Nationstar Mortgage Holdings Inc. (NYSE: NSM) reported substantial growth during the second quarter with performance largely driven by gains in its mortgage servicing, originations and technology platforms.
For the second quarter ended June 30, 2014, Nationstar reported a net income of $67 million, or $0.74 per share, a 174% increase compared to the $24 million, or $0.27 per share, the company reported in the prior quarter.
“The continued execution of our strategic plan produced growth across all of our segments and key financial metrics,” said CEO Jay Bray. “Nationstar continues to deliver increasing profits and cash flows quarter over quarter by executing our strategic initiatives. We are excited about the earnings power of our existing platforms as well as the continued build-out of our comprehensive digital real estate service offerings.”
In efforts to increase transparency and reflect how operations are currently managed amidst heightened regulatory scrutiny of non-bank mortgage servicers, the Lewisville, Texas-based company now presents its financials in three operating segments, which include servicing, originations and its Solutionstar platform.
During the second quarter, Nationstar’s servicing operations generated core pretax income of $86 million, a 9% gain compared to the prior quarter. From a basis perspective, Nationstar noted its servicing operations achieved 9 basis points of operating profitability.
The company’s servicing portfolio, as measured by unpaid principal balance (UPB), ended the second quarter nearly unchanged in comparison to first quarter levels, due to $10 billion of new servicing assets generated through acquisitions and its originations platform. Currently, its reverse mortgage servicing portfolio stands around $30 billion in UPB.
Since the end of the second quarter, Nationstar notes it already has commitments for over $20 billion in additional servicing acquisitions. Additionally, the company’s pipeline of acquisition opportunities totals over $300 billion in aggregate UPB.
“Simply stated, our servicing business is a large, profitable annuity-like portfolio with room to grow,” said Nationstar Chief Financial Officer Robert Stiles during an earnings call Wednesday.
Though the pipeline of opportunities exceeds $300 billion, Nationstar anticipates the average portfolio size of transfers to be less than $25 billion, said Bray during the call.
“We expect market activity to accelerate over the second half of the year and continue to feel very positive about our ability to move forward on acquisitions by working proactively with our numerous regulators,” he said.
On the originations side, Nationstar delivered revenues of $165 million in the second quarter, a 27% increase when compared to the prior quarter. The company’s originations segment also generated pretax income of $69 million for the quarter, a 188% increase from the $24 million it reported last quarter.
“Our overarching strategy for our origination segment remains unchanged: to generate attractive, long-term servicing assets at a profit that will sustain and grow our servicing portfolio,” said Bray.
In the second quarter, Nationstar funded $4.4 billion in originations, including $2.9 billion in the company’s consumer direct channel. The company also announced during the quarter that it will no longer originate reverse mortgages through its Greenlight Financial platform, but would continue to service its Home Equity Conversion Mortgage servicing portfolio. It is combining its Greenlight forward originations business and Nationstar originations channel into a single platform.
Also contributing to Nationstar’s second quarter results was its Solutionstar platform, which provides technology and data-driven solutions to homebuyers, home sellers, real estate agents and companies engaged in servicing and originating mortgage loans.
Solutionstar comprises the company’s technology and debt offerings marketed under the HomeSearch and Real Estate Digital brands. The platform also comprises the Solutionstar and Veripro branded residential services, which principally include title, close, escrow, collateral valuation and asset management services.
During the quarter, Solutionstar’s pretax margin increased to 46% from 40% in the first quarter, primarily due to mix of revenues, the company noted.
The platform sold nearly 5,700 properties in the second quarter alone and Nationstar expects more than 20,000 total over the course of 2014.
“Plenty of growth opportunities exist in terms of expanding service offerings, new customers and customer penetration for Solutionstar,” said Stiles. “Therefore, we expect the segment to continue to post solid quarter-over-quarter gains and continue to increase its mix of third-party business.”
Looking ahead, Nationstar affirmed its 2014 earnings guidance of $4 to $5 per share.
“It has been our expectations since the beginning of the year that our earnings would grow throughout the course of the year, with sequential progress each quarter,” said Stiles.
Written by Jason Oliva