5 Questions for Mr. Cooper's CEO on the tough months ahead
Dealing with distressed consumers is nothing new for those that work at mortgage servicer and originator Mr. Cooper.
Following the Great Recession, the firm purchased distressed mortgage servicing rights portfolios. Primarily owned by Fortress Investment Group at the time, it was operating under the Nationstar Mortgage brand until August 2017.
There were a few hiccups, both reputational and regulatory. But even as the company was near the bottom of the J.D. Power servicer customer satisfaction survey, it worked on improving its communications with consumers.
In the first quarter, because of an MSR mark-to-market charge, Mr. Cooper lost $171 million; this followed two quarters of profitability, the first after Nationstar's 2018 acquisition by the remnants of Washington Mutual.
Following the earnings release on April 30, National Mortgage News spoke with Chairman and CEO Jay Bray about the results, how the company is working with borrowers affected by the coronavirus, and how the pandemic is impacting its staff.
Questions and answers have been edited for clarity and length.
Mr. Cooper's first-quarter results showed the company had operating income but took a net loss because of the mark-to-market on the servicing portfolio. Do you expect there will be further servicing hits going forward?
On the mark-to-market this quarter, that was primarily driven by the reduction in interest rates and that impacted the prepayment speeds and assumptions. [It's] probably less due to forbearance plans that are forthcoming in a more significant way. Are there more coming? I think it depends on what rates have done since March 31. Obviously they've come down some. So, that would have an impact on the MSRs. There could be another markdown if rates stay where they're at today. On the forbearances, they are a little bit of a wait-and-see thing, because we need to understand fully what all the programs are going to be from the enterprises and the Federal Housing Administration. So, there's probably more to come on that after we get more clarity.
The originations business is doing fantastic. Despite the pandemic, there's still significant demand for refinance transactions and we had a strong month in April. We expect that to continue for the rest of the quarter. That is a very positive note.
The punchline for the first quarter conference call was that we feel very good about the overall liquidity at the company. We feel good about the additional financing we secured and we frankly feel that we are in a position of strength.
How does the company's history, from its start as Nationstar and its work after the Great Recession working with distressed borrowers, give Mr. Cooper experience and procedures to deal with the influx of calls from servicing customers seeking assistance because of the coronavirus?
We were a big part of the solution from the last crisis. We saved the taxpayers hundreds of millions of dollars through keeping people in their homes and I'm really proud of that. That DNA of the company certainly carries over to this current environment.
And when you think about how quickly this thing became so serious and how quickly the CARES Act put in place a national forbearance plan, you have to react quickly. We are a big fan of the forbearance plan because we think it's the right thing for the customer, it is an easy process and has very little friction. Right out of the gate, we built a digital platform that enabled the customers to sign up for a forbearance digitally. I think over half the forbearance plans we have in place have gone through that process.
But I would say we're not going to get it right every time. It's very easy to get into the forbearance plan but the question is what happens at the end. There are three possible solutions. One is you go into some type of modification or deferral plan that puts the payments at the end. You can make partial payments, a payment and a half to give back the payments that were missed. Or you can make a full reinstatement and make all the payments that were forborne and I think that confuses customers. They hear "oh my gosh I have to pay all the payments back." That creates confusion and frustration.
So we've continuously been looking at ways to educate the consumer. If you look at our website, if you look at our blog, there's a lot of education. We're constantly training our staff and working on our scripts to make it as simple and as easy for our customer, speaking in a sympathetic way so they understand they have options.
But there are going to be mistakes made, just like there is any time there is a national program rolled out. But I feel like at the end of the day we have an incredible team and if you look at the DNA of the company, I think we're probably in the best position to serve homeowners through this crisis.
Speaking of education, you did a video on the Mr. Cooper website that explains the options to consumers. What has been the reaction?
I think we've gotten a lot of good feedback from, frankly, all of our stakeholders. It really conveyed the message we wanted to, to customers.
We preach every day, "let's be clear, let's be simple, let's be empathetic," because individual customers are going through a life event. So, how do we keep them in their home and give them a solution that works for them?
Some of the reports say confusing information is being given out by servicers. So, was Mr. Cooper looking to clear the air about the process?
Absolutely. This is a program, it's not a one-and-done. We talk about it every single day in my staff meetings, in our leadership meetings, what else can we do to communicate with customers, how can we improve our scripts, how can we provide better training.
The video is one piece of a very, very big program that is going to constantly focus on communication. It's similar to the way we think about our team members. We are communicating daily with our team, telling them what's going on with the company, what are the things they need to be focused on. We have 95% of our employees working from home now and it's just amazing the job that our IT staff did in five days.
So when this all ends, do you think Mr. Cooper is set to resume the upward earnings trend and profitability that the company had in the third and fourth quarter last year?
Our MSRs are subject to mark-to-market the way the accounting rules work so that bottom line GAAP net income depends on what happens with rates and what happens with that mark. But I feel like we're in a position of strength, we're in a position where we can help our customers and I think that will drive positive financial results as well. So that's what we're going to continue to stay focused on and I feel good about where we're at.