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Nationstar posts 2Q profits of $67M, up a whopping 174% over 1Q

Beats expectations and regulatory pushback in second quarter

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Nationstar Mortgage (NSM) reported quarterly net income of $67 million, or $0.74 per share, for the second quarter, a 174% increase over the $24 million or $0.27 per share in the first quarter 2014.

Nationstar generated Core EPS of $0.87 per share compared to $0.61 a share in the previous period, an increase of 43%. Core EPS excludes one-time expenses and MSR fair value adjustments. For the quarter, pretax income was $106 million and core pretax income was $125 million.

Challenges and regulatory pressures that dragged on fellow nonbank Ocwen Financial (OCN) and other concerns on Wall Street didn’t seem to affect Nationstar’s second quarter performance.

“The continued execution of our strategic plan produced growth across all of our segments and key financial metrics,” said Jay Bray, CEO of Nationstar. “Nationstar continues to deliver increasing profits and cash flows quarter over quarter by executing on our strategic initiatives.

“We are excited about the earnings power of our existing platforms as well as the continued build-out of our comprehensive digital real estate service offerings. Our goal is to be the premier real estate services provider to residential owners, buyers, sellers, agents and investors,” he said.

The value of loans handled by Nationstar, the second-biggest non-bank mortgage servicer, has tripled since the firm’s initial public offering in March 2012. 

This may reflect also how despite regulatory criticism, Nationstar and Atlanta-based Ocwen, known as special servicers because of their focus on rehabilitating soured loans, have modified mortgages at about twice the rate of banks, according to a report from Fitch Ratings Inc. in late spring that looked at performance of nonbanks going back to 2010. When mortgages go into foreclosure, the timeline for nonbanks on average is shorter, reducing investor losses, according to the report. 

Nationstar (Dollar amounts in millions)      

Q214

   

Q114

 

 

% Change

Revenue - Real Estate Exchange

     

$

36

     

$

27

     

33

%

Revenue - Real Estate Services

     

$

47

     

$

38

     

24

%

Pretax income - total

     

$

38

     

$

26

     

46

%

Pretax income margin

     

46

%

   

40

%

   

15

%

Real Estate Exchange - number of properties sold

     

5,663

     

4,538

     

25

%

                   

 

Servicing

Nationstar’s servicing portfolio, as measured by UPB, ended the second quarter nearly unchanged from first quarter levels, due to $10 billion of new servicing assets generated through acquisitions and the originations platform. Since the end of the second quarter, Nationstar already has commitments for over $20 billion in additional servicing acquisitions.

Nationstar’s pipeline of acquisition opportunities totals over $300 billion in aggregate UPB.

Nationstar’s 60-plus day delinquency rate decreased slightly from the first quarter. The servicing portfolio CPR increased in the second quarter, reflective of the lower rate environment.

The current expectation is for growth in both margin and core pretax income through the second half of the year principally driven by continued operational improvements as well as an increase in acquisitions. From a basis points perspective, the servicing operations achieved 9 basis points of operating profitability.

Solutionstar

Solutionstar’s revenues increased due to a strong increase in order volume in our Real Estate Services division and the continued success of the HomeSearch.com platform in effectively marketing properties. Solutionstar’s pretax margin increased in the second quarter to 46% from 40% in the first quarter, primarily due to mix of revenues.

Solutionstar sold nearly 5,700 properties in Q214 and expects more than 20,000 sales over the course of 2014. The number of properties under management continues to increase as a result of the successful closing of the private-label portfolio acquisitions from Bank of America in late 2013. In addition, in the second quarter Solutionstar started selling properties on behalf of third-party clients through HomeSearch.com.

Nationstar's funded volume and recapture rate decreased sequentially as a result of thoughtfully originating higher margin loan products, a decline in HARP originations, and efficiently managing capacity while the operations began the migration from multiple origination platforms to a single integrated platform and process.

The majority of volume in the quarter came from the consumer direct channel, which includes recapture and Greenlight. Correspondent volume was flat quarter over quarter and Nationstar continues to view the correspondent channel as a cost-effective way to acquire servicing.

“Nationstar remains committed to providing mortgage solutions to our more than 2.2 million homeowners. In the second quarter, we helped nearly 23,000 customers avoid foreclosure, including approximately 15,000 loan modifications which lower customer's payments. This also included providing collateral workouts and other repayment plans to approximately 8,000 homeowners,” Bray said. “We also helped 23,000 homeowners secure mortgages. The total includes approximately 6,000 homeowners whose mortgages were refinanced through the Home Affordable Refinance Program, which allows us to refinance a borrower with a very high loan-to-value ratio or a homeowner with negative equity in their house. 

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