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In their first earnings call since being acquired by Rocket Companies for $9.4 billion, Mr. Cooper executives did not take questions from analysts. But they did provide a glimpse of the opportunities the deal represents for companies in the mortgage space — or how it intends to power the “Apple of homeownership” flywheel.
“This transaction is about creating a scaled homeownership experience,” Mr. Cooper Group CEO Jay Bray said.
Overall, Mr. Cooper delivered $88 million in net income in the first quarter, which include a negative hit of $82 million on its mortgage servicing rights (MSR) portfolio. Profits declined from $204 million in the previous quarter.
“The integration teams are already synched and planning for how to bring our business together once the transaction closes,” Bray told analysts.
It all starts with a $1.514 billion servicing portfolio in the first quarter, down from $1.556 billion in the fourth quarter of 2024. That was tied to the shift of $60 million in sub-serviced loans to other firms amid the closure of its Flagstar deal at the end of the year — the biggest acquisition in Mr. Cooper’s history.
Still, that’s the largest portfolio in the industry, and it offers ample opportunity to originate refinances when interest rates drop, along with other products while they are still at higher levels. In total, Mr. Cooper had 6.5 million servicing customers in the first quarter.
From January to March, Mr. Cooper’s servicing portfolio delivered $214 million in pretax income, including $82 million in mark-to-market. The performance was at the high end of investor guidance due to a slower-than-expected prepayment rate and lower amortization.
Meanwhile, servicing operating expenses declined as a share of the portfolio by 36 basis points on a year-over-year basis.
Servicing loans opens the opportunity to offer clients more products. Executives said Mr. Cooper sees momentum in home equity loans and cash-out refinances, which have massive long-term growth potential regardless of the interest rate environment, they say.
Mike Weinbach, president of Mr. Cooper Group, said these products are “turning out to be a very popular method for customers to tap the equity in their homes.” In total, 94% of Mr. Cooper’s customers have at least 20% equity in their homes.
“They typically use this liquidity for debt consolidation, home improvements and other major expenses,” Weinbach added. “Regardless of the use, these products cost much less than most credit cards, and that’s even before considering the tax deductibility of mortgage interest.”
While the current environment offers limited opportunity for rate-and-term refis, the firm’s refinance recapture rate was a little over 50% in the first quarter. Second liens were not included in the ratio.
“As of quarter end, 21% of our portfolio had note rates of 6% or higher, which is indicative of a sizable opportunity when rates next rally,” Weinbach said.
Mr. Cooper’s origination segment earned $45 million in pretax income, in line with the previous quarter. It funded $8.3 billion in loans across 32,296 loans in the first quarter, with $1.9 tied to its direct-to-consumer channel and $6.4 billion from correspondent business. Total volume shrank from $9.2 billion in the fourth quarter of 2024.
Regarding the company’s portfolio, delinquencies were at 1.1%. Customers have an average FICO score of 736, and loan-to-value ratios averaged 52%.
“I’d like to call out our exceptional performance with Ginnie Mae loans, where delinquencies fell by 50 basis points for both FHA and VA loans, significantly outperforming the industry,” said Curt Johnson, the company’s executive vice president and chief financial officer.
Johnson said the company “doesn’t try to forecast overall consumer credit cycles.” Bray added that “balance-sheet strength is non-negotiable for industry leaders, and it’s especially important during periods of elevated uncertainty such as the markets are currently experiencing.”
Mr. Cooper’s liquidity was up 14% quarter over quarter to $3.8 billion, including $784 million in cash.
