Mr. Cooper top executives consider retirement as earnings hit highs

Mr. Cooper reports surge in earnings driven by higher net income in maintenance During Season 3, it was also revealed that the top executive was finally leaving the show.

Chris Marshall, President and Vice ChairmanChief Executive Jay Bray, who has praised it for bringing “bank-like” efficiencies and deleveraging to nondepository institutions during the pandemic, is making plans to retire at the end of 2024. Bray said some potential successors are already lining up.

Marshall’s exit was sensational from the start. The company’s total net income roughly doubled in the quarter to $275 million from $142 million in the previous quarter. Previous $113 million a year ago. The last time Mr. Cooper’s income was this high was in early 2022, before interest rates began to rise across the board.

With Marshall gone, the test for Mr. Cooper will be whether the company can maintain the financial and operational discipline he brought to the company as chief financial officer and later president, experience that included running the bank during the Great Recession. experience of.

“The scale we’re increasing, the efficiencies we’re increasing, those are going to continue,” Marshall said in response to an analyst question about what it owns versus what it handles for others.

The value of owned services can be volatile and difficult to predict.

Analysts at Keefe, Bruyette & Wood noted in a note that the company’s results included a negative $61 million mark-to-market charge on mortgage servicing rights, but that charge was offset by a 2009 securitization debacle that is undergoing a cleanup. offset by gains of $67 million.

According to a separate report from BTIG analysts, the collapse involved sales of reverse mortgage servicing.

As a project, the service is generally profitable.

Owned services now account for 56% of Mr. Cooper’s $937 billion portfolio, which Chief Executive Jay Bray said makes the company the largest player in the industry and gives it competitive economies of scale.

Marshall said recent portfolio growth has more than offset the loss of service clients.

Overall, Mr. Cooper had $234 million in pre-tax earnings from servicing in the quarter (excluding the securitization trust collapse) and another $29 million from originations. Higher rates generally favor service, lower rates favor origination.

The Marshall analyst said he expects earnings to be relatively stable going forward. Still, Mr. Cooper is unlikely to surge again like it did in its third season, in part because of some one-off projects.

“There won’t be huge improvements and you should expect continued improvement in profitability throughout the year,” he said of 2024.

Kurt Johnson, who became chief financial officer following Marshall’s promotion, will likely take on a more critical role as the president leaves office. Plans to impose capital limits on depositors.

These capital rules are still in the consultation period and will not be phased in until after 2024, but sale has taken placeMarshall said in a conference call. (Even without further tightening, bank capital rules will severely impact mortgage servicing rights.)

“We are starting to see banks bringing MSR pools to market as they Basel III Endgame Rules,” Marshall said.

In an update on one of the aforementioned initiatives, executives noted that Mr. Cooper has moved forward with plans to establish a new investment vehicle for mortgage servicing rights.

“We have started the financing process for our first MSR fund,” Bray said.

The Company will incur certain additional expenses associated with the Fund and Recently completed acquisitionsHowever, Johnson said these strategic investments will pay off over time by generating additional revenue.

“With the acquisition of Roosevelt, you should expect corporate expenses to increase by approximately $2 million per quarter, which reflects the costs of our asset management strategy and the team that oversees the MSR funds,” Johnson said. “Once the capital is raised and MSR acquisitions begin, The increase in revenue more than offsets this effect. “

Mr. Cooper also recorded a $192 million hedging loss during the quarter. Johnson said the hedge ratio was 76%, which was acceptable given the company’s target of 75%.

The company is managing the risk of potential market changes that could impact traditional services earnings by continuing to invest in countercyclical business lines that are not currently large profit centers such as Origin, Distressed Services and Xome’s remaining operations.

Delinquency rates increased in other areas of consumer finance, including auto loans and credit cards does seem to affect mortgages But Johnson expects that when asset levels are relatively high, people will prioritize home loan repayments, which could make them more manageable.

“We expect that number to rise slightly. This may not be a significant adverse environment for us in 2024,” he said.

New modification options added by the Federal Housing Administration earlier this year also help ease the dilemma, Johnson said. The Federal Housing Administration primarily serves first-time homebuyers who have lower incomes and less financial cushion against hardship.

“As a result, we are able to reduce FHA’s delinquencies and increase some of our ancillary revenue … and at the same time, FHA pays success fees for these modifications,” he said.

Delinquency rates for FHA mortgages are generally higher than for mortgages partially guaranteed by the Department of Veterans Affairs or backed by the U.S. Department of Agriculture, but Mr. Cooper’s recent late payment rates on Class 1 loans were lower than those for the other two classes of loans.

The company’s FHA delinquency rate for the quarter was 2.2%, while its USDA/VA loan delinquency rate was 2.3%.

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