settlement of common stock by management
—

 
—

 
—

 
—

 
—

 
—

 
(4,566
)
 
(4,566
)
 
—

 
(4,566
)
Net income
—

 
—

 
—

 
—

 
205,287

 
—

 
—

 
205,287

 
—

 
205,287

Balance at December 31, 2012
90,460

 
—

 
905

 
556,056

 
205,287

 
—

 
(4,566
)
 
757,682

 
—

 
757,682

(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares issued under incentive plan
309

 
—

 
3

 
(3
)
 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation
—

 
—

 
—

 
2,858

 
—

 
—

 
—

 
2,858

 
—

 
2,858

Excess tax benefit from share-based compensation
—

 
—

 
—

 
2,660

 
—

 
—

 
—

 
2,660

 
—

 
2,660

Withholding tax related to share based settlement of common stock by management
—

 
—

 
—

 
—

 
—

 
(6,554
)
 
—

 
(6,554
)
 
—

 
(6,554
)
Contributions from joint venture members to non-controlling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
4,990

 
4,990

Net income
—

 
—

 
—

 
—

 
62,616

 
—

 
—

 
62,616

 
—

 
62,616

Balance at March 31, 2013
90,769

 
$
—

 
$
908

 
$
561,571

 
$
267,903

 
$
(6,554
)
 
$
(4,566
)
 
$
819,262

 
$
4,990

 
$
824,252

See accompanying notes to the consolidated financial statements.

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NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
 
For the three months ended March 31,
 
2013
 
2012
Operating activities
 
 
 
Net income
$
62,616

 
$
50,186

Adjustments to reconcile net income to net cash (used in) / provided by operating activities:
 
 
 
Share-based compensation
2,858

 
2,395

Provision for loan losses
915

 
753

Loss on foreclosed real estate
1,092

 
2,265

Loss on equity method investments
—

 
117

(Gain) / loss on derivatives including ineffectiveness on interest rate swaps and caps
(1,268
)
 
268

Fair value changes in excess spread financing
23,891

 
4,852

Depreciation and amortization
3,901

 
1,531

Fair value changes in mortgage servicing rights
9,659

 
(495
)
Amortization/accretion of mortgage servicing rights at amortized cost
(275
)
 
(633
)
Amortization (accretion) of premiums/discounts
9,509

 
1,922

Gain on mortgage loans held for sale
(188,587
)
 
(70,512
)
Mortgage loans originated and purchased, net of fees
(3,781,116
)
 
(1,189,942
)
Proceeds on sale of and payments of mortgage loans held for sale
3,694,859

 
1,303,096

Net tax effect of stock grants
(2,660
)
 
—

Changes in assets and liabilities:
 
 
 
Accounts receivable, including servicing advances, net
81,094

 
40,685

Receivables from affiliates
3,677

 
806

Reverse mortgage funded advances
(178,181
)
 
(112,738
)
Other assets
(9,276
)
 
(8,471
)
Payables and accrued liabilities
(104,947
)
 
109,198

Net cash (used in)/provided by operating activities
(372,239
)
 
135,283

Continued on following page.

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NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(amounts in thousands)
 
For the three months ended March 31,
 
2013
 
2012
Investing activities
 
 
 
Property and equipment additions, net of disposals
(6,282
)
 
(2,564
)
Deposits on reverse mortgage servicing rights, net
(50,198
)
 
—

Deposits on/purchase of forward mortgage servicing rights, net of liabilities incurred
(266,625
)
 
(347
)
Loan repurchases from Ginnie Mae
(8,815
)
 
(2,426
)
Proceeds from sales of REO
4,157

 
2,955

Net cash (used in)/provided by investing activities
(327,763
)
 
(2,382
)
Financing activities
 
 
 
Issuance of Senior Unsecured Notes, net
599,269

 
—

Transfers (to) / from restricted cash, net
32,723

 
(90,951
)
Issuance of common stock, net of IPO issuance costs
—

 
249,550

Issuance of participating interest financing
166,646

 
115,438

Issuance of excess spread financing
192,730

 
—

Decrease in notes payable
(191,700
)
 
(105,425
)
Repayment of nonrecourse debt – Legacy assets
(2,612
)
 
(3,135
)
Repayment of excess servicing spread financing
(20,881
)
 
(2,123
)
Debt financing costs
(9,750
)
 
(2,706
)
Net tax benefit for stock grants issued
2,660

 
—

Contributions from joint venture member to noncontrolling interests
4,990

 
—

Redemption of shares for stock vesting
(6,554
)
 
—

Cash settlement on derivative financial instruments
(129
)
 
—

Net cash provided by financing activities
767,392

 
160,648

Net increase in cash and cash equivalents
67,390

 
293,549

Cash and cash equivalents at beginning of period
152,649

 
62,445

Cash and cash equivalents at end of period
$
220,039

 
$
355,994

Supplemental disclosures of non-cash activities
 
 
 
Transfer of mortgage loans held for investment to REO at fair value
$
1,454

 
$
1,340

Mortgage servicing rights resulting from sale or securitization of mortgage loans
31,268

 
13,066

Tax related share-based settlement of common stock
6,554

 
—

Liabilities incurred from purchase of forward mortgage servicing rights
365,567

 
811

See accompanying notes to the consolidated financial statements. 

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NATIONSTAR MORTGAGE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, unless otherwise stated)
1. Nature of Business, Corporate Reorganization, Basis of Presentation and Material Transactions
Nature of Business
Nationstar Mortgage Holdings Inc. (Nationstar Inc. or the Company) is a Delaware corporation. Nationstar Inc. is a holding company that conducts no operating activities and owns no significant assets other than through its interests in its subsidiaries. Through its subsidiaries, Nationstar Inc. is engaged primarily in the servicing of residential mortgage loans for others and the origination and selling or securitization of single-family conforming mortgage loans to government-sponsored entities (GSE) or other third-party investors in the secondary market. Nationstar Mortgage LLC (Nationstar) is the Company's principal operating subsidiary.
Corporate Reorganization
On February 24, 2012, the Company filed a registration statement on Form S-1, for the offering of 19,166,667 shares of its common stock. The registration statement became effective on March 7, 2012. Under the terms of the offering, all of the equity interests in the Company transferred from FIF HE Holdings LLC to two direct, wholly-owned subsidiaries and the Company issued 19,166,667 shares of $0.01 par value common stock at an initial offering price of $14.00 per share. The offering transformed the Company into a publicly-traded company.
In conjunction with the initial public offering of Nationstar Inc., Nationstar became a wholly-owned indirect subsidiary of Nationstar Inc. Prior to the reorganization and initial public offering (Reorganization), Nationstar was a wholly-owned subsidiary of FIF HE Holdings LLC (FIF). Nationstar Inc. was formed solely for the purpose of reorganizing the structure of FIF and Nationstar so that the common stock issuer was a corporation rather than a limited liability company. As such, investors own common stock rather than equity interests in a limited liability company. The Reorganization has been accounted for as a reorganization under common control and, accordingly, there was no change in the basis of the assets and liabilities. As part of the Reorganization, FIF exchanged its equity in Nationstar for 70,000,000 shares of common stock of Nationstar Inc.
Basis of Presentation
The consolidated financial statements include the accounts of Nationstar Inc., its wholly-owned subsidiaries, and other entities in which the Company has a controlling financial interest, and those variable interest entities (VIEs) where Nationstar Inc.'s wholly-owned subsidiaries are the primary beneficiaries. Nationstar Inc. applies the equity method of accounting to investments when the entity is not a VIE and Nationstar Inc. 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 Inc. became the primary beneficiary through the date Nationstar Inc. 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 Inc. have been prepared in accordance with generally accepted accounting principles 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 (GAAP) for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in Nationstar Inc.'s Annual Report on Form 10-K filed on March 15, 2013. The results of operations for the three month period ended March 31, 2013, are not necessarily indicative of the results that may be expected for the year ended December 31, 2013. Certain prior period amounts have been reclassified to conform to the current period presentation. Nationstar Inc. evaluated subsequent events through the date these interim consolidated financial statements were issued.
Material First Quarter Transactions

In January 2013, Nationstar entered into a mortgage servicing rights purchase and sale agreement (the Purchase Agreement) with a financial institution. Under the Purchase Agreement, the Company agreed to purchase the rights to service approximately 1.3 million residential mortgage loans with a total UPB of approximately $215 billion, and approximately $5.8 billion of related servicing advance receivables. Approximately 47% of these loans (by UPB) are owned, insured or guaranteed

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by Fannie Mae, Freddie Mac or Ginnie Mae, and the remaining 53% of these loans are non-conforming loans in private label securitizations.

The aggregate purchase price is approximately $7.1 billion, which is expected to be funded through a combination of cash on hand, the proceeds of a co-investment by Newcastle Investment Corp. (Newcastle), and certain funds managed by Fortress Investment Group LLC (Fortress), the proceeds of advance financing facilities, and/or other issuances of debt. On January 31, 2013, Nationstar closed on the MSRs and associated servicing advance receivables with respect to those loans owned, insured or guaranteed by Fannie Mae and Freddie Mac. On February 1, 2013, Nationstar closed on the MSRs and associated servicing advance receivables with respect to those loans owned, insured or guaranteed by Ginnie Mae. Subject to customary closing conditions, the Company expects to close on the majority of the remaining MSRs in stages during the second or third quarter of 2013. During February 2013, the Company boarded approximately $15.3 billion of the acquired agency portfolio balance with the remaining acquired Fannie Mae, Freddie Mac, and Ginnie Mae portfolios to be completed by June 2013. The remaining private label securitization portfolios are expected to board onto the servicing system through the third quarter of 2013.


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2. Recent Accounting Developments
Accounting Standards Update No 2013-01, Balance Sheet: Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (ASU 2013-01) was created to address issues caused when putting Accounting Standard Update 2011-11 into place and eliminate diversity in practice. The update clarifies that Accounting Standard Update 2011-11 applies to entities that are accounting for derivatives under ASC 815 including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset under ASC 210-20-45 or ASC 815-10-45, an enforceable master netting arrangement or similar agreement. The Company adopted ASU 2013-01 on January 1, 2013. The adoption of ASU 2013-01 did not have a material impact on our financial condition, liquidity or results of operations.
Accounting Standards Update No 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02) was issued to improve reporting of reclassification of items out of accumulated other comprehensive income by requiring entities to report the effect of any significant reclassifications on the respective line items on the income statement when the amount is required to be reclassified in its entirety in the same reporting period. Additionally, for items that are not required to be reclassified completely to net income, the Company will be required to cross reference other disclosures that provide additional information about the amounts. The information provided about amounts that are reclassified out of accumulated other comprehensive income must be reported by component. The amendments of this update were effective beginning December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on our financial condition, liquidity or results of operations.

3. Variable Interest Entities and Securitizations
Nationstar has been the transferor in connection with a number of securitizations or asset-backed financing arrangements, from which Nationstar has continuing involvement with the underlying transferred financial assets. Nationstar aggregates these securitizations or asset-backed financing arrangements into two groups: 1) securitizations of residential mortgage loans, that were accounted for as sales and 2) financings accounted for as secured borrowings.
On securitizations of residential mortgage loans, Nationstar’s continuing involvement typically includes acting as servicer for the mortgage loans held by the trust and holding beneficial interests in the trust. Nationstar’s responsibilities as servicer include, among other things, collecting monthly payments, maintaining escrow accounts, providing periodic reports and managing insurance in exchange for a contractually specified servicing fee.
Nationstar also maintains various agreements with special purpose entities (SPEs), under which Nationstar transfers mortgage loans and/or servicing advance receivables on residential mortgage loans in exchange for cash. These SPEs issue debt supported by collections on the transferred mortgage loans and/or servicing advance receivables. These transfers do not qualify for sale treatment because Nationstar continues to retain control over the transferred assets. As a result, Nationstar accounts for these transfers as financings and continues to carry the transferred assets and recognizes the related liabilities on Nationstar’s consolidated balance sheets. Collections on the mortgage loans and/or servicing advance receivables pledged to the SPEs are used to repay principal and interest and to pay the expenses of the entity. The holders of these beneficial interests issued by these SPEs do not have recourse to Nationstar and can only look to the assets of the SPEs themselves for satisfaction of the debt.
A variable interest entity (VIE) is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is the entity that, through its variable interests has both the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Nationstar consolidates the SPEs created for the purpose of issuing debt supported by collections on loans and servicing advance receivables that have been transferred to the SPEs as VIEs, and Nationstar is the primary beneficiary of these VIEs. Nationstar consolidates the assets and liabilities of the VIEs into its consolidated financial statements.

A summary of the assets and liabilities of Nationstar’s transactions with VIEs included in the Company’s consolidated financial statements as of March 31, 2013 and December 31, 2012 is presented in the following tables (in thousands):
 

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March 31, 2013
 
December 31, 2012
 
Transfers
Accounted for as
Secured
Borrowings
 
Transfers
Accounted for as
Secured
Borrowings
ASSETS
 
 
 
Restricted cash
$
145,908

 
$
247,531

Reverse mortgage interests
695,723

 
542,037

Accounts receivable
1,971,502

 
2,656,277

Mortgage loans held for investment, subject to nonrecourse debt
219,198

 
224,207

REO
2,697

 
2,039

Total Assets
$
3,035,028

 
$
3,672,091

LIABILITIES
 
 
 
Notes payable
$
2,095,013

 
$
2,294,925

Payables and accrued liabilities
2,838

 
3,415

Derivative financial instruments
4,987

 
6,118

Nonrecourse debt–Legacy Assets
98,388

 
100,620

Participating interest financing
745,263

 
580,836

Total Liabilities
$
2,946,489

 
$
2,985,914

A summary of the outstanding collateral and certificate balances for securitization trusts, including any retained beneficial interests and MSRs, that were not consolidated by Nationstar for the periods indicated are as follows (in thousands):
 
March 31, 2013
 
December 31, 2012
Total collateral balances
$
4,031,005

 
$
4,134,513

Total certificate balances
4,039,553

 
4,136,316

Total mortgage servicing rights at fair value
32,922

 
30,940

Nationstar has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of March 31, 2013 or December 31, 2012, and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs. A summary of mortgage loans transferred 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 (in thousands):
 
 
For the three months ended
 
March 31, 2013
 
March 31, 2012
 
Principal
Amount
of Loans
60 Days or
More Past Due
 
Credit Losses
 
Principal
Amount
of Loans
60 Days or
More Past Due
 
Credit Losses
Total securitization trusts
$
1,179,325

 
$
64,858

 
$
936,006

 
$
79,751

Certain cash flows received from securitization trusts related to the transfers of mortgage loans accounted for as sales for the dates indicated were as follows (in thousands):
 
 
For the three months ended
 
March 31, 2013
 
March 31, 2012
 
Servicing Fees
Received
Loan
Repurchases
 
Servicing Fees
Received
Loan
Repurchases
Total securitization trusts
$
6,791

$
—

 
$
7,861

$
—


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4. Consolidated Statement of Cash Flows-Supplemental Disclosure
Total interest paid for the three months ended March 31, 2013 and 2012 was approximately $51.8 million and $14.0 million, respectively. Income taxes paid for the three months ended March 31, 2013 was $46.1 million. There were no income taxes paid for the three months ended March 31, 2012.
5. Accounts Receivable
Accounts receivable consist primarily of accrued interest receivable on mortgage loans and securitizations, collateral deposits on surety bonds, and advances made to nonconsolidated securitization trusts and various taxing authorities, as required under various servicing agreements related to delinquent loans, which are ultimately repaid from the securitization trusts.

Nationstar acquires servicer advances in conjunction with the acquisition of mortgage servicing rights. Acquired servicer advances are recorded at their relative fair value amounts on the acquisition date, and any recorded discounts are accreted into interest income on a modified cost recovery method as the related servicer advances are recovered either through repayment from the borrower, liquidation of the underlying mortgage loans, or through a modification and recovery of the outstanding servicer advance balance from the securitization trust.
Accounts receivable consist of the following (in thousands):
 
 
March 31, 2013
 
December 31, 2012
Servicer advances, net of purchase discount
$
3,351,989

 
$
2,800,690

Accrued servicing fees
101,349

 
90,231

Receivables from trusts
30,398

 
39,029

Reverse mortgage - other
13,171

 
28,448

Accrued interest
3,920

 
3,801

Other
114,000

 
81,407

Total accounts receivable
$
3,614,827

 
$
3,043,606


In conjunction with Nationstar's June 2012 acquisition of mortgage servicing rights from Aurora Bank FSB and Aurora Loan Services LLC (collectively Aurora), the Company acquired approximately $1.7 billion of servicer advances. Based on the acquisition date relative fair values of these acquired servicer advances, Nationstar recorded an $81.8 million purchase discount. Nationstar accretes this purchase discount into interest income as the related servicer advances are recovered. During the three months ended March 31, 2013, the Company accreted $6.1 million of the purchase discount from recovered servicer advances. Nationstar did not record any accretion of purchase discount from recovered servicer advances during the three months ended March 31, 2012.


6. 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 GSEs or other third party investors in the secondary market. Generally, all newly originated mortgage loans held for sale are delivered to third-party purchasers or securitized shortly after origination.
Nationstar has elected to measure newly originated prime residential mortgage loans held for sale at fair value, as permitted under ASC 825, Financial Instruments. Nationstar estimates fair value by evaluating a variety of market indicators, including recent trades and outstanding forward sales commitments, calculated on an aggregate basis (see Note 14 – Fair Value Measurements). In connection with Nationstar's election to measure mortgage loans held for sale at fair value, Nationstar is not permitted to defer the loan origination fees, net of direct loan origination costs associated with these loans.

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Mortgage loans held for sale consist of the following (in thousands):
 
 
March 31, 2013
 
December 31, 2012
Mortgage loans held for sale – unpaid principal balance
$
1,646,387

 
$
1,426,182

Mark-to-market adjustment
57,322

 
54,355

Total mortgage loans held for sale
$
1,703,709

 
$
1,480,537

Nationstar had no mortgage loans held for sale on a nonaccrual status at March 31, 2013 or December 31, 2012.
A reconciliation of the changes in mortgage loans held for sale to the amounts presented in the consolidated statements of cash flows for the dates indicated is presented in the following table (in thousands):
 
 
For the three months ended

March 31, 2013
 
March 31, 2012
Mortgage loans held for sale – beginning balance
$
1,480,537

 
$
458,626

Mortgage loans originated and purchased, net of fees
3,781,116

 
1,189,942

Proceeds on sale of and payments of mortgage loans held for sale
(3,549,535
)
 
(1,270,007
)
Transfer of mortgage loans held for sale to held for investment due to bankruptcy and pending foreclosures
(8,409
)
 
—

Mortgage loans held for sale – ending balance
$
1,703,709

 
$
378,561

Mortgage loans held for investment, subject to nonrecourse debt - Legacy Assets, net
Mortgage loans held for investment, subject to nonrecourse debt – Legacy Assets, net principally consist of nonconforming or subprime mortgage loans securitized which serve as collateral for the issued debt. These loans were transferred on October 1, 2009 from mortgage loans held for sale at fair value on the transfer date, as determined by the present value of expected future cash flows, with no valuation allowance recorded. The difference between the undiscounted cash flows expected and the investment in the loan is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at transfer are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the transfer are recognized prospectively through adjustment of the yield on the loans over the remaining life. Decreases in expected cash flows subsequent to transfer are recognized as a valuation allowance.
An allowance for loan losses is established by recording a provision for loan losses in the consolidated statement of income and comprehensive income when management believes a loss has occurred on a loan held for investment. When management determines that a loan held for investment is partially or fully uncollectible, the estimated loss is charged against the allowance for loan losses. Recoveries on losses previously charged to the allowance are credited to the allowance at the time the recovery is collected.

Nationstar accounts for the loans that were transferred to held for investment from held for sale during 2009 in a manner similar to ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. At the date of transfer, management evaluated such loans to determine whether there was evidence of deterioration of credit quality since acquisition and if it was probable that Nationstar would be unable to collect all amounts due according to the loan’s contractual terms. The transferred loans were aggregated into separate pools of loans based on common risk characteristics (loan delinquency). Nationstar considers expected prepayments, and estimates the amount and timing of undiscounted expected principal, interest, and other cash flows for each aggregated pool of loans. The determination of expected cash flows utilizes internal inputs such as prepayment speeds and credit losses. These internal inputs require the use of judgment and can have a significant impact on the accretion of income and/or valuation allowance. Nationstar determines the excess of the pool’s scheduled contractual principal and contractual interest payments over all cash flows expected as of the transfer date as an amount that should not be accreted (nonaccretable difference). The remaining amount is accreted into interest income over the remaining life of the pool of loans (accretable yield).
Over the life of the transferred loans, management continues to estimate cash flows expected to be collected. Nationstar evaluates at the balance sheet date whether the present value of the loans determined using the effective interest rates has decreased, and if so, records an allowance for loan loss. The present value of any subsequent increase in the transferred loans cash flows expected to be collected is used first to reverse any existing allowance for loan loss related to such loans. Any

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remaining increase in cash flows expected to be collected are used to adjust the amount of accretable yield recognized on a prospective basis over the remaining life of the loans.
Nationstar accounts for its allowance for loan losses for all other mortgage loans held for investment in accordance with ASC 450-20, Loss Contingencies. The allowance for loan losses represents management’s best estimate of probable losses inherent in the loans held for investment portfolio. Mortgage loans held for investment portfolio is comprised primarily of large groups of homogeneous residential mortgage loans. These loans are evaluated based on the loan’s present delinquency status. The entire allowance is available to absorb probable credit losses from the entire held for investment portfolio.
Mortgage loans held for investment, subject to nonrecourse debt—Legacy Assets, net as of the dates indicated include (in thousands):
 
 
 
 
 
 
March 31, 2013
 
December 31, 2012
Mortgage loans held for investment, subject to nonrecourse debt - Legacy Assets, net – unpaid principal balance
 
$
348,822

 
$
354,154

Transfer discount
 

 

Accretable
 
(18,889
)
 
(19,749
)
Non-accretable
 
(88,812
)
 
(91,108
)
Allowance for loan losses
 
(5,206)
 
(4,390
)
Total mortgage loans held for investment, subject to nonrecourse debt - Legacy Assets, net
 
$
235,915

 
$
238,907


The changes in accretable yield on loans transferred to mortgage loans held for investment, subject to nonrecourse debt- Legacy Assets were as follows (in thousands):
 
 
Three months ended March 31, 2013
 
Year ended December 31, 2012
Accretable Yield
 
 
 
Balance at the beginning of the period
$
19,749

 
$
22,392

Additions
—

 
—

Accretion
(852
)
 
(3,548
)
Reclassifications from (to) nonaccretable discount
(8
)
 
905

Disposals
—

 
—

Balance at the end of the period
$
18,889

 
$
19,749

Nationstar may periodically modify the terms of any outstanding mortgage loans held for investment, subject to nonrecourse debt-Legacy Assets, net for loans that are either in default or in imminent default. Modifications often involve reduced payments by borrowers, modification of the original terms of the mortgage loans, forgiveness of debt and/or increased servicing advances. As a result of the volume of modification agreements entered into, the estimated average outstanding life in this pool of mortgage loans has been extended. Nationstar records interest income on the transferred loans on a level-yield method. To maintain a level-yield on these transferred loans over the estimated extended life, Nationstar reclassified approximately $0.9 million for the year ended December 31, 2012 from nonaccretable discount. Furthermore, Nationstar considers the decrease in principal, interest, and other cash flows expected to be collected arising from the transferred loans as an impairment. Nationstar recorded provisions for loan losses of $0.9 million for the three months ended March 31, 2013, and $0.8 million for the three months ended March 31, 2012.
Nationstar collectively evaluates all mortgage loans held for investment, subject to nonrecourse debt-Legacy Assets, net for impairment. The changes in the allowance for loan losses on mortgage loans held for investment, subject to nonrecourse debt-Legacy Assets, net were as follows (in thousands) for the dates indicated:
 

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Three months ended March 31, 2013
 
Performing
 
Non-Performing
 
Total
Balance at the beginning of the period
$
771

 
$
3,619

 
$
4,390

Provision for loan losses
90

 
825

 
915

Charge-offs
(55
)
 
(44
)
 
(99
)
Balance at the end of the period
$
806

 
$
4,400

 
$
5,206

Ending balance – Collectively evaluated for impairment
$
266,854

 
$
81,968

 
$
348,822

 
 
Year ended December 31, 2012
 
Performing
 
Non-Performing
 
Total
Balance at the beginning of the period
$
1,641

 
$
4,183

 
$
5,824

Provision for loan losses
1,365

 
525

 
1,890

Recoveries on loans previously charged-off
—

 
—

 
—

Charge-offs
(2,235
)
 
(1,089
)
 
(3,324
)
Balance at the end of the period
$
771

 
$
3,619

 
$
4,390

Ending balance – Collectively evaluated for impairment
$
260,219

 
$
93,935

 
$
354,154

Loan delinquency and loan-to-value ratio (LTV) are common credit quality indicators that Nationstar monitors and utilizes in its evaluation of the adequacy of the allowance for loan losses, of which the primary indicator of credit quality is loan delinquency. LTV refers to the ratio of comparing the 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 the LTVs shown below were obtained at various dates, but the majority were within the last twenty-four months. For an event requiring a decision based at least in part on the collateral value, Nationstar takes its last known value provided by a third party and then adjusts the value based on the applicable home price index.

The following table provides the outstanding unpaid principal balance of Nationstar’s mortgage loans held for investment by credit quality indicators as of dates indicated. Performing loans refer to loans that are less than 90 days delinquent. Non-performing loans refer to loans that are greater than 90 days delinquent.
 
 
March 31, 2013
 
December 31, 2012
 
(in thousands)
Credit Quality by Delinquency Status
 
 
 
Performing
$
266,854

 
$
260,219

Non-Performing
81,968

 
93,935

Total
$
348,822

 
$
354,154

Credit Quality by Loan-to-Value Ratio
 
 
 
Less than 60
$
38,677

 
$
39,436

Less than 70 and more than 60
16,685

 
16,581

Less than 80 and more than 70
22,954

 
20,890

Less than 90 and more than 80
26,521

 
27,988

Less than 100 and more than 90
30,918

 
32,570

Greater than 100
213,067

 
216,689

Total
$
348,822

 
$
354,154

Reverse mortgage interests

Reverse mortgages (known as Home Equity Conversion Mortgages or HECMs) provide seniors (62 and older) with a loan secured by their home. During 2012, Nationstar acquired reverse mortgage servicing rights and funded but unsecuritized advances from third-parties. Nationstar recorded the assets acquired and obligations assumed at relative fair value on the acquisition date, which included the funded advances and a servicing asset or liability, net of cash paid or received. Any

17
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premium or discount associated with the recording of the funded advances is accreted into interest income as the underlying HECMs are liquidated.

As part of the acquisition of the reverse mortgage servicing rights, Nationstar is obligated in its capacity as servicer to fund future borrower advances, which include fees paid to taxing authorities for borrowers' unpaid taxes and insurance, mortgage insurance premiums and payments made to borrowers for line of credit draws on reverse mortgages. In addition, Nationstar capitalizes the servicing fees it earns for servicing the reverse mortgage interests. All advances funded by Nationstar and the acquired funded advances are recorded as reverse mortgage interests on the Company's consolidated balance sheet. Nationstar includes the cash outflow from funding these advances as operating activities and the securitization cash inflow as a financing activity in the consolidated statement of cash flows.

In February 2013, Nationstar acquired certain fixed and adjustable rate reverse mortgage loans with an unpaid principal balance totaling $83.1 billion for a purchase price of $50.2 million. In conjunction with this acquisition, Nationstar entered into an agreement with NIC Reverse Loan LLC, a subsidiary of Newcastle, to sell a participating interest of the acquired reverse mortgage loans. Both Nationstar and NIC Reverse Loan LLC are entitled to the related percentage interest of all amounts received with respect to the reverse mortgage loans, net of payments of servicing fees and the reimbursement to Nationstar of servicing advances. Nationstar receives a fixed payment per loan for servicing these reverse mortgage loans. Nationstar records these reverse mortgage loans as reverse mortgage interests on the Company's consolidated balance sheet.

Nationstar periodically securitizes certain of these funded advances through issuance of Home Equity Conversion Mortgage Backed Securities (HMBS) to third-party security holders which are guaranteed by certain GSEs. These transfers of funded advances into HMBS are accounted for as secured borrowings with the HMBS presented as participating interest financing on the Company's consolidated balance sheet.

Nationstar receives a monthly servicing fee, which is recorded as either interest income or servicing fee income on the consolidated statement of income and comprehensive income based upon if the related advance was either funded by or acquired by Nationstar. Nationstar accounts for outstanding and future reverse mortgage interests as financing receivables in accordance with ASC 310, Receivables. Interest income is accrued monthly based upon the borrower interest rate applied to the HECM outstanding principal balance of reverse mortgage interests. Interest income and other unpaid taxes and fees are capitalized as part of the outstanding principal balance. Interest expense on the participating interest financing is accrued monthly based upon the underlying HMBS rates and is recorded to interest expense in the consolidated statement of income and comprehensive income.
These advances include due and payable advances, which are recovered upon the sale of the subject property, and defaulted advances that can be securitized and sold. As of March 31, 2013 and December 31, 2012, Nationstar had $978.7 million and $750.3 million, respectively, in outstanding reverse mortgage interests.When Nationstar determines that a loss on the advance balance is probable and that the carrying balance may be partially or fully uncollectible, an allowance for loan loss is established by recording a provision for loan losses in the consolidated statement of income and comprehensive income.
Reverse mortgage interests as of the dates indicated include (in thousands):


March 31, 2013
 
December 31, 2012
UPB of advances previously securitized by Nationstar
$
695,723

 
$
542,037

UPB of advances unsecuritized
283,491

 
208,699

Allowance for losses - reverse mortgage interests
(562
)
 
(463
)
Total reverse mortgage interests
$
978,652

 
$
750,273

Nationstar collectively evaluates all reverse mortgage interest assets for impairment. Nationstar recorded a provision for loan losses related to its reverse mortgage interests of $0.6 million for the three months ended March 31, 2013 and $0.5 million for the year ended December 31, 2012.
 



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7. Mortgage Servicing Rights (MSRs)
MSRs at fair value
Nationstar recognizes MSRs related to all existing residential mortgage loans transferred to a third party in a transfer that meets the requirements for sale accounting and for which the servicing rights are retained. Additionally, Nationstar may acquire the rights to service residential mortgage loans that do not relate to assets transferred by Nationstar through the purchase of these rights from third parties.
Nationstar identifies MSRs related to all existing forward residential mortgage loans transferred to a third party in a transfer that meets the requirements for sale accounting or through the acquisition of rights to service forward residential mortgage loans that do not relate to assets transferred by Nationstar through the purchase of these rights from third parties as a class of MSRs. Nationstar applies fair value accounting to this class of MSRs, with all changes in fair value recorded as charges or credits to servicing fee income in accordance with ASC 860-50, Servicing Assets and Liabilities.

MSRs arise from contractual agreements between Nationstar and investors in mortgage securities and mortgage loans. Nationstar records MSR assets when it sells loans on a servicing-retained basis, at the time of securitization or through the acquisition or assumption of the right to service a financial asset. Under these contracts, Nationstar performs loan servicing functions in exchange for fees and other remuneration.
The fair value of the MSRs is based upon the present value of the expected future contractual cash flows related to servicing these loans. Nationstar receives a base servicing fee ranging from 0.25% to 0.50% annually on the remaining outstanding principal balances of the loans. The servicing fees are collected from investors. Nationstar determines the fair value of the MSRs by the use of a cash flow model that incorporates prepayment speeds, delinquencies, discount rate, and other assumptions (including servicing costs) that management believes are consistent with the assumptions other major market participants use in valuing the MSRs. Certain of the forward loans underlying the MSRs are prime agency and government conforming residential forward mortgage loans and as such are more interest rate sensitive whereas the remaining MSRs are more credit sensitive. The nature of the forward loans underlying the MSRs affects the assumptions that management believes other major market participants use in valuing the MSRs. Nationstar obtains third-party valuations for a majority its MSRs to assess the reasonableness of the fair value calculated by the cash flow model.
Certain of the forward loans underlying the mortgage servicing rights carried at fair value that are owned by Nationstar are credit sensitive in nature and the value of these mortgage servicing rights are more likely to be affected from changes in credit losses than from interest rate movement. The remaining forward loans underlying Nationstar’s MSRs held at fair value are prime agency and government conforming residential mortgage loans for which the value of these MSRs are more likely to be affected from interest rate movement than changes in credit losses.
Nationstar used the following weighted average assumptions in estimating the fair value of MSRs for the dates indicated:
 
Credit Sensitive MSRs
March 31, 2013
 
December 31, 2012
Discount rate
15.05
%
 
18.11
%
Total prepayment speeds
18.51
%
 
22.42
%
Expected weighted-average life
4.92 years

 
4.12 years

Credit losses
18.02
%
 
24.68
%
Interest Rate Sensitive MSRs
March 31, 2013
 
December 31, 2012
Discount rate
10.60
%
 
10.62
%
Total prepayment speeds
13.53
%
 
17.08
%
Expected weighted-average life
6.35 years

 
5.19 years

Credit losses
11.61
%
 
11.09
%


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Table of Contents


The activity of MSRs carried at fair value is as follows for the dates indicated (in thousands): 
 
Three months ended March 31, 2013
 
Year ended December 31, 2012
Fair value at the beginning of the period
$
635,860

 
$
251,050

Additions:

 

Servicing resulting from transfers of financial assets
31,268

 
58,607

Purchases of servicing assets
632,174

 
394,445

Changes in fair value:


 

Due to changes in valuation inputs or assumptions used in the valuation model
43,361

 
5,500

Other changes in fair value
(53,020
)
 
(73,742
)
Fair value at the end of the period
$
1,289,643

 
$
635,860

Unpaid principal balance of forward loans serviced for others
 
 
 
Credit sensitive loans
$
201,730,585

 
$
114,629,399

Interest sensitive loans
20,113,675

 
16,494,985

Total owned loans
$
221,844,260

 
$
131,124,384


The following table shows the hypothetical effect on the fair value of the MSRs using various unfavorable variations of the expected levels of certain key assumptions used in valuing these assets at March 31, 2013 and December 31, 2012 (in thousands):

 
Discount Rate
 
Total Prepayment
Speeds
 
Credit Losses
 
100 bps
Adverse
Change
200 bps
Adverse
Change
 
10%
Adverse
Change
20%
Adverse
Change
 
10%
Adverse
Change
20%
Adverse
Change
March 31, 2013
 
 
 
 
 
 
 
 
 Mortgage servicing rights
$
(30,092
)
$
(63,907
)
 
$
(96,409
)
$
(189,467
)
 
$
(95,440
)
$
(192,032
)
December 31, 2012
 
 
 
 
 
 
 
 
 Mortgage servicing rights
$
(17,060
)
$
(34,419
)
 
$
(66,037
)
$
(124,995
)
 
$
(77,072
)
$
(157,433
)

These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors (e.g., a decrease in total prepayment speeds may result in an increase in credit losses), which could impact the above hypothetical effects.
MSRs at amortized cost
Additionally, Nationstar has acquired servicing rights for reverse mortgage loans. For this class of servicing rights, Nationstar applies the amortization method (i.e., lower of cost or market) with the capitalized cost of the MSRs amortized in proportion and over the period of the estimated net future servicing income and recognized as an adjustment to servicing fee income. The expected period of the estimated net servicing income is based, in part, on the expected prepayment period of the underlying reverse mortgages. This class of MSRs is periodically evaluated for impairment. For purposes of measuring impairment, MSRs are stratified based on predominant risk characteristics of the underlying serviced loans. These risk characteristics include loan type (fixed or adjustable rate), term and interest rate. Impairment, if any, represents the excess of amortized cost of an individual stratum over its estimated fair value and is recognized through a valuation allowance.
As of March 31, 2013, Nationstar owns the right to service certain reverse mortgage MSRs with an unpaid principal balance of $28.2 billion. The initial carrying amount of these MSRs is based on the relative fair value of the purchased assets and liabilities including reverse mortgage interests. These MSRs are subsequently accounted for using the amortization method.

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Amortization / accretion is recorded as service fee income on the statement of operations and comprehensive income. Nationstar utilizes a variety of assumptions in assessing the fair value of its servicing assets or liabilities, with the primary assumptions including discount rates and the expected weighted average life. At March 31, 2013, no impairment was identified. Interest and servicing fees collected on reverse mortgage interests are included as a component of either interest or service fee income.

The activity of MSRs carried at amortized cost is as follows for the date indicated (in thousands):
 
 
Three months ended
Year ended
 
March 31, 2013
December 31, 2012
 
Assets
 
Liabilities
Assets
 
Liabilities
Activity of MSRs at amortized cost
 
 
 
 
 
 
Balance at the beginning of the period
$
10,973

 
$
83,238

$
—

 
$
—

Additions:
 
 
 
 
 
 
Purchase /Assumptions of servicing rights/obligations
—

 
—

12,415

 
89,800

Deductions:
 
 
 
 
 
 
Amortization/Accretion
(32
)
 
(307
)
(1,442
)
 
(6,562
)
Balance at end of the period
$
10,941

 
$
82,931

$
10,973

 
$
83,238

Subserviced loans
In addition to the two classes of MSRs that Nationstar services for others, Nationstar also subservices loans on behalf of owners of MSRs or loans for a fee. Nationstar has no recorded value for its subservicing arrangements. At March 31, 2013 and December 31, 2012, the unpaid principal balances under subservicing arrangements were $42.7 billion and $45.7 billion, respectively.
Total servicing and ancillary fees from Nationstar’s servicing portfolio (including subservicing) of residential mortgage loans are presented in the following table for the periods indicated (in thousands):
 
 
For the three months ended March 31,
 
2013
2012
Servicing fees
$
182,709

$
60,977

Ancillary fees
36,870

25,958

Total servicing and ancillary fees
$
219,579

$
86,935


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8. Other Assets
Other assets consisted of the following (in thousands):
 
 
March 31, 2013
 
December 31, 2012
Derivative financial instruments (see Note 10)
$
182,589

 
$
152,189

Loans subject to repurchase right from Ginnie Mae
74,645

 
72,156

Deferred financing costs
57,469

 
46,780

Deferred tax asset (see Note 13)
9,892


23,737

Margin call deposits
14,152

 
10,920

Deposits pending on mortgage servicing rights acquisitions
9,986

 
2,040

Prepaid expenses
9,649

 
6,083

Other
11,169

 
8,146

Total other assets
$
369,551

 
$
322,051

For certain loans sold to the Government National Mortgage Association (Ginnie Mae), Nationstar as the servicer 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 the delinquent loan, Nationstar has effectively regained control over the loan, and under GAAP, must re-recognize the loan on its balance sheet and establish a corresponding repurchase liability 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 $74.6 million at March 31, 2013 and $72.2 million at December 31, 2012.
In January 2013, Nationstar acquired Equifax Settlement Services LLC (ESS) for a total purchase price of $12.5 million. In an initial purchase price allocation, Nationstar has recorded $7.5 million of goodwill in Other assets on its consolidated balance sheet.
 


22

9. Payables and Accrued Liabilities
Payables and accrued liabilities consist of the following (in thousands):
 
March 31, 2013

 
December 31, 2012

MSR purchases payable including advances (see Note 1)
$
865,487

 
$
14,243

Reverse mortgage payables
113,601

 
103,068

Mortgage insurance premiums and reserves
105,563

 
77,967

Loans subject to repurchase from Ginnie Mae
74,645

 
72,156

Accrued interest
57,274

 
31,938

Government sponsored entities
55,740

 
27,071

Servicing payables
63,651

 
73,967

Taxes
26,209

 
50,908

Lease payables
27,170

 
29,553

Accrued bonus and payroll
27,077

 
58,083

Repurchase reserves
20,902

 
18,511

Payables to securitization trusts
19,195

 
7,946

Legal and professional fees
13,815

 
27,860

Cancelled lease reserves
6,661

 
7,188

Other
52,908

 
30,972

Total payables and accrued liabilities
$
1,529,898

 
$
631,431


10. Derivative Financial Instruments
Nationstar enters into interest rate lock commitments (IRLCs) with prospective borrowers. These commitments are carried at fair value in accordance with ASC 815, Derivatives and Hedging. ASC 815 clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The estimated fair values of IRLCs are based on the fair value of the related mortgage loans which is based on observable market data and is recorded in other assets within the consolidated balance sheets. The initial and subsequent changes in the value of IRLCs are a component of gain on mortgage loans held for sale.
Nationstar actively manages the risk profiles of its IRLCs and mortgage loans held for sale on a daily basis. To manage the price risk associated with IRLCs, Nationstar enters into forward sales of MBS in an amount equal to the portion of the IRLC expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, Nationstar enters into forward 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 other assets and mortgage loans held for sale, respectively, in the consolidated balance sheets. The initial and subsequent changes in value on forward sales of MBS and forward sale commitments are a component of gain on mortgage loans held for sale.
Nationstar may occasionally enter into contracts with other mortgage lenders to purchase residential mortgage loans at a future date, which are referred to as Loan Purchase Commitments (LPCs). LPCs are accounted for as derivatives under ASC 815 and recorded at fair value in other assets on Nationstar's consolidated balance sheet. Subsequent changes in LPCs are recorded as a charge or credit to 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. 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 and comprehensive income. Unrealized losses on undesignated interest rate derivatives are separately disclosed under operating activities in the consolidated statements of cash flows. Interest rate swaps designated as cash flow hedges under ASC 815 are recorded at fair value on the Company’s consolidated balance sheet, with any changes in fair value related to the effective portion of the hedge being recorded as an adjustment to other comprehensive income. To qualify as a cash flow hedge, the hedge must be highly effective at reducing the risk associated with the exposure being hedged and must be formally designated at hedge inception. Nationstar considers a hedge to be highly effective if the change in fair

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value of the derivative hedging instrument is within 80% to 125% of the change in the fair value of the hedged item attributable to the hedged risk. Ineffective portions of the cash flow hedge are reflected in earnings as they occur as a component of interest expense.
In conjunction with the Reorganization, FIF contributed outstanding interest rate swaps in March 2012 to Nationstar. These interest rate swaps on ABS debt generally require Nationstar to pay a fixed interest rate and receive a variable interest rate based on LIBOR. The outstanding interest rate swaps have not been designated as accounting hedges during the three months ended March 31, 2013 and 2012. Any changes in fair value are recorded as a component of gains or losses on interest rate swaps and caps in Nationstar’s consolidated statement of income and comprehensive income.
Associated with the Company's derivatives is $14.2 million and $10.9 million in margin call deposits recorded in other assets on the Company's balance sheet as of March 31, 2013 and December 31, 2012, respectively.
The following tables provide the outstanding notional balances and fair values of outstanding positions for the dates indicated, and recorded gains/(losses) during the periods indicated (in thousands):
 
 
Expiration
Dates
 
Outstanding
Notional
 
Fair
Value
 
Recorded
Gains /
(Losses)
For the three months ended March 31, 2013
 
 
 
 
 
 
 
MORTGAGE LOANS HELD FOR SALE
 
 
 
 
 
 
 
Loan sale commitments
2013
 
$
324

 
$
18

 
$
(3
)
OTHER ASSETS
 
 
 
 
 
 
 
IRLCs
2013-2014
 
7,114,578

 
180,174

 
30,126

Forward MBS trades
2013
 
990,702

 
1,918

 
1,030

LPCs
2013
 
60,561

 
497

 
(756
)
LIABILITIES
 
 
 
 
 
 
 
 Interest rate swaps and caps
2014-2015
 
637,852

 
4,987

 
1,004

Interest rate swaps on ABS debt
2013-2017
 
668,985

 
1,582

 
264

        Forward MBS trades
2013
 
5,605,889

 
20,306

 
(8,332
)
 LPCs
2013
 
2,837

 
20

 
66

 
 
 
 
 
 
 
 
For the year ended December 31, 2012
 
 
 
 
 
 
 
MORTGAGE LOANS HELD FOR SALE
 
 
 
 
 
 
 
Loan sale commitments
2013
 
$
445

 
$
21

 
$
(613
)
OTHER ASSETS
 
 
 
 
 
 
 
IRLCs
2013
 
4,921,963

 
150,048

 
138,746

Forward MBS trades
2013
 
977,900

 
888

 
888

LPCs
2013
 
112,624

 
1,253

 
1,253

LIABILITIES
 
 
 
 
 
 
 
Interest rate swaps and caps
2013-2015
 
726,168

 
6,120

 
420

Interest rate swaps on ABS debt (1) 
2013-2017
 
654,192

 
1,846

 
(1,414
)
Forward MBS trades
2013
 
3,964,721

 
11,974

 
(6,144
)
LPCs
2013
 
78,839

 
86

 
(86
)
 
(1) 
In March 2012, Nationstar received interest rate swaps from FIF as a part of the reorganization.


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11. Indebtedness
Notes Payable
A summary of the balances of notes payable for the dates indicated is presented below (in thousands).
 
 
March 31, 2013
 
December 31, 2012
 
Outstanding
 
Collateral
Pledged
 
Outstanding
 
Collateral
Pledged
Servicing Segment Notes Payable
 
 
 
 
 
 
 
MBS advance financing facility
$
174,965

 
$
192,278

 
$
185,817

 
$
206,622

Securities repurchase facility (2011)
11,774

 
55,603

 
11,774

 
55,603

2010-ABS advance financing facility
194,217

 
237,865

 
194,833

 
233,208

Nationstar Agency advance financing facility
575,035

 
608,663

 
476,091

 
549,284

MSR note
3,239

 
11,299

 
4,627

 
12,328

2012-AW agency advance financing facility
—

 
—

 
100,000

 
135,343

2012-C ABS advance financing facility
574,437

 
653,676

 
657,027

 
742,238

2012-R ABS advance financing facility
326,821

 
376,374

 
374,739

 
428,758

2012-W ABS advance financing facility
424,503

 
497,745

 
492,235

 
566,332

Reverse participations financing facility
104,799

 
127,424

 
65,943

 
76,455

MBS advance financing facility (2012)
60,012

 
68,992

 
—

 
—

Originations Segment Notes Payable

 

 

 

$750 million warehouse facility
495,751

 
517,002

 
245,287

 
285,281

$150 million warehouse facility
128,900

 
133,081

 
224,790

 
241,867

$750 million warehouse facility (2011)
197,257

 
204,617

 
356,104

 
371,836

$300 million warehouse facility (2009)
80,847

 
84,216

 
87,747

 
91,403

ASAP+ facility
57,329

 
55,704

 
124,572

 
124,596

Total notes payable
$
3,409,886

 
$
3,824,539

 
$
3,601,586

 
$
4,121,154

Servicing Segment Notes Payable
MBS advance financing facility - Nationstar has a one-year committed facility agreement with a GSE, under which Nationstar may transfer to the GSE certain servicing advance receivables against the transfer of funds by the GSE. This facility has the capacity to purchase up to $325.0 million in eligible servicing advance receivables. Effective April 1, 2013, this capacity increased to $775.0 million. The interest rate is based on LIBOR plus a spread of 2.50% to 4.00%. The maturity date of this facility is currently December 2013.
Securities repurchase facility (2011) - In December 2011, Nationstar entered into a securities repurchase facility with a financial services company. The master repurchase agreement (MRA) states that Nationstar may from time to time transfer to the financial services company eligible securities against the transfer of funds by the financial services company, with a simultaneous agreement by the financial services company to transfer such securities to Nationstar at a certain date, or on demand by Nationstar, against the transfer of funds from Nationstar. Additionally, the financial services company may elect to extend the transfer date for an additional 90 days at mutually agreed upon terms. The interest rate is based on LIBOR plus a margin of 3.50%. As of March 31, 2013, Nationstar has pledged the Company’s $55.6 million outstanding retained interest in the outstanding Nonrecourse debt—Legacy Assets securitization which was structured as a financing.
2010-ABS advance financing facility - In November 2010, Nationstar executed the 2010-ABS Advance Financing Facility with a financial institution. This facility has the capacity to purchase up to $300.0 million of advance receivables. The interest rate is based on LIBOR plus a spread of 3.00%. This facility matures in May 2014. This debt is nonrecourse to Nationstar.
Nationstar Agency advance financing facility - In January 2013, Nationstar amended and restated the Agency Advance Financing Facility with a financial institution. This facility has a variable funding note (VFN) with the capacity to borrow up to $600.0 million and the interest rate is based on LIBOR plus a spread of 1.20% to 3.75% depending upon the class of the note. The maturity date of the VFN is October 2013. Nationstar also issued $300.0 million in term notes to institutional investors.

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Table of Contents

The notes have a weighted average interest rate of 1.46% and a weighted average term of 3 years. The VFN and the term notes are secured by servicing advance receivables and the financing is nonrecourse to Nationstar.
MSR note - In connection with an October 2009 MSR acquisition, Nationstar executed a four-year note agreement with a GSE. As collateral for this note, Nationstar has pledged Nationstar’s rights, title, and interest in the acquired servicing portfolio. The interest rate is based on LIBOR plus 2.50%. The maturity date of this facility is October 2013.
2012-AW Agency advance financing facility - In June 2012, Nationstar executed the 2012-AW Agency Advance Financing Facility with a financial institution. This facility had the capacity to borrow up to $100.0 million and the interest rate was based on LIBOR plus a spread of 2.50%. The maturity date of this facility was June 2013. This facility was secured by servicing advance receivables and was nonrecourse to Nationstar. On January 31, 2013, Nationstar terminated this revolving financing facility and repaid all outstanding balances as of the termination date.
2012-C ABS advance financing facility - In June 2012, Nationstar executed the 2012-C ABS Advance Financing Facility with a financial institution. This facility has the capacity to borrow up to $700.0 million and the interest rate is based on LIBOR plus a spread of 3.25% to 4.25%. The maturity date of this facility is November 2013. This facility is secured by servicing advance receivables and is nonrecourse to Nationstar.
2012-R ABS advance financing facility - In June 2012, Nationstar executed the 2012-R ABS Advance Financing Facility with a financial institution. This facility has the capacity to borrow up to $400.0 million and the interest rate is based on LIBOR plus a spread of 3.37% to 8.00%. The maturity date of this facility is June 2014. This facility is secured by servicing advance receivables and is nonrecourse to Nationstar.
2012-W ABS advance financing facility - In June 2012, Nationstar executed the 2012-W ABS Advance Financing Facility with a financial institution. This facility has the capacity to borrow up to $500.0 million and the interest rate is based on LIBOR plus a spread of 3.75%. The maturity date of this facility is June 2013. This facility is secured by servicing advance receivables and is nonrecourse to Nationstar.
Reverse participations and max claim buyouts financing facility - In June 2012, Nationstar executed a reverse participations and max claim buyouts financing facility with a financial institution. This facility has capacity to borrow up to $150.0 million and the interest rate is based on LIBOR plus a spread of 4.00%. The maturity date of this facility is June 2014. This facility is partially secured by reverse mortgage loans.
MBS advance financing facility (2012) - In December 2012, Nationstar executed a MBS Advance Financing Facility with a financial institution. This facility has the capacity to borrow up to $125.0 million through April 14, 2013, $100.0 million for the period April 15, 2013 through July 14, 2013 and $50.0 million for any date thereafter. The interest rate is LIBOR plus a spread of 3.50%. The maturity date of this facility is January 2014. This facility is secured by servicing advance receivables.

Originations Segment Notes Payable
$750 million warehouse facility - In February 2010, as amended, Nationstar executed a MRA with a financial institution, which will expire in January 2014. The MRA states that from time to time Nationstar may enter into transactions, for an aggregate amount of $750.0 million (which amount was increased from $375.0 million in January 2013), in which Nationstar agrees to transfer to the same financial institution certain mortgage loans against the transfer of funds by the same financial institution, with a simultaneous agreement by the same financial institution to transfer such mortgage loans to Nationstar at a date certain, or on demand by Nationstar, against the transfer of funds from Nationstar. The interest rate is based on LIBOR plus a spread ranging from 1.75% to 2.50%.
$150 million warehouse facility - Nationstar has a MRA with a financial services company, as amended, which will expire in April 2014. The facility has a committed amount of $150.0 million (which amount was increased to $300.0 million in April 2013) and an uncommitted amount of $150.0 million (which amount was increased to $300.0 million in April 2013) that can be granted at the discretion of the financial institution. The MRA states that from time to time Nationstar may enter into transactions in which Nationstar agrees to transfer to the financial services company certain mortgage loans or MBS against the transfer of funds by the financial services company, with a simultaneous agreement by the financial services company to transfer such mortgage loans or MBS to Nationstar at a certain date, or on demand by Nationstar, against the transfer of funds from Nationstar. The interest rate is based on LIBOR plus a spread of 0.75% - 3.50%.
$750 million warehouse facility (2011) - In March 2011, as amended, Nationstar executed an MRA with a financial institution, under which Nationstar may enter into transactions, for an aggregate amount of $750.0 million in which Nationstar agrees to transfer to the same financial institution certain mortgage loans and certain securities against the transfer of funds by the same financial institution, with a simultaneous agreement by the same financial institution to transfer such mortgage loans and

26
Table of Contents

securities to Nationstar at a date certain, or on demand by Nationstar, against the transfer of funds from Nationstar. The maturity is August 2013 with the interest rate based on LIBOR plus a spread of 2.25% to 3.00%, which varies based on the underlying transferred collateral.
$300 million warehouse facility (2009) - In October 2009, as amended, Nationstar executed a MRA with a financial institution. This MRA states that from time to time Nationstar may enter into transactions, for an aggregate amount of $300.0 million (which amount was increased from $100.0 million in March 2013), in which Nationstar agrees to transfer to the financial institution certain mortgage loans against the transfer of funds by the financial institution, with a simultaneous agreement by the financial institution to transfer such mortgage loans to Nationstar at a certain date, or on demand by Nationstar, against the transfer of funds from Nationstar. The interest rate is based on LIBOR plus a spread of 2.50%. The maturity date of this MRA with the financial institution is March 2014.
ASAP + facility - During 2009, Nationstar began executing As Soon As Pooled Plus agreements with a GSE, under which Nationstar transfers to the GSE eligible mortgage loans that are to be pooled into the GSE MBS against the transfer of funds by the GSE. The interest rate is based on LIBOR plus a spread of 1.50%. These agreements typically have a maturity of up to 45 days.
Unsecured Senior Notes
A summary of the balances of unsecured senior notes is presented below (in thousands):
 
March 31, 2013
 
December 31, 2012

$285 million face value, 10.875% interest rate payable semi-annually, due April 2015
$
282,046

 
$
281,676

$375 million face value, 9.625% interest rate payable semi-annually, due May 2019
379,896

 
380,232

$400 million face value, 7.875% interest rate payable semi-annually, due October 2020
400,704

 
400,727

$600 million face value, 6.500%, interest rate payable semi-annually, due July 2021
606,500

 
—

Total
$
1,669,146

 
$
1,062,635

In February 2013, Nationstar completed the offering of $400.0 million of unsecured senior notes, with a maturity date of July 2021. These notes were issued at par. In March 2013, Nationstar completed an additional offering of $200.0 million of the unsecured senior notes due July 2021. These notes were issued with an issue premium of $6.5 million for net cash proceeds before issuance costs of $606.5 million. Under the terms of these unsecured senior notes, we pay interest semiannually to the note holders at an interest rate of 6.500%. These unsecured senior notes were issued in a private placement and have not been registered under the Securities Act of 1933, as amended.
The indentures for the unsecured senior notes contain various covenants and restrictions that limit the Company's, Nationstar's, or certain of its subsidiaries’, ability to incur additional indebtedness, pay dividends, make certain investments, create liens, consolidate, merge or sell substantially all of their assets, or enter into certain transactions with affiliates. 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 ratios included in the indentures for the senior notes are incurrence-based compared to the customary ratio covenants that are often found in credit agreements that require a company to maintain a certain ratio.
The expected maturities of Nationstar's senior unsecured notes based on contractual maturities are as follows (in thousands).

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Table of Contents

Year
Amount
2014
$
—

2015
285,000

2016
—

2017
—

2018
—

Thereafter
1,375,000

Total
$
1,660,000

Legacy Asset and Other Financing
Nonrecourse Debt–Legacy Assets
In November 2009, Nationstar completed the securitization of approximately $222.0 million of ABS, which was structured as a secured borrowing. This structure resulted in Nationstar carrying the securitized loans as mortgages on Nationstar’s consolidated balance sheet and recognizing the asset-backed certificates acquired by third parties as nonrecourse debt, totaling approximately $98.4 million and $100.6 million at March 31, 2013, and December 31, 2012, respectively. The principal and interest on these notes are paid using the cash flows from the underlying mortgage loans, which serve as collateral for the debt. The interest rate paid on the outstanding securities is 7.50%, which is subject to an available funds cap. The total outstanding principal balance on the underlying mortgage loans serving as collateral for the debt was approximately $328.5 million and $336.9 million at March 31, 2013 and December 31, 2012, respectively. Accordingly, the timing of the principal payments on this nonrecourse debt is dependent on the payments received on the underlying mortgage loans. The unpaid principal balance on the outstanding notes was $114.4 million and $117.1 million at March 31, 2013 and December 31, 2012, respectively.
Excess Spread Financing Debt at Fair Value
In conjunction with Nationstar's acquisition of certain mortgage servicing rights on various pools of residential mortgage loans (the Portfolios), Nationstar has entered into sale and assignment agreements which are treated as financings with certain entities formed by Newcastle in which Newcastle and/or certain funds managed by 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 retains all ancillary income associated with servicing the Portfolios and the remaining portion of the excess cash flow after receipt of the fixed basic servicing fee. Nationstar continues to be the servicer of the Portfolios and provides all servicing and advancing functions. Newcastle has no prior or ongoing obligations associated with the Portfolios.
Contemporaneous with the above, Nationstar entered into refinanced loan agreements with Newcastle. 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 has elected fair value accounting for these financing agreements.The total carrying amount of the outstanding excess spread financing agreements was $498.9 million and $288.1 million at March 31, 2013 and December 31, 2012, respectively.

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

 
Discount Rate
 
Total Prepayment
Speeds
 
Credit Losses
 
100 bps
Adverse
Change
200 bps
Adverse
Change
 
10%
Adverse
Change
20%
Adverse
Change
 
10%
Adverse
Change
20%
Adverse
Change
March 31, 2013
 
 
 
 
 
 
 
 
Excess spread financing
$
16,647

$
31,505

 
$
43,956

$
63,970

 
$
9,144

$
13,937

December 31, 2012
 
 
 
 
 
 
 
 
 Excess spread financing
$
7,978

$
16,404

 
$
10,654

$
22,240

 
$
5,538

$
11,075



28
Table of Contents

As the fair value on the outstanding excess spread financing is linked to the future economic performance of certain acquired MSRs, any adverse changes in the acquired MSRs would inherently benefit the net carrying amount of the excess spread financing, while any beneficial changes in certain key assumptions used in valuing the acquired MSRs would negatively impact the net carrying amount of the excess spread financing.
These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors (e.g., a decrease in total prepayment speeds may result in an increase in credit losses), which could impact the above hypothetical effects.
Participating Interest Financing
Participating interest financing represent the issuance of pools of Home Equity Conversion Mortgage Backed Securities (HMBS) to third-party security holders which are guaranteed by certain GSEs. Nationstar has accounted for the transfer of these advances in the related Home Equity Conversion Mortgages (HECM) loans as secured borrowings, retaining the initial reverse mortgage interests on its balance sheet, and recording the pooled HMBS as participating interest financing liabilities on the Company’s balance sheet. Monthly cash flows generated from the HECM loans are used to service the HMBS. The interest rate is based on the underlying HMBS rate with a range of 0.53% to 7.17%. The participating interest financing was $745.3 million and $580.8 million at March 31, 2013 and December 31, 2012, respectively.
Financial Covenants
As of March 31, 2013, Nationstar was in compliance with its covenants on its borrowing arrangements and credit facilities. These covenants generally relate to Nationstar’s tangible net worth, liquidity reserves, and leverage requirements.

12. General and Administrative Expenses
General and administrative expenses consist of the following for the dates indicated (in thousands):
 
 
For the three months ended
 
March 31,
2013
March 31,
2012
Servicing
$
47,772

$
11,079

Outsourcing
19,517

2,056

Legal and professional fees
17,333

5,102

Loan processing charges
11,564

1,065

Depreciation and amortization
3,901

1,531

Postage
3,850

1,314

Telecommunications and technology
3,304

1,251

Travel
3,229

821

Equipment
3,167

1,320

Dues and fees
2,870

918

Advertising
2,112

742

Stationary and office supplies
1,558

994

Other
5,465

919

Total general and administrative expenses
$
125,642

$
29,112


13. Income Taxes
Income tax expense was as follows (in thousands):


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For three months ended
 
March 31, 2013
March 31, 2012

Current
 
 
    Federal
$
21,851

$
2,794

    State
2,681

351

 
24,532

3,145

 




Deferred




    Federal
12,457

—

    State
1,388

—

 
13,845

—

Total
$
38,377

$
3,145

 
 
 
Effective tax rate
38.0
%
5.9
%

The financial statements for the period January 1, 2012 up to the Reorganization do not include income tax expense or benefit or any current or deferred income tax assets or liabilities. Nationstar Inc.'s corporate subsidiaries were subject to income taxes prior to the Reorganization, however, income tax expense (primarily state) and related tax liabilities were not material for presentation purposes.
Net deferred tax assets totaled $9.9 million at March 31, 2013 and $23.7 million at December 31, 2012. A valuation allowance of $45.6 million was recorded against deferred tax assets at December 31, 2012 and March 31, 2013 as management believes that it is more likely than not that not all of the deferred tax assets will be realized.

14. Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, provides a definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value and, therefore, does not expand the use of fair value in any new circumstance.
ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tiered fair value hierarchy based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs). In addition, ASC 820 requires an entity to consider all aspects of nonperformance risk, including its own credit standing, when measuring the fair value of a liability. Under ASC 820, related disclosures are segregated for assets and liabilities measured at fair value based on the level used within the hierarchy to determine their fair values.
The following describes the methods and assumptions used by Nationstar in estimating fair values:
Cash and Cash Equivalents, Restricted Cash – The carrying amount reported in the consolidated balance sheets approximates fair value.
Mortgage Loans Held for Sale – 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 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

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for credit risk and other individual loan characteristics. As these prices are derived from market prices, Nationstar classifies these valuations as Level 2 in the fair value disclosures.
Mortgage Loans Held for Investment, subject to nonrecourse debt – Legacy Assets – Nationstar determines the fair value of loans held for investment, subject to nonrecourse debt – Legacy Assets 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, credit losses, and discount rates. These internal inputs require the use of judgment by Nationstar and can have a significant impact on the determination of the loan’s fair value. As these prices are derived from a combination of internally developed valuation models and quoted market prices, Nationstar classifies these valuations as Level 3 in the fair value disclosures.
Mortgage Servicing Rights – Fair Value – Nationstar recognizes MSRs related to all existing residential mortgage loans transferred to a third party in a transfer that meets the requirements for sale accounting and for which the servicing rights are retained. Additionally, Nationstar may acquire the rights to service residential mortgage loans that do not relate to assets transferred by Nationstar through the purchase of these rights from third parties. Nationstar estimates the fair value of its forward MSRs using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, discount rates, and credit losses. These assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency and coupon dispersion. These assumptions require the use of judgment by Nationstar and can have a significant impact on the determination of the MSR’s fair value. Periodically, management obtains third party valuations of a portion of the portfolio to assess the reasonableness of the fair value calculations provided by the cash flow model. Because of the nature of the valuation inputs, Nationstar classifies these valuations as Level 3 in the fair value disclosures.
Reverse Mortgage Interests – 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 advances include due and payable advances, which are recovered upon the foreclosure and sale of the subject property, and defaulted advances that can be securitized. Nationstar estimates the fair value using a market approach by utilizing the fair value of securities backed by similar advances on reverse mortgage loans, adjusted for certain factors. Nationstar classifies these valuations as Level 2 in the fair value disclosures.

REO – Nationstar determines the fair value of REO properties through the use of third-party appraisals and broker price opinions, adjusted for estimated selling costs. Such estimated selling costs include realtor fees and other anticipated closing costs. These values are adjusted to take into account factors that could cause the actual liquidation value of foreclosed properties to be different than the appraised values. This valuation adjustment is based upon Nationstar’s historical experience with REO. REO is classified as Level 3 in the fair value disclosures.
Derivative Instruments – Nationstar enters into a variety of derivative financial instruments as part of its hedging strategy. The majority of these derivatives are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, Nationstar utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 2. In addition, Nationstar enters into IRLCs and LPCs with prospective borrowers and other loan originators. These commitments are carried at fair value based on the fair value of related 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 other assets or derivative financial instruments in the consolidated balance sheets. These commitments are classified as Level 2 in the fair value disclosures.
Notes Payable – 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 sheet approximates fair value. Nationstar classifies these valuations as Level 3 in the fair value disclosures.
Unsecured Senior Notes – The fair value of unsecured senior notes is based on quoted market prices and is considered Level 1 from the market observable inputs used to determine fair value.
Nonrecourse Debt – Legacy Assets – 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.

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Excess Spread Financing – 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. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions at March 31, 2013 being mortgage prepayment speeds of 15.0%, average life of 4.2 years, and discount rate of 13.1%. Key assumptions at December 31, 2012, were mortgage prepayment speeds of 14.0%, average life of 4.2 years and discount rate of 15.0%. Changes in fair value to the excess spread financing are recorded as a component of service fee income in Nationstar's consolidated statement of operations. As these prices are derived from a combination of internally developed valuation models and quoted market prices based on the value of the underlying MSRs, Nationstar classifies these valuations as Level 3 in the fair value disclosures.
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
For three months ended March 31, 2013
 
 
 
Low
9.2%
3.0 years
10.3%
High
21.1%
4.8 years
15.4%
For the year ended December 31, 2012
 
 
 
Low
9.4%
3.0 years
13.6%
High
22.4%
4.5 years
15.5%

Participating Interest Financing – 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.

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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 (in thousands):
 
 
 
March 31, 2013
 
 
 
Recurring Fair Value Measurements
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
Mortgage loans held for sale(1)
$
1,703,709

 
$
—

 
$
1,703,709

 
$
—

Mortgage servicing rights – fair value(1)
1,289,643

 
—

 
—

 
1,289,643

Other assets:
 
 
 
 
 
 
 
IRLCs
180,174

 
—

 
180,174

 
—

Forward MBS trades
1,918

 
—

 
1,918

 
—

LPCs
497

 
—

 
497

 
—

Total assets
$
3,175,941

 
$
—

 
$
1,886,298

 
$
1,289,643

LIABILITIES
 
 
 
 
 
 
 
Derivative financial instruments
 
 
 
 
 
 
 
Interest rate swaps and caps
$
4,987

 
$
—

 
$
4,987

 
$
—

Interest rate swaps on ABS debt
1,582

 
—

 
1,582

 
—

       Forward MBS trades
20,306

 
—

 
20,306

 
—

       LPCs
20

 
—

 
20

 
—

Excess spread financing (at fair value)
498,906

 
—

 
—

 
498,906

Total liabilities
$
525,801

 
$
—

 
$
26,895

 
$
498,906

 
 
 
December 31, 2012
 
 
 
Recurring Fair Value Measurements
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
Mortgage loans held for sale(1)
$
1,480,537

 
$
—

 
$
1,480,537

 
$
—

Mortgage servicing rights – fair value(1)
635,860

 
—

 
—

 
635,860

Other assets:

 

 

 

IRLCs
150,048

 
—

 
150,048

 
—

Forward MBS trades
888

 
—

 
888

 
—

LPCs
1,253

 
—

 
1,253

 
—

Total assets
$
2,268,586

 
$
—

 
$
1,632,726

 
$
635,860

LIABILITIES
 
 
 
 
 
 
 
Derivative financial instruments
 
 
 
 
 
 
 
Interest rate swaps and caps
$
6,120

 
$
—

 
$
6,120

 
$
—

Interest rate swaps on ABS debt
1,846

 
—

 
1,846

 
—

Forward MBS trades
11,974

 


 
11,974

 


LPCs
86

 
—

 
86

 
—

Excess spread financing (at fair value)
288,089

 
—

 
—

 
288,089

Total liabilities
$
308,115

 
$
—

 
$
20,026

 
$
288,089

(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.

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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 (in thousands):
 
 
 
ASSETS
 
LIABILITIES
For the three months ended March 31, 2013
 
Mortgage
servicing rights
 
Excess spread
financing
Beginning balance
 
$
635,860

 
$
288,089

Transfers into Level 3
 
—

 
—

Transfers out of Level 3
 
—

 
—

Total gains or losses
 
 
 
 
Included in earnings
 
(9,659
)
 
23,891

Included in other comprehensive income
 
—

 
—

Purchases, issuances, sales and settlements
 
 
 
 
Purchases
 
632,174

 
—

Issuances
 
31,268

 
207,581

Sales
 
—

 
—

Settlements
 
—

 
(20,655
)
Ending balance
 
$
1,289,643

 
$
498,906


 
 
ASSETS
 
LIABILITIES
For the year ended December 31, 2012
 
Mortgage
servicing rights
 
Excess spread
financing
Beginning balance
 
$
251,050

 
$
44,595

Transfers into Level 3
 
—

 
—

Transfers out of Level 3
 
—

 
—

Total gains or losses
 
 
 
 
Included in earnings
 
(68,242
)
 
10,683

Included in other comprehensive income
 
—

 
—

Purchases, issuances, sales and settlements
 
 
 
 
Purchases
 
394,445

 
—

Issuances
 
58,607

 
272,676

Sales
 
—

 
—

Settlements
 
—

 
(39,865
)
Ending balance
 
$
635,860

 
$
288,089


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The table below presents the items which Nationstar measures at fair value on a nonrecurring basis (in thousands).
 
 
Nonrecurring Fair Value
Measurements
 
Total Estimated
Fair Value
 
Total Gain
(Loss) Included
in Earnings
 
Level 1
 
Level 2
 
Level 3
 
 
Three months ended March 31, 2013
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
REO(1)
$
—

 
$
—

 
$
15,487

 
$
15,487

 
$
(1,092
)
Total assets
$
—

 
$
—

 
$
15,487

 
$
15,487

 
$
(1,092
)
Year ended December 31, 2012
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
REO(1)
$
—

 
$
—

 
$
10,467

 
$
10,467

 
$
(2,864
)
Total assets
$
—

 
$
—

 
$
10,467

 
$
10,467

 
$
(2,864
)
(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.

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

 
March 31, 2013
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
220,039

 
$
220,039

 
$
—

 
$
—

Restricted cash
360,467

 
360,467

 
—

 
—

Mortgage loans held for sale
1,703,709

 
—

 
1,703,709

 
—

Mortgage loans held for investment, subject to nonrecourse debt – Legacy assets
235,915

 
—

 
—

 
202,618

Reverse mortgage interests
978,652

 
—

 
1,034,509

 
—

Derivative instruments
182,589

 
—

 
182,589

 
—

Financial liabilities:
 
 
 
 
 
 
 
Notes payable
3,409,886

 
—

 
—

 
3,409,886

Unsecured senior notes
1,669,146

 
1,806,057

 
—

 
—

Derivative financial instruments
26,895

 
—

 
26,895

 
—

Nonrecourse debt - Legacy assets
98,388

 
—

 
—

 
100,066

Excess spread financing
498,906

 
—

 
—

 
498,906

Participating interest financing
745,263

 
—

 
747,998

 
—

 
December 31, 2012
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
152,649

 
$
152,649

 
$
—

 
$
—

Restricted cash
393,190

 
393,190

 
—

 
—

Mortgage loans held for sale
1,480,537

 
—

 
1,480,537

 
—

Mortgage loans held for investment, subject to nonrecourse debt – Legacy assets
238,907

 
—

 
—

 
220,755

Reverse mortgage interests
750,273

 
—

 
805,650

 
—

Derivative financial instruments
152,189

 
—

 
152,189

 
—

Financial liabilities:
 
 
 
 
 
 
 
Notes payable
3,601,586

 
—

 
—

 
3,601,586

Unsecured senior notes
1,062,635

 
1,151,997

 
—

 
—

Derivative financial instruments
20,026

 
—

 
20,026

 
—

Nonrecourse debt - Legacy assets
100,620

 
—

 
—

 
102,492

Excess spread financing
288,089

 
—

 
—

 
288,089

Participating interest financing
580,836

 
—

 
593,741

 
—


15. Share-Based Compensation
Share-based compensation is recognized in accordance with ASC 718, Compensation-Stock Compensation. This guidance requires all share-based payments to employees, including grants of employee stock options, to be recognized as an expense in the consolidated statements of operations, based on the fair values. The amount of compensation is measured at the fair value of the awards when granted and this cost is expensed over the required service period, which is normally the vesting period of the award.
Nationstar Inc. has adopted the 2012 Incentive Compensation Plan (2012 Plan), that offers equity-based awards to certain key employees of Nationstar, consultants, and non-employee directors. In connection with the initial public offering, on March 7, 2012, Nationstar Inc. made grants of restricted stock to management of 1,191,117 shares and also to non-employee directors of

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85,716 shares. As permitted under the 2012 plan, certain participants remitted a portion of their Nationstar Inc. common stock to Nationstar Mortgage LLC in payment of a portion of their federal tax withholdings on their vested shares. The participants paid the remainder of their required tax payments with cash. As a result of the above activity, Nationstar Mortgage LLC holds 161,651 shares of Nationstar Inc. common shares at their cost of $6.6 million.
The following table summarizes information about our restricted stock as of March 31, 2013 under the 2012 Plan (shares in thousands):
 
Shares
 
Grant Date Fair Value
 
Remaining Contractual Term
Restricted stock granted in conjunction with the initial public offering in March 2012
1,277
 
$14.00
 
1.9
Grants issued subsequent to public offering
69
 
$29.95
 
2.1
Forfeited
(53)
 

 

Restricted stock outstanding at December 31, 2012
1,293
 
 
 
 
Grants issued in March 2013
288
 
$37.60
 
3.0
Forfeited
(16)
 
 
 
 
Shares returned to treasury to pay taxes
(162)
 
 
 
 
Restricted stock outstanding at March 31, 2013
1,403
 
 
 
 
Restricted stock unvested and expected to vest
923
 
 
 
 
Restricted stock vested and payable at March 31, 2013
—
 
 
 
 
The following table summarizes the expected future vesting schedule of the restricted stock grants (in thousands):
 
2013
2014
2015
2016
Restricted stock expected to vest
20
413
413
77
In addition to the 2012 Plan, Nationstar management also has interests in certain of the predecessor parent company FIF’s restricted preferred units which fully vested on June 30, 2012. The weighted average grant date fair value of these units was $4.23. In conjunction with the final vesting under this plan, certain participants remitted a portion of their Nationstar Inc. common stock to Nationstar in payment of a portion of their federal tax withholdings on their vested shares. The participants paid the remainder of their required tax payments with cash. As a result of the above activity, Nationstar holds 212,156 shares of Nationstar Inc. common shares at their cost of $4.6 million. These shares are reflected in Nationstar Inc.'s consolidated balance sheet as common shares held by subsidiary, a contra equity account. The shares are expected to be held by Nationstar until they can be distributed to Nationstar Inc.
Total compensation expense, net of forfeitures, for the 2012 Plan for the three month ended March 31, 2013 and for both the 2012 Plan and the predecessor plan recognized for the three months ended March 31, 2012 was $3.0 million and $2.4 million, respectively. Nationstar expects to recognize $7.3 million of compensation expense in the last nine months of 2013, $4.9 million in 2014, $1.6 million in 2015 and $0.2 million in 2016.

16. Earnings Per Share

Net income per share is computed under the provisions of ASC 260, Earnings Per Share. Basic net income per share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed based on the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares represent outstanding restricted stock.

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17. Capital Requirements
Certain of Nationstar’s secondary market investors require various capital adequacy requirements, as specified in the respective selling and servicing agreements. To the extent that these mandatory, imposed capital requirements are not met, Nationstar’s secondary market investors may ultimately terminate Nationstar’s selling and servicing agreements, which would prohibit Nationstar from further originating or securitizing these specific types of mortgage loans. In addition, these secondary market investors may impose additional net worth or financial condition requirements based on an assessment of market conditions or other relevant factors.
Among 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 $532.9 million. As of March 31, 2013, Nationstar was in compliance with all of its selling and servicing capital requirements.
Additionally, Nationstar is required to maintain a minimum tangible net worth of at least $350.0 million as of each quarter-end related to its outstanding Master Repurchase Agreements on its outstanding repurchase facilities. As of March 31, 2013, Nationstar was in compliance with these minimum tangible net worth requirements.

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18. Commitments and Contingencies
Litigation and Regulatory Matters
In the ordinary course of business, Nationstar Inc. and its subsidiaries are routinely named as defendants in or parties to many pending and threatened legal actions and proceedings, 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. The certification of any putative class action could substantially increase our exposure to damages. These actions and proceedings are generally based on alleged violations of consumer protection, securities, employment, contract and other laws, including the Fair Debt Collection Practices Act. Additionally, along with others in our industry, we are subject to repurchase claims and may continue to receive claims in the future, including through securitization vehicles and master servicing arrangements that we have acquired and from our Legacy Portfolio. Certain of the actual or threatened legal actions include claims for substantial compensatory, punitive and/or, statutory damages or claims for an indeterminate amount of damages.

Further, in the ordinary course of business the Company and 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 foreclosure processes and procedures and lender-placed insurance. In particular, ongoing and other legal proceedings brought under state consumer protection statutes may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amounts we earned form the underlying activities and that could have a material adverse effect on our liquidity and financial position.

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

When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. Once the matter is deemed to be both probable and estimable, the Company will establish an accrued liability and record a corresponding amount to litigation related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Litigation related expense, which includes the fees paid to external legal service providers, of $3.5 million and $1.6 million for the three months ended March 31, 2013 and March 31, 2012 respectively, were included in general and administrative expense 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 $1.0 million to $4.8 million in excess of the accrued liability (if any) related to those matters. This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within 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 adverse effect on the consolidated financial condition of the Company, although the outcome of such proceedings could be material to the Company’s operating results and cash flows for a particular period depending, on among other things, the level of the

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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.

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 10 - Derivative Financial Instruments).

Nationstar has certain MSRs related to approximately $28.2 billion of unpaid principal balance 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 March 31, 2013, the Company’s maximum unfunded advance obligation related to these MSRs was approximately $4.6 billion. Upon funding any portion of these advances, the Company expects to securitize and sell the advances in transactions that will be accounted for as financing arrangements.

Other Contingencies
In June 2011, Nationstar entered into an agreement to subservice loans for a financial services company. Nationstar began to subservice these loans in July and August 2011. This subservicing agreement included, among other things, a loss incentive and sharing arrangement. Under this arrangement, Nationstar can earn incentive fees of up to $2.5 million for successfully mitigating losses within a specific subserviced population of loans. This incentive fee would be recognized when earned. For this same population of loans, Nationstar is subject to loss sharing under certain conditions. Should losses in this population of loans exceed a specified level, Nationstar would be required to share a portion of the losses on such loans up to a maximum of $10.0 million. Losses under this arrangement would be recognized at the point at which Nationstar determines that a liability is expected to be incurred. At March 31, 2013 and December 31, 2012, Nationstar has estimated no liability under this agreement.

During December 2009, Nationstar entered into a strategic relationship with a major mortgage market participant, which
contemplates, among other things, significant mortgage servicing rights and subservicing transfers to Nationstar upon terms to be determined. Under this arrangement, if certain delivery thresholds have been met, the market participant may require Nationstar to establish an operating division or newly created subsidiary with separate, dedicated employees within a specified timeline to service such mortgage servicing rights and subservicing. After a specified time period, this market participant may purchase the subsidiary at an agreed upon price. Since December 2010, all of the required delivery thresholds with this market participant have been met, but the market participant has not required the Company to establish an operating division or newly created subsidiary with separate, dedicated employees.

19. Business Segment Reporting
Nationstar currently conducts business in two separate operating segments: Servicing and Originations. The Servicing segment provides loan servicing on Nationstar’s total servicing portfolio, including the collection of principal and interest payments and the assessment of ancillary fees related to the servicing of mortgage loans. The Originations segment involves the origination, packaging, and sale of agency mortgage loans into the secondary markets via whole loan sales or securitizations. Nationstar reports the activity not related to either operating segment in the Legacy Portfolio and Other column. The Legacy Portfolio and Other column includes primarily all subprime mortgage loans originated in the latter portion of 2006 and during 2007 or acquired from Nationstar’s predecessor.
Nationstar’s segments are based upon Nationstar’s organizational structure which focuses primarily on the services offered. The accounting policies of each reportable segment are the same as those of Nationstar except for 1) expenses for consolidated back-office operations and general overhead-type expenses such as executive administration and accounting and 2) revenues generated on inter-segment services performed. Expenses are allocated to individual segments based on the estimated value of services performed, including total revenue contributions, personnel headcount, and the equity invested in each segment. Revenues generated or 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.
The following tables are a presentation of financial information by segment for the periods indicated (in thousands):

40
Table of Contents

 
Three months ended March 31, 2013
 
Servicing
 
Originations
 
Operating
Segments
 
Legacy
Portfolio
and Other
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
 
 
 
 
Servicing fee income
$
206,460

 
$
—

 
$
206,460

 
$
555

 
$
(9,419
)
 
$
197,596

Other fee income
39,065

 
5,896

 
44,961

 
(82
)
 
 
 
44,879

Total fee income
245,525

 
5,896

 
251,421

 
473

 
(9,419
)
 
242,475

Gain/(loss) on mortgage loans held for sale
(98
)
 
179,793

 
179,695

 
(92
)
 
8,984

 
188,587

Total revenues
245,427

 
185,689

 
431,116

 
381

 
(435
)
 
431,062

Total expenses and impairments
147,609

 
111,902

 
259,511

 
9,060

 
—

 
268,571

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
13,380

 
10,979

 
24,359

 
4,814

 
435

 
29,608

Interest expense
(71,321
)
 
(16,759
)
 
(88,080
)
 
(4,294
)
 
—

 
(92,374
)
Gain on interest rate swaps and caps
795

 
—

 
795

 
473

 
—

 
1,268

Total other income (expense)
(57,146
)
 
(5,780
)
 
(62,926
)
 
993

 
435

 
(61,498
)
Income (loss) before taxes
$
40,672

 
$
68,007

 
$
108,679

 
$
(7,686
)
 
$
—

 
$
100,993

Depreciation and amortization
$
2,306

 
$
816

 
$
3,122

 
$
779

 
$
—

 
$
3,901

Total assets
6,378,129

 
2,155,114

 
8,533,243

 
352,322

 
—

 
8,885,565


 
 
Three months ended March 31, 2012
 
Servicing
 
Originations
 
Operating
Segments
 
Legacy
Portfolio
and Other
 
Eliminations
 
Consolidated  
REVENUES:
 
 
 
 
 
 
 
 
 
 
 
Servicing fee income
$
86,040

 
$
—

 
$
86,040

 
$
617

 
$
(467
)
 
$
86,190

Other fee income
7,419

 
(19
)
 
7,400

 
(30
)
 
—

 
7,370

Total fee income
93,459

 
(19
)
 
93,440

 
587

 
(467
)
 
93,560

Gain on mortgage loans held for sale
—

 
70,500

 
70,500

 
—

 
12

 
70,512

Total revenues
93,459

 
70,481

 
163,940

 
587

 
(455
)
 
164,072

Total expenses and impairments
59,230

 
28,474

 
87,704

 
8,883

 
(10
)
 
96,577

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
2,385

 
3,541

 
5,926

 
4,808

 
467

 
11,201

Interest expense
(16,928
)
 
(3,777
)
 
(20,705
)
 
(4,253
)
 
(22
)
 
(24,980
)
Loss on equity method investment
(117
)
 
—

 
(117
)
 
—

 
—

 
(117
)
Gain (loss) on interest rate swaps and caps
38

 
—

 
38

 
(306
)
 
—

 
(268
)
Total other income (expense)
(14,622
)
 
(236
)
 
(14,858
)
 
249

 
445

 
(14,164
)
Income (loss) before taxes
$
19,607

 
$
41,771

 
$
61,378

 
$
(8,047
)
 
$
—

 
$
53,331

Depreciation and amortization
$
860

 
$
382

 
$
1,242

 
$
289

 
$
—

 
$
1,531

Total assets
1,402,327

 
512,418

 
1,914,745

 
264,017

 
—

 
2,178,762







41
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20. Guarantor Financial Statement Information
As of March 31, 2013, Nationstar and Nationstar Capital Corporation have issued $1.7 billion aggregate principal amount of unsecured senior notes which mature on various dates through July 1, 2021. The notes are jointly and severally guaranteed on an unsecured senior basis by all of Nationstar’s existing and future domestic subsidiaries other than its securitization and certain finance subsidiaries, certain other restricted subsidiaries and subsidiaries that in the future Nationstar designates as excluded restricted and unrestricted subsidiaries. All guarantor subsidiaries are 100% owned by Nationstar. Effective June 30, 2012, Nationstar Inc. and its two direct wholly-owned subsidiaries became guarantors of the unsecured senior notes as well. Presented below are consolidating financial statements of Nationstar Inc., Nationstar, and the guarantor subsidiaries for the periods indicated.

NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING BALANCE SHEET
MARCH 31, 2013
(IN THOUSANDS)
Assets
Nationstar Inc.
 
Issuer
 
Guarantor
(Subsidiaries)
 
Non-Guarantor
(Subsidiaries)
 
Eliminations
 
Consolidated
Cash and cash equivalents
$
—

 
$
209,286

 
$
753

 
$
10,000

 
$
—

 
$
220,039

Restricted cash
—

 
194,768

 
18,769

 
146,930

 
—

 
360,467

Accounts receivable, net
—

 
3,410,255

 
7,666

 
196,906

 
—

 
3,614,827

Mortgage loans held for sale
—

 
1,703,709

 
—

 
—

 
—

 
1,703,709

Mortgage loans held for investment, subject to nonrecourse debt–Legacy Asset, net
—

 
16,717

 
—

 
219,198

 
—

 
235,915

Participating interest in reverse mortgages
—

 
978,652

 
—

 
—

 
—

 
978,652

Receivables from affiliates
—

 
—

 
102,364

 
1,670,029

 
(1,763,466
)
 
8,927

Mortgage servicing rights – fair value
—

 
1,289,643

 
—

 
—

 
—

 
1,289,643

Investment in subsidiaries
799,342

 
174,679

 
—

 
—

 
(974,021
)
 
—

Mortgage servicing rights – amortized cost
—

 
10,941

 
—

 
—

 
—

 
10,941

Property and equipment, net
—

 
76,102

 
1,305

 
—

 
—

 
77,407

REO, net
—

 
12,791

 
—

 
2,696

 
—

 
15,487

Other assets
31,464

 
337,538

 
7,569

 
—

 
(7,020
)
 
369,551

Total assets
$
830,806

 
$
8,415,081

 
$
138,426

 
$
2,245,759

 
$
(2,744,507
)
 
$
8,885,565

Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Notes payable
$
—

 
$
1,314,873

 
$
—

 
$
2,095,013

 
$
—

 
$
3,409,886

Unsecured senior notes
—

 
1,669,146

 
—

 
—

 
—

 
1,669,146

Payables and accrued liabilities
—

 
1,525,800

 
7,853

 
3,265

 
(7,020
)
 
1,529,898

Payables to affiliates
6,554

 
1,756,912

 
—

 
—

 
(1,763,466
)
 
—

Derivative financial instruments
—

 
21,908

 
—

 
4,987

 
—

 
26,895

Mortgage Servicing Liability
—

 
82,931

 
—

 
—

 
—

 
82,931

Nonrecourse debt–Legacy Assets
—

 
—

 
—

 
98,388

 
—

 
98,388

Excess spread financing - at fair value
—

 
498,906

 
—

 
—

 
—

 
498,906

Participating interest financing
—

 
745,263

 
—

 
—

 
—

 
745,263

Total liabilities
6,554

 
7,615,739

 
7,853

 
2,201,653

 
(1,770,486
)
 
8,061,313

Total stockholders’ equity
824,252

 
799,342

 
130,573

 
44,106

 
(974,021
)
 
824,252

Total liabilities and stockholders’ equity
$
830,806

 
$
8,415,081

 
$
138,426

 
$
2,245,759

 
$
(2,744,507
)
 
$
8,885,565



42
Table of Contents


NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 (IN THOUSANDS)
 
Nationstar Inc.
 
Issuer
 
Guarantor
(Subsidiaries)
 
Non-Guarantor
(Subsidiaries)
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Servicing fee income
$
—

 
$
207,015

 
$
—

 
$
—

 
$
(9,419
)
 
$
197,596

Other fee income
—

 
6,234

 
38,517

 
128

 
—

 
44,879

Total fee income
—

 
213,249

 
38,517

 
128

 
(9,419
)
 
242,475

Gain on mortgage loans held for sale
—

 
179,603

 
—

 
—

 
8,984

 
188,587

Total Revenues
—

 
392,852

 
38,517

 
128

 
(435
)
 
431,062

Expenses and impairments:
 
 
 
 
 
 
 
 
 
 
 
Salaries, wages and benefits
—

 
128,588

 
6,399

 
—

 
—

 
134,987

General and administrative
—

 
116,403

 
9,239

 
—

 
—

 
125,642

Provision for loan losses
—

 
—

 
—

 
915

 
—

 
915

Loss on foreclosed real estate and other
—

 
296

 
—

 
796

 
—

 
1,092

Occupancy
—

 
5,784

 
151

 
—

 
—

 
5,935

Total expenses and impairments
—

 
251,071

 
15,789

 
1,711

 
—

 
268,571

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
25,424

 
—

 
3,749

 
435

 
29,608

Interest expense
—

 
(69,608
)
 
—

 
(22,766
)
 
—

 
(92,374
)
Gain/(Loss) on interest rate swaps and caps
—

 
263

 
—

 
1,005

 
—

 
1,268

Gain/(loss) from subsidiaries
62,616

 
3,133

 
—

 
—

 
(65,749
)
 
—

Total other income (expense)
62,616

 
(40,788
)
 
—

 
(18,012
)
 
(65,314
)
 
(61,498
)
Income before taxes
62,616

 
100,993

 
22,728

 
(19,595
)
 
(65,749
)
 
100,993

Income tax expense/(benefit)
—

 
38,377

 
—

 
—

 
—

 
38,377

Net income/(loss) and comprehensive income/(loss)
$
62,616

 
$
62,616

 
$
22,728

 
$
(19,595
)
 
$
(65,749
)
 
$
62,616




43
Table of Contents

NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(IN THOUSANDS)

 
Nationstar Inc.
 
Issuer
 
Guarantor
(Subsidiaries)
 
Non-Guarantor
(Subsidiaries)
 
Eliminations
 
Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
 
 
Net income/(loss)
$
62,616

 
$
62,616

 
$
22,728

 
$
(19,595
)
 
$
(65,749
)
 
$
62,616

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

 

 

 

 

 
 
(Gain)/loss from subsidiaries
(62,616
)
 
(3,133
)
 
—

 
—

 
65,749

 
—

Share-based compensation
—

 
2,858

 
—

 
—

 
—

 
2,858

Provision for loan losses
—

 
—

 
—

 
915

 
—

 
915

Loss on foreclosed real estate and other
—

 
296

 
—

 
796

 
—

 
1,092

(Gain)/loss on ineffectiveness on interest rate swaps and cap
—

 
(263
)
 
—

 
(1,005
)
 
—

 
(1,268
)
Fair value changes in excess spread financing
—

 
23,891

 
—

 
—

 
—

 
23,891

Depreciation and amortization
—

 
3,850

 
51

 
—

 
—

 
3,901

Change in fair value of mortgage servicing rights
—

 
9,659

 
—

 
—

 
—

 
9,659

Amortization/accretion of mortgage servicing rights at amortized cost
—

 
(275
)
 
—

 
—

 
—

 
(275
)
Amortization (accretion) of premiums/discounts
—

 
9,589

 
—

 
(80
)
 
—

 
9,509

Gain on mortgage loans held for sale
—

 
(179,603
)
 
—

 
—

 
(8,984
)
 
(188,587
)
Mortgage loans originated and purchased, net of fees
—

 
(3,781,116
)
 
—

 
—

 
—

 
(3,781,116
)
Proceeds on sale of and payments of mortgage loans held for sale
—

 
3,682,566

 
—

 
3,309

 
8,984

 
3,694,859

Net tax effect of stock grants
(2,660
)
 
—

 
—

 
—

 
—

 
(2,660
)
Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable, including servicing advances, net
—

 
282,727

 
(5,840
)
 
(195,793
)
 
—

 
81,094

Receivables from/(payables to) affiliates
6,584

 
(320,843
)
 
2,402

 
315,534

 
—

 
3,677

Reverse mortgage funded advances
—

 
(178,181
)
 
—

 
—

 
—

 
(178,181
)
Other assets
(2,690
)
 
4,631

 
(5,740
)
 
—

 
(5,477
)
 
(9,276
)
Payable and accrued liabilities
2,660

 
(127,198
)
 
6,038

 
8,076

 
5,477

 
(104,947
)
Net cash provided by/(used in) operating activities
3,894

 
(507,929
)
 
19,639

 
112,157

 
—

 
(372,239
)

44
Table of Contents

 
Nationstar Inc.
 
Issuer
 
Guarantor
(Subsidiaries)
 
Non-Guarantor
(Subsidiaries)
 
Eliminations
 
Consolidated
Investing activities:
 
 
 
 
 
 
 
 
 
 
 
Property and equipment additions, net of disposals
—

 
(5,761
)
 
(521
)
 
—

 
—

 
(6,282
)
Deposit on reverse mortgage servicing rights, net
—

 
(50,198
)
 
—

 
—

 
—

 
(50,198
)
Deposit on / purchase of mortgage servicing rights, net of liabilities incurred
—

 
(266,625
)
 
—

 
—

 
—

 
(266,625
)
Loan repurchases from Ginnie Mae
—

 
(8,815
)
 
—

 
—

 
—

 
(8,815
)
Proceeds from sales of REO
—

 
4,157

 
—

 
—

 
—

 
4,157

Net cash used in investing activities
—

 
(327,242
)
 
(521
)
 
—

 
—

 
(327,763
)
Financing activities:
 
 
 
 
 
 
 
 
 
 
 
Issuance of Senior Unsecured Notes
—

 
599,269

 
—

 
—

 
—

 
599,269

Transfers to/from restricted cash
—

 
(49,111
)
 
(18,766
)
 
100,600

 
—

 
32,723

Issuance of participating interest financing
—

 
166,646

 
—

 
—

 
—

 
166,646

Issuance of excess spread financing
—

 
192,730

 
—

 
—

 
—

 
192,730

Increase (decrease) in notes payable, net
—

 
8,316

 
—

 
(200,016
)
 
—

 
(191,700
)
Repayment of nonrecourse debt–Legacy assets
—

 
—

 
—

 
(2,612
)
 
—

 
(2,612
)
Repayment of excess servicing spread financing
—

 
(20,881
)
 
—

 
—

 
—

 
(20,881
)
Net tax benefit for stock grants issued
2,660

 
—

 
—

 
—

 
—

 
2,660

Contributions from joint venture members to noncontrolling interests
—

 
4,990

 
—

 
—

 
—

 
4,990

Redemption of shares for stock vesting
(6,554
)
 
—

 
—

 
—

 
—

 
(6,554
)
Cash settlement on derivative financial instruments
—

 
—

 
—

 
(129
)
 
—

 
(129
)
Debt financing costs
—

 
(9,750
)
 
—

 
—

 
—

 
(9,750
)
Net cash provided by/(used in) financing activities
(3,894
)
 
892,209

 
(18,766
)
 
(102,157
)
 
—

 
767,392

Net increase/(decrease) in cash
—

 
57,038

 
352

 
10,000

 
—

 
67,390

Cash and cash equivalents at beginning of period
—

 
152,248

 
401

 
—

 
—

 
152,649

Cash and cash equivalents at end of period
$
—

 
$
209,286

 
$
753

 
$
10,000

 
$
—

 
$
220,039



45
Table of Contents


NATIONSTAR MORTGAGE HOLDINGS INC.
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2012
(IN THOUSANDS)

 
Nationstar Inc.
 
Issuer
(Parent)
 
Guarantor
(Subsidiaries)
 
Non-Guarantor
(Subsidiaries)
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
152,248

 
$
401

 
$
—

 
$
—

 
$
152,649

Restricted cash
—

 
145,657

 
3

 
247,530

 
—

 
393,190

Accounts receivable, net
—

 
3,040,666

 
1,826

 
1,114

 
—

 
3,043,606

Mortgage loans held for sale
—

 
1,480,537

 
—

 
—

 
—

 
1,480,537

Mortgage loans held for investment, subject to nonrecourse debt–Legacy Asset, net
—

 
14,700

 
—

 
224,207

 
—

 
238,907

Participating interest in reverse mortgages
—

 
750,273

 
—


—


—


750,273

Receivables from affiliates
—

 
—

 
92,373

 
1,983,997

 
(2,063,766
)
 
12,604

Mortgage servicing rights – fair value
—

 
635,860

 
—

 
—

 
—

 
635,860

Investment in subsidiaries
728,908

 
149,188

 
—

 
—

 
(878,096
)
 
—

Mortgage servicing rights - amortized cost
—

 
10,973


—


—


—

 
10,973

Property and equipment, net
—

 
74,191

 
835

 
—

 
—

 
75,026

REO, net
—

 
8,428

 
—

 
2,039

 
—

 
10,467

Other assets
28,774

 
303,737

 
1,829

 
1,847

 
(14,136
)
 
322,051

Total assets
$
757,682

 
$
6,766,458

 
$
97,267

 
$
2,460,734

 
$
(2,955,998
)
 
$
7,126,143

Liabilities and members’ equity
 
 
 
 
 
 
 
 
 
 
 
Notes payable
$
—

 
$
1,306,557

 
$
—

 
$
2,295,029

 
$
—

 
$
3,601,586

Unsecured senior notes
—

 
1,062,635

 
—

 
—

 
—

 
1,062,635

Payables and accrued liabilities
—

 
640,369

 
1,815

 
3,383

 
(14,136
)
 
631,431

Payables to affiliates
—

 
2,063,766

 
—

 
—

 
(2,063,766
)
 
—

Derivative financial instruments
—

 
12,060

 
—

 
7,966

 


 
20,026

Mortgage Servicing Liability
—

 
83,238

 
—

 
—

 
—

 
83,238

Nonrecourse debt–Legacy Assets
—

 
—

 
—

 
100,620

 
—

 
100,620

Excess spread financing – fair value
—

 
288,089

 
—

 
—

 
—

 
288,089

Participating interest financing
—

 
580,836

 
—

 
—

 
—

 
580,836

Total liabilities
—

 
6,037,550

 
1,815

 
2,406,998

 
(2,077,902
)
 
6,368,461

Total members’ equity
757,682

 
728,908

 
95,452

 
53,736

 
(878,096
)
 
757,682

Total liabilities and members’ equity
$
757,682

 
$
6,766,458

 
$
97,267

 
$
2,460,734

 
$
(2,955,998
)
 
$
7,126,143



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NATIONSTAR MORTGAGE LLC CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2012
(IN THOUSANDS)
 
Issuer
 
Guarantor
(Subsidiaries)
 
Non-Guarantor
(Subsidiaries)
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Servicing fee income
$
84,171

 
$
—

 
$
2,486

 
$
(467
)
 
$
86,190

Other fee income
—

 
7,255

 
115

 
—

 
7,370

Total fee income
84,171

 
7,255

 
2,601

 
(467
)
 
93,560

Gain on mortgage loans held for sale
70,512

 
—

 
—

 
—

 
70,512

Total Revenues
154,683

 
7,255

 
2,601

 
(467
)
 
164,072

Expenses and impairments:

 

 

 

 

Salaries, wages and benefits
59,583

 
2,082

 
—

 
—

 
61,665

General and administrative
26,026

 
566

 
2,520

 
—

 
29,112

Provision for loan losses
461

 
—

 
292

 
—

 
753

Loss on foreclosed real estate
—

 
—

 
2,265

 
—

 
2,265

Occupancy
2,782

 
—

 
—

 
—

 
2,782

Total expenses and impairments
88,852

 
2,648

 
5,077

 
—

 
96,577

Other income / (expense):

 

 

 

 

Interest income
5,887

 
—

 
4,847

 
467

 
11,201

Interest expense
(18,195
)
 
—

 
(6,785
)
 
—

 
(24,980
)
Loss on equity method investments
—

 
(117
)
 
—

 
—

 
(117
)
Gain/(loss) on interest rate swaps and caps
(306
)
 
—

 
38

 
—

 
(268
)
Gain / (loss) from subsidiaries
114

 
—

 
—

 
(114
)
 
—

Total other income / (expense)
(12,500
)
 
(117
)
 
(1,900
)
 
353

 
(14,164
)
Income before taxes
53,331

 
4,490

 
(4,376
)
 
(114
)
 
53,331

Income tax expense/(benefit)
21,273

 
—

 
—

 
—

 
21,273

Net Income
$
32,058

 
$
4,490

 
$
(4,376
)
 
$
(114
)
 
$
32,058



 



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NATIONSTAR MORTGAGE LLC
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2012
(IN THOUSANDS)
 

 
 
Issuer
(Parent)
 
Guarantor
(Subsidiaries)
 
Non-Guarantor
(Subsidiaries)
 
Eliminations
 
Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
 
Net income/(loss)
 
$
32,058

 
$
4,490

 
$
(4,376
)
 
$
(114
)
 
$
32,058

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
 

 

 

 
 
 

(Gain)/loss from subsidiaries
 
(114
)
 
—

 
—

 
114

 
—

Share-based compensation
 
2,395

 
—

 
—

 
—

 
2,395

(Gain)/loss on sale of mortgage loans
 
(70,512
)
 
—

 
—

 
—

 
(70,512
)
Provision for loan losses
 
461

 
—

 
292

 
—

 
753

Loss on foreclosed real estate and other
 
—

 
—

 
2,265

 
—

 
2,265

Loss on equity method investments
 
117

 
—

 
—

 
—

 
117

(Gain)/loss on ineffectiveness on interest rate swaps and cap
 
306

 
—

 
(38
)
 
—

 
268

Fair value changes in excess spread financing
 
4,852

 
—

 
—

 
—

 
4,852

Depreciation and amortization
 
1,531

 
—

 
—

 
—

 
1,531

Change in fair value of mortgage servicing rights
 
(495
)
 
—

 
—

 
—

 
(495
)
Accretion of mortgage servicing liability
 
(633
)
 
—

 
—

 
—

 
(633
)
Amortization (accretion) of premiums/discounts
 
2,685

 
—

 
(763
)
 
—

 
1,922

Mortgage loans originated and purchased, net of fees
 
(1,189,942
)
 
—

 
—

 
—

 
(1,189,942
)
Cost of loans sold and principal payments and prepayments, and other changes in mortgage loans originated as held for sale, net of fees
 
1,297,338

 
—

 
5,758

 
—

 
1,303,096

Changes in assets and liabilities:
 

 

 

 
 
 

Accounts receivable
 
(238,752
)
 
(10
)
 
279,447

 
—

 
40,685

Receivables from/(payables to) affiliates
 
302,346

 
(4,447
)
 
(297,093
)
 
—

 
806

Reverse funded advances due to securitization
 
(112,738
)
 
—

 
—

 
—

 
(112,738
)
Other assets
 
(5,620
)
 
—

 
—

 
—

 
(5,620
)
Accounts payable and accrued liaibilities
 
98,546

 
—

 
28,779

 
—

 
127,325

Net cash provided by/(used in) operating activities
 
123,829

 
33

 
14,271

 
—

 
138,133


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Issuer
(Parent)
 
Guarantor
(Subsidiaries)
 
Non-Guarantor
(Subsidiaries)
 
Eliminations
 
Consolidated
Investing activities:
 
 
 
 
 
 
 
 
 
 
Property and equipment additions, net of disposals
 
(2,564
)
 
—

 
—

 
—

 
(2,564
)
Deposit on / purchase of mortgage servicing rights, net of liabilities incurred
 
(347
)
 
—

 
—

 
—

 
(347
)
Repurchases of REO from Ginnie Mae
 
(2,426
)
 
—

 
—

 
—

 
(2,426
)
Proceeds from sales of REO
 
4,816

 
—

 
(1,861
)
 
—

 
2,955

Net cash provided by/(used in) investing activities
 
(521
)
 
—

 
(1,861
)
 
—

 
(2,382
)
 
 
 
 
 
 
 
 
 
 
 
Financing activities:
 
 
 
 
 
 
 
 
 
 
Transfers to/from restricted cash
 
(82,358
)
 
—

 
(8,593
)
 
—

 
(90,951
)
Issuance of participating interest financing
 
115,438

 
—

 
—

 
—

 
115,438

Increase (decrease) in notes payable, net
 
(104,743
)
 
—

 
(682
)
 
—

 
(105,425
)
Repayment of nonrecourse debt–Legacy assets
 
—

 
—

 
(3,135
)
 
—

 
(3,135
)
Repayment of excess servicing spread financing
 
(2,123
)
 
—

 
—

 
—

 
(2,123
)
Contribution of parent
 
246,700

 
—

 
—

 
—

 
246,700

Debt financing costs
 
(2,706
)
 
—

 
—

 
—

 
(2,706
)
Net cash provided by/(used in) financing activities
 
170,208

 
—

 
(12,410
)
 
—

 
157,798

Net increase/(decrease) in cash
 
293,516

 
33

 
—

 
—

 
293,549

Cash and cash equivalents at beginning of period
 
62,201

 
244

 
—

 
—

 
62,445

Cash and cash equivalents at end of period
 
$
355,717

 
$
277

 
$
—

 
$
—

 
$
355,994

21. Disclosures Related to Transactions with Affiliates of Fortress Investment Group LLC
Nationstar maintains a marketing agreement with Springleaf Home Equity, Inc., Springleaf General Financial Services of Arkansas, Inc. and MorEquity, Inc. (collectively “Springleaf”), each of which are indirectly owned by investment funds managed by affiliates of Fortress Investment Group LLC. Pursuant to this agreement, Nationstar markets mortgage originations products to customers of Springleaf, and is compensated by the originations fees of loans that Nationstar refinances.
Additionally, Nationstar has eight agreements to act as the loan subservicer for Springleaf, including one for a whole loan "unencumbered" portfolio and seven for securitized loan portfolios, totaling $3.3 billion for which Nationstar receives a monthly per loan subservicing fee and other performance incentive fees subject to the agreements with Springleaf. For the three months ended March 31, 2013 and 2012, Nationstar recognized revenue of $2.1 million and $2.6 million, respectively, in additional servicing and other performance incentive fees related to these portfolios. At March 31, 2013 and December 31, 2012, Nationstar had an outstanding receivable from Springleaf of $0.8 million and $0.7 million, respectively, which was included as a component of accounts receivable.
Nationstar is the loan servicer for two securitized loan portfolios managed by Newcastle, which is managed by an affiliate of Fortress Investment Group LLC, for which Nationstar receives a monthly net servicing fee equal to 0.50% per annum on the unpaid principal balance of the portfolios, which was $1.0 billion and $1.1 billion, as of March 31, 2013 and 2012, respectively. For the three months ended March 31, 2013 and 2012, Nationstar received servicing fees and other performance incentive fees of $1.2 million and $1.4 million, respectively.
Additionally, Nationstar has entered into several agreements with certain entities formed by Newcastle, in which Newcastle and/or certain funds managed by Fortress own an interest (each a "Newcastle Entity"), where Nationstar sold to the related Newcastle 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 all ancillary income associated with servicing such MSRs and the remaining portion of the excess cash flow after receipt of the fixed basic servicing fee. Nationstar is the servicer of the loans and provides all servicing and advancing functions for the portfolio. The related Newcastle Entity does not have prior or

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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.
The fair value on the outstanding liability related to these agreements was $498.9 million and $288.1 million at March 31, 2013 and December 31, 2012, respectively.

In February 2013, Nationstar acquired certain fixed and adjustable rate reverse mortgage loans with an unpaid principal balance totaling $83.1 billion for a purchase price of $50.2 million. In conjunction with this acquisition, Nationstar entered into an agreement with NIC Reverse Loan LLC, a subsidiary of Newcastle, to sell a participating interest of the acquired reverse mortgage loans. Both Nationstar and NIC Reverse Loan LLC are entitled to the related percentage interest of all amounts received with respect to the reverse mortgage loans, net of payments of servicing fees and the reimbursement to Nationstar of servicing advances. Nationstar receives a fixed payment per loan for servicing these reverse mortgage loans. Nationstar records these reverse mortgage loans as reverse mortgage interests on the Company's consolidated balance sheet.
22. Related Party Disclosure
In March 2011, Nationstar entered into a limited partnership agreement with ANC Acquisition LLC (ANC). ANC was the parent company of National Real Estate Information Services, LP (NREIS), which through the ANC partnership Nationstar held a non-controlling interest in NREIS, an ancillary real estate services and vendor management company that directly and indirectly provided title agency settlement or valuation services for loan originations and default management. As Nationstar was able to exercise significant influence, but not control, over the policies and procedures of the entity, and Nationstar owned less than 50% of the voting interests, Nationstar applied the equity method of accounting. In March 2012 as part of the initial public offering restructuring, Nationstar assumed FIF’s 13% ownership in NREIS, increasing the total Nationstar investment to 35%. Nationstar disbursed servicing-related advances of $0.01 million and $4.72 million for the three months ended March 31, 2013 and 2012, respectively.
Through the third quarter of 2012, Nationstar had recognized its portion of NREIS' loss on equity method investment of $1.3 million. During the fourth quarter of 2012, the management of NREIS made the decision to wind down its operations due to continuing poor financial results. Because of the decision to wind down operations and the financial condition of NREIS, Nationstar recorded additional losses amounting to $9.0 million. In addition to its initial investment, Nationstar, during May 2012, advanced NREIS $2.0 million for future services. Nationstar determined that these deposits would not be recovered and fully impaired this additional deposit. In order to effect an orderly wind down of the operation, Nationstar, together with the majority owners of ANC, agreed to fund a portion of the expected wind down costs. As such, Nationstar recorded $2.3 million of losses in excess of its investment at December 31, 2012. There were no losses incurred for the three months ended March 31, 2013.
23. Subsequent Events

In April 2013, Nationstar entered into an agreement with Freddie Mac to purchase certain mortgage servicing rights and related servicing receivables. Under the terms of this agreement, Nationstar agreed to purchase the rights to service residential mortgage loans with a total UPB of approximately $22 billion and approximately $239 million of related servicing advance receivables. All of the related mortgage loans are owned, insured, or guaranteed by Freddie Mac. The aggregate purchase price is approximately $372 million, which is expected to be funded through cash on hand and the proceeds of a co-investment by Newcastle Investment Corp., and certain funds managed by Fortress which is expected to close in the second quarter of 2013. Nationstar expects to board a portion of these loans onto the servicing system during the second quarter of 2013; with the remaining portion to be subserviced.

In May 2013, Nationstar entered into an agreement to purchase the loan origination operations and related assets of Greenlight Financial Services (Greenlight), a residential mortgage originator. This acquisition is intended to provide channel expansion, increased origination opportunities, and an added source of servicing asset creation for Nationstar. Closing of the transaction is subject to certain customary closing conditions and the transaction is expected to close during the second quarter of 2013. The assets to be acquired will consist of property and equipment, intellectual property (including the Greenlight trademark), and certain other assets. Certain post-closing liabilities related to these assets will also be assumed as part of the transaction. The purchase price for these assets is up to $75 million, subject to certain contingencies. Due to the timing of this transaction, the data necessary to provide the supplemental pro forma information required by ASC 805-10-50-2 is not yet available as of the issuance date of these financial statements and accompanying notes. Nationstar expects to file the required supplemental pro forma information on Form 8-K with the SEC subsequent to the consummation of this transaction.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In conjunction with the completion of Nationstar Mortgage Holdings Inc.'s initial public offering in March 2012, Nationstar Mortgage LLC became a wholly-owned indirect subsidiary of Nationstar Mortgage Holdings Inc. Nationstar Mortgage Holdings Inc. was formed as a Delaware corporation for the purpose of reorganizing the structure of FIF HE Holdings LLC (FIF) and Nationstar Mortgage LLC so that the common stock issuer was a corporation rather than a limited liability company. Investors in FIF exchanged their membership units for shares in Nationstar Mortgage Holdings Inc. Because Nationstar Mortgage Holdings Inc. had no operations prior to the reorganization and initial public offering, Nationstar Mortgage LLC is the predecessor company. The following discussion and analysis relates to the operations of Nationstar Mortgage Holdings Inc. and its consolidated subsidiaries. The terms “we,” “us,” or “our” refer to the business of Nationstar Mortgage Holdings Inc. and subsidiaries (Nationstar Inc. or the Company) or its predecessor Nationstar Mortgage LLC (Nationstar) as appropriate.
General
Our Business
We are a real estate services company engaged primarily in the servicing of residential loans for others and the origination and selling or securitization of single-family conforming mortgage loans to GSEs or other third-party investors in the secondary market. Nationstar, our principal operating subsidiary, is a leading high touch non-bank residential mortgage servicer with a broad array of servicing capabilities across the residential mortgage product spectrum. We have been the fastest growing mortgage servicer since 2007 as measured by annual percentage growth in UPB, having grown 84.1% annually on a compounded basis. As of March 31, 2013, we serviced over 1.9 million residential mortgage loans with an aggregate UPB of $312.5 billion, making us one of the largest non-bank servicers in the United States as of March 31, 2013.
We service loans as the owner of the forward MSRs, which we refer to as “primary servicing,” and we service loans on behalf of other MSR or mortgage owners, which we refer to as “subservicing.” We acquire MSRs on a standalone basis and have also developed an innovative model for investing on a capital light basis by co-investing with financial partners in “excess MSRs.” Subservicing represents another capital light means of growing our servicing business, as subservicing contracts are typically awarded on a no-cost basis and do not require substantial capital. As of March 31, 2013, our primary servicing and subservicing, represented 77.3% and 13.7%, respectively of our total servicing portfolio, with 9.0% of our outstanding servicing portfolio consisting of reverse residential mortgage loans. In addition, we operate or have investments in several adjacent real estate services businesses designed to meet the changing needs of the mortgage industry. These businesses offer an array of ancillary services, including providing services for delinquent loans, managing loans in the foreclosure/REO process and providing title insurance agency, loan settlement and valuation services on newly originated and re-originated loans.

In January 2013, we entered into a mortgage servicing rights purchase and sale agreement (the Purchase Agreement) with a financial institution. Under the Purchase Agreement, we agreed to purchase the rights to service approximately 1.3 million residential mortgage loans with a total UPB of approximately $215 billion, and approximately $5.8 billion of related servicing advance receivables. Approximately 47% of these loans (by UPB) are owned, insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, and the remaining 53% of these loans are non-conforming loans in private label securitizations.

The aggregate purchase price is approximately $7.1 billion, which we expect to fund through a combination of cash on hand, the proceeds of a co-investment by Newcastle Investment Corp., and certain funds managed by Fortress, the proceeds of advance financing facilities, and/or other issuances of debt. On January 31, 2013, we closed on the MSRs and associated servicing advance receivables with respect to those loans owned, insured or guaranteed by Fannie Mae and Freddie Mac. On February 1, 2013, we closed on the MSRs and associated servicing advance receivables with respect to those loans owned, insured or guaranteed by Ginnie Mae. Subject to customary closing conditions, we expect to close on the majority of the remaining MSRs in stages during the second quarter of 2013. During February 2013, we boarded approximately $15.3 billion of the acquired agency portfolio balance with the remaining Freddie Mac, Fannie Mae, and Ginnie Mae portfolio to be completed by June 2013. The remaining private label securitization portfolios are scheduled to board onto our servicing system through September 2013.
We operate a fully integrated loan originations platform to complement and enhance our servicing business. We originate primarily conventional agency (GSE) and government-insured residential mortgage loans and, to mitigate risk, typically sell these loans within 30 days while retaining the associated servicing rights. Our originations efforts are primarily focused on “re-origination,” which involves actively working with existing borrowers to refinance their mortgage loans. By re-originating loans for existing borrowers, we retain the servicing rights, thereby extending the longevity of the servicing cash flows, which we refer to as “recapture.”

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We also have a legacy asset portfolio, which consists primarily of non-prime and nonconforming residential mortgage loans, most of which we originated from April to July 2007. In November 2009, we engaged in a transaction through which we term-financed our legacy assets with a nonrecourse loan.
The analysis of our financial condition and results of operations as discussed herein is primarily focused on the combined results of our two Operating Segments: the Servicing Segment and the Originations Segment.
Our internet address is www.nationstarholdings.com. Through this internet website (under the “Investor Relations / Financial Information” link), we make available, free of charge, our reports that are electronically filed with or furnished to the Securities and Exchange Commission (SEC). Information contained on or available through this website is not incorporated by reference herein.
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: (a) fair value measurements, (b) sale of mortgage loans, (c) accounting for mortgage loans held for investment, subject to nonrecourse debt and (d) 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, 2012. There have been no material changes to our critical accounting policies since December 31, 2012.
Selected Financial Data
Selected consolidated balance sheet, statement of operations and other selected data are as follows (dollars in thousands).
 
March 31, 2013
December 31, 2012
Consolidated Balance Sheets Data:
 
 
Cash and cash equivalents
$
220,039

$
152,649

Accounts receivable
3,614,827

3,043,606

Mortgage loans held for sale
1,703,709

1,480,537

Mortgage servicing rights (at fair value)
1,289,643

635,860

Total assets
8,885,565

7,126,143

Notes payable
3,409,886

3,601,586

Unsecured senior notes
1,669,146

1,062,635

Nonrecourse debt-legacy assets
98,388

100,620

Excess spread financing (at fair value)
498,906

288,089

Participating interest financing
745,263

580,836

Total liabilities
8,061,313

6,368,461

Total Nationstar equity
819,262

757,682



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Consolidated Statements of Operations and Comprehensive Income Data:
For the three months ended March 31,
 
2013
 
2012
 Total revenues
$
431,062

 
$
164,072

 Total expenses and impairments
268,571

 
96,577

 Total other expense
(61,498
)
 
(14,164
)
Income before taxes
100,993

 
53,331

 Total income tax expense
38,377

 
3,145

 Net income and comprehensive income
$
62,616

 
$
50,186

 
 
 
 
Other Financial Data:
 
 
 
Net cash provided by / (used in):
 
 
 
      Operating activities
$
(372,239
)
 
$
135,283

      Investing activities
(327,763
)
 
(2,382
)
      Financing activities
767,392

 
160,648

Adjusted EBITDA(1) (non-GAAP measure)
178,235

 
77,243

     Operating Segments:
 
 
 
     Interest expense from unsecured senior notes
30,690

 
8,542

     Change in fair value of mortgage servicing rights
9,659

 
(495
)
     Depreciation and amortization
3,528

 
1,242

     Share-based compensation
2,858

 
2,395

(1) 
Adjusted EBITDA is a key performance measure used by management in evaluating the performance of our segments. Adjusted EBITDA represents our Operating Segments' income, and excludes income and expenses that relate to the financing of the unsecured senior notes, depreciable (or amortizable) asset base of the business, income taxes, exit costs from our 2007 restructuring and certain non-cash items. Adjusted EBITDA also excludes results from our legacy asset portfolio.
Adjusted EBITDA
Adjusted EBITDA provides us with a key measure of our Operating Segments' performance as it assists us in comparing our Operating Segments' performance on a consistent basis. Management believes Adjusted EBITDA is useful in assessing the profitability of our core business and uses Adjusted EBITDA in evaluating our operating performance as follows:
•
Financing arrangements for our Operating Segments are secured by assets that are allocated to these segments. Interest expense that relates to the financing of our unsecured senior notes is not considered in evaluating our operating performance because this obligation is serviced by the excess earnings from our Operating Segments after the debt obligations that are secured by their assets.
•
To monitor operating costs of each Operating Segment excluding the impact from depreciation, amortization and fair value change of the asset base, exit costs from our restructuring and non-cash operating expense, such as share-based compensation. Operating costs are analyzed to manage costs per our operating plan and to assess staffing levels, implementation of technology based solutions, rent and other general and administrative costs.
Management does not assess the growth prospects and the profitability of our legacy asset portfolio, except to the extent necessary to assess whether cash flows from the assets in the legacy asset portfolio are sufficient to service its debt obligations.
We also use Adjusted EBITDA (with additional adjustments) to measure our compliance with covenants such as leverage coverage ratios for our unsecured senior notes.
Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•
Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

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•
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•
Adjusted EBITDA does not reflect the cash requirements necessary to service principal payments related to the financing of the business;
•
Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our corporate debt;
•
although depreciation and amortization and changes in fair value of MSRs are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
•
other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Because of these and other limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. Adjusted EBITDA is presented to provide additional information about our operations. Adjusted EBITDA is a non-GAAP measure and should be considered in addition to, but not as a substitute for or superior to, operating income, net income, operating cash flow and other measures of financial performance prepared in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.
 
For the three months ended March 31,
Net Income/(Loss) from Operating Segments to Adjusted EBITDA Reconciliation (dollars in thousands):
2013
 
2012
Net income (loss)
$
62,616

 
$
50,186

Plus: 
 
 
 
Net loss from Legacy Portfolio and Other
7,686

 
8,047

Income tax expense
38,377

 
3,145

Income from Operating Segments
108,679

 
61,378

Adjust for:
 
 
 
Interest expense from unsecured senior notes
30,690

 
8,542

Depreciation and amortization
3,528

 
1,242

Change in fair value of mortgage servicing rights
9,659

 
(495
)
Amortization of mortgage servicing rights/obligations - at amortized cost
(275
)
 
(633
)
 Share-based compensation
2,858

 
2,395

 Fair value changes on excess spread financing
23,891

 
4,852

 Fair value changes in derivatives
(795
)
 
(38
)
Adjusted EBITDA
$
178,235


$
77,243


Results of Operations
Below is a summarization of our consolidated operating results for the periods indicated. We provide further discussion of our results of operations for each of our reportable segments under “Segment Results” below. Certain income and expenses not allocated to our reportable segments are presented under “Legacy Portfolio and Other” below and discussed in “Note 19—Business Segment Reporting”, in the accompanying Notes to Consolidated Financial Statements.
Comparison of Consolidated Results for the Three Months Ended March 31, 2013 and 2012
Revenues increased $267.0 million to $431.1 million for the three months ended March 31, 2013 from $164.1 million for the three months ended March 31, 2012, due to increases in both our total fee income and our gain on mortgage loans held for sale. The increase in our total fee income was primarily the result of our higher average forward servicing portfolio balance, which increased to $180.4 billion for the three months ended March 31, 2013, compared to $97.1 billion for the three months ended March 31, 2012 and an increase in higher modification fees earned from HAMP and non-HAMP modifications combined with fees earned from our reverse mortgage portfolio. The increase in the gain on loans held for sale was a result of the $2.2 billion, or 183.3%, increase in the amount of loans originated during the 2013 period compared to the 2012 period, higher margins

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earned on the sale of residential mortgage loans during the period and an increase in the value of servicing capitalized due to the larger volume of loan sales and subsequent rentention of MSRs.
Expenses and impairments increased $172.0 million to $268.6 million for the three months ended March 31, 2013 from $96.6 million for the three months ended March 31, 2012, primarily due to the increase in compensation expenses related to increased staffing levels in order to accommodate our larger servicing portfolio and originations volumes as well as other related increases in general and administrative expenses.
Other expense increased $47.3 million to $61.5 million for the three months ended March 31, 2013 from $14.2 million for the three months ended March 31, 2012, primarily due to a decrease in our net interest margin resulting from higher average outstanding balances on our outstanding warehouse and advance facilities combined with a higher average outstanding balance on our senior unsecured notes.
For the three months ended March 31, 2013, we incurred tax expense of $38.4 million, an increase of $35.3 million over the comparable 2012 period. During March 2012, we became a taxable entity in conjunction with our initial public offering. We were a taxable entity for the entire 2013 period.
Segment Results
Our primary business strategy is to generate recurring, stable income from managing and growing our servicing portfolio. We operate through two business segments: the Servicing Segment and the Originations Segment, which we refer to collectively as our Operating Segments. We report the activity not related to either operating segment in Legacy Portfolio and Other. Legacy Portfolio and Other includes primarily all subprime mortgage loans originated mostly from April to July 2007 or acquired.
The accounting policies of each reportable segment are the same as those of the consolidated financial statements except for (i) expenses for consolidated back-office operations and general overhead expenses such as executive administration and accounting, (ii) revenues generated on inter-segment services performed, and (iii) interest expense on unsecured senior notes. Expenses are allocated to individual segments based on the estimated value of services performed, including total revenue contributions, personnel headcount, and the equity invested in each segment. Revenues generated or inter-segment services performed are valued based on similar services provided to external parties.

Servicing Segment
The Servicing Segment provides loan servicing on our primary and subservicing portfolios, including the collection of principal and interest payments and the generation of ancillary fees related to the servicing of mortgage loans. We also service approximately $28.2 billion in reverse residential mortgage loans which we acquired in 2012. Servicing reverse mortgage loans involves monitoring the condition of the property, advancing for delinquent taxes and insurance, advancing for line of credit draws, and dealing with foreclosure and recovery in the event of default.
Increase in aggregate UPB of our servicing portfolio primarily governs the increase in revenues, expenses and other income (expense) of our Servicing Segment.
The table below provides detail of the UPB of our servicing portfolio at the periods indicated.
 
 
March 31, 2013

 
March 31, 2012
Servicing Portfolio (in millions)
 
 
 
Unpaid principal balance (by investor):
 
 
 
Special servicing
$
10,757

 
$
9,295

Government-sponsored enterprises
125,221

 
68,001

Non-Agency securitizations
50,892

 
18,137

Total boarded forward servicing portfolio
186,870

 
95,433

Acquired Servicing Rights owned - serviced by others
4,782

 
—

Acquired Servicing Rights owned - serviced by predecessor
92,590

 
—

Total forward servicing portfolio
284,242

 
95,433

Reverse mortgage servicing
28,242

 
7,853

Total servicing portfolio unpaid principal balance
$
312,484

 
$
103,286


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The table below provides detail of the characteristics and key performance metrics of our forward servicing portfolio for the periods indicated.
 
Three months ended March 31,
2013 (1)
 
2012
($ in millions, except for average loan amount)
 
 
 
Loan count-servicing
1,065,400

 
585,784

Ending unpaid principal balance
$
186,870

 
$
95,433

Average unpaid principal balance
$
180,403

 
$
97,119

Average loan amount
$
175,399

 
$
162,915

Average coupon
5.28
%
 
5.35
%
Average FICO
673

 
656

60+ delinquent (% of loans) (2)
12.7
%
 
11.9
%
Total prepayment speed (12 month constant pre-payment rate)
16.7
%
 
13.9
%

(1) 
2013 characteristics and key performance metrics of our servicing portfolio exclude approximately $92.6 billion and approximately 644,610 units of forward residential mortgage loans acquired. These loans will be boarded later in 2013 and have been excluded from our key performance metrics above. Additionally, these characteristics and key performance metrics exclude forward residential mortgage servicing rights serviced by others.
(2) 
Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan.
The table below provides detail of the characteristics and key performance metrics of our reverse servicing portfolio for the three months ended March 31, 2013.
 
Three months ended March 31,
2013
($ in millions, except for average loan amount)
 
Loan count
167,460

Ending unpaid principal balance
$
28,242

Average loan amount
$
168,650

Average coupon
3.03
%
Average borrower age
76


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Servicing Fee Income
Servicing fee income consists of the following for the periods indicated (in thousands).

 
For the three months ended March 31,
 
2013
 
2012
Servicing fee income
$
172,081

 
$
60,707

Loss mitigation and performance-based incentive fees
5,806

 
7,908

Modification fees
24,717

 
7,315

Late fees and other ancillary charges
11,593

 
7,637

Master service fee
3,062

 
—

Reverse mortgage fees
18,418

 
6,218

Other servicing fee related revenues
4,058

 
(21
)
Total servicing fee income before MSR fair value adjustments
239,735

 
89,764

Fair value adjustments on excess spread financing
(23,891
)
 
(4,852
)
Reverse mortgage servicing amortization/accretion
275

 
633

MSR fair value adjustments
(9,659
)
 
495

Total servicing fee income
$
206,460

 
$
86,040

The following tables provide servicing fee income and UPB by primary servicing, subservicing, adjacent businesses and reverse servicing for and at the periods indicated (in thousands).
 
For the three months ended March 31,
 
2013
 
2012
Primary servicing
$
191,989

 
$
49,641

Subservicing
26,341

 
31,917

Adjacent businesses

2,987

 
1,988

Reverse servicing
$
18,418

 
6,218

Total servicing fee income before MSR fair value adjustments
$
239,735

 
$
89,764


 
March 31, 2013
 
March 31, 2012
UPB (in millions)
 
 
 
Primary servicing
$
241,543

 
$
45,320

Subservicing
42,699

 
50,113

Reverse servicing
28,242

 
7,853

Total unpaid principal balance
$
312,484

 
$
103,286


Servicing Segment for the Three Months Ended March 31, 2013 and 2012
Service Fee Income
Servicing fee income was $206.5 million for the three months ended March 31, 2013 compared to $86.0 million for the three months ended March 31, 2012, an increase of $120.5 million, or 140.1%, primarily due to the net effect of the following:
.
•
Increase of $111.4 million due to higher average UPB on our forward servicing portfolio, which increased to $180.4 billion in the 2013 period compared to $97.1 billion in the comparable 2012 period. The increase in our servicing portfolio was primarily driven by an increase in average UPB for loans serviced for GSEs and other subservicing

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contracts for third-party investors to $117.5 billion in the 2013 period compared to $68.9 billion in the comparable 2012 period. In addition, we also experienced an increase in average UPB for our private asset-backed securitizations portfolio, which increased to $52.1 billion in the three months ended March 31, 2013 compared to $18.5 billion in the comparable 2012 period.
•
Decrease of $2.1 million due to decreased loss mitigation and performance-based incentive fees earned from a GSE.
•
Increase of $17.4 million due to higher modification fees earned from HAMP and non-HAMP modifications.
•
Increase of $4.0 million from increased collections from late fees and other ancillary charges.
•
Increase of $12.2 million from fees earned from our reverse mortgage portfolio.
•
Decrease of $10.2 million from change in fair value on MSRs which was recognized in servicing fee income. The fair value of our MSRs is based upon the present value of the expected future cash flows related to servicing these loans. The revenue components of the cash flows are servicing fees, interest earned on custodial accounts, and other ancillary income. The expense components include operating costs related to servicing the loans (including delinquency and foreclosure costs) and interest expenses on servicing advances. The expected future cash flows are primarily impacted by prepayment estimates, delinquencies, and market discount rates. Generally, the value of MSRs increases when interest rates increase and decreases when interest rates decline due to the effect those changes in interest rates have on prepayment estimates. Other factors affecting the MSR value includes the estimated effects of loan modifications on expected cash flows. Such modifications tend to positively impact cash flows by extending the expected life of the affected MSR and potentially producing additional revenue opportunities depending on the type of modification. In valuing the MSRs, we believe our assumptions are consistent with the assumptions other major market participants use. These assumptions include a level of future modification activity that we believe major market participants would use in their valuation of MSRs. Internally, we have modification goals that exceed the assumptions utilized in our valuation model. Nevertheless, were we to apply an assumption of a level of future modifications consistent with our internal goals to our MSR valuation, we do not believe the resulting increase in value would be material. Additionally, several state attorneys general have previously requested that certain mortgage servicers, including us, suspend foreclosure proceedings pending internal review to ensure compliance with applicable law, and we received requests from four such state attorneys general. Although we have resumed those previously delayed proceedings, changes in the foreclosure process that may be required by government or regulatory bodies could increase the cost of servicing and diminish the value of our MSRs. We utilize assumptions of servicing costs that include delinquency and foreclosure costs that we believe major market participants would use to value their MSRs. We periodically compare our internal MSR valuation to third-party valuation of our MSRs to help substantiate our market assumptions. We have considered the costs related to the delayed proceedings in our assumptions and we do not believe that any resulting decrease in the MSR was material given the expected short-term nature of the issue.
•
Decrease of $19.0 million from change in fair value of our excess spread financing arrangements. In conjunction with various MSR acquisitions, we have entered into sale and assignment agreements, which we treated as financings, whereby we sold the right to receive a portion of the excess cash flow generated from certain underlying MSR portfolios after receipt of a fixed basic servicing fee per loan. We measure these financing arrangements at fair value.

Other Fee Income
Other fee income was $39.1 million for the three months ended March 31, 2013 compared to $7.4 million for the three months ended March 31, 2012, an increase of $31.7 million, or 428.4%, due to higher commissions earned on lender placed insurance and higher REO sales commissions.
The following table provides other fee income by primary servicing, subservicing and adjacent businesses for the periods indicated (in thousands).
 
 
For the three months ended  March 31,
 
2013
 
2012
Primary servicing
$
7,460

 
$
2,477

Subservicing
—

 
2,269

Adjacent businesses
31,606

 
2,673

Total other fee income
$
39,066

 
$
7,419


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Expenses and Impairments
Expenses and impairments were $147.6 million for the three months ended March 31, 2013 compared to $59.2 million the three months ended March 31, 2012, an increase of $88.4 million, or 149.3%, primarily due to the increase of $32.4 million in salaries, wages and benefits expense resulting primarily from an increase in average headcount from 1,775 in the 2012 period to 3,331 in the 2013 period and an increase of $56.1 million in general and administrative and occupancy-related expenses associated with increased headcount and growth in the servicing portfolio.

The following table provides primary servicing, subservicing, reverse servicing, adjacent businesses and other Servicing Segment expenses for the periods indicated (in thousands). Other Servicing Segment expenses primarily includes share-based compensation expenses.
 
 
For the three months ended March 31,
 
2013
 
2012
Primary servicing
$
95,026

 
$
24,326

Subservicing
33,399

 
27,210

Reverse servicing
12,707

 
1,913

Adjacent businesses
2,174

 
2,766

Other Servicing Segment expenses
4,303

 
3,015

Total expenses and impairments
$
147,609

 
$
59,230

Other Income (Expense)
Total other expense was $(57.1) million for the three months ended March 31, 2013 compared to $(14.6) million for the three months ended March 31, 2012, an increase in expense, net of income, of $42.5 million, or 291.1%, primarily due to the net effect of the following:

•
Interest income was $13.4 million for the three months ended March 31, 2013 compared to $2.4 million for the three months ended March 31, 2012, an increase of $11.0 million, due in part to interest earned on our participating interests in reverse mortgages combined with accretion recognized related to discounts recorded on acquired servicer advances. During 2013, in conjunction with an MSR acquisition, we allocated a discount to the related acquired servicer advances. This discount is realized as the underlying servicer advances are collected. We recognized $6.1 million of the discount for the three month ended March 31, 2013 related to collections on the servicer advances.

•
Interest expense was $71.3 million for the three months ended March 31, 2013 compared to $17.0 million for the three ended March 31, 2012, an increase of $54.3 million, or 319.4%, primarily due to higher average outstanding debt of $2,398.2 million for the three months ended March 31, 2013 compared to $623.8 million in the comparable 2012 period. The impact of the higher debt balances is partially offset by lower interest rates due to declines in the base LIBOR and decreases in the overall index margin on outstanding servicer advance facilities. Interest expense from the senior unsecured notes was $22.7 million and $8.5 million, for the three months ended March 31, 2013 and 2012, respectively.
Originations Segment
The Originations Segment involves the origination, packaging, and sale of GSE mortgage loans into the secondary markets via whole loan sales or securitizations.
Increase in originations volume primarily governs the increase in revenues, expenses and other income (expense) of our Originations Segment. The table below provides detail of the loan characteristics of loans originated for the periods indicated.
 

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For the three months ended March 31,
Originations Volume (in millions)
2013
 
2012
Retail
$
2,043.1

 
$
673.4

Wholesale
1,102.7

 
516.6

Correspondent

267.2

 
—

Total Originations
$
3,413.0

 
$
1,190.0

Originations Segment for the Three Months Ended March 31, 2013 and 2012
Originations Revenue
Total revenue was $185.7 million for the three months ended March 31, 2013 compared to $70.5 million for the three months ended March 31, 2012, an increase of $115.2 million, or 163.4%, primarily due to the net effect of the following:

•
Other fee income was $5.9 million for the three months ended March 31, 2013 compared to $(19.0) thousand for the three months ended March 31, 2012, an increase of $5.9 million, primarily due to an increase in net points and fees collected of $15.9 million offset by an increase in broker fees paid of $9.6 million.

Gain on mortgage loans held for sale consists of the following for the periods indicated (in thousands).
 
 
For the three months ended March 31,
 
2013
 
2012
Gain on sale
$
139,130

 
$
43,917

Provision for repurchases
(5,803
)
 
(3,005
)
Capitalized servicing rights
31,268

 
13,066

Fair value mark-to-market adjustments
(6,934
)
 
(5,095
)
Mark-to-market on derivatives/hedges
22,132

 
21,617

Total gain on mortgage loans held for sale
$
179,793

 
$
70,500


Gain on mortgage loans held for sale was $179.8 million for the three months ended March 31, 2013, compared to $70.5 million for the three months ended March 31, 2012, an increase of $109.3 million, or 155.0%, primarily due to the net effect of the following:

•
Increase of $95.2 million from larger volume of originations, which increased to $3.4 billion in 2013 from $1.2 billion in 2012, and higher margins earned on the sale of residential mortgage loans during the period.
•
Increase of $18.2 million from capitalized MSRs due to the larger volume of originations and subsequent retention of MSRs.
•
Increase of $0.5 million from change in unrealized gains/losses on derivative financial instruments. These include IRLCs and forward sales of MBS.
•
Decrease of $1.8 million resulting from the change in fair value on newly-originated loans.
•
Decrease of $2.8 million from a larger provision for repurchases as a result of the increase in our loan sale volume.
Expenses and Impairments
Expenses and impairments were $111.9 million for the three months ended March 31, 2013 compared to $28.5 million for the three months ended March 31, 2012, an increase of $83.4 million, or 292.6%, primarily due to the net effect of the following:

•
Increase of $42.5 million in salaries, wages and benefits expense from increase in average headcount of 1,800 in 2013 from 772 in 2012 and increases in performance-based compensation due to increases in originations volume.

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•
Increase of $42.6 million in general and administrative and occupancy expense primarily due to an increase in our overhead expenses from the higher originations volume in the 2013 period.
Other Income and Expenses
Total other income (expense) was $(5.8) million for the three months ended March 31, 2013 compared to $(0.2) million for the three months ended March 31, 2012, an increase in expense, net of income, of $5.6 million primarily due to the net effect of the following:

•
Interest income was $11.0 million for the three months ended March 31, 2013 compared to $3.5 million for the three months ended March 31, 2012, an increase of $7.5 million, or 214.3%, representing interest earned from originated loans prior to sale or securitization. The increase is primarily due to the increase in the volume of originations. Loans are typically sold within 30 days of origination.
•
Interest expense was $16.8 million for the three months ended March 31, 2013 compared to $3.8 million for the three months ended March 31, 2012, an increase of $13.0 million, or 342.1%, primarily due to an increase in originations volume in 2013 and associated financing required to originate these loans, combined with a slight increase in outstanding average days in warehouse on newly originated loans. Additionally, we recognized $8.0 million additional interest expense on senior unsecured notes. In the third quarter of 2012, we began allocating a portion of our interest expense from our unsecured senior notes to our originations segment to match the benefit this segment will receive from future portfolio acquisitions due to the ability to recapture portfolio runoff.

Legacy Portfolio and Other
Our Legacy Portfolio and Other consist primarily of non-prime and nonconforming residential mortgage loans that we primarily originated from April to July 2007. Revenues and expenses are primarily a result of mortgage loans transferred to securitization trusts that were structured as secured borrowings, resulting in carrying the securitized loans as mortgage loans on our consolidated balance sheets and recognizing the asset-backed certificates as nonrecourse debt. These loans were transferred on October 1, 2009, from mortgage loans held for sale to a held-for-investment classification at fair value on the transfer date. Subsequent to the transfer date, we completed the securitization of the mortgage loans, which was structured as a secured borrowing. This structure resulted in carrying the securitized loans as mortgages on our consolidated balance sheet and recognizing the asset-backed certificates acquired by third parties as nonrecourse debt.
The table below provides detail of the characteristics of our securitization trusts included in Legacy Portfolio and other for the periods indicated (in thousands).
 
 
March 31,
 
2013
 
2,012
Performing – UPB
$
266,854

 
$
285,648

Nonperforming (90+ Delinquency) - UPB
81,968

 
85,790

REO - Estimated Fair Value
15,487

 
5,720

Total Legacy Portfolio and Other – UPB
$
364,309

 
$
377,158


Legacy Portfolio and Other for the Three Months Ended March 31, 2013 and 2012
Total revenues were $0.4 million for the three months ended March 31, 2013 compared to $0.6 million for the three months ended March 31, 2012, a decrease of $0.2 million. This decrease was primarily a result of decreased ancillary income on our legacy portfolio.
Total expenses and impairments were $9.1 million for the three months ended March 31, 2013 compared to $8.9 million for the three months ended March 31, 2012, an increase of $0.2 million, or 2.2%.
Interest income, net of interest expense remained same at $0.5 million for the three months ended March 31, 2013 as compared to $0.5 million for the three months ended March 31, 2012.
In addition, we recorded a gain on interest rate swaps and caps of $0.5 million for the three months ended March 31, 2013, compared to loss of $(0.3) million recorded during the comparable 2012 period. In conjunction with the Reorganization, FIF

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contributed outstanding interest rate swaps in March 2012 to Nationstar. These interest rate swaps on ABS debt generally require Nationstar to pay a fixed interest rate and receive a variable interest rate based on LIBOR. These interest rate swaps have not been designated as accounting hedges.

Analysis of Items on Consolidated Balance Sheet

Assets
Restricted cash consists of certain custodial accounts related to collections on certain mortgage loans and mortgage loan advances that have been pledged to debt counterparties under various master repurchase agreements (MRAs). Restricted cash was $360.5 million at March 31, 2013, a decrease of $32.7 million from December 31, 2012, primarily a result of lower servicer advance reimbursement amounts due to the timing of recoveries on pledged servicer advances offset by new custodial deposits on additional custodial balances related to our servicing portfolio acquisitions.

Accounts receivable consists primarily of accrued interest receivable on mortgage loans and securitizations, collateral deposits on surety bonds and advances made to nonconsolidated securitization trusts and various taxing authorities, as required under various servicing agreements related to delinquent loans, which are ultimately repaid from the securitization trusts. Accounts receivable increased $0.6 billion to $3.6 billion at March 31, 2013, primarily due to the increase in our servicing portfolio as a result of the closing on a portion of our MSR acquisition during the first quarter of 2013.

Mortgage loans held for sale are carried at fair value. We estimate fair value by evaluating a variety of market indicators including recent trades and outstanding commitments. Mortgage loans held for sale were $1,703.7 million at March 31, 2013, an increase of $223.2 million from December 31, 2012, primarily due to $3.8 billion of loan originations and purchases during the 2013 period offset by $(3.5) billion in mortgage loan sales.

Mortgage loans held for investment, subject to nonrecourse debt - Legacy Assets consist of nonconforming or subprime mortgage loans securitized which serve as collateral for the nonrecourse debt. Mortgage loans held for investment, subject to nonrecourse debt - Legacy Assets was $235.9 million at March 31, 2013, a decrease of $3.0 million from December 31, 2012, as $1.5 million was transferred to REO during the three months ended March 31, 2013.

In 2012, we purchased the servicing rights to certain reverse mortgages. As servicer of these reverse mortgages, we are required to fund certain amounts related to the underlying loans. Reverse mortgage interests consists of scheduled and unscheduled draws on reverse residential mortgage loans, capitalized interest and servicing fees, and fees paid to taxing authorities to cover unpaid taxes and insurance. Reverse mortgage interests were $978.7 million at March 31, 2013, an increase of $228.4 million from December 31, 2012, primarily due to additional amounts advanced under reverse mortgage interests. In addition to new advances made, in February 2013, Nationstar acquired certain fixed and adjustable rate reverse mortgage loans from NIC Reverse Loan LLC.

Receivables from affiliates consist of periodic transactions with Nationstar Regular Holdings, Ltd., a subsidiary of FIF. These transactions typically involve the monthly payment of principal and interest advances that are required to be remitted to securitization trusts as required under various Pooling and Servicing Agreements. These amounts are later repaid to us when principal and interest advances are recovered from the respective borrowers. Receivables from affiliates were $8.9 million at March 31, 2013, a decrease of $3.7 million from December 31, 2012. Prior to our March 2012 restructuring in conjunction with our initial public offering, FIF contributed a portion of the outstanding balance in receivables from affiliates related to outstanding interest rate swap settlements to the Company.

MSRs at fair value consist of servicing assets related to all existing forward residential mortgage loans transferred to a third party in a transfer that meets the requirements for sale accounting or through the acquisition of the right to service residential mortgage loans that do not relate to our assets. MSRs were $1,289.6 million at March 31, 2013, an increase of $653.7 million over December 31, 2012, primarily a result of the purchase of servicing portfolios for $632.2 million combined with capitalization of $31.3 million newly created MSRs, and a $9.7 million decrease in the fair value of our MSRs.

MSRs at amortized cost consists of certain reverse mortgage MSRs acquired in 2012. MSRs at amortized cost were $10.9 million at March 31, 2013, a decrease of $0.1 million from December 31, 2012. The decrease represents the amortization of this portfolio.

Property and equipment, net is comprised of land, furniture, fixtures, leasehold improvements, computer software, computer hardware, and software in development and other. These assets are stated at cost less accumulated depreciation. Property and equipment, net was $77.4 million million at March 31, 2013, an increase of $2.4 million from December 31, 2012, as we invested in information technology systems to support volume growth in both our Servicing and Originations Segments.

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REO, net represents property we acquired as a result of foreclosures on delinquent mortgage loans. REO, net is recorded at estimated fair value, less costs to sell, at the date of foreclosure. Any subsequent operating activity and declines in value are charged to earnings. REO, net was $15.5 million at March 31, 2013, an increase of $5.0 million from December 31, 2012. This increase was primarily due to foreclosure related activities on our expanded portfolio.

Other assets include deferred financing costs, derivative financial instruments, prepaid expenses and loans subject to repurchase rights from Ginnie Mae. Other assets increased $47.5 million from December 31, 2012 to $369.6 million, primarily due to an increase of $30.4 million in derivative financial instruments, $10.7 million increase in deferred financing cost, and an increase in deposits on pending MSR acquisitions of $8.0 million.

Liabilities and Stockholders' Equity

At March 31, 2013, total liabilities were $8.1 billion, a $1.7 billion increase from December 31, 2012. The increase was primarily due to a $0.9 billion increase in payables and accrued liabilities and our issuance of $600.0 million in unsecured senior notes in February and March 2013. In addition, we had an increase in excess spread financing of $210.8 million and an increase in participating interest financing of $210.8 million. The increases are generally the result of our acquisitions of MSR portfolios and the increase in our mortgage origination business.

Included in our payables and accrued liabilities caption on our balance sheet is our reserve for repurchases and indemnifications of $20.9 million and $18.5 million at March 31, 2013 and December 31, 2012, respectively. This liability represents our (i) estimate of losses to be incurred on the repurchase of certain loans that we previously sold and (ii) estimate of losses to be incurred for indemnification of losses incurred by purchasers or insurers with respect to loans that we sold. Certain sale contracts include provisions requiring us to repurchase a loan or indemnify the purchaser or insurer for losses if a borrower fails to make certain initial loan payments due to the acquirer or if the accompanying mortgage loan fails to meet certain customary representations and warranties. These representations and warranties are made to the loan purchasers or insurers about various characteristics of the loans, such as the manner of origination, the nature and extent of underwriting standards applied and the types of documentation being provided and typically are in place for the life of the loan. Although the representations and warranties are in place for the life of the loan, we believe that most repurchase requests occur within the first five years of the loan. In the event of a breach of the representations and warranties, we may be required to either repurchase the loan or indemnify the purchaser for losses it sustains on the loan. In addition, an investor may request that we refund a portion of the premium paid on the sale of mortgage loans if a loan is prepaid within a certain amount of time from the date of sale. We record a provision for estimated repurchases, loss indemnification and premium recapture on loans sold, which is charged to gain on mortgage loans held for sale.

The activity of our outstanding repurchase reserves were as follows for the periods indicated (in thousands).

 
Three Months Ended March 31, 2013
 
Year Ended December 31, 2012
Repurchase reserves, beginning of period
$
18,511

 
$
10,026

Additions
5,541

 
13,121

Charge-offs
(3,150
)
 
(4,636
)
Repurchase reserves, end of period
$
20,902

 
$
18,511



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The following table summarizes the changes in UPB and loan count related to unresolved repurchase and indemnification requests for the periods indicated (dollars in millions):
 
Three Months Ended March 31, 2013
 
Year Ended December 31, 2012
 
UPB
 
Count
 
UPB
 
Count
Beginning balance
$
14.0

 
79

 
$
12.9

 
61

Repurchases & indemnifications
(3.3
)
 
(24
)
 
(5.5
)
 
(26
)
Claims initiated
15.6

 
87

 
24.3

 
132

Rescinded
(5.3
)
 
(27
)
 
(17.7
)
 
(88
)
Ending Balance
$
21.0

 
115

 
$
14.0

 
79


The following table details our loan sales by period (dollars in billions):

 
Three Months Ended March 31
 
Year Ended December 31,
 
 
 
 
 
2013
 
2012
 
2011
 
2010
 
2009
 
Total
 
$
 
Count
 
$
 
Count
 
$
 
Count
 
$
 
Count
 
$
 
Count
 
$
 
Count
Loan Sales
$
3.4

 
14,321
 
$
6.9

 
31,262

 
$
3.3

 
16,629

 
$
2.6

 
13,090

 
$
1.0

 
5,344

 
$
17.2

 
80,646


We increase the reserve by applying an estimated loss factor to the principal balance of loan sales. Secondarily, the reserve may be increased based on outstanding claims received. We have observed an increase in repurchase requests in each of the last five years. We believe that because of the increase in our loan originations since 2008, repurchase requests are likely to increase. Should home values continue to decrease, our realized loan losses from loan repurchases and indemnifications may increase as well. As such, our reserve for repurchases may increase beyond our current expectations. While the ultimate amount of repurchases and premium recapture is an estimate, we consider the liability to be adequate at each balance sheet date.

At March 31, 2013, total stockholders' equity was $824.3 million, a $66.6 million increase from December 31, 2012, which is primarily attributable to net income of $62.6 million in the 2013 period, $2.9 million in share-based compensation, $2.7 million in excess tax benefit from share based comp, $5.0 million in contributions from joint venture members to non-controlling interests and offset by a tax withholding of $6.6 million related to a share based settlement of common stock by management.

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.

Recent Accounting Developments
See Note 2, Recent Accounting Developments, of the notes to the consolidated financial statements for details of recently issued accounting pronouncements and their expected impact on our consolidated financial statements.

Liquidity and Capital Resources
Liquidity measures our ability to meet potential cash requirements, including the funding of servicing advances, the payment of operating expenses, the originations of loans and the repayment of borrowings. Our cash balance increased from $152.6 million as of December 31, 2012 to $220.0 million as of March 31, 2013, primarily due to cash inflows from financing activities, offset by cash outflows in our operating and investing activities.


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From 2010 through 2012, we have completed offerings of $1.1 billion of unsecured senior notes, with maturity dates ranging from April 2015 to October 2020. We pay interest semi-annually to the note holders of these notes at interest rates ranging from 7.875% to 10.875%. In February 2013, we completed the offering of $400.0 million aggregate principal amount of unsecured senior notes, with a maturity date of July 2021, in a private placement transaction. After deducting the initial purchasers' discounts, we received net cash proceeds of approximately $394.0 million. In addition, in March 2013, we issued an additional $200.0 million of unsecured senior notes as an add on to the $400.0 million of unsecured senior notes issued in February 2013, in a private placement transaction. Under the terms of these unsecured senior notes, we pay interest biannually to the note holders at an interest rate of 6.50%. We use a significant portion of the proceeds from these offerings to fund newly originated loans until these funds are ultimately deployed towards the purchase of mortgage servicing rights or other purposes.

We grew our servicing portfolio from $103.3 billion in UPB as of March 31, 2012 to $312.5 billion in UPB as of March 31, 2013. We shifted our strategy after 2007 to leverage our industry-leading servicing capabilities and capitalize on the opportunities to grow our originations platform which has led to the strengthening of our liquidity position. As a part of our shift in strategy, we ceased originating non-prime loans in 2007, and new originations have been focused on loans that are eligible to be sold to GSEs. Since 2008, substantially all originated loans have either been sold or are pending sale.

In 2012, we acquired the servicing rights of approximately $28.4 billion in unpaid principal balance in reverse mortgage loans. As servicer for these reverse mortgage loans, among other things, we are required to make advances to borrowers as required. These advances are temporarily financed through our reverse participations and max claim buyouts financing facility. We typically hold the participation interests which are made up of the related advances for approximately 30 days and then pool the participation interests into a government securitization and repay the financing facility. At March 31, 2013, our maximum unfunded advance obligation related to these reverse mortgage loans was approximately $4.6 billion.

As part of the normal course of our business, we borrow money periodically to fund servicing advances and loan originations. The loans we originate are financed through several warehouse lines on a short-term basis. We typically hold the loans for approximately 30 days and then sell the loans or place them in government securitizations and repay the borrowings under the warehouse lines. We rely upon several counterparties to provide us with financing facilities to fund a portion of our servicing advances and to fund our loan originations on a short- term basis. Our ability to fund current operations depends upon our ability to secure these types of short term financings on acceptable terms and to renew or replace the financings as they expire.

At this time, we see no material negative trends that we believe would affect our access to long-term borrowings, short-term borrowings or bank credit lines sufficient to maintain our current operations, or would likely cause us to cease to be in compliance with any applicable covenants in our indebtedness or that would inhibit our ability to fund operations and capital commitments for the next 12 months.

Our primary sources of funds for liquidity include: (i) lines of credit, other secured borrowings and the unsecured senior notes; (ii) servicing fees and ancillary fees; (iii) payments received from sale or securitization of loans; (iv) payments received from mortgage loans held for sale; and (v) payments from the liquidation or securitization of our outstanding participating interests in reverse mortgage loans.

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.

Our servicing agreements impose on us various rights and obligations that affect our liquidity. Among the most significant of these obligations is the requirement that we advance our own funds to meet contractual principal and interest payments for certain investors and to pay taxes, insurance, foreclosure costs and various other items that are required to preserve the assets being serviced. Delinquency rates and prepayment speed affect the size of servicing advance balances. As a result of our purchases of the servicing rights to certain reverse mortgages in 2012, we are required to fund payments due to borrowers, which advances are typically greater than advances on forward residential mortgages. These advances are typically recovered upon weekly or monthly reimbursement or from sale in the market.

We believe there are opportunities to grow our business through acquisitions and we actively explore potential acquisition opportunities in the ordinary course of our business. Potential acquisitions may include MSRs relating to residential mortgage loans, subservicing contracts, servicing platforms and originations platforms, as well as other assets and liabilities or businesses in related lines of business. Any future acquisitions could require substantial additional capital in excess of cash from operations. We may fund these potential acquisitions through a combination of cash on hand, the proceeds of a co-investment by Newcastle Investment Corp., and certain funds managed by Fortress, the proceeds of advance financing facilities and/or other issuances of debt.

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Operating Activities

Our operating activities used $372.2 million of cash flow for the three months ended March 31, 2013 compared to providing $135.3 million of cash flow for the same period in the prior year. The increase in cash used by operating activities of $507.5 million during the 2013 period was primarily due to higher volume originations of residential mortgage loans partially offset by higher volume of sales of mortgage loans. The decrease was primarily due to the net effect of the following:

•
Decrease of $2,591.2 million due to higher originations volume combined with our purchases of mortgage loans held for sale. We originated and purchased $3,781.1 million in residential mortgage loans during the three month period ended March 31, 2013, compared to $1,189.9 million in mortgage originations and purchases for the comparable 2012 period. This decrease was partially offset by an increase of $2,391.8 million in our cash inflows from proceeds received from the sale of our residential mortgage loans and payments received on mortgage loans. We received $3,694.9 million in cash proceeds from loan sales and principal collections for the three month ended March 31, 2013, compared to $1,303.1 million for the comparable 2012 period.

•
Increase of $260.6 million in cash outflows used by working capital which used $210.3 million for the three months ended March 31, 2013 compared to $29.5 million in cash inflow for the comparable 2012 period.

Investing Activities

Our investing activities used $327.8 million and $2.4 million of cash flow for the three months ended March 31, 2013 and 2012, respectively. The $325.4 million increase in cash flows used by investing activities from the 2012 period to the 2013 period was primarily a result of our first quarter MSR acquisitions and deposits on pending MSR acquisitions.

Financing Activities

Our financing activities provided $767.4 million and $160.6 million of cash flow during the three months ended March 31, 2013 and 2012, respectively. The $627.6 million increase in cash flows provided by our financing activities was primarily the result of our two additional unsecured senior notes offerings during February 2013 and March 2013, respectively.

Contractual Obligations

Except as described below, there were no other significant changes to our outstanding contractual obligations as of March 31, 2013, from amounts previously disclosed in our Annual Report or Form 10-K filed on March 15, 2013.

In February 2013, we completed the offering of $400 million aggregate principal amount of 6.50% Senior Notes due 2021, in a private placement transaction, for net cash proceeds of $394.0 million. In addition, in March 2013, we issued an additional $200 million aggregate principal amount of 6.50% of Senior Notes due 2021, in a private placement transaction. We issued the notes with an issue premium of $6.5 million for net cash proceeds of $203.5 million.

Variable Interest Entities and Off Balance Sheet Arrangements

See Note 3, Variable Interest Entities and Securitizations, of the notes of the consolidated financial statements for a summary of Nationstar's transactions with VIEs and unconsolidated balances details of their impact on our consolidated financial statements.

Derivatives

See Note 10, Derivative Financial Instruments, of the notes of the consolidated financial statements for a summary of Nationstar's derivative transactions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to a variety of market risks which include interest rate risk, consumer credit risk and counterparty credit risk.
Interest Rate Risk
Changes in interest rates affect our operations primarily as follows:

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Servicing Segment
 
•
an increase in interest rates would increase our costs of servicing our outstanding debt, including our ability to finance servicing advances;
•
a decrease (increase) in interest rates would generally increase (decrease) prepayment rates and may require us to report a decrease (increase) in the value of our MSRs;
•
a change in prevailing interest rates could impact our earnings from our custodial deposit accounts; and
•
an increase in interest rates could generate an increase in delinquency, default and foreclosure rates resulting in an increase in both operating expenses and interest expense and could cause a reduction in the value of our assets.

Originations Segment
 
•
a substantial and sustained increase in prevailing interest rates could adversely affect our loan originations volume because refinancing an existing loan would be less attractive and qualifying for a loan may be more difficult; and
•
an increase in interest rates would increase our costs of servicing our outstanding debt, including our ability to finance loan originations;
We actively manage the risk profiles of IRLCs and mortgage loans held for sale on a daily basis and enter into forward sales of MBS in an amount equal to the portion of the IRLC expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, we enter into forward sales of MBS to deliver mortgage loan inventory to investors.
Consumer Credit Risk
We sell our loans on a nonrecourse basis. We also provide representations and warranties to purchasers and insurers of the loans sold that typically are in place for the life of the loan. In the event of a breach of these representations and warranties, we may be required to repurchase a mortgage loan or indemnify the purchaser, and any subsequent loss on the mortgage loan may be borne by us. If there is no breach of a representation and warranty provision, we have no obligation to repurchase the loan or indemnify the investor against loss. The outstanding UPB of loans sold by us represents the maximum potential exposure related to representation and warranty provisions.
We maintain a reserve for losses on loans repurchased or indemnified as a result of breaches of representations and warranties on our sold loans. Our estimate is based on our most recent data regarding loan repurchases and indemnity payments, actual credit losses on repurchased loans, recovery history, among other factors. Our assumptions are affected by factors both internal and external in nature. Internal factors include, among other things, level of loan sales, as well as to whom the loans are sold, the expectation of credit loss on repurchases and indemnifications, our success rate at appealing repurchase demands and our ability to recover any losses from third parties. External factors that may affect our estimate include, among other things, the overall economic condition in the housing market, the economic condition of borrowers, the political environment at investor agencies and the overall U.S. and world economy. Many of the factors are beyond our control and may lead to judgments that are susceptible to change.
Counterparty Credit Risk
We are exposed to counterparty credit risk in the event of non-performance by counterparties to various agreements. We monitor the credit ratings of our counterparties and do not anticipate losses due to counterparty non-performance.
Sensitivity Analysis
We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on fair values based on hypothetical changes (increases and decreases) in interest rates.
We use a duration-based model in determining the impact of interest rate shifts on our loan portfolio, certain other interest-bearing liabilities measured at fair value and interest rate derivatives portfolios. The primary assumption used in these models is that an increase or decrease in the benchmark interest rate produces a parallel shift in the yield curve across all maturities.
We utilize a discounted cash flow analysis to determine the fair value of MSRs and the impact of parallel interest rate shifts on MSRs. The primary assumptions in this model are prepayment speeds and market discount rates. 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

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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 used March 31, 2013 market rates on our instruments to perform the sensitivity analysis. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in fair value may not be linear.
The following table summarizes the estimated change in the fair value of our assets and liabilities sensitive to interest rates as of March 31, 2013 given hypothetical instantaneous parallel shifts in the yield curve:
 
Change in Fair Value
March 31, 2013
(in thousands)
Down 25 bps
 
Up 25 bps      
Increase (decrease) in assets
 
 
 
Mortgage loans held for sale
$
19,502

 
$
(21,927
)
Mortgage servicing rights – fair value
(19,724
)
 
20,745

Other assets (derivatives)
 
 
 
Interest Rate Lock Commitments
31,986

 
(43,322
)
Total change in assets
31,764

 
(44,504
)
Increase (decrease) in liabilities
 
 
 
Derivative financial instruments
 
 
 
Interest rate swaps and caps
(1,036
)
 
1,032

Forward MBS trades
58,365

 
(67,153
)
Excess spread financing (at fair value)
2,443

 
(2,374
)
Total change in liabilities
59,772

 
(68,495
)
Total, net change
$
(28,008
)
 
$
23,991


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 March 31, 2013.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2013, 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 March 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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.

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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes or additions to the legal proceedings previously disclosed under "Legal Proceedings" included in our Annual Report on Form 10-K filed with the SEC on March 15, 2013. From time to time, we are party to various legal proceedings that have arisen in the normal course of conducting business. 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 18 - Commitments and Contingencies).

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 May 7, 2013.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchase of Equity Securities By the Issuer and Affiliated Purchasers

Period
(a) Total Number of Shares (or Units) Purchased 1
(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
January 1, 2013 - January 31, 2013

—

—

—

—

February 1, 2013 - February 28, 2013

—

—

—

—

March 1, 2013 - March 31, 2013

161,651 Shares

$ 41.11

—

—

Total
161,651 Shares

$ 41.11

—

—


1 The 161,651 shares of common stock of Nationstar Inc. reported herein represent the surrender of these shares to Nationstar Inc. in an amount equal to the amount of tax withheld by Nationstar Inc. in satisfaction of the withholding obligations of certain employees in connection with the vesting of restricted shares on March 7, 2013. As of the date of this report, Nationstar Inc. has no publicly announced plans or programs to repurchase Nationstar Inc. common stock.

Item 3. Defaults Upon Senior Securities
None.

Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.

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Item 6. Exhibits, Financial Statement Schedules
 
 
 
Incorporated by Reference
 
Exhibit Number
Description
Form
File No.
Exhibit
Filing Date
Filed or Furnished Herewith
 
 
 
 
 
 
 
2.1+
Mortgage Servicing Rights Purchase and Sale Agreement, dated as of January 6, 2013, between Nationstar Mortgage LLC and Bank of America, National Association
8-K
001-35449
2.1
1/10/2013
 
 
 
 
 
 
 
 
4.1
Indenture, dated as of February 7, 2013, by and among Nationstar Mortgage LLC, Nationstar Capital Corporation, the guarantors thereto and Wells Fargo Bank, National Association, as trustee
8-K
001-35449
4.1
2/7/2013
 
 
 
 
 
 
 
 
4.2
First Supplemental Indenture, dated as of March 26, 2013, by and among Nationstar Mortgage LLC, Nationstar Capital Corporation, the guarantors thereto and Wells Fargo Bank, National Association, as trustee
8-K
001-35449
4.2
3/26/2013
 
 
 
 
 
 
 
 
4.3*
Amendment No. 4, dated March 7, 2013, to Indenture, dated as of June 26, 2012, between Nationstar Advance Funding Trust 2012-C and Wells Fargo Bank, Nationstar Association, as indenture trustee
 
 
 
 
X
 
 
 
 
 
 
 
4.4*
Amendment No. 5, dated March 29, 2013, to Indenture, dated as of June 26, 2012, between Nationstar Advance Funding Trust 2012-C and Wells Fargo Bank, Nationstar Association, as indenture trustee
 
 
 
 
X
 
 
 
 
 
 
 
4.5
Fourth Amended and Restated Indenture, dated January 31, 2013, among Nationstar Agency Advance Funding Trust, as issuer, The Bank of New York Mellon, as indenture trustee, calculation agent, paying agent and securities intermediary, Nationstar Mortgage LLC, as servicer and as administrator, and Barclays Bank PLC, as administrative agent
8-K
001-35449
10.1
2/6/2013
 
 
 
 
 
 
 
 
4.6
Series 2013-VF1 Indenture Supplement to Fourth Amended and Restated Indenture, dated January 31, 2013, among Nationstar Agency Advance Funding Trust, as issuer, The Bank of New York Mellon, as indenture trustee, calculation agent, paying agent and securities intermediary, Nationstar Mortgage LLC, as administrator and as servicer, and Barclays Bank PLC, as administrative agent
8-K
001-35449
10.2
2/6/2013
 
 
 
 
 
 
 
 
4.7
Series 2013-T1 Indenture Supplement to Fourth Amended and Restated Indenture, dated January 31, 2013, among Nationstar Agency Advance Funding Trust, as issuer, The Bank of New York Mellon, as indenture trustee, calculation agent, paying agent and securities intermediary, Nationstar Mortgage LLC, as administrator and as servicer, and Barclays Bank PLC, as administrative agent
8-K
001-35449
10.3
2/6/2013
 
 
 
 
 
 
 
 

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Incorporated by Reference
 
Exhibit Number
Description
Form
File No.
Exhibit
Filing Date
Filed or Furnished Herewith
4.8
Series 2013-T2 Indenture Supplement to Fourth Amended and Restated Indenture, dated January 31, 2013, among Nationstar Agency Advance Funding Trust, as issuer, The Bank of New York Mellon, as indenture trustee, calculation agent, paying agent and securities intermediary, Nationstar Mortgage LLC, as administrator and as servicer, and Barclays Bank PLC, as administrative agent
8-K
001-35449
10.4
2/6/2013
 
 
 
 
 
 
 
 
10.1
Registration Rights Agreement, dated February 7, 2013, among the issuers, the guarantors party thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Barclays Capital Inc., Wells Fargo Securities, LLC and RBS Securities Inc., as representatives of the several initial purchasers
8-K
001-35449
10.1
2/7/2013
 
 
 
 
 
 
 
 
10.2
Registration Rights Agreement, dated March 26, 2013, among the issuers, the guarantors party thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Barclays Capital Inc., and Wells Fargo Securities, LLC, as representatives of the several initial purchasers
8-K
001-35449
10.1
3/26/2013
 
 
 
 
 
 
 
 
10.3
Amended and Restated Receivables Pooling Agreement, dated January 31, 2013, between Nationstar Agency Advance Funding LLC (depositor) and Nationstar Agency Advance Funding Trust (issuer)
8-K
001-35449
10.5
2/6/2013
 
 
 
 
 
 
 
 
10.4
Amended and Restated Receivables Sale Agreement, dated January 31, 2013, between Nationstar Mortgage LLC (receivables seller and servicer) and Nationstar Agency Advance Funding LLC (depositor)
8-K
001-35449
10.6
2/6/2013
 
 
 
 
 
 
 
 
10.5*
First Amendment, dated January 31, 2013, to the Addendum to Mortgage Selling and Servicing Contract (Early Advance Funding Agreement), dated December 20, 2012, between Fannie Mae and Nationstar Mortgage LLC
10-K
001-35449
10.11
3/15/2013
 
 
 
 
 
 
 
 
10.6
Future Spread Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XIII LLC
10-K
001-35449
10.45
3/15/2013
 
 
 
 
 
 
 
 
10.7
Current Excess Servicing Spread Acquisition Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XIII LLC
10-K
001-35449
10.46
3/15/2013
 
 
 
 
 
 
 
 
10.8
Future Spread Agreement for FHLMC Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR IX LLC
10-K
001-35449
10.47
3/15/2013
 
 
 
 
 
 
 
 
10.9
Current Excess Servicing Spread Acquisition Agreement for FHLMC Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR IX LLC
10-K
001-35449
10.48
3/15/2013
 
 
 
 
 
 
 
 
10.10
Future Spread Agreement for FNMA Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR X LLC
10-K
001-35449
10.49
3/15/2013
 
 
 
 
 
 
 
 

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Incorporated by Reference
 
Exhibit Number
Description
Form
File No.
Exhibit
Filing Date
Filed or Furnished Herewith
10.11
Current Excess Servicing Spread Acquisition Agreement for FNMA Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR X LLC
10-K
001-35449
10.50
3/15/2013
 
 
 
 
 
 
 
 
10.12
Future Spread Agreement for GNMA Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XI LLC
10-K
001-35449
10.51
3/15/2013
 
 
 
 
 
 
 
 
10.13
Current Excess Servicing Spread Acquisition Agreement for GNMA Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XI LLC
10-K
001-35449
10.52
3/15/2013
 
 
 
 
 
 
 
 
10.14
Future Spread Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XII LLC
10-K
001-35449
10.53
3/15/2013
 
 
 
 
 
 
 
 
10.15
Current Excess Servicing Spread Acquisition Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XII LLC
10-K
001-35449
10.54
3/15/2013
 
 
 
 
 
 
 
 
10.16
Amendment Number Five, dated January 30, 2013, to the Amended and Restated Master Repurchase Agreement, dated October 21, 2010, between Bank of America, N.A. and Nationstar Mortgage LLC
10-K
001-35449
10.66
3/15/2013
 
 
 
 
 
 
 
 
10.17*
Transaction Terms Letter for Amended and Restated Master Repurchase Agreement, dated January 30, 2013, between Bank of America, N.A. and Nationstar Mortgage LLC
10-K
001-35449
10.67
3/15/2013
 
 
 
 
 
 
 
 
10.18**
Employment Agreement between David Hisey and Nationstar Mortgage Holdings Inc.
8-K
001-35449
10.1
2/21/2013
 
 
 
 
 
 
 
 
10.19**
Employment Agreement between Harold Lewis and Nationstar Mortgage Holdings Inc.
10-K
001-35449
10.73
3/15/2013
 
 
 
 
 
 
 
 
10.20**
Employment Agreement between Ramesh Lakshminarayanan and Nationstar Mortgage Holdings Inc.
10-K
001-35449
10.74
3/15/2013
 
 
 
 
 
 
 
 
10.21**
Form of Cash Award Agreement for Employees under the 2012 Incentive Compensation Plan
10-K
001-35449
10.80
3/15/2013
 
 
 
 
 
 
 
 
10.22**
Nationstar Mortgage LLC Annual Incentive Compensation Plan
10-K
001-35449
10.81
3/15/2013
 
 
 
 
 
 
 
 
31.1
Certification by Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 and 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) under the Securities Exchange Act of 1934 and 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
 
 
 
 
 
 
 

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

*
Certain portions of this exhibit have been omitted and have been filed separately with the SEC pursuant to a request for confidential treatment under Rule 24b-2 as promulgated with the Securities Exchange Act of 1934, as amended.

**
Management contract, compensatory plan or arrangement.

+
Pursuant to Item 601(b)(2) of Regulation S-K, the registrant hereby undertakes to furnish supplementally a copy of any referenced schedule to the SEC upon request.




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

 
 
NATIONSTAR MORTGAGE HOLDINGS INC.
 
 
 
May 7, 2013
 
 /s/ Jay Bray
Date
 
Jay Bray
Chief Executive Officer
(Principal Executive Officer)
 
 

May 7, 2013
 
/s/ David C. Hisey
Date
 
David C. Hisey
Chief Financial Officer
(Principal Accounting and Financial Officer)


76
Table of Contents



Exhibit Index
 
 
Incorporated by Reference
 
Exhibit Number
Description
Form
File No.
Exhibit
Filing Date
Filed or Furnished Herewith
2.1+
Mortgage Servicing Rights Purchase and Sale Agreement, dated as of January 6, 2013, between Nationstar Mortgage LLC and Bank of America, National Association
8-K
001-35449
2.1
1/10/2013
 
 
 
 
 
 
 
 
4.1
Indenture, dated as of February 7, 2013, by and among Nationstar Mortgage LLC, Nationstar Capital Corporation, the guarantors thereto and Wells Fargo Bank, National Association, as trustee
8-K
001-35449
4.1
2/7/2013
 
 
 
 
 
 
 
 
4.2
First Supplemental Indenture, dated as of March 26, 2013, by and among Nationstar Mortgage LLC, Nationstar Capital Corporation, the guarantors thereto and Wells Fargo Bank, National Association, as trustee
8-K
001-35449
4.2
3/26/2013
 
 
 
 
 
 
 
 
4.3*
Amendment No. 4, dated March 7, 2013, to Indenture, dated as of June 26, 2012, between Nationstar Advance Funding Trust 2012-C and Wells Fargo Bank, Nationstar Association, as indenture trustee
 
 
 
 
X
 
 
 
 
 
 
 
4.4*
Amendment No. 5, dated March 29, 2013, to Indenture, dated as of June 26, 2012, between Nationstar Advance Funding Trust 2012-C and Wells Fargo Bank, Nationstar Association, as indenture trustee
 
 
 
 
X
 
 
 
 
 
 
 
4.5
Fourth Amended and Restated Indenture, dated January 31, 2013, among Nationstar Agency Advance Funding Trust, as issuer, The Bank of New York Mellon, as indenture trustee, calculation agent, paying agent and securities intermediary, Nationstar Mortgage LLC, as servicer and as administrator, and Barclays Bank PLC, as administrative agent
8-K
001-35449
10.1
2/6/2013
 
 
 
 
 
 
 
 
4.6
Series 2013-VF1 Indenture Supplement to Fourth Amended and Restated Indenture, dated January 31, 2013, among Nationstar Agency Advance Funding Trust, as issuer, The Bank of New York Mellon, as indenture trustee, calculation agent, paying agent and securities intermediary, Nationstar Mortgage LLC, as administrator and as servicer, and Barclays Bank PLC, as administrative agent
8-K
001-35449
10.2
2/6/2013
 
 
 
 
 
 
 
 
4.7
Series 2013-T1 Indenture Supplement to Fourth Amended and Restated Indenture, dated January 31, 2013, among Nationstar Agency Advance Funding Trust, as issuer, The Bank of New York Mellon, as indenture trustee, calculation agent, paying agent and securities intermediary, Nationstar Mortgage LLC, as administrator and as servicer, and Barclays Bank PLC, as administrative agent
8-K
001-35449
10.3
2/6/2013
 
 
 
 
 
 
 
 

77
Table of Contents

 
 
Incorporated by Reference
 
Exhibit Number
Description
Form
File No.
Exhibit
Filing Date
Filed or Furnished Herewith
4.8
Series 2013-T2 Indenture Supplement to Fourth Amended and Restated Indenture, dated January 31, 2013, among Nationstar Agency Advance Funding Trust, as issuer, The Bank of New York Mellon, as indenture trustee, calculation agent, paying agent and securities intermediary, Nationstar Mortgage LLC, as administrator and as servicer, and Barclays Bank PLC, as administrative agent
8-K
001-35449
10.4
2/6/2013
 
 
 
 
 
 
 
 
10.1
Registration Rights Agreement, dated February 7, 2013, among the issuers, the guarantors party thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Barclays Capital Inc., Wells Fargo Securities, LLC and RBS Securities Inc., as representatives of the several initial purchasers
8-K
001-35449
10.1
2/7/2013
 
 
 
 
 
 
 
 
10.2
Registration Rights Agreement, dated March 26, 2013, among the issuers, the guarantors party thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Barclays Capital Inc., and Wells Fargo Securities, LLC, as representatives of the several initial purchasers
8-K
001-35449
10.1
3/26/2013
 
 
 
 
 
 
 
 
10.3
Amended and Restated Receivables Pooling Agreement, dated January 31, 2013, between Nationstar Agency Advance Funding LLC (depositor) and Nationstar Agency Advance Funding Trust (issuer)
8-K
001-35449
10.5
2/6/2013
 
 
 
 
 
 
 
 
10.4
Amended and Restated Receivables Sale Agreement, dated January 31, 2013, between Nationstar Mortgage LLC (receivables seller and servicer) and Nationstar Agency Advance Funding LLC (depositor)
8-K
001-35449
10.6
2/6/2013
 
 
 
 
 
 
 
 
10.5*
First Amendment, dated January 31, 2013, to the Addendum to Mortgage Selling and Servicing Contract (Early Advance Funding Agreement), dated December 20, 2012, between Fannie Mae and Nationstar Mortgage LLC
10-K
001-35449
10.11
3/15/2013
 
 
 
 
 
 
 
 
10.6
Future Spread Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XIII LLC
10-K
001-35449
10.45
3/15/2013
 
 
 
 
 
 
 
 
10.7
Current Excess Servicing Spread Acquisition Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XIII LLC
10-K
001-35449
10.46
3/15/2013
 
 
 
 
 
 
 
 
10.8
Future Spread Agreement for FHLMC Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR IX LLC
10-K
001-35449
10.47
3/15/2013
 
 
 
 
 
 
 
 
10.9
Current Excess Servicing Spread Acquisition Agreement for FHLMC Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR IX LLC
10-K
001-35449
10.48
3/15/2013
 
 
 
 
 
 
 
 
10.10
Future Spread Agreement for FNMA Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR X LLC
10-K
001-35449
10.49
3/15/2013
 
 
 
 
 
 
 
 

78
Table of Contents

 
 
Incorporated by Reference
 
Exhibit Number
Description
Form
File No.
Exhibit
Filing Date
Filed or Furnished Herewith
10.11
Current Excess Servicing Spread Acquisition Agreement for FNMA Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR X LLC
10-K
001-35449
10.5
3/15/2013
 
 
 
 
 
 
 
 
10.12
Future Spread Agreement for GNMA Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XI LLC
10-K
001-35449
10.51
3/15/2013
 
 
 
 
 
 
 
 
10.13
Current Excess Servicing Spread Acquisition Agreement for GNMA Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XI LLC
10-K
001-35449
10.52
3/15/2013
 
 
 
 
 
 
 
 
10.14
Future Spread Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XII LLC
10-K
001-35449
10.53
3/15/2013
 
 
 
 
 
 
 
 
10.15
Current Excess Servicing Spread Acquisition Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, between Nationstar Mortgage LLC and MSR XII LLC
10-K
001-35449
10.54
3/15/2013
 
 
 
 
 
 
 
 
10.16
Amendment Number Five, dated January 30, 2013, to the Amended and Restated Master Repurchase Agreement, dated October 21, 2010, between Bank of America, N.A. and Nationstar Mortgage LLC
10-K
001-35449
10.66
3/15/2013
 
 
 
 
 
 
 
 
10.17*
Transaction Terms Letter for Amended and Restated Master Repurchase Agreement, dated January 30, 2013, between Bank of America, N.A. and Nationstar Mortgage LLC
10-K
001-35449
10.67
3/15/2013
 
 
 
 
 
 
 
 
10.18**
Employment Agreement between David Hisey and Nationstar Mortgage Holdings Inc.
8-K
001-35449
10.1
2/21/2013
 
 
 
 
 
 
 
 
10.19**
Employment Agreement between Harold Lewis and Nationstar Mortgage Holdings Inc.
10-K
001-35449
10.73
3/15/2013
 
 
 
 
 
 
 
 
10.20**
Employment Agreement between Ramesh Lakshminarayanan and Nationstar Mortgage Holdings Inc.
10-K
001-35449
10.74
3/15/2013
 
 
 
 
 
 
 
 
10.21**
Form of Cash Award Agreement for Employees under the 2012 Incentive Compensation Plan
10-K
001-35449
10.8
3/15/2013
 
 
 
 
 
 
 
 
10.22**
Nationstar Mortgage LLC Annual Incentive Compensation Plan
10-K
001-35449
10.81
3/15/2013
 
 
 
 
 
 
 
 
31.1
Certification by Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 and 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) under the Securities Exchange Act of 1934 and 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

79
Table of Contents

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

*
Certain portions of this exhibit have been omitted and have been filed separately with the SEC pursuant to a request for confidential treatment under Rule 24b-2 as promulgated with the Securities Exchange Act of 1934, as amended.

**
Management contract, compensatory plan or arrangement.

+
Pursuant to Item 601(b)(2) of Regulation S-K, the registrant hereby undertakes to furnish supplementally a copy of any referenced schedule to the SEC upon request.


80