Mr. Cooper exits reverse servicing space with sale to MAM

MAM has effectively re-entered the reverse mortgage servicing arena shortly after the sale of RMS to Ocwen

Mortgage servicing, origination and transaction-based services company Mr. Cooper Group announced on Tuesday the sale of its reverse mortgage servicing portfolio – operating under the Champion Mortgage brand – to Mortgage Assets Management (MAM).

Terms of the deal were not disclosed, but statements from Mr. Cooper company leadership detailed that the transaction will not have a significant impact on its second quarter 2021 results.

The development is particularly notable due to the recent activity of MAM in the realm of reverse mortgage servicing. MAM emerged as the buyer of servicer Reverse Mortgage Solutions (RMS) in 2019, buying the company and its portfolio from its former parent Ditech Holding Corporation after a protracted, court-supervised process. However, MAM recently sold off RMS to Ocwen Financial Services, parent company of PHH Mortgage Corporation and leading reverse mortgage lender Liberty Reverse Mortgage.

With the recent acquisition of the Champion Mortgage reverse servicing portfolio, MAM has effectively re-entered the reverse mortgage servicing arena shortly after the sale of RMS, which itself has been dogged by a lawsuit aimed at executives who helped to facilitate the original deal between MAM and RMS.

The sale of Champion

The sale of the Champion reverse servicing portfolio will be required to go through any relevant regulatory processes and other unspecified closing conditions before the deal can be completed, but is expected to close sometime between now and the end of 2021 according to a statement released by Mr. Cooper.

The sale is expected to reduce Mr. Cooper’s overall servicing portfolio by $16 billion in unpaid principal balance (UPB), and will also decrease its balance sheet by approximately $5 billion in Home Equity Conversion Mortgage (HECM) servicing rights (MSRs) and other unspecified assets. Prior to the close of this transaction, the company will continue with its reverse operations before the brand transitions over to its new owners.

This move is expected to allow the business to focus on its core drivers of profitability while also improving the financial position of the full organization, according to Mr. Cooper Group Chairman and CEO Jay Bray in a statement accompanying the announcement of the deal.

“We are incredibly thankful to the Champion Mortgage team for their steadfast commitment to our business, and we will work to make the transition for them and our customers as smooth as possible,” said Bray in the statement about the sale. “From a strategic standpoint, this is a major transaction – we can now completely focus on our core origination and servicing segments. It also improves profitability, strengthens our capital ratios, and positions us to accelerate growth.”

Another executive detailed that the decision about selling the Champion portfolio was not because reverse mortgage servicing endangered Mr. Cooper or depressed its profitability, but because the company sought to streamline its financial statements and instead accentuate what it aims to do with its core businesses.

“Measured from inception, Champion Mortgage has been a profitable operation for Mr. Cooper, but it is not a material driver of our business,” said Chris Marshall, vice chairman, president and CFO of Mr. Cooper Group. “This transaction strengthens our business model, simplifies our financial statements, and allows us to reallocate liquidity into our core operations. These benefits will contribute to even stronger momentum for Mr. Cooper.”

The same day Mr. Cooper announced the initiation of the Champion sale, the company also announced that it completed the sale of title insurance and settlement services provider Title365 to digital lending software company Blend Labs, Inc. in a deal valued at $500 million in cash and retained interest.

When reached, representatives from Mr. Cooper Group declined to offer any additional comment about the sale of the portfolio. Representatives from MAM did not respond to a request for comment as of publication time.

The buyer, recent history in reverse

MAM has been making further inroads into the reverse mortgage marketplace and accelerating its involvement in the space over the past couple of years. In June of 2019, MAM was designated as a “stalking horse bidder” in an effort to acquire RMS from then-parent Ditech Holding Corporation, which at that time had sought to sell off both its forward and reverse mortgage portfolios simultaneously to MAM for RMS, and New Residential for its forward portfolio.

By late September, legal hurdles to the closing of the deal had dissipated, and MAM emerged as the buyer of RMS in a deal for which terms were not disclosed. However, by summer of 2020 court filings indicated that MAM had filed suit against one of its own executives, alleging improper behavior and compensation toward an advising firm which the suit also alleges the executive had a direct, undisclosed employment relationship with.

This recently culminated in MAM announcing the sale of RMS to Ocwen Financial, the parent company of Liberty Reverse Mortgage and PHH Mortgage Corporation in a deal valued at $12.4 million. Liberty President Mike Kent later described for RMD that the acquisition of RMS will help to allow Liberty to become a fully-serviced reverse mortgage lender, offering it the ability to “originate, securitize and directly service reverse mortgages,” Kent said.

Earlier this year, the New York Office of the Attorney General (OAG) announced a $500,000 settlement with Champion Mortgage over allegations that claimed Champion failed to provide proper notices and information to reverse mortgage borrowers in order to protect their homes from default or foreclosure. The conditions of the settlement stipulated that Nationstar/Mr. Cooper is not required to admit nor to deny the findings of the OAG.

As a result of the settlement, Nationstar/Mr. Cooper is to pay $500,000 into a relief program spearheaded by New York Attorney General Letitia James called the Equitable Reverse Mortgage Assistance (ERMA) program, launched in 2020 and dedicated to limit instances of displacement among senior homeowners by providing deferred low-cost loans to reverse mortgage holders who are at risk of defaulting because of municipal property taxes, property insurance obligations, or other charges stemming from a temporary inability to pay.

The additional $500,000 in funds will be earmarked specifically for the assistance of Champion customers who avail themselves of ERMA program benefits, according to the attorney general’s office.

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