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Here’s the bright spot in Stonegate Mortgage’s tough 1Q

This helps offset massive MSR loss

Stonegate Mortgage didn’t get away from the financial impact of the first quarter’s historically low interest rates, which already dented the performance of most other lenders due to negative adjustments to the “fair value” of each company’s mortgage servicing rights portfolio.

There were some bright spot in its earnings though.

Steve Landes, Stonegate Mortgage executive vice president, national director of sales and president of NattyMac, said in a previous interview with HousingWire over its fourth-quarter earnings that the majority of Stonegate’s production comes from third-party origination, which is dealing with wholesale and correspondent clients.

Landes explained Stonegate sees its path forward it through growing its TPO channel.

Looking at Stonegate’s first-quarter earnings, its TPO is one of the few positive areas.

Mortgage loan funded volume through the company's warehouse lines of credit provided to its correspondent and other customers in the company's financing segment increased 4% to $881.6 million in the first quarter of 2016 from $844.5 million in the fourth quarter of 2015, and increased 38% from $638.1 million in the first quarter of 2015.

Overall though, the Indianapolis-based bank recorded a net loss for first quarter 2016 of $37.5 million, or $1.45 per diluted share, compared to net income of $1.1 million, or $0.04 per diluted share in the fourth quarter of 2015. The company did post a net loss of $9.6 million, or $0.37 per diluted share in the first quarter of 2015.

Due to the significant decline in its MSR asset during the first quarter of 2016, the lender said the difference between its deferred tax assets and deferred tax liabilities increased, which led to the recording of an additional valuation allowance against its deferred tax assets in the amount of $13.1 million.

“Our first quarter results were significantly impacted by a $35.7 million decline in the fair market value of our MSR asset and a 15% decrease from the prior quarter in mortgage originations from continuing operations that, while disappointing, was consistent with the overall decline in the industry as a whole during the first quarter, based on preliminary data from the Mortgage Bankers Association,” said Jim Smith, CEO of Stonegate.

As far as mortgages go with the company, mortgage loan origination volume decreased 15% to $1.94 billion during the first quarter of 2016 from $2.27 billion in the fourth quarter of 2015, and decreased 26% from $2.61 billion in originations during the first quarter of 2015.

Stonegate’s servicing portfolio, as measured by unpaid principal balance, hit $18.07 billion at March 31, 2016, an increase of 3% over December 31, 2015 UPB of $17.52 billion and up 7% from March 31, 2015 UPB of $16.96 billion.

“Even in these difficult conditions, we made additional progress in optimizing the expense structure of our business,” said Smith. "As we move forward, these cost structure improvements will enhance our competitive position and drive improved operating performance. We remain highly focused on increasing overall shareholder value, improving execution and maintaining a strong balance sheet."

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