Stewart Information Services To Exit Delinquent Loan Servicing Operations

Stewart Information Services Corporation's net income nearly tripled year-over-year in the second quarter up to $17.1 million and $0.72 per diluted share (from $6.3 million and $0.27 per diluted share, but rapidly declining volume in the default space has prompted the Houston, Texas-based real estate services provider to exit delinquent loan servicing operations, according to an announcement from Stewart.

Stewart's mortgage services segment generated $58 million in revenue during Q2, a 62 percent leap from the same quarter in 2014 when it generated $35.8 million in revenues. While acquisitions closed in Q3 and Q4 2014 resulted in favorable year-over-year revenues, rapidly falling demand for delinquent loan servicing and continued pricing pressures exiting, delinquent loan servicing-related contracts resulted in a quarter-over-quarter decline of 8.9 percent in Q2, according to Stewart.

"Given the weak demand outlook for these services, our offerings no longer meet our scale and margin requirements," said Matthew Morris, CEO of Stewart. "As a result, we have made the strategic decision to exit our delinquent loan servicing operations, and we anticipate taking a related charge in the third and fourth quarters totaling approximately $5.0 to $7.0 million. This decision will focus capital and resources on our business units that we believe have the strongest future for continued and stable growth including centralized title, loan origination and capital markets offerings."

Stewart's pretax loss in the mortgage services segment increased from $2.3 million in Q2 2014 up to $3.3 million in Q2 2015 while pretax income held steady at $2.7 million year-over-year. Charges relating to severance costs totaled approximately $0.9 million for Q2 2015, according to Stewart.

"While this decision was difficult, we are committed to improving our consolidated pretax margins, and this action will support that objective," Morris said. "We are not exiting any business lines we recently acquired and we will retain our expertise in providing services to the delinquent loan market. Our remaining mortgage services operations constitute a core set of diversified offerings that satisfy the needs of lenders seeking to manage vendor risk in a heightened regulatory environment."

Stewart's title segment performed well in the second quarter, generating pretax income of $72.8 million on revenues of $469 million, which calculates to a margin of 15.5 percent. In Q2 2014, Stewart's title segment garnered pretax income of $45.6 million on revenues of $406 million for a margin of 11.2 percent.