--Results included $3.9 million in costs tied to ResCap auction and other transaction expenses
--Company did not bid on MetLife mortgage-servicing portfolio
--Company sees pipeline of $600 billion in mortgage servicing
(Updated throughout with details about ResCap auction, information about MetLife sale and other new details throughout.)
By Andrew R. Johnson and Saabira Chaudhuri
Nationstar Mortgage Holdings Inc.'s (NSM) shares fell as much as 10% Tuesday after failing to meet analysts' quarterly earnings estimates, though revenue surged thanks to growth in the company's servicing portfolio.
Nationstar is among a small handful of non-bank companies that have benefited over the last year as large banks exit the servicing business, or the process of collecting loan payments from borrowers and other account functions.
Last month, the company lost an auction for the mortgage-servicing and origination assets of Residential Capital, the bankrupt mortgage unit of government-owned auto lender Ally Financial Inc. Nationstar was outbid by rival Ocwen Financial Corp. (OCN), which partnered with Walter Investment Management Corp. (WAC) on a $3 billion bid for the assets.
For the quarter, Nationstar reported a profit of $55.1 million, or 61 cents a share, compared with a loss of $3.1 million, or four cents a share, a year earlier. The most recent quarter included $3.9 million of ResCap and other transaction-related expenses. Stripping out one-time items, the per-share profit was 64 cents.
Revenue surged to $277.2 million from $90.9 million as servicing fee income more than doubled to $135.5 million, and the company saw a gain on mortgage loans held for sale of $139.3 million versus $30.2 million a year ago.
Analysts polled by Thomson Reuters expected per-share earnings of 65 cents, on revenue of $268.9 million.
Shares fell more than 10% Tuesday and were down 8% at $27.80 in recent trading.
Despite losing the auction for ResCap's business, Nationstar Chief Executive Officer Jay Bray said the company is tracking a potential pipeline of $600 billion in mortgage-servicing portfolios, of which it hopes to win $300 billion to $400 billion.
"Now that ResCap is behind us, we expect that a number of new opportunities will be brought to market," Mr. Bray said during a conference call with analysts, noting a "number of sellers" of mortgage-servicing rights "have been waiting on the sidelines until there was a resolution on" the ResCap auction.
Big banks, including Bank of America Corp. (BAC), have been exiting the servicing business in light of new regulatory requirements for servicers and expected capital requirements that could make it more costly for traditional banks to perform the function.
In June, Nationstar agreed to acquire the rights to service $10.4 billion in mortgages from Bank of America in a co-investment with Newcastle Investment Corp. (NCT).
However, on Friday, MetLife Inc. (MET) said it was selling a $70 billion mortgage-servicing portfolio to J.P. Morgan Chase & Co. (JPM), sparking concerns of increased competition for investors in Nationstar and Ocwen. Despite J.P. Morgan's purchase, Mr. Bray said he doesn't expect more competition from traditional banks.
Nationstar did not bid on the MetLife portfolio, which is comprised of newly originated loans with a "very clean credit profile," Mr. Bray said. "It fits probably better into a bank that has a real customer focus on trying to sell [customers] more products."
Nationstar expects $30 billion of acquisitions to close in the fourth quarter, Mr. Bray added.
As a mortgage servicer, Nationstar provides administrative functions on loans that are held by banks, government organizations, private investment funds and other owners of mortgage loans and securities. It earns revenue based primarily on the unpaid principal balance of loans serviced.
Nationstar noted that origination revenue was up 25% compared with the previous quarter, and 304% year-over-year, to $135.2 million for the quarter.
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