Nationstar recovers from “neutral” to “buy”

Sterne Agee upgrades the nonbank

Nationstar Mortgage was upgraded from “neutral” to “buy” by Sterne Agee with a price target of $42.00.

Here is a timeline of Nationstar’s recovery:

·      In May, the company was downgraded by Jeffries, moving it from “buy” to “hold” with a price target of $32. According to Jeffries, Nationstar was downgraded because of “our revised servicing margins, UPB growth, and gain of sale margin assumptions.”

·      In June, Nationstar sold mortgages originated by the company to Citigroup, who securtized the loans while Nationstar did most of the servicing. Furthermore, the company announced that it would slowly exit the reverse mortgage origination business.

·      Not long after selling the mortgages to Citi, Nationstar was identified as the nonbank special servicer that was able to breach Fannie Mae’s minimum capital requirement for servicers after it was able to execute more than 300 MSR transfers in the last three years, amounting to around $400 billion in servicing.

·      In August, HousingWire reported that Nationstar, among other nonbanks, received downgrades from several companies including Wells Fargo and Forbes, which further emphasized its “hold” status.

·      While regulatory pressure from Wall Street against nonbanks like Ocwen Financial continued, Nationstar was seemingly untouched. In the midst of Wall Street’s skepticism, Nationstar reported second-quarter profits of $67 million, a 174% increase over the first quarter, and completed its exit out of the reverse mortgage origination business.

According to Nationstar's spokesman, John Hoffman, the company had become one of the largest mortgage servicers in the U.S., boasting a reverse mortgage portfolio of $28.9 billion UPB as of March 31, 2014.

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