Coming off a shaky start to the year, Nationstar posted its best quarter since the second quarter of 2015, beating EPS expectations but missing revenue expectations.
In its second-quarter earnings, Nationstar recorded a net income loss for GAAP purposes of $92 million, or $0.92 per share.
On an adjusted basis, the company said it reported net income of $52 million, or $0.52 per share, driven by “strong servicing performance, the favorable originations environment and Xome property sales growth.”
During the company’s second-quarter conference call, Jay Bray, CEO of Nationstar, said, “I’m super pleased with the quarterly results. This is the most profitable quarter we’ve had since the second quarter of last year, and we’ve done what we said we were going to do. We took a step back, fixed the operations, got it back to the profitability levels that we knew were possible.”
Broken up, Nationstar’s servicing segment posted a GAAP pretax loss of $158 million on average UPB of $378 billion for the second quarter.
“On an adjusted basis, which removes the impact of fair value marks, we recorded adjusted pretax income of $64 million, or 6.8 bps. Year-to-date the servicing segment has generated 5.9 bps of profitability. Given the solid first half of the year, we remain committed to achieving quality earnings that exceed 5 bps on average for 2016,” the results stated.
The originations segment improved, generating GAAP pretax income of $54 million in the second quarter, up from $40 million in the first. The increase was driven by the company's direct-to-consumer business, which achieved a 29% recapture rate for the quarter.
“The originations platform continues to replenish the servicing portfolio at attractive rates of return. Our funded volume was $5.2 billion during the quarter, a quarterly increase of 24%, driven by the consumer-direct channel, which accounted for over 60% of the volume. In addition, we saw increases in the purchase volume percentage, which increased to 26%,” the results stated.
Meanwhile, the company’s end-to-end digital real estate platform, Xome, delivered $22 million in GAAP pretax income in the second quarter or $28 million on an adjusted earnings basis.
However, the company noted that the adjusted earnings principally excludes the cost of defending and settling a contingent obligation (partially offset by previously established reserves) that it inherited in connection with its acquisition of a title and close business.
Bray also touched on Xome on the conference call saying, “We’ve seen the revenue double there year-over-year, and I think that is potentially a crown jewel that will deliver a lot of value.”
Nationstar transformed Solutionstar, one of the company’s wholly owned subsidiaries, into Xome back in May 2015.
Raman oversaw the transformation of Solutionstar into Xome through its launch, but just over one year after he took over the helm of the company, he resigned.
Bray remains positive on the future, saying, “We enter the second half of 2016 as the industry leader, extremely well positioned to capitalize on the significant market opportunities ahead.”