Ahead of Mr. Cooper rebrand, Nationstar weighs selling Xome

As Nationstar Mortgage Holdings finalizes plans to change its name to Mr. Cooper, the nonbank lender and servicer is exploring options to part ways with Xome, the settlement services and real estate business it rebranded less than two years ago.

The Dallas-based mortgage company is moving forward with plans to explore "strategic alternatives" for Xome as it focuses on opportunities to grow core business lines and deleverage, CEO Jay Bray said during Nationstar's first-quarter earnings call Thursday.

Nationstar's effort to transition its former Solutionstar unit from a settlement services and title business into Xome, a website pitched as a "one-stop shop" for consumers to purchase a home (almost) entirely online, was met with much fanfare in 2015. But the veteran e-commerce executive brought in to lead Xome resigned after only a year. And as mortgage defaults have waned throughout the industry, listings for real estate owned properties and home sales on the Xome platform have declined.

What's more, Xome doesn't contribute on paper to Nationstar's financials as favorably as assets like mortgage servicing rights do. Xome generated $13 million in pretax income in the first quarter of 2017, compared to $18 million a year ago. The results follow annual pretax income of $69 million for the unit in 2016, down from $79 million in 2015.

Still, Bray insists Xome is poised for growth this year as it takes steps to increase property listings on the platform and said Nationstar is entertaining offers for the business from multiple suitors.

"Xome is an amazing asset and it will generate within the Nationstar family and its third party customers $100 to $125 million in EBITDA for 2017," said Bray. "I think [given] all the interest that's been expressed in Xome, a 10- to 12- [times'] multiple is not a crazy number for the value."

The core business lines Nationstar is committed to growing include its servicing-related operations.

Although Nationstar already is in the process of boarding a multibillion-dollar subservicing portfolio that its affiliate New Residential Investment Corp. in New York, is buying from Citigroup this year, it has capacity to board more loans to bolster this scalable business, Bray said.

"I've never been more bullish on the capability of the servicing platform," he said.

It's possible that the boarding of additional loans and Nationstar's affiliation with New Residential could in turn feed other complementary real estate services businesses lines at the company, but Bray said, "I don't know that anything is imminent."

This is "especially true" when it comes to speculation about a portfolio New Residential and the embattled Ocwen Financial Corp. in West Palm Beach, Fla., are renegotiating the terms of, he added.

Nationstar is confident it can withstand the compliance rigors of the business highlighted by recent Consumer Financial Protection Bureau and state actions against Ocwen. Ocwen is rebutting those regulatory allegations and fighting them in court. Nationstar settled a CFPB charge in March.

Nationstar also indicated this week that it plans to move ahead with its long-awaited Mr. Cooper rebranding this August, a move the company says is intended to invoke a more personal connection with its borrowers.

"The mortgage industry is not known for its customer service," Bray noted, but he said Nationstar wants to "challenge the status quo" in that regard. While the company will do business with servicing and origination consumers as Mr. Cooper, it will retain its Nationstar name for its financial reporting and ticker symbol, he said.

Nationstar generated $2 million in net income during the first quarter. This marked an improvement from a $132 million loss in the first quarter of last year but was weaker than the $198 million in net income it recorded in fourth quarter 2016.

The change in consecutive-quarter earnings was primarily attributable to a slight drop in interest rates that reduced servicing valuations. A more favorable valuation had fueled the higher fourth-quarter earnings. Similarly, a downward swing in valuations drove the company's year-ago quarterly loss.