Dallas, Texas-based Nationstar Mortgage was the only one out of the three largest U.S. non-bank mortgage servicers rated by Moody's to turn a profit during 2015, according to Moody’s Investors Service’s [1] Servicer Dashboard on Thursday.
Nationstar’s net income for 2015 was $43 million, while the other two largest servicers, Ocwen Financial Corp. [2] and Walter Investment Management Corp [3]., posted losses of $246.7 million and $263.2 million for last year, respectively.
“Nationstar was the only large Moody’s-rated non-bank mortgage servicer to be profitable in 2015, and its net income was just $43 million,” said Warren Kornfeld, Moody’s analyst. “Concurrently, all three non-bank servicers’ reliance on confidence-sensitive, short-term funding heightens their liquidity and refinancing risk, while Walter faces the additional challenge of a weak capital position.”
According to Moody’s, profitability has been weak for non-bank servicers over the last couple of years due to mortgage servicing right fair value adjustments, goodwill impairments, and higher regulatory expenses. Operating costs as a percentage of revenues for both Ocwen and Walter have risen as a result of intense regulatory scrutiny for residential mortgage servicers, according to Moody’s; however, Nationstar’s operating costs as a percentage of revenues have been more steady. Moody’s expects that Nationstar’s earnings will improve only marginally in 2016 as operating costs rise due to increased regulatory scrutiny.
“Concurrently, all three non-bank servicers’ reliance on confidence-sensitive, short-term funding heightens their liquidity and refinancing risk, while Walter faces the additional challenge of a weak capital position.”
Warren Kornfeld, Moody's Analyst
Elsewhere in Moody’s Servicer Dashboard, Nationstar and Ocwen continued to have a higher level of loss mitigation than their bank peers in Q4 2015 while re-default rates on modifications either remained flat or improved slightly. The non-bank servicers also had lower missed payment to foreclosure referral timelines compared with bank mortgage servicers (less than one year on average for subprime for non-bank servicers, compared with more than two years for bank mortgage servicers). Subprime collection metrics continued to improve for all mortgage servicers, both bank and non-bank, in the country in the fourth quarter; Wells Fargo was tops in subprime, and CitiMortgage led in prime and Alt-A, according to Moody’s.
New delinquencies and roll rates experienced declines in Q4, notably for subprime loans, largely as a result of ongoing improvements in the economy, according to Moody’s.