Nationstar Posts $48 Million Loss Amid MSR Buying Spree

Nationstar Mortgage Holdings, Inc. (NYSE: NSM) took advantage of the increased transfer activity of mortgage servicing rights (MSRs) during the first quarter of this year, however, the company’s financial performance reflected a sizeable net loss during the period.

On Tuesday, national servicing giant of forward and reverse mortgages Nationstar reported a quarterly net loss of $48 million, or $0.53 per share, for the first quarter ended March 31, 2015, compared to net income of $19 million, or $0.21 per share, in the fourth quarter of 2014.

At the end of the first quarter, Nationstar’s servicing portfolio, as measured by unpaid principal balance (UPB), ended the quarter at $390 billion, an increase of 2% from year-end as the company closed on $24 billion of servicing acquisitions during the quarter.

The quarter was also marked by several purchase plans to acquire upwards of $30 billion worth of MSRs owned by Fannie Mae and Freddie Mac from fellow non-bank servicer and competitor, Ocwen Financial Corporation (NYSE: OCN).

The MSR transfer market environment witnessed increased activity in the first quarter and Nationstar expects financial institutions to continue to evaluate the disposition of non-core servicing portfolios, said Nationstar CEO Jay Bray during the company’s first quarter earnings call Tuesday morning.

“Our servicing business continues to take advantage of the increase in MSR transfer market activity,” Bray said. “We believe our servicing segment is exceedingly well-positioned to benefit from a rising rate environment that will result in improved earnings and extended duration of our cash flow.”

Nationstar currently has $31 billion of servicing acquisition commitments that are expected to close in the second quarter, as well as an additional $21 billion of MSR commitments the company expects to close, pending approvals from select Government Sponsored Enterprises.

The company’s earnings per share declined sequentially during the quarter due to a $110 million, or $0.77 per share, decrease related to adjustments in its servicing segment, as well as a $17 million non-cash, or $0.12 per share, quarterly increase in amortization partially offset by an increase in earnings from Nationstar’s origination business.

Nationstar’s operating income from its servicing segment decreased quarter-over-quarter principally due to higher prepayments, which were approximately $17 million higher in the first quarter, the company noted.

On the originations segment of Nationstar’s business, revenues increased sequentially during the quarter due to what the company noted as “a favorable interest rate environment that led to an increase in interest rate locks and secondary market spreads.”

For the first quarter ended March 31, 2015, origination revenues grew 9% from the previous quarter to $158 million. The company funded $4.2 billion of volume during the quarter with 71% of the volume from the consumer direct channel.

“Our consumer direct channel continues to be the most cost-effective way to create servicing,” said Bray during the call.

Despite the quarterly loss of nearly $50 million, Nationstar generated $114 million of adjusted cash flow during the first quarter. Indicative of a $31 million increase over the previous quarter, Nationstar believes that adjusted cash flow provides a better view of the company’s underlying performance.

“In the first quarter we capitalized on opportunities within the servicing transfer market, took advantage of the favorable originations conditions and continued the evolution of Solutionstar into a comprehensive real estate technology company that we expect to revolutionize the way real estate transacts,” said Bray.

Per this last bit, Nationstar announced that over the coming weeks it will re-launch its Solutionstar technology platform as Xome, as part of the company’s ongoing efforts to transform the residential real estate marketplace.

The portal, which Bray says will be released to the public in the next few weeks, assists consumers through each step of the homebuying process—from finding an agent, searching for a property, obtaining a mortgage, to closing the transaction.

Because traditional real estate transactions can often be complex, Nationstar’s ultimate goal with Xome is to create a more transparent home buying and selling process, while also providing consumers access to comprehensive real-time data to simplify this process and put the customer in charge.

As more consumers are using the internet in their home buying process—over 90%, according to Bray’s estimations—Nationstar believes Xome has the opportunity to capitalize on this changing consumer behavior.

“We believe home buying should be a transparent process, and Xome gets us closer to making this a reality,” Bray said. “The ability to transact through Xome sets us apart from the competition, and we believe the disparity will continue to grow as we add additional products and services in the upcoming quarters.”

Written by Jason Oliva

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