LPS earnings plummet as default servicing landscape shifts

Firm still to be acquired by Fidelity National Financial

Lender Processing Services (LPS), known for providing data, analytics and services to the mortgage industry, felt the sting of a 40% drop in earnings-per-share in the third quarter as the company adjusted to a decline in overall transactions within the origination and default services segments.  

Origination services revenue within the transactions segment fell 21.5% to $120.9 million from last year, as falling refinance volumes led to lower revenue from title, escrow and appraisal services.

Default services revenue hit $114.6 million in 3Q, a 25.8% drop from last year, and a decline attributed to lower foreclosure activity and falling delinquencies. Both factors show the housing market improving, but as it shifts, firms in the servicing space have found themselves looking for new ways to consolidate, cut costs and compete.

Jacksonville-based LPS, which signed an agreement to be acquired by Fidelity National Financial in the spring, reported GAAP net earnings of $35.5 million, or 41 cents a share,  down from $58.3 million, or 69 cents a share, a year ago.  

The firm’s Chief Financial Officer Tom Schilling said on an adjusted-basis, earnings came in at 51 cents per share. The firm, he noted, is "rigorously managing expenses to mitigate the impact of the sharp decline in origination and default services transaction volumes as we have in prior market cycles."

LPS also saw its earnings impacted by severance costs, legal and regulatory expenses and costs associated with the firm's pending merger into Fidelity National Financial.

Revenue overall fell 15.8% to $419 million, down from $497.5 million a year earlier. Most of that drop is linked to what LPS calls "lower contributions from the origination and default services" segment.

LPS has not been shy about addressing challenges in a market where many servicing and origination providers are partnering up with other firms to deal with incoming regulations and higher expenses.

This was one of the catalysts for LPS' merger into Fidelity National Financial. When the deal was first announced, Hugh Harris, president and CEO of LPS, said with more regulation in circulation, servicing outlets are relying more heavily on partnerships that can create a strong balance sheet while offering comprehensive products and services.

Revenue for the technology, data and analytics segment hit $183.4 million in the third quarter, down 3% from $189 million in 2Q.

Revenue from servicing technology alone increased 1.8% from the previous quarter as loan counts fell. Origination technology revenue also declined 8.3% quarter-over-quarter on lower refinance activity.

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