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Investments

Why did Hayman Capital bet big on Nationstar?

Kyle Bass' hedge fund snaps up 4.76 million shares

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Kyle Bass’ Hayman Capital Management is upping a stake in Nationstar Mortgage (NSM) by a factor more than four.

Hayman Capital bought up 4.76 million shares, or 5.3%, of the financial firm’s stock in the first quarter of 2014, according to its 13d filing with the U.S. Securities and Exchange Commission.

That’s an increase from its holdings in Nationstar as of Dec. 31, 2013, when it held 1.08 million shares. Nonbank mortgage servicers got a boost in trading from the news Hayman was going big on Nationstar.

Hayman Capital Management is a hedge fund owned by its employees, which manages more than $1.1 billion in assets primarily focused in public equity and fixed income securities.

“Hayman believes that Nationstar offers a compelling investment opportunity as misinformation has created a divergence between perception and reality. It has been clearly demonstrated over the last several years that nonbank servicers, such as Nationstar and Ocwen (OCN), have had more success than the banks helping families remain in their homes which has benefited homeowners, investors and taxpayers alike,” said Steele Schottenheimer, managing director of investor relations at Hayman Capital Management.

Hayman’s advisors are attracted to the success of the nonbank servicers, as demonstrated by the fact that they have far fewer customer complaints per delinquent loan than the large bank servicers, Schottenheimer said.

“Nationstar has a long history of reducing delinquencies by providing solutions to troubled borrowers. The banks are jettisoning portions of their mortgage servicing businesses in part due to increased capital requirements (driven by Basel III), but also because they are not fundamentally positioned to service high-touch portfolios,” he said.

Of the $10 trillion U.S. mortgage market, more than 80% of the loans are still being serviced by the banks and the tailwind remains for additional transfers from bank to nonbank servicers. 

“Over the last several years, Nationstar has invested heavily in infrastructure and personnel to scale their platform. The company is now in a great position to reap the benefits of these investments and grow servicing profitability in 2014 and beyond,” Schottenheimer said.

The CEO of Nationstar, Jay Bray, is featured on the cover of the latest HousingWire magazine. In the exclusive interview, he shrugs off critics who say his company is growing out of control. In his words, mortgage risk is in the "DNA of the company" and that the company is nimble enough to go with the flow.

"The fundamental way we grow the franchise is we hire people before we board the loan, Bray said in the interview. "So as opposed to growing recklessly, we make sure we have people in the seats beforehand."

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