Second-quarter earnings nearly doubled at Home Loan Servicing Solutions (HLSS), despite a significant jump in operating expenses, as prepayments remained low and the rate of liquidations of seriously delinquent loans recovered.
Net income increased nearly 94%, to $54.1 million, or 76 cents per share, up from 48 cents a year earlier.
Interest income increased almost 96% to $97.7 million, as the portion from mortgage servicing rights increased more than 80%, to nearly $90 million. Total revenue was $98.5 million, up from $50.5 million a year earlier.
Operating expenses jumped 74.7%, to nearly $4.5 million, in large part due to a near tripling in general and administrative costs to $1.9 million.
Earnings after adjusting for the revaluation of MSR assets "were close to the high end of our expectations," which counted on the recovery in the rate of liquidations, John Van Vlack, HLSS' president and chief executive officer, said in a press release Thursday.
Quarter highlights included the issuance of $400 million of unrated four-year term notes secured by servicing advances at an average fixed interest rate of 2.88%, the company said.
Also during the quarter HLSS borrowed $219.5 million from a new $290 million mortgage loan facility to purchase reperforming loans. The company acquired reperforming whole loans with an aggregate unpaid balance of $396.9 million for $276.3million.
"Earnings stability will benefit from the issuance of four-year fixed rate term notes and from the reinvestment of cash generated in excess of our dividend in the purchase of reperforming loans," Vlack said.
In addition, reperforming loans will generate an attractive risk-adjusted yield, Chairman William Erbey said in the release, given HLSS' experience with modified loans.
HLSS was spun off from Ocwen Financial (where Erbey is the executive chairman) in 2010 to acquire mortgage servicing assets including servicing rights, rights to fees, and other income from servicing loans.