Shares in Mr. Cooper at all-time high as servicing portfolio hits $1T

Publish Date: January 30, 2024

Written by Matt Carter

- Originally published at Inman News - Matt Carter

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Shares in mortgage loan servicing giant Mr. Cooper hit a new all-time high Tuesday after the company said it’s on track to grow its mortgage servicing portfolio to $1 trillion and will restructure some of the debt it’s taken on to fund that growth.

Mr. Cooper announced Monday that it will issue $1 billion in unsecured notes at 7.125 percent interest. The notes, which aren’t scheduled to mature until 2032, will be used to pay down more costly secured financing it’s used to acquire mortgage servicing rights.

Moody’s Investors Service announced it has upgraded the Dallas-based loan servicer’s corporate credit rating to Ba3 from B1 — the same as rivals PennyMac and United Wholesale Mortgage (UWM), BTIG analyst Eric Hagen said in a note to clients Tuesday.

The deal brings Mr. Cooper’s total unsecured debt to $4.2 billion, with an average maturity of 5.5 years and a 5.875 percent coupon, Hagen said.

In releasing preliminary fourth-quarter results in conjunction with the planned issuance of the notes, Mr. Cooper said it ended the year with $2.4 billion in available liquidity, including $572 million in unrestricted cash and $1.85 billion in unused credit lines.

Mr. Cooper generates most of its revenue from the fees it collects from investors and lenders for collecting mortgage payments on their behalf.

Mr. Cooper’s mortgage servicing portfolio — the outstanding balances of mortgages it’s collecting monthly payments on from more than 4 million homeowners — grew to $992 billion as of Dec. 31, and is expected to reach $1.1 trillion by the end of March, the company said Monday.

Although Hagen has a neutral rating on Mr. Cooper, he called the company a “powerhouse in mortgage servicing,” with momentum in the company’s share price based mostly on the prospect for “even more growth, while preserving a healthy capital ratio and plenty of liquidity to scale up further with possible bulk acquisitions or M&A.”

Shares in Mr. Cooper, which in the last year had changed hands for as little as $37.54 and as much as $67.96, touched a new all-time high of $69.05 Tuesday before falling back below $69 to close at $68.42.

Although Mr. Cooper was hit by a cyberattack at the end of the year in which the personal information of up to 14.69 million people was exposed, the impact to the company’s bottom line has so far been largely contained.

Costs of the Oct. 30 data breach to date include $27 million in one-time charges the company racked up to hire outside vendors to manage the crisis and to provide two years of identity protection to past and present clients.

The data breach disrupted both loan servicing and loan originations during a four-day “precautionary shutdown,” and Mr. Cooper is facing at least five lawsuits seeking class-action status to represent affected clients.

But in announcing preliminary Q4 results, Mr. Cooper said pretax operating income from loan servicing and mortgage originations exceeded previous guidance on the impacts of the cyberattack. At $229 million, Q4 loan servicing pretax operating income exceeded a Dec. 15 projection of $200 million to $210 million.

Mr. Cooper also originates mortgages, mostly by refinancing homeowners it collects payments from, but also through a correspondent channel that purchases or originates loans from mortgage bankers.

Mr. Cooper had previously expected its mortgage originations business would generate no pretax operating earnings during the fourth quarter and might lose up to $10 million. But according to preliminary earnings released Monday, mortgage originations generated pretax operating income of $10 million on $2.7 billion in fundings.

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