Nationstar Mortgage plans more cost cuts ahead of WaMu acquisition

Register now

A new round of expense reductions is getting underway at Nationstar Mortgage as the company moves toward its acquisition by WMIH Corp., a shell company holding Washington Mutual legacy businesses.

Nationstar has identified workflow efficiencies aimed at improving customer experience that will save the company $30 million in annual savings by year-end, Chairman and CEO Jay Bray said during the company's earnings call. The company will continue to work on identifying other efficiencies beyond that as well, he noted, calling the move the "first phase" of further cost cutting Nationstar is planning.

Nationstar generated $58 million in net income during the second quarter, improving on a net loss of $20 million during the second quarter of 2017. But its results represented a decline from $160 million in net income the previous quarter.

Pretax income generated by the company's servicing business increased to $88 million from a pretax loss of $42 million a year ago, when the company experienced a fair value loss on its mortgage servicing rights portfolio driven by lower rates.

But pretax income from servicing was lower than in the first quarter, when it was $220 million.

Although there is consolidation in the mortgage business there is room to move in servicing, according to Bray.

"We do see opportunities to acquire and grow the subservicing business," he said. "I'd say it's larger today than it's been in a long time."

The company also is working on cutting expenses and reducing leverage, Bray said.

While higher year-to-year rates have improved servicing results, they have created more challenges for the originations segment, which is a smaller business line for the company.

Nationstar's origination segment earned $32 million in pretax income, down from $53 million during the same quarter a year ago but up from $19 million in the first quarter.

While many lenders' originations have been lower on a year-to-year basis, Nationstar's were higher. The company originated more than $5.5 billion in mortgages during the second quarter, up from more than more than $4.2 billion in the second quarter of last year and from $5.1 billion the previous quarter.

Nationstar produced the majority, or $2.9 billion of its loan volume through the lower-cost correspondent channel and the rest through the consumer direct channel, which also offers efficiencies. It plans to continue to grow originations through use of a new mobile application called Home Intelligence in the third quarter.

Xome, the company's real estate and settlement services business, generated $10 million in pretax income, down from $17 million during the same period a year ago and from $22 million during the previous quarter.

Nationstar and WMIH, a successor company to Washington Mutual with legacy mortgage reinsurance holdings, are schedule to close on their merger at the end of the month.

The deal is structured so that WMIH's Wand Merger Corp. will merge with and into Nationstar and Nationstar will become a wholly owned subsidiary of WMIH.

Shareholders at Nationstar must elect whether they wish to receive cash or WMIH stock in the acquisition by 5 p.m. Eastern time on July 26, or they will automatically receive stock.

The acquisition received stockholder approval to proceed last month.

For reprint and licensing requests for this article, click here.
Earnings Servicing Originations Stocks M&A Correspondent Consumer direct Nationstar WMIH