Mr. Cooper loses $171M in 1Q on servicing valuation mark

A mark-to-market hit to the value of its mortgage servicing rights portfolio caused Mr. Cooper to report a $171 million net loss in the first quarter.

Chris Marshall, Mr. Cooper's vice chairman and CFO, said in a press release, "2020 will be a much different year than the one we planned for, but we've executed our contingency plans and positioned our balance sheet and bank facilities appropriately; as a result we expect our business to continue to produce excellent results throughout the year."

The valuation change is related to the low interest rate environment and general economic turmoil resulting from the coronavirus.

"I am very proud of how all our team members rose to the challenge, helping over 194,000 customers initiate pandemic forbearance plans, while at the same time generating very strong operating results for the company," Chairman and CEO Jay Bray said.

Without the servicing charge and other accounting items, Mr. Cooper had pretax operating income of $127 million.

The loss ended a two-quarter streak in which the company reported net profits, including earning $461 million in the fourth quarter of 2019. The fourth-quarter profits were helped by the recovery of a $285 million deferred tax asset created by prior net operating losses and a fair value increase of $102 million in its MSRs.

The first-quarter charge of $383 million was over 30% more than the $293 million negative mark-to-market hit in the first quarter of 2019, when Mr. Cooper reported a net loss of $186 million.

Because of the mark-to-market, the servicing segment lost $325 million. That compares with earnings of $189 million in the fourth quarter, including the fair value gain. One year ago, Mr. Cooper's servicing business lost $186 million on a pretax basis with the fair value loss.

Mr. Cooper serviced $629 billion as of March 31, down from $643 billion at the end of last year. Over the same time frame, operating revenue for the business fell to $313 million from $316 million.

Its originations segment had pretax operating income of $158 million in the first quarter, up from $138 million in the fourth quarter and $45 million in the first quarter last year.

Total volume was $12.4 billion, down from $12.6 billion one quarter prior, but up from $5.7 billion one year prior.

By channel, Mr. Cooper originated $6.4 billion from its direct-to-consumer business, $5.5 billion via correspondent purchases and $500 million from the wholesale operation.

The company decided this week to exit wholesale lending effective May 29. It has not gained any traction among mortgage brokers since acquiring Pacific Union and its wholesale business in February last year.

As for Xome, its title, valuation and other services business, Mr. Cooper had $11 million of pretax income, compared with $9 million in the fourth quarter and $8 million in last year's first quarter.