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Growing pains for Mr. Cooper? Nonbank takes big loss thanks to lower interest rates

Adds more than 400,000 new servicing customers, but takes MSR-related loss

Mr. Cooper grew its business significantly in the first few months of the year, closing the acquisitions of Pacific Union Financial and IBM's Seterus mortgage servicing platform in the first quarter alone.

Through those acquisitions, Mr. Cooper added more than 400,000 new mortgage servicing customers to its portfolio, which is already well above 3 million. The Pacific Union acquisition also helped increase Mr. Cooper’s mortgage originations by 5% over the fourth quarter. 

But despite all of that, the nonbank formerly known as Nationstar Mortgage still took a big financial loss in the first quarter, due to lower interest rates.

According to the company, Mr. Cooper posted a loss of $186 million in the first quarter. The company would have been in the black if not for a sizable markdown on its sizable mortgage servicing portfolio.

Mr. Cooper took a net fair value mark-to-market on its MSR portfolio of -$293 million, meaning it took a loss of $293 million on its servicing portfolio due to low interest rates.

The company’s servicing portfolio now includes 3.8 million customers with an unpaid principal balance of $632 billion, 15% larger than it was in the fourth quarter.

Excluding the mark-to-market on its servicing and other items, Mr. Cooper reported pretax operating income of $48 million and after-tax operating income of $36 million.

“The first quarter included a mark-to-market that was in line with our expectations, while the underlying profitability of the servicing segment was strong, and originations enjoyed a strong rebound in profitability thanks to improved capital markets conditions and two months’ contribution from Pacific Union,” Mr. Cooper Vice Chairman and Chief Financial Officer Chris Marshall said.

On the originations side, Mr. Cooper originated 27,294 loans in the first quarter, totaling approximately $5.7 billion unpaid principal balance. Of those, $2.2 billion came from the direct-to-consumer channel, $3.1 billion came from the correspondent channel, and $0.4 billion came from the wholesale channel.

According to the company, its’ funded volume increased 5% quarter-over-quarter driven by two months of Pacific Union funded volume.

“2019 is a year of integration and investment for Mr. Cooper, designed to set the stage for sustained growth and higher returns in the years to come,” Mr. Cooper Chairman and CEO Jay Bray said. “Notable achievements in the quarter included boarding 440,000 new servicing customers from our Pacific Union and Seterus acquisitions and making important progress in the integration of Assurant Mortgage Solutions into Xome.”

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