Walter’s Reverse Mortgage Business Shines Amid Third Quarter Loss

Walter Investment Management Corp. (NYSE: WAC) posted a net loss of $76.9 million for the third quarter ended September 30, 2015, however, its reverse mortgage business offered some upside during the period.

The company’s reverse mortgage segment, which comprises the platforms of Reverse Mortgage Solutions and Security 1 Lending, generated revenue of $65.4 million for the quarter, a 75% increase from last year’s comparable period.

In terms of earnings, Walter’s reverse mortgage segment reported adjusted earnings of $1 million during the third quarter, a 67% increase compared to the third quarter of 2014, driven primarily by the growth in cash generated from origination, purchase and securitization of HECMs and higher net servicing revenue and fees, the company stated.

“The reverse business is working diligently to stabilize its origination channels and improve operational efficiencies in servicing and fulfillment,” said Walter Chief Executive Officer Denmar Dixon during the company’s third quarter earnings call Thursday morning.

In another highlight for Walter, RMS issued $390 million of HECM mortgage-backed securities (HMBS) during the quarter, holding down its position as the second-largest HMBS issuer of the year, right behind American Advisors Group (AAG), which issued $1.347 billion of securities through the first three quarters of 2015, according to an HMBS market commentary from New View Advisors last month. Over that same period, RMS issued $1.245 billion, representing an 18.5% market share.

“We look to leverage the RMS brand to increase market share in both originations and servicing,” Dixon said. “We will position the servicing platform for growth from a combination of flow transactions and industry consolidation. Affecting turnaround of the reverse business is a key priority for us.”

Significant changes to Walter’s reverse segment may already be underway, especially when considering the recent leadership change at RMS, which last month named Chris Mullins to serve as the company’s president. Formerly serving as chief operating officer at AAG, Mullins has the reverse mortgage operating experience that Walter believes will enhance its efforts to reposition its reverse business.

“We continue to believe in the value of the RMS franchise and look forward to improved results under this new leadership team,” said Gary Tillett, executive vice president and chief financial officer at Walter, during Thursday’s earnings call.

Looking ahead, Walter expects two factors will likely contribute to a decline in new origination volume in the near-term: the full effect of the Financial Assessment on overall volume and a loss the company experienced in distribution channel personnel in recent months.

“We have implemented processes to rebuild the distribution channel to the desired level and will continue to be aggressive in the corresponding and wholesale channels, while maintaining the appropriate pricing discipline,” Tillett said.

On a per share basis, Walter reported a net loss of $2.04 per diluted share for the third quarter, compared to a loss of $1.88 per diluted share for the comparable period last year.

Written by Jason Oliva

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