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Rate Decline Zaps Walter Investment’s Profits

Depleted Money BHA rough 2015 for non-bank mortgage servicers has spilled over into 2016. Just last week, Ocwen Financial reported a first quarter net loss of $111.2 million.

A significant rate decline in the first quarter negatively impacted earnings for Walter Investment Management Corp., and as a result, the company took a net loss of $172.7 million during the three-month period, according to the company’s Q1 2016 financial results released Tuesday.

The net loss represented a year-over-year decline of about $142 million in net income; in Q1 2015, Walter suffered a net loss of $31 million. Walter’s total serviced portfolio had $275.7 billion in unpaid principal balance (UPB) at the end of Q1 2016, an increase of 3 percent from the previous quarter, and the company was ranked nationally as a top 10 servicer, according to the announcement from Walter.

The company’s total revenue in the first quarter declined by $244.1 million year-over-year down to $66.8 million, largely due to a $196.6 million decline in net servicing revenue and fees reflecting a $197.3 million change in fair value changes to mortgage servicing rights, according to Walter.

“First quarter performance was significantly impacted by the challenging rate environment. The decline in rates drove a volatile MSR market and negatively impacted results through the revaluation of mortgage servicing rights and accelerated prepayments,” said Denmar J. Dixon, Walter Investment’s Vice Chairman of the Board, CEO, and President. “We are moving with a sense of urgency to improve upon both the customer experience and our operating performance, and we are in the early stages of a transformation of the company. We are working to significantly lower our cost structure while redesigning our processes and driving a culture of excellence at Walter that puts our home-owning customers first.”

Walter’s servicing segment added $17.5 billion of unpaid principal balance to the company’s serviced book of business to end the quarter with approximately 2.2 million accounts serviced with an aggregate UPB of approximately $255.3 billion. The increase was driven by a combination of mortgage servicing rights (MSR) acquisitions, sub-servicing arrangements, and originated MSR.

Walter InvestmentOn the other hand, Walter’s servicing segment reported a negative revenue ($63.3 million) for Q1, a year-over-year decline of $207 million, which reflected the impact of fair value charges to Walter’s mortgage servicing rights.

The Servicing segment had negative revenue of ($63.3) million in the first quarter of 2016, a $207.0 million decline as compared to first quarter of 2015, reflecting the impact of fair value charges to our mortgage servicing rights.  Additionally, interest income on loans was lower in the current quarter as compared to the prior year quarter driven by the sale of the residual interests in seven of the Residual Trusts, partially offset by higher other income primarily due to higher fair value gains relating to charged-off loans resulting from an increase in expected collections over time.

Non-bank servicers had a tough year in 2015. A report released in April found that out of the three largest non-bank servicers rated by Moody’s (Ocwen Financial, Nationstar Mortgage, Walter Investment), only Nationstar turned a profit for the full year of 2015 ($43 million). Both Ocwen and Walter Investment experienced losses of more than $200 million last year. Nationstar will release its first quarter earnings statement on Wednesday, May 4.

Click here to view Walter's complete Q1 earnings report.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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