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Mr. Cooper Group 3Q Earnings Beat Analyst Expectations

David Krechevsky
Oct 26, 2022
Earnings

Loan originator and servicer saw earnings fall 25% from 2Q, but mortgage servicing portfolio grew.

KEY TAKEAWAYS
  • Reported net income of $113 million, or $1.55 per diluted share, down 25% from the second quarter.
  • The servicing portfolio grew to $854 billion in unpaid principal balance (UPB), up 6.3% from the second quarter.
  • Its mortgage servicing rights at fair value also increased, rising 4.2% to $6.41 billion.

Mr. Cooper Group Inc., a nonbank mortgage lender and servicer, did better in the third quarter than analysts expected, even as its earnings fell 25%.

In the quarter ended Sept. 30, the Dallas-based company reported net income of $113 million, or $1.55 per diluted share, down 25% from $151 million, or $2.03 per diluted share, in the second quarter. Total revenue was $510 million in the third quarter, down nearly 15% from $599 million in the previous quarter.

The results beat analysts’ expectations of $420.2 million in revenue and earnings per share of 49 cents, according to SeekingAlpha.com.

Chris Marshall, Mr. Cooper’s vice chairman and president, attributed the better-than-expected results in part to “the strong ramp in servicing earnings, which reflects not only the benefit of higher interest rates, but our industry-leading technology, scale, and process discipline. We grew the servicing portfolio with new and existing clients who appreciate our scalable and compliant platform and our demonstrated loss-mitigation capabilities.”

During an earnings conference call with analysts and the news media, Marshall noted that rates rose more than 100 basis points during the third quarter, and said the housing market is facing “the worst affordability crisis in its history.” 

In its servicing segment, Mr. Cooper reported third-quarter operating revenue of $377 million, down from $394 million in the previous quarter. The servicing portfolio, however, grew to $854 billion in unpaid principal balance (UPB), up 6.3% from $804 billion in the second quarter.

Its mortgage servicing rights at fair value also increased, rising 4.2% to $6.41 billion.

For its mortgage originations unit, pretax income and pretax operating income totaled $45 million, down 26% from $61 million in the second quarter. The company said it funded 21,487 loans in the third quarter, totaling approximately $5.7 billion in UPB, also down 26% from the second quarter. 

Of the loans funded in the third quarter, $3.6 billion were direct-to-consumer loans, while $2.1 billion were via the correspondent channel, the company said.

The company reported $530 million in cash and cash equivalents for the third quarter, up 3% from the second quarter.

“Thanks to our balanced business model, we produced another solid quarter with rising earnings and cash flow, and strong growth in book value per share,” said Jay Bray, Mr. Cooper’s chairman and CEO. “We finished the quarter with extremely robust capital and liquidity, which will support continued prudent growth in our platform and customer base.”

Bray added that the economic factors and the rising rate environment in the mortgage industry are creating challenges. 

“We are watching the decline in leading indicators, showing a growing risk of recession, as well as a housing correction, which has already begun,” he said during the conference call. “Starting with origination, as we all know rates have moved very sharply in the past few weeks. Mortgage rates have more than doubled year over year.”

As a result, he said, the opportunity for homeowners to refinance their mortgages “is virtually nonexistent.” 

To deal with these issues, Bray said Mr. Cooper is “moving forward to realign capacity in our origination business. This is not the time to loosen credit standards or take your eye off manufacturing quality.”

Published
Oct 26, 2022
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