Nationstar: Reverse Mortgage Portfolio Presents Added Risks

After making large plays at reverse mortgage servicing rights among a widespread buy-up of MSRs in general, Nationstar Mortgage (NYSE:NSM) expressed concerns about its portfolio to its investors last week. 

In announcing the company’s annual performance, Nationstar highlighted recent acquisitions of reverse mortgage servicing rights noting additional risks that come with servicing reverse mortgage loans. 

Among factors relating to the company’s performance: “Our ability to mitigate the increased risks related to servicing reverse mortgages,” Nationstar reported. 

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“We service reverse mortgages, which subjects us to additional risks and could have a material adverse effect on our business, liquidity, financial condition and results of operations,” the company stated in its annual 10-K filing with the Securities and Exchanges Commission. 

Nationstar purchased MetLife’s reverse mortgage servicing portfolio when MetLife announced it would shutter that business in April 2012. Previously, the company purchased $18 billion in reverse mortgage servicing rights from Bank of America through a deal announced in late 2011. 

The company posted strong earnings in early March, gaining $1.72 earnings per share for the fourth quarter ended December 31; beating analysts’ estimates of $.67 earnings per share. Revenue for the quarter outpaced estimates of $285 million coming in above $330 million for the quarter. 

In addition to a reverse mortgage servicing buy-up, Nationstar has also acquired billions of dollars in servicing rights for forward mortgages, announcing plans for more acquisitions as recently as February 2013

The reverse mortgage portfolio has a greater potential negative impact, however, Nationstar said, due to the nature of the loans and the responsibility of the servicer to commence foreclosure proceedings in the event of a loan default. 

“We are subject to negative headline risk in the event that loan defaults on reverse mortgages lead to foreclosures or even evictions of elderly homeowners,” the company stated in the filing. “All of the above factors could have a material adverse effect on our business, liquidity, financial condition and results of operations.”

View the SEC filing

Written by Elizabeth Ecker

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  • Are they just figuring this out? Were they not aware of this when they purchased these portfolios? The headline risk was known to everyone way before these purchases. Why do you think BAC and Metlife dropped Reverse Mortgages? Too much risk for not enough reward.

    I’m sure BAC breathed a sigh of relief when they cashed that 18 billion dollar check.

    • traverse,

      The statements come from disclosure requirements. It is because they understand the risks, they are required to disclose them. This is called transparency in full disclosure.

      We may not be used to full disclosure and transparency in our industry but this is what SEC filings require. You know kind of like all of the disclosures which are required on TV ads for pharmaceutical drugs.

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