WALTER INVESTMENT MANAGEMENT CORP (Form: 10-Q, Received: 05/07/2015 06:23:40)

Large accelerated filer

Accelerated filer

Non-accelerated filer

o (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_______________________________________________________________________________________

Form 10-Q

_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________



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

For the quarterly period ended March 31, 2015



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

For the transition period from __________ to __________

Commission file number: 001-13417

_______________________________________________________________________________________

Walter Investment Management Corp.

(Exact name of registrant as specified in its charter)

_______________________________________________________________________________________



Maryland		13-3950486
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

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

(813) 421-7600

(Registrant's telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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

The registrant had 37,732,229 shares of common stock outstanding as of April 30, 2015 .

_______________________________________________________________________________________

WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

FORM 10-Q

INDEX




		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements		3
Consolidated Balance Sheets as of March 31, 2015 (unaudited) and December 31, 2014		3
Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2015 and 2014 (unaudited)		5
Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 2015 (unaudited)		6
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (unaudited)		7
Notes to Consolidated Financial Statements (unaudited)		9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		47
Item 3. Quantitative and Qualitative Disclosures About Market Risk		92
Item 4. Controls and Procedures		94
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		95
Item 1A. Risk Factors		95
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		96
Item 3. Defaults Upon Senior Securities		96
Item 4. Mine Safety Disclosures		96
Item 5. Other Information		96
Item 6. Exhibits		96
Signatures		97

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)



	March 31, 2015		December 31, 2014
	(unaudited)
ASSETS
Cash and cash equivalents	$	338,490	$	320,175
Restricted cash and cash equivalents	837,628		733,015
Residential loans at amortized cost, net (includes $10,660 and $10,033 in allowance for loan losses at March 31, 2015 and December 31, 2014, respectively)	1,288,898		1,314,539
Residential loans at fair value	12,204,837		11,832,630
Receivables, net (includes $22,935 and $25,201 at fair value at March 31, 2015 and December 31, 2014, respectively)	248,378		215,629
Servicer and protective advances, net (includes $116,874 and $112,427 in allowance for uncollectible advances at March 31, 2015 and December 31, 2014, respectively)	1,612,988		1,761,082
Servicing rights, net (includes $1,570,320 and $1,599,541 at fair value at March 31, 2015 and December 31, 2014, respectively)	1,693,982		1,730,216
Goodwill	575,468		575,468
Intangible assets, net	99,583		103,503
Premises and equipment, net	115,837		124,926
Other assets (includes $100,735 and $68,151 at fair value at March 31, 2015 and December 31, 2014, respectively)	292,078		280,794
Total assets	$	19,308,167	$	18,991,977

LIABILITIES AND STOCKHOLDERS EQUITY
Payables and accrued liabilities (includes $37,937 and $30,024 at fair value at March 31, 2015 and December 31, 2014, respectively)	$	669,313	$	663,829
Servicer payables	695,299		584,567
Servicing advance liabilities	1,284,804		1,365,885
Warehouse borrowings	1,187,543		1,176,956
Excess servicing spread liability at fair value	63,349		66,311
Corporate debt	2,266,831		2,267,799
Mortgage-backed debt (includes $635,239 and $653,167 at fair value at March 31, 2015 and December 31, 2014, respectively)	1,706,367		1,751,459
HMBS related obligations at fair value	10,304,384		9,951,895
Deferred tax liability, net	81,316		86,617
Total liabilities	18,259,206		17,915,318

Commitments and contingencies (Note 18)

Stockholders' equity:
Preferred stock, $0.01 par value per share:
Authorized - 10,000,000 shares
Issued and outstanding - 0 shares at March 31, 2015 and December 31, 2014	—		—
Common stock, $0.01 par value per share:
Authorized - 90,000,000 shares
Issued and outstanding - 37,732,229 and 37,711,623 shares at March 31, 2015 and December 31, 2014, respectively	377		377
Additional paid-in capital	603,926		600,643
Retained earnings	444,236		475,244
Accumulated other comprehensive income	422		395
Total stockholders' equity	1,048,961		1,076,659
Total liabilities and stockholders' equity	$	19,308,167	$	18,991,977

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



	March 31, 2015		December 31, 2014
ASSETS OF CONSOLIDATED VARIABLE INTEREST ENTITIES THAT CAN ONLY BE USED TO SETTLE THE OBLIGATIONS OF CONSOLIDATED VARIABLE INTEREST ENTITIES:	(unaudited)
Restricted cash and cash equivalents	$	103,092	$	105,977
Residential loans at amortized cost, net	1,268,109		1,292,781
Residential loans at fair value	567,912		586,433
Receivables at fair value	22,935		25,201
Servicer and protective advances, net	1,194,718		1,273,186
Other assets	42,329		46,199
Total assets	$	3,199,095	$	3,329,777

LIABILITIES OF THE CONSOLIDATED VARIABLE INTEREST ENTITIES FOR WHICH CREDITORS OR BENEFICIAL INTEREST HOLDERS DO NOT HAVE RECOURSE TO THE COMPANY:
Payables and accrued liabilities	$	8,348	$	8,511
Servicing advance liabilities	1,090,692		1,160,257
Mortgage-backed debt (includes $635,239 and $653,167 at fair value at March 31, 2015 and December 31, 2014, respectively)	1,706,367		1,751,459
Total liabilities	$	2,805,407	$	2,920,227

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

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WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands, except per share data)



	For the Three Months Ended March 31,
	2015			2014
REVENUES
Net servicing revenue and fees	$	90,887		$	172,792
Net gains on sales of loans	125,227			104,034
Interest income on loans	31,941			34,422
Net fair value gains on reverse loans and related HMBS obligations	30,774			17,236
Insurance revenue	14,131			23,388
Other revenues	17,897			18,076
Total revenues	310,857			369,948

EXPENSES
Salaries and benefits	147,228			135,897
General and administrative	128,647			108,865
Interest expense	74,871			74,849
Depreciation and amortization	16,632			18,644
Other expenses, net	4,047			225
Total expenses	371,425			338,480

OTHER GAINS (LOSSES)
Other net fair value losses	(872		)	(2,503		)
Other	11,762			—
Total other gains ( losses)	10,890			(2,503		)

Income (loss) before income taxes	(49,678		)	28,965
Income tax expense (benefit)	(18,670		)	11,588
Net income (loss)	$	(31,008	)	$	17,377

Comprehensive income (loss)	$	(30,981	)	$	17,381

Net income (loss)	$	(31,008	)	$	17,377

Basic earning s (loss) per common and common equivalent share	$	(0.82	)	$	0.46
Diluted earnings (loss) per common and common equivalent share	(0.82		)	0.45

Weighted-average common and common equivalent shares outstanding — basic	37,718			37,429
Weighted-average common and common equivalent shares outstanding — diluted	37,718			38,005

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

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WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2015

(Unaudited)

(in thousands, except share data)



	Common Stock			Additional Paid- In Capital			Retained Earnings			Accumulated Other Comprehensive Income
	Shares	Amount		Additional Paid- In Capital			Retained Earnings			Accumulated Other Comprehensive Income		Total
Balance at January 1, 2015	37,711,623	$	377	$	600,643		$	475,244		$	395	$	1,076,659
Net loss	—	—		—			(31,008		)	—		(31,008		)
Other comprehensive income, net of tax	—	—		—			—			27		27
Share-based compensation	—	—		3,423			—			—		3,423
Tax shortfall on share-based compensation	—	—		(278		)	—			—		(278		)
Issuance of shares under incentive plans	20,606	—		138			—			—		138
Balance at March 31, 2015	37,732,229	$	377	$	603,926		$	444,236		$	422	$	1,048,961

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

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WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



	For the Three Months Ended March 31,
	2015			2014
Operating activities
Net income (loss)	$	(31,008	)	$	17,377

Adjustments to reconcile net income (loss) to net cash provided by operating activities
Net fair value gains on reverse loans and related HMBS obligations	(30,774		)	(17,236		)
Amortization of servicing rights	7,013			11,117
Change in fair value of servicing rights	129,235			47,634
Change in fair value of excess servicing spread liability	(763		)	—
Other net fair value losses	3,642			5,702
Accretion of discounts on residential loans and advances	(3,608		)	(3,988		)
Accretion of discounts on debt and amortization of deferred debt issuance costs	5,073			4,778
Amortization of master repurchase agreements deferred issuance costs	1,432			2,018
Amortization of servicing advance liabilities deferred issuance costs	1,280			498
Provision for uncollectible advances	11,977			12,683
Depreciation and amortization of premises and equipment and intangible assets	16,632			18,644
Losses (gains) on real estate owned, net	813			(749		)
Provision (benefit) for deferred income taxes	(5,595		)	8,926
Share-based compensation	3,423			3,493
Purchases and originations of residential loans held for sale	(5,633,936		)	(3,583,548		)
Proceeds from sales of and payments on residential loans held for sale	5,649,119			4,039,387
Net gains on sales of loans	(125,227		)	(104,034		)
Gain on sale of investment	(11,762		)	—
Other	(1,872		)	(1,200		)

Changes in assets and liabilities
Decrease (increase) in receivables	(34,348		)	44,223
Decrease (increase) in servicer and protective advances	136,173			(31,255		)
Decrease in other assets	2,758			382
Increase (decrease) in payables and accrued liabilities	25,914			(59,906		)
Increase (decrease) in servicer payables	5,459			(7,394		)
Cash flows provided by operating activities	121,050			407,552

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	For the Three Months Ended March 31,
	2015			2014
Investing activities
Purchases and originations of reverse loans held for investment	(428,350		)	(323,132		)
Principal payments received on reverse loans held for investment	152,195			100,729
Principal payments received on mortgage loans held for investment	41,427			38,770
Payments received on charged-off loans held for investment	6,372			—
Payments received on receivables related to Non-Residual Trusts	2,020			3,230
Cash proceeds from sales of real estate owned, net	17,711			11,436
Purchases of premises and equipment	(3,686		)	(4,524		)
Decrease in restricted cash and cash equivalents	242			4,703
Payments for acquisitions of businesses, net of cash acquired	(2,809		)	(41,912		)
Acquisitions of servicing rights	(53,919		)	8,843
Proceeds from sale of investment	14,376			—
Proceeds from sale of servicing rights	543			—
Other	12,555			(450		)
Cash flows used in investing activities	(241,323		)	(202,307		)

Financing activities
Payments on corporate debt	(4,272		)	(4,573		)
Proceeds from securitizations of reverse loans	457,448			445,046
Payments on HMBS related obligations	(195,783		)	(117,731		)
Issuances of servicing advance liabilities	175,725			262,870
Payments on servicing advance liabilities	(256,806		)	(237,689		)
Net change in warehouse borrowings related to mortgage loans	29,235			(361,909		)
Net change in warehouse borrowings related to reverse loans	(18,648		)	(72,339		)
Payments on excess servicing spread liability	(2,199		)	—
Other debt issuance costs paid	(1,618		)	(5,278		)
Payments on mortgage-backed debt	(45,050		)	(45,488		)
Other	556			2,665
Cash flows provided by (used in) financing activities	138,588			(134,426		)

Net increase in cash and cash equivalents	18,315			70,819
Cash and cash equivalents at beginning of the period	320,175			491,885
Cash and cash equivalents at end of the period	$	338,490		$	562,704

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

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WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Basis of Presentation

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

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

Interim Financial Reporting

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and related notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 . These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 .

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company’s material estimates and assumptions primarily arise from risks and uncertainties associated with interest rate volatility, prepayment volatility, credit exposure, and borrower mortality rates and include, but are not limited to, the valuation of residential loans, servicing rights, goodwill, derivatives, mortgage-backed debt, and HMBS related obligations and also the allowance for uncollectible advances and contingencies. Although management is not currently aware of any factors that would significantly change its estimates and assumptions, actual results may differ from these estimates.

Changes in Presentation

Certain prior year amounts have been reclassified to conform to current year presentation. During the three months ended March 31, 2015, the Company reorganized its reportable segments, changed the composition of indirect costs and depreciation and amortization allocated to the business segments, and established an intersegment charge between the Servicing and Originations segments for certain loan originations associated with the Company's mortgage loan servicing portfolio. Refer to Note 16 for additional information.

Recent Accounting Guidance

In January 2014, the FASB issued an accounting standards update that clarifies the definition of an in-substance repossession and foreclosure, and requires additional disclosures related to these items. This amendment reduces diversity in practice by clarifying when an in-substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The required disclosures under these new amendments require interim and annual disclosures of both (i) the amount of foreclosed residential real estate property held by the creditor and (ii) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. These additional disclosures are included in Note 5.

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In April 2014, the FASB issued an accounting standards update which changes the criteria for reporting discontinued operations. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of, or is classified as held for sale, and represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Major strategic shifts include disposals of a significant geographic area or line of business. The new standard allows an entity to have significant continuing involvement and cash flows with the discontinued operation. The standard requires expanded disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. The amendments in this standard are effective for the Company beginning January 1, 2015. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued guidance that supersedes most revenue recognition requirements regarding contracts with customers to transfer goods or services or for the transfer of nonfinancial assets. The guidance also supersedes most industry specific guidance but does exclude insurance contracts and financial instruments. Under the new guidance, entities are required to recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step analysis to be performed on transactions to determine when and how revenue is recognized. This new guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2016. Entities have the option of using either a full retrospective application or a modified retrospective application to adopt the guidance. Early adoption is not permitted. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements, including the method it will choose for adoption.

In June 2014, the FASB issued an accounting standards update on transfers and servicing, effective prospectively for fiscal years beginning after December 15, 2014 and interim periods within those years. The new guidance requires that repurchase financing arrangements be accounted for as secured borrowings and provides for enhanced disclosures, including the nature of collateral pledged and the time to maturity. Certain interim period disclosures for repurchase agreements are not required until the second quarter of 2015. The adoption of the guidance addressing the accounting for repurchase financing arrangements, which is effective beginning January 1, 2015, did not have an impact on the Company’s consolidated financial statements as the Company already records repurchase agreements as secured borrowings. The adoption of the new disclosure requirements effective in the second quarter of 2015 will not have a significant impact on the Company’s disclosures included in the consolidated financial statements.

In August 2014, the FASB issued an accounting standards update regarding an alternative approach on measuring the financial assets and financial liabilities of a consolidated CFE (referred to as the measurement alternative). The accounting standard update provides an entity with an election to measure the financial assets and financial liabilities of a consolidated CFE to be measured on the basis of either the fair value of the CFE’s financial assets or financial liabilities, whichever is more observable. The new guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015 with early adoption permitted. The adoption of this standard is not expected to have a significant impact on the Company's consolidated financial statements.

In August 2014, the FASB issued an accounting standards update on the classification of certain foreclosed mortgage loans held by creditors that are either fully or partially guaranteed under government programs. The amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. The amendment requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met, (i) the loan has a government guarantee that is not separable from the loan before foreclosure; (ii) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and (iii) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this standard are effective for the Company beginning January 1, 2015. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.

In January 2015, the FASB issued an accounting standards update eliminating the concept of extraordinary items. This amendment is intended to reduce complexity in accounting standards. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The new guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015 with early adoption permitted. The adoption of this standard is not expected to have a significant impact on the Company's consolidated financial statements.

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In February 2015, the FASB issued an accounting standards update which requires amendments to both the variable interest entity and voting models. The amendments (i) rescind the indefinite deferral of certain aspects of accounting standards relating to consolidations and provide a permanent scope exception for registered money market funds and similar unregistered money market funds, (ii) modify the identification of variable interests (fees paid to a decision maker or service provider), the VIE characteristics for a limited partnership or similar entity and primary beneficiary determination under the VIE model, and (iii) eliminate the presumption within the current voting model that a general partner controls a limited partnership or similar entity. The new guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015 with early adoption permitted. The amendments may be applied using either a modified retrospective or full retrospective approach. The adoption of this standard is not anticipated to result in any additional consolidations of variable interest entities and is anticipated to reduce the circumstances in which the Company could be considered the primary beneficiary and therefore be required to consolidate a variable interest entity.

In April 2015, the FASB issued an accounting standards update regarding the approach for recognizing debt issuance costs. The amendment now requires entities to recognize debt issuance costs as a direct deduction from the carrying amount of the related debt liability and not recorded as a separate asset. The new guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015 with early adoption permitted. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The adoption of this standard will not have a significant impact on the Company's consolidated financial statements.

2. Significant Accounting Policies

Included in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 is a summary of the Company’s significant accounting policies.

3. Variable Interest Entities

Consolidated Variable Interest Entities

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



	March 31, 2015
	Residual Trusts		Non-Residual Trusts		Servicer and Protective Advance Financing Facilities		Total
Assets
Restricted cash and cash equivalents	$	42,612	$	12,928	$	47,552	$	103,092
Residential loans at amortized cost, net	1,268,109		—		—		1,268,109
Residential loans at fair value	—		567,912		—		567,912
Receivables at fair value	—		22,935		—		22,935
Servicer and protective advances, net	—		—		1,194,718		1,194,718
Other assets	38,605		1,144		2,580		42,329
Total assets	$	1,349,326	$	604,919	$	1,244,850	$	3,199,095

Liabilities
Payables and accrued liabilities	$	7,242	$	—	$	1,106	$	8,348
Servicing advance liabilities	—		—		1,090,692		1,090,692
Mortgage-backed debt	1,071,128		635,239		—		1,706,367
Total liabilities	$	1,078,370	$	635,239	$	1,091,798	$	2,805,407

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	December 31, 2014
	Residual Trusts		Non-Residual Trusts		Servicer and Protective Advance Financing Facilities		Total
Assets
Restricted cash and cash equivalents	$	41,632	$	12,710	$	51,635	$	105,977
Residential loans at amortized cost, net	1,292,781		—		—		1,292,781
Residential loans at fair value	—		586,433		—		586,433
Receivables at fair value	—		25,201		—		25,201
Servicer and protective advances, net	—		—		1,273,186		1,273,186
Other assets	41,758		1,023		3,418		46,199
Total assets	$	1,376,171	$	625,367	$	1,328,239	$	3,329,777

Liabilities
Payables and accrued liabilities	$	7,590	$	—	$	921	$	8,511
Servicing advance liabilities	—		—		1,160,257		1,160,257
Mortgage-backed debt	1,098,292		653,167		—		1,751,459
Total liabilities	$	1,105,882	$	653,167	$	1,161,178	$	2,920,227

Unconsolidated Variable Interest Entities

Included in Note 4 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 are descriptions of the Company’s variable interests in VIEs that it does not consolidate as it has determined that it is not the primary beneficiary of such VIEs.

4. Transfers of Residential Loans

Sales of Mortgage Loans

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

Certain guarantees arise from agreements associated with the sale of the Company's residential loans. Under these agreements, the Company may be obligated to repurchase loans, or otherwise indemnify or reimburse the credit owner or insurer for losses incurred, due to material breach of contractual representations and warranties. Refer to Note 18 for further information.

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



	Carrying Value of Assets Recorded on the Consolidated Balance Sheets						Unpaid Principal Balance of Sold Loans
	Servicing Rights, Net		Servicer and Protective Advances, Net		Total		Unpaid Principal Balance of Sold Loans
March 31, 2015	$	358,794	$	11,078	$	369,872	$	32,406,294
December 31, 2014	331,365		13,146		344,511		28,457,216

At March 31, 2015 and December 31, 2014 , $112.6 million and $86.3 million , respectively, in mortgage loans sold and serviced by the Company were 60 days or more past due. The increase in loans 60 days or more past due is related to the growth and early seasoning of the recently originated loan portfolio.

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The Company has elected to measure mortgage loans held for sale at fair value. The gains and losses on the sale of mortgage loans held for sale are included in net gains on sales of loans on the consolidated statements of comprehensive income (loss). Also included in net gains on sales of loans is interest income earned during the period the loans were held, the change in fair value of loans, and the gain or loss on the related freestanding derivatives. Refer to Note 6 for information on these freestanding derivatives. All activity related to mortgage loans held for sale and the related freestanding derivatives are included in operating activities on the consolidated statements of cash flows.

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



	For the Three Months Ended March 31,
	2015		2014
Proceeds received from sales, net of fees	$	5,659,144	$	4,047,743
Servicing fees collected ⁽¹⁾	22,222		11,117
Repurchases of previously sold loans	3,130		—

__________


(1)	Represents servicing fees collected on all loans sold with servicing retained.

In connection with these sales, the Company recorded servicing rights using a fair value model that utilizes Level 3 unobservable inputs. Refer to Note 10 for information relating to servicing of residential loans.

Transfers of Reverse Loans

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

The Company elects to measure reverse loans and HMBS related obligations at fair value. The changes in fair value of the reverse loans and HMBS related obligations are included in net fair value gains on reverse loans and related HMBS obligations on the consolidated statements of comprehensive income (loss). Included in net fair value gains on reverse loans and related HMBS obligations is the contractual interest income earned on the reverse loans and the contractual interest expense incurred on the HMBS related obligations. Net fair value gains on reverse loans and related HMBS obligations are recognized as an adjustment in reconciling net income or loss to the net cash provided by or used in operating activities on the consolidated statements of cash flows. Purchases and originations of and repayment of principal received on reverse loans held for investment are included in investing activities on the consolidated statements of cash flows. Proceeds from securitizations of reverse loans and payments on HMBS related obligations are included in financing activities on the consolidated statements of cash flows.

At March 31, 2015 , the unpaid principal balance and the carrying value associated with both the reverse loans and the real estate owned pledged as collateral to the securitization pools were $9.5 billion and $10.2 billion , respectively.

5. Fair Value

Basis or Measurement

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

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

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

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

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

Transfers into and out of the fair value hierarchy levels are assumed to be as of the end of the quarter in which the transfer occurred. There were no transfers between levels during the three months ended March 31, 2015 and 2014 .

Items Measured at Fair Value on a Recurring Basis

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



	March 31, 2015		December 31, 2014
Level 2
Assets
Mortgage loans held for sale	$	1,156,187	$	1,124,615
Freestanding derivative instruments	15,810		7,751
Level 2 assets	$	1,171,997	$	1,132,366
Liabilities
Freestanding derivative instruments	$	37,733	$	29,761
Level 2 liabilities	$	37,733	$	29,761

Level 3
Assets
Reverse loans	$	10,429,893	$	10,064,365
Mortgage loans related to Non-Residual Trusts	567,912		586,433
Charged-off loans	50,845		57,217
Receivables related to Non-Residual Trusts	22,935		25,201
Servicing rights carried at fair value	1,570,320		1,599,541
Freestanding derivative instruments (IRLCs)	84,925		60,400
Level 3 assets	$	12,726,830	$	12,393,157
Liabilities
Freestanding derivative instruments (IRLCs)	$	204	$	263
Excess servicing spread liability	63,349		66,311
Mortgage-backed debt related to Non-Residual Trusts	635,239		653,167
HMBS related obligations	10,304,384		9,951,895
Level 3 liabilities	$	11,003,176	$	10,671,636

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



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

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

__________


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

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	For the Three Months Ended March 31, 2014
	Fair Value January 1, 2014			Acquisition of EverBank Net Assets		Total Gains (Losses) Included in Comprehensive Income			Purchases		Originations / Issuances			Settlements			Fair Value March 31, 2014
Assets
Reverse loans	$	8,738,503		$	—	$	205,409		$	193,676	$	129,463		$	(117,472	)	$	9,149,579
Mortgage loans related to Non-Residual Trusts	587,265			—		10,783			—		—			(28,951		)	569,097
Receivables related to Non-Residual Trusts	43,545			—		(987		)	—		—			(3,230		)	39,328
Servicing rights carried at fair value	1,131,124			58,680		(47,634		)	319,047		52,613			—			1,513,830
Freestanding derivative instruments (IRLCs)	42,831			—		(4,641		)	—		—			—			38,190
Total assets	$	10,543,268		$	58,680	$	162,930		$	512,723	$	182,076		$	(149,653	)	$	11,310,024

Liabilities
Freestanding derivative instruments (IRLCs)	$	(3,755	)	$	—	$	3,035		$	—	$	—		$	—		$	(720	)
Mortgage-backed debt related to Non-Residual Trusts	(684,778		)	—		(11,835		)	—		—			29,077			(667,536		)
HMBS related obligations	(8,652,746		)	—		(188,173		)	—		(445,046		)	118,967			(9,166,998		)
Total liabilities	$	(9,341,279	)	$	—	$	(196,973	)	$	—	$	(445,046	)	$	148,044		$	(9,835,254	)

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

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

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

Residential loans

•

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

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

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

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

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

The fair value of forward sales commitments and MBS purchase commitments is determined based on observed market pricing for similar instruments; therefore, these contracts are classified as Level 2 within the fair value hierarchy. Counterparty credit risk is taken into account when determining fair value, although the impact is diminished by daily margin posting on all forward sales and purchase derivatives. Refer to Note 6 for additional information on freestanding derivative financial instruments.

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

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

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

The following table presents the significant unobservable inputs used in the fair value measurement of the assets and liabilities described above. The Company utilizes a discounted cash flow method in the fair value measurement of all Level 3 assets and liabilities included on the consolidated financial statements at fair value on a recurring basis, with the exception of IRLCs for which the Company utilizes a market approach.

With the exception of IRLCs and collection rates associated with charged-off loans, significant increases (decreases) in any of the inputs related to assets disclosed below, in isolation, could result in a significantly lower (higher) fair value measurement. Significant increases (decreases) in any of the inputs related to liabilities, other than IRLCs, and collection rates on charged-off loans, as disclosed below, in isolation, could result in a significantly higher (lower) fair value measurement. The impact on fair value for increases and decreases to significant unobservable inputs related to IRLCs is discussed above.

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		March 31, 2015			December 31, 2014
	Significant Unobservable Input ^{(1) (2)}	Range of Input ⁽³⁾	Weighted Average of Input ⁽³⁾		Range of Input ⁽³⁾	Weighted Average of Input ⁽³⁾
Assets
Reverse loans	Weighted-average remaining life in years	1.6 - 12.0	4.7		1.8 - 12.3	4.7
	Conditional repayment rate	13.30% - 45.30%	22.21	%	13.40% - 42.20%	21.68	%
	Discount rate	1.96% - 3.37%	2.61	%	2.00% - 3.65%	2.76	%
Mortgage loans related to Non-Residual Trusts	Conditional prepayment rate	2.31% - 3.84%	3.10	%	2.24% - 3.76%	3.17	%
	Conditional default rate	1.33% - 3.49%	2.34	%	1.68% - 3.51%	2.34	%
	Loss severity	69.01% - 90.72%	85.80	%	76.12% - 92.53%	85.88	%
	Discount rate	8.00%	8.00	%	8.00%	8.00	%
Charged-off loans	Collection rate	2.15% - 4.38%	2.27	%	2.34% - 4.53%	2.46	%
	Discount rate	30.00% - 32.25%	30.19	%	30.00% - 32.25%	30.19	%
Receivables related to Non-Residual Trusts	Conditional prepayment rate	1.92% - 3.37%	2.61	%	1.89% - 3.33%	2.72	%
	Conditional default rate	1.40% - 3.79%	2.53	%	1.92% - 3.81%	2.55	%
	Loss severity	66.08% - 87.84%	82.61	%	73.26% - 89.78%	82.87	%
	Discount rate	0.50%	0.50	%	0.50%	0.50	%
Servicing rights carried at fair value	Weighted-average remaining life in years	4.0 - 9.8	6.2		5.6 - 9.3	6.6
	Discount rate	8.16% - 29.41%	9.77	%	8.24% - 29.16%	9.55	%
	Conditional prepayment rate	4.77% - 17.07%	8.88	%	5.04% - 11.15%	7.87	%
	Conditional default rate	0.17% - 2.83%	1.63	%	0.28% - 3.53%	2.36	%
Interest rate lock commitments	Loan funding probability	6.90% - 100.00%	75.78	%	3.44% - 100.00%	77.45	%
	Fair value of initial servicing rights multiple ⁽⁴⁾	0.16 - 5.88	3.98		0.20 - 5.47	3.83

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		March 31, 2015			December 31, 2014
	Significant Unobservable Input ^{(1) (2)}	Range of Input ⁽³⁾	Weighted Average of Input ⁽³⁾		Range of Input ⁽³⁾	Weighted Average of Input ⁽³⁾
Liabilities
Interest rate lock commitments	Loan funding probability	38.00% - 100.00%	84.03	%	28.00% - 100.00%	80.90	%
	Fair value of initial servicing rights multiple ⁽⁴⁾	2.34 - 5.40	4.43		0.67 - 5.47	4.06
Excess servicing spread liability	Weighted-average remaining life in years	6.9 - 7.0	6.9		7.2 - 7.4	7.3
	Discount rate	13.85%	13.85	%	13.60%	13.60	%
	Conditional prepayment rate	8.38% - 8.86%	8.60	%	7.71% - 7.89%	7.79	%
	Conditional default rate	0.53% - 1.38%	0.89	%	0.86% - 2.31%	1.51	%
Mortgage-backed debt related to Non-Residual Trusts	Conditional prepayment rate	1.92% - 3.37%	2.61	%	1.89% - 3.33%	2.72	%
	Conditional default rate	1.40% - 3.79%	2.53	%	1.92% - 3.81%	2.55	%
	Loss severity	66.08% - 87.84%	82.61	%	73.26% - 89.78%	82.87	%
	Discount rate	6.00%	6.00	%	6.00%	6.00	%
HMBS related obligations	Weighted-average remaining life in years	1.2 - 7.7	3.9		1.3 - 7.7	3.9
	Conditional repayment rate	11.60% - 50.40%	21.78	%	11.30% - 48.65%	21.21	%
	Discount rate	1.46% - 2.66%	2.20	%	1.44% - 3.06%	2.36	%

__________


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


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

(3)

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


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

Fair Value Option

The Company has elected the fair value option for mortgage loans, receivables and mortgage-backed debt related to the Non-Residual Trusts; reverse loans; mortgage loans held for sale; charged-off loans; servicing rights associated with the risk managed loan class; excess servicing spread liability; and HMBS related obligations. The fair value option was elected for these assets and liabilities as the Company believes fair value best reflects their expected future economic performance.

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



	March 31, 2015				December 31, 2014
	Estimated Fair Value		Unpaid Principal Balance		Estimated Fair Value		Unpaid Principal Balance
Loans at fair value under the fair value option
Reverse loans ⁽¹⁾	$	10,429,893	$	9,663,598	$	10,064,365	$	9,340,270
Mortgage loans held for sale ⁽¹⁾	1,156,187		1,102,720		1,124,615		1,071,787
Mortgage loans related to Non-Residual Trusts	567,912		632,326		586,433		650,382
Charged-off loans	50,845		3,196,241		57,217		3,366,504
Total	$	12,204,837	$	14,594,885	$	11,832,630	$	14,428,943

Debt instruments at fair value under the fair value option
Mortgage-backed debt related to Non-Residual Trusts	$	635,239	$	639,095	$	653,167	$	657,174
HMBS related obligations ⁽²⁾	10,304,384		9,487,008		9,951,895		9,172,083
Total	$	10,939,623	$	10,126,103	$	10,605,062	$	9,829,257

__________


(1)	Includes loans that collateralize master repurchase agreements. Refer to Note 13 for additional information.


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

Included in mortgage loans related to Non-Residual Trusts are loans that are 90 days or more past due that have a fair value of $1.8 million and $2.0 million at March 31, 2015 and December 31, 2014 , and an unpaid principal balance of $9.4 million and $10.2 million , at March 31, 2015 and December 31, 2014 , respectively. All charged-off loans are 90 days or more past due.

Included in gains and losses associated with loans, receivables and liabilities for which the Company has elected the fair value option are fair value gains and losses from instrument-specific credit risk that include, as applicable, the change in fair value due to changes in assumptions related to prepayments, defaults, severity, and discount rates. Presented in the table below are the fair value gains and losses from instrument-specific credit risk associated with the loans, receivables and liabilities for which the Company has elected the fair value option (in thousands):



	For the Three Months Ended March 31,
	2015			2014
Gains (losses) from changes in instrument-specific credit risk associated with loans and receivables under the fair value option
Mortgage loans related to Non-Residual Trusts	$	(196	)	$	683
Charged-off loans	—			—
Receivables related to Non-Residual Trusts	(171		)	(1,118		)
Total	$	(367	)	$	(435	)

Gains (losses) from changes in instrument-specific credit risk associated with liabilities under the fair value option
Mortgage-backed debt related to Non-Residual Trusts	113			524
Total	$	113		$	524

As a result of HECMs being insured by the FHA and HMBS related obligations being guaranteed by Ginnie Mae, the fair value changes related to instrument-specific credit risk associated with these assets and liabilities is insignificant. Due to the short holding period of mortgage loans held for sale, related fair value gains and losses from instrument-specific credit risk are also insignificant. The impact on fair value for the change in instrument-specific credit risk associated with the excess servicing spread liability was insignificant for the three months ended March 31, 2015.

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Items Measured at Fair Value on a Non-Recurring Basis

The Company held real estate owned, net of $87.6 million and $88.4 million at March 31, 2015 and December 31, 2014 , respectively. In addition, the Company has mortgage loans that are in the process of foreclosure of $156.5 million at March 31, 2015, which are included in residential loans at amortized cost, net and residential loans at fair value on the consolidated balance sheet. Real estate owned, net is included on the consolidated financial statements within other assets and is measured at net realizable value on a non-recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation.

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



		March 31, 2015			December 31, 2014
	Significant Unobservable Input	Range of Input	Weighted Average of Input		Range of Input	Weighted Average of Input
Real estate owned, net	Loss severity ⁽¹⁾	0.00% - 88.67%	9.14	%	0.00% - 59.58%	8.04	%

__________


(1)	Loss severity is based on the balance of real estate owned.

The Company held real estate owned, net of $57.3 million , $29.2 million and $1.1 million in the Reverse Mortgage and Servicing segments and Other non-reportable segment, respectively, at March 31, 2015 . The Company held real estate owned, net of $55.3 million , $32.1 million and $1.0 million in the Reverse Mortgage and Servicing segments and Other non-reportable segment, respectively, at December 31, 2014 . In determining fair value, the Company either obtains appraisals or performs a review of historical severity rates of real estate owned previously sold by the Company. When utilizing historical severity rates, the properties are stratified by collateral type and/or geographical concentration and length of time held by the Company. The severity rates are reviewed for reasonableness by comparison to third-party market trends and fair value is determined by applying severity rates to the stratified population. In the determination of fair value, the Company considers amounts typically covered by FHA insurance in the case of real estate owned associated with reverse mortgages. Management approves valuations that have been determined using the historical severity rate method.

Fair Value of Other Financial Instruments

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



		March 31, 2015				December 31, 2014
	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets
Residential loans at amortized cost, net	Level 3	$	1,288,898	$	1,354,884	$	1,314,539	$	1,377,213
Insurance premium receivables	Level 3	95,826		90,829		98,220		93,395
Servicer and protective advances, net	Level 3	1,612,988		1,551,659		1,761,082		1,691,443

Financial liabilities
Payables to insurance carriers	Level 3	64,429		63,636		69,498		68,673
Servicing advance liabilities ⁽¹⁾	Level 3	1,282,138		1,286,318		1,362,017		1,367,519
Corporate debt ⁽¹⁾	Level 2	2,230,837		2,091,582		2,230,557		2,095,286
Mortgage-backed debt carried at amortized cost ⁽¹⁾	Level 3	1,060,011		1,094,842		1,086,660		1,121,369

__________


(1)	The carrying amounts of servicing advance liabilities, corporate debt and mortgage-backed debt carried at amortized cost are net of deferred issuance costs.

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

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

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

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

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

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

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

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

Net Gains on Sales of Loans

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



	For the Three Months Ended March 31,
	2015			2014
Realized gains on sales of loans	$	61,379		$	86,833
Change in unrealized gains (losses) on loans held for sale	1,389			(4,176		)
Gains (losses) on interest rate lock commitments	24,782			(1,606		)
Losses on forward sales commitments	(38,648		)	(35,856		)
Gains (losses) on MBS purchase commitments	(5,679		)	67
Capitalized servicing rights	72,301			52,613
Provision for repurchases	(2,025		)	(2,186		)
Interest income	11,728			8,345
Net gains on sales of loans	$	125,227		$	104,034

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Net Fair Value Gains on Reverse Loans and Related HMBS Obligations

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



	For the Three Months Ended March 31,
	2015			2014
Interest income on reverse loans	$	106,280		$	96,881
Change in fair value of reverse loans	16,727			108,528
Net fair value gains on reverse loans	123,007			205,409

Interest expense on HMBS related obligations	(98,536		)	(90,560		)
Change in fair value of HMBS related obligations	6,303			(97,613		)
Net fair value losses on HMBS related obligations	(92,233		)	(188,173		)
Net fair value gains on reverse loans and related HMBS obligations	$	30,774		$	17,236

6. Freestanding Derivative Financial Instruments

The Company enters into commitments to originate and purchase mortgage loans at interest rates that are determined prior to the funding or purchase of the loan. These commitments are referred to as IRLCs. IRLCs are considered freestanding derivatives and are recorded at fair value at inception. Changes in fair value subsequent to inception are based on the change in fair value of the underlying loan and changes in the probability that the loan will fund within the terms of the commitment.

The Company uses derivative financial instruments, primarily forward sales commitments, to manage exposure to interest rate risk and changes in the fair value of IRLCs and mortgage loans held for sale. The Company may also enter into commitments to purchase MBS as part of its overall hedging strategy. The Company has elected not to designate these freestanding derivatives as hedging instruments under GAAP.

The fair value of freestanding derivatives is recorded in other assets or payables and accrued liabilities on the consolidated balance sheets with changes in fair value included in net gains on sales of loans on the consolidated statements of comprehensive income (loss). Cash flows related to freestanding derivatives are included in operating activities on the consolidated statements of cash flows.

In connection with the forward sales commitments and MBS purchase commitments, the Company has margin agreements with its counterparties whereby both parties are required to post cash margin in the event the fair values of the derivative financial instruments meet or exceed established thresholds and minimum transfer amounts. This process mitigates counterparty credit risk. The right to receive cash margin placed by the Company with its counterparties is included in other assets and the obligation to return cash margin received by the Company from its counterparties is included within payables and accrued liabilities on the consolidated balance sheets. The Company has elected to record derivative assets and liabilities and related cash margin on a gross basis, even when a legally enforceable master netting arrangement exists between the Company and the derivative counterparty.

The derivative transactions described above are measured in terms of the notional amount. With the exception of IRLCs, the notional amount is generally not exchanged and is used only as a basis on which interest and other payments are determined.

The following table provides the total notional or contractual amounts and related fair values of derivative assets and liabilities not designated as hedging instruments as well as cash margin (in thousands):



	March 31, 2015						December 31, 2014
	Notional/ Contractual Amount		Fair Value				Notional/ Contractual Amount		Fair Value
	Notional/ Contractual Amount		Derivative Assets		Derivative Liabilities		Notional/ Contractual Amount		Derivative Assets		Derivative Liabilities
Interest rate lock commitments	$	4,681,594	$	84,925	$	204	$	2,825,924	$	60,400	$	263
Forward sales commitments	7,123,500		1,383		37,729		4,989,400		332		29,744
MBS purchase commitments	2,660,756		14,427		4		1,847,000		7,419		17
Total derivative instruments			$	100,735	$	37,937			$	68,151	$	30,024
Cash margin			$	12,421	$	4,459			$	14,664	$	2,780

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Derivative positions subject to netting arrangements include all forward sale commitments, MBS purchase commitments, and cash margin, as reflected in the table above, and allow the Company to net settle asset and liability positions, as well as cash margin, with the same counterparty. After consideration of these netting arrangements and offsetting positions by counterparty, the total net settlement amount as it relates to these positions were asset positions of $0.1 million and less than $0.1 million , and liability positions of $14.1 million and $10.2 million , at March 31, 2015 and December 31, 2014 , respectively. A master netting arrangement with one of the Company’s counterparties also allows for offsetting derivative positions and margin against amounts associated with the master repurchase agreement with that same counterparty. At March 31, 2015 , the Company’s net derivative liability position with that counterparty of $0.5 million is comprised of a net derivative liability position of $0.5 million and cash margin received of $3.9 million , partially offset by $3.9 million of over-collateralized positions associated with the master repurchase agreement. Over collateralized positions on master repurchase agreements are not reflected as margin in the table above. Refer to Note 5 for a summary of the gains and losses on freestanding derivatives.

7. Residential Loans at Amortized Cost, Net

Residential loans at amortized cost, net consist of mortgage loans held for investment. The majority of these residential loans are held in securitization trusts that have been consolidated.

Residential loans at amortized cost, net are comprised of the following components (in thousands):



	March 31, 2015			December 31, 2014
Residential loans, principal balance	$	1,415,227		$	1,442,838
Unamortized discounts and other cost basis adjustments, net ⁽¹⁾	(115,669		)	(118,266		)
Allowance for loan losses	(10,660		)	(10,033		)
Residential loans at amortized cost, net ⁽²⁾	$	1,288,898		$	1,314,539

__________


(1)	Included in unamortized discounts and other cost-basis adjustments, net is $11.2 million and $12.0 million of accrued interest receivable at March 31, 2015 and December 31, 2014 , respectively.


(2)	Included in residential loans at amortized cost, net is $20.8 million and $21.8 million of unencumbered mortgage loans at March 31, 2015 and December 31, 2014 , respectively.

Disclosures about the Credit Quality of Residential Loans at Amortized Cost and the Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of probable incurred credit losses inherent in the residential loan portfolio carried at amortized cost as of the balance sheet date. This portfolio is made up of one segment and class that consists primarily of less-than prime, credit-challenged residential loans for which the primary risk to the Company is credit exposure. The method for monitoring and assessing credit risk is the same throughout the portfolio.

Residential loans carried at amortized cost are homogeneous and evaluated collectively for impairment. The determination of the level of the allowance for loan losses and, correspondingly, the provision for loan losses is based on, but not limited to, delinquency levels, default frequency experience, prior loan loss severity experience, and management’s judgment and assumptions regarding various matters, including the composition of the residential loan portfolio, known and inherent risks in the portfolio, the estimated value of the underlying real estate collateral, the level of the allowance in relation to total loans and to historical loss levels, current economic and market conditions within the applicable geographic areas surrounding the underlying real estate, changes in unemployment levels, and the impact that changes in interest rates have on a borrower’s ability to refinance its loan and to meet its repayment obligations. Management evaluates these assumptions and various other relevant factors impacting credit quality and inherent losses when quantifying the Company’s exposure to credit losses and assessing the adequacy of its allowance for loan losses as of each reporting date. The level of the allowance is adjusted based on the results of management’s analysis. Generally, as residential loans season, the credit exposure is reduced, resulting in decreasing provisions.

The allowance for loan losses is highly correlated to unemployment levels, delinquency status of the portfolio, and changes in home prices within the Company’s geographic markets. There has been a steady improvement in market conditions including an increase in median home selling prices and lower levels of housing inventory. Additionally, the unemployment rate has continued to stabilize since reaching a peak in October 2009. With continued stabilization in economic trends and portfolio performance, the Company expects continued improvement in the credit quality of the residential loan portfolio.

While the Company considers the allowance for loan losses to be adequate based on information currently available, future adjustments to the allowance may be necessary if circumstances differ substantially from the assumptions used by management in determining the allowance for loan losses.

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The following table summarizes the activity in the allowance for loan losses on residential loans at amortized cost, net (in thousands):



	For the Three Months Ended March 31,
	2015			2014
Balance at beginning of the period	$	10,033		$	14,320
Provision for loan losses ⁽¹⁾	1,642			(1,004		)
Charge-offs, net of recoveries ⁽²⁾	(1,015		)	(1,232		)
Balance at end of the period	$	10,660		$	12,084

__________


(1)	Provision for loan losses is included in other expense, net on the consolidated statements of comprehensive income (loss).


(2)	Includes charge-offs recognized upon foreclosure of real estate in satisfaction of residential loans of $0.6 million and $1.1 million for the three months ended March 31, 2015 and 2014 , respectively.

The following table summarizes the ending balance of the allowance for loan losses and the recorded investment in residential loans at amortized cost by basis of accounting (in thousands):



	March 31, 2015		December 31, 2014
Allowance for loan losses
Loans collectively evaluated for impairment	$	8,589	$	8,437
Loans collectively evaluated for impairment and acquired with deteriorated credit quality	2,071		1,596
Total	$	10,660	$	10,033

Recorded investment in residential loans at amortized cost
Loans collectively evaluated for impairment	$	1,274,488	$	1,299,514
Loans collectively evaluated for impairment and acquired with deteriorated credit quality	25,070		25,058
Total	$	1,299,558	$	1,324,572

Aging of Past Due Residential Loans and Credit Risk Profile Based on Delinquencies

Residential loans at amortized cost that are not insured are placed on non-accrual status when any portion of the principal or interest is 90 days past due. When placed on non-accrual status, the related interest receivable is reversed against interest income of the current period. Interest income on non-accrual loans, if received, is recorded using the cash-basis method of accounting. Residential loans are removed from non-accrual status when there is no longer significant uncertainty regarding collection of the principal and the associated interest. If a non-accrual loan is returned to accruing status, the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria. The past due or delinquency status of residential loans is generally determined based on the contractual payment terms. In the case of loans with an approved repayment plan, including plans approved by the bankruptcy court, delinquency is based on the modified due date of the loan. Loan balances are charged off when it becomes evident that balances are not collectible.

Factors that are important to managing overall credit quality and minimizing loan losses include sound loan underwriting, monitoring of existing loans, early identification of problem loans and timely resolution of problems. The Company primarily utilizes delinquency status to monitor the credit quality of the portfolio. The Company considers all loans 30 days or more past due to be non-performing and all loans that are current to be performing with regard to its credit quality profile.

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The following table presents the aging of the residential loan portfolio accounted for at amortized cost, net (in thousands):



	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due ⁽¹⁾		Current ⁽²⁾		Total Residential Loans		Non- Accrual Loans
March 31, 2015	$	16,279	$	5,612	$	54,269	$	76,160	$	1,223,398	$	1,299,558	$	52,038
December 31, 2014	24,096		8,884		55,663		88,643		1,235,929		1,324,572		55,663

__________


(1)	Balances represent non-performing loans for the credit quality profile.


(2)	Balances represent performing loans for the credit quality profile.

8. Residential Loans at Fair Value

Residential Loans Held for Investment

Residential loans held for investment and carried at fair value include reverse loans, mortgage loans in Non-Residual Trusts and charged-off loans. The Company purchased and originated reverse loans in the amount of $428.9 million and $323.1 million during the three months ended March 31, 2015 and 2014 , respectively.

Residential Loans Held for Sale

The Company sells substantially all of its originated or purchased mortgage loans into the secondary market for securitization or to private investors as whole loans. The Company typically retains the right to service these loans. Refer to Note 4 for additional information regarding these sales of residential loans that are held for sale.

A reconciliation of the changes in residential loans held for sale to the amounts presented on the consolidated statements of cash flows is presented in the following table (in thousands):



	For the Three Months Ended March 31,
	2015			2014
Balance at beginning of the period	$	1,124,615		$	1,015,607
Purchases and originations of loans held for sale	5,633,936			3,583,548
Proceeds from sales of and payments on loans held for sale ⁽¹⁾	(5,693,335		)	(4,059,701		)
Realized gains on sales of loans ⁽²⁾	61,379			86,833
Change in unrealized gains (losses) on loans held for sale ⁽²⁾	1,389			(4,176		)
Interest income ⁽²⁾	11,728			8,345
Transfers from loans held for investment ⁽³⁾	16,690			—
Other	(215		)	—
Balance at end of the period	$	1,156,187		$	630,456

__________


(1)	Excludes realized gains and losses on freestanding derivatives.


(2)	Amount is a component of net gains on sales of loans on the consolidated statements of comprehensive income (loss). Refer to Note 5 for additional information.


(3)	Represents a transfer of reverse loans from held for investment to held for sale. These loans were sold during the three months ended March 31, 2015 .

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9. Receivables, Net

Receivables, net consist of the following (in thousands):



	March 31, 2015			December 31, 2014
Insurance premium receivables	$	95,826		$	98,220
Servicing fee receivables	53,807			51,183
Income tax receivables	29,321			17,106
Receivables related to Non-Residual Trusts	22,935			25,201
Other receivables ⁽¹⁾	49,257			27,837
Total receivables	251,146			219,547
Less: Allowance for uncollectible receivables	(2,768		)	(3,918		)
Receivables, net	$	248,378		$	215,629

__________


(1)	Other receivables at March 31, 2015, include $0.1 million in receivables related to fees earned for investment advisory and management services provided to WCO. During the quarter ended March 31, 2014, the Company earned $0.1 million in fees associated with these activities which are recorded in other revenues on the consolidated statement of comprehensive income (loss).

10. Servicing of Residential Loans

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

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



	March 31, 2015			December 31, 2014
	Number of Accounts	Unpaid Principal Balance		Number of Accounts	Unpaid Principal Balance
Third-party credit owners ⁽¹⁾
Capitalized servicing rights	1,557,666	$	182,404,047	1,573,867	$	182,207,043
Capitalized sub-servicing ⁽²⁾	181,185	10,116,134		187,747	10,443,480
Sub-servicing	417,075	49,684,569		431,271	50,882,152
Total third-party servicing portfolio	2,155,926	242,204,750		2,192,885	243,532,675
On-balance sheet residential loans and real estate owned	118,126	12,877,242		116,763	12,579,467
Total servicing portfolio ⁽³⁾	2,274,052	$	255,081,992	2,309,648	$	256,112,142

__________


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


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


(3)	Includes accounts serviced by the Servicing and Reverse Mortgage segments and excludes charged-off loans managed by the Servicing segment.

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Net Servicing Revenue and Fees

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



	For the Three Months Ended March 31,
	2015			2014
Servicing fees	$	171,732		$	166,033
Incentive and performance fees	31,738			42,857
Ancillary and other fees ⁽¹⁾	25,483			22,653
Servicing revenue and fees	228,953			231,543
Amortization of servicing rights	(7,013		)	(11,117		)
Change in fair value of servicing rights	(129,235		)	(47,634		)
Change in fair value of excess servicing spread liability ⁽²⁾	(1,818		)	—
Net servicing revenue and fees	$	90,887		$	172,792

__________


(1)	Includes late fees of $14.5 million and $12.3 million for the three months ended March 31, 2015 and 2014 , respectively.


(2 )	Includes interest expense on the excess servicing spread liability, which represents the accretion of fair value, of $2.6 million for the three months ended March 31, 2015 .

Servicing Rights

Servicing rights are represented by three classes, which consist of a risk-managed loan class, a mortgage loan class, and a reverse loan class. These classes are based on the availability of market inputs used in determining the fair values of servicing rights and risk management strategies available to the Company. Risks inherent in servicing rights include prepayment and interest rate risks. The risk-managed loan class includes portfolios for which the Company may apply a hedging strategy in the future. At initial recognition, the fair value of the servicing right is established using assumptions consistent with those used to establish the fair value of existing servicing rights. Subsequent to initial capitalization, servicing rights are accounted for using either the fair value method or the amortization method based on the servicing class. Servicing rights carried at amortized cost consist of the mortgage loan class and the reverse loan class. Servicing rights carried at fair value consist of the risk-managed loan class.

Servicing Rights Carried at Amortized Cost

The following tables summarize the activity in the carrying value of servicing rights accounted for at amortized cost by class (in thousands):



	For the Three Months Ended March 31, 2015						For the Three Months Ended March 31, 2014
	Mortgage Loan			Reverse Loan			Mortgage Loan			Reverse Loan
Balance at beginning of the period	$	121,364		$	9,311		$	161,782		$	11,994
Amortization of servicing rights	(6,458		)	(555		)	(10,367		)	(750		)
Balance at end of the period	$	114,906		$	8,756		$	151,415		$	11,244

Servicing rights accounted for at amortized cost are evaluated for impairment by strata based on their estimated fair values. The risk characteristics used to stratify servicing rights for purposes of measuring impairment are the type of loan products, which consist of manufactured housing loans, first lien residential mortgages and second lien residential mortgages for the mortgage loan class, and reverse mortgages for the reverse loan class. At March 31, 2015 , the fair value of servicing rights for the mortgage loan class and the reverse loan class was $136.5 million and $14.0 million , respectively. At December 31, 2014 , the fair value of servicing rights for the mortgage loan class and the reverse loan class was $142.5 million and $14.1 million , respectively. Fair value was estimated using the present value of projected cash flows over the estimated period of net servicing income.

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



	March 31, 2015
	Mortgage Loan		Reverse Loan
Weighted-average remaining life in years	5.6		3.3
Weighted-average stated borrower interest rate on underlying collateral	7.87	%	3.53	%
Weighted-average discount rate	12.10	%	15.00	%
Conditional prepayment rate ⁽¹⁾	6.54	%	N/A
Conditional default rate ⁽¹⁾	2.62	%	N/A
Conditional repayment rate ⁽²⁾	N/A		25.13	%

__________


(1)	For the mortgage loan class, voluntary and involuntary prepayment rates have been presented as conditional prepayment rate and conditional default rate, respectively.


(2)	For the reverse loan class, conditional repayment rate includes assumptions for both voluntary and involuntary rates as well as assumptions for the assignment of HECMs to HUD, in accordance with obligations as servicer.

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

Servicing Rights Carried at Fair Value

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



	For the Three Months Ended March 31,
	2015			2014
Balance at beginning of the period	$	1,599,541		$	1,131,124
Acquisition of EverBank net assets	—			58,680
Purchases	27,713			319,047
Servicing rights capitalized upon sales of loans	72,301			52,613
Change in fair value due to:
Changes in valuation inputs or other assumptions ⁽¹⁾	(74,534		)	(25,618		)
Other changes in fair value ⁽²⁾	(54,701		)	(22,016		)
Total change in fair value	(129,235		)	(47,634		)
Balance at end of the period	$	1,570,320		$	1,513,830

__________


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


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

The fair value of servicing rights accounted for at fair value was estimated using the present value of projected cash flows over the estimated period of net servicing income. The estimation of fair value requires significant judgment and uses key economic inputs and assumptions, which are provided in the table below:



	March 31, 2015		December 31, 2014
Weighted-average remaining life in years	6.2		6.6
Weighted-average stated borrower interest rate on underlying collateral	4.53	%	4.65	%
Weighted-average discount rate	9.77	%	9.55	%
Conditional prepayment rate	8.88	%	7.87	%
Conditional default rate	1.63	%	2.36	%

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

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



	March 31, 2015								December 31, 2014
			Decline in fair value due to								Decline in fair value due to
	Actual		10% adverse change			20% adverse change			Actual		10% adverse change			20% adverse change
Weighted-average discount rate	9.77	%	$	(61,242	)	$	(118,210	)	9.55	%	$	(62,785	)	$	(121,117	)
Conditional prepayment rate	8.88	%	(72,085		)	(135,491		)	7.87	%	(59,344		)	(114,523		)
Conditional default rate	1.63	%	(12,617		)	(20,608		)	2.36	%	(15,388		)	(30,285		)

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

Fair Value of Originated Servicing Rights

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



	For the Three Months Ended March 31,
	2015	2014
Weighted-average life in years	6.4 - 7.0	7.0 - 7.7
Weighted-average stated borrower interest rate on underlying collateral	3.93% - 4.14%	4.48% - 4.67%
Discount rates	9.30% - 9.55%	9.50%
Weighted-average conditional prepayment rates	6.92% - 9.62%	7.26% - 8.35%
Weighted-average conditional default rates	0.73% - 0.81%	0.64% - 0.66%

11. Other Assets

Other assets consist of the following (in thousands):



	March 31, 2015		December 31, 2014
Derivative instruments	$	100,735	$	68,151
Real estate owned, net	87,624		88,362
Deferred debt issuance costs	50,778		53,909
Margin receivable on derivative instruments	12,421		14,664
Other	40,520		55,708
Total other assets	$	292,078	$	280,794

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12. Payables and Accrued Liabilities

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



	March 31, 2015		December 31, 2014
Accounts payable and accrued liabilities	$	176,328	$	174,659
Curtailment liability	86,384		60,776
Employee-related liabilities	66,958		93,368
Payables to insurance carriers	64,429		69,498
Originations liability	53,599		45,370
Servicing rights and related advance purchases payable	51,059		77,231
Derivative instruments	37,937		30,024
Accrued interest payable	28,561		13,808
Uncertain tax positions	15,131		14,914
Acquisition related escrow funds payable to sellers	10,236		10,236
Servicing transfer payables	9,378		9,592
Margin payable on derivative instruments	4,459		2,780
Other	64,854		61,573
Total payables and accrued liabilities	$	669,313	$	663,829

13. Warehouse Borrowings

The Company's subsidiaries entered into master repurchase agreements with lenders providing warehouse facilities. The warehouse facilities are used to fund the origination of mortgage loans and reverse loans, as well as the repurchase of certain HECMs from Ginnie Mae securitization pools. The facilities had an aggregate funding capacity of $2.6 billion at March 31, 2015 and are secured by certain mortgage loans and reverse loans. The interest rates on the facilities are primarily based on LIBOR plus between 2.10% and 3.50% , in some cases are subject to a LIBOR floor or other minimum rates, and have various expiration dates through March 2016 . The facilities are secured by $1.3 billion in unpaid principal balance of residential loans at March 31, 2015 .

All of the Company’s subsidiaries' master repurchase agreements contain customary events of default and covenants, the most significant of which are financial covenants. Financial covenants most sensitive to the Company’s operating results and financial position are minimum tangible net worth requirements, indebtedness to tangible net worth ratio requirements, and minimum liquidity and profitability requirements. The Company's subsidiaries were in compliance with their financial covenants on warehouse borrowings at March 31, 2015 .

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14. Earnings (Loss) Per Share

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



	For the Three Months Ended March 31,
	2015			2014
Basic earnings (loss) per share
Net income (loss)	$	(31,008	)	$	17,377
Less: Net income allocated to unvested participating securities	—			(133		)
Net income (loss) available to common stockholders (numerator)	$	(31,008	)	$	17,244
Weighted-average common shares outstanding (denominator)	37,718			37,429
Basic earnings (loss) per share	$	(0.82	)	$	0.46

Diluted earnings (loss) per share
Net income (loss)	$	(31,008	)	$	17,377
Less: Net income allocated to unvested participating securities	—			(131		)
Net income (loss) available to common stockholders (numerator)	$	(31,008	)	$	17,246
Weighted-average common shares outstanding	37,718			37,429
Add: Effect of dilutive stock options, non-participating securities, and convertible notes	—			576
Diluted weighted-average common shares outstanding (denominator)	37,718			38,005
Diluted earnings (loss) per share	$	(0.82	)	$	0.45

A portion of the Company’s unvested RSUs are considered participating securities. During periods of net income, the calculation of earnings per share for common stock is adjusted to exclude the income attributable to the participating securities from the numerator and exclude the dilutive impact of those shares from the denominator. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company.

The calculation of diluted earnings (loss) per share does not include 7.4 million and 5.9 million shares for the three months ended March 31, 2015 and 2014 , respectively, because their effect would have been antidilutive. The Convertible Notes are antidilutive when calculating earnings (loss) per share when the Company's average stock price is less than $58.80 . Upon conversion of the Convertible Notes, the Company may pay or deliver, at its option, cash, shares of the Company’s common stock, or a combination of cash and shares of common stock. It is the Company’s intent to settle all conversions through combination settlement, which involves payment of an amount of cash equal to the principal amount and any excess of conversion value over the principal amount in shares of common stock.

15. Supplemental Disclosures of Cash Flow Information

The Company’s supplemental disclosures of cash flow information are summarized as follows (in thousands):



	For the Three Months Ended March 31,
	2015		2014
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	63,517	$	66,188
Cash refund received for taxes	1,071		24,513
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Servicing rights capitalized upon sales of loans	72,301		52,613
Real estate owned acquired through foreclosure	29,467		28,960
Residential loans originated to finance the sale of real estate owned	9,991		15,833
Acquisition of servicing rights	10,969		174,991

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16. Segment Reporting

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

•

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


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


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

During the three months ended March 31, 2015, the Company took actions to simplify its business including the reorganization of its reportable segments to align with changes in the management reporting structure. These changes affect how management monitors operating performance and allocates resources in the current business environment. As a result of this reorganization, the Company modified the Servicing segment by combining the Asset Receivables Management, Insurance, and Loans and Residuals businesses into the Servicing segment. The Company also made a change to the composition of indirect costs and depreciation and amortization allocated to the business segments and established an intersegment charge between the Servicing and Originations segments for certain loan originations associated with the Company's mortgage loan servicing portfolio. The changes to cost structure align with the business segments supported and segment performance metrics utilized by management. Indirect costs continue to be allocated based on headcount. The Company has recast segment operating results and total assets of prior periods to reflect these changes. As a result of the changes, income before taxes for the Servicing and Originations segments increased (decreased) by $5.2 million and $(6.0) million , respectively, while loss before taxes for the Reverse Mortgage segment and Other non-reportable segment decreased by $0.7 million and $0.1 million , respectively, for the three months ended March 31, 2014 . Total assets for the Servicing segment and Other non-reportable segment decreased by $3.0 million and $40.1 million , respectively, and total assets eliminated decreased by $43.1 million at December 31, 2014.

In order to reconcile the financial results for the Company’s reportable segments to the consolidated results, the Company has presented the revenue and expenses of the Non-Residual Trusts and other non-reportable operating segments, as well as certain corporate expenses that have not been allocated to the business segments, in Other. Intersegment servicing revenues and expenses have been eliminated. Intersegment revenues are recognized on the same basis of accounting as such revenue is recognized on the consolidated statements of comprehensive income (loss).

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The following tables present select financial information of reportable segments (in thousands). The changes addressed above have been reflected in the segment information presented below for all periods.



	For the Three Months Ended March 31, 2015
	Servicing			Originations		Reverse Mortgage			Other			Eliminations			Total Consolidated
Total revenues ^{(1) (2) (3) (4)}	$	143,763		$	130,300	$	43,927		$	3,293		$	(10,426	)	$	310,857
Interest expense	29,225			7,813		1,099			36,734			—			74,871
Depreciation and amortization	11,473			3,187		1,968			4			—			16,632
Income (loss) before income taxes	(50,672		)	41,798		(13,457		)	(27,347		)	—			(49,678		)



	For the Three Months Ended March 31, 2014
	Servicing		Originations		Reverse Mortgage			Other			Eliminations			Total Consolidated
Total revenues ^{(1) (2) (3) (4)}	$	245,584	$	109,214	$	27,868		$	1,314		$	(14,032	)	$	369,948
Interest expense	30,716		6,833		859			36,441			—			74,849
Depreciation and amortization	11,839		4,369		2,432			4			—			18,644
Income (loss) before income taxes	66,376		14,227		(9,063		)	(42,575		)	—			28,965

__________


(1)	The Company’s Servicing segment includes net servicing revenue and fees with external customers of $79.5 million and $165.2 million for the three months ended March 31, 2015 and 2014 . All net servicing revenue and fees of the Company's Reverse Mortgage segment were derived from external customers for the three months ended March 31, 2015 and 2014 .


(2)	The Company’s Servicing segment includes net servicing revenue and fees of $2.3 million and $2.0 million for the three months ended March 31, 2015 and 2014 , respectively, associated with intercompany activity with the Other non-reportable segment.


(3)	The Company’s Servicing segment recognized $31.9 million and $34.4 million in interest income on loans for the three months ended March 31, 2015 and 2014 , respectively.


(4)	The Company's Servicing segment includes other revenues of $8.1 million and $12.0 million for the three months ended March 31, 2015 and 2014 , respectively, associated with fees earned for certain loan originations completed by the Originations segment from leads generated through the Servicing segment's servicing portfolio.



	Total Assets Per Segment
	Servicing		Originations		Reverse Mortgage		Other		Eliminations			Total Consolidated
March 31, 2015	$	6,283,525	$	1,566,030	$	10,844,895	$	1,272,536	$	(658,819	)	$	19,308,167
December 31, 2014	6,405,781		1,493,851		10,476,947		1,256,971		(641,573		)	18,991,977

17. Certain Capital Requirements and Guarantees

The Company's subsidiaries are required to comply with requirements under federal and state laws and regulations, including requirements imposed in connection with certain licenses and approvals, requirements of federal, state, GSE, Ginnie Mae and other business partner loan programs and requirements under servicing advance facilities and master repurchase agreements, some of which are financial covenants related to minimum levels of net worth and other financial requirements. If these mandatory capital requirements are not met, the Company’s subsidiaries' selling and servicing agreements could be terminated and lending and servicing licenses could be suspended or revoked.

Due to the accounting treatment for reverse loans as secured borrowings when transferred, RMS has obtained an indefinite waiver for certain of these requirements from Ginnie Mae and a waiver through December 2015 from Fannie Mae. In addition, the Company has provided a guarantee whereby it guarantees the performance and obligations of RMS under the Ginnie Mae HMBS Program. In the event that the Company fails to honor this guarantee, Ginnie Mae could terminate RMS’s status as a qualified issuer of HMBS as well as take other actions permitted by law that could impact the operations of RMS, including the termination or suspension of RMS’s servicing rights associated with reverse loans guaranteed by Ginnie Mae HMBS. Ginnie Mae has continued to affirm RMS’s current commitment authority to issue HMBS.

The Company has also provided a guarantee to (i) Fannie Mae, dated May 31, 2013, for RMS, (ii) Fannie Mae, dated March 17, 2014, for Green Tree Servicing, and (iii) Freddie Mac, dated December 19, 2013, for Green Tree Servicing. Pursuant to the RMS guarantee, the Company agreed to guarantee all of the obligations required to be performed or paid by RMS under RMS's mortgage selling and

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servicing contract or any other agreement between Fannie Mae and RMS relating to mortgage loans or participation interests that RMS delivers or has delivered to Fannie Mae or services or has serviced for, or on behalf of, Fannie Mae. RMS does not currently sell loans to Fannie Mae. Pursuant to the Green Tree Servicing Fannie Mae guarantee, the Company agreed to guarantee all of the servicing obligations required to be performed or paid by Green Tree Servicing under Green Tree Servicing's mortgage selling and servicing agreement, the Fannie Mae selling and servicing guides, or any other agreement between Fannie Mae and Green Tree Servicing. The Company also agreed to guarantee all selling representations and warranties Green Tree Servicing has assumed, or may in the future assume, in connection with Green Tree Servicing's purchase of mortgage servicing rights related to Fannie Mae loans. The Company does not guarantee Green Tree Servicing's obligations relating to the selling representations and warranties made or assumed by Green Tree Servicing in connection with the sale and/or securitization of mortgage loans to and/or by Fannie Mae. Pursuant to the Green Tree Servicing Freddie Mac guarantee, the Company agreed to guarantee all of the seller and servicer obligations required to be performed or paid by Green Tree Servicing under any agreement between Freddie Mac and Green Tree Servicing.

After taking into account the waivers described above, all of the Company' subsidiaries were in compliance with all of their capital requirements at March 31, 2015 .

18. Commitments and Contingencies

Letter of Credit Reimbursement Obligation

As part of an agreement to service the loans in 11 securitization trusts, the Company has an obligation to reimburse a third party for the final $165.0 million drawn under LOCs issued by such third party as credit enhancements to such 11 securitization trusts. The total amount available on these LOCs for these trusts was $263.5 million at March 31, 2015 . The securitization trusts will draw on these LOCs if there are insufficient cash flows from the underlying collateral to pay the debt holders of the securitization trusts. Based on the Company’s estimates of the underlying performance of the collateral in the securitization trusts, the Company does not expect that the final $165.0 million of capacity under the LOCs will be drawn and, therefore, no liability for the fair value of this obligation has been recorded on the Company’s consolidated balance sheets, although actual performance may differ from this estimate in the future.

Mandatory Clean-Up Call Obligation

The Company is obligated to exercise the mandatory clean-up call obligations assumed as part of an agreement to acquire the rights to service the loans in the Non-Residual Trusts. The Company is required to call these securitizations when each loan pool falls to 10% of the original principal amount and expects to begin to make such calls in 2017 and continuing through 2019 . The total outstanding balance of the residential loans expected to be called at the respective call dates is $417.3 million .

Unfunded Commitments

Reverse Mortgage Segment

The Company had floating-rate reverse loans in which the borrowers have additional borrowing capacity of $1.2 billion and similar commitments on fixed-rate reverse loans of $1.4 million at March 31, 2015 . This additional borrowing capacity is primarily in the form of undrawn lines-of-credit, with the balance available on a scheduled or unscheduled payment basis. The Company also had short-term commitments to lend $200.0 million and commitments to purchase and sell loans totaling $6.4 million and $164.9 million , respectively, at March 31, 2015 .

Originations Segment

The Company had short-term commitments to lend $4.6 billion and commitments to purchase loans totaling $56.1 million at March 31, 2015 . In addition, the Company had commitments to sell $7.1 billion and purchase $2.7 billion in mortgage-backed securities at March 31, 2015 .

Other

The Company has entered into an agreement to contribute cash and other assets in exchange for equity interest in WCO. The Company's total capital commitment was $20.0 million , of which $9.3 million remained unfunded at March 31, 2015 .

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Mortgage Origination Contingencies

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

The Company's representation and warranties are generally not subject to stated limits of exposure with the exception of certain loans originated under HARP, which limits exposure based on payment history of the loan. At March 31, 2015 , the Company’s maximum exposure to repurchases due to potential breaches of representations and warranties was $35.7 billion , and was based on the original unpaid principal balance of loans sold from the beginning of 2013 through March 31, 2015 adjusted for voluntary payments made by the borrower on loans for which the Company performs servicing. A majority of the Company's loan sales were servicing retained.

The Company’s obligations vary based upon the nature of the repurchase demand and the current status of the mortgage loan. The Company’s estimate of the liability associated with representations and warranties exposure was $12.1 million at March 31, 2015 and is included in originations liability as part of payables and accrued liabilities on the consolidated balance sheet.

Servicing Contingencies

The Company services loans originated and securitized by the Company or one of its subsidiaries and also services loans on behalf of securitization trusts or other credit owners. The Company’s servicing obligations are set forth in industry regulations established by HUD and the FHA and in servicing and sub-servicing agreements with the applicable counterparties, such as Fannie Mae, Freddie Mac and other credit owners. Both the regulations and the servicing agreements provide that the servicer may be liable for failure to perform its servicing obligations and further provide remedies for certain servicer breaches.

Subsequent to the completion of the acquisition of RMS, the Company discovered a failure by RMS to record certain liabilities to HUD, FHA, and/or credit owners related to servicing errors by RMS. FHA regulations provide that servicers meet a series of event-specific timeframes during the default, foreclosure, conveyance, and mortgage insurance claim cycles. Failure to timely meet any processing deadline may stop the accrual of debenture interest otherwise payable in satisfaction of a claim under the FHA mortgage insurance contract and the servicer may be responsible to HUD for debenture interest that is not self-curtailed by the servicer, or for making the credit owner whole for any interest curtailed by FHA due to not meeting the required event-specific timeframes. The Company had a curtailment obligation liability of $86.4 million at March 31, 2015 related to the foregoing which reflects management’s best estimate of the probable incurred claim. The curtailment liability is recorded in payables and accrued liabilities on the consolidated balance sheet. The Company assumed $46.0 million of this liability through the acquisition of RMS, which resulted in a corresponding offset to goodwill and deferred tax assets. During the three months ended March 31, 2015 , the Company recorded a provision net of expected third party recoveries related to the curtailment liability of $16.5 million . The Company has potential estimated maximum financial statement exposure for an additional $128.4 million related to similar claims, which are reasonably possible, but which the Company believes are primarily the responsibility of third parties (e.g., prior servicers and/or credit owners). The Company’s potential exposure to a substantial portion of this additional risk relates to the possibility that such third parties may claim that the Company is responsible for the servicing liability or that the Company exacerbated an existing failure by the third party. The actual amount, if any, of this exposure is difficult to estimate and requires significant management judgment as curtailment obligations are an emerging industry issue. The Company is pursuing and will continue to pursue mitigation efforts to reduce both the direct exposure and the reasonably possible third-party-related exposure.

Litigation and Regulatory Matters

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

The Company and its subsidiaries, in the ordinary course of business, are also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations and threatened legal actions and proceedings. In

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connection with formal and informal inquiries, the Company and its subsidiaries receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of the Company’s activities.

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

Reserves are established for pending or threatened litigation, regulatory and governmental matters when it is probable that a loss has been incurred and the amount of such loss can be reasonably estimated. In light of the inherent uncertainties involved in litigation and other legal proceedings, it is not always possible to determine a reasonable estimate of the amount of a probable loss, and the Company may estimate a range of possible loss for consideration in its estimates. The estimates are based upon currently available information, including advice of counsel, and involve significant judgment taking into account the varying stages and inherent uncertainties of such matters. Accordingly, the Company’s estimates may change from time to time and such changes may be material to the consolidated financial results. Given the inherent uncertainties and status of the Company’s outstanding legal and regulatory matters, the range of reasonably possible losses cannot be estimated for all matters; therefore, this estimated range does not represent the Company’s maximum loss exposure. For matters where the Company can estimate the range, the aggregate estimated amount of reasonably possible losses in excess of the recorded liability was $0 to approximately $2.5 million at March 31, 2015 . It is also reasonably possible that the Company could incur no losses in excess of amounts accrued. As available information changes, the matters for which the Company is able to estimate, as well as the estimates themselves, will be adjusted accordingly.

At March 31, 2015 , the Company’s recorded reserves associated with legal and regulatory contingencies were approximately $94 million ; however, there can be no assurance that the ultimate resolution of the Company’s pending or threatened litigation, claims or assessments will not result in losses in excess of the Company’s recorded reserves. As a result, the ultimate resolution of any particular legal matter, or matters, could be material to the Company’s results of operations or cash flows for the period in which such matter is resolved.

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

In response to a CID from the FTC issued in November 2010 and a CID from the CFPB in September 2012, Green Tree Servicing has produced documents and other information concerning a wide range of its loan servicing operations. On October 7, 2013, the CFPB notified Green Tree Servicing that the CFPB’s staff was considering recommending that the CFPB take action against Green Tree Servicing for alleged violations of various federal consumer financial laws. On February 20, 2014, the FTC and CFPB staff advised Green Tree Servicing that they had sought authority to bring an enforcement action and negotiate a resolution related to alleged violations of various federal consumer financial laws. In April 2014, Green Tree Servicing began discussions with the FTC and CFPB staffs to determine if a settlement of the proposed action could be achieved. On February 16, 2015, Green Tree Servicing informed the agencies that it would agree to the terms of a proposed stipulated order that, subject to approval by the FTC, the CFPB and the court, would settle the matters arising from the FTC and CFPB investigation. The FTC and CFPB approved the proposed order, and on April 21, 2015, the FTC, CFPB, and Green Tree Servicing filed the proposed order with the United States District Court for the District of Minnesota, which subsequently approved it. Under the order, Green Tree Servicing, without admitting or denying the allegations in a complaint filed by the FTC and CFPB, agreed to pay: (i) $18 million for alleged misrepresentations relating to payment methods that entail convenience fees; (ii) $30 million for alleged misrepresentations related primarily to the time it would take to review short sale requests and for alleged delays in processing loan modifications in servicing transfers; and (iii) a $15 million civil money penalty. The Company accrued the full amounts required under the order in the Company’s consolidated financial statements as of December 31, 2014.

In October 2013, the Company received a subpoena from the HUD Office of Inspector General requesting documents and other information concerning (i) the curtailment of interest payments on HECMs serviced or sub-serviced by RMS, and (ii) RMS’ contractual arrangements with a third-party vendor for the management and disposition of real estate owned properties. Since that time, the Company has been cooperating with an investigation relating to these issues by the Department of Justice and the HUD Office of Inspector General. In April 2015, the U.S. District Court for the Middle District of Florida granted a motion by the Department of Justice to partially intervene in United States ex. rel. McDonald v. Walter Investment Management Corp., et al., No. 8:13-CV-1705-T23-TGW, which is a civil qui tam complaint that had been filed under seal and that named the Company, RMS, other subsidiaries of the Company, and others, as defendants. This complaint asserts claims under the False Claims Act and Florida law and alleges, among other things, that RMS did not comply with certain HUD regulations applicable to the servicing of reverse mortgages and improperly sought interest payments from HUD. Discussions with representatives of the Department of Justice and HUD concerning this matter are ongoing and we believe are continuing to progress towards a full resolution. In the event that a resolution is not reached, the Company expects to defend vigorously against the claims, as to which the Company believes it has

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legal and factual defenses. Resolutions of investigations or lawsuits, or findings of liability, under the False Claims Act and other federal statutes including the Financial Institutions Reform, Recovery and Enforcement Act of 1989 may result in potentially significant financial consequences, including the payment of up to three times the actual damages sustained by the government and civil penalties. The Company cannot provide any assurance as to the outcome of this matter, or that any consequences will not have a material adverse effect on its reputation, business, prospects, financial condition, liquidity and results of operations.

On March 7, 2014, a putative shareholder class action complaint was filed in the United States District Court for the Southern District of Florida against the Company, Mark O’Brien, Charles Cauthen, Denmar Dixon, Marc Helm and Robert Yeary captioned Beck v. Walter Investment Management Corp., et al., No. 1:14-cv-20880 (S.D. Fla.). On July 7, 2014, an amended class action complaint was filed. The amended complaint names as defendants the Company, Mark O’Brien, Charles Cauthen, Denmar Dixon, Keith Anderson, Brian Corey and Mark Helm, and is captioned Thorpe, et al. v. Walter Investment Management Corp., et al. No. 1:14-cv-20880-UU. The amended complaint asserts federal securities law claims against the Company and the individual defendants under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. Additional claims are asserted against the individual defendants under Section 20(a) of the Exchange Act. The amended complaint alleges that between May 9, 2012 and February 26, 2014 the Company and the individual defendants made material misstatements or omissions relating to the Company’s internal controls and financial reporting, the processes and procedures for compliance with applicable regulatory and legal requirements by Green Tree Servicing (including certain of the Company’s business practices that are being reviewed by the FTC and the CFPB), the liabilities associated with the Company’s acquisition of RMS, and RMS's internal controls. The complaint seeks class certification and an unspecified amount of damages on behalf of all persons who purchased the Company’s securities between May 9, 2012 and February 26, 2014. On August 11, 2014, all defendants moved to dismiss the amended complaint. On December 23, 2014, the court granted the motions to dismiss and dismissed the amended complaint without prejudice. On January 6, 2015, plaintiffs filed a second amended complaint which includes some additional allegations, but asserts the same claims against the same defendants as the amended complaint. In the second amended complaint, plaintiffs seek an expanded class period of May 9, 2012 through August 11, 2014. On January 23, 2015, all defendants moved to dismiss the second amended complaint. Briefing on the motions to dismiss was completed on February 19, 2015. The Company cannot provide any assurance as to the outcome of the putative shareholder class action or that such an outcome will not have a material adverse effect on its reputation, business, prospects, results of operations, liquidity or financial condition.

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

Transactions with Walter Energy

The Company was part of the Walter Energy consolidated group prior to the spin-off from Walter Energy, the principal agent, on April 17, 2009 . As such, the Company is jointly and severally liable with Walter Energy for any final taxes, interest, and/or penalties owed by the Walter Energy consolidated group during the time that the Company was a part of the Walter Energy consolidated group. However, in connection with the spin-off of the Company’s business from Walter Energy, the Company and Walter Energy entered into a Tax Separation Agreement dated April 17, 2009 , pursuant to which Walter Energy is responsible for the payment of all federal income taxes (including any interest or penalties applicable thereto) of the consolidated group. Nonetheless, to the extent that Walter Energy is unable to pay any amounts owed, the Company could be responsible for any unpaid amounts including, according to Walter Energy’s public filing on Form 10-Q for the quarter ended March 31, 2015, those relating to the following:

•

The IRS has filed a proof of claim for a substantial amount of taxes, interest, and penalties with respect to fiscal years ended August 31, 1983 through May 31, 1994. The public filing goes on to disclose that issues have been litigated in bankruptcy court and that an opinion was issued by the court in June 2010 as to the remaining disputed issues. The filing further states that the amounts initially asserted by the IRS do not reflect the subsequent resolution of various issues through settlements or concessions by the parties. Walter Energy believes that any financial exposure with respect to those issues that have not been resolved or settled by the Proof of Claim is limited to interest and possible penalties and the amount of tax assessed has been offset by tax reductions in future years. All of the issues in the Proof of Claim, which have not been settled or conceded, have been litigated before the Bankruptcy Court and are subject to appeal, but only at the conclusion of the entire adversary proceedings.

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•

The IRS completed its audit of Walter Energy’s federal income tax returns for the years ended May 31, 2000 through December 31, 2008. The IRS issued 30 -Day Letters to Walter Energy proposing changes to tax for these tax years which Walter Energy has protested. Walter Energy's filing states that, in September 2014, the IRS Appeals Office has returned these tax periods to IRS Examination Division to be placed into suspense pending resolution of the above-referenced tax periods. The disputed issues in these audit periods are similar to the issues remaining in the above-referenced dispute.


•	Walter Energy reports that the IRS is conducting an audit of Walter Energy’s tax returns filed for 2009 through 2012. Since examination is ongoing, Walter Energy cannot estimate the amount of any resulting tax deficiency or overpayment, if any.

Walter Energy believes that all of its current and prior tax filing positions have substantial merit and intends to defend vigorously any tax claims asserted and it believes that it has sufficient accruals to address any claims, including interest and penalties, and as a result, believes that any potential difference between actual losses and costs incurred and the amounts accrued would be immaterial. Under the terms of the tax separation agreement between the Company and Walter Energy dated April 17, 2009, Walter Energy is responsible for the payment of all federal income taxes (including any interest or penalties applicable thereto) of the consolidated group, which includes the aforementioned claims of the IRS. However, to the extent that Walter Energy is unable to pay any amounts owed, the Company could be responsible for any unpaid amounts. The Tax Separation Agreement also provides that Walter Energy is responsible for the preparation and filing of any tax returns for the consolidated group for the periods when the Company was part of the Walter Energy consolidated group. This arrangement may result in conflicts between Walter Energy and the Company. In addition, the spin-off of the Company from Walter Energy was intended to qualify as a tax-free spin-off under Section 355 of the Code. The Tax Separation Agreement provides generally that if the spin-off is determined not to be tax-free pursuant to Section 355 of the Code, any Distribution Taxes which are the result of the acts or omissions of Walter Energy or its affiliates, will be the responsibility of Walter Energy. However, should Distribution Taxes result from the acts or omissions of the Company or its affiliates, such Distribution Taxes will be the responsibility of the Company. The Tax Separation Agreement goes on to provide that Walter Energy and the Company shall be jointly liable, pursuant to a designated allocation formula, for any Distribution Taxes that are not specifically allocated to Walter Energy or the Company. To the extent that Walter Energy is unable or unwilling to pay any Distribution Taxes for which it is responsible under the Tax Separation Agreement, the Company could be liable for those taxes as a result of being a member of the Walter Energy consolidated group for the year in which the spin-off occurred. The Tax Separation Agreement also provides for payments from Walter Energy in the event that an additional taxable dividend is required to cure a REIT disqualification from the determination of a shortfall in the distribution of non-REIT earnings and profits made immediately following the spin-off. As with Distribution Taxes, the Company will be responsible for this dividend if Walter Energy is unable or unwilling to pay.

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

19. Separate Financial Information of Subsidiary Guarantors of Indebtedness

In accordance with the indenture governing the 7.875% Senior Notes due December 2021, certain existing and future 100% owned domestic subsidiaries of the Company have fully and unconditionally guaranteed the Senior Notes on a joint and several basis. These guarantor subsidiaries also guarantee the Company's obligations under the 2013 Secured Credit Facilities. The indenture governing the Senior Notes contains customary exceptions under which a guarantor subsidiary may be released from its guarantee without the consent of the holders of the Senior Notes, including (i) the permitted sale, transfer or other disposition of all or substantially all of a guarantor subsidiary's assets or common stock; (ii) the designation of a restricted guarantor subsidiary as an unrestricted subsidiary; (iii) the release of a guarantor subsidiary from its obligation under the 2013 Secured Credit Facilities and its guarantee of all other indebtedness of the Company and other guarantor subsidiaries; and (iv) the defeasance of the obligations of the guarantor subsidiary by payment of the Senior Notes.

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

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Condensed Consolidating Balance Sheet
March 31, 2015
Unaudited
(in thousands)

	Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries and VIEs		Eliminations and Reclassifications			Consolidated
ASSETS
Cash and cash equivalents	$	19,853	$	313,388	$	5,249	$	—		$	338,490
Restricted cash and cash equivalents	10,508		725,383		101,737		—			837,628
Residential loans at amortized cost, net	13,073		7,716		1,268,109		—			1,288,898
Residential loans at fair value	—		11,636,925		567,912		—			12,204,837
Receivables, net	29,721		194,570		24,087		—			248,378
Servicer and protective advances, net	—		457,343		1,123,386		32,259			1,612,988
Servicing rights, net	—		1,693,982		—		—			1,693,982
Goodwill	—		575,468		—		—			575,468
Intangible assets, net	—		93,517		6,066		—			99,583
Premises and equipment, net	172		115,665		—		—			115,837
Other assets	53,741		196,008		42,329		—			292,078
Due from affiliates, net	679,171		—		—		(679,171		)	—
Investments in consolidated subsidiaries and VIEs	2,626,338		23,974		—		(2,650,312		)	—
Total assets	$	3,432,577	$	16,033,939	$	3,138,875	$	(3,297,224	)	$	19,308,167

LIABILITIES AND STOCKHOLDERS' EQUITY
Payables and accrued liabilities	$	51,446	$	612,593	$	14,423	$	(9,149	)	$	669,313
Servicer payables	—		695,299		—		—			695,299
Servicing advance liabilities	—		194,112		1,090,692		—			1,284,804
Warehouse borrowings	—		1,187,543		—		—			1,187,543
Excess servicing spread liability at fair value	—		63,349		—		—			63,349
Corporate debt	2,265,222		1,609		—		—			2,266,831
Mortgage-backed debt	—		—		1,706,367		—			1,706,367
HMBS related obligations at fair value	—		10,304,384		—		—			10,304,384
Deferred tax liability, net	66,948		11,544		2,788		36			81,316
Obligation to fund Non-Guarantor VIEs	—		35,304		—		(35,304		)	—
Due to affiliates, net	—		578,801		100,370		(679,171		)	—
Total liabilities	2,383,616		13,684,538		2,914,640		(723,588		)	18,259,206

Stockholders' equity:
Total stockholders' equity	1,048,961		2,349,401		224,235		(2,573,636		)	1,048,961
Total liabilities and stockholders' equity	$	3,432,577	$	16,033,939	$	3,138,875	$	(3,297,224	)	$	19,308,167

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Condensed Consolidating Balance Sheet
December 31, 2014
(in thousands)

	Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries and VIEs		Eliminations and Reclassifications			Consolidated
ASSETS
Cash and cash equivalents	$	3,162	$	311,810	$	5,203	$	—		$	320,175
Restricted cash and cash equivalents	10,507		617,774		104,734		—			733,015
Residential loans at amortized cost, net	13,302		8,456		1,292,781		—			1,314,539
Residential loans at fair value	—		11,246,197		586,433		—			11,832,630
Receivables, net	16,363		172,579		26,687		—			215,629
Servicer and protective advances, net	—		527,758		1,192,473		40,851			1,761,082
Servicing rights, net	—		1,730,216		—		—			1,730,216
Goodwill	—		575,468		—		—			575,468
Intangible assets, net	—		97,248		6,255		—			103,503
Premises and equipment, net	157		124,769		—		—			124,926
Other assets	69,780		164,815		46,199		—			280,794
Due from affiliates, net	697,979		—		—		(697,979		)	—
Investments in consolidated subsidiaries and VIEs	2,641,527		15,756		—		(2,657,283		)	—
Total assets	$	3,452,777	$	15,592,846	$	3,260,765	$	(3,314,411	)	$	18,991,977

LIABILITIES AND STOCKHOLDERS' EQUITY
Payables and accrued liabilities	$	42,076	$	616,445	$	14,294	$	(8,986	)	$	663,829
Servicer payables	—		584,567		—		—			584,567
Servicing advance liabilities	—		205,628		1,160,257		—			1,365,885
Warehouse borrowings	—		1,176,956		—		—			1,176,956
Excess servicing spread liability at fair value	—		66,311		—		—			66,311
Corporate debt	2,265,668		2,131		—		—			2,267,799
Mortgage-backed debt	—		—		1,751,459		—			1,751,459
HMBS related obligations at fair value	—		9,951,895		—		—			9,951,895
Deferred tax liability, net	68,374		15,353		2,869		21			86,617
Obligation to fund Non-Guarantor VIEs	—		32,902		—		(32,902		)	—
Due to affiliates, net	—		583,331		114,648		(697,979		)	—
Total liabilities	2,376,118		13,235,519		3,043,527		(739,846		)	17,915,318

Stockholders' equity:
Total stockholders' equity	1,076,659		2,357,327		217,238		(2,574,565		)	1,076,659
Total liabilities and stockholders' equity	$	3,452,777	$	15,592,846	$	3,260,765	$	(3,314,411	)	$	18,991,977

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

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

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

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

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

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

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Condensed Consolidating Statement of Comprehensive Income
For the Three Months Ended March 31, 2014
Unaudited
(in thousands)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries and VIEs			Eliminations and Reclassifications			Consolidated
REVENUES
Net servicing revenue and fees	$	—		$	177,351		$	23		$	(4,582	)	$	172,792
Net gains on sales of loans	—			104,034			—			—			104,034
Interest income on loans	159			177			34,086			—			34,422
Net fair value gains on reverse loans and related HMBS obligations	—			17,236			—			—			17,236
Insurance revenue	—			21,938			1,450			—			23,388
Other revenues	269			17,582			4,792			(4,567		)	18,076
Total revenues	428			338,318			40,351			(9,149		)	369,948

EXPENSES
Salaries and benefits	1,268			134,629			—			—			135,897
General and administrative	11,421			100,875			6,780			(10,211		)	108,865
Interest expense	36,441			17,425			20,983			—			74,849
Depreciation and amortization	30			18,413			201			—			18,644
Corporate allocations	(10,943		)	10,943			—			—			—
Other expenses, net	167			346			(288		)				225
Total expenses	38,384			282,631			27,676			(10,211		)	338,480

OTHER LOSSES
Other net fair value losses	(48		)	(411		)	(2,044		)	—			(2,503		)
Total other losses	(48		)	(411		)	(2,044		)	—			(2,503		)

Income (loss) before income taxes	(38,004		)	55,276			10,631			1,062			28,965
Income tax expense (benefit)	(10,480		)	20,063			1,544			461			11,588
Income (loss) before equity in earnings of consolidated subsidiaries and VIEs	(27,524		)	35,213			9,087			601			17,377
Equity in earnings (loss) of consolidated subsidiaries and VIEs	44,901			(1,524		)	—			(43,377		)	—
Net income	$	17,377		$	33,689		$	9,087		$	(42,776	)	$	17,377

Comprehensive income	$	17,381		$	33,689		$	9,083		$	(42,772	)	$	17,381

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

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

Investing activities
Purchases and originations of reverse loans held for investment	—			(428,350		)	—			—			(428,350		)
Principal payments received on reverse loans held for investment	—			152,195			—			—			152,195
Principal payments received on mortgage loans held for investment	336			—			41,091			—			41,427
Payments received on charged-off loans held for investment	—			6,372			—			—			6,372
Payments received on receivables related to Non-Residual Trusts	—			—			2,020			—			2,020
Cash proceeds from sales of real estate owned, net	(5		)	15,195			2,521			—			17,711
Purchases of premises and equipment	(45		)	(3,641		)	—			—			(3,686		)
Decrease (increase) in restricted cash and cash equivalents	(1		)	1,223			(980		)	—			242
Payments for acquisitions of businesses, net of cash acquired	—			(2,809		)	—			—			(2,809		)
Acquisitions of servicing rights	—			(53,919		)	—			—			(53,919		)
Proceeds from sale of investment	14,376			—			—			—			14,376
Proceeds from sale of servicing rights	—			543			—			—			543
Capital contributions to subsidiaries and VIEs	(4,211		)	(3,082		)	—			7,293			—
Returns of capital from subsidiaries and VIEs	8,067			4,397			—			(12,464		)	—
Change in due from affiliates	17,981			13,612			(14,440		)	(17,153		)	—
Other	11,662			893			—			—			12,555
Cash flows provided by (used in) investing activities	48,160			(297,371		)	30,212			(22,324		)	(241,323		)

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

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

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Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2014
Unaudited
(in thousands)

	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries and VIEs			Eliminations and Reclassifications			Consolidated
Cash flows provided by (used in) operating activities	$	8,231		$	420,654		$	(21,473	)	$	140		$	407,552

Investing activities
Purchases and originations of reverse loans held for investment	—			(323,132		)	—			—			(323,132		)
Principal payments received on reverse loans held for investment	—			100,729			—			—			100,729
Principal payments received on mortgage loans held for investment	26			19			38,725			—			38,770
Payments received on receivables related to Non-Residual Trusts	—			—			3,230			—			3,230
Cash proceeds from sales of real estate owned, net	45			6,668			4,723			—			11,436
Purchases of premises and equipment	—			(4,524		)	—			—			(4,524		)
Decrease (increase) in restricted cash and cash equivalents	(752		)	5,939			(484		)	—			4,703
Payments for acquisitions of businesses, net of cash acquired	—			(41,912		)	—			—			(41,912		)
Acquisitions of servicing rights	—			8,843			—			—			8,843
Capital contributions to subsidiaries and VIEs	(101		)	(57		)	—			158			—
Returns of capital from subsidiaries and VIEs	6,947			2,286			—			(9,233		)	—
Change in due from affiliates	(67,537		)	(14,952		)	(17,849		)	100,338			—
Other	—			(450		)	—			—			(450		)
Cash flows provided by (used in) investing activities	(61,372		)	(260,543		)	28,345			91,263			(202,307		)

Financing activities
Payments on corporate debt	(3,750		)	(823		)	—			—			(4,573		)
Proceeds from securitizations of reverse loans	—			445,046			—			—			445,046
Payments on HMBS related obligations	—			(117,731		)	—			—			(117,731		)
Issuances of servicing advance liabilities	—			222,594			40,276			—			262,870
Payments on servicing advance liabilities	—			(227,183		)	(10,506		)	—			(237,689		)
Net change in warehouse borrowings related to mortgage loans	—			(361,909		)	—			—			(361,909		)
Net change in warehouse borrowings related to reverse loans	—			(72,339		)	—			—			(72,339		)
Other debt issuance costs paid	—			(5,278		)	—			—			(5,278		)
Payments on mortgage-backed debt	—			—			(45,488		)	—			(45,488		)
Capital contributions	—			30			128			(158		)	—
Capital distributions	—			(39		)	(9,194		)	9,233			—
Change in due to affiliates	(2,354		)	84,900			17,932			(100,478		)	—
Other	5,666			(3,001		)	—			—			2,665
Cash flows used in financing activities	(438		)	(35,733		)	(6,852		)	(91,403		)	(134,426		)

Net increase (decrease) in cash and cash equivalents	(53,579		)	124,378			20			—			70,819
Cash and cash equivalents at the beginning of the period	100,009			388,644			3,232			—			491,885
Cash and cash equivalents at the end of the period	$	46,430		$	513,022		$	3,252		$	—		$	562,704

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20. Subsequent Events

On April 27, 2015, the Company sold its residual interests in seven of the Residual Trusts and received $189.5 million in cash proceeds.

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

The terms "Walter Investment," the "Company," "we," "us," and "our" as used throughout this report refer to Walter Investment Management Corp. and its consolidated subsidiaries. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission on February 26, 2015 and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in that Annual Report on Form 10-K. Historical results and trends discussed herein and therein may not be indicative of future operations, particularly in light of regulatory developments. Our results of operations and financial condition, as reflected in the accompanying consolidated financial statements and related footnotes, reflect management’s evaluation and interpretation of business conditions, changing capital market conditions, and other factors. We use certain acronyms and terms throughout this Quarterly Report on Form 10-Q that are defined under "Glossary of Terms" in this Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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

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

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

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

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

Certain statements in this report, including matters discussed under this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 1, “Legal Proceedings,” and elsewhere in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that are not historical fact are forward-looking statements. Certain of these forward-looking statements can be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “assumes,” “may,” “should,” “will,” or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, and our actual results, performance or achievements could differ materially from future results, performance or achievements expressed in these forward-looking statements. These forward-looking statements are based on our current beliefs, intentions and expectations. These statements are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described below and in more detail in our Annual Report on Form 10-K for the year ended December 31, 2014 , under the caption “Risk Factors,” in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and in our other filings with the SEC.

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


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


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

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


•	uncertainties relating to interest curtailment obligations and any related financial and litigation exposure (including exposure relating to false claims or relating to a pending investigation by the Department of Justice and the HUD Office of Inspector General);


•	potential costs and uncertainties associated with and arising from litigation, regulatory investigations and other legal proceedings;

•

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


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


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


•	our ability to comply with the servicing standards required by the National Mortgage Settlement;


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


•	operational risks inherent in the mortgage servicing business, including reputational risk;


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


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


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


•	our ability to achieve our strategic initiatives;


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


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


•	a downgrade in our servicer ratings or credit ratings;


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


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


•	uncertainty as to the volume of originations activity we will benefit from following the expiration of HARP, which is scheduled to occur on December 31, 2015;

•

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


•	our ability to implement strategic initiatives, particularly as they relate to our ability to raise capital, make arrangements with potential capital partners and develop new business, including acquisitions of mortgage servicing rights and the development of our originations business, all of which are subject to customer demand and various third-party approvals;


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

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


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


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


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


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


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


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


•	risks related to our relationship with Walter Energy, including tax risks allocated to us in connection with our spin-off from Walter Energy.

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

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

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

Executive Summary

The Company

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

At March 31, 2015 , we serviced 2.3 million residential loans with an unpaid principal balance of $255.1 billion and we have been one of the 10 largest residential loan servicers in the U.S for the past two years according to Inside Mortgage Finance. Our originations business originated $5.5 billion in mortgage loan volume during the first three months of 2015 ranking it in the top 20 originators nationally according to Inside Mortgage Finance. Our reverse mortgage business is a leading integrated franchise in the reverse mortgage sector and according to an industry source, was the top issuer of HMBS during 2014.

During the three months ended March 31, 2015, we added to the unpaid principal balance of our mortgage loan servicing portfolio with $3.4 billion in servicing right acquisitions, $174.4 million in sub-servicing contracts and $3.8 billion in servicing rights capitalized upon sales of mortgage loans. In the same period of 2015 , we originated and purchased $410.9 million in reverse mortgage volume and issued $413.0 million in HMBS. In addition, our servicing portfolio was reduced by $9.3 billion of unpaid principal

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balance in payoffs and sales during the quarter. Our mortgage loan and reverse mortgage originations businesses allows us to replenish our servicing portfolio.

During the three months ended March 31, 2015, we took steps to simplify our business and reorganized our reportable segments to align with our changes in the management reporting structure. As a result of this reorganization, we modified the Servicing segment by combining the Asset Receivables Management, Insurance, and Loans and Residuals businesses into the Servicing segment. We believe the changes in our reportable business segments reflect the way management, under its new reporting structure, monitors performance, aligns strategies and allocates resources in the current environment, while altogether improving efficiencies. Refer to the Business Segment Results section below for additional information on this change. Due to the change, we now manage our Company in three reportable segments: Servicing, Originations, and Reverse Mortgage. A description of the business conducted by each of these segments is provided below:

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

Originations — Our Originations segment consists of operations that purchase and originate mortgage loans that are sold to third parties.

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

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

Overview

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

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

Financial Highlights

Total revenues for the three months ended March 31, 2015 were $310.9 million , which represented a decline of $59.1 million , or 16% , as compared to the same period of 2014 . The decrease in revenue reflects an $81.9 million decrease in net servicing revenue and fees, primarily driven by an $81.6 million greater fair value charge for servicing rights; an increase of $21.2 million in net gains on sales of loans; and higher net fair value gains on reverse loans and related HMBS obligations of $13.5 million . We incurred losses on our servicing rights carried at fair value primarily as a result of a declining interest rate environment and higher realization of expected cash flows. We had higher net gains on sales of loans due primarily to a higher total volume of locked loans driven by a low interest rate environment, offset partially by a shift in volume from the higher margin retention channel to the lower margin correspondent channel. We had higher net fair value gains on reverse loans and related HMBS obligations primarily as a result of the tightening of spreads between reverse loans and HMBS related obligations resulting from changes in market pricing for HECMs and HMBS. Total expenses for the three months ended March 31, 2015 were $371.4 million , which represented an increase of $32.9 million , or 10% , as compared to the same period of 2014 .

Income tax expense (benefit) for the three months ended March 31, 2015 was $(18.7) million , which represented a decrease of $30.3 million , or 261% , as compared to the same period of 2014 , due primarily to the decrease in income before taxes to a loss before taxes.

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Our cash flows provided by operating activities were $121.1 million during the three months ended March 31, 2015 . We finished the three months ended March 31, 2015 with $338.5 million in cash and cash equivalents. Our operating cash flows decreased by $286.5 million during the three months ended March 31, 2015 as compared to the same period in 2014 primarily as a result of a lower volume of loans sold in relation to originated loans, partially offset by higher collections of servicer and protective advances.

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

Market Opportunity and Strategy

We continue to pursue opportunities to bolster our servicing portfolio through acquisitions of servicing rights and entering into sub-servicing contracts, while also using our originations platform to refinance and retain loans in our current servicing portfolio as well as to generate new loans for servicing. To the extent we pursue large servicing right acquisitions, we will seek to partner with WCO and other external capital partners. Based on our discussions with market sources and potential counterparties, we believe that banking organizations as well as non-bank mortgage origination companies continue to be interested in transferring substantial volumes of servicing rights and responsibilities to servicers such as ourselves as they focus on their “core” client base and downsize servicing for non-core clients. The market for bulk transfers of servicing rights has undergone a heightened level of scrutiny as GSEs and federal and state government agencies have been reviewing the industry’s experience over the last several years with large volumes of servicing transfers. We expect this environment of enhanced oversight to continue as best-in-class protocols for servicing standards are developed and the market adjusts to the significant changes in servicing market share. We believe we are well positioned to grow our portfolio over time and that our ability to add to our servicing portfolio through transfers will be driven by our scale; our compliance with regulatory and contractual servicing standards; our track record of successful transfers; and our access to capital. Our strategy includes access to capital to be provided by WCO and other capital partners. Growth of our portfolio and the timing of such growth are somewhat dependent on our planned contribution of Marix to WCO and WCO’s successful execution of purchases of servicing rights for which we will sub-service. We may also seek to enter into additional excess spread transactions with WCO.

From time to time, we may look to selectively grow and add to our complementary businesses which leverage our core servicing portfolio and platform. In addition, we have opportunistically monetized non-core assets where we have found value for the business overall, such as with the sale in April 2015 of the residual interests in seven of the Residual Trusts as described in Recent Developments and the sale of an equity method investment during the quarter ended March 31, 2015 described in Business Segment Results. Further, on March 10, 2015, we entered into a non-binding indicative term sheet with a prospective purchaser in connection with the potential sale of substantially all of our insurance business to such purchaser. There can be no assurance this potential sale will be consummated. In 2015 we will re-brand our mortgage loan business by consolidating Ditech and Green Tree Servicing into one legal entity with one brand, Ditech, a Walter Company. This consolidation will allow for greater focus on our consumers and will enhance brand recognition as mortgage loans originated by Ditech will be serviced by the same brand which will simplify the process for the consumer and, in turn, improve quality and provide us with greater opportunities to cross-sell. The consolidation will also enable us to better leverage our resources and talent across the businesses and drive operational efficiencies. In addition, we have already taken actions in 2015 to improve efficiency, and have additional plans in place to capture further opportunities for enhanced benefits from shared services and accelerating our automation efforts. These actions in conjunction with the combination of Ditech and Green Tree Servicing are estimated to provide at least $75 million in annual cost savings, with approximately $60 million expected to be realized in 2015. One time costs associated with the implementation of these initiatives are not expected to exceed $15 million.

Recent Developments

On April 27, 2015, for an aggregate cash price of $189.5 million, we sold all of our residual interests in the Sold Residual Trusts. In connection with the sale, Green Tree Servicing also (i) entered into a servicing side letter with the purchaser of the residual interests, which provides, among other things, that Green Tree Servicing shall continue to perform certain resale activities with respect to the accounts backing the Sold Residual Trusts for a specified servicing fee and (ii) agreed to indemnify the purchaser for certain claims relating to such sale.

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

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Regulatory Developments

On January 30, 2015, the FHFA proposed new minimum financial eligibility requirements for Fannie Mae and Freddie Mac seller/servicers. The proposed minimum financial requirements include net worth, capital ratio, and liquidity criteria for mortgage seller/servicers to do business with the GSEs. After reviewing feedback from the industry, regulators, and other stakeholders, the FHFA anticipates that it will finalize the new minimum financial eligibility requirements in the second quarter of 2015 and anticipates that the requirements will become effective six months after they are finalized.

On March 25, 2015, the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators proposed a set of prudential regulatory standards that would apply to all non-bank mortgage servicers licensed by and operating in any U.S. state. The standards address capital, liquidity, risk management, data standards, data protection, corporate governance, servicing transfer requirements and change of control requirements. The proposal is open for a 90 day public comment period that commenced on March 25, 2015.

On September 3, 2013, HUD announced that all HECM lenders would be required to perform a new financial assessment on all prospective HECM borrowers. The effective date for compliance with this requirement was originally January 13, 2014; however, on December 20, 2013, HUD announced that it was updating the requirements and delaying the implementation date. Based on public comments, HUD issued revised financial assessment requirements on November 10, 2014. As part of the financial assessment, the lender must evaluate borrowers’ willingness and capacity to meet their financial obligations and comply with the reverse mortgage requirements. Key components of the financial assessment include a credit history and property charge payment history analysis, a cash flow/residual income analysis, and an analysis of compensating factors and extenuating circumstances to determine if the applicant is eligible for a HECM loan. The new effective date of financial assessment requirements was expected to be March 2, 2015; however, on February 12, 2015, HUD delayed the effective date to ensure system enhancements required to support these changes are in place. On February 26, 2015, HUD announced that the effective date for the financial assessment requirements would be April 27, 2015, and such requirements became effective on such date.

Additional Information

See our Annual Report on Form 10-K for the year ended December 31, 2014 for additional information about the regulatory framework under which we operate.

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



	For the Three Months Ended March 31,						Variance
	2015			2014			$			%
REVENUES
Net servicing revenue and fees	$	90,887		$	172,792		$	(81,905	)	(47	)%
Net gains on sales of loans	125,227			104,034			21,193			20	%
Interest income on loans	31,941			34,422			(2,481		)	(7	)%
Net fair value gains on reverse loans and related HMBS obligations	30,774			17,236			13,538			79	%
Insurance revenue	14,131			23,388			(9,257		)	(40	)%
Other revenues	17,897			18,076			(179		)	(1	)%
Total revenues	310,857			369,948			(59,091		)	(16	)%

EXPENSES
Salaries and benefits	147,228			135,897			11,331			8	%
General and administrative	128,647			108,865			19,782			18	%
Interest expense	74,871			74,849			22			—	%
Depreciation and amortization	16,632			18,644			(2,012		)	(11	)%
Other expenses, net	4,047			225			3,822			n/m
Total expenses	371,425			338,480			32,945			10	%

OTHER GAINS (LOSSES)
Other net fair value losses	(872		)	(2,503		)	1,631			(65	)%
Other	11,762			—			11,762			n/m
Total other gains (losses)	10,890			(2,503		)	13,393			(535	)%

Income (loss) before income taxes	(49,678		)	28,965			(78,643		)	(272	)%
Income tax expense (benefit)	(18,670		)	11,588			(30,258		)	(261	)%
Net income (loss)	$	(31,008	)	$	17,377		$	(48,385	)	(278	)%

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Net Servicing Revenue and Fees

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



	For the Three Months Ended March 31,						Variance
	2015			2014			$			%
Servicing fees	$	171,732		$	166,033		$	5,699		3	%
Incentive and performance fees	31,738			42,857			(11,119		)	(26	)%
Ancillary and other fees	25,483			22,653			2,830			12	%
Servicing revenue and fees	228,953			231,543			(2,590		)	(1	)%
Changes in valuation inputs or other assumptions ⁽¹⁾	(74,534		)	(25,618		)	(48,916		)	191	%
Other changes in fair value ⁽²⁾	(54,701		)	(22,016		)	(32,685		)	148	%
Change in fair value of servicing rights	(129,235		)	(47,634		)	(81,601		)	171	%
Amortization of servicing rights	(7,013		)	(11,117		)	4,104			(37	)%
Change in fair value of excess servicing spread liability ⁽³⁾	(1,818		)	—			(1,818		)	n/m
Net servicing revenue and fees	$	90,887		$	172,792		$	(81,905	)	(47	)%

__________


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


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


(3)	Includes interest expense on the excess servicing spread liability, which represents the accretion of fair value, of $2.6 million for the three months ended March 31, 2015 .

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

Servicing fees increased $5.7 million for the three months ended March 31, 2015 as compared to the same period of 2014 due primarily to growth in the third-party servicing portfolio resulting from portfolio acquisitions and servicing rights capitalized as a result of our loan origination activities, partially offset by normal run-off of the servicing portfolio. Incentive and performance fees decreased $11.1 million for the three months ended March 31, 2015 as compared to the same period of 2014 due primarily to lower modification fees and fees earned under HAMP, partially offset by higher real estate owned management fees. Refer to the Servicing segment section of our Business Segment Results for additional information on the changes in fair value relating to servicing rights and our excess servicing spread liability.

Net Gains on Sales of Loans

Net gains on sales of loans include gains on sales of loans held for sale, fair value adjustments on loans held for sale, IRLCs and other related freestanding derivatives, values of the initial capitalized servicing rights, and a provision for the repurchase of loans. Net gains on sales of loans increased $21.2 million for the three months ended March 31, 2015 as compared to the same period of 2014 due primarily to a higher total volume of locked loans driven by a low interest rate environment, offset partially by a shift in volume from the higher margin retention channel to the lower margin correspondent channel.

Interest Income on Loans

We earn interest income on the residential loans held in the Residual Trusts and on our unencumbered mortgage loans, both of which are accounted for at amortized cost. We have had no material acquisitions of such loans in the last several years, thus this portfolio is largely in runoff. Interest income decreased $2.5 million for the three months ended March 31, 2015 as compared to the same period of 2014 primarily due to a decrease in the average residential loan balances outstanding and a lower average yield on loans due to an increase in delinquencies that are 90 days or more past due.

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



	For the Three Months Ended March 31,
	2015			2014			Variance
Residential loans at amortized cost
Interest income	$	31,941		$	34,422		$	(2,481	)
Average balance ⁽¹⁾	1,312,065			1,399,860			(87,795		)
Annualized average yield	9.74		%	9.84		%	(0.10		)%

__________


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

Net Fair Value Gains on Reverse Loans and Related HMBS Obligations

Net fair value gains on reverse loans and related HMBS obligations include the contractual interest income earned on reverse loans, including those not yet securitized or no longer in securitization pools, net of interest expense on HMBS related obligations and the change in fair value of these assets and liabilities. Included in the change in fair value are gains due to loan originations which include "tails." Tails are participations in previously securitized HECMs and are created by additions to principal for borrower draws on lines-of-credit, interest, servicing fees, and mortgage insurance premiums. Economic gains result from the pricing of an aggregated pool of loans exceeding the cost of the origination or acquisition of the loan as well as the change in fair value resulting from changes to market pricing on HECMs and HMBS. No gain or loss is recognized upon securitization of reverse loans as these transactions are accounted for as secured borrowings. Refer to the Reverse Mortgage segment discussion under our Business Segment Results section below for additional information including a detailed breakout of the components of net fair value gains on reverse loans and related HMBS obligations.

Net fair value gains on reverse loans and related HMBS obligations increased by $13.5 million during the three months ended March 31, 2015 as compared to the same period of 2014 primarily due to the tightening of spreads between reverse loans and HMBS related obligations resulting from changes in market pricing for HECMs and HMBS.

Insurance Revenue

Insurance revenue consists of commission income and fees earned on voluntary and lender-placed insurance policies issued and other products sold to borrowers, net of estimated future policy cancellations. Commission income is based on a percentage of the premium of the insurance policy issued, which varies based on the type of policy. Insurance revenue decreased $9.3 million for the three months ended March 31, 2015 as compared to the same period of 2014 due primarily to a decrease in commissions earned related to lender-placed insurance policies resulting from regulatory changes and runoff of existing portfolios. Due to recent regulatory developments surrounding lender-placed insurance policies that became effective in June 2014, our sales commissions related to lender-placed insurance policies began to decrease in June 2014.

Other Revenues

Other revenues consist primarily of origination fee income, income associated with our beneficial interests in servicing assets, and the change in fair value of charged-off loans. Other revenues remained flat for the three months ended March 31, 2015 as compared to the same period of 2014 . Other revenue increased by a $6.0 million gain in fair value on charged-off loans acquired in the second quarter of 2014 and a $3.2 million increase in other interest income. These increases were offset by $7.4 million in lower beneficial interest income related to servicing assets and $1.3 million in lower origination fee income resulting primarily from lower fees charged to new reverse loan borrowers. Origination fee income was $4.6 million and $5.9 million for the three months ended March 31, 2015 and 2014 , respectively.

Salaries and Benefits

Salaries and benefits increased $11.3 million for the three months ended March 31, 2015 as compared to the same period of 2014 primarily due to higher accruals for incentive pay largely resulting from a higher volume of loans funded.

General and Administrative

General and administrative expenses increased $19.8 million for the three months ended March 31, 2015 as compared to the same period of 2014 due primarily to $14.3 million related to regulatory developments which led to additional charges around curtailable

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events and to accrual adjustments associated with legal and regulatory matters outside of the normal course of business related to the Reverse Mortgage segment.

Interest Expense

We incur interest expense on our corporate debt, mortgage-backed debt issued by the Residual Trusts, master repurchase agreements and servicing advance liabilities, all of which are accounted for at amortized cost. Interest expense remained relatively flat for the three months ended March 31, 2015 as compared to the same period of 2014 . We had an increase in interest expense related to master repurchase agreements, which was partially offset by a decrease in interest expense related to mortgage-backed debt. Interest expense related to master repurchase agreements, which are utilized to fund purchases and originations of mortgage loans and reverse loans, increased primarily as a result of a higher average outstanding balance, which is due to our growing originations business, partially offset by a lower average interest rate. Interest expense related to mortgage-backed debt decreased as a result of a lower average outstanding balance as the portfolio continues to run-off. Refer to the Liquidity and Capital Resources section below for additional information on our debt.

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



	For the Three Months Ended March 31,
	2015			2014			Variance
Corporate debt ⁽¹⁾
Interest expense	$	36,750		$	36,483		$	267
Average balance ⁽⁴⁾	2,269,144			2,273,276			(4,132		)
Annualized average rate	6.48		%	6.42		%	0.06		%

Mortgage-backed debt of the Residual Trusts ⁽²⁾
Interest expense	$	18,337		$	20,303		$	(1,966	)
Average balance ⁽⁴⁾	1,084,710			1,190,043			(105,333		)
Annualized average rate	6.76		%	6.82		%	(0.06		)%

Servicing advance liabilities ⁽²⁾
Interest expense	$	10,873		$	10,381		$	492
Average balance ⁽⁴⁾	1,343,368			974,622			368,746
Annualized average rate	3.24		%	4.26		%	(1.02		)%

Master repurchase agreements ⁽³⁾
Interest expense	$	8,911		$	7,682		$	1,229
Average balance ⁽⁴⁾	1,215,318			827,836			387,482
Annualized average rate	2.93		%	3.71		%	(0.78		)%

__________


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


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


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


(4)	Average balance for corporate debt, servicing advance liabilities and master repurchase agreements is calculated as the average daily carrying value. Average balance for mortgage-backed debt is calculated as the average carrying value at the beginning and end of each quarter during the period.

Depreciation and Amortization

Depreciation and amortization expense consists of amortization of intangible assets other than goodwill and depreciation and amortization of premises and equipment including amortization of capitalized software. Depreciation and amortization declined by $2.0 million for the three months ended March 31, 2015 as compared to the same period of 2014 primarily due to lower amortization of intangible assets acquired through business combinations.

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Other Expenses, Net

Included in other expenses, net is primarily the provision for loan losses on our residential loan portfolio accounted for at amortized cost and real estate owned expenses, net. Other expenses, net, increased $3.8 million for the three months ended March 31, 2015 as compared to the same period of 2014 as a result of a higher provision for loan losses of $2.6 million and higher real estate owned expenses of $1.3 million . The increase in the provision for loans losses was due primarily to the reduction in allowance for loan loss requirements taken in the first quarter of 2014, which was due to a decline in loss severities resulting from higher average home selling prices in our markets, and a decrease in the default frequency rate used to calculate the allowance for loan losses based on favorable delinquency trends. Loss severity rates have since leveled out while we continue to experience improved default frequency trends.

Other Net Fair Value Losses

Other net fair value losses consists primarily of fair value gains and losses on the assets and liabilities of the Non-Residual Trusts and fluctuates generally based on changes in prepayment speeds, default rates, loss severity, LIBOR rates and discount rates.

Other Gains

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

Income Tax Expense

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

Income tax expense decreased $30.3 million for the three months ended March 31, 2015 as compared to the same period of 2014 to an income tax benefit due primarily to the decrease in income before income taxes to a loss before income taxes.

Non-GAAP Financial Measures

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

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

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

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


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


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


•	Adjusted Earnings and Adjusted EBITDA do not reflect certain tax payments that represents reductions in cash available to us;


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


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


•	Adjusted Earnings and Adjusted EBITDA do not reflect the change in fair value of servicing rights due to changes in valuation inputs or other assumptions; and


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

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

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

Adjusted Earnings



	For the Three Months Ended March 31, 2015
Loss before income taxes	$	(49,678	)
Adjustments
Changes in fair value due to changes in valuation inputs and other assumptions	73,771
Curtailment expense ⁽¹⁾	16,074
Step-up depreciation and amortization ⁽²⁾	14,429
Fair value to cash adjustment for reverse loans ⁽³⁾	(4,355		)
Share-based compensation expense	3,423
Non-cash interest expense	3,319
Other	4,809
Sub-total	111,470
Adjusted Earnings	$	61,792

__________


(1)	Represents provision for curtailment expense net of expected third party recoveries.


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


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

Adjusted EBITDA



	For the Three Months Ended March 31, 2015
Loss before income taxes	$	(49,678	)
Adjustments
Amortization of servicing rights and other fair value adjustments	135,485
Interest expense	40,086
Depreciation and amortization	16,632
Curtailment expense ⁽¹⁾	16,074
Fair value to cash adjustment for reverse loans ⁽²⁾	(4,355		)
Share-based compensation expense	3,423
Other	5,029
Sub-total	212,374
Adjusted EBITDA	$	162,696

__________


(1)	Represents provision for curtailment expense net of expected third party recoveries.


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

Business Segment Results

During the three months ended March 31, 2015, we took steps to simplify our business and reorganized our reportable segments to align with our changes in the management reporting structure. As a result of this reorganization, we modified the Servicing segment by combining the Asset Receivables Management, Insurance, and Loans and Residuals businesses into the Servicing segment. We also made a change to the composition of indirect costs and depreciation and amortization allocated to the business segments and established an intersegment charge between the Servicing and Originations segments for loan originations associated with our mortgage loan servicing portfolio. We believe the changes in our reportable business segments reflect the way management, under its new reporting structure, monitors performance, aligns strategies and allocates resources in the current environment, while altogether improving efficiencies. Indirect expenses are allocated to our Servicing, Originations, Reverse Mortgage and certain non-reportable segments based on headcount.

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We reconcile our income (loss) before income taxes for our business segments to our GAAP consolidated income (loss) before taxes and report the financial results of our Non-Residual Trusts, other non-reportable operating segments and certain corporate expenses as other activity. Refer below for further information on results of operations for our Servicing, Originations and Reverse Mortgage segments. For a reconciliation of our income (loss) before income taxes for our business segments to our GAAP consolidated income (loss) before income taxes, refer to Note 16 in the Notes to Consolidated Financial Statements. We have recast segment operating results of prior periods to reflect the changes addressed above.

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



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

Adjustments
Changes in fair value due to changes in valuation inputs and other assumptions	73,771			—		—			—			73,771
Curtailment expense	—			—		16,074			—			16,074
Step-up depreciation and amortization	7,044			1,170		1,328			—			9,542
Step-up amortization of sub-servicing rights	4,887			—		—			—			4,887
Fair value to cash adjustment for reverse loans	—			—		(4,355		)	—			(4,355		)
Share-based compensation expense	2,005			797		536			85			3,423
Non-cash interest expense	755			—		—			2,564			3,319
Other	2,351			528		(1,399		)	3,329			4,809
Total adjustments	90,813			2,495		12,184			5,978			111,470
Adjusted Earnings (Loss)	40,141			44,293		(1,273		)	(21,369		)	61,792

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

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	For the Three Months Ended March 31, 2014
	Servicing			Originations		Reverse Mortgage			Other			Total Consolidated
Income (loss) before income taxes	$	66,376		$	14,227	$	(9,063	)	$	(42,575	)	$	28,965

Adjustments
Changes in fair value due to changes in valuation inputs and other assumptions	25,618			—		—			—			25,618
Step-up depreciation and amortization	7,151			2,853		1,893			1			11,898
Step-up amortization of sub-servicing rights	8,465			—		—			—			8,465
Fair value to cash adjustment for reverse loans	—			—		4,661			—			4,661
Share-based compensation expense	1,992			777		459			265			3,493
Non-cash interest expense	997			—		—			2,313			3,310
Other	152			2,978		(52		)	5,566			8,644
Total adjustments	44,375			6,608		6,961			8,145			66,089
Adjusted Earnings (Loss)	110,751			20,835		(2,102		)	(34,430		)	95,054

Adjustments
Amortization of servicing rights and other fair value adjustments	23,918			—		750			—			24,668
Interest expense on debt	32			—		10			34,128			34,170
Depreciation and amortization	4,688			1,516		539			3			6,746
Servicing fee economics	9,750			—		—			—			9,750
Other	(3,661		)	1,089		1			(16		)	(2,587		)
Total adjustments	34,727			2,605		1,300			34,115			72,747
Adjusted EBITDA	$	145,478		$	23,440	$	(802	)	$	(315	)	$	167,801

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Servicing

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



	For the Three Months Ended March 31,						Variance
	2015			2014			$			%
Net servicing revenue and fees
Third parties	$	79,481		$	165,182		$	(85,701	)	(52	)%
Intercompany	2,346			2,044			302			15	%
Total net servicing revenue and fees	81,827			167,226			(85,399		)	(51	)%
Interest income on loans	31,916			34,422			(2,506		)	(7	)%
Insurance revenue	14,131			23,388			(9,257		)	(40	)%
Intersegment retention revenue	8,081			11,988			(3,907		)	(33	)%
Net losses on sales of loans	(91		)	—			(91		)	n/m
Other revenues	7,899			8,560			(661		)	(8	)%
Total revenues	143,763			245,584			(101,821		)	(41	)%
General and administrative and allocated indirect expenses	80,590			69,072			11,518			17	%
Salaries and benefits	69,823			67,279			2,544			4	%
Interest expense	29,225			30,716			(1,491		)	(5	)%
Depreciation and amortization	11,473			11,839			(366		)	(3	)%
Other expenses, net	3,090			(114		)	3,204			n/m
Total expenses	194,201			178,792			15,409			9	%
Other net fair value losses	(234		)	(416		)	182			(44	)%
Income (loss) before income taxes	(50,672		)	66,376			(117,048		)	(176	)%

Adjustments
Changes in fair value due to changes in valuation inputs and other assumptions	73,771			25,618			48,153			188	%
Step-up depreciation and amortization	7,044			7,151			(107		)	(1	)%
Step-up amortization of sub-servicing rights	4,887			8,465			(3,578		)	(42	)%
Share-based compensation expense	2,005			1,992			13			1	%
Non-cash interest expense	755			997			(242		)	(24	)%
Other	2,351			152			2,199			n/m
Total adjustments	90,813			44,375			46,438			105	%
Adjusted Earnings	40,141			110,751			(70,610		)	(64	)%

Adjustments
Amortization of servicing rights and other fair value adjustments	56,272			23,918			32,354			135	%
Depreciation and amortization	4,429			4,688			(259		)	(6	)%
Interest expense on debt	2,596			32			2,564			n/m
Servicing fee economics	—			9,750			(9,750		)	(100	)%
Other	(318		)	(3,661		)	3,343			(91	)%
Total adjustments	62,979			34,727			28,252			81	%
Adjusted EBITDA	$	103,120		$	145,478		$	(42,358	)	(29	)%

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Mortgage Loan Servicing Portfolio

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

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



	For the Three Months Ended March 31, 2015					For the Three Months Ended March 31, 2014
	Number of Accounts		Unpaid Principal Balance			Number of Accounts		Unpaid Principal Balance
Third-party servicing portfolio associated with mortgage loans ⁽¹⁾
Balance at beginning of the period	2,142,689		$	234,905,729		1,894,446		$	198,828,470
Acquisition of pool of Fannie Mae MSRs	—		—			254,960		27,559,108
Acquisition of EverBank net assets	—		—			72,176		9,756,509
Loan sales with servicing retained	16,626		3,803,663			22,253		1,902,000
Other new business added ⁽²⁾	14,340		3,541,923			2,259		381,609
Payoffs and sales, net ^{(2) (3)}	(69,459	)	(8,971,933		)	(80,402	)	(7,426,309		)
Balance at end of the period	2,104,196		233,279,382			2,165,692		231,001,387
On-balance sheet residential loans and real estate owned associated with mortgage loans ⁽⁴⁾	55,648		3,146,850			57,244		2,832,503
Total servicing portfolio associated with mortgage loans	2,159,844		$	236,426,232		2,222,936		$	233,833,890

__________


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


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


(3)	Amounts presented are net of loan sales associated with servicing retained multi-channel recapture activities of $1.6 billion and $2.2 billion for the three months ended March 31, 2015 and 2014 , respectively.


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

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

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The Servicing segment receives intercompany servicing fees related to on-balance sheet assets of the Originations segment and the Other non-reportable segment. Provided below are summaries of our third-party servicing portfolio and on-balance sheet residential loans and real estate owned, all of which are associated with mortgage loans (dollars in thousands):



	At March 31, 2015
	Number of Accounts	Unpaid Principal Balance		Weighted Average Contractual Servicing Fee		30 Days or More Past Due ⁽¹⁾
Third-party servicing portfolio composition of accounts serviced associated with mortgage loans
First lien mortgages	1,632,227	$	218,982,124	0.24	%	9.06	%
Second lien mortgages	213,888	6,932,218		0.54	%	2.61	%
Manufactured housing and other	258,081	7,365,040		1.09	%	4.15	%
Total accounts serviced for third parties	2,104,196	233,279,382		0.28	%	8.72	%
On-balance sheet residential loans and real estate owned associated with mortgage loans ⁽²⁾	55,648	3,146,850				4.50	%
Total servicing portfolio associated with mortgage loans	2,159,844	$	236,426,232			8.66	%



	At December 31, 2014
	Number of Accounts	Unpaid Principal Balance		Weighted Average Contractual Servicing Fee		30 Days or More Past Due ⁽¹⁾
Third-party servicing portfolio composition of accounts serviced associated with mortgage loans
First lien mortgages	1,648,932	$	220,011,843	0.23	%	9.93	%
Second lien mortgages	226,002	7,277,171		0.54	%	2.80	%
Manufactured housing and other	267,755	7,616,715		1.10	%	4.43	%
Total accounts serviced for third parties	2,142,689	234,905,729		0.27	%	9.53	%
On-balance sheet residential loans and real estate owned associated with mortgage loans ⁽²⁾	56,461	3,175,298				5.07	%
Total servicing portfolio associated with mortgage loans	2,199,150	$	238,081,027			9.47	%

__________

(1)

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


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

The unpaid principal balance associated with first lien mortgage loans within our third-party servicing portfolio decreased $1.0 billion at March 31, 2015 as compared to December 31, 2014 . This decrease was primarily due to run-off of the portfolio, partially offset by our originations sales with servicing retained and servicing rights acquisitions. The decrease in the unpaid principal balance of second lien mortgage loans and manufactured housing and other loans within our third-party servicing portfolio of $0.6 billion was primarily due to run-off of the portfolio. The decrease in the unpaid principal balance of our on-balance sheet residential loans and real estate owned associated with mortgage loans of $28.4 million can be attributed to portfolio run-off of the assets held by the Residual and Non-Residual Trusts, partially offset by an increase in mortgage loans held for sale of $30.9 million . At March 31, 2015 , we had $1.1 billion in unpaid principal balance associated with loans held for sale.

The delinquencies associated with our third-party servicing portfolio as well as our on-balance sheet residential loans and real estate owned associated with mortgage loans decreased at March 31, 2015 as compared to December 31, 2014 primarily due to seasonality.

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Net Servicing Revenue and Fees

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



	For the Three Months Ended March 31,						Variance
	2015			2014			$			%
Servicing fees	$	170,706		$	164,860		$	5,846		4	%
Incentive and performance fees	25,109			38,751			(13,642		)	(35	)%
Ancillary and other fees	23,523			21,616			1,907			9	%
Servicing revenue and fees	219,338			225,227			(5,889		)	(3	)%
Changes in valuation inputs or other assumptions ⁽¹⁾	(74,534		)	(25,618		)	(48,916		)	191	%
Other changes in fair value ⁽²⁾	(54,701		)	(22,016		)	(32,685		)	148	%
Change in fair value of servicing rights	(129,235		)	(47,634		)	(81,601		)	171	%
Amortization of servicing rights	(6,458		)	(10,367		)	3,909			(38	)%
Change in fair value of excess servicing spread liability ⁽³⁾	(1,818		)	—			(1,818		)	n/m
Net servicing revenue and fees	$	81,827		$	167,226		$	(85,399	)	(51	)%

__________


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


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


(3)	Includes interest expense on the excess servicing spread liability, which represents the accretion of fair value, of $2.6 million for the three months ended March 31, 2015 .

Servicing fees increased $5.8 million during the three months ended March 31, 2015 as compared to the same period of 2014 primarily due to growth in the third-party servicing portfolio resulting from portfolio acquisitions and servicing rights capitalized as a result of our loan origination activities, partially offset by normal run-off of the servicing portfolio as well as a decrease of $13.1 million related to a benefit recognized during the three months ended March 31, 2014 from the settlement of differences in views between a prior servicer and the Company on how certain fees were recognized under a contract. Average loans serviced increased by $34.8 billion , or 17% , for the three months ended March 31, 2015 as compared to the same period of 2014 .

Incentive and performance fees include modification fees, fees earned under HAMP and other incentives. Modification fees and fees earned under HAMP decreased $11.9 million for the three months ended March 31, 2015 as compared to the same period of 2014 due primarily to a lower volume of completed modifications and lower fees for maintenance of modified loans under performing status as the underlying loans are no longer eligible for HAMP incentive fees.

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



	For the Three Months Ended March 31,
	2015			2014			Variance
Average unpaid principal balance of loans serviced ⁽¹⁾	$	238,877,151		$	204,104,021		$	34,773,130
Annualized average servicing fee ⁽²⁾	0.29		%	0.32		%	(0.03		)%

__________


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


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

The decrease in average servicing fee of 3 basis points for the three months ended March 31, 2015 as compared to the same period of 2014 related primarily to a benefit of $13.1 million recognized during the three months ended March 31, 2014 from the settlement of differences in views between a prior servicer and the Company on how certain fees were recognized under a contract.

Servicing Rights Carried at Fair Value

Changes in the fair value of servicing rights, which reflect our quarterly valuation process, have a significant effect on net servicing revenue and fees. As our servicing rights balance grows, we expect that changes in fair value of servicing rights will have an increasing impact on our net income.

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A summary of key economic inputs and assumptions used in estimating the fair value of servicing rights carried at fair value is presented below (dollars in thousands):



	March 31, 2015			December 31, 2014			Variance
Servicing rights at fair value	$	1,570,320		$	1,599,541		$	(29,221	)
Unpaid principal balance of accounts serviced	169,295,613			168,832,342			463,271
Inputs and assumptions
Weighted-average remaining life in years	6.2			6.6			(0.4		)
Weighted-average stated borrower interest rate on underlying collateral	4.53		%	4.65		%	(0.12		)%
Weighted-average discount rate	9.77		%	9.55		%	0.22		%
Conditional prepayment rate	8.88		%	7.87		%	1.01		%
Conditional default rate	1.63		%	2.36		%	(0.73		)%

Servicing rights carried at fair value predominantly relate to acquisitions completed since January 1, 2013 and servicing rights capitalized as a result of our loan origination activities. The decrease in servicing rights carried at fair value at March 31, 2015 as compared to December 31, 2014 related to a reduction in fair value, partially offset by $27.7 million in servicing rights portfolio acquisitions and $72.3 million in servicing rights capitalized upon sales of loans. The reduction in fair value of these servicing rights during the three months ended March 31, 2015 was attributed to losses of $74.5 million in changes in valuation inputs or other assumptions and losses of $54.7 million in other changes in fair value which reflect the impact of the realization of expected cash flows resulting from both regularly scheduled and unscheduled payments and payoffs of loan principal.

The loss resulting from changes in valuation inputs or other assumptions of $74.5 million during the three months ended March 31, 2015 was due primarily to a higher assumed conditional prepayment rate at March 31, 2015 as compared to December 31, 2014 which resulted primarily from a lower interest rate environment and an increase in the FHFA’s housing price index, along with an increase in discount rates. The decline in the assumed conditional default rate was driven by delinquencies that are lower overall, and accordingly, lower assumed conditional default rates. The weighted-average remaining life in years assumption declined due primarily to increased prepayment speeds related to lower interest rates.

Other changes in fair value above consists of the realization of expected cash flows. The increase in realization of expected cash flows of $32.7 million for the three months ended March 31, 2015 as compared to the same period of 2014 was due primarily to acquisitions of servicing rights, including those from loan origination activities, and faster prepayment speeds than anticipated.

Excess Servicing Spread Liability

During the third quarter of 2014, we entered into an excess servicing spread transaction with WCO. We elected to account for the excess servicing spread liability at fair value. The fair value of the excess servicing spread liability is directly impacted by the future economic performance of the related servicing rights.

A summary of key economic inputs and assumptions used in estimating the fair value of the excess servicing spread liability is presented below (dollars in thousands):



	March 31, 2015			December 31, 2014			Variance
Unpaid principal balance of accounts related to excess servicing spread liability	$	22,668,938		$	23,465,440		$	(796,502	)
Excess servicing spread liability at fair value	63,349			66,311			(2,962		)
Inputs and assumptions
Weighted-average remaining life in years	6.9			7.3			(0.4		)
Discount rate	13.85		%	13.60		%	0.25		%
Conditional prepayment rate	8.60		%	7.79		%	0.81		%
Conditional default rate	0.89		%	1.51		%	(0.62		)%

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We made payments of $2.2 million on our excess servicing spread liability during the three months ended March 31, 2015 . The change in fair value of our excess servicing spread liability of $1.8 million during the three months ended March 31, 2015 consisted of interest expense of $2.6 million , partially offset by a fair value gain of $0.8 million . The fair value gain resulted primarily from a higher assumed conditional prepayment rate, which relates to a lower interest rate environment, and an increase in the discount rate.

Insurance Revenue

Insurance revenue consists of commission income and fees earned on voluntary and lender-placed insurance policies issued and other products sold to borrowers, net of estimated future policy cancellations. Commission income is based on a percentage of the premium of the insurance policy issued, which varies based on the type of policy. Insurance revenue decreased $9.3 million for the three months ended March 31, 2015 as compared to the same period of 2014 due primarily to a decrease in commissions earned related to lender-placed insurance policies resulting from regulatory changes as addressed in the Results of Operations section above and runoff of existing portfolios.

Intersegment Retention Revenue

Intersegment retention revenue relates to fees earned from loan originations completed by the Originations segment that resulted from access to the Servicing segment’s servicing portfolio for which there was a related capitalized servicing right. The decline in intersegment retention revenue of $3.9 million during the three months ended March 31, 2015 as compared to the same period of 2014 was due primarily to the decline in funded retention volume for which there was an existing capitalized servicing right.

General and Administrative and Allocated Indirect Expenses

General and administrative and allocated indirect expenses increased $11.5 million for the three months ended March 31, 2015 as compared to the same period of 2014 resulting primarily from $3.5 million in expenses relating to the provision on advances and compensating interest, $3.1 million in additional costs to support efficiency and technology related matters, and insignificant variances related to other expenses.

Other Expenses, Net

Included in other expenses, net was primarily the provision for loan losses on our residential loan portfolio accounted for at amortized cost and real estate owned expenses, net. Other expenses, net, increased $3.2 million for the three months ended March 31, 2015 as compared to the same period of 2014 as a result of a higher provision for loan losses of $2.6 million . The increase in the provision for loans losses was due primarily to the reduction in allowance for loan loss requirements taken in the first quarter of 2014, which was due to a decline in loss severities resulting from higher average home selling prices in our markets, and a decrease in the default frequency rate used to calculate the allowance for loan losses based on favorable delinquency trends. Loss severity rates have since leveled out while we continue to experience improved default frequency trends.

Adjusted Earnings

Adjusted Earnings decreased $70.6 million for the three months ended March 31, 2015 as compared to the same period of 2014 primarily due to lower revenues which were largely impacted by higher realization of cash flows, including the effects of accelerated prepayments, of $32.7 million and a decline in incentive and performance fees and insurance revenues and higher expenses, mainly general and administrative and allocated indirect expenses as discussed above.

Adjusted EBITDA

Adjusted EBITDA decreased by $42.4 million for the three months ended March 31, 2015 as compared to the same period of 2014 primarily due to a decline in incentive and performance fees and insurance revenues and higher expenses, mainly general and administrative and allocated indirect expenses as discussed above.

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Originations

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



	For the Three Months Ended March 31,				Variance
	2015		2014		$			%
Net gains on sales of loans	$	125,416	$	104,034	$	21,382		21	%
Other revenues	4,884		5,180		(296		)	(6	)%
Total revenues	130,300		109,214		21,086			19	%
Salaries and benefits	40,595		43,236		(2,641		)	(6	)%
General and administrative and allocated indirect expenses	28,826		28,561		265			1	%
Intersegment retention expense	8,081		11,988		(3,907		)	(33	)%
Interest expense	7,813		6,833		980			14	%
Depreciation and amortization	3,187		4,369		(1,182		)	(27	)%
Total expenses	88,502		94,987		(6,485		)	(7	)%
Income before income taxes	41,798		14,227		27,571			194	%

Adjustments
Step-up depreciation and amortization	1,170		2,853		(1,683		)	(59	)%
Share-based compensation expense	797		777		20			3	%
Other	528		2,978		(2,450		)	(82	)%
Total adjustments	2,495		6,608		(4,113		)	(62	)%
Adjusted Earnings	44,293		20,835		23,458			113	%

Adjustments
Depreciation and amortization	2,017		1,516		501			33	%
Other	403		1,089		(686		)	(63	)%
Total adjustments	2,420		2,605		(185		)	(7	)%
Adjusted EBITDA	$	46,713	$	23,440	$	23,273		99	%

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



	For the Three Months Ended March 31, 2015						For the Three Months Ended March 31, 2014
	Locked Volume ⁽¹⁾		Funded Volume		Sold Volume		Locked Volume ⁽¹⁾		Funded Volume		Sold Volume
Correspondent	$	4,873,048	$	3,650,742	$	3,675,542	$	1,497,189	$	1,467,150	$	1,571,523
Retention	1,799,923		1,632,625		1,606,666		1,839,796		1,753,569		1,955,630
Consumer Direct	135,570		98,313		88,705		—		—		—
Retail	122,140		85,862		76,926		32,906		36,490		47,445
Wholesale ⁽²⁾	—		—		—		194,402		258,091		321,518
Total	$	6,930,681	$	5,467,542	$	5,447,839	$	3,564,293	$	3,515,300	$	3,896,116

__________


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


(2)	We exited the wholesale business in February 2014.

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Net Gains on Sales of Loans

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

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

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



	For the Three Months Ended March 31,						Variance
	2015			2014			$			%
Realized gains on sales of loans	$	61,437		$	86,833		$	(25,396	)	(29	)%
Change in unrealized gains (losses) on loans held for sale	1,389			(4,176		)	5,565			(133	)%
Gains (losses) on interest rate lock commitments ⁽¹⁾	24,483			(1,606		)	26,089			n/m
Losses on forward sales commitments ⁽¹⁾	(38,648		)	(35,856		)	(2,792		)	8	%
Gains (losses) on MBS purchase commitments ⁽¹⁾	(5,679		)	67			(5,746		)	n/m
Capitalized servicing rights	72,731			52,613			20,118			38	%
Provision for repurchases	(2,025		)	(2,186		)	161			(7	)%
Interest income	11,728			8,345			3,383			41	%
Net gains on sales of loans	$	125,416		$	104,034		$	21,382		21	%

__________


(1)	Realized losses on freestanding derivatives were $44.2 million and $20.3 million for the three months ended March 31, 2015 and 2014 , respectively.

The increase in net gains on sales of loans for the three months ended March 31, 2015 as compared to the same period of 2014 was due primarily to a higher total volume of locked loans, offset partially by a shift in volume from the higher margin retention channel to the lower margin correspondent channel. The periods ended March 31, 2015 and 2014 include the benefit of higher margins from HARP, which is scheduled to expire in December 2015. HARP is a federal program of the U.S. which helps homeowners refinance their mortgage. Our ongoing strategy includes significant efforts to maintain meaningful retention volume. Future margins are expected to be lower than historical HARP margins.

Salaries and Benefits

Salaries and benefits expense decreased $2.6 million for the three months ended March 31, 2015 as compared to the same period of 2014 primarily as a result of the reduction in workforce in order to align the employee base with the scope and scale of current operations which included our exit from the mortgage wholesale channel in 2014, partially offset by higher volume of loans funded during the current period.

Intersegment Retention Expense

Intersegment retention expense relates to fees incurred on loan originations that resulted from access to the Servicing segment’s servicing portfolio for which there was a related capitalized servicing right recorded by the Servicing segment. The decline in intersegment retention expense of $3.9 million during the three months ended March 31, 2015 as compared to the same period of 2014 was due primarily to the decline in funded retention volume for which there was an existing capitalized servicing right.

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Interest Expense

Interest expense for the Originations segment relates to interest expense incurred on master repurchase agreements, which fluctuates in line with funded volume and cost of debt. Interest expense increased $1.0 million for the three months ended March 31, 2015 as compared to the same period of 2014 as a result of higher average borrowings on master repurchase agreements as a result of a higher volume of loan fundings partially offset by lower average cost of debt.

Adjusted Earnings and Adjusted EBITDA

Adjusted Earnings increased $23.5 million and Adjusted EBITDA increased $23.3 million for the three months ended March 31, 2015 as compared to the same period of 2014 due primarily to higher net gains on sales of loans and lower expenses, mainly a reduction in salaries and benefits and the intersegment retention expense as discussed above.

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Reverse Mortgage

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



	For the Three Months Ended March 31,						Variance
	2015			2014			$			%
Net fair value gains on reverse loans and related HMBS obligations	$	30,774		$	17,236		$	13,538		79	%
Net servicing revenue and fees	11,406			7,610			3,796			50	%
Net losses on sales of loans	(98		)	—			(98		)	n/m
Other revenues	1,845			3,022			(1,177		)	(39	)%
Total revenues	43,927			27,868			16,059			58	%
Salaries and benefits	24,540			17,033			7,507			44	%
General and administrative and allocated indirect expenses	28,893			16,451			12,442			76	%
Depreciation and amortization	1,968			2,432			(464		)	(19	)%
Interest expense	1,099			859			240			28	%
Other expenses, net	884			156			728			467	%
Total expenses	57,384			36,931			20,453			55	%
Loss before income taxes	(13,457		)	(9,063		)	(4,394		)	48	%

Adjustments
Curtailment expense	16,074			—			16,074			n/m
Fair value to cash adjustment for reverse loans	(4,355		)	4,661			(9,016		)	(193	)%
Step-up depreciation and amortization	1,328			1,893			(565		)	(30	)%
Share-based compensation expense	536			459			77			17	%
Other	(1,399		)	(52		)	(1,347		)	n/m
Total adjustments	12,184			6,961			5,223			75	%
Adjusted Loss	(1,273		)	(2,102		)	829			(39	)%

Adjustments
Amortization of servicing rights	555			750			(195		)	(26	)%
Depreciation and amortization	640			539			101			19	%
Interest expense on debt	1			10			(9		)	(90	)%
Other	74			1			73			n/m
Total adjustments	1,270			1,300			(30		)	(2	)%
Adjusted EBITDA	$	(3	)	$	(802	)	$	799		(100	)%

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Reverse Mortgage Servicing Portfolio

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



	For the Three Months Ended March 31, 2015					For the Three Months Ended March 31, 2014
	Number of Accounts		Unpaid Principal Balance			Number of Accounts		Unpaid Principal Balance
Third party servicing portfolio associated with reverse loans
Balance at beginning of the period	50,196		$	8,626,946		44,663		$	7,690,304
New business added	2,942		440,625			1,873		195,365
Other additions ⁽¹⁾	—		141,946			—		115,545
Payoffs and sales	(1,408	)	(284,149		)	(825	)	(156,595		)
Balance at end of the period	51,730		$	8,925,368		45,711		$	7,844,619

__________


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

Provided below are summaries of our servicing portfolio associated with reverse loans (dollars in thousands):



	At March 31, 2015
	Number of Accounts	Unpaid Principal Balance		Weighted Average Contractual Servicing Fee
Third-party servicing portfolio associated with reverse loans	51,730	$	8,925,368	0.15	%
On-balance sheet residential loans and real estate owned associated with reverse loans	62,478	9,730,392
Total servicing portfolio associated with reverse loans	114,208	$	18,655,760



	At December 31, 2014
	Number of Accounts	Unpaid Principal Balance		Weighted Average Contractual Servicing Fee
Third-party servicing portfolio associated with reverse loans	50,196	$	8,626,946	0.16	%
On-balance sheet residential loans and real estate owned associated with reverse loans	60,302	9,404,169
Total servicing portfolio associated with reverse loans	110,498	$	18,031,115

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Net Fair Value Gains on Reverse Loans and Related HMBS Obligations

Provided in the table below is a summary of the components of net fair value gains on reverse loans and related HMBS obligations which are recorded on our consolidated balance sheets (in thousands):



	For the Three Months Ended March 31,						Variance
	2015			2014			$			%
Interest income on reverse loans	$	106,280		$	96,881		$	9,399		10%
Interest expense on HMBS related obligations	(98,536		)	(90,560		)	(7,976		)	9%
Net interest income on reverse loans and HMBS obligations	7,744			6,321			1,423			23%

Change in fair value of reverse loans	16,727			108,528			(91,801		)	(85)%
Change in fair value of HMBS related obligations	6,303			(97,613		)	103,916			(106)%
Net change in fair value on reverse loans and HMBS related obligations	23,030			10,915			12,115			111%
Net fair value gains on reverse loans and related HMBS obligations	$	30,774		$	17,236		$	13,538		79%

Net fair value gains on reverse loans and related HMBS obligations include the contractual interest income earned on reverse loans, including those not yet securitized or bought out of securitization pools, net of interest expense on HMBS related obligations and the change in fair value of these assets and liabilities. Economic gains result from the pricing of an aggregated pool of loans exceeding the cost of the origination or acquisition of the loan as well as the change in fair value resulting from changes to market pricing on HECMs and HMBS. No gain or loss is recognized upon securitization of reverse loans as these transactions are accounted for as secured borrowings.

Net interest income increased by $1.4 million for the three months ended March 31, 2015 as compared to the same period of 2014 , primarily as a result of the growth in both reverse loans and HMBS related obligations. Cash generated by origination, purchase and securitization of HECMs included in the change in fair value increased by $3.1 million primarily as a result of a change in volume from the securitization of lower margin new originations to higher margin tails. Non-cash fair value adjustments included in the change in fair value increased favorably by $9.0 million due to the tightening of spreads between reverse loans and HMBS related obligations resulting from changes in market pricing for HECMs and HMBS.

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



	For the Three Months Ended March 31,				Variance
	2015		2014		$			%
Funded volume	$	410,874	$	317,900	$	92,974		29	%
Securitized volume ⁽¹⁾	413,047		414,706		(1,659		)	—	%

__________


(1)	Securitized volume includes $95.7 million and $69.5 million of tails securitized for the three months ended March 31, 2015 and 2014, respectively. Tail draws associated with HECMs closed after September 30, 2013, when changes to Initial Disbursement Limits became effective, were $41.3 million and $2.5 million during the same periods, respectively.

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Net Servicing Revenue and Fees

Net servicing revenue and fees for the reverse mortgage business consists of contractual servicing fees and ancillary and other fees related to our third-party reverse mortgage portfolio offset by amortization of servicing rights. A summary of net servicing revenue and fees for our Reverse Mortgage segment is provided below (dollars in thousands):



	For the Three Months Ended March 31,						Variance
	2015			2014			$		%
Servicing fees	$	3,372		$	3,217		$	155	5	%
Incentive and performance fees	6,629			4,106			2,523		61	%
Ancillary and other fees	1,960			1,037			923		89	%
Servicing revenue and fees	11,961			8,360			3,601		43	%
Amortization of servicing rights	(555		)	(750		)	195		(26	)%
Net servicing revenue and fees	$	11,406		$	7,610		$	3,796	50	%

The growth in net servicing revenue and fees of $3.8 million for the three months ended March 31, 2015 as compared to the same period of 2014 was due primarily to an increase in incentive and performance fees, which are primarily real estate owned management fees. In March 2015, we entered into an agreement with a counterparty to phase down the transition of real estate owned for management until October 1, 2015, at which time all real estate owned that is not subject to a signed purchase and sale agreement is to transition back to the counterparty. Fees associated with this contract approximated 71% and 75% of incentive and performance fees during the quarter ended March 31, 2015 and the year ended December 31, 2014, respectively.

Other Revenues

Other revenues include originations fee income and other miscellaneous income. Other revenues declined by $1.2 million primarily as a result of the decline in origination fee income resulting from lower fees charged to new borrowers.

Salaries and Benefits

Salaries and benefits expense increased $7.5 million for the three months ended March 31, 2015 as compared to the same period of 2014 primarily as a result of a larger headcount due to hiring to support the growth in the retail lending channel. Headcount assigned to our Reverse Mortgage segment increased by approximately 200 full-time employees from 900 at March 31, 2014 to 1,100 at March 31, 2015.

General and Administrative and Allocated Indirect Expenses

General and administrative and allocated indirect expenses increased $12.4 million for the three months ended March 31, 2015 as compared to the same period of 2014 resulting primarily from $14.3 million related to regulatory developments during the three months ended March 31, 2015 which led to additional charges around curtailable events and to accrual adjustments associated with legal and regulatory matters outside of the normal course of business partially offset by insignificant variances related to other expenses.

Adjusted Loss and Adjusted EBITDA

Adjusted Loss and Adjusted EBITDA decreased by $0.8 million for the three months ended March 31, 2015 as compared to the same period of 2014 . The decrease in these non-GAAP financial measures was due primarily to the growth in cash generated from origination, purchase and securitization of HECMs and net servicing revenue and fees partially offset by higher expenses.

Other Non-Reportable

Revenues for our Other Non-Reportable segment increased $2.0 million for the three months ended March 31, 2015 as compared to the same period of 2014 , primarily as a result of the settlement of a receivable that was repaid in conjunction with the sale of an investment accounted for using the equity method, while expenses remained relatively flat. Other gains increased by $13.2 million for the three months ended March 31, 2015 as compared to the same period of 2014 due primarily to an $11.8 million gain on sale of the aforementioned investment.

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Liquidity and Capital Resources

Overview

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay debt and meet the financial obligations of our operations including funding acquisitions; mortgage loan and reverse loan servicing advances; obligations associated with the repurchase of reverse loans from securitization pools; funding additional borrowing capacity on reverse loans; origination of mortgage loans; and other general business needs, including the cost of compliance with changing legislation and related rules. Our liquidity is measured as our and our subsidiaries’ cash and cash equivalents excluding subsidiary minimum cash requirement balances, which are typically associated with our servicing or financing agreements with third parties. This measure also includes our borrowing capacity available under the 2013 Revolver, as described under the Corporate Debt section below. At March 31, 2015 , our liquidity was $390.5 million . At March 31, 2015 , we had contractual obligations, subject to certain conditions, to utilize approximately $66.1 million of this amount to fund acquisitions of servicing rights, including related servicer and protective advances, as well as our remaining capital contribution to WCO.

Our practice is to maintain our liquidity at a level sufficient to fund certain known or expected payments and to fund our working capital needs. Our principal sources of liquidity are the cash flows generated from our business segments and funds available from our 2013 Revolver, master repurchase agreements, mortgage loan servicing advance facilities, issuance of HMBS and excess servicing spread financing arrangements.

We believe that, based on current forecasts and anticipated market conditions, our current liquidity, along with the funds generated from our principal sources of liquidity discussed above, will allow for financial flexibility to meet anticipated cash requirements to fund operating needs and expenses, regulatory settlements, servicing advances, loan originations and repurchases of mortgage loans and HECMs, planned capital expenditures, current committed business and asset acquisitions, and all required debt service obligations for the next 12 months. We expect to generate adequate cash flows to fund our operations principally from our servicing and origination operations and expect to fund future growth opportunities with capital obtained from available cash on hand and external sources. Our operating cash flows and liquidity are significantly influenced by numerous factors, including interest rates and continued availability of financing. Our liquidity outlook assumes the renewal of existing mortgage loan servicing advance facilities and mortgage loan and reverse loan master repurchase agreements. In addition, management from time to time pursues other financing facilities. We may access the capital markets from time to time to augment our liquidity position as our business dictates, which includes our ability to offer and sell securities under our shelf registration statement described below. We continually monitor our cash flows and liquidity in order to be responsive to these changing conditions.

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

Mortgage Loan Servicing Business

Our servicing agreements impose on us various rights and obligations that affect our liquidity. Among the most significant of these obligations is the requirement that we advance our own funds to pay taxes, insurance and foreclosure costs and various other items, referred to as protective advances. Protective advances are required to preserve the collateral underlying the residential loans being serviced. In addition, we advance our own funds to meet contractual payment requirements for credit owners. In the normal course of business, we borrow money from various counterparties who provide us with financing to fund a portion of our mortgage loan related servicing advances on a short-term basis or provide for reimbursement within an agreed-upon period. Our ability to fund servicing advances is a significant factor that affects our liquidity and we depend upon our ability to secure these types of arrangements on acceptable terms and to renew or replace existing financing facilities as they expire. However there can be no assurance that these facilities will be available to us in the future. The servicing advance financing agreements that support our servicing operations are discussed below.

Servicing Advance Liabilities

Our subsidiaries have servicing advance facilities with several lenders and an Early Advance Reimbursement Agreement with Fannie Mae which, in each case, are used to fund servicer and protective advances that are our responsibility under certain servicing agreements. The servicing advance facilities and the Early Advance Reimbursement Agreement had an aggregate capacity amount of $1.5 billion at March 31, 2015 . The interest rates on these facilities and the Early Advance Reimbursement Agreement are primarily based on LIBOR plus between 1.80% and 4.00% and have various expiration dates through March 2016 . Payments on the amounts due under these agreements are paid from proceeds received by the subsidiaries (i) in connection with the liquidation of mortgaged properties, (ii) from repayments received from mortgagors, or (iii) from reimbursements received from the owners of the mortgage loans, such as Fannie Mae, Freddie Mac and private label securitization trusts. Accordingly, repayment of the facilities and amounts

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due under the Early Advance Reimbursement Agreement are dependent on the proceeds that are received on the underlying advances associated with the agreements. Two of the servicing advance facilities, with total borrowing capacity of $1.3 billion, are non-recourse to the Company.

Servicing Advance Facilities

One of our subsidiaries is party to a servicer advance financing facility that has a borrowing capacity of $1.2 billion. The facility provides funding for servicer and protective advances made by Green Tree Servicing in connection with its servicing of Fannie Mae and Freddie Mac mortgage loans.

Pursuant to this agreement, variable funding notes were issued to one counterparty having an initial aggregate principal balance of approximately $1.1 billion. The maximum permitted principal balance of the variable funding notes that can be drawn at any given time is dependent upon the amount of eligible collateral owned and may not exceed $1.2 billion in the aggregate. The collateral securing the variable funding notes consists primarily of rights to reimbursement for servicer and protective advances in respect of mortgage loans serviced by Green Tree Servicing on behalf of Freddie Mac and Fannie Mac.

The variable funding notes were issued in four classes. The interest on the notes is based on LIBOR plus a per annum margin ranging from 1.80% to 4.00%. We may repay and redraw the variable funding notes issued for 364-days from and including December 19, 2014, subject to the satisfaction of various funding conditions. If such 364-day period is not extended, the notes will become due and payable on January 15, 2016.

The facility's base indenture and indenture supplement include facility early amortization events and target amortization events customary for financings of this type, including facility early amortization events and target amortization events related to breaches of covenants, defaults under certain other material indebtedness, material judgments, certain financial tests, certain tests related to the collection and performance of the receivables securing the notes issued pursuant to the base indenture and indenture supplement and change of control. Upon the occurrence of an event of default, the administrative agent and the lenders have the right to terminate all commitments and accelerate the variable funding notes under the base indenture, enforce their rights with respect to the collateral and take certain other actions. The events of default include the occurrence of any facility early amortization event, failure to make payments, failure to pay the entire note balance on the first payment date under the base indenture following the occurrence of a target amortization event, failure of Green Tree Servicing to satisfy various deposit and remittance obligations as servicer of certain mortgage loans, the requirement of the Company's subsidiary, Green Tree Agency Advance Funding Trust I, to be registered as an “investment company” under the Investment Company Act of 1940, as amended, incorrect representations and bankruptcy events.

In connection with this facility, we received a Fannie Mae Acknowledgment Agreement, dated as of December 19, 2014, and a Freddie Mac Consent, dated as of January 17, 2014, which (i) in the case of Fannie Mae, waived or (ii) in the case of Freddie Mac, subordinated, their respective rights of set-off against rights to reimbursement for certain servicer advances and delinquency advances subject to this facility. The Fannie Mae Acknowledgment Agreement remains in effect unless Fannie Mae withdraws its consent (i) at each yearly anniversary of the agreement by providing thirty days' advance written notice or (ii) upon certain other specified events. The Freddie Mac Consent automatically renews for successive annual terms, however Freddie Mac may terminate its consent on thirty days' written notice. If either Fannie Mae or Freddie Mac were to withdraw such waiver or subordination, as applicable, of its respective rights of set-off, the ability of the Company to increase its draws on the variable funding notes or maintain the drawn balances thereunder could be materially limited or eliminated.

At March 31, 2015 , we had $1.1 billion outstanding under all servicing advance facilities which have an aggregate capacity of $1.3 billion. The servicing advance facilities contain customary events of default and covenants, including financial covenants. Financial covenants most sensitive to our operating results and financial position are the requirements that a subsidiary maintain minimum tangible net worth, indebtedness to tangible net worth and minimum liquidity. Our subsidiary was in compliance with these financial covenants at March 31, 2015 .

Early Advance Reimbursement Agreement

Green Tree Servicing's Early Advance Reimbursement Agreement with Fannie Mae is used exclusively to fund certain principal and interest, servicer and protective advances that are the responsibility of Green Tree Servicing under its Fannie Mae servicing agreements. This agreement was renewed in April 2015 and now expires on March 31, 2016. If not renewed, there will be no additional funding by Fannie Mae of new advances under the agreement. In addition, collections recovered during the 18 months following the expiration of the agreement are to be remitted to Fannie Mae to settle any remaining outstanding balance due under such agreement. Upon expiration of the 18 month period, any remaining balance would become due and payable. At March 31, 2015 , we had borrowings of $156.5 million under the Early Advance Reimbursement Agreement which has a capacity of $200.0 million .

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Mortgage Loan Originations Business

Master Repurchase Agreements

We utilize master repurchase agreements to support our origination or purchase of mortgage loans. These agreements were entered into by Green Tree Servicing and Ditech. The facilities had an aggregate capacity of $2.4 billion at March 31, 2015 . At March 31, 2015 , the interest rates on the facilities were primarily based on LIBOR plus between 2.10% and 2.95% and have various expiration dates through March 2016 . These facilities provide creditors a security interest in the mortgage loans that meet the eligibility requirements under the terms of the particular facility in exchange for cash proceeds used to originate or purchase mortgage loans. We agree to repay borrowings under these facilities within a specified timeframe, and the source of repayment is typically from the sale or securitization of the underlying loans into the secondary mortgage market. We evaluate our needs under these facilities based on forecasted mortgage loan origination volume, however, there can be no assurance that these facilities will be available to us in the future. The aggregate capacity includes $1.3 billion of committed funds and $1.1 billion of uncommitted funds. To the extent uncommitted funds are requested to purchase or originate mortgage loans, the counterparties have no obligation to fulfill such request. All obligations of Green Tree Servicing and Ditech under the master repurchase agreements are guaranteed by the Company. We had $1.0 billion of short-term borrowings under these master repurchase agreements at March 31, 2015 , which included $112.6 million of borrowings utilizing uncommitted funds.

All of our master repurchase agreements contain customary events of default and covenants, the most significant of which are financial covenants. Financial covenants that are most sensitive to the operating results and resulting financial position are minimum tangible net worth requirements, indebtedness to tangible net worth ratio requirements, and minimum liquidity and profitability requirements. We were in compliance with all financial covenants on warehouse borrowings at March 31, 2015 .

Representations and Warranties

In conjunction with our originations business, we provide representations and warranties on loan sales. We sell substantially all of our originated or purchased mortgage loans into the secondary market for securitization or to private investors as whole loans. We sell conventional conforming and government-backed mortgage loans through agency-sponsored securitizations in which mortgage-backed securities are created and sold to third-party investors. We also sell non-conforming mortgage loans to private investors. In doing so, representations and warranties regarding certain attributes of the loans are made to the third-party investor. Subsequent to the sale, if it is determined that the loans sold are in breach of these representations or warranties, we generally have an obligation to either: (i) repurchase the loan for the unpaid principal balance, accrued interest, and related advances or (ii) indemnify the purchaser.

Our representations and warranties are generally not subject to stated limits of exposure with the exception of certain loans originated under HARP, which limits exposure based on payment history of the loan. At March 31, 2015 , the Company’s maximum exposure to repurchases due to potential breaches of representations and warranties was $35.7 billion, and was based on the original unpaid principal balance of loans sold from the beginning of 2013 through March 31, 2015 adjusted for voluntary payments made by the borrower on loans for which the Company performs servicing. A majority of the Company's loan sales were servicing retained.

A rollforward of the liability associated with representations and warranties is included below (in thousands):



	For the Three Months Ended March 31,
	2015			2014
Balance at beginning of the period	$	10,959		$	9,135
Provision for new sales	2,025			2,186
Change in estimate of existing reserves	(635		)	(145		)
Net realized losses on repurchases	(217		)	—
Balance at end of the period	$	12,132		$	11,176

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A rollforward of loan repurchase requests is included below (dollars in thousands):



	For the Three Months Ended March 31, 2015					For the Three Months Ended March 31, 2014
	No. of Loans		Unpaid Principal Balance			No. of Loans		Unpaid Principal Balance
Balance at beginning of the period	48		$	11,509		10		$	2,324
Repurchases and indemnifications	(19	)	(3,980		)	—		—
Claims initiated	101		21,329			2		280
Rescinded	(37	)	(8,155		)	(10	)	(2,324		)
Balance at end of the period	93		$	20,703		2		$	280

Reverse Mortgage Business

Master Repurchase Agreements

Through RMS we finance the origination or purchase of reverse loans and repurchase of certain HECMs out of Ginnie Mae securitization pools with warehouse facilities under master repurchase agreements. At March 31, 2015, the facilities had an aggregate capacity amount of $245.0 million , which includes $55.0 million of capacity available to repurchase HECMs. The interest rates on the facilities are primarily based on LIBOR plus between 2.38% and 3.50% , in some cases are subject to a LIBOR floor or other minimum rates and have various expiration dates through September 2015 . These facilities are secured by the underlying asset and provide creditors a security interest in the assets that meet the eligibility requirements under the terms of the particular facility. We agree to repay the borrowings under these facilities within a specified timeframe, and the source of repayment is from proceeds received on the securitization of the underlying reverse loans, claim proceeds received from HUD or liquidation proceeds from the sale of real estate owned. We evaluate our needs under these facilities based on forecasted reverse loan origination volume; however, there can be no assurance that these facilities will be available to us in the future. The aggregate capacity includes $25.0 million of committed funds and $220.0 million of uncommitted funds. To the extent uncommitted funds are requested to purchase or originate reverse loans or repurchase HECMs, the counterparties have no obligation to fulfill such request. All obligations of RMS under the master repurchase agreements are guaranteed by the Company. We had $147.5 million of short-term borrowings under these master repurchase agreements at March 31, 2015 , which included $127.9 million of borrowings utilizing uncommitted funds.

In April 2015, a master repurchase agreement utilized to fund the repurchase of HECMs was terminated. The facility had a capacity of $25.0 million of committed funds and $19.6 million outstanding at March 31, 2015. Borrowings outstanding under this agreement are due and payable in July 2015.

All of our master repurchase agreements contain customary events of default and covenants, the most significant of which are financial covenants. Financial covenants that are most sensitive to the operating results and resulting financial position are minimum tangible net worth requirements, indebtedness to tangible net worth ratio requirements, and minimum liquidity and profitability requirements. RMS was in compliance with its financial covenants on warehouse borrowings at March 31, 2015 .

Reverse Loan Securitizations

We fund reverse loans through the Ginnie Mae HMBS issuance process. The proceeds from the transfer of the HMBS are accounted for as a secured borrowing and are classified on the consolidated balance sheet as HMBS related obligations. The proceeds from the transfer are used to repay borrowings under our master repurchase agreements. At March 31, 2015 , we had $9.5 billion in unpaid principal balance outstanding on the HMBS related obligations. At March 31, 2015 , $9.5 billion of reverse loans and real estate owned was pledged as collateral to the HMBS beneficial interest holders, and are not available to satisfy the claims of our creditors. Ginnie Mae, as guarantor of the HMBS, is obligated to the holders of the HMBS in an instance of RMS default on its servicing obligations, or when the proceeds realized on HECMs are insufficient to repay all outstanding HMBS related obligations. Ginnie Mae has recourse to RMS in connection with certain claims relating to the performance and obligations of RMS as both an issuer of HMBS and a servicer of HECMs underlying HMBS.

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

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HMBS Issuer Obligations

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

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



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

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

Reverse Loan Servicer Obligations

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

As servicer of reverse loans, we are also obligated to fund additional borrowing capacity in the form of undrawn lines of credit on floating rate and fixed rate reverse loans. We rely upon our operating cash flows to fund these additional borrowings on a short-term basis prior to securitization (when performing services of both the issuer and servicer) or reimbursement by the issuer (when providing third-party servicing). The additional fundings made by us, as issuer and servicer, are generally securitized within 30 days after funding. Similarly, the additional fundings made by us, as third-party servicer, are typically reimbursed by the issuer within 30 days after funding. Our commitment to fund additional borrowing capacity was $ 1.2 billion at March 31, 2015 , which includes $671.5 million in capacity that was available to be drawn by borrowers at March 31, 2015 and $500.3 million in capacity that will become eligible to be drawn by borrowers throughout the twelve months ending March 31, 2016 assuming the loans remain performing. There is no termination date for these drawings so long as the loan remains performing. The obligation to fund these additional borrowings could have a significant impact on our liquidity.

Excess Servicing Spread Liability

On July 1, 2014, we completed an excess servicing spread transaction with WCO whereby we sold 70% of the excess servicing spread from a pool of servicing rights, with an unpaid principal balance of $25.2 billion, to WCO for a sales price of $75.4 million. We recognized the proceeds from the sale of excess servicing as a financing arrangement. We elected to record the excess servicing spread liability at fair value similar to the related servicing rights. At March 31, 2015 , the carrying value of our excess servicing spread liability was $63.3 million , the repayment of which is based on future servicing fees received from the residential loans underlying the servicing rights.

Corporate Debt

Term Loans and Revolver

We have a $1.5 billion 2013 Term Loan and a $125 million 2013 Revolver. Our obligations under the 2013 Secured Credit Facilities are guaranteed by substantially all of our subsidiaries and secured by substantially all of our assets and substantially all assets of the guarantor subsidiaries, subject to certain exceptions, such as the assets of the consolidated Residual and Non-Residual Trusts and consolidated financing entities, as well as the residential loans and real estate owned of the Ginnie Mae securitization pools that have been recorded on our consolidated balance sheets.

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



Debt Agreement	Interest Rate	Amortization	Maturity/Expiration
$1.5 billion 2013 Term Loan	LIBOR plus 3.75% LIBOR floor of 1.00%	1.00% per annum beginning 1st quarter of 2014; remainder at final maturity	December 18, 2020
$125 million 2013 Revolver	LIBOR plus 3.75%	Bullet payment at maturity	December 19, 2018

An amount of up to $25.0 million under the 2013 Revolver is available to be used for the issuance of LOCs. Any amounts outstanding in issued LOCs reduce availability for cash borrowings under the 2013 Revolver. During the three months ended March 31, 2015 , there were no borrowings or repayments under the 2013 Revolver. At March 31, 2015 , we had $0.3 million outstanding in an issued LOC with remaining availability under the 2013 Revolver of $124.7 million . The commitment fee on the unused portion of the 2013 Revolver is 0.50% per year.

The 2013 Secured Credit Facilities contain restrictive covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends on or redeem or repurchase the Company’s capital stock, make certain types of investments, create restrictions on the payment of dividends or other amounts to the Company from its restricted subsidiaries, incur certain liens, sell or otherwise dispose of certain assets, enter into transactions with affiliates, enter into sale and leaseback transactions, and consolidate or merge with or into, or sell all or substantially all of the Company’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The 2013 Secured Credit Facilities also contain customary events of default, including the failure to make timely payments on the 2013 Term Loan and 2013 Revolver or other material indebtedness, the failure to satisfy certain covenants and specified events of bankruptcy and insolvency. We were in compliance with all covenants contained in our 2013 Secured Credit Facilities at March 31, 2015 .

Senior Notes

In December 2013, we completed the sale of $575 million aggregate principal amount of Senior Notes, which pay interest semi-annually at an interest rate of 7.875% and mature on December 15, 2021. The Senior Notes were offered and sold in a transaction exempt from the registration requirements under the Securities Act, and resold to qualified institutional buyers in reliance on Rule 144A and Regulation S under the Securities Act. The Senior Notes were issued pursuant to an indenture, dated as of December 17, 2013, among the Company, the guarantor parties thereto and Wells Fargo Bank, National Association, as trustee. The Senior Notes are guaranteed on an unsecured senior basis by each of our current and future wholly-owned domestic subsidiaries that guarantee our obligations under our 2013 Term Loan. On October 14, 2014, we filed with the SEC a registration statement under the Securities Act so as to allow holders of the Senior Notes to exchange their Senior Notes for the same principal amount of a new issue of notes with identical terms, except that the exchange notes are not subject to certain restrictions on transfer. The registration statement was declared effective by the SEC on October 27, 2014, the exchange offer expired on November 25, 2014, and settlement occurred on December 2, 2014.

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

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

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

The Senior Notes Indenture contains restrictive covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends on or redeem or repurchase the Company’s capital stock, make certain types of investments, create restrictions on the payment of dividends or other amounts to the Company from its restricted subsidiaries, incur certain liens, sell or otherwise dispose of certain assets, enter into transactions with affiliates, enter into sale and leaseback transactions, and consolidate or merge with or into, or sell all or substantially all of the Company’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The Senior Notes Indenture also contains customary events of default, including the failure to make timely payments on the Senior Notes or other material

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indebtedness, the failure to satisfy certain covenants and specified events of bankruptcy and insolvency. We were in compliance with all covenants contained in the Senior Notes Indenture at March 31, 2015 .

Convertible Notes

In October 2012, we closed on a registered underwritten public offering of $290 million aggregate principal amount of Convertible Notes. The Convertible Notes pay interest semi-annually on May 1 and November 1 at a rate of 4.50% per year, and mature on November 1, 2019.

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

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

Residual and Non-Residual Trusts

The cash proceeds from the repayment of the collateral held in the Residual and Non-Residual Trusts are owned by the trusts and serve to only repay the obligations of the trusts unless, for the Residual Trusts, certain overcollateralization or other similar targets are satisfied, in which case, the excess cash is released to us assuming no triggering event has occurred.

The Residual Trusts, with the exception of Trust 2011-1, contain delinquency and loss triggers that, if exceeded, allocate any excess cash flows to paying down the outstanding mortgage-backed notes for that particular trust at an accelerated pace. Assuming no servicer triggering events have occurred and the overcollateralization targets have been met, any excess cash from these trusts is released to us. For Trust 2011-1, principal and interest payments are not paid on the subordinate note or residual interests, which are held by us, until all amounts due on the senior notes are fully paid.

Since January 2008, Trust 2006-1 exceeded certain triggers and has not provided any excess cash flow to us. From April 2014 through September 2014, Trust 2006-1 passed the delinquency rate trigger, but failed it again throughout the fourth quarter of 2014. In addition, Trust 2006-1 continued to fail the cumulative loss rate trigger and, therefore, could not provide excess cash flow to us. In February 2014, Trust VII failed the cumulative loss rate trigger, but passed such trigger beginning in April 2014 and as a result, residual cash flow from Trust VII was allowed to flow to us.

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Provided below is a table summarizing the unpaid principal balance of the outstanding mortgage-backed debt and the actual delinquency and cumulative loss rates in comparison to the trigger rates for our Residual Trusts (dollars in thousands):



	Unpaid Principal Balance		Delinquency Trigger	Delinquency Rate		Cumulative Loss Trigger	Cumulative Loss Rate
	Unpaid Principal Balance		Delinquency Trigger	March 31, 2015	December 31, 2014	Cumulative Loss Trigger	March 31, 2015	December 31, 2014
Mid-State Trust IV	$	36,987	⁽¹⁾	—	—	10.00%	4.41%	4.41%
Mid-State Trust VI	62,539		8.00%	3.11%	3.70%	8.00%	5.54%	5.42%
Mid-State Trust VII	69,966		8.50%	3.05%	2.79%	1.50%	0.29%	0.73%
Mid-State Trust VIII	76,235		8.50%	3.74%	3.63%	1.50%	0.67%	0.32%
Mid-State Trust X	133,451		8.00%	3.98%	3.81%	8.00%	7.47%	7.49%
Mid-State Trust XI	117,558		8.75%	4.22%	4.28%	8.75%	7.16%	7.04%
Mid-State Capital Corporation 2004-1 Trust	105,195		8.00%	5.16%	4.64%	8.00%	4.03%	3.99%
Mid-State Capital Corporation 2005-1 Trust	120,167		8.00%	6.52%	6.34%	8.00%	5.17%	5.05%
Mid-State Capital Corporation 2006-1 Trust	131,803		8.00%	8.49%	8.62%	7.50%	8.84%	8.76%
Mid-State Capital Trust 2010-1	157,068		10.50%	7.52%	8.22%	5.50%	4.38%	4.10%
WIMC Capital Trust 2011-1	61,684		⁽¹⁾	—	—	⁽¹⁾	—	—

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(1)	Relevant trigger is not applicable per the underlying trust agreements.

Mortgage-Backed Debt

We funded the residential loan portfolio in the consolidated Residual Trusts through the securitization market. We record on our consolidated balance sheets the assets and liabilities, including mortgage-backed debt, of the Non-Residual Trusts as a result of certain obligations to exercise mandatory clean-up calls for each of these trusts at their earliest exercisable dates. The mortgage-backed debt issued by the Residual Trusts is accounted for at amortized cost. The mortgage-backed debt of the Non-Residual Trusts is accounted for at fair value. The total unpaid principal balance of mortgage-backed debt was $1.7 billion and $1.8 billion at March 31, 2015 and December 31, 2014 , respectively.

At March 31, 2015 , mortgage-backed debt was collateralized by $ 2.0 billion of assets including residential loans, receivables related to the Non-Residual Trusts, real estate owned and restricted cash and cash equivalents. All of the mortgage-backed debt is non-recourse and not cross-collateralized and, therefore, must be satisfied exclusively with the proceeds from the residential loans and real estate owned held in each securitization trust and also from draws on the LOCs of certain Non-Residual Trusts.

Borrower remittances received on the residential loans of the Residual and Non-Residual Trusts collateralizing this debt and draws under LOCs issued by a third-party and serving as credit enhancements to certain of the Non-Residual Trusts are used to make payments on the mortgage-backed debt. The maturity of the mortgage-backed debt is directly affected by the rate of principal prepayments on the collateral. As a result, the actual maturity of the mortgage-backed debt is likely to occur earlier than the stated maturity. Certain of our mortgage-backed debt issued by the Residual Trusts is also subject to voluntary redemption according to the specific terms of the respective indenture agreements, including an option by us to exercise a clean-up call. The mortgage-backed debt issued by the Non-Residual Trusts is subject to mandatory clean-up call provisions at the earliest of their exercisable call dates, which is the date each loan pool falls to 10% of the original principal amount. We anticipate the mandatory call obligations to settle beginning in 2017 and continuing through 2019 based upon our current cash flow projections for the Non-Residual Trusts. At March 31, 2015, the total outstanding balance of the residential loans expected to be called at the respective call dates is $417.3 million . We expect to finance the capital required to exercise the mandatory clean-up call primarily through cash on hand, asset-backed financing or in partnership with a capital provider, or through any combination of the foregoing. However, there can be no assurance that we will be able to sell the obligation or obtain financing through the capital markets when needed. Our obligation for the mandatory clean-up call could have a significant impact on our liquidity.

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Certain Capital Requirements and Guarantees

We, including our subsidiaries, are required to comply with requirements under federal and state laws and regulations, including requirements imposed in connection with certain licenses and approvals, as well as requirements of federal, state, GSE, Ginnie Mae and other business partner loan programs and also requirements under servicing advance facilities and master repurchase agreements, some of which are financial covenants related to minimum levels of net worth and other financial requirements. If these mandatory imposed capital requirements are not met, the Company’s selling and servicing agreements could be terminated and lending and servicing licenses could be suspended or revoked.

Due to the accounting treatment for reverse loans as secured borrowings when transferred, RMS has obtained an indefinite waiver for certain of these requirements from Ginnie Mae and a waiver through December 2015 from Fannie Mae. In addition, we have provided a guarantee whereby we guarantee the performance and obligations of RMS under the Ginnie Mae HMBS Program. In the event that we fail to honor this guarantee, Ginnie Mae could terminate RMS’s status as a qualified issuer of HMBS as well as take other actions permitted by law that could impact the operations of RMS, including the termination or suspension of RMS’s servicing rights associated with reverse loans guaranteed by Ginnie Mae HMBS. Ginnie Mae has continued to affirm RMS’s current commitment authority to issue HMBS.

We have also provided a guarantee to (i) Fannie Mae, dated May 31, 2013, for RMS, (ii) Fannie Mae, dated March 17, 2014, for Green Tree Servicing, and (iii) Freddie Mac, dated December 19, 2013, for Green Tree Servicing. Pursuant to the RMS guarantee, we agreed to guarantee all of the obligations required to be performed or paid by RMS under RMS's mortgage selling and servicing contract or any other agreement between Fannie Mae and RMS relating to mortgage loans or participation interests that RMS delivers or has delivered to Fannie Mae or services or has serviced for, or on behalf of, Fannie Mae. RMS does not currently sell loans to Fannie Mae. Pursuant to the Green Tree Servicing Fannie Mae guarantee, we agreed to guarantee all of the servicing obligations required to be performed or paid by Green Tree Servicing under Green Tree Servicing's mortgage selling and servicing agreement, the Fannie Mae selling and servicing guides, or any other agreement between Fannie Mae and Green Tree Servicing. We also agreed to guarantee all selling representations and warranties Green Tree Servicing has assumed, or may in the future assume, in connection with Green Tree Servicing's purchase of mortgage servicing rights related to Fannie Mae loans. We do not guarantee Green Tree Servicing's obligations relating to the selling representations and warranties made or assumed by Green Tree Servicing in connection with the sale and/or securitization of mortgage loans to and/or by Fannie Mae. Pursuant to the Green Tree Servicing Freddie Mac guarantee, we agreed to guarantee all of the seller and servicer obligations required to be performed or paid by Green Tree Servicing under any agreement between Freddie Mac and Green Tree Servicing.

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

After taking into account the waivers described above, all of the Company's subsidiaries were in compliance with all of their capital requirements at March 31, 2015 .

Dividends

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

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Sources and Uses of Cash

The following table sets forth selected consolidated cash flow information for the periods indicated (in thousands):



	For the Three Months Ended March 31,
	2015			2014			Variance
Cash flows provided by operating activities:
Net income (loss) adjusted for non-cash operating activities	$	(30,089	)	$	5,663		$	(35,752	)
Changes in assets and liabilities	135,956			(53,950		)	189,906
Net cash provided by originations activities ⁽¹⁾	15,183			455,839			(440,656		)
Cash flows provided by operating activities	121,050			407,552			(286,502		)
Cash flows used in investing activities	(241,323		)	(202,307		)	(39,016		)
Cash flows provided by (used in) financing activities	138,588			(134,426		)	273,014
Net increase in cash and cash equivalents	$	18,315		$	70,819		$	(52,504	)

__________


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

Operating Activities

Cash provided by operating activities of $121.1 million for the three months ended March 31, 2015 decreased $286.5 million from $407.6 million in the same period of 2014 . The primary sources and uses of cash for operating activities are purchases, originations and sales activity of residential loans held for sale, changes in assets and liabilities, or operating working capital, and net income or loss adjusted for non-cash items. Our cash flows provided by operations decreased during the three months ended March 31, 2015 as compared to the same period in 2014 primarily as a result of a lower volume of loans sold in relation to originated loans, partially offset by higher collections of servicer and protective advances.

Investing Activities

Net cash used in investing activities of $241.3 million for the three months ended March 31, 2015 increased $39.0 million from $202.3 million in the same period of 2014 . The primary sources and uses of cash for investing activities relate to purchases, originations and payment activity on reverse loans, payments received on mortgage loans held for investment, and payments made for business and servicing rights acquisitions. Cash used for purchases and originations of reverse loans held for investment, net of payments received, increased by $53.8 million during the three months ended March 31, 2015 as compared to 2014 as a result of an increase in funded volume in our reverse mortgage operations. Cash paid for business acquisitions and purchases of servicing rights also increased $23.7 million during the three months ended March 31, 2015 as compared to 2014 . The cash used in the three months ended March 31, 2015 was offset by cash proceeds received of $14.4 million from the sale of an investment.

Financing Activities

Net cash provided by financing activities of $138.6 million for the three months ended March 31, 2015 increased $273.0 million from cash used of $134.4 million in the same period of 2014 . The primary sources and uses of cash for financing activities relate to securing cash for our originations, reverse mortgage and servicing businesses, as well as for our corporate investing activities. Cash generated from the securitization of reverse loans, net of payments on HMBS related obligations, decreased $65.7 million as a result of an increase in loan buyouts from the securitization pools during the three months ended March 31, 2015 in our reverse mortgage operations as compared to the same period of 2014. Net cash borrowings from servicing advance liabilities used to fund advances for our servicing business decreased $106.3 million primarily as a result of less funding of advances in the first three months of 2015 as compared to 2014 principally driven by lower cash needed to fund servicer and protective advances. Net cash borrowings on master repurchase agreements increased $444.8 million due primarily to an increase in origination volumes in our mortgage loan originations business.

Credit Risk Management

Credit risk is the risk that we will not fully collect the principal we have invested due to borrower defaults. We manage the credit risk associated with our residential loan portfolio through monitoring of existing loans, early identification of problem loans, and timely resolution of problems.

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Residential Loans Held For Investment

We are subject to credit risk associated with the residual interests that we own in the consolidated Residual Trusts as well as with the unencumbered mortgage loans held in our portfolio, both of which are recognized as residential loans at amortized cost, net on our consolidated balance sheets. We do not currently own residual interests in or provide credit support to the Non-Residual Trusts. However, we have assumed mandatory call obligations related to the Non-Residual Trusts and will be subject to a certain amount of credit risk associated with the purchased residential loans when the calls are exercised, which is when each loan pool falls to 10% of the original principal amount. This credit risk is considered in the fair value of the related mortgage loans. We anticipate the mandatory call obligations to settle beginning in 2017 and continuing through 2019 based upon our current cash flow projections for the Non-Residual Trusts. The total outstanding balance of the residential loans expected to be called at the respective call dates is $417.3 million .

HECMs are insured by the FHA. Although performing and nonperforming loans are covered by FHA insurance, we may incur expenses and losses in the process of repurchasing and liquidating these loans that are not reimbursable by FHA in accordance with program guidelines. Refer to the Reverse Mortgage Business discussion under the Liquidity and Capital Resources section above for additional information on reverse loan securitizations and to the Real Estate Market Risk section below for additional information on foreclosures of reverse loans.

Our charged-off loan portfolio was acquired for a substantial discount to face value and as a result, exposes us to minimal credit risk. As a result of minimal or no severity, loans associated with the Non-Residual Trusts, reverse loans and charged-off loans are not discussed further in this section.

At March 31, 2015 , the carrying value of our held for investment residential loan portfolio that exposes us to credit risk was $1.3 billion . These loans are held primarily by our Servicing segment. The carrying value of residential loans and other collateral of the Residual Trusts total $1.3 billion and is permanently financed with $1.1 billion of mortgage-backed debt. Our credit exposure of $271.0 million associated with the Residual Trusts, which is calculated as the difference between the assets and liabilities of these VIEs, approximates our residual interests in these trusts.

The residential loans that expose us to credit risk are predominantly credit-challenged, non-conforming loans. These loans had an unpaid principal balance of $ 1.4 billion at March 31, 2015 and December 31, 2014 . In addition, 4.09% and 4.20% of these loans were 90 days or more past due at March 31, 2015 and December 31, 2014 , respectively. While we feel that our underwriting and servicing with regard to these loans will help to mitigate the risk of significant borrower default on these loans, we cannot assure you that all borrowers will continue to satisfy their payment obligations under these loans, thereby avoiding default.

Residential Loans Held For Sale

We are subject to credit risk associated with mortgage loans that we purchase and originate during the period of time prior to the sale of these loans. We consider our credit risk associated with these loans to be insignificant as we hold the loans for a short period of time, typically less than 20 days, and the market for these loans continues to be highly liquid. We are also subject to credit risk associated with mortgage loans we have repurchased as a result of breaches of representations and warranties during the period of time between repurchase and resale. At March 31, 2015 , we held $4.1 million in repurchased loans.

Real Estate Market Risk

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

We held real estate owned, net of $57.3 million , $29.2 million and $1.1 million in the Reverse Mortgage and Servicing segments, and Other non-reportable segment, respectively, at March 31, 2015 . We held real estate owned, net of $55.3 million , $32.1 million and $1.0 million in the Reverse Mortgage and Servicing segments, and Other non-reportable segment, respectively, at December 31, 2014 .

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

Counterparty Credit Risk

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

Counterparty credit risk also exists with our third party originators from whom we purchase originated mortgage loans. The third party originators incur a representation and warranty obligation when we acquire the mortgage loan from them, and they agree to reimburse us for any losses incurred due to an origination defect. We become exposed to losses for origination defects if the third party originator is not able to reimburse us for losses incurred for indemnification or repurchase. We attempt to mitigate this risk by monitoring purchase limits from our third party originators (to reduce any concentration exposure), quality control reviews of the third party originators, underwriting standards and monitoring the credit worthiness of third party originators on a periodic basis.

Cybersecurity

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

In August of 2014, the Company was notified by the United States Secret Service of potential unauthorized access to certain computer applications residing on servers operated on behalf of Green Tree Servicing. We retained a team of forensic experts to investigate the incident to determine the scope of the data, if any, that was susceptible to unauthorized access. The forensic investigation did not identify conclusive evidence that data was in fact improperly accessed. We have been in contact with appropriate governmental agencies and are in the process of preparing to notify individuals whose personal information we believe potentially might have been made accessible in the incident. In addition, we have taken and continue to take steps to further enhance the security of our data and defenses against future threats. Expenses incurred to date related to this incident have not been material. We may incur additional expenses in connection with the incident; however, at this time we are unable to reasonably estimate any such additional expenses or losses.

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

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Off-Balance Sheet Arrangements

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

We have exposure to representations and warranty obligations as a result of our loans sales activities. If it is determined that loans sold are in breach of these representations or warranties, we generally have an obligation to either: (i) repurchase the loan for the unpaid principal balance, accrued interest, and related advances or (ii) indemnify the purchaser. Our credit loss may be reduced by any recourse we have to correspondent lenders that, in turn, have sold such residential loans to us and breached similar or other representations and warranties. We record an estimate of the liability associated with our representations and warranties exposure on our consolidated balance sheet. Refer to Notes 4 and 18 in the Notes to Consolidated Financial Statements for the financial effect of these arrangements and to the Liquidity and Capital Resources section for additional information.

We have a variable interest in WCO which provided financing to us during 2014 through the sale of an excess servicing spread. The repayment of the excess servicing spread liability is based on future servicing fees received from the residential loans underlying the servicing rights. In addition, we have other variable interests in other entities that we do not consolidate as we have determined we are not the primary beneficiary. Refer to our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on February 26, 2015 for additional information.

Critical Accounting Estimates

The critical accounting estimates used in preparation of our consolidated financial statements are described in the Critical Accounting Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on February 26, 2015 . Provided below is a summary of goodwill as described in such Annual Report on Form 10-K and significant updates. Except as provided below, there have been no material changes to our critical accounting policies or estimates and the methodologies or assumptions we apply under them.

Goodwill

As a result of our various acquisitions, we have recorded goodwill which represents the excess of the consideration paid for a business combination over the fair value of the identifiable net assets acquired. Goodwill is initially recorded at fair value and is subsequently evaluated at least annually for impairment. We perform this annual test at the reporting unit level as of October 1 of each year, or whenever events or circumstances indicate potential impairment. Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value. A reporting unit is a business segment or one level below.

We have the option of performing a qualitative assessment to determine whether any further quantitative testing for a potential impairment is necessary. Our qualitative assessment will use judgments including, but not limited to, changes in the general economic environment, industry and regulatory considerations, current economic performance compared to historical economic performance, entity-specific events, events affecting our reporting units, and sustained changes in our stock price, where applicable. If we elect to bypass the qualitative assessment or if we determine, based upon our assessment of those qualitative factors that it is more likely than not that the fair value of the reporting unit is less than its net carrying value, a quantitative assessment is required. The quantitative test is a two-step test. The first step identifies whether there is potential impairment by comparing the fair value of a reporting unit to the carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, the second step of the impairment test is required to measure the amount of impairment loss, if any.

We completed a qualitative assessment of goodwill impairment on our Reverse Mortgage reporting unit during the fourth quarter of the year ended December 31, 2014. In performing this assessment, management relied on a number of factors including, but not limited to, operating results, business plans, economic projections, anticipated future cash flows and market data. Additionally, management considered the second quarter of 2014 fair value calculation for the Reverse Mortgage reporting unit in its analysis. Refer to Note 13 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on February 26, 2015 for more information. Based on these factors, management concluded that it was more likely than not that the fair value of the Reverse Mortgage reporting unit was greater than its respective carrying amount, including goodwill, indicating no impairment. The qualitative assessment of goodwill impairment on our Reverse Mortgage reporting unit was updated through March 31, 2015. Management relied on a number of factors similar to those addressed above and concluded that it was more likely than not that the fair value of the Reverse Mortgage reporting unit was greater than its respective carrying amount, including goodwill, indicating no impairment.

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During 2014, consistent with the decline in stock prices in the specialty servicer sector, our stock price declined and throughout most of this period, our market capitalization was below book value and significantly below book value during the fourth quarter of the year ended December 31, 2014. Accordingly, as part of the annual goodwill impairment test in 2014, we also assessed our market capitalization based on our average market price relative to the aggregate fair value of our reporting units and determined that any excess fair value in our reporting units at that time could be attributable to both specialty servicer sector and Company specific factors and is considered temporary in nature. Due to the volatility in share price experienced during the quarter ended March 31, 2015, we reassessed our market capitalization based on our average market price relative to the aggregate fair value of our reporting units and reached the same aforementioned conclusion, whereby we believe that underlying issues causing the share price decline are temporary in nature and significantly attributed to industry specific factors. We have, and will continue to, regularly monitor, among other things, our market capitalization, overall economic and market conditions and other events or circumstances that may result in an impairment of goodwill in the future.

Refer to Note 2 in our Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on February 26, 2015 for our policy on accounting for goodwill.

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Glossary of Terms

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


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


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


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


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


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


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


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


Bps	Basis points


CFE	Collateralized financing entity


CFPB	Consumer Financial Protection Bureau


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


CID	Civil investigative demand


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


Ditech	Ditech Mortgage Corp, an indirect wholly-owned subsidiary of the Company

Early Advance Reimbursement


Agreement	$200 million financing facility with Fannie Mae


EverBank	EverBank Financial Corp


EverBank net assets	Assets purchased from EverBank under a series of definitive agreements entered into on October 30, 2013, including (i) certain private and GSE-backed MSRs and related servicer advances, (ii) sub-servicing rights for mortgage loans and (iii) a default servicing platform


Exchange Act	Securities Exchange Act of 1934, as amended


Fannie Mae	Federal National Mortgage Association


FASB	Financial Accounting Standards Board


FHA	Federal Housing Administration


FHFA	Federal Housing Finance Agency


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


Freddie Mac	Federal Home Loan Mortgage Corporation


FTC	Federal Trade Commission


GAAP	United States Generally Accepted Accounting Principles


Ginnie Mae	Government National Mortgage Association


Green Tree	GTCS Holdings LLC, an indirect wholly-owned subsidiary of the Company


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


GSE	Government-sponsored entity


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

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HAMP	Home Affordable Modification Program


HARP	Home Affordable Refinance Program


HECM	Home Equity Conversion Mortgage


HMBS	Home Equity Conversion Mortgage-Backed Securities


HUD	U.S. Department of Housing and Urban Development


IRLC	Interest rate lock commitment, a freestanding derivative financial instrument


IRS	Internal Revenue Service


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


LIBOR	London Interbank Offered Rate


LOC	Letter of Credit


Marix	Marix Servicing, LLC


MBA	Mortgage Bankers Association


MBS	Mortgage-backed securities


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


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


MSR	Mortgage servicing rights


Net realizable value	Fair value less cost to sell


n/m	Not meaningful


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


OTS	Office of Thrift Supervision


Parent Company	Walter Investment Management Corp.


REIT	Real estate investment trust


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


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


RESPA	Real Estate Settlement Procedures Act


Reverse loans	Reverse mortgage loans, including HECMs


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


RSU	Restricted stock unit


SEC	U.S. Securities and Exchange Commission


Securities Act	Securities Act of 1933, as amended


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


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


Sold Residual Trusts	Mid-State Trust IV, Mid-State Trust VI, Mid-State Trust VII, Mid-State Trust VIII, Mid-State Capital Corp. 2004-1 Trust, Mid-State Capital Trust 2010-1 and WIMC Capital Trust 2011-1, collectively


TILA	Truth in Lending Act


Trust 2005-1	Mid-State Capital Corporation 2005-1 Trust


Trust 2006-1	Mid-State Capital Corporation 2006-1 Trust


Trust 2011-1	WIMC Capital Trust 2011-1


Trust VII	Mid-State Trust VII


TBAs	To-be-announced securities


U.S.	United States of America

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U.S. Treasury	United States Department of the Treasury


VIE	Variable interest entity


Walter Energy	Walter Energy, Inc.


Warehouse borrowings	Borrowings under master repurchase agreements


WCO	Walter Capital Opportunity Corp. and its consolidated subsidiaries

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

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

We provide sensitivity analysis surrounding changes in interest rates in the Servicing, Originations and Reverse Mortgage Segments and Other Financial Instruments sections below. However, there are certain limitations inherent in any sensitivity analysis, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled.

Servicing, Originations and Reverse Mortgage Segments

Sensitivity Analysis

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



	March 31, 2015
	Down 50 bps			Down 25 bps			Up 25 bps			Up 50 bps
Servicing segment
Servicing rights carried at fair value	$	(162,511	)	$	(82,547	)	$	64,374		$	121,891
Excess servicing spread liability at fair value	7,538			3,620			(2,915		)	(5,113		)
Net change in fair value - Servicing segment	$	(154,973	)	$	(78,927	)	$	61,459		$	116,778

Originations segment
Residential loans held for sale	$	28,646		$	15,259		$	(16,512	)	$	(34,078	)
Other assets (freestanding derivatives) ⁽¹⁾	130,466			69,960			(77,409		)	(161,797		)
Total change in assets	159,112			85,219			(93,921		)	(195,875		)
Payables and accrued liabilities (freestanding derivatives) ⁽¹⁾	(160,433		)	(85,764		)	93,406			193,153
Total change in liabilities	(160,433		)	(85,764		)	93,406			193,153
Net change in fair value - Originations segment	$	(1,321	)	$	(545	)	$	(515	)	$	(2,722	)

Reverse Mortgage segment
Reverse loans	$	148,765		$	79,001		$	(79,394	)	$	(157,549	)
HMBS related obligations	(123,093		)	(66,318		)	67,114			133,370
Net change in fair value - Reverse Mortgage segment	$	25,672		$	12,683		$	(12,280	)	$	(24,179	)

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	December 31, 2014
	Down 50 bps			Down 25 bps			Up 25 bps			Up 50 bps
Servicing segment
Servicing rights carried at fair value	$	(118,154	)	$	(58,417	)	$	55,476		$	106,956
Excess servicing spread liability at fair value	5,117			2,455			(2,208		)	(4,127		)
Net change in fair value - Servicing segment	$	(113,037	)	$	(55,962	)	$	53,268		$	102,829

Originations segment
Residential loans held for sale	$	31,173		$	16,593		$	(18,011	)	$	(37,416	)
Other assets (freestanding derivatives) ⁽¹⁾	53,692			29,602			(33,403		)	(70,117		)
Total change in assets	84,865			46,195			(51,414		)	(107,533		)
Payables and accrued liabilities (freestanding derivatives) ⁽¹⁾	(86,076		)	(46,097		)	50,355			105,081
Total change in liabilities	(86,076		)	(46,097		)	50,355			105,081
Net change in fair value - Originations segment	$	(1,211	)	$	98		$	(1,059	)	$	(2,452	)

Reverse Mortgage segment
Reverse loans	$	147,705		$	78,313		$	(79,666	)	$	(158,159	)
HMBS related obligations	(123,275		)	(66,238		)	67,946			135,061
Net change in fair value - Reverse Mortgage segment	$	24,430		$	12,075		$	(11,720	)	$	(23,098	)

__________


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

We used March 31, 2015 and December 31, 2014 market rates on our instruments to perform the sensitivity analysis. These sensitivities measure the potential impact on fair value, are hypothetical, and presented for illustrative purposes only. There are certain limitations inherent in the sensitivity analysis presented, including the necessity to conduct the analysis based on a single point in time and the inability to include complex market reactions that normally would arise from the market shifts modeled. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor can have an effect on other factors (i.e., a decrease in total prepayment speeds may result in an increase in credit losses), which could impact the above hypothetical effects.

Servicing Rights

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

Although the level of interest rates is a key driver of prepayment activity, there are other factors that influence prepayments, including home prices, underwriting standards, availability of government-sponsored refinance programs and other product characteristics. Since our Originations segment’s results of operations are positively impacted when interest rates decline, our Originations segment’s results of operations may partially offset the change in fair value of servicing rights over time. The interaction between the results of operations of these activities is a core component of our overall interest rate risk assessment. We take into account the estimated benefit of originations on our Originations segment’s results of operations to determine the impact on net economic value from a decline in interest rates, and we continuously assess our ability to replenish lost value of servicing rights and cash flow due to increased prepayments. The Company does not currently use derivative instruments to hedge the interest rate risk inherent in the value of servicing rights. The Company may choose to use such instruments in the future. The amount and composition of derivatives used to hedge the value of servicing rights, if any, will depend on the exposure to loss of value on the servicing rights, the expected cost of the derivatives, expected liquidity needs, and the expected increase to earnings generated by the origination of new loans resulting from the decline in interest rates. The servicing rights sensitivity to interest rate changes increased at March 31, 2015 from December 31, 2014 due primarily to a lower interest rate environment.

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Excess Servicing Spread Liability

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

Loans Held for Sale and Related Freestanding Derivatives

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

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

Reverse Loans and HMBS Related Obligations

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

Other Financial Instruments

For quantitative and qualitative disclosures about interest rate risk on other financial instruments, refer to Part II, Item 7A. "Quantitative and Qualitative Disclosure about Market Risk" of our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on February 26, 2015 . These risks have not changed materially since December 31, 2014 .

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2015 . Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2015 , the design and operation of the Company's disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2015 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is, and expects that, from time to time, it will continue to become, involved in litigation, arbitration, examinations, inquiries, investigations and claims, which may include, among other things, examinations, inquiries and investigations by various governmental and regulatory agencies, including but not limited to the SEC, Department of Justice, IRS, state attorney generals, state loan servicing and origination regulators, such as state banking departments, HUD, the FTC, and the CFPB. These may include, among other things, examinations, inquiries and investigations into, and purported class actions and other legal proceedings challenging whether, certain of the Company's residential loan servicing and originations practices and other aspects of its business comply with applicable laws and regulatory requirements. These also include, among other things, examinations, inquiries and investigations by various governmental and regulatory agencies and putative class action claims concerning "force-placed insurance", private mortgage insurance, the Consumer Financial Protection Act, the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, the Fair Credit Reporting Act, TILA, RESPA, the Equal Credit Opportunity Act, and other federal and state laws and statutes. In addition, from time to time, the Company has received and may in the future receive subpoenas and other information requests from federal and state governmental and regulatory agencies that are examining or investigating the Company.

The outcome of all of the Company's legal proceedings is uncertain, and it is possible that adverse results in such proceedings (which could include restitution, penalties, punitive damages and injunctive relief affecting the Company's business practices) and the terms of any settlements of such proceedings could have a material adverse effect on the Company's reputation, business, prospects, results of operations, liquidity or financial condition. In addition, governmental and regulatory agency examinations, inquiries and investigations may result in the commencement of lawsuits against us or our personnel. The Company cannot predict whether or how any legal proceeding will affect the Company's business relationship with actual or potential customers, the Company's creditors, rating agencies and others. In addition, cooperating in, defending and resolving these legal proceedings may consume significant amounts of management time and attention and could cause the Company to incur substantial legal, consulting and other expenses and to change the Company's business practices, even in cases where there is no determination that the Company's conduct failed to meet applicable legal or regulatory requirements.

For a description of certain legal proceedings, please see Note 18 to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report, which is incorporated by reference herein.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in, or incorporated by reference in, this report, you should carefully review and consider the risks and uncertainties described below and in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014 , which are the risks and uncertainties that could materially adversely affect our business, prospects, financial condition, cash flows, liquidity, results of operations, our ability to pay dividends to our stockholders and/or our stock price. In addition, to the extent that any of the information contained in this report or in the aforementioned periodic report constitutes forward-looking information, the risk factors set forth below and in such periodic report are cautionary statements identifying important factors that could cause our actual results for various financial reporting periods to differ materially from those expressed in any forward-looking statements made by or on our behalf.

Legal proceedings and related costs may increase and could adversely affect our financial results.

We are involved in various legal proceedings, including numerous matters that arise in the ordinary course of our business. Like other participants in our industry, we have been and may continue to be the subject of class action and other lawsuits and regulatory actions by states' attorneys general and federal and state regulators.

Litigation and other proceedings may require that we pay attorneys' fees, settlement costs, damages, penalties or other charges, which could adversely affect our financial results.

Governmental and regulatory investigations, both state and federal, have increased in all areas of our business. The costs of responding to the investigations can be substantial. In addition, government-mandated changes, resulting from investigations or otherwise, to our loan origination and servicing practices could lead to higher costs and additional administrative burdens, such as record retention and informational obligations.

In February 2015, we informed the FTC and CFPB that we would agree to the terms of a proposed order that, subject to approval by the FTC, the CFPB and the court, would settle the matters arising from an FTC and CFPB investigation relating to Green Tree Servicing’s servicing practices. The FTC and CFPB approved the proposed order, and on April 21, 2015, the FTC, CFPB, and Green Tree Servicing filed the proposed order with the United States District Court for the District of Minnesota, which subsequently approved it. Under the order, Green Tree Servicing, without admitting or denying the allegations in a complaint filed by the FTC and

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CFPB, agreed to pay: (i) $18 million for alleged misrepresentations relating to payment methods that entail convenience fees; (ii) $30 million for alleged misrepresentations related primarily to the time it would take to review short sale requests and for alleged delays in processing loan modifications in servicing transfers; and (iii) a $15 million civil money penalty. The Company accrued the full amounts required under the order in the Company’s financial statements as of December 31, 2014. Green Tree Servicing also agreed to detailed injunctions relating to its mortgage servicing and collection practices and other matters, including injunctions against future violations of certain consumer protection statutes and regulations, and it agreed to establish and maintain a comprehensive data integrity program reasonably designed to ensure the accuracy, integrity, and completeness of the data and other information about accounts that it services, collects, or sells. If Green Tree Servicing fails to comply with the order, it could be subject to additional sanctions, including actions for contempt, actions seeking additional fines, or new actions alleging violations of consumer protection statutes. The failure to comply with the order could have a material adverse effect on our reputation, business, business practices, prospects, results of operation, liquidity and financial condition.

See Item 1. "Legal Proceedings" for additional information regarding legal proceedings.

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


a)	Not applicable.


b)	Not applicable.


c)	Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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

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SIGNATURES

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



	WALTER INVESTMENT MANAGEMENT CORP.

Dated: May 7, 2015	By:	/s/ Mark J. O’Brien
		Mark J. O’Brien
		Chairman and Chief Executive Officer (Principal Executive Officer and Authorized Signatory)

Dated: May 7, 2015	By:	/s/ Gary L. Tillett
		Gary L. Tillett
		Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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INDEX TO EXHIBITS



Exhibit No.	Note	Description

10.1 †	(1)	Employment Letter Agreement between Walter Investment Management Corp. and Jonathan F. Pedersen, dated October 16, 2013.

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

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

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

101	(1)	XBRL (Extensible Business Reporting Language) — The following materials from Walter Investment Management Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (Extensible Business Reporting Language); (i) Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014; (ii) Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2015 and 2014; (iii) Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2015; (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014; and (v) Notes to Consolidated Financial Statements.

† Constitutes a management contract or compensatory plan or arrangement.



Note		Notes to Exhibit Index

(1)		Filed or furnished herewith.

Exhibit 10.1

October 16, 2013

Mr. Jonathan F. Pedersen
16 Shek O
Hong Kong

Dear Jon:

We are pleased to offer you the position of Chief Legal Officer/General Counsel and Secretary at Waiter Investment Management Corp. (“Walter” or the “Company”). We believe that you have the potential to add significant value to the Walter business and look forward to your joining the team. The purpose of this letter agreement (this “Agreement”) is to outline the terms of your employment with the Company. This offer is contingent upon the satisfactory completion of background, reference and credit checks, and a drug test, which Walter acknowledges has been completed as of the date of execution.

As Chief Legal Officer/General Counsel and Secretary, you will report to and serve at the direction of the Chief Executive Officer of the Company. In your capacity as Chief Legal Officer/General Counsel and Secretary, you will be responsible for managing corporate legal matters, advising management and the Board of Directors of the Company (the “Board of Directors” or the “Board”) on legal and corporate governance issues, serving as Secretary of the Company and its Board of Directors in accordance with its charter, by-laws and any legal requirements, ensuring compliance with Securities and Exchange Commission (“SEC”), stock exchange and other securities law and public reporting company matters, and providing senior management oversight and Board of Director support for executive compensation matters. Such responsibilities may change from time to time; provided that such changed responsibilities shall be consistent in all material respects with your title.


2.	While employed hereunder, you will be eligible to receive the following payments and benefits:


(a)	Base Salary

Your base salary will be $430,000 per year which shall be subject to annual review and potential increase (but not decrease) by the Board of Directors and paid in accordance with the regular payroll practices of the Company, as they may

3000 Bayport Drive, Suite 1100, Tampa, Florida 33607

813.421.7600 www.walterinvestment.com

change from time to time. Your base salary, as in effect from time to time, is hereinafter referred to as the “Base Salary.”


(b)	Sign-On Bonus/Equity

(i)

We have agreed to pay you, in a cash lump sum payment, a signing bonus of $200,000 (the “Sign-On Bonus”), on the first payroll date to occur following the completion of 30 days of employment, provided you are employed on the payment date or your employment has been terminated by the Company other than for Cause (as defined below) prior to the payment date. In the event that you voluntarily leave the Company (other than as a result of Constructive Termination (as defined below)), or your employment is terminated by the Company for Cause, in either case, within three years of the date of the commencement of your employment with Walter (such actual commencement date, the “Start Date”), you will be required to repay, on a pro-rated basis based on a fraction, the numerator of which is 36 less the number of full months of employment with the Company you have completed since the Start Date and the denominator of which is 36, any Sign-On Bonus paid within thirty (30) days of the termination date.

(ii)

You will be granted an award of 20,000 restricted stock units (“RSUs”) on the Start Date, which shall be evidenced by a grant agreement incorporating the following terms. Subject to your continued employment through each applicable vesting date, the RSUs shall vest and all restrictions shall lapse as follows: 50% of the RSUs shall vest and the restrictions shall lapse on the date that is eighteen (18) months following the date of grant and the remaining 50% of the RSUs shall vest and the restrictions shall lapse on the date that is thirty-six (36) months following the date of grant and, in each case, the RSUs will be settled in shares of common stock of the Company as soon as administratively feasible after the applicable vesting date, but in no event more than thirty (30) days thereafter. In the event that, prior to the applicable vesting date, you voluntarily leave the Company (other than as a result of Constructive Termination), or your employment is terminated by the Company for Cause, any unvested RSUs will be forfeited. In the event that your employment terminates due to your death or Disability (as defined below), or there is a Change of Control (as defined below) of the Company and your position is eliminated within six months of such Change of Control, any outstanding unvested RSUs will vest immediately. In the event that you voluntarily leave the Company as a result of Constructive Termination or your employment is terminated by the Company other than for Cause, any outstanding unvested RSUs will vest immediately. For purposes of this Agreement, (x) “Change of Control” shall mean a change of ownership of the Company, a change in the effective control of the

Company, or a change in the ownership of a substantial portion of the assets of the Company, in each case, within the meaning of Treas. Reg. Section 1.409A-3(i)(5) and (y) “Disability” shall mean your inability or failure to perform your duties hereunder for a period of ninety (90) consecutive days or a total of one hundred twenty (120) days during any twelve (12) month period due to any physical or mental illness or impairment, or a determination by a medical doctor chosen by the Company to the effect that you are substantially unable to perform your duties hereunder due to any physical or mental illness or impairment. The RSUs shall be subject to such other terms and conditions as may be established by the Company’s Compensation Committee and shall be awarded under and subject to the terms and conditions of the Company’s 2011 Omnibus Incentive Plan.


(c)	Bonus

You will be eligible to participate in the Company’s Management Incentive Plan, as it may be amended from time to time (the “MIP”) and you will be eligible to earn an annual target bonus under the MIP of 150% of your Base Salary or $645,000 at your current Base Salary, with the potential to increase your bonus to a maximum of 200% of your Base Salary or $860,000 at your current Base Salary in accordance with the terms of the MIP; provided, however, that the actual amount of your bonus will be dependent upon the achievement of annual financial and other goals consistent with those established for other members of executive management, as well as the accomplishment of individual objectives, established annually no later than the end of the second quarter of the Company’s fiscal year and communicated to you in writing (the actual bonus awarded to you in any given year, which may be greater or less than your target bonus, and may be zero if minimum thresholds are not met, is referred to herein as your “Annual Bonus” for that year (the “Bonus Year”). Unless otherwise expressly provided for herein, in order to be eligible to receive an Annual Bonus you must be employed by the Company at the time the bonus is paid. The bonus for any Bonus Year will be payable to you in accordance with the terms of the MIP at the same time as other senior executives of the Company are paid, after the Company closes its books for the Bonus Year. Notwithstanding anything to the contrary in the MIP, provided that you are employed by the Company at the time your Annual Bonus in respect of the 2013 calendar year is paid, such bonus will be pro-rated based on the percentage of the 2013 calendar year that will have elapsed from your Start Date through December 31, 2013. For calendar year 2014, notwithstanding anything to the contrary in the MIP, provided that you are employed by the Company at the time the bonus is paid, you will be guaranteed an Annual Bonus in cash of 150% of your Base Salary or $645,000 at your current Base Salary, payable under the terms and conditions of the 2014 MIP (the “2014 Guaranteed Bonus”). Notwithstanding anything herein to the contrary, with respect to any Annual Bonus to be paid, such bonus shall be paid in accordance with the Company’s

annual 162(m) bonus plan and to the extent required, shall be structured to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) as performance based compensation thereunder; provided however, any portion of the Annual Bonus not deductible by the Company, shall be deferred until it can be paid by the Company on a tax deductible basis.


(d)	Long-Term Incentive

You will be entitled to participate in the Company’s long-term incentive plan(s) as in effect from time to time, beginning with the 2014 Company award cycle, and, subject to your continued employment through and including the grant date, will receive a grant under the plan(s) with a minimum economic value of $500,000 on the date of the award. The components (including the equity vehicle) and terms of any award, and the methodology for determining the economic value for such awards shall be as provided in the plan(s) or otherwise as determined by the Company’s Compensation Committee in its discretion and provided to you in a grant document memorializing such terms.


(e)	Benefits

(i)

You will be entitled to receive from the Company prompt reimbursement for all reasonable out-of-pocket business expenses incurred by you in the performance of your duties hereunder, in accordance with the most favorable policies, practices and procedures of the Company relating to reimbursement of business expenses incurred by Company directors, officers or employees in effect at any time during the 12 month period preceding the date you incur the expenses; provided, however, that any such expense reimbursement will be made no later than the last day of the calendar year following the calendar year in which you incur the expense, will not affect the expenses eligible for reimbursement in any other calendar year, and cannot be liquidated or exchanged for any other benefit.


(ii)	You will be eligible to participate in the Company’s group life and health insurance benefit programs that are generally applicable to executives, in accordance with their terms, as they may change from time to time.


(iii)	You will be eligible to participate in the Company’s retirement plan that is generally applicable to salaried employees, as it may change from time to time and in accordance with its terms, Your eligibility to participate will be consistent with the requirements of ERISA.


(iv)	You will be entitled to 30 days of annual vacation with carryover to be treated as per the Company’s vacation policy, as it may change from time to time.


(v)	Your Benefits under this Agreement, including grants to you under the Company’s long-term incentive plan(s), will be subject to periodic review and increase by the Board of Directors.


(f)	Recapitalization

Any equity award agreement will provide that in the event of any change in the capitalization of the Company such as a stock split or a corporate transaction such as a merger, consolidation, separation or otherwise, the number and class of any equity you may have received, shall be equitably adjusted by the Compensation Committee, in its sole discretion, to prevent dilution or enlargement of rights.


(g)	Relocation

It is agreed and understood that in order to perform the functions of your position you will be required to relocate to the Tampa, Florida area. Such relocation is reasonably expected to occur no later than 180 days following the Start Date. You will be provided with relocation assistance for your move to the Tampa area, up to a maximum reimbursement amount of $250,000, for reasonable rent (to the extent applicable) and reasonable relocation expenses, including the cost of packing, insuring and transporting normal household goods using a carrier acceptable to Walter, customary closing costs associated with the purchase of a new home and for broker fees on your current residence up to 6%, if you sell/list your home during the first 12 months of the Start Date; provided, however, that any such expense reimbursement will be made no later than the last day of the calendar year following the calendar year in which you incur the expense, will not affect the expenses eligible for reimbursement in any other calendar year, and cannot be liquidated or exchanged for any other benefit. Should you voluntarily terminate your employment (other than as a result of Constructive Termination) or if your employment is terminated by the Company for Cause, in each case, within two years of your Start Date, you will be required to repay your relocation assistance at a pro-rated amount, pro-rated, in the same manner as the Sign-On Bonus, within thirty (30) days of the termination date.

It is agreed and understood that your employment with the Company is to be at will, and either you or the Company may terminate the employment relationship at any time for any reason, with or without Cause, and with or without notice to the other; nothing herein or elsewhere constitutes or shall be construed as a commitment to employ you or to pay you severance, other than as stated herein, for any period of time.

Outside Interests: While employed by Walter, you agree to devote your full business time and best efforts to the performance of your duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly without the prior written consent of the Chief Executive Officer. Notwithstanding the foregoing, you may manage your personal finances and engage in charitable and civic

activities, so long as such activities do not conflict or interfere with the performance of your responsibilities hereunder.

You agree that all inventions, improvements, trade secrets, reports, manuals, computer programs, systems, tapes and other ideas and materials developed or invented by you during the period of your employment with the Company, either solely or in collaboration with others, which relate to the actual or anticipated business or research of the Company, which result from or are suggested by any work you may do for the Company, or which result from use of the Company’s premises or the Company’s customers’ property (collectively, the “Developments”) shall be the sole and exclusive property of Walter. You hereby assign to the Company your entire right and interest in any such Developments, and will hereafter execute any documents in connection therewith that Walter may reasonably request.


6.	As an inducement to the Company to make this offer to you, you represent and warrant that, as of the Start Date, you are not a party to any agreement or obligation for personal services, and there exists no impediment or restraint, contractual or otherwise on your power, right or ability to accept this offer and to perform the duties and obligations specified herein.

In the event that your employment is terminated for any reason, you will receive (i) accrued but unpaid Base Salary earned through the date of termination, payable in accordance with the Company’s usual payment practices plus (ii) payment for any accrued but unused vacation days, to the extent, and in the amounts provided under the Company’s usual policies and arrangements (the “Accrued Obligations”).

Separately, and, in addition to the Accrued Obligations and any vesting of equity-based awards as expressly provided for herein, in the event that your employment(x) is terminated by the Company without Cause, (y) is terminated by you as a result of Constructive Termination, or (z) terminates due to Disability or death (clauses (x) —(z), each, a “Good Leaver Termination”), in each case, the Company will continue to pay (i) your Base Salary as in effect on the termination date for a period of eighteen (18) months, payable in accordance with the Company’s normal payroll practices, as they may change from time to time, (ii) your Annual Bonus (which shall be in an amount that is consistent with other Company executives of your level) for a period of eighteen (18) months, payable at the same time Annual Bonuses would otherwise be payable had you remained employed during such period, (iii) any earned but unpaid Annual Bonus for any year preceding the year in which the date of termination occurs and a pro-rated Annual Bonus for the year of termination, in each case, payable in accordance with the terms of the MIP, and (iv) the Company’s contribution towards your health, dental and vision benefits for a period of eighteen (18) months. In the event such termination occurs prior to the date on which payment of the 2014 Guaranteed Bonus would have been paid had your employment not terminated, the bonus calculation under this paragraph with regard to the payment of any bonus calculated using the 2014 calendar year shall be no less than $645,000 and that part of the bonus shall be paid in cash. For the sake of clarity, should

your employment terminate pursuant to clause (x), (y) or (z) above on June 30 of any given year, you will be paid the pro-rated Annual Bonus for the year in which your employment terminated, plus, the balance of the Annual Bonus for the remainder of the year in which your employment terminated (i.e., the Annual Bonus for the first six months of your 18 month severance period) plus the full Annual Bonus for the following year (the Annual Bonus for the remaining 12 months of the 18 month severance period).

Payment of the foregoing severance payments and benefits is subject to (a) your execution, delivery and non-revocation of a release, including a release of any claims against the Company and its subsidiaries, substantially in the form attached hereto as Appendix 1 within thirty (30) days following the termination of your employment, (b) your compliance with the provisions of Sections 8 and 9 of this Agreement, and (c) your resignation, effective as of the date of your termination of employment, as an officer and/or director of the Company or any of its subsidiaries or affiliates. In order to be entitled to the foregoing in the event of Constructive Termination, you must provide written notice, including details describing the basis of your claim, to the Company within 60 days of the occurrence of the event(s) giving rise to a claim of Constructive Termination, and the Company will have 30 days to remedy any non-compliance. In the event the Company fails or is unable to remedy any non-compliance, the effective date of your termination of employment shall be 90 days from the date the Company received notice, unless otherwise agreed in writing by you and the Company. Should you fail to provide the foregoing notice, you will thereafter be barred from receiving treatment under the Constructive Termination definition based upon the events giving rise to the claim.

Any grants of equity that you receive subsequent to the date of this Agreement and the disposition of such awards shall be subject to the terms and conditions of the plan or program under which the awards are granted; provided; however, that, to the extent not inconsistent with such plan or program, any such awards will provide that, in the event of a Good Leaver Termination, all such outstanding unvested awards shall immediately vest.

For purposes of this Agreement, “Cause” shall mean (A) conviction of, or plea of guilty or nolo contendere to, a felony arising from any act of fraud, embezzlement or willful dishonesty in relation to the business or affairs of the Company, (B) conviction of, or plea of guilty or nolo contendere to, any other felony which is materially injurious to the Company or its reputation or which compromises your ability to perform your job function, and/or act as a representative of the Company, or (C) a willful failure to attempt to substantially perform your duties (other than any such failure resulting from your Disability), after a written demand for substantial performance is delivered to you that specifically identifies the manner in which the Company believes that you have not attempted to substantially perform such duties, and you have failed to remedy the situation, to the extent possible, within fifteen (15) business days of such written notice from the Company or such longer time as may be reasonably required to remedy the situation, but no longer than forty-five (45) calendar days. For purposes of this definition, no act or failure to act on your part shall be considered to be Cause if done, or omitted to be done, by you in good faith and with the reasonable belief that the action or omission

was in the best interests of, or were not, in fact, materially detrimental to the Company or a Company subsidiary.

For purposes of this Agreement, “Constructive Termination” shall mean, without your written consent: (A) a material failure of the Company to comply with the provisions of this Agreement; (B) a material diminution of your position (including status, offices, title and reporting relationships), duties or responsibilities or pay; (C) any purported termination of your employment other than for Cause; or (D) if you are required to relocate more than 50 miles from the Company’s Tampa, Florida location; provided however, that any isolated, insubstantial or inadvertent change, condition, failure or breach described under clauses (A) — (D) above which is not taken in bad faith and is remedied by the Company promptly after the Company’s actual receipt of notice from you as provided in this Section 7 shall not constitute Constructive Termination. For purposes of this Agreement, a material diminution in pay shall not be deemed to have occurred if the amount of your bonus fluctuates due to (i) a failure of the Company to meet financial targets or performance considerations under the MP or other Company incentive plan applicable to you and in effect from time to time or (ii) you experience a reduction in salary that is relatively comparable to reductions imposed upon all senior executives of the Company. To be entitled to severance benefits on the basis of Constructive Termination, the event causing Constructive Termination must not be implemented for the purpose of avoiding the restrictions of Section 409A of the Code.

Notwithstanding anything herein or in any agreement you may enter into subsequent to the date of this Agreement to the contrary, in connection with any termination of employment by you due to “retirement”, you shall be treated generally in the same manner as any other senior executive of the Company who reports directly to the Chief Executive Officer who retires within six (6) months prior to or six (6) months following, in each case, the date of your termination due to “retirement”, as it relates to the definition of “retirement” and treatment of compensation, equity-based awards and benefits other than in the case of any special, unique or one-time “retirement” treatment for a senior executive of the Company as may be approved by the Company’s Compensation Committee in its sole and absolute discretion.

Non-Compete/Non-Solicit. It is understood and agreed that you will have substantial relationships with specific businesses and personnel, prospective and existing, vendors, contractors, customers, and employees of the Company that result in the creation of customer goodwill. It is also understood and agreed that the business of the Company is national in scope and that your duties could be conducted remotely. Therefore, while employed by the Company and continuing for a period of eighteen (18) months following the termination of your employment for any reason (the “Restricted Period”), unless the Board of Directors approves an exception, you shall not, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise:


(a)	Call upon, solicit, write, direct, divert, influence, accept business (either directly or indirectly) with respect to any account or customer or prospective customer of the Company or any corporation controlling, controlled by, under common control with, or otherwise related to the Company or its affiliates, in each case, for any purpose that is inconsistent with this non-compete provision;

(b)

Accept employment from or become an independent contractor for any Competitor (as defined below) of the Company pursuant to which you would have the same or substantially similar duties, in whole or in part, to the duties that you perform for the Company; provided, however, that the restrictions in this clause (b) shall be effective and binding only to the extent permissible under any applicable professional rules of conduct and/or ethics, including, but not limited to, Rule 4-5.6 of the Florida Rules of Professional Conduct; or


(c)	Hire away any independent contractors or personnel of Walter and/or entice any such persons to leave the employ of the Company without the prior written consent of the Company; provided, however, that the restriction contained in this clause (c) shall extend through the one (1) year anniversary of the expiration of the Restricted Period.

For purposes of this Agreement, “Competitor shall mean any business or division or unit of any business which provides, in whole or in part, in the United States of America, servicing for and/or the origination of mortgages and/or reverse mortgages.


9.	Non-Disparagement. Following the termination of your employment under this Agreement for any reason, neither you nor the Company shall, directly or indirectly, for yourself or itself, or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise:


(a)	Make any statements or announcements or give anyone authority to make any public statements or announcements concerning the termination of your employment with the Company, other than a mutually agreeable press release, if any, or


(b)	Make any statements that are inflammatory, detrimental, slanderous, or negative in any way to the interests of you or the Company.


(c)	Nothing in this section shall prevent either party from testifying or responding truthfully to any request for discovery or testimony in any judicial or quasi-judicial proceeding or any government inquiry, investigation or other proceeding.

10.

You acknowledge and agree that you will respect and safeguard the Company’s property, trade secrets and confidential information. You acknowledge that the Company’s electronic communication systems (such as email and voicemail) are maintained to assist in the conduct of the Company’s business and that such systems and data exchanged or stored thereon are Company property. In the event that your employment with the

Company terminates for any reason, you agree not to disclose any Company trade secrets or confidential information you acquired while an employee of the Company to any other person or entity, including without limitation, a subsequent employer, or use such information in any manner; provided, however, that any information which enters the public domain other than by breach of this Agreement shall not be considered confidential and provided, further, that nothing in this section shall prevent either party from testifying or responding truthfully to any request for discovery or testimony in any judicial or quasi-judicial proceeding or any government inquiry, investigation or other proceeding.

11.

You understand and agree that if any of Walter’s financial statements are required to be restated due to errors, omissions, fraud, or misconduct, in each case, occurring after the Start Date, the Board may, in its sole discretion but acting in good faith, direct that the Company recover from you all or a portion of any past or future compensation paid by the Company to you after the Start Date with respect to any Walter fiscal year for which the financial results are negatively affected by such restatement. For purposes of this paragraph, errors, omissions, fraud, or misconduct may include and are not limited to circumstances where Walter has been required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, as enforced by the SEC, and the Board of Directors has determined in its sole discretion that you had knowledge of the material noncompliance or the circumstances that gave rise to such noncompliance and failed to take reasonable steps to bring it to the attention of the appropriate individuals within the Company, or you personally and knowingly engaged in practices which materially contributed to the circumstances that enabled a material noncompliance to occur.

12.

Tax Compliance Delay in Payment. This Agreement is intended to comply with Section 409A of the Code and will be interpreted accordingly. References under this Agreement to the termination of your employment shall be deemed to refer to the date upon which you have experienced a “separation from service” within the meaning of Section 409A of the Code. If the Company reasonably determines that any payment or benefit due under this Agreement, or any other amount that may become due to you after termination of employment, is subject to Section 409A of the Code, and also determines that you are a “specified employee,” as defined in Section 409A(a)(2)(B)(i) of the Code, upon your termination of employment for any reason other than death (whether by resignation or otherwise), no amount may be paid to you or on your behalf earlier than six months after the date of your termination of employment (or, if earlier, your death) if such payment would violate the provisions of Section 409A of the Code and the regulations issued thereunder, and payment shall be made, or commence to be made, as the case may be, on the date that is six months and one day after your termination of employment (or, if earlier, one day after your death). For this purpose, you will be considered a “specified employee” if you are employed by an employer, or a subsidiary of a company, that has its stock publicly traded on an established securities market or certain related entities have their stock traded on an established securities market and you are a “key employee”, with the exact meaning of “specified employee”, “key employee” and “publicly traded”

defined in Section 409A(a)(2)(B)(i) of the Code and the regulations thereunder. Notwithstanding the above, the Company hereby retains discretion to make determinations regarding the identification of “specified employees” and to take any necessary corporate action in connection with such determination. To the extent any reimbursements or in-kind benefits due to you under this Agreement constitute “deferred compensation” under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treasury Regulation Section 1.409A-3(i)(1)(iv). For purposes of Section 409A of the Code, each payment made under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A of the Code.


13.	You acknowledge and agree that you have read this Agreement carefully, have been advised by the Company to consult with an attorney regarding its contents, and that you fully understand the same.


14.	The Company may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.

15.

It is agreed and understood that this Agreement shall constitute our entire agreement with respect to the subject matter hereof and shall supersede all prior agreements, discussions, understandings and proposals (written or oral) relating to your employment with the Company. This Agreement will be interpreted under and in accordance with the laws of the State of Florida without regard to conflicts of laws. The parties hereto agree to resolve any dispute over the terms and conditions or application of this Agreement through binding arbitration pursuant to the rules of the American Arbitration Association (“AAA”). The arbitration will be heard by one arbitrator to be chosen as provided by the rules of the AAA and shall be held in Tampa, Florida. Notwithstanding the foregoing, in the event of a breach or threatened breach of the provisions of Sections 8-10, the party that is in breach or in threatened breach acknowledges and agrees that the other party will suffer irreparable harm that is not subject to being cured with monetary damages and that the aggrieved party shall be entitled to injunctive relief in a state court of the State of Florida. In any case, in the event you prevail in the dispute, the Company will pay your reasonable fees and costs in connection with the matter (including attorneys’ fees). Whether you have prevailed or not shall be determined by the arbitrator or the court, as the case may, or if the arbitrator or court declines to determine whether or not you have prevailed, you will be deemed to have prevailed if in the case of monetary damages you receive in excess of 50% of what you demanded, or if the case has been filed against you, if the Company receives less than 50% of what it has demanded.


16.	Any notice given to you under this Agreement shall be provided to you at the last known address on file with a copy to Evan Belosa, Esq., Cadwalader, Wickersham & Taft LLP, 1 World Financial Center, New York, New York 10281.


17.	Survival. The provisions of the following Sections shall survive termination or expiration of this Agreement, 5, 8, 9, 10, 11, 15, and 17.

[ The Remainder of This Page is Intentionally Left Blank ]

If the terms contained within this Agreement are acceptable, please sign one of the enclosed copies and return it to me in the envelope provided and retain one copy for your records.

Very truly yours,

Walter Investment Management Corp.

By: Mark O’Brien

Its: Chairman and Chief Executive Officer

ACCEPTANCE

I have read the foregoing, have been advised to consult with counsel of my choice concerning the same, and I fully understand the same. I approve and accept the terms set forth above as governing my employment relationship with the Company subject to the satisfactory completion of background, reference and credit checks, and a drug test.

Signature _________________________________________ Date _______________

If the terms contained within this Agreement are acceptable, please sign one of the enclosed copies and return it to me in the envelope provided and retain one copy for your records.

Very truly yours,

Walter Investment Management Corp.

/s/ Mark O'Brien

By: Mark O’Brien

Its: Chairman and Chief Executive Officer

ACCEPTANCE

Signature _ /s/ Jonathan F. Pedersen _________________________ Date _ October 16, 2013 __

APPENDIX 1

SEPARATION AGREEMENT

AND GENERAL RELEASE OF CLAIMS

This Separation Agreement and General Release of Claims (“Release”) is entered into by and between Walter Investment Management Corp., and its subsidiaries, predecessors, successors, assigns, affiliates, insurers and related entities, (hereinafter collectively referred to as “Employer”) and Jonathan F. Pedersen (hereinafter “Employee”). In consideration for the mutual promises set forth below, Employer and Employee agree as follows:

1. Employer and Employee are parties to a contract of employment (“Employment Contract”) to which this Release has been attached and incorporated by reference. Employee’s employment with Employer has been terminated and, pursuant to the terms of the Employment Contract, Employee must execute this Release in order to receive the severance set forth in the Employment Contract.

2. In consideration for the promises and covenants set forth in the Employment Contract and this Release, including, specifically but without limitation, the general release set forth in paragraph 3 below, Employee will be paid in accordance with Section 7 of the Employment Contract. Payments to Employee will be made at such times as are set forth in the Employment Contract.

3. Employee agrees, on behalf of himself, and his heirs, executors, administrators, successors in interest and assigns that, except as specifically provided herein, Employee will not file, or cause to be filed, any charges, lawsuits, or other actions of any kind in any forum against Employer and/or its officers, directors, employees, agents, successors and assigns and does hereby further release and discharge Employer and all of its affiliated or related entities, and each of their respective parents, successors, officers, directors, employees, agents, successors and assigns (the “Released Parties”) from any and all claims, causes of action, rights, demands, and obligations of whatever nature kind or character which you may have, known or unknown, against them (including those seeking equitable relief) alleging, without limitation, breach of contract or any tort, legal actions under Title VII of the Civil Rights Act of 1964, as amended, Section 1981 of the Civil Rights Act of 1966, as amended, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, the Fair Labor Standards Act of 1938, as amended, the Age Discrimination in Employment Act of 1967, as amended, (the “ADEA”) (except to the extent claims under the ADEA arise after the date on which this Release is signed by Employee), the Older Workers’ Benefit Protection Act, as amended, the Americans with Disability Act, the Civil Rights Act of 1991, or any state, Federal, or local law or any tort, contract, and quasi-contract or other common law claim or cause of action concerning age, race, religion, national origin, handicap, or any other form of discrimination, or otherwise relating in any way to, Employee’s employment with the Company or Employee’s separation from the Company or the Company (in its capacities as Employee’s former employer or otherwise) or the other Released Parties, including any and all future claims, except claims arising in connection with rights and obligations under this Release or as

specifically provided in paragraph 4 or 8 below. Employee further agrees to waive and release any claim for damages occurring at any time after the date of this Release because of any alleged continuing effect of any alleged acts or omissions involving Employee and/or Employer which occurred on or before the date of this Release.

4. Notwithstanding anything contained in this Release to the contrary, the general release set forth in paragraph 3 shall not apply to any claims under any equity, option or other Employer incentive plan or award, which shall be governed by the terms and conditions of such plan(s) or award. Furthermore, claims to enforce the severance or surviving portions of the Employment Contract and any rights to indemnification are expressly not released.

5. Employee represents that he has not filed any charges, including, but not limited to, charges against the Company with the Equal Employment Opportunity Commission (“EEOC”), suits, claims or complaints against the Company or a Released Party. This Release forever bars all actions, claims and suits which arose or might arise in the future from any occurrences arising prior to the date of this Release and authorizes any court or administrative agency to dismiss any claim filed by Employee with prejudice. If any administrative agency files any charge, claim or suit on Employee’s behalf, Employee agrees to waive all rights to recovery of any equitable or monetary relief and attorneys’ fees.

6. Except as required by law, and unless and until this Release is disclosed by the Company or any of its affiliates as may be required by law, the parties to this Release agree that the existence and terms of this Release will remain confidential; provided that Employee may reveal the terms of the Release to Employee’s legal, tax and financial advisors, and immediate family, in deciding whether to execute this Release, so long as Employee advises each such person that they must keep its terms confidential on the same basis as is required of Employee.

7. This Release shall not in any way be construed as an admission by Employer or Employee that they have acted wrongfully with respect to each other or that one party has any rights whatsoever against the other or the other Released Parties.

8. Employee and Employer specifically acknowledge the following:


a.	Employee does not release or waive any right or claim which Employee may have which arises after the date of this Release.


b.	In exchange for this general release, Employee acknowledges that Employee has received separate consideration beyond that which Employee is otherwise entitled to under Employer’s policy or applicable law.


c.	Employee is releasing, among other rights, all claims and rights under the Age Discrimination in Employment Act (“ADEA”) and the Older Workers’ Benefit Protection Act (“OWBPA”), 29 U.S.C. §621, et seq.


d.	Employee has twenty-one (21) days to consider this Release.

Employee has seven (7) days to revoke this Release after acceptance. However, this Release will not become effective and no consideration will be paid until after the revocation of the acceptance period has expired. Additionally, for the revocation to be effective, Employee must give written notice of Employee’s revocation to Employer’s [General Counsel], stating “I hereby revoke the Release and General Release of Claims I executed on [insert date]” and such revocation must be postmarked via certified mail within such seven (7) day period to Walter Investment Management Corp., attention Human Resources, 3000 Bayport Drive, Tampa, FL 33607.


f.	Employee will resign as an officer and/or director of Walter Investment Management Corp. or any of its affiliates or subsidiaries.

9. Should Employee breach any provision of this Release, Employer’s obligation to continue to pay the consideration set forth herein shall cease and Employer shall have no further obligation to Employee. All other terms and conditions of this Release, including, but not limited to, the general release in paragraph 3 shall remain in full force and effect. Should Employer breach any provision of this Release, the Employee’s obligations hereunder shall cease and Employee shall have no further obligations pursuant to this Release.

10. This Release shall be binding upon Employer, Employee and upon Employee’s heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of Employer and the other released parties and their successors and assigns.

11. Employee and Employer acknowledge that this Release and the Employment Contract shall be considered as one document and that, except as set forth herein and therein, including without limitation the provisions of paragraphs 4 and 8 of this Release, any and all prior understandings and agreements between the parties to this Release with respect to the subject matter of this Release and/or the Employment Contract are merged into the Employment Contract and this Release, which fully and completely expresses the entire understanding of the parties with respect to the subject matter hereof and thereof.

12. Employee represents that no inducements, statements, or representations have been made that are not set out in this Release and that Employee does not rely on any inducements, statements, or representations not set forth herein or therein. Employee further represents that he enters into this Release knowingly and voluntarily and on his own free will and choice and that he has been encouraged and given significant opportunity to consult with an attorney of his choice.

13. This Release shall in all respects be interpreted, enforced and governed under the laws of the State of Florida. The language of all parts of this Release shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties to this

Release. Should any provision of this Release be declared or be determined by any Court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this Release.

14. This Release may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument.



JONATHAN F. PEDERSEN	WALTER INVESTMENT MANAGEMENT CORP.


	By:

Name Printed:	Title:

Date:	Date:

EXHIBIT 31.1

CERTIFICATION BY MARK J. O’BRIEN

PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14(a),

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark J. O’Brien, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Walter Investment Management Corp. (the “Registrant”) for the period ended March 31, 2015 (the “Report”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d) disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ Mark J. O’Brien

Mark J. O’Brien

Chairman and Chief Executive Officer

Date: May 7, 2015

EXHIBIT 31.2

CERTIFICATION BY GARY L. TILLETT

PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14(a),

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gary L. Tillett, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Walter Investment Management Corp. (the “Registrant”) for the period ended March 31, 2015 (the “Report”);

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ Gary L. Tillett

Gary L. Tillett

Executive Vice President and Chief Financial Officer

Date: May 7, 2015

EXHIBIT 32

WALTER INVESTMENT MANAGEMENT CORP. AND SUBSIDIARIES

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

Mark J. O’Brien, Chairman and Chief Executive Officer, and Gary L. Tillett, Executive Vice President and Chief Financial Officer, of Walter Investment Management Corp. (the “Company”), each certify to such officer’s knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that:

1. The Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




Date: May 7, 2015	By:	/s/ Mark J. O’Brien
		Mark J. O’Brien
		Chairman and Chief Executive Officer

Date: May 7, 2015	By:	/s/ Gary L. Tillett
		Gary L. Tillett
		Executive Vice President and Chief Financial Officer