--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.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
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