Mr. Cooper Group on Tuesday recorded mixed earnings for the second quarter that fell short of matching year-ago results and consensus estimates but were considerably stronger than the bottom line in the previous fiscal period.
Servicing, including a $30 million mark net of hedges, was the key driver of the second-quarter's $198 million profit. That number was up from $88 million the previous fiscal period but lower than the Standard & Poor's Capital IQ consensus of $211 million. The company earned $204 million
"This is a real achievement considering the difficult environment, with persistent high mortgage rates contributing to ongoing affordability challenges, sluggish home sales, and home prices coming under pressure in some markets," Chairman and CEO Jay Bray said in a prerecorded earnings call.
How Mr. Cooper's servicing fared during the quarter
The fair value of mortgage servicing rights rose to $11.4 billion from $11.3 billion a quarter earlier and $10.4 billion a year ago. It has trended upward over the last four years in line with portfolio growth but had dropped on a consecutive-quarter basis the previous fiscal period.
Rising interest rates and lower prepayments improved fair value even though there were $29 million in hedge losses, said Kurt Johnson, executive vice president and chief financial officer.
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The total portfolio of loans the company services for itself and others was up 25% over a year earlier at nearly $1.51 trillion in unpaid principal balance but had inched down from the previous quarter's total, which was slightly over $1.51 trillion.
"The slight decline in UPB this quarter is driven by a single client who is pursuing a different strategy. During the second quarter, we deboarded $12 billion in loans for this client and we deboarded the remaining roughly $50 billion earlier this month," President Mike Weinbach said.
The company didn't name the client, but
There also are pending additions to the company's owned portfolio and loans serviced for others.
"I'm pleased to report a new client win that is bringing a sizable portfolio of about $40 billion in loans that we expect to board by year-end," he said.
Mr. Cooper also is boarding around $20 billion in owned mortgage-servicing rights in an acquisition set for completion during the third quarter, he said.
"For the remainder of the year we'd expect the total portfolio to be flat, plus or minus, as we stick to our pricing discipline and work on integration planning with Rocket," Weinbach said.
However, Bray said an MSR fund the company has launched with $200 million in initial commitments is on track to "scale rapidly from here."
Servicing pretax income was $364 million compared with $214 million the previous quarter and $354 million a year earlier. The company generated $332 in servicing pretax operating income, matching the previous quarter and outpacing $273 million a year ago.
Where Mr. Cooper's loan performance stands
"Asset quality remains pristine, with delinquencies declining in the quarter to 1.0%, and our hedging program continues to perform as expected," Bray said during the call.
However, Johnson noted Mr. Cooper is keeping an eye on and managing risks in securitized Federal Housing Administration-insured loans.
"We're closely monitoring the Ginnie Mae sector, especially FHA, where our delinquencies have increased, although they remain well below peers. Due to our conservative risk appetite, we've limited FHA loans to 15% of our MSR portfolio. In addition, we've largely avoided the 2023 and 2024 vintages, which we regard as posing higher risk," he said.
Adjustments to
"We are closely watching our FHA customers who also have student loans, but for us this population represents only 3.5% of our total portfolio, and is largely associated with customers with significant equity positions. Therefore, we do not believe this portfolio poses a material risk," he added, referring to policy changes anticipated to put more stress on these borrowers.
Loan production volume and income increased
Origination pretax income came in at $64 million compared with $45 million in the first quarter and $38 million in the fourth fiscal period of last year. Pretax operating income in this segment was also $64 million, up from $53 million the previous quarter and $32 million a year earlier.
While the origination income was relatively weaker than servicing earnings, the company's combination with Rocket puts it in a position to
Total origination volume came in at $9.4 billion, compared to $8.3 billion the previous quarter and $3.8 billion a year earlier.
The correspondent channel contributed $6.8 billion to originations, up from $6.4 billion in the second quarter and $2.1 billion a year ago. Direct-to-consumer made up the balance or $2.6 billion of the total, compared to $1.9 billion the previous quarter and $1.7 billion a year earlier.
"I was pleased with our momentum in home equity loans, where we completed two securitizations during the quarter, and by our continued strong performance in the correspondent channel, where we are a top five player and climbing," Bray said.
Other key metrics and costs
During the quarter, Mr. Cooper had approximately $9 million in costs related to the Rocket merger, $4 million associated with Flagstar and $2 million in other expenses inclusive of those related to the MSR fund, Johnson said.
"For the third quarter of 2025, we anticipate corporate expenses remaining at this level due to IT investments which we are continuing to make in our servicing platform," he said, referring to artificial intelligence the company has been implementing for call center agents.
Other key earnings metrics relative to the previous quarter and the year-ago fiscal period were as follows:
- Revenue: $608 million vs. $560 million and $583 million.
- Diluted earnings per share: $3.04 vs. $1.35 and $3.10.
- Operating expenses: $330 million vs. $430 million and $300 million.
- Total assets: $18.5 billion vs. $18.4 billion and $15.8 billion
- Shareholders equity: $5.1 billion vs. $4.9 billion and $4.6 billion.
