HLSS Reports Net Income of $14.3M

Home Loan Servicing Solutions reported net income of $14.3 million, or $0.44 per ordinary share, for the fourth quarter of 2012 and “no change in servicing asset valuations.”

Quarter results exceeded the firm’s revised guidance due to lower-than-expected prepayments that helped reduce amortization expense, said HLSS president John Van Vlack, following all positive guidance variations in 2012.

“Strong executions in the ABS term note market,” he said, are continuing to reduce borrowing costs beyond the firm’s expectations.

Examples include the issuance of $250 million one-year and $450 million three-year term notes completed in October that were secured by servicing advance receivables. HLSS said it used $600 million from the proceeds to repay term notes and to reduce borrowing on variable funding notes with a weighted average interest spread of 2.93%.

Also, HLSS used proceeds of $480.7 million from the December follow-on offering of 25,300,000 ordinary shares at $19 per share “and two new variable funding notes with a total commitment of $1.6 billion” to acquire nonagency mortgage servicing assets from Ocwen representing mortgages with an unpaid principle balance of $34.6 billion.

The internally managed owner of nonagency mortgage servicing assets that typically are mortgage servicing advances and related servicing rights said its quarter earnings include a $0.03 per share benefit from lower-than-expected amortization.

In January HLSS completed the issuance of three other notes secured by servicing advance receivables at a weighted average interest spread over Libor of 0.94%.

These $650 million one-year, $350 million three-year and $150 million five-year term notes generated proceeds of $1.15 billion that “were used to reduce borrowings on variable funding notes.” In addition, HLSS reduced its aggregate commitments on variable funding notes from $2 billion to $1 billion.

According to chairman William Erbey, during its first year of operations HLSS delivered on its plan to provide attractive earnings and dividends based on its stability and low risk assets “which the ABS markets are starting to reward.” Fourth-quarter earnings suggest “further growth in 2013,” he said.