Walter: Reverse Business Has Hit Bottom

Walter Investment Management Corporation (NYSE:WAC), parent company to Reverse Mortgage Solutions and Security One Lending, saw in the fourth quarter what it believes to be the bottom of the reverse mortgage business. But that doesn’t dampen the company’s outlook on growth.

“During 2013, the reverse business was impacted by product changes and new guidelines for servicing protocols, which have had an impact on origination volumes and servicing profitability,” said Kimberly Perez, chief accounting officer and senior vice president at Walter, during its fourth quarter earnings call. “However, it is expected that these changes will ultimately benefit and strengthen the industry, which has favorable, long-term demographics.” 

During the fourth quarter, Walter’s reverse mortgage segment generated $39.1 million of revenue, representing a 6% decline from the third quarter. The business recorded total expenses of $43.3 million and adjusted earnings before income, taxes, depreciation and amortization (AEBITDA) of $4.3 million. 

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“We had some higher-level expenses associated with trying to ensure that all the proper servicing protocols are in place [in the reverse mortgage portfolio],” Perez explained. “We did also have slightly lower volume during the fourth quarter. Those were the primary drivers [of the fourth quarter loss].” 

Despite a rocky fourth quarter, Walter expects its reverse business to be steady going forward and a positive contributor along with its other business lines.  

“Last year was a very transitional year, and I think we’ve now found the bottom, if you will, and we’ll work through an upside for 2014,” said Denmar John Dixon, vice chairman and executive vice president at Walter. “So taken as a whole, certainly, servicing is the base; originations, a little less volatile than most because of the embedded retention opportunity that we still have; and reverse, on the uptick.”

Although Walter increased its expected total performance range slightly to reflect “strong new business activity” in its servicing and ARM businesses, the company reduced expected contributions from its originations and reverse mortgage businesses to reflect the current market environment.

Reverse mortgages are one of Walter Investment’s top strategic areas of focus going forward in 2014, the company said.

“The areas of focus for us in 2014 will be centered around four strategic themes… [including] accelerating the opportunity present in our reverse mortgage business,” said Dixon. “We remain very positive on the power and positioning of our franchise and the opportunity that market presents for us.” 

Walter also plans to drive consistent growth in its servicing book by converting from its pipeline and benefiting from its organic originations flow, growing its asset management revenue stream, and maintaining focus on maximizing “embedded HARP opportunity” in its portfolio while continuing to transition and build out its retail correspondent channels.  

Mortgage servicers have been under heightened regulatory scrutiny in recent weeks, and Walter announced on Thursday that federal regulators plan to file an enforcement action against the firm for alleged violations of consumer financial laws. The Federal Trade Commission and the Consumer Financial Protection Bureau are both planning to file actions against Walter’s Green Tree servicer business, it said in a 10-K filing

Already, the CFPB has reached a $2.1 billion settlement with Ocwen Financial, another mortgage servicer with reverse mortgage holdings, to resolve allegations over Ocwen’s treatment of consumers

Written by Alyssa Gerace

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  • Tough time right now for servicers. We’ll see if they look for cuts or already have begun??

    During the fourth quarter, Walter’s reverse mortgage segment generated $39.1 million of revenue, representing a 6% decline from the third quarter. The business recorded total expenses of $43.3 million and adjusted earnings before income, taxes, depreciation and amortization (AEBITDA) of $4.3 million.

    • reverseguru1,

      As a former math major, I doubt if $39.1 million in revenues and expenses of $43.3 million net to “adjusted earnings before income, taxes, depreciation and amortization (AEBITDA) of $4.3 million.” That looks more like a loss of $4.2 million!!

      But then I ain’t no guru1.

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