Onity Group maintained stability in its bottom line amid market disruption in the second quarter, beating consensus estimates and year-ago results while nearly matching its previous fiscal period.
Net income to common shareholders under standard accounting principles inched down to $20.5 million from $21.2 million
"Our balanced business is delivering sustainable results across origination and servicing amid market volatility," Glen Messina, the company's chair, president and CEO, said during Onity's earnings call.
Analysts had mixed views but the bottom line beat Standard & Poor's Capital IQ's consensus estimate of $15.4 million. The numbers missed some
The company's stock initially rose, then wavered, and was trading near opening levels after the call Tuesday morning. Its price was $37.57 per share.
Market turbulence and other factors did affect the value of some mortgage servicing rights and caused revenue to slip to $246 million compared to $249.8 million in the first quarter. But the second quarter number was still higher than the $246.4 million reported a year earlier.
"We saw high financial market volatility in the early part of the quarter, which adversely impacted origination revenue and margins and increased MSR hedging cost for a brief period," Messina said.
Onity's MSR valuations saw fluctuations amid Q2 volatility
The company's fair value of mortgage servicing rights rose to $2.63 billion from $2.55 billion the previous quarter and $2.33 billion a year ago despite a mark on reverse assets. The average unpaid principal balance of MSRs rose to $307 from $305 billion in both comparable periods.
Servicing generated $31 million in adjusted pretax income compared with $38 million the previous quarter and $50 million a year ago. Adjusted pretax income from originations slid to $9 million from $10 million in each of the two comparable quarters.
Originations rose 35% from comparable periods to $9.4 billion, beating what the company said was an average industry growth rate of 23%. Fannie Mae and Mortgage Bankers Association latest forecast growth rate is 14% based on the rate and housing outlook, Messina said.
"We believe our scale in both servicing and origination enables us to perform well with high or low interest rates," he said.
"While we are not the largest servicer in the industry, we deliver top tier performance for customers and investors, and we are positioned to fiercely compete with anyone, regardless of size," Messina added later in the call.
There could be more servicing consolidation to obtain scale either through bulk MSR purchases or merger and acquisition activity, Messina said in response to an analyst question about the outlook. MSR buying may be preferred to the extent supply-demand conditions are favorable.
"It's a trade off between do you do M&A, or do you go to the bulk market? Fundamentally, that really is what I think people are looking at in the industry," he said.
Messina said Onity engages in "dynamic asset management" and has opportunistically sold MSRs above their book value last year in addition to engaging in select purchases.
Inside Onity's efforts to diversify and trim costs
Onity also took other steps to engage in loan product diversification and cut costs through the use of artificial intelligence during the quarter, executives said.
"Robotic process automation, optical character recognition and neural network-based data extraction have been deployed in over 190 processes, completing the work of roughly 400 people, saving approximately 57,000 hours per month of manual efforts," Messina said.
Like many of its peers in the lending space, the company also has been making more inroads into the home equity market. There was "strong performance in the improved closed end second product that we launched in the first quarter," Chief Financial Officer Sean O'Neil said.
While reverse mortgages faced challenges, they contributed positively to the company's bottom line during the quarter.
"Reverse orig maintained profitability amid an uncertain interest rate environment where higher rates for an extended period have limited the amount of benefit a reverse borrower can realize on a new loan," O'Neil said.
Onity Group previously was known as Ocwen Financial prior to
