Having survived the darkness of the housing market meltdown,
Nationstar Mortgage Holdings is now seeing the light of
The Lewisville, Texas-basedNationstar (
) has been a beneficiary of banks' mortgage exodus and has seen
its earnings per share grow in at least triple digitals over the
last six quarters, becoming the second-largest company of its
kind in the United States.
In its Q2 results, which were reported last month, Nationstar
reported a 40% increase in revenue. Its GAAP EPS was $1.37,
easily beating analysts' estimate of 99 cents. The company's
total revenues were $603.7 million, up 40% from Q1 and nearly
200% from the year before.
Nationstar, which collects loan payments from homeowners and
delivers the funds to investors, including mortgage-backed
securities trusts, has posted five consecutive quarters where its
revenue increased by more than double and its earnings per share
have grown in triple-digit percentages four out of the last six
A majority of analysts polled by Thomson Reuters about
Nationstar were bullish on the company's prospects.
But things weren't always so rosy. Nationstar, shortly after
its 2006 purchase by Fortress Investment Group, posted losses as
the housing market collapsed. In 2007, it posted losses of $3.19
a share and lost money for the next three years.
During that time, the mortgage servicing industry suffered
black eyes from allegations of "robo-signing," illegal
foreclosures and foreclosure document fraud hit major lenders
such asBank of America (
) andJPMorgan Chase (
Besides scarred banks and jittery homeowners, legacies of the
housing market crash included increased post-crisis regulatory
scrutiny and the realization by big banks that they were not
sufficiently set up to handle large numbers of mortgage
Four years ago, major banks such asCitigroup (
) andWells Fargo (
) dominated the mortgage servicing arena, holding a 56% market
share, according to Oppenheimer & Co. analysts.
By Q2 of 2013, that percentage had dropped to just over 44%
while companies such as Nationstar,Ocwen Financial (OCN),PHH
Corp. (PHH) andWalter Investment Management (WAC) saw their share
of the market rise in excess of 11%, Oppenheimer analysts
"Banks are scaling back some of their ambitions in the
mortgage market," said Douglas Harter, an analyst at Credit
Suisse. "They're looking to shed that customer and be happy to
sell that servicing to a nonbank like Nationstar."
"You've seen a lot of banks looking to either reduce or get
out of the mortgage servicing business," Harter said.
The sale of those mortgages to companies such as Nationstar
set up its current success. As the housing market has healed,
Nationstar has emerged as one of the big winners in the new
economy, grinding out tens of thousands of telephone calls daily
and millions of pieces of mail annually as its loan counselor
employees work out delinquent mortgages.
"They've capitalized on the secular change of the mortgage
servicing and mortgage originations market," Harter said. "That's
led to significant earnings growth over the last year."
Credit Suisse analysts expect Nationstar to experience 48%
growth in earnings per share next year with a less frenetic but
still robust 8% EPS growth in 2015.
Henry J. Coffey, an analyst at Sterne Agee & Leach, said
he expects the company "to buy a ton of servicing" and he said
previous estimates of Nationstar's performance were "too
"There's a tremendous amount of value to be created here," he
Since its March 2012 IPO at $12 a share, Nationstar's stock
price has steadily grown, reaching 57.95 last week.
In May, Nationstar announced the completion of its $75 million
acquisition of Irvine, Calif.-based Greenlight Financial Services
and expects it to generate $8 billion per year.
As of this spring, Nationstar said it services a portfolio of
$312 billion in unpaid principal balance and employs more than
Finance-Mortgage and Related Service is ranked third out of
197 groups that IBD tracks. The big names in that group are
Ocwen,Lender Processing Services (LPS) andCoreLogic Inc.
"Over the past few quarters, we've been able to acquire assets
at very low multiples, and we expect our investment in these
assets to appreciate significantly as the economy continues to
improve," said Nationstar chief executive Jay Bray in a
conference call last month.
He added that multiple large lenders recently announced they
intend to explore selling additional servicing assets.
"This bodes well for Nationstar and will undoubtedly allow us
to continue to grow the platform," he said.
Nevertheless,how Nationstar plans to profit in the mortgage
servicing business remains a question as banks shake off the
excess mortgages on their balance sheets.
Other questions remain as to how the company will respond when
interest rates, which have been at historic lows for several
years, begin rising, especially once the Federal Reserve slows
down its stimulus program.
Harter said he expects the portfolio to grow to $500 billion,
but added that mortgage origination environment may not be as
good in 2015 as it's expected to be next year.
Additional risks include the ever-present threat of
litigation. Nationstar is fighting a $35 million lawsuit from
Truman Capital Advisors and U.S. Bank, alleging it unlawfully
backed out of a plan to sell $150 million in home loans.
Regardless of potential head winds, the company remains
confident about its outlook as housing is rebounding.
"The current market dynamics continue to be in our favor,"