Refinancings drive results at three mortgage firms with M&A news

The strong refinance market in the fourth quarter propelled earnings at three different mortgage-related business that also were dealing with merger and acquisition activity during and after the period.

Stewart Information Services broke even in the fourth quarter, the first full period following the cancellation of its acquisition by Fidelity National Financial and the resulting restructuring of its operations.

"Overall, I am pleased with our performance in the fourth quarter and the progress that has already been made at this early stage of repositioning Stewart for the future," Fred Eppinger, Stewart's CEO, said in a press release. "Excluding the charges associated with the organizational initiatives, our core title operations had a good end to the year."

"As we move into 2020, I am confident that our actions will strengthen our customer focus while laying the groundwork for improving the company's long-term financial performance. More needs to be done to better position us for future success, but we are off to a fast start and I am excited for what lies before us," Eppinger said.

For the third quarter of 2019, Stewart earned $66.1 million, while in the fourth quarter of 2018, it earned $11.4 million. For all of 2019, the company had net earnings of $78.6 million, up from $47.5 million for 2018.

Stewart's title business had pretax income of $20.3 million in the fourth quarter, down from $29.5 million in the prior year. Operating revenue for that business increased 11% to $506 million, on increases in revenue generated through the direct business (up 12%) and from independent agents (up 10%).

But operating expenses for the title business were nearly $59 million higher than the previous year due to higher agency retention expense and other operating costs driven by increased title revenue, along with increased title loss expense.

Opened title orders totaled 93,235 during the quarter, of which 39,939 were for refinance transactions. In the fourth quarter of 2018, there were 71,232 opened orders, with refinancing contributing only 18,043.

On Jan. 15, Matthew Morris, who left the CEO post after the FNF deal fell apart, gave up the president's title as well; he remains on Stewart's board.

Meanwhile, Radian Group, which recently divested its Clayton Services due diligence business, reported fourth-quarter net income of $161.2 million, down from $173.4 million in the third quarter, but up from $139.8 million the prior year.

The company took a pretax, noncash impairment in the fourth quarter of $18.5 million related to the Clayton Services sale, which closed on Jan. 20. The sale should not have a material impact on Radian's future financial results, the earnings press release said.

"We took several steps to execute our capital strategy and strengthen our risk profile, including returning capital from our mortgage insurance subsidiaries to Radian Group, repurchasing shares of common stock, executing a mortgage insurance-linked notes transaction, reducing our total debt outstanding, and improving our debt maturity profile," CEO Rick Thornberry said in the press release.

New insurance written was $20 billion in the fourth quarter, beating B. Riley FBR's expectations of $13.1 billion. This was down from $22 billion in the third quarter but up from $12.7 billion for the fourth quarter of 2018. Refinancings made up 33% of fourth quarter NIW, similar to what competitors MGIC and Genworth reported. In the third quarter the refi share was 19% and in the fourth quarter of 2018, it was just 5%.

While the mortgage insurance business had $222.1 million in fourth-quarter adjusted pretax operating income, the services business (which included Clayton Services and other businesses that are part of Clayton Holdings) had an adjusted pretax operating loss of $3.1 million.

Separately, New Residential Investment Corp. reported net income of $211.8 million, compared with $224.6 million in the third quarter and $300,000 a year ago.

"Throughout the year, as we faced a volatile rate environment, we were focused on strategically growing our mortgage platform and delivering stable returns for shareholders," Michael Nierenberg, chairman, CEO and president, said in a press release. "Our performance during the year, including delivering total economic return of 12% and total shareholder return of 27%, reflects our success at executing around our strategy. Specifically, our performance demonstrated the benefits of a diversified and balanced portfolio with differentiated revenue streams."

Its mortgage originations business had net income of $61.9 million in the fourth quarter, while the servicing segment's net income totaled $19.1 million. A third category, mortgage servicing rights and servicer advances, had $133.9 million in net income.

Originations totaled $10.6 billion (62% refi), up 85% from the third quarter's $5.7 billion and 412% from the fourth quarter of 2018, when the company’s loan production totaled $2.1 billion. Much of the fourth-quarter growth in production came from the purchase of the Ditech forward mortgage business on Oct. 2, 2019. In the third quarter of 2018, New Residential closed on the purchase of Shellpoint Partners, the former parent of what is now called NewRez.

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