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Walter Investment Exploring New Strategies for Reverse Mortgage Business

Following a dismal second quarter for earnings, Walter Investment Management Corp. (NYSE: WAC) is undertaking plans to re-engineer various segments of its business, including a strategic review of the company’s reverse mortgage interests.

Walter reported a net loss of $232.4 million, or $6.49 per share, for the second quarter ending June 30, 2016. The loss is sizable compared to a year ago, when the company reported a net loss of $38.1 million, or $1.01 per share, for the second quarter ending June 30, 2015.

Company management attributed the this year’s second quarter loss to goodwill impairment charges of $133.6 million after tax, or $3.73 per share, related to the servicing segment.

“Needless to say, we are disappointed by these results and we have developed a strategy to deal with the issues at hand,” said George Awad, executive chairman and interim CEO at Walter, during an earnings call Tuesday morning.

One facet of this strategy involves a review of the Walter’s strategic options related to its reverse mortgage business, which comprises Reverse Mortgage Solutions, Inc. and Security One Lending.

Specifically, Walter said the objective will be to focus on de-leveraging opportunities related to the reverse segment, including debt reduction as well as efforts to reduce advances.

“Our ultimate goal would be to de-consolidate the business that will result in a simplification and significant reduction in our balance sheet,” said Gary Tillett, executive vice president and chief financial officer at Walter, during Tuesday’s conference call.

Currently, approximately 64% of Walter’s consolidated balance sheet is comprised of RMS assets and liabilities, according to a company presentation given during the earnings call. The presentation lists investing in the growth of retail operations as one of the primary business opportunities for its reverse mortgage business, as well as the pursuit of profitable sub-servicing opportunities.

The move to reduce reverse mortgage presence on the company balance sheet arrives following consecutive months of losses reported by the segment.

For the second quarter ending June 30, 2016, Walter reported an adjusted loss in its reverse mortgage business of $9.1 million, a decrease of approximately $11.7 million compared to the prior year quarter.

This recent financial performance follows a net loss of $10.4 million Walter reported in the first quarter of this year, a loss the company attributed to lower volumes and a reduction in net servicing revenues and fees.

Looking into the second half of 2016, Walter leadership expects operated losses to continue at similar levels within its reverse mortgage business for the remainder of the year.

“We have worked through the initial surge of processing the significant amount of the new due and payable population that was triggered by the Mortgagee Letters issued by HUD in April 2015,” Tillett said.

“While the initial process is complete, costs are expected to continue at current levels for the near term as these loans move through the foreclosure process and we ensure all steps are taken to avoid significant curtailment losses for this population,” Tillett added.

Concurrent with this effort, Walter is beginning a “re-engineering project” focused on improving its default servicing capabilities and efficiencies, including the enhancement of technology and process workflow improvements.

“We believe the results of this process will significantly improve our efficiency by mid-2017,” Tillett said.

As Walter evaluates strategic options for its reverse mortgage business, the company has engaged Barclays (NYSE: BCS) as the advisor to assist with this process.

“Consistent with our strategy for Walter, options include pursuing third-party capital to purchase our existing securitized loan book, and entering into flow arrangements for future reduction and sub-servicing,” he said. “If we are successful in this endeavor, we will be able to significantly reduce our future capital commitments to the business.”

In other company news, Walter announced the appointment of Anthony Renzi as Chief Executive Officer during Tuesday’s earnings call.

Expected to be on the company’s Board of Directors in the fourth quarter, Renzi arrives at Walter with over 30 years of experience in the mortgage industry. Previously, Renzi served as chief operations officer and managing director for U.S. Retail, Commercial Bank and Mortgage Operations at Citigroup, Inc. (NYSE: C); as well as executive vice president at Freddie Mac.

Written by Jason Oliva