NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Basis of Presentation

Walter Investment Management Corp. and its subsidiaries, or the Company, is an independent servicer and originator of mortgage loans and servicer of reverse mortgage loans. The Company services a wide array of loans across the credit spectrum for its own portfolio and for GSEs, government agencies, third-party securitization trusts and other credit owners. Through the consumer, correspondent and wholesale lending channels, the Company originates and purchases residential mortgage loans that are predominantly sold to GSEs and government agencies. The Company also operates two complementary businesses; asset receivables management and real estate owned property management and disposition.

The Company operates throughout the U.S. through three reportable segments, Servicing, Originations, and Reverse Mortgage. Refer to Note 11 for additional information related to segment reporting.

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.

Sale of Insurance Business

On December 30, 2016, the Company executed a stock purchase agreement pursuant to which the Company agreed to sell 100% of the stock of its indirect, wholly-owned subsidiary, GTI Holdings Corp., which was the holding company of the Company's primary licensed insurance agency, Green Tree Insurance Agency, Inc., to a wholly-owned subsidiary of Assurant, for a purchase price of $125.0 million in cash, subject to adjustment as specified in the agreement. Under the agreement, an affiliate of Assurant has also agreed to make potential earnout payments to the Company in an aggregate amount of up to $25.0 million in cash, with the amount of such payments to be based upon the gross written premium of certain voluntary homeowners' insurance written by certain affiliates of Assurant over a specified timeframe. As a result of this transaction, the assets and liabilities related to the insurance business, which were included in the Servicing segment, were reclassified to operations held for sale line items on the consolidated balance sheets at December 31, 2016. This transaction closed on February 1, 2017, at which time the Company received $131.1 million in cash, which included a working capital payment.

Restatement of Previously Issued Consolidated Financial Statements

On August 9, 2017 , the Company amended its Annual Report on Form 10-K for the year ended December 31, 2016 and separately amended its Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 2016, September 30, 2016, and March 31, 2017, in each case, to reflect a correction to the net deferred tax assets balance. The restatement of the Company's previously issued consolidated financial statements resulted from an error in the calculation of the valuation allowance on the net deferred tax assets balance. In determining the amount of the valuation allowance in the prior periods, an error was made that resulted in the double-counting of expected future taxable income associated with the projected reversals of taxable temporary differences (i.e., deferred tax liabilities). Accordingly, the Company revised its calculation to reflect the removal of the duplicative amounts, and reevaluated all sources of estimated future taxable income on the recoverability of deferred tax assets under GAAP after taking into account both positive and negative evidence through the issuance date of the restated financial statements to consider the effect of the error. The impact of such corrections are reflected in the prior periods presented in these Consolidated Financial Statements.

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 six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 . 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/A for the year ended December 31, 2016 .

Use of Estimates

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

Recently Adopted Accounting Guidance

In March 2016, the FASB issued an accounting standards update revising certain aspects of share-based accounting guidance which includes income tax and forfeiture consequences. This guidance was effective for the Company beginning January 1, 2017. Adoption of this update did not have a material impact on the Company's income tax expense. The Company elected to continue with its current methodology of estimating expected forfeitures at the date of grant and adjust throughout the vesting term as needed.

Recent Accounting Guidance Not Yet Adopted

In May 2014, the FASB issued new revenue recognition guidance that supersedes most industry-specific guidance but does exclude insurance contracts and financial instruments. Under the new revenue recognition guidance, entities are required to identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when the entity satisfies a performance obligation. In April 2015, the FASB voted for a one-year deferral of the effective date, resulting in this new guidance being effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. Subsequent to the initial issuance, the FASB has continued to issue updates to this guidance to provide additional clarification and implementation instructions to issuers regarding (i) principal versus agent considerations, (ii) identifying performance obligations, (iii) licensing, and (iv) narrow-scope improvements and practical expedients relating to assessing collectability, presentation of sales taxes, non-cash consideration, and completed contracts and contract modifications at transition. The Company has reviewed the scope of the guidance and monitored the determinations of the FASB Transition Resource Group and concluded that a number of the Company's most significant revenue streams are not within the scope of the standard because the standard does not apply to revenue on contracts accounted for under the transfers and servicing of financial assets or financial instruments standards. Therefore, revenue recognition for these contracts will remain unchanged. However, the FASB has issued, and may issue in the future, interpretive guidance that may cause the Company’s evaluation to change. The Company continues to evaluate certain select revenue streams, including subservicing fees, for the effect that this guidance will have on its consolidated financial statements. Based on current guidance available, while there may be some impact on revenue recognition, the Company does not expect the adoption of this guidance to have a significant impact on the consolidated financial statements. The Company plans to adopt using a modified retrospective method.

In January 2016, the FASB issued an accounting standards update that amends the guidance on the classification and measurement of financial instruments. The new standard revises an entity's accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. At June 30, 2017 , the Company did not hold any equity securities measured at fair value, but did have certain financial liabilities measured at fair value. The significance of adoption is dependent upon the nature of those financial liabilities carried at fair value at the time of adoption.

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

In June 2016, the FASB issued an accounting standards update that amends the guidance for recognizing credit losses on financial instruments measured at amortized cost. This update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2019. The Company does not expect, based on the Company's current methodologies for accounting for financial instruments, that the adoption of this guidance will have a material impact on its consolidated financial statements. The significance of the adoption of this guidance may change at the time of adoption based on the nature of the Company's financial instruments at that time and the corresponding conclusions reached.

In August 2016, the FASB issued an accounting standards update that amends the guidance on the classification of certain cash receipts and cash payments presented within the statement of cash flows to reduce the existing diversity in practice. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The adoption may impact the presentation of cash flows, but will not otherwise have a material impact on the consolidated results of operations or financial condition.

In October 2016, the FASB issued an accounting standards update that amends the guidance on the classification of income taxes related to the intra-entity transfer of assets other than inventory. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements. However, the significance of adoption is dependent on the nature of the transactions and corresponding tax laws in effect at the time of adoption.

In November 2016, the FASB issued an accounting standards update that amends the guidance on restricted cash within the statement of cash flows. The update amends the classification of restricted cash and cash equivalents to be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The adoption will impact the presentation of the cash flows, but will not otherwise have a material impact on the consolidated results of operations or financial condition.

In January 2017, the FASB issued an accounting standards update that amends the guidance on business combinations. The update clarifies the definition of a business and provides a framework that gives entities a basis for making reasonable judgments about whether a transaction should be accounted for as an acquisition of assets or a business. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company will apply this guidance to its assessment of applicable transactions, such as acquisitions and disposals of assets or business, consummated after the adoption date.

In January 2017, the FASB issued an accounting standards update that amends the guidance on goodwill. Under the update, goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value, while not exceeding the carrying value of goodwill. The update eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently considering the timing of adoption and will apply this guidance to applicable impairment tests after the adoption date.

In February 2017, the FASB issued an accounting standards update that amends the guidance on derecognition of nonfinancial assets. This guidance clarifies the scope and accounting of a financial asset that meets the definition of an in substance nonfinancial asset and defines the term in substance nonfinancial asset. It also adds guidance for partial sales of nonfinancial assets. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. While the Company continues to evaluate the full effect that this guidance will have on its consolidated financial statements, it may impact the timing of the recognition of gain on sale of REO.

In May 2017, the FASB issued an accounting standards update that amends the guidance on share-based compensation. The update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The new guidance will be applied prospectively on awards modified on or after the adoption date.

2. Going Concern

The Company is facing certain challenges and uncertainties that could have significant adverse effects on its business, liquidity and financing activities. The Company may be adversely impacted by the following factors, among others: failure to maintain sufficient liquidity to operate its servicing and lending businesses due to the inability to renew, replace or extend its advance financing or warehouse facilities on favorable terms, or at all; failure to comply with covenants contained in its debt agreements or obtain any necessary waivers or amendments; failure to resolve its obligation with respect to the remaining mandatory clean-up calls; and failure to successfully restructure its corporate debt.

As disclosed in Note 9, the Company uses and relies upon short-term borrowing facilities to fund its servicing, originations and reverse mortgage operating businesses. As a result of continued losses, the need for additional waivers and/or amendments, including those required as a result of or in connection with the restatement discussed in Note 1, and the passage of time since the Company first announced its debt restructuring initiative, certain of the Company’s lenders have effected reductions in its advance rates and/or have required other changes to the terms of such facilities, which has negatively impacted the Company’s available liquidity and capital resources. Each of these facilities is typically subject to renewal each year. Borrowing capacity on the various facilities is dependent upon maintaining compliance with the representations, terms, conditions and covenants of the respective agreements. The Company intends to renew, replace, or expand its facilities consistent with its past practices and may seek waivers or amendments in the future, if necessary. The Company is in negotiations with current and prospective lenders regarding expanded financing capacity for its reverse loan repurchases and/or replacement financing capacity for its originations business in the event the Company experiences a material reduction in the financing capacity available to it under its existing borrowing facilities or otherwise requires additional financing capacity to support its businesses and obligations. No assurance can be given that the Company will be successful in maintaining adequate financing capacity with its current or prospective lenders.

The Company continues to focus on its debt restructuring initiative to seek to improve its capital structure through the restructuring of its corporate debt and continues to incur significant expense in connection therewith.

On July 31, 2017, the Company entered into a Restructuring Support Agreement with lenders holding, as of July 31, 2017, more than 50% of the loans and/or commitments outstanding under the 2013 Credit Agreement. As set forth in the Restructuring Support Agreement, the parties thereto have agreed to, among other things, the principal terms of a proposed financial restructuring of the Company, which will be implemented through an out-of-court restructuring and, in the absence of sufficient stakeholder support for an out-of-court restructuring, a prepackaged plan of reorganization under Chapter 11 of the Bankruptcy Code. The Restructuring Support Agreement contains a number of conditions and milestones, including reaching an agreement with the holders of at least 66⅔% aggregate principal amount of Senior Notes to a restructuring support agreement consistent with the terms specified in the Restructuring Support Agreement. The Company and its debt restructuring advisors intend to continue to negotiate with the financial and legal advisors to ad hoc groups of holders of the Senior Notes and the lenders under the 2013 Credit Agreement as the Company seeks to obtain sufficient stakeholder support for a comprehensive de-leveraging transaction.

Pursuant to the terms of the Restructuring Support Agreement, on the dates specified in the Restructuring Support Agreement, the Company is obligated to purchase at par (or in certain limited circumstances, voluntarily prepay) the term loans of the lenders who become party to the Restructuring Support Agreement in an aggregate principal amount of $100 million . On July 31, 2017, the Company entered into a third amendment to the 2013 Credit Agreement pursuant to which the 2013 Credit Agreement was amended to, among other things, require that upon receipt by the Company or certain of its subsidiaries of the gross proceeds of any disposition of certain Bulk MSR by the Company or such subsidiaries, the Company shall make a prepayment of the term loans in an amount equal to 80% of such gross proceeds; provided that, to the extent as of the earlier of 120 days following the effective date (as defined in the Restructuring Support Agreement) and February 15, 2018 the aggregate principal amount of term loans prepaid as a result of such prepayments is less than $100 million , the Company shall be required to prepay as of such date the term loans in an amount equal to $100 million minus the amount of proceeds of such dispositions of Bulk MSR previously applied to prepay the term loans after the date of the third amendment to the 2013 Credit Agreement pursuant to such mandatory prepayment. The Third Amendment also requires mandatory prepayments of the term loans in an amount equal to (i) 80% of the net sale proceeds of non-ordinary course asset sales and dispositions of certain Bulk MSR and (ii) 100% of the net sale proceeds of certain non-core assets, in each case, received by the Company and certain of its subsidiaries.

As discussed previously, the Company is subject to various financial and other covenants under its existing debt agreements, many of which contain cross default provisions such that if a default occurs under any one agreement, the lenders under certain of the Company’s other debt agreements could declare a default. The lenders can waive their contractual rights in the event of a default. In connection with the financial statement restatement discussed in Note 1 and the circumstances impacting the Company's ability to continue as a going concern included in this disclosure, the Company received waivers and/or amendments under its warehouse and advance financing facilities, the 2013 Credit Agreement and the Senior Notes Indenture to the extent necessary to waive any default, event of default, amortization event, termination event or similar event resulting or arising from the restatement discussed in Note 1 and the going concern matters discussed herein.

The Company is not currently in compliance with, and may be unable to regain and/or maintain compliance with, certain continued listing standards of the NYSE. If the Company is unable to cure any event of noncompliance with any continued listing standard of the NYSE within the applicable timeframe and other parameters set forth by the NYSE, or if the Company fails to maintain compliance with certain continued listing standards that do not provide for a cure period, it will result in the delisting of the Company’s common stock from the NYSE, which could negatively impact the trading price, trading volume and liquidity of, and have other material adverse effects on, the Company’s common stock. If the Company’s common stock is delisted from the NYSE, this could also have negative implications on the Company’s business relationships under the Company’s material agreements with lenders and other counterparties. If the Company’s common stock is delisted from the NYSE, it would constitute a fundamental change as that term is defined under the terms of the Convertible Notes, and require, among other things, that the Company take steps to make an offer to repay the Convertible Notes at 100% of the principal amount thereof. The Company currently is not permitted to repurchase the Convertible Notes pursuant to the terms of certain of its debt facilities and agreements. If the Company is delisted and is not able to satisfy this obligation, it would constitute an event of default under the indenture governing the Convertible Notes. In such event, the trustee or the holders of 25% in aggregate principal amount outstanding of the Convertible Notes will have the right to accelerate such indebtedness.

The Company’s subsidiaries are parties to seller/servicer agreements with, and/or subject to the guidelines and regulations of (collectively, the seller/servicer obligations), the GSEs and various government agencies, including HUD, FHA, VA and Ginnie Mae. These seller/servicer obligations include financial covenants and other requirements as defined by the applicable agency. To the extent that these seller/servicer obligations are not met, the applicable GSE or government agency may, at its option, take action to implement one or more of a variety of remedies including, without limitation, requiring certain Company subsidiaries to deposit funds as security for one or more of such subsidiaries’ obligations to the GSEs or government agencies, imposing sanctions on one or more of such subsidiaries, which could include monetary fines or penalties, forcing one or more subsidiaries to transfer servicing on all or a portion of the mortgage loans such subsidiary services for the applicable GSE or government agency, and/or suspending or terminating the approved seller/servicer status of one or more subsidiaries, which could prohibit or severely limit the ability of one or more subsidiaries to originate, service and/or securitize mortgage loans for the applicable GSE or agency. To date, none of the GSEs or government agencies with which the Company and its subsidiaries do business has communicated any material sanction, suspension or prohibition that would materially adversely affect the Company’s business; however, the GSEs and certain of such government agencies have required frequent reporting regarding the financial status of the Company, including preliminary financial results and the availability to the Company of financing capacity under its existing borrowing facilities. The GSEs and certain of such government agencies have also requested frequent telephonic updates with senior Company management regarding the status of the Company’s debt restructuring initiative and other matters. The Company’s subservicing agreements also contain requirements regarding servicing practices and other matters, and a failure to comply with these requirements could have an adverse impact on the Company’s business and liquidity.

As disclosed in Note 12, 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. Additionally, as part of its Reverse Mortgage segment, the Company is obligated to purchase loans out of Ginnie Mae securitization pools under certain circumstances.

To address the challenges and uncertainties set forth above, the Company is proactively engaged with its lenders and other counterparties as follows:

The above factors have been taken into account in assessing the Company’s liquidity and ability to meet its obligations for the next twelve months from the date of issuance of these financial statements. Based on this assessment, management has concluded that while there can be no assurance that the Company’s recent and future actions will be successful in mitigating the above risks and uncertainties, the Company’s current plans provide enough liquidity to meets its obligations over the next twelve months from the date of issuance of these financial statements. However, as set forth in the Restructuring Support Agreement, the parties thereto have agreed to, among other things, the principal terms of a proposed financial restructuring of the Company, which will be implemented through an out-of-court restructuring and, in the absence of sufficient stakeholder support for an out-of-court restructuring, a prepackaged plan of reorganization under Chapter 11 of the Bankruptcy Code. The potential for a prepackaged Chapter 11 filing raises substantial doubt about the Company’s ability to continue as a going concern that has not been alleviated. The Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company will continue to monitor progress on its initiatives and the impact on its ongoing assessment of going concern in future periods.

3. Variable Interest Entities

Consolidated Variable Interest Entities

Included in Note 7 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2016 are descriptions of the Company’s Consolidated VIEs.

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

Unconsolidated Variable Interest Entities

Included in Note 7 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2016 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 the VIEs. Additionally, refer to Note 14 for information on the Company's transactions with WCO.

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 GSE and agency-sponsored securitizations in which mortgage-backed securities are created and sold to third-party investors. The Company also sells non-conforming mortgage loans to private investors. The Company accounts for these transfers as sales. If the servicing rights are retained upon sale, the Company receives a fee for servicing the sold loans, which represents continuing involvement.

Certain guarantees arise from agreements associated with the sale of the Company's residential loans. Under these agreements, the Company may be obligated to repurchase loans, or otherwise indemnify or reimburse the credit owner or insurer for losses incurred, due to a breach of contractual representations and warranties. Refer to Note 12 for additional information.

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

At June 30, 2017 and December 31, 2016 , 1.4% and 1.3% , respectively, of mortgage loans sold and serviced by the Company were 60 days or more past due.

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