Mortgage

Fortunes reverse as Ditech servicing now props struggling mortgage lending

Can't fight the overall market

It’s been quite the year for Ditech as the company emerged from bankruptcy, lost its spot on the New York Stock Exchange due to the poor performance of its stock, saw some executive turn over and doubled down on digital mortgages and rebranding efforts.

But one thing seems to have worked out rather well for the embattled nonbank. Ditech’s decision to switch from mortgage servicing to subservicing paid off, in a way.

While the company still reports a third quarter loss in 2018, it’s not nearly as bad as the earnings report from a year ago. The pre-tax loss of nearly $37 million compares to a pre-tax loss of $123.7 million in the prior year quarter.

But digging deeper into the numbers, several trends emerge.

The first is that Ditech continues to get hammered by its reverse mortgage business. The segment continues to lose money, but at a much more digestible rate — $2.6 million loss in this latest quarter compared to nearly $67 million from a year ago. Thankfully, reverse mortgage revenues are up nearly 50%.

“Net non-cash fair value losses decreased $17.3 million due primarily to improved market pricing in the third quarter of 2018 versus a decline in market pricing in the third quarter of 2017. Net interest income on reverse loans and HMBS related obligations increased $5.5 million due primarily to an increase in buyouts,” the company explained in its report.

The second trend is that forward mortgage results are discouraging, as nationwide, loan officers report slowing demand for mortgages overall. Last year, mortgage lending was a bright spot, the only segment profitable with $24.4 million in revenue, but now the division is running at a nearly $2 million loss.

So what happened?

Simply put, again, the demand just isn’t there, and costs continue to run high. “Net gains on sales of loans decreased $26.2 million as compared to the prior year quarter due primarily to a lower day one margin due to a product mix shift towards lower margin correspondent and wholesale channels combined with pricing decreases in both the consumer and correspondent channels, as well as an overall lower volume of locked loans,” the report states.

Finally, mortgage servicing reversed its fortunes, going in the opposite direction of originations. Here’s the full explanation, but a simple, tactical shift helped fuel the division back to black.

“During the third quarter of 2018, the segment generated revenue of $122.9 million, an increase of $32.3 million as compared to the prior year quarter primarily due to $60.0 million in favorable fair value changes to our MSR, partially offset by $26.8 million in lower servicing fees due primarily to the shift of our servicing portfolio from servicing to subservicing and continued runoff of the overall servicing portfolio,” the earning reports said.

Based in Fort Washington, Pennsylvania, Ditech has approximately 3,300 employees.

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