Mortgage servicing rights hit results in 2Q loss at Mr. Cooper

Mr. Cooper Group reported a second-quarter net loss of $87 million as the company took a $231 million fair value hit to its mortgage servicing rights portfolio.

"The originations segment made a major contribution this quarter, posting record pretax profits of $118 million on record funding of $10 billion," said Chairman and CEO Jay Bray in a press release. "This strong performance is the result of several years of operational focus and technology investments, as well as the Pacific Union acquisition. The originations segment now acts as a much stronger macro hedge for our servicing operation, and we believe it will play a major role in helping us achieve our profitability and shareholder return targets."

In the first quarter, Mr. Cooper lost $186 million on a $293 million fair value hit to its MSRs. WMIH, a shell company that was the corporate remnants of Washington Mutual, acquired Mr. Cooper's parent company Nationstar on July 31, 2018. Nationstar earned $58 million in the second quarter last year.

The mortgage originations segment had pretax income of $118 million for the quarter, as volume increased to just shy of $10 billion from $5.7 billion in the first quarter and $5.5 billion one year ago.

Xome's pretax income of $7 billion dropped slightly from $8 billion in the first quarter; that does not include $3 billion of intangible amortization in the second quarter.

However, the mortgage servicing unit took a pretax loss of $135 million, net of the mark-to-market valuation of the MSRs. Otherwise, it would have generated a pretax operating income of $96 million for the second quarter.

Separately, Radian Group earned $166.7 million in the second quarter, down from $208.9 million one year prior; but the year-ago results were enhanced by a $74 million tax benefit related to the company's settlement with the Internal Revenue Service.

"We wrote record-breaking levels of new mortgage insurance business which grew our in-force portfolio more than 9% to $231 billion, and we increased services segment revenues to $43 million," said Radian's CEO Rick Thornberry in a press release. "These results reflect the fundamental strength of our business model, the value of our customer relationships and the dedication of our entire team."

Radian's new insurance written totaled $18.5 billion, up 70% from $10.9 billion in the first quarter and 13% from $16.4 billion one year prior. The new book of business was 90% purchase mortgages, down from 92% in the first quarter and 95% in the second quarter of 2018.

Radian's mortgage insurance business had adjusted pretax operating income of $219.4 million, compared with $208.2 million in the first quarter and $197.4 million in the second quarter last year.

But its services business had a pretax operating loss of $3.5 million, an improvement over the $6.1 million loss in the first quarter and $6.4 million loss in the second quarter of 2018.

NMI Holdings, the parent of National MI, had net income of $39.1 million in the second quarter, up from $25.2 million one year ago.

Its NIW grew to $12.2 billion from $6.9 billion in the first quarter and $6.5 billion in the second quarter of 2018, a period that National MI elected to slow its market share growth.

"National MI again delivered record performance, including new insurance written of $12.2 billion, net premiums earned of $83.2 million, adjusted net income of $41.4 million and adjusted return-on-equity of 21.2%," said CEO Claudia Merkle. "We continued to grow our high-quality insured portfolio at an industry-leading rate and are driving accelerating momentum in our customer franchise. We also succeeded with our third insurance-linked notes offering, further extending our comprehensive credit risk management framework."

Arch Capital Group's mortgage insurance segment, which includes its U.S. primary MI business as well as its mortgage reinsurance operations, had underwriting income of $258.4 million, an increase of nearly 26% over $205.7 million one year ago.

However, unlike the other MIs that have reported so far, including MGIC and Genworth, Arch MI U.S. had a year-over-year decline in NIW to $17.2 billion from $19.9 billion.