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Mr. Cooper’s 1Q Earnings Soar 325%, But Firm Also Cut 250 Jobs 

David Krechevsky
Apr 29, 2022
Mr. Cooper Group Logo

Dramatic increase in earnings a result of deal with Sagent

No one in the mortgage industry, it seems, is immune to layoffs these days — not even the nation’s fourth-largest mortgage servicer, Mr. Cooper Group, coming off a spectacular quarter.

The Dallas-based nonbank mortgage lender and servicer reported first-quarter 2022 net income of $658 million, or $8.59 per diluted share, a 325% increase from net income of $155 million, or $2.01 per diluted share, in the fourth quarter of 2021.

In its report, the company cited “positive pretax operating income of $96 million, $552 million other mark-to-market from higher interest rates, and a pretax gain of $223 million” from its investment in a 20% stake in mortgage servicing technology company Sagent. 

Included in the report, however, was a sentence noting a company expense in the quarter of “$3 million in charges related to severance.” This expense was not discussed during an otherwise positive earnings conference call held late Thursday afternoon, and none of the analysts on the call questioned it.

In response to a request for comment from National Mortgage Professional, a spokesperson replied via email with a company statement that confirmed Mr. Cooper had eliminated approximately 250 positions in the quarter.

"While the mortgage industry experienced record high originations volumes in recent years and resources were scaled up to meet consumer demand, the industry now faces higher interest rates leading to lower originations volume,” the company statement read. “It is with deep regret that we needed to eliminate approximately 250 positions in the first quarter.”

Mortgage originations fell significantly in the quarter for Mr. Cooper, which posted pretax income from loan originations of $155 million, down 14.4% from $181 million in the prior quarter. The company said it funded 46,933 loans in the first quarter, totaling approximately $11.6 billion unpaid principal balance (UPB), including $7.8 billion in direct-to-consumer loans and $3.8 billion in correspondent loans. 

The report noted that $2 million related to severance was expensed in originations, suggesting that the bulk of the job eliminations came from this unit.

The corporate statement continued, “Our team members play the most important role in our company's ongoing transformation and any decision made that impacts our team and culture is taken very seriously. As always, we are committed to being transparent and respectful, especially during these times, and have offered resources to support impacted team members as they transition to the next phase of their careers."

Details of the resources offered to employees affected by the job cuts were not provided.

During the conference call, Chairman & CEO Jay Bray noted that, despite the positive results, the first quarter was challenging for both Mr. Cooper and the mortgage industry.  

“The first quarter was extremely volatile, with the conflict and humanitarian crisis in Ukraine shocking the markets; further supply chain disruptions leading to headaches for many industries; accelerating inflation forcing the Federal Reserve into action; and the sharpest increase in mortgage rates in many years, if not decades,” he said.

In the first quarter, the company reported pretax servicing income of $558 million, including a $552 million gain in mortgage servicing rights (MSR). The company’s servicing portfolio ended the quarter with an unpaid principal balance of $796 billion,as the portfolio grew 27% year over year. Without the gain in MSR, pretax servicing income was $7 million, down nearly 83% from $41 million in the previous quarter.

Mr. Cooper announced it was acquiring an equity stake in Sagent in February and the deal closed in March. In exchange, Sagent acquired certain intellectual property rights related to Mr. Cooper’s proprietary, cloud-based technology platform for mortgage servicing. Mr. Cooper also became a multi-year customer of Sagent.

Sagent is a Warburg Pincus-backed fintech software company seeking to modernize servicing for banks and lenders. The company agreed to integrate Mr. Cooper’s platform “into a cloud-native core and license the resulting cloud-based servicing platform” to not only Mr. Cooper but other servicers. Sagent has said it will begin marketing the cloud-based servicing platform to other mortgage companies in 2023.

In the earnings report, Vice Chairman and President Chris Marshall said that while steep increases in interest rates “will place pressure on the originations industry, we are in a much better position than most, as we stand to benefit from significant improvements in servicing profitability during 2022.”

In the presentation to analysts Thursday afternoon, Marshall noted that higher rates are projected to boost Mr. Cooper’s servicing pretax operating income to more than $100 million by the fourth quarter of this year.

Word of job eliminations at Mr. Cooper comes amid a flurry of staff cuts announced in the quarter by mortgage industry companies, including Rocket Mortgage and Amrock, Better.com, Blend Labs, and Union Mortgage

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