Note 17 – Business Segment Reporting

Our business segments reflect the internal reporting that we use to evaluate operating performance of services and to assess the allocation of our resources. A brief description of our current business segments is as follows:

Servicing. This segment is primarily comprised of our core residential servicing business. We provide residential and commercial mortgage loan servicing, special servicing and asset management services. We earn fees for providing these services to owners of the mortgage loans and foreclosed real estate. In most cases, we provide these services either because we purchased the MSRs from the owner of the mortgage, retained the MSRs on the sale of residential mortgage loans or because we entered into a subservicing or special servicing agreement with the entity that owns the MSR. Our residential servicing portfolio includes conventional, government-insured and non-Agency loans. Non-Agency loans include subprime loans, which represent residential loans that generally did not qualify under GSE guidelines or have subsequently become delinquent.

Lending. The Lending segment originates conventional and government-insured residential forward and reverse mortgage loans through correspondent lending arrangements, broker relationships (wholesale) and directly with mortgage customers (retail). The loans are typically sold shortly after origination into a liquid market on a servicing retained (securitization) or servicing released (sale to a third party) basis. In 2017, we closed our forward correspondent lending channel and exited the forward wholesale lending business. We continue to originate loans through our forward retail lending channel as well as through all three channels of reverse mortgage lending.

Corporate Items and Other. Corporate Items and Other includes revenues and expenses of CR Limited (CRL), our wholly-owned captive reinsurance subsidiary, and our other business activities that are individually insignificant, revenues and expenses that are not directly related to other reportable segments, interest income on short-term investments of cash, interest expense on corporate debt and certain corporate expenses. Our cash balances are included in Corporate Items and Other. CRL provides re-insurance related to coverage on foreclosed real estate properties owned or serviced by us. In January 2018, we decided to exit the ACS business and have liquidated the majority of our portfolio of inventory-secured loans to independent used car dealers.

We allocate a portion of interest income to each business segment, including interest earned on cash balances and short-term investments. We also allocate expenses incurred by corporate support services to each business segment.

Financial information for our segments is as follows:



	Three Months Ended June 30, 2018
Results of Operations	Servicing			Lending			Corporate Items and Other			Corporate Eliminations		Business Segments Consolidated
Revenue	$	230,509		$	19,002		$	4,070		$	—	$	253,581

Expenses (1)	166,888			17,785			20,977			—		205,650

Other income (expense):
Interest income	1,466			1,360			529			—		3,355
Interest expense	(62,675		)	(1,472		)	(13,356		)	—		(77,503		)
Gain on sale of mortgage servicing rights, net	77			—			1			—		78
Other	(403		)	294			(2,157		)	—		(2,266		)
Other income (expense), net	(61,535		)	182			(14,983		)	—		(76,336		)

Income (loss) before income taxes	$	2,086		$	1,399		$	(31,890	)	$	—	$	(28,405	)



	Three Months Ended June 30, 2017
Results of Operations	Servicing			Lending			Corporate Items and Other			Corporate Eliminations		Business Segments Consolidated
Revenue	$	271,784		$	32,776		$	6,740		$	—	$	311,300

Expenses	201,928			32,886			45,666			—		280,480

Other income (expense):
Interest income	174			3,007			1,058			—		4,239
Interest expense	(63,903		)	(3,383		)	(13,842		)	—		(81,128		)
Gain on sale of mortgage servicing rights, net	1,033			—			—			—		1,033
Other	2,058			(128		)	1,498			—		3,428
Other expense, net	(60,638		)	(504		)	(11,286		)	—		(72,428		)

Income (loss) before income taxes	$	9,218		$	(614	)	$	(50,212	)	$	—	$	(41,608	)

	Six months ended June 30, 2018
Revenue	$	456,605		$	48,197		$	9,036		$	—	$	513,838

Expenses (1)	337,984			38,081			36,086			—		412,151

Other income (expense):
Interest income	1,894			2,852			1,309			—		6,055
Interest expense	(97,193		)	(3,417		)	(27,703		)	—		(128,313		)
Gain on sale of mortgage servicing rights, net	1,036			—			—			—		1,036
Other	(1,790		)	620			(2,735		)	—		(3,905		)
Other income (expense), net	(96,053		)	55			(29,129		)	—		(125,127		)

Income (loss) before income taxes	$	22,568		$	10,171		$	(56,179	)	$	—	$	(23,440	)

	Six months ended June 30, 2017
Revenue	$	555,802		$	63,522		$	13,840		$	—	$	633,164

Expenses	418,842			62,217			75,804			—		556,863

Other income (expense):
Interest income	261			5,754			1,987			—		8,002
Interest expense	(131,254		)	(6,667		)	(27,269		)	—		(165,190		)
Gain on sale of mortgage servicing rights, net	1,320			—			—			—		1,320
Other	5,060			103			2,298			—		7,461
Other expense, net	(124,613		)	(810		)	(22,984		)	—		(148,407		)

Income (loss) before income taxes	$	12,347		$	495		$	(84,948	)	$	—	$	(72,106	)



Total Assets	Servicing		Lending		Corporate Items and Other		Corporate Eliminations		Business Segments Consolidated
June 30, 2018	$	2,851,910	$	5,242,716	$	325,570	$	—	$	8,420,196

December 31, 2017	$	3,033,243	$	4,945,456	$	424,465	$	—	$	8,403,164

June 30, 2017	$	2,975,458	$	4,483,652	$	473,282	$	—	$	7,932,392



Depreciation and Amortization Expense	Servicing		Lending		Corporate Items and Other		Business Segments Consolidated
Three months ended June 30, 2018
Depreciation expense	$	1,256	$	25	$	4,834	$	6,115
Amortization of debt discount	—		—		442		442
Amortization of debt issuance costs	—		—		1,005		1,005

Three months ended June 30, 2017
Depreciation expense	$	1,466	$	55	$	4,835	$	6,356
Amortization of mortgage servicing rights	12,627		70		—		12,697
Amortization of debt discount	—		—		268		268
Amortization of debt issuance costs	—		—		661		661

Six months ended June 30, 2018
Depreciation expense	$	2,613	$	54	$	9,973	$	12,640
Amortization of debt discount	—		—		706		706
Amortization of debt issuance costs	—		—		1,662		1,662

Six months ended June 30, 2017
Depreciation expense	$	2,869	$	105	$	10,465	$	13,439
Amortization of mortgage servicing rights	25,271		141		—		25,412
Amortization of debt discount	—		—		539		539
Amortization of debt issuance costs	—		—		1,334		1,334


(1)	Expenses in the Corporate Items and Other segment for the three and six months ended June 30, 2018 includes $1.6 million and $7.3 million, respectively, of severance expense attributable to headcount reductions in connection with our strategic initiatives to exit the ACS business and the forward lending correspondent and wholesale channels, as well as our overall efforts to reduce costs.