Mr. Cooper's profitability waned in the third quarter on a $126 million negative adjustment to servicing valuations, net of hedges, which detracted from other business gains, but numbers adjusted for one-time charges looked more favorable.
The company's net income was $80 million during the third quarter, compared with $208 million in the second and $275 million a year earlier. Its third-quarter revenue totaled $246 million, compared with $456 million in the second and $574 million a year ago.
Ahead of earnings, the consensus mean estimate for third-quarter net income under standard accounting principles had been $162.3 million, according to Standard & Poor's Capital IQ. The consensus estimate for third quarter revenue had been $536.65 million. Diluted EPS came in at $1.22, compared with a consensus estimate of $2.33.
However, at $2.84, earnings per share adjusted for nonrecurring charges outpaced a $2.59 consensus estimate.
As of midday,
The company's servicing mark reflected a drop in rates that has since moderated.
Outside the MSR mark, servicing generated $177 million in pretax income during the quarter. Originations brought in $69 million.
The company also announced it had record liquidity during the period with more than $4 billion in unrestricted cash and unused funding lines to support its business activity like its
Mr. Cooper anticipates closing that acquisition in the fourth quarter. Once that deal closes, the company will become the top player in the servicing business, outpacing previous leader JPMorgan around $100 billion, according to BTIG.
"We now have 5.4 million customers, which will rise to over 6 million when Flagstar closes, this makes us the single largest customer franchise in the mortgage industry," Jay Bray, the company's chairman and CEO, said during its earnings call.
The company is paying for the transaction with a mix of cash and funds from financing secured by servicing assets, with the capacity of the funding vehicle anticipated to grow as a result of the deal.
The deal also will put the company in an exceptionally strong position when it comes to buying MSRs "not only in the bulk market, but in all markets," said President Mike Weinbach.
When asked if the Ginnie Mae risk-based capital rule for nonbanks set to take effect as the year closes could be the catalyst for additional MSR sales, Chief Financial Officer Kurt Johnson said it was possible.
Ginnie Mae activity "has been really, really modest, actually, in terms of bulk sales," Johnson said, but noted that in the couple of years that have passed since the rule was announced, "We've seen a little bit more."
His recollection was the government mortgage-bond guarantor has said a few companies have been undercapitalized.
"We're extremely well capitalized based on all the guidance, and we stay sort of closely in tune with Ginnie in terms of any kind of changes they plan on making to those guidelines," he said.
In addition to solidifying its position in servicing, Mr. Cooper also has been making
Sridhar Sharma transitioned to two new C-suite roles as the chief innovation and digital officer earlier this month. He previously was the company's chief information officer.
Mr. Cooper recently named Jeff Carroll chief technology officer. Carroll was previously the senior vice president of platform and cloud engineering at global travel platform Sabre.
Rounding out its executive changes in technology was the appointment of two new senior vice-presidents who will work on developing the company's data strategy and governance models.
Prerna Kandhari will focus on data engineering and David Graham is set to be responsible for data governance. Kandhari previously served as director of software engineering at Capital One. Graham was managing director at Royal Bank of Canada.
The management restructuring comes amid speculation that competition is heating up between Mr. Cooper and another player that's been more focused on digital operations.
Keefe, Bruyette and Woods analysts have opined that a new
However, Rocket's Chief Business Officer Bill Banfield indicated its partnership is not a signal of deepening involvement in the subservicing strength on the order of larger players like Mr. Cooper already in the space.
"We do not have a desire to be a standalone subservicer and compete with many of the firms that are out there that are low-cost providers in the space," he said in a recent interview.
