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Mr. Cooper To Acquire Rushmore Residential Loan Servicing Platform

Apr 26, 2023

Deal follows February announcement of acquisition of Rushmore parent, Roosevelt Management Co.

Rushmore Loan Management Services LLC, a mortgage servicer based in Irvine, Calif., announced Wednesday it has entered into a definitive agreement to sell its residential mortgage servicing platform to Dallas-based Mr. Cooper Group, one of the largest home loan servicers in the country.

The deal follows Mr. Cooper's agreement, announced in February, to acquire Rushmore's parent firm, Roosevelt Management Co. LLC, to serve as the platform for its mortgage servicing rights (MSR) fund asset management strategy.

Terms of the transactions were not disclosed, but both are expected to close by the middle of this year, subject to regulatory approvals and other customary closing conditions, the companies said.

Rushmore said the residential mortgage servicing platform it is selling to Mr. Cooper includes approximately 250,000 customers, with a total of approximately $37 billion in unpaid principal balance (UPB) 

Rushmore CEO Terry Smith said the deal makes sense for both companies.

"During the past several months of discussions with Mr. Cooper's outstanding leadership team, I have become increasingly impressed with the strength and breadth of their platform and believe this combination provides a unique opportunity to take our operations to the next level," Smith said. "Our combined entity will provide an unparalleled offering to a broader base of clients and customers."

Mr. Cooper Reports Earnings

The announcement of the deal to acquire Rushmore’s residential mortgage servicing platform came the same day as Mr. Cooper Group reported its financial results for the first quarter of 2023. The company reported net income of $37 million, or 52 cents per diluted share, up substantially from net income of $1 million, or 1 cent per diluted share, in the fourth quarter of last year.

Chairman and CEO Jay Bray attributed the strong results to his company’s balanced business model. 

“We produced strong operating results and another quarter of rising returns,” he said. “Additionally, we ended the quarter with robust capital, record levels of liquidity, strong asset quality, and a significantly enhanced hedge on our MSR portfolio, positioning the company to navigate a volatile environment and deploy capital into accretive growth opportunities.”

Mr. Cooper reported funding 10,177 loans in the first quarter, totaling approximately $2.7 billion in UPB, which was comprised of $1.4 billion in direct-to-consumer loans and $1.3 billion in correspondent loans. Funded volume decreased 14% quarter-over-quarter, while pull-through adjusted volume increased 9% quarter-over-quarter to $3 billion.

The company reported it had 4.1 million loans to service, with servicing recording pretax income in the quarter of $94 million, including other mark-to-market of $63 million. Its servicing portfolio ended the first quarter at $853 billion in UPB, down from $870 billion in the previous quarter.

Also Acquiring MSR Rights

During a conference call with analysts on Wednesday, Bray addressed the acquisitions of Roosevelt and Rushmore, as well as deals to acquire mortgage servicing rights.

“The servicing portfolio ended the quarter at $853 billion, which was down slightly from the fourth quarter, but this is mostly timing as we’ve won some sizable deals which we will be boarding in the next few months, including $57 billion in bulk MSR acquisitions,” he said. 

Bray did not disclose the companies from which Mr. Cooper is acquiring the MSR rights.

“The opportunities we are seeing right now are as exciting as anything we’ve looked at in recent memory,” he said, “and I expect us to exit this part of the cycle as a larger, more profitable, and even more dominant competitor.”

Christopher Marshall, Mr. Cooper’s vice chairman and president, stated during the earnings call that the acquisition of Roosevelt and Rushmore will “provide the infrastructure for our asset management strategy.” 

“After extensive due diligence and discussions with the seller,” Marshall said, “we agree to take on Rushmore's highly regarded special servicing platform, which includes $37 billion of UPB in sub-servicing contracts from a diversified group of very high-quality investors.”

Marshall noted that "just over half of the portfolio is sub-servicing, where we benefit from higher servicing fees for non-performing loans and incentives to mitigate losses. In a higher delinquency environment, we would expect sub-servicing margins to remain stable or even potentially expand. For the MSRs we hold on balance sheet, we pay very close attention to concentration, particularly for Ginnie Mae loans, since these customers tend to have higher debt-to-equity ratios and lower FICO scores than conventional borrowers.

He added that Mr. Cooper is “delighted to welcome Rushmore's exceptionally talented people to our company,” where they will join its Right Path servicing team and bring “to market one of the leading special servicers in the industry.”

Marshall said his company is working to close the acquisition of the sub-servicing platform by the end of May, and expects to close the rest of the transaction by the end of June, subject to approval from regulators.

Bray added, "We are delighted to welcome Rushmore's talented team to our family, and we are committed to providing a seamless experience for their important clients. Working together, we will bring to market one of the leading special servicers in the industry."

Deal With Sagent

In addition to the newly announced deal with Rushmore, Mr. Cooper also reported on its deal with Sagent M&C LLC, which closed in March. Under terms of that deal, Sagent, doing business as Sagent Lending Technologies, purchased certain intellectual property (IP) rights related to Mr. Cooper’s proprietary, cloud-based technology platform for mortgage servicing.

In exchange, Mr. Cooper received an equity stake in Sagent and appointed two directors to its board. Mr. Cooper said it will also become a multi-year customer of Sagent.

During the Wednesday's earnings call, Mr. Cooper CFO Kurt Johnson noted that his company took $11 million in adjustments in the first quarter, some of which is related to the Sagent deal.

"These consisted of $1 million in severance, $3 million in markdowns for equity positions that we took in connection with the sale of Xome's valuation and title businesses, and a $7 million share in the loss to Sagent, which we account for under the equity method," he said.

"As we've previously shared, Sagent is in the process of integrating the IP it acquired from us on the cloud-based core processor," Johnson continued. "Once the integration work is complete, they will go to market with the industry's first and only cloud-native platform, offering customers significant benefits in cost and speed to market compared to other servicing platforms. We expect Sagent to continue operating slightly below breakeven until the integration is complete, which we'd estimate around year-end."

About the author
David Krechevsky was an editor at NMP.
Apr 26, 2023
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