Mortgage servicing drags down Nationstar Mortgage 1Q earnings

Some loss offset by Xome improvements

Nationstar Mortgage Holdings’ earnings followed in the steps of Freddie Mac and Walter Investment Management Corp. as its earnings took a hit from the first quarter’s historically low interest rates.

However, while low interest rates dented the fair value of its mortgage–servicing rights portfolio, the company still posted a strong first quarter thanks to servicing and originations performance and improvement in its end-to-end digital real estate platform, Xome.

The company reported adjusted earnings results for the first quarter of $28 million or 27 cents per share.

This is compared to the fourth quarter’s adjusted earnings of $34 million, or 32 cents per share.

The company reported a GAAP net loss of $132 million, or a loss of $1.28 per share, of which $161 million or $1.56 per share, after tax, was primarily attributable to changes in fair value impacting its MSR portfolio.

According to Nationstar, declining interest rates during the quarter were the primary cause for the fair value loss on its MSR portfolio, which does not consider the value generated by our integrated origination platform.

This is compared to a GAAP net income in the fourth quarter of $79 million, or 73 cents per share.

Broken up, Nationstar’s servicing segment achieved $49 million of adjusted pretax income, or 5 bps based on average UPB of $392 billion, for the first quarter.

Meanwhile, its originations segment generated adjusted pretax income of $40 million in the first quarter, which was in line with expectations and represents nine consecutive quarters of over $40 million.

“We posted solid first quarter earnings led by Servicing, which delivered five basis points in profitability,” said Jay Bray, Chief Executive Officer. "In addition, for the second year in a row, our servicing operations achieved Fannie Mae’s highest level of performance recognition – the Five STAR designation, which reflects the hard work of our employees and the dedication to our customers.”

“In addition, originations continues to be a solid bottom line contributor by delivering $40 million in pretax income, and we made significant progress with Xome that we believe will drive earnings in future quarters,” said Bray. 

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