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 originator and servicer of mortgage loans and servicer of reverse mortgage loans. 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 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. 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 13 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 correction is 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 nine months ended September 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. 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. While there may be some impact on ancillary revenue streams, 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 with a cumulative effect adjustment to retained earnings.

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 September 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. Based on the Company's current methodologies for accounting for financial instruments, the adoption of this guidance is not expected to 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 and composition 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. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and cash equivalents in the statement of cash flows. 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. Based on the Company's current methodologies for accounting for nonfinancial assets, the adoption of this guidance is not expected to have a material impact on its consolidated financial statements. However, upon adoption, the statement of financial position may reflect changes in presentation related to sales of certain real estate owned. The significance of the adoption of this guidance may change at the time of adoption based on the nature of the Company's nonfinancial assets at that time and the corresponding conclusions reached. The Company plans to adopt using a modified retrospective method.

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.

In August 2017, the FASB issued an accounting standards update that amends the guidance on derivatives and hedging. The guidance reduces the complexity of and simplifies the application of hedge accounting. The guidance also better aligns disclosures with risk management activities. This guidance is effective for the annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company currently does not designate any derivative financial instruments as formal hedge relationships, and therefore, does not utilize hedge accounting.

2. Going Concern

The Company continues to face certain challenges and uncertainties that could have significant adverse effects on its business, liquidity, and financing activities. On October 20, 2017, the Company entered into the RSAs in which the Consenting Senior Noteholders and Consenting Term Lenders and the Company have agreed to the principal terms of a financial restructuring of the Company which will be implemented through the Prepackaged Plan under Chapter 11 of the Bankruptcy Code and will restructure the indebtedness comprising the Company’s Term Loan Claims, Senior Notes Claims and Convertible Notes Claims, as well as the Company’s outstanding common stock. As of November 6, 2017, the holders of approximately 95% of the Term Loans are parties to the Term Loan RSA and approximately 85% of the Senior Notes are parties to the Senior Noteholder RSA. Pursuant to the Prepackaged Plan, it is intended that only the Parent Company will file for reorganization under the Bankruptcy Code. The Company’s operating entities are expected to remain out of Chapter 11 and continue operations in the normal course through the consummation of the Restructuring, which is expected to occur no later than January 31, 2018. The Company commenced solicitation on the Prepackaged Plan on November 6, 2017, and, pursuant to the RSAs, is required to file for reorganization under the Bankruptcy Code by November 30, 2017. The Company intends to complete the reorganization process on an expedited basis, concluding on the Effective Date, which is contemplated to be no later than January 31, 2018.

Refer to Notes 3 and 10 for more information on the Company's Prepackaged Chapter 11 Plan restructuring, including the impact on warehouse borrowings and advance financing facilities.

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. The Company has been in contact with the NYSE and is working to regain compliance with NYSE continued listing requirements, including, among other things, by restructuring its corporate debt. The Company is also working with the NYSE to avoid delisting due to the Company’s plan to restructure its indebtedness under Chapter 11 of the Bankruptcy Code. The Company continues to monitor other listing standards. No assurance can be given that the Company’s common stock will not be delisted from the NYSE.

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 the CFPB, 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. The Company continues to engage in communications with key stakeholders, including the GSEs, Ginnie Mae, HUD, regulators and government agencies in connection with the Restructuring and the uncertainties regarding the Company’s ability to continue as a going concern as identified above.

The significant risks and uncertainties related to the Company’s Prepackaged Plan raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty.

3. Company Restructuring

As previously disclosed in the Company’s Current Report on Form 8-K dated November 6, 2017, the Company commenced the solicitation of votes to obtain acceptances for a Prepackaged Plan under the Bankruptcy Code, which provides for the restructuring of the Company’s indebtedness consisting of the Company’s 2013 Term Loan, Senior Notes and Convertible Notes, as well as the Company’s outstanding common stock. The Company intends to commence a prepackaged Chapter 11 Case following the conclusion of the solicitation and on or before November 30, 2017. The Company intends to complete the reorganization process on an expedited basis, contemplated to be no later than January 31, 2018. Reference is made to the exhibits to this Quarterly Report on Form 10-Q for further information as to the Prepackaged Plan and the agreements related thereto.

On July 31, 2017, the Company entered into the Term Loan RSA, as amended, with lenders holding, as of July 31, more than 50% of the 2013 Term Loans and/or commitments outstanding under the Company’s 2013 Credit Agreement. Pursuant to the Term Loan RSA, in August 2017, the Company made a principal payment of $100.0 million on the 2013 Term Loan, resulting in a loss on extinguishment of $1.0 million , primarily due to the write-off of deferred financing fees. Additionally, in October 2017, the Company made principal payments on the 2013 Term Loan totaling $65.6 million , which included $37.5 million required under the terms of the Term Loan RSA and related amendments and $28.1 million which represented 80% of the gross proceeds from the sale of certain MSRs as required under the Third Amendment to the Credit Agreement. In addition, the Company will be required to repay $37.5 million upon the Effective Date of the Prepackaged Plan, and $72.7 million by February 15, 2018. On October 20, 2017, the Company entered into (i) the Amended and Restated Term Loan RSA with Consenting Term Lenders, and (ii) the Senior Noteholder RSA with the Consenting Senior Noteholders holding, as of October 20, 2017, more than 50% of the Senior Notes under the Senior Notes Indenture. As of November 6, 2017, the holders of more than 85% of the Senior Notes and more than 95% of the 2013 Term Loans are party to the applicable RSA, which requires them to vote to approve the Prepackaged Plan. It is contemplated that only the Parent Company will file for reorganization under Chapter 11. The Company's operating entities, including Ditech Financial and RMS, are expected to continue their operations in the ordinary course throughout the consummation of the Restructuring, although no assurance can be given that this will be the case.

The claims in the following classes are impaired under the Prepackaged Plan and entitled to vote to accept or reject the Prepackaged Plan: Term Lenders, Senior Noteholders and Convertible Noteholders. The Bankruptcy Code defines “acceptance” of a plan by a class of: (i) claims as acceptance by creditors in that class that hold at least two-thirds in dollar amount and more than one-half in number of the claims that cast ballots for acceptance or rejection of the plan; and (ii) interests as acceptance by interest holders in that class that hold at least two-thirds in dollar amount of the interests that cast ballots for acceptance or rejection of the plan.

In connection with the Restructuring, on November 6, 2017, the Company entered into the Commitment Letter with certain existing warehouse lenders, which, if approved by the Bankruptcy Court, will provide the Company with the DIP Warehouse Facilities of up to $1.9 billion in available warehouse financing during the Chapter 11 Case and one year following the Effective Date of the Prepackaged Plan. Proceeds of the new DIP Warehouse Facilities are intended to refinance RMS’s and Ditech Financial’s existing warehouse and servicer advance facilities and to fund Ditech Financial's and RMS’ continued business operations. The Parent Company will guarantee Ditech Financial’s and RMS’ obligations under the agreement.

The DIP Warehouse Facilities will provide that during the Chapter 11 Case, (i) up to $750.0 million will be available to fund Ditech Financial’s origination business, (ii) up to $800.0 million will be available to RMS, and (iii) up to $550.0 million will be available to finance advances related to Ditech Financial’s servicing activities, provided that this sub-limit may be increased to $600.0 million in the event that certain pre-petition servicing advance facilities are unavailable to Ditech Financial during the Chapter 11 Case. Upon the Effective Date of the Prepackaged Plan, the amount available to fund Ditech Financial's originations business under the exit warehouse facility will increase to up to $1.0 billion .

As previously disclosed, it is anticipated that, among other things, on the Effective Date:

If the Convertible Noteholders do not vote to accept the Prepackaged Plan, then holders of Convertible Notes and holders of the Company’s existing common stock will not receive or retain any property under the Prepackaged Plan, and 100% of the New Common Stock issued on the Effective Date will be issued to the Senior Noteholders, subject to dilution by shares of New Common Stock issuable upon conversion of the Mandatorily Convertible Preferred Stock, shares of New Common Stock issued or issuable pursuant to the Management Incentive Plan and shares of New Common Stock issued after the Effective Date.

Upon the Effective Date, the Company's existing common stock, Senior Notes and Convertible Notes will be canceled. The board of directors of the Reorganized Company will consist of nine members, with six directors designated by the Senior Noteholders, and three directors designated by the Company. The Reorganized Company will enter into a post-Restructuring Management Incentive Plan, under which 10% of the New Common Stock (after taking into account the shares to be issued under the Management Incentive Plan) will be reserved for issuance as awards under the Management Incentive Plan.

As required by the RSAs, the Company did not make the $5.5 million interest payment due November 1, 2017 on the Company’s Convertible Notes and, as provided for in the indenture governing the Convertible Notes, has entered into the 30 -day grace period to make such payment.

Refer to Note 10 for further information on the DIP warehouse facilities and exit warehouse facilities.

4. 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 16 for information on the Company's transactions with WCO.

5. 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 14 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):