Nationstar banking on servicing to drive future profits

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The servicing business drove Nationstar Mortgage Holdings' fourth-quarter profitability and will be a major factor going forward after the company is acquired by WMIH.

Nationstar's net income of $41 million in the fourth quarter compared with $7 million in the third quarter and $198 million for the fourth quarter of 2016.

The servicing business — which along with the origination business was rebranded as Mr. Cooper — had fourth-quarter pretax income of $77 million. In the third quarter, servicing contributed $30 million of pretax income, while in the fourth quarter of 2016 it recorded $348 million of pretax income.

"Nationstar had an outstanding year in 2017," said Chairman and CEO Jay Bray in a press release. "We welcomed over one million new servicing customers, launched new origination channels, and expanded our third-party client base at Xome."

During the year, Nationstar onboarded $175 billion of mortgage servicing rights, of which $145 billion was subservicing. The company is New Residential's largest subservicing partner, and is expected to remain in that position even as the third largest, PHH, is acquired by the fourth largest, Ocwen. In 2016, Nationstar onboarded $161 million of MSRs but only $95 billion was subservicing.

Nationstar currently services $508 billion, down from $533 billion on Sept. 30, 2016 but an increase from $473 billion on Dec. 31, 2016.

Going forward, there are "strong tailwinds" for the servicing business that should lead to increased profitability. Prepayments were down 26% in 2017 over the previous year. It plans to introduce tools to create a self-service customer experience.

As a result, adjusted servicing profitability for 2018 is expected to exceed 6 basis points, based on current prepayment speeds.

The origination business had pretax profits of $30 million, down from $45 million in the third quarter. Origination volume increased to $5.15 million from $5.1 million in the third quarter.

Xome's pretax profit for the quarter was $12 million, up from $11 million in the third quarter.

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Earnings MSR Subservicing Nationstar New Residential Investment Corp. Ocwen Financial PHH Mortgage