Citing shrinking revenue caused by a shrinking number of delinquent loans, Stewart Information Services Corporation (STC) announced Thursday that it intends to end its delinquent loan servicing business by the end of 2015.
Stewart made the announcement in its second quarter earnings statement. In the earnings statement, Stewart said that its mortgage services segment turned in a pretax loss in the second quarter 2015 of $3.3 million on revenues of $58.0 million, compared to a loss of $2.3 million on revenues of $35.8 million in the prior year.
And from the first quarter to the second quarter, Stewart’s mortgage services segment revenue fell 8.9% from $63.7 million, on which it generated pretax income of $2.7 million.
Much of that decline was caused, according to Stewart CEO Matthew Morris, by “rapidly falling volume” in the number of delinquent loans.
“Our mortgage services segment was challenged by rapidly falling volume as the market experienced a continued decline of delinquent loans,” Morris said. “It was further impacted by continued pricing pressure on existing, delinquent loan servicing-related contracts.”
Morris said that given the “weak demand outlook” for delinquent loan servicing, the company’s delinquent loan servicing business no longer meets the company’s scale and margin requirements.
Morris said that the company plans to exit delinquent servicing, and anticipates taking a related charge in the third and fourth quarters totaling approximately $5.0 to $7.0 million.
Stewart said that intends to wind down its delinquent servicing operations over the second half of the year.
“We are mindful of our clients' need for an orderly wind down that ensures minimal disruption to their operations,” the company said in its earning statement.
Stewart added that it anticipates that for the rest of 2015, the company plans continue to operate the component servicing business lines in a phased exit process.
Stewart said that the phased exit that will dilute the margin of its mortgage servicing segment.
“While this decision was difficult, we are committed to improving our consolidated pretax margins, and this action will support that objective,” Morris said. “We are not exiting any business lines we recently acquired and we will retain our expertise in providing services to the delinquent loan market.”
Morris said that the company’s remaining mortgage services operations “constitute a core set of diversified offerings” that satisfy the needs of lenders that are seeking to manage vendor risk in the current regulatory environment.
“This decision will focus capital and resources on our business units that we believe have the strongest future for continued and stable growth including centralized title, loan origination and capital markets offerings,” Morris concluded.