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Mr. Cooper Delivers $500M Profit In 2023, Addresses Yellen’s Concerns With Nonbanks

Mr. Cooper Group was profitable in 2023, a year marked by its acquisition of Home Point Capital and Roosevelt Management Co., along with the fallout from a cyberattack. Mr. Cooper’s strong performance was mainly due to its servicing business, which benefited from a higher interest rate environment.

During a call with analysts on Friday morning, company executives addressed some of the concerns raised by Treasury Secretary Janet Yellen, who said this week that U.S. regulators are monitoring risks stemming from nonbank mortgage lenders, especially failures resulting from market strains.

Dallas-based Mr. Cooper is expected to reach $1.1 trillion of unpaid principal balance (UPB) in mortgage servicing rights (MSR) by the end of March, a target announced in July 2021 when the portfolio was at $650 billion.

“While the overall portfolio has grown considerably, and we expect it to grow by another 25% this year, only half of it is owned MSR. The other half is subservice for a number of clients,” vice chairman Chris Marshall told analysts. If there are any limitations on concentration, I think it would be focused more on people, on owned MSR. So, I think we have quite a bit of room for us to grow before that becomes a concern for anybody.

At the end of December, Mr. Cooper had $992 billion in MSR, up 14% year over year. Of that total, 59% was in owned MSR, 5% was in special servicing and 35% was in subservicing. According to Marshall, the company seeks a balance of 50% owned MSR and 50% subservicing. 

And if you look, in total, we’re still in kind of a single-digit market share, Chairman and CEO Jay Bray said. It’s a scale business. You have to build and invest in technology. So, we don’t have any concerns about continuing to grow the platform. The key for us is sustainability.

Executives also added that, in terms of capital, the target for the company is so much far ahead of what is required of banks” that it’s not a concern,” according to Marshall. I can’t even imagine it becoming anything of a conversation. (…) You should think of us as having a rock-solid balance sheet.”

Overall, Mr. Cooper delivered $500 million in net income in 2023. Its almost $1 trillion servicing portfolio generated $869 million in pretax operating income last year. And by funding $12.6 billion in loans, it had a $100 million pretax operating income. 

A key theme for 2023 was operating leverage. We grew the portfolio at a double-digit pace during the year while at the same time cutting costs companywide, Bray said. In fact, since 2018, weve cut servicing costs by 30%.

Bray said the company will return its focus to equity, which is expected to grow to 14% to 18% by the end of 2025, compared to its current level of 12.5%. 

Cyberattack, changes in leadership 

Mr. Cooper generated $46 million in net income in the fourth quarter. That compares to $275 million in the third quarter of 2023 and $1 million in Q4 2022 when it had a negative mark-to-market of $58 million.

The earnings in Q4 2023 included, among other things, mark-to-market net hedges of $41 million and $27 million related to a cyberattack it suffered in October. The company had the data of nearly 15 million current and former clients exposed in a hacking incident, which resulted in at least four class-action suits.  

Despite the cyber incident, the company kept its servicing and origination businesses profitable. With 4.6 million customers, the servicing division brought in $229 million in pretax operating income in Q4, compared to $301 million in Q3. 

Meanwhile, the originations division — which focuses on acquiring loans from correspondent originators and refinancing existing loans in the direct-to-consumer channel — brought in $10 million in pretax operating income in Q4, compared to $29 million in the previous quarter. 

Bear in mind that these numbers were impacted by the cyber event, Marshall said. Excluding that impact, we estimate EBT [earnings before taxes] would have doubled. For similar reasons, refi recaptures dipped slightly during the quarter but are now back up over 80%.

The companys total funded volume declined to $2.7 billion in Q4, down from $3.4 billion in the previous three-month period. Cash-out refinances represented 61% of the total, followed by purchase loans (25%), second-lien refinances (12%) and rate-and-term refinances (2%).   

In January, the company announced Mike Weinbach, a former Wells Fargo and JPMorgan Chase executive, as its new president. He is succeeding Marshall, who was named executive chairman at servicing fintech Sagent. 

Mr. Coopers liquidity reached $2.4 billion in Q4, with $571 million in unrestricted cash.

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