Setting The Stage

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40 | Th e M Rep o RT O r i g i nat i O n S e r v i c i n g a na ly t i c S S e c O n da r y m a r k e t SERVICING Servicer earnings Underscore Uncertain Future As questions regarding their next steps build, Nationstar, ocwen, and Walter Investment report yearly growth. t hree special servicers—Na- tionstar, Ocwen, and Wal- ter Investment Corp.—re- leased their fourth-quarter and year-end earnings reports with revenue increases and increasingly active originations sectors. Nationstar reported net loss of $51 million in the fourth quarter and an income of $217 million for the full year in 2013, up 6 percent from the previous year's net income. Nationstar is the sixth-largest servicer and the 12th-largest mortgage loan origi- nator, according to the company's earnings report. Over the year, Nationstar increased its unpaid principal balance by 90 percent with $250 billion in unpaid principal balance added to its portfolio. At the same time, Nationstar upped its loan origination activity by 200 percent. Nationstar originated about 62,000 refinance loans through the fed- eral Home Affordable Refinance Program (HARP). "Although origination mar- gins came under pressure in the fourth quarter, our current origi- nations are profitable, and we are confident this business will con- tinue to be profitable in 2014 with its more focused footprint," said David Hisey, CFO at Nationstar. Ocwen reported $105 million in income in the fourth quarter and $294 million for the year. Ocwen also reported $556 million in revenue in the fourth quarter, up 135 percent from the previous quarter, and $2 billion in revenue for the year, up 141 percent from the previous year. Ocwen completed nearly 30,000 loan modifications, about 54 percent of which included principal reduction, in the fourth quarter. Ocwen's servicing portfo- lio has a 14.5 percent delinquency rate as of year-end, down slightly from 14.6 percent in the third quarter. Prepayments are on the decline at Ocwen, falling to about 13 percent in the fourth quarter, and the company expects the trend to continue. Having set a goal to pur- chase "at least the prior quarter's earnings in the three months following its earnings announce- ments," Ocwen repurchased 1.13 million shares of its common stock for about $60 million in the fourth quarter. "Our solid financial perfor- mance enabled us to initiate a stock repurchase program in the fourth quarter while maintaining the strongest capital ratios among our peers," said Bill Erbey, chair- man of Ocwen. Erbey went on to address the company's recently-halted deal with Wells Fargo to purchase servicing rights from the large bank: "We are working cooperatively with the New York Department of Financial Services to address its concerns that led to an indefinite hold on our transaction with Wells Fargo." Compared to a net loss in in- come last year, Walter Investment Management Corp., reported a net income of $253.5 million for 2013. The company's fourth-quar- ter income totaled $9.8 million. Walter's total revenue for the fourth quarter was $402.8 million. Servicing contributed $162.9 mil- lion in the fourth quarter; origi- nations contributed $135.8 million; and reverse mortgages brought in $39.1 million over the quarter. The company originated more than 63,000 HARP loans in 2013. "During 2013, Walter Investment executed against its strategic plan, profitably growing its Servicing business, launching its Originations platform to oppor- tunistically harvest the HARP opportunity and extending its core competencies to the reverse mort- gage market," said Mark J. O'Brien, Walter Investment's chairman and CEO. "We more than doubled the serviced book of business to over $200 billion of UPB." Walter Investment was also the top issuer of home equity conver- sion mortgages last year, according to the company's earnings release. While the three special ser- vicers were active contributors to HARP in the fourth quarter, this sector is expected to decline in the near-term. "HARP refinances continue to be the major driver of earnings in our lending business," said Ron Faris, president and CEO of Ocwen. "However, we expect this volume will begin to decline over the next few months as the number of HARP-eligible loans decreases." While special servicers continue to profit by working through delin- quencies resulting from the financial crisis and temporary government programs such as HARP, there is some uncertainty as to their future. At least one group of analysts suggests special servicers might "become the next generation of non-prime originators," according to a report earlier this year from Moody's.

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