First-quarter earnings confirm that recent mortgage servicing portfolio purchases already have and will continue to strengthen the financial performance of Walter Investment Management Corp.
The Tampa, Fla.-based company reported first-quarter GAAP net income of $27.7 million, up from $5.1 million in the first quarter of 2012, primarily due to a 59% increase in servicing revenues following recent portfolio additions.
Walter Investment's chairman and CEO, Mark O'Brien, attributed positive quarter results to effective management of “recent significant growth," especially from the servicing group which managed to absorb “a significant volume of boardings from the ResCap and B of A portfolio acquisitions, which are performing at or ahead of expectations.”
Year-over-year total revenue for the first quarter increased to $291.8 million, up from $152.8 million that includes $61.3 million in net servicing revenue and fees, $78.4 million of net gain on sales of loans, and $6.7 million of servicing fees and revenue from reverse mortgage operations.
Revenue from servicing consists of $17.4 million in amortization and net fair value adjustments related to the segment's mortgage servicing rights.
Servicing generated $139.7 million in revenue of which $121.9 million were gross servicing fees, with another $34.8 million from incentive and performance-based fees, ancillary and other revenue and fees.
Highlights include strong results from incentive and performance-based fees, which increased by 37% over the prior year.
Nevertheless, MSR purchases and other business restructuring measures increased operating costs and expenses.
Total servicing segment expenses were $103.3 million. It includes $8.9 million of depreciation and amortization costs and $2.4 million of interest expense. The servicing segment finished the quarter with in excess of 1.9 million total accounts serviced, with a UPB of over $201 billion. Walter reports it started the quarter with $77 billion of UPB serviced and added more than $130 billion in UPB of servicing rights during this quarter.
Total expense increased from $149.3 million in the first quarter of 2012 to $280.8 million in the first quarter of 2013 in part due to “additional operating and overhead costs,” including staff salaries and other administrative expenses, associated with growth in the serviced portfolio.
The additions of the reverse mortgage and originations units also added approximately $32.5 million and $39.4 million to expenses, respectively.
In association with recent acquisitions, the company said, legal expenses amounted to $11.2 million including a $3.7 million increase “in the accrual for anticipated earn-outs to be paid.”
Walter reports it acquired the servicing rights for more than 1 million accounts with a UPB in excess of $130 billion through transactions completed in 2012 that have brought its combined forward and reverse serviced portfolio to nearly 2 million accounts with a UPB of $215 billion.
On April 9, Walter’s wholly owned subsidiary, Reverse Mortgage Solutions Inc., acquired a $12.2 billion UPB reverse mortgage servicing portfolio
Walter’s servicing portfolios are generating additional revenue and establishing a valuable reputation for the company. In April its Green Tree Servicing was awarded one of only five 4 STAR servicer designations issued by Fannie Mae in recognition of outstanding servicing performance during 2012.
Overall, according to O’Brien, the company is “on track” for continued growth in 2013.
