Walter Investment Management (WAC) posted a fourth quarter net loss of $44 million, and revenues of $1.5 billion for the full year.

Declines in net servicing fees, changes in valuation inputs and other factors affected the company’s performance.

Total revenue for the year ended December 31, 2014 was $1.5 billion, a decline of $315.3 million or 17% as compared to the year ended December 31, 2013, primarily related to a $181.9 million decline in net servicing fees and revenues comprised of a $321.6 million decrease in the fair value of mortgage servicing rights offset by a $143 million increase in gross servicing revenue and fees due to growth in the third-party servicing portfolio in the company's Servicing business; and a $136.8 million decline in net gains on sales of loans reflecting lower locked volumes in the consumer lending channels and a shift in mix to the lower margin correspondent channel in the Originations business. 

The decline in revenue was partially offset by $37.3 million higher other revenue, driven by $36.8 million of performance fees earned by the Investment Management business in 2014.

Total expense increased 17% from $1.4 billion for the year ended December 31, 2013 to $1.6 billion for the year ended December 31, 2014 primarily due to a $82.3 million goodwill impairment charge in the Reverse Mortgage reporting unit, increased legal and regulatory expenses of $100.8 million, increased Servicing segment advance provisions of $34.5 million and increased interest expense of $30.4 million offset by lower costs in the Originations segment.

"During 2014 Walter Investment executed against its strategic initiatives growing the serviced portfolio by 18% to $256.1 billion of UPB, closing $79.6 billion of MSR purchases and sub-servicing transfers in a challenging transfer environment including $18.5 billion of replenishment from our Originations segment, capitalizing on retention opportunities embedded in our serviced portfolio and achieving a recapture rate of  37% for the year.  Additionally, we worked to reinforce our commitment to achieving a highly compliant operating environment focused on delivering high quality customer service to our consumers and clients," said Mark O'Brien, Walter Investment's Chairman and CEO.

"2015 promises to be a year of significant opportunity as we target meaningful growth in our mortgage servicing portfolio, which includes an increase in our sub-servicing mix, by leveraging our relationships with external capital partners, continue to grow our retail originations businesses, and undertake our cost savings and operational efficiency initiatives," O'Brien said.  "We have agreed to a proposed stipulated order with the FTC and CFPB which is subject to approval by the FTC, CFPB and the court and expect the settlement approval process may take a month or two. We believe the proposed settlement is in the best interest of our business and all stakeholders.”

Total revenue for the fourth quarter of 2014 was $317.5 million, a decline of $85.3 million as compared to the fourth quarter of 2013, driven by a $46.0 million decline in net servicing fees and revenues primarily comprised of a $70.2 million decrease in the fair value of mortgage servicing rights partially offset by a $26.7 million increase in gross servicing fees due to third-party servicing portfolio growth; a$44.9 million decline in net gains on sales of loans reflecting lower locked volumes in the Consumer Lending channels and a shift in mix to the lower margin correspondent channel during the current quarter in the Originations business; and a $6.7 million decline in insurance revenue due to the loss of commissions earned on GSE lender placed policies beginning June 1, 2014. 

Total expense increased 12% from $382.6 million in the fourth quarter of 2013 to $429.9 million in the fourth quarter of 2014 primarily reflecting the impact of increased legal and regulatory expenses of $50.4 million and higher Servicing segment advance provisions of $11.6 million, partially offset by a decline of approximately$15.0 million in other expenses.

The Servicing segment generated revenue of $113.8 million in the fourth quarter of 2014, a 30% decline as compared to fourth quarter 2013 revenue of $162.9 million, primarily comprised of a $70.2 million decline in the fair value of mortgage servicing rights partially offset by increased gross servicing fees and revenues of $26.5 million resulting from growth in the third-party servicing portfolio. Revenues for the quarter ended December 31, 2014 included $169.1 million of servicing fees, $23.9 million of incentive and performance-based fees, and $21.4 million of ancillary and other fees.

Expense for the Servicing segment was $205.5 million in the fourth quarter of 2014, an increase of 44% as compared to the prior year quarter, reflecting a $30.7 million increase in charges related to legal and regulatory matters, $11.6 million increase in advance provisions and $7.9 million higher salaries and benefits expenses due to hiring to support the growth of our business, and included $8.9 million of depreciation and amortization costs and $12.1 million of interest expense.  

The segment reported Adjusted Earnings (Loss) of $3.9 million and AEBITDA of $57.3 million for the fourth quarter of 2014, as compared to Adjusted Earnings (Loss) of $18.1 million and AEBITDA of$64.9 million in the prior year quarter.

The Servicing segment ended the quarter with approximately 2.2 million total accounts serviced with a UPB of approximately $238.1 billion. During the quarter, the Company experienced a net disappearance rate of 12.8%.

The Originations segment generated revenue of $89.5 million in the fourth quarter of 2014, a decline of 34% as compared to the prior year quarter, driven primarily by a shift in volume mix from the higher margin consumer lending channel to the lower margin correspondent lending channel.  Expense for the Originations segment of $85.4 million, which includes $8.0 million of interest expense and $4.6 millionof depreciation and amortization, declined 18% as compared to the prior year quarter reflecting expense reductions as the business works to align the employee base to match the scope and scale of current operations.

The segment generated Adjusted Earnings (Loss) of $9.3 million and AEBITDA of $12.2 million for the fourth quarter of 2014, as compared to Adjusted Earnings (Loss) of $34.1 million and AEBITDA of$37.6 million in the prior year quarter.

Direct margins in the consumer lending channel were 157 bps in the fourth quarter of 2014, a decrease of 49.2% as compared to the prior year quarter, driven by interest rate volatility and the payment of certain HARP-related fees which impacted the direct margin by (10) bps in the quarter.  Funded loans in the fourth quarter totaled $5.0 billion, with 32% of that volume in the consumer lending channel and 68% generated by the correspondent lending channel.  The total pull-through adjusted locked volume for the fourth quarter was $5.1 billion as compared to $4.6 billion for the prior year quarter.

The Reverse Mortgage segment generated revenue of $53.2 million for the fourth quarter of 2014, a 36% increase as compared to the prior year quarter, reflecting higher net fair value gains on reverse loans and related HMBS obligations.  Fourth quarter revenues were comprised of a $40.5 million gain from the net impact of HECM loan and related HMBS obligation fair value adjustments including $18.3 million related to non-cash fair value adjustments, $9.8 million in net servicing revenue and fees and$2.8 million of other revenue.  Total expenses for the fourth quarter were $56.9 million, a 32% increase as compared to the prior year period, primarily driven by higher expenses related to legal and regulatory matters, partially offset by a lower provision on uncollectible advances and uncollectible receivables.

The segment reported Adjusted Loss of ($0.5) million and AEBITDA of $0.7 million for the fourth quarter of 2014 as compared to Adjusted Earnings (Loss) and AEBITDA of $3.0 million and $4.3 million, respectively, in the fourth quarter of 2013.

Funded origination volumes in the segment declined 37% as compared to the prior year quarter resulting from a shift in product focus by the business from the higher volume correspondent channel, which continues to experience pricing pressure, to the lower volume, higher margin retail channel. This shift was driven by changes to the HECM product implemented in 2013 which resulted in lower initial draw limits. Securitized volumes declined 25% as compared to the fourth quarter of 2013 driven by a decline in correspondent originations.