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Investments / Servicing

Nationstar faces challenges as Wall Street turns skeptical on nonbank MSRs

Valuation, regulatory headwinds come despite growing customer satisfaction

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Nationstar (NSM) isn’t facing quite the level of pushback or regulatory targeting as its counterpart Ocwen Financial (OCN), but it is having a devil of a time lately and it was reflected in reports and on the market boards Friday.

Nationstar will report its second-quarter earnings on Wednesday, August 6. 

Nonbanks snapping up mortgage servicing rights have been fighting against a flurry of regulatory pushback and scrutiny, not so much for anything they have done, but because of their growing share of the MSR servicing space.

TheStreet Ratings team rated Nationstar as a “hold” with a ratings score of C-. TheStreet Ratings Team had this to say about their recommendation:

We rate NATIONSTAR MORTGAGE HOLDINGS (NSM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income and a generally disappointing performance in the stock itself.

Nationstar was downgraded by equities research analysts at Wells Fargo (WFC) from a “market perform” rating to an “underperform” rating in a research note issued to investors in mid-July. 

As Forbes reports, Nationstar has entered into oversold territory, hitting an RSI reading of 28.0, after changing hands as low as $30.12 per share. By comparison, the current RSI reading of the S&P 500 ETF (SPY) is 36.5.

This comes at the same time as news that apparently, homeowners are increasingly satisfied with the service of nonbanks handling their MSRs.

Homeowners, and particularly at-risk borrowers, are growing more satisfied with the companies that service their mortgages, such as Nationstar, Ocwen and Walter Investment Management (WAC), according to J.D. Power’s annual look at the mortgage servicing industry.

New York State Department of Financial Services Superintendent Benjamin Lawsky said his fight to bring more oversight to nonbanks who are snapping up mortgage servicing rights even as traditional banks are leaving the space in droves is just beginning, but he’s done a lot already to upset Ocwen’s applecart.

Lawsky fired some of the first big salvos in his crusade in early February, when he put an indefinite hold on the $2.7 billion MSR deal between Ocwen and Wells Fargo.

Ocwen’s CEO said Lawsky’s freeze has chilled almost all MSR deals in the pipeline.

Lawsky’s office has been performing a sort of enhanced interrogation of the increasing role of nonbanks seeking MSRs, as HousingWire has covered, including Nationstar.

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