Nationstar Mortgage Holdings (NSM) posted revenue of $504.3 million, down 20.2% year-over-year, but beating Wall Street estimates by $134.4 million.
Earnings per share for the third quarter were $0.80 – analysts expected $1.11. Core earnings were $72.7 million in the third quarter, compared to $90.2 million in the second quarter.
Nationstar reported quarterly net income of $111 million, or $1.22 per share, for the third quarter, a 65% increase over the $67 million or $0.74 per share in the second quarter 2014.
In the third quarter, Nationstar remained focused on its 2014 strategic initiatives to drive long term shareholder value, said Jay Bray, Chief Executive Officer.
“During the quarter, we generated strong margins across all of our businesses, executed on our servicing segment profitability initiatives and added additional third party clients within Solutionstar. We signed multiple servicing portfolio acquisitions and replaced virtually 100 percent of portfolio runoff in the quarter. As we announced earlier this week, we are pleased with the addition of Kal Raman as CEO of Solutionstar,” Bray said. “This strategic hiring represents the continued evolution and growth at Solutionstar as we develop and deploy technology that will make the real estate experience easier and more transparent for consumers and real estate professionals.”
Nationstar continues to see an increase in recurring fee-based earnings as a composition of overall earnings mix with 70% of pretax income in the third quarter generated from servicing and Solutionstar, as compared to 60% in the second quarter.
Servicing core pretax income increased 8% sequentially and core pretax income margin increased 18% due to continued execution on our servicing profitability targets including workforce management, reducing delinquencies and controlling vendor spend. From a basis points perspective, the servicing operations achieved 9.9 basis points of operating profitability in the third quarter and expects to exit the year at or above 11 basis points principally driven by continued benefits from operational improvements.
Nationstars servicing portfolio, as measured by UPB, ended the third quarter virtually unchanged from second quarter levels as Nationstar replaced nearly 100% of runoff. Since the end of the second quarter, Nationstar has entered into commitments to acquire $43 billion of new servicing acquisitions, and closed on $16 billion in the third quarter, with the expectation of closing the remaining $27 billion by first quarter 2015.
Nationstars 60-plus day delinquency rate decreased to 10.6% in the quarter as a result of completing more than 18,000 workouts. The servicing portfolio CPR increased to 14.0%, reflective of the lower rate environment.
Solutionstars revenues increased slightly during the quarter as a result of increased revenues from the real estate services business. Solutionstars pretax margin in the third quarter decreased slightly to 41% from 46% in the second quarter, primarily due to a higher mix of business coming from the real estate services business.
During the quarter, Solutionstar sold over 5,200 properties and still 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, during the quarter, Solutionstar entered into 10 new agreements to sell properties on behalf of third-party clients. It is expected that these assets will be boarded onto the HomeSearch.com platform during the fourth quarter with sales and earnings materializing thereafter.
In early November, Solutionstar deployed its next generation technology for HomeSearch.com which delivers an enhanced experience to consumers by providing increased functionality including access to distressed and non-distressed property listings and advanced search tools.
Originations revenue decreased sequentially principally due to reduced volumes and a reduction in secondary market spreads. Originations expenses decreased during the quarter as a result of increased productivity and platform efficiencies. The originations segment generated a 39% margin during the quarter, representing the second consecutive quarter of high margins.
During the quarter, Nationstar successfully completed the migration to a single integrated platform that will generate efficiencies in subsequent quarters. Nationstar funded $4.1 billion of volume during the quarter with approximately 65% of the volume from the consumer direct channel. Correspondent volume was flat quarter over quarter and Nationstar continues to view the correspondent channel as an opportunistic cost-effective way to acquire servicing.