Mr. Cooper Posts Strong Second Quarter Earnings
The company announced concurrently its decision to purchase Flagstar Bank's servicing and TPO operations for $1.4B.
Mr. Cooper Group reported strong net income of $204 million in the second quarter, a 12% bump from the first quarter ($181 million). The company also announced its agreement to purchase Flagstar Bank’s mortgage servicing and third-party origination (TPO) platform for $1.4 billion.
In an earnings call with investors Thursday morning, Mr. Cooper Chairman and CEO Jay Bray called the company’s second-quarter results “super strong.”
Expected to close in the fourth quarter of 2024, the acquisition of Flagstar’s mortgage operations consists of acquiring mortgage servicing rights (MSRs), advances, subservicing contracts, and a third-party origination platform. Mr. Cooper expects to welcome 1.3 million customers to its current base of 5.3 million servicing customers and add roughly $356 billion in unpaid principal balance (UPB).
Mr. Cooper’s entire servicing portfolio, including MSR UPB and subservicing UPB, ended the second quarter at more than $1.2 trillion, with servicing generating a pretax operating income, excluding another mark-to-market, of $288 million. That marks a decline from the first quarter’s recorded pretax servicing income of $354 million, including another mark-to-market of $68 million, but a 58% increase from a year ago.
The “carrying value” of the company’s MSR portfolio exceeded $10 billion at the quarter’s end, “equivalent to 153 bps of MSR UPB,” according to the company’s press release. Total expenses fell from $317 million in the first quarter to $300 million in the second quarter, while total revenues rose from $564 million in the first quarter to $583 million in the second quarter.
On the origination side, Mr. Cooper funded 15,080 loans in the second quarter, totaling approximately $3.8 billion UPB, which comprised $1.7 billion in direct-to-consumer and $2.1 billion in correspondent. Funded volume increased 32% quarter-over-quarter.
The company reported that originations create “servicing assets at attractive margins by acquiring loans through the correspondent channel and refinancing existing loans through the direct-to-consumer channel,” earning pretax income and pretax operating income of $38 million.
Executives from Mr. Cooper noted "attractive refinance opportunities" stemming from the acquisition of Flagstar's servicing and TPO businesses. Eighteen percent (18%) of the Flagstar servicing portfolio Mr. Cooper will acquire includes notes above 6%, as reported in the investor call. Those higher coupons provide the opportunity to scale up originations in 2025 should Federal Reserve rate cuts create the opportunity for servicing customers to refinance through Mr. Cooper's direct-to-consumer channels.
Roughly one-third of Mr. Cooper's entire servicing portfolio has notes over 5%. The company hired around 100 originators in the second quarter, adding capacity to prepare for any movement in interest rates, as reported in the investor call.