The Tampa, Fla.-based firm’s top executives, who describe their approach to business growth as fundamentally conservative, said during a press conference they will continue to actively bid for new deals well into 2014.
Walter will try to stay competitive against assets it recently purchased and maximize return on investment, said Denmar Dixon, vice chairman of the board of directors and EVP, whose over 30 years in the industry include founding a consulting, financial advisory and investment firm in 2008 after 23 years with Banc of America Securities--where according to his official resume he helped complete mergers, acquisitions, and financial restructuring transactions valued at $75 billion.
The firm’s 2012 financial results marked an overall improvement. Despite the impact of a $48.6 million loss charge from “the early extinguishment of the company's debt,” Walter reported a yearend 2012 GAAP net loss of $22.1 million, or $0.73 per share, down from $66.4 million or $2.41 per share in 2011. While fourth quarter loss however, increased form $3.9 million in the fourth quarter of 2011 to $34.1 million.
This year and the next executives plan to implement the same conservative growth oriented strategy of recent years. "We continue to see MSRs as attractive options," Dixon said.
“It’s safe to say that we look very hard at the cash returns. Our methodology, if you will, is the cash-on-cash,” he explained, especially with the types of MSRs that Walter acquired, the effect of the HARP incentive and other indicators. “We’re getting very strong cash-on-cash returns off of the investments we made,” because the businesses acquired, including the reverse mortgage business, the originations platform opportunity and the large-scale of MSR trades “are extremely attractive.”
“We’ve always been conservative, our ranges of amortization are conservative,” said Mark O'Brien, chairman of the board of directors and chief executive officer, such approach also makes sense to investors,.
Annual and fourth quarter earnings indicate the firm is moving in the right direction even though Walter is taking “relatively minimal advances," he said, "at a few $100 million to date, and will be picking about $150 million with ResCap and then the bigger piece comes with the B of A portfolio.”
The total value of these advances amounts to roughly $1 billion. Funding programs for Fannie loans “are priced pretty much at the top range of the outside, third-party financing options available today," he added.
Before a servicing or subservicing acquisition deal, executives explained, they review very carefully prepayments and other specific MSR portfolio data that show what timeframe is needed to go through implementation, retention and data recapturing.
For example, the retention and recapturing of the MSR portfolios from Fannie Mae in 2011 kicked in during the third and the fourth quarter.
“By design if you will, Fannie accelerated that recapture,” Dixon said, until the replacement was complete. Following the Fannie subservicing deal “Fannie has been extremely cooperative,” during the transition to ensure the compensating interest was paid, or by agreeing to allow servicing refinance action, “which helped mitigate the impact we did not anticipate when we priced that deal two years ago.”
To avoid post-purchase surprises the firm took pre-acquisition measures before the execution of large transactions such as the purchase of the Bank of America and Res Cap MSR portfolios, O'Brien said, “We were spending some money ramping up and staffing up in advance of those acquisitions’ transfers.” And that “will always be the case” with new acquisitions.
In summary, based on 2012 financial results and outlook for 2013, O'Brien said, “2014 is really the year that will carry through” the effect of past acquisitions. “It’s when the progression will really kick in in full force…looking forward we’ve got an extremely strong base with growth imbedded in to build off of the core business.”
Meanwhile he firm is restructuring its subservicing business.
“It took a quarter or so” to build the Fannie Mae pool and the subservicing model for it, he said, “Now we’re looking forward to performing those pools…and to bring in the fees…and sustainability in the business.”
