Mr. Cooper Group on Tuesday recorded combined earnings for the second quarter that fell in need of matching year-ago outcomes and consensus estimates however had been significantly stronger than the underside line within the earlier fiscal interval.
Servicing, together with a $30 million mark web of hedges, was the important thing driver of the second-quarter’s $198 million revenue. That quantity was up from $88 million the earlier fiscal interval however decrease than the Standard & Poor’s Capital IQ consensus of $211 million. The firm earned $204 million a yr in the past. Mr. Cooper bought sure Flagstar belongings final yr in a deal that closed in late 2024.
“This is an actual achievement contemplating the troublesome surroundings, with persistent excessive mortgage charges contributing to ongoing affordability challenges, sluggish house gross sales, and residential costs coming below strain in some markets,” Chairman and CEO Jay Bray mentioned in a prerecorded earnings name.
How Mr. Cooper’s servicing fared in the course of the quarter
The honest worth of mortgage servicing rights rose to $11.4 billion from $11.3 billion 1 / 4 earlier and $10.4 billion a yr in the past. It has trended upward over the past 4 years in keeping with portfolio development however had dropped on a consecutive-quarter foundation the earlier fiscal interval.
Rising rates of interest and decrease prepayments improved honest worth despite the fact that there have been $29 million in hedge losses, mentioned Kurt Johnson, government vp and chief monetary officer.
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The whole portfolio of loans the corporate companies for itself and others was up 25% over a yr earlier at practically $1.51 trillion in unpaid principal stability however had inched down from the earlier quarter’s whole, which was barely over $1.51 trillion.
“The slight decline in UPB this quarter is pushed by a single shopper who’s pursuing a distinct technique. During the second quarter, we deboarded $12 billion in loans for this shopper and we deboarded the remaining roughly $50 billion earlier this month,” President Mike Weinbach mentioned.
The firm did not identify the shopper, however UWM did announce in April that it might be withdrawing its servicing contract from Mr. Cooper in gentle of Rocket’s deal to accumulate it.
There are also pending additions to the corporate’s owned portfolio and loans serviced for others.
“I’m happy to report a brand new shopper win that’s bringing a large portfolio of about $40 billion in loans that we anticipate to board by year-end,” he mentioned.
Mr. Cooper is also boarding round $20 billion in owned mortgage-servicing rights in an acquisition set for completion in the course of the third quarter, he mentioned.
“For the rest of the yr we might anticipate the whole portfolio to be flat, plus or minus, as we follow our pricing self-discipline and work on integration planning with Rocket,” Weinbach mentioned.
However, Bray mentioned an MSR fund the corporate has launched with $200 million in preliminary commitments is on monitor to “scale quickly from right here.”
Servicing pretax revenue was $364 million in contrast with $214 million the earlier quarter and $354 million a yr earlier. The firm generated $332 in servicing pretax working revenue, matching the earlier quarter and outpacing $273 million a yr in the past.
Where Mr. Cooper’s mortgage efficiency stands
“Asset high quality stays pristine, with delinquencies declining within the quarter to 1.0%, and our hedging program continues to carry out as anticipated,” Bray mentioned in the course of the name.
However, Johnson famous Mr. Cooper is keeping track of and managing dangers in securitized Federal Housing Administration-insured loans.
“We’re intently monitoring the Ginnie Mae sector, particularly FHA, the place our delinquencies have elevated, though they continue to be properly under friends. Due to our conservative threat urge for food, we have restricted FHA loans to fifteen% of our MSR portfolio. In addition, we have largely averted the 2023 and 2024 vintages, which we regard as posing greater threat,” he mentioned.
Adjustments to FHA coverage limiting modification help to each 24 months may have a combined influence on efficiency as it may scale back recidivism, but additionally the variety of debtors who qualify for assist, Johnson mentioned.
“We are intently watching our FHA clients who even have scholar loans, however for us this inhabitants represents solely 3.5% of our whole portfolio, and is basically related to clients with vital fairness positions. Therefore, we don’t consider this portfolio poses a cloth threat,” he added, referring to coverage adjustments anticipated to place extra stress on these debtors.
Loan manufacturing quantity and revenue elevated
Origination pretax revenue got here in at $64 million in contrast with $45 million within the first quarter and $38 million within the fourth fiscal interval of final yr. Pretax working revenue on this section was additionally $64 million, up from $53 million the earlier quarter and $32 million a yr earlier.
While the origination revenue was comparatively weaker than servicing earnings, the corporate’s mixture with Rocket places it able to considerably enhance its market share in single-family mortgage manufacturing. Rocket plans to report earnings subsequent week.
Total origination quantity got here in at $9.4 billion, in comparison with $8.3 billion the earlier quarter and $3.8 billion a yr earlier.
The correspondent channel contributed $6.8 billion to originations, up from $6.4 billion within the second quarter and $2.1 billion a yr in the past. Direct-to-consumer made up the stability or $2.6 billion of the whole, in comparison with $1.9 billion the earlier quarter and $1.7 billion a yr earlier.
“I used to be happy with our momentum in house fairness loans, the place we accomplished two securitizations in the course of the quarter, and by our continued sturdy efficiency within the correspondent channel, the place we’re a high 5 participant and climbing,” Bray mentioned.
Other key metrics and prices
During the quarter, Mr. Cooper had roughly $9 million in prices associated to the Rocket merger, $4 million related to Flagstar and $2 million in different bills inclusive of these associated to the MSR fund, Johnson mentioned.
“For the third quarter of 2025, we anticipate company bills remaining at this degree on account of IT investments which we’re persevering with to make in our servicing platform,” he mentioned, referring to synthetic intelligence the corporate has been implementing for name middle brokers.
Other key earnings metrics relative to the earlier quarter and the year-ago fiscal interval had been as follows:
Revenue: $608 million vs. $560 million and $583 million.Diluted earnings per share: $3.04 vs. $1.35 and $3.10.Operating bills: $330 million vs. $430 million and $300 million.Total belongings: $18.5 billion vs. $18.4 billion and $15.8 billionShareholders fairness: $5.1 billion vs. $4.9 billion and $4.6 billion.
