Mr. Cooper Group's Direct-to-Consumer Platform Drives Growth and Expansion
2023-08-01
Mr. Cooper Group held its earnings call meeting to discuss the company's second-quarter financial performance, operational achievements, and capital management strategies. During the meeting, the CEO, Jay Bray, expressed confidence in the company's growth prospects and announced an increase in the repurchase authorization.
The primary focus of the meeting was on Mr. Cooper Group's financial performance in the second quarter. A deep-dive analysis revealed that the Direct-to-Consumer (DTC) platform has been a significant driver of the company's origination segment's performance. Chris Marshall, the Vice Chairman and President, acknowledged that there may be some timing components in terms of boarding new MSRs (Mortgage Servicing Rights), but overall, the DTC volumes are expected to continue increasing in line with portfolio growth.
Marshall emphasized that with more inventory, there is more opportunity for the DTC platform. This indicates that the DTC platform is a material source of growth for the company and is expected to continue growing into 2024.
The market outlook for Xome Exchange, a subsidiary of Mr. Cooper Group, is uncertain in the long term due to macro and policy drivers. However, in the short term, the company is performing well in terms of execution and market share. They expect positive third-quarter results driven by continued sales momentum.
In terms of financials, the company made adjustments totaling $11 million, including deal costs, severance expenses, and a loss associated with equity investments. The acquisition of Home Point is expected to result in a gain of approximately $1 per share in tangible book value upon closing. Additionally, the company marked up the MSR by $139 million to account for higher interest rates and lower CPRs (Constant Prepayment Rates). However, there were hedge losses.
The company's key drivers for business include its strong track record of working with others, financial buyers' interest in acquisitions, expansion of the DTC platform, and a focus on recapture and refinance.
Mr. Cooper Group plans to integrate its technology with a new cloud-based core called Finxact. They are currently in the process of this integration and expect it to be completed in about nine months. The company sees this technology integration as a significant investment with promising upside potential. They also view their partnership with Fiserv as an exciting opportunity to expand their client base.
The competitive landscape for Mr. Cooper Group, a residential mortgage servicing company, is evolving positively. The company has a strong and consistent growth record, with a portfolio compound annual growth rate (CAGR) of 30% over nearly 15 years. They have acquired numerous portfolios totaling over $700 billion, giving them an advantage when bidding for pools. Mr. Cooper has invested in their servicing platform, making them a leader in key performance drivers such as cost of service, loss mitigation, and recapture. These advantages position them close to becoming the nation's largest servicer.
During the meeting, the company discussed several key performance indicators (KPIs) including Return on Tangible Common Equity (ROTCE), Prepayment Speeds, and Return on Equity (ROE). They mentioned that they are close to reaching their minimum target for ROTCE and highlighted pending acquisitions and strategic initiatives that will help lift returns. The company also discussed their expectations for prepayment speeds, forecasting a slight increase. They acknowledged operating at the low end of their ROE target range but expressed confidence in staying within that range.
The CEO, Jay Bray, expressed confidence in the company's continued growth and strong returns. He cited near-record high capital and liquidity levels, increased operating ROTCE, and growth in tangible book value per share. The recent acquisition and increase in repurchase authorization further indicate confidence in the business model. However, the stock price does not currently reflect this positive outlook.
Based on the information provided during the meeting, Mr. Cooper Group has made progress on its strategic initiatives aimed at improving profitability and sustaining long-term returns. They have implemented initiatives such as lowering unit costs, expanding their Direct-to-Consumer platform, growing their base of subservice and clients, and deploying capital into MSR acquisitions and stock repurchases. The company also mentioned their focus on regulatory expectations and preferred source of long-term debt financing.
Mr. Cooper Group's capital spending plans include deploying capital in a disciplined, patient, and opportunistic manner. They aim to lift returns and sustain them through pending acquisitions and strategic initiatives. The company intends to prioritize profitability over leverage for incremental returns in the future. They also plan to meet regulatory expectations, including Ginnie's risk-based capital rules. The company prefers long-term debt financing from the high-yield market but does not view current spreads as consistent with their strong credit profile. They plan to deploy capital into both MSR acquisitions and stock repurchases to seek the best returns for investors.
The participants of the call meeting included Jay Bray, Chairman and CEO of Mr. Cooper Group, Chris Marshall, Vice Chairman and President of Mr. Cooper Group, and Kurt Johnson, Executive Vice President and CFO of Mr. Cooper Group. Their presence in the earnings call indicates the significance of their insights and updates on the company's financial performance and operations.
In conclusion, Mr. Cooper Group's earnings call meeting provided valuable insights into the company's financial performance, operational achievements, and capital management strategies. The company's focus on the growth potential of its Direct-to-Consumer platform, integration of new technology, and strategic initiatives demonstrate their commitment to improving profitability and sustaining long-term returns. With a positive outlook and confidence in their business model, Mr. Cooper Group continues to position itself as a leader in the residential mortgage servicing industry.