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Walter Loses $5.3M on Reverse Mortgages in Q1, Turns in Small Overall Gain

Walter Investment Management Corp. (NYSE: WAC) lost $5.3 million on its reverse mortgage servicing operations in the first quarter of 2017, and CEO Anthony Renzi signaled that the company is eager to shed its connection to the Home Equity Conversion Mortgage program as soon as possible.

On its quarterly earnings call with shareholders on Wednesday morning, Renzi laid out a two-pronged “core” and “legacy” structure for Walter, in which Ginnie Mae and other government-sponsored enterprise loan origination and servicing take center stage, and all other operations — non-GSE and Ginnie Mae servicing and subservicing, and insurance — start a march out to pasture.

“These may in the future be sold, wound down, or otherwise managed in a manner designed to limit the investment, costs, and attention we are required to devote to them,” the company said in its associated 10-Q filing.

Renzi wasn’t long on specific plans, but he noted that pretty much every option for its “legacy” arms was on the table, from selling them outright to outsourcing their operations to other firms. That strategy dovetails with its recent reverse blueprint: Back in January, Walter exited the HECM origination business with the closure of its Security One Lending and Reverse Mortgage Solutions subsidiaries, and the company indicated on its last earnings call in March that it was “exploring all possible options” for its remaining servicing portfolio.

That status quo hasn’t changed, with chief financial officer Gary Tillett using almost identical language about Walter’s HECM plans on Wednesday’s call.

Tillett blamed Walter’s reverse mortgage loss on higher LIBOR rates that forced down fair value adjustments, as well as predicted revenue declines associated with halting all originations. The company’s HECMs brought in a total of $22.5 million in revenues, down $21.6 million from the first quarter of 2016. By comparison, Walter turned a $5 million profit on its HECM portfolio in that same quarter.

Overall, Walter announced net income of $1.9 million for the first quarter of 2017, or $0.05 a share — beating rival servicer Nationstar Mortgage Holdings, Inc. (NYSE: NSM) by three whole pennies — and touted its recent headquarters shift from Tampa, Fla. to Fort Washington, Pa. Renzi noted that while Walter is in the process of exploring site consolidations as part of its ongoing corporate restructuring initiatives, the move boiled down to convenience for himself and other executives who live in the vicinity of the Philadelphia suburb, and not a grander cost-saving move.

Renzi and Tillett notably did not mention the subpoenas that — coupled with an overall gloomy earnings picture — sent Walter’s stock tumbling after its previous earnings call. The servicer currently faces a 2016 order from the Department of Housing and Urban Development to produce documentation regarding RMS’s reverse mortgage origination, underwriting, and appraisal practices dating back to January 1, 2005, as well as an additional action from the New York attorney general’s office requesting documents about HECMs issued since January 1, 2012.

“We are cooperating with this inquiry,” the 10-Q reads flatly.

Renzi and Tillett ended the call without taking questions from shareholders, directing all inquiries to Houlihan Lokey, the firm overseeing its restructuring efforts.

UPDATE, 5:10 p.m. CDT: Walter’s stock rose in the wake of the earnings call, gaining $0.32 to close Wednesday’s trading at $1.48 per share, or an uptick of nearly 28%.

Written by Alex Spanko