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Section 1: 425 (FORM 8-K)

Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 4, 2018 (May 3, 2018)

 

 

Nationstar Mortgage Holdings Inc.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware   001-35449   45-2156869

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification Number)

8950 Cypress Waters Boulevard

Coppell, Texas 75019

(Address of Principal Executive Offices)

(469) 549-2000

(Registrant’s Telephone Number, Including Area Code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

  Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 8.01 Other Events.

On May 3, 2018, Nationstar Mortgage Holdings Inc. (the “Company”) held a conference call with analysts and investors to discuss its financial results for the first quarter ended March 31, 2018. On the conference call information was provided regarding the proposed merger transaction involving the Company and WMIH Corp. The presentation presented on the conference call, and the related transcript, are attached hereto as Exhibits 99.1 and 99.2 to this Current Report on Form 8-K.

IMPORTANT ADDITIONAL INFORMATION AND WHERE TO FIND IT

This communication is being made in respect of the proposed merger transaction involving WMIH Corp. (“WMIH”) and Nationstar Mortgage Holdings Inc. (“Nationstar”). WMIH has filed a registration statement on Form S-4 with the SEC on March 22, 2018, which includes a preliminary joint proxy statement of WMIH and Nationstar and a preliminary prospectus of WMIH, and each party will file other documents regarding the proposed transaction with the SEC. The information in the preliminary joint proxy statement/prospectus is not complete and may be changed. The definitive joint proxy statement/prospectus will be sent to the stockholders of WMIH and Nationstar after the registration statement is declared effective by the SEC. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. Before making any voting or investment decision, investors and security holders of WMIH and Nationstar are urged to carefully read the entire registration statement and joint proxy statement/prospectus and any other relevant documents filed with the SEC, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. The documents filed by WMIH and Nationstar with the SEC may be obtained free of charge at the SEC’s website at www.sec.gov. In addition, the documents filed by WMIH may be obtained free of charge from WMIH at www.wmih-corp.com, and the documents filed by Nationstar may be obtained free of charge from Nationstar at www.nationstarholdings.com.    Alternatively, these documents, when available, can be obtained free of charge from WMIH upon written request to WMIH Corp., 800 Fifth Avenue, Suite 4100, Seattle, Washington 98104, Attn: Secretary, or by calling (206) 922-2957, or from Nationstar upon written request to Nationstar Mortgage Holdings Inc., 8950 Cypress Waters Blvd, Dallas, TX 75019, Attention: Corporate Secretary, or by calling (469) 549-2000.

WMIH and Nationstar and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of WMIH and/or Nationstar, as applicable, in favor of the approval of the merger. Information regarding WMIH’s directors and executive officers is contained in WMIH’s Annual Report on Form 10-K for the year ended December 31, 2017, its Current Report on Form 8-K filed on March 9, 2018, and the joint proxy statement/prospectus, which are filed with the SEC. Information regarding Nationstar’s directors and executive officers is contained in Nationstar’s Proxy Statement on Schedule 14A, dated April 17, 2018, and its Annual Report on Form 10-K for the year ended December 31, 2017, which are filed with the SEC. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the registration statement and the joint proxy statement/prospectus and other relevant documents filed with the SEC when they become available. Free copies of these documents may be obtained as described in the preceding paragraph.

FORWARD-LOOKING STATEMENTS

This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, WMIH’s and Nationstar’s expectations or predictions of future financial or business performance or conditions.    All statements other than statements of historical or current fact included in this communication that address activities, events, conditions or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business and these statements are not guarantees of future performance. Forward-looking statements may include the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “strategy,” “future,” “opportunity,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Such forward-looking statements involve risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by such statements. Certain of these risks are identified and discussed in WMIH’s Form 10-K for the year ended December 31, 2017 under Risk Factors in Part I, Item 1A, Nationstar’s Form 10-K for the year ended December 31, 2017 under Risk Factors in Part I, Item 1A and the registration statement under Risk Factors. These risk factors will be important to consider in determining future results and should be reviewed in their entirety. These forward-looking statements are expressed in good faith, and WMIH and Nationstar believe there is a reasonable basis for them. However, there can be no assurance that the events, results or trends identified in these forward-looking statements will occur or be achieved.


Forward-looking statements speak only as of the date they are made, and neither WMIH nor Nationstar is under any obligation, and expressly disclaim any obligation, to update, alter or otherwise revise any forward-looking statement, except as required by law. Readers should carefully review the statements set forth in the reports, which WMIH and Nationstar have filed or will file from time to time with the SEC.

In addition to factors previously disclosed in WMIH’s and Nationstar’s reports filed with the SEC and those identified elsewhere in this communication, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: ability to meet the closing conditions to the merger, including approval by shareholders of WMIH and Nationstar on the expected terms and schedule and the risk that regulatory approvals required for the merger are not obtained or are obtained subject to conditions that are not anticipated; delay in closing the merger; failure to realize the benefits expected from the proposed transaction; the effects of pending and future legislation; risks associated with investing in mortgage loans and mortgage servicing rights and changes in interest rates; risks related to disruption of management time from ongoing business operations due to the proposed transaction; business disruption following the transaction; macroeconomic factors beyond WMIH’s or Nationstar’s control; risks related to WMIH’s or Nationstar’s indebtedness and other consequences associated with mergers, acquisitions and divestitures and legislative and regulatory actions and reforms.

Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.

 

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit

Number

  

Exhibit

99.1    Investor Supplement of Nationstar Mortgage Holdings Inc., dated May 3, 2018
99.2    Transcript of conference call discussing Nationstar Mortgage Holdings Inc.’s financial results for the first quarter ended March 31, 2018


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    Nationstar Mortgage Holdings Inc.
Date: May 4, 2018     By:  

/s/ Amar Patel

     

Amar Patel

Chief Financial Officer

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Section 2: EX-99.1 (EX-99.1)

EX-99.1

Slide 1

FIRST QUARTER 2018 RESULTS MAY 3, 2018 INVESTOR SUPPLEMENT Exhibit 99.1


Slide 2

IMPORTANT INFORMATION This presentation contains summarized information concerning Nationstar Mortgage Holdings Inc. (the “Company”) and the Company’s business, operations, financial performance and trends. No representation is made that the information in this presentation is complete. For additional financial, statistical and business related information, as well as information regarding business and segment trends, see the Company’s most recent Annual Report on Form 10-K (“Form 10-K”) and Quarterly Reports on Form 10-Q filed with the U.S. Securities and Exchange Commission (the “SEC”), as well as the Company’s other reports filed with the SEC from time to time. Such reports are or will be available in the Investor Information section of the Company’s website (www.nationstarholdings.com) and the SEC’s website (www.sec.gov). FORWARD LOOKING STATEMENTS This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, 2018 Goals and initiatives and WMIH’s and Nationstar’s expectations or predictions of future financial or business performance or conditions. All statements other than statements of historical or current fact included in this communication that address activities, events, conditions or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business and these statements are not guarantees of future performance. Forward-looking statements may include the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “strategy,” “future,” “opportunity,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Such forward-looking statements involve risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by such statements. Certain of these risks are identified and discussed in WMIH’s Form 10-K for the year ended December 31, 2017 under Risk Factors in Part I, Item 1A, Nationstar’s Form 10-K for the year ended December 31, 2017 under Risk Factors in Part I, Item 1A and the registration statement under Risk Factors. These risk factors will be important to consider in determining future results and should be reviewed in their entirety. These forward-looking statements are expressed in good faith, and WMIH and Nationstar believe there is a reasonable basis for them. However, there can be no assurance that the events, results or trends identified in these forward-looking statements will occur or be achieved. Forward-looking statements speak only as of the date they are made, and neither WMIH nor Nationstar is under any obligation, and expressly disclaim any obligation, to update, alter or otherwise revise any forward-looking statement, except as required by law. Readers should carefully review the statements set forth in the reports, which WMIH and Nationstar have filed or will file from time to time with the SEC.   In addition to factors previously disclosed in WMIH’s and Nationstar’s reports filed with the SEC and those identified elsewhere in this communication, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: ability to meet the closing conditions to the merger, including approval by shareholders of WMIH and Nationstar on the expected terms and schedule and the risk that regulatory approvals required for the merger are not obtained or are obtained subject to conditions that are not anticipated; delay in closing the merger; failure to realize the benefits expected from the proposed transaction; the effects of pending and future legislation; risks associated with investing in mortgage loans and mortgage servicing rights and changes in interest rates; risks related to disruption of management time from ongoing business operations due to the proposed transaction; business disruption following the transaction; macroeconomic factors beyond WMIH’s or Nationstar’s control; risks related to WMIH’s or Nationstar’s indebtedness and other consequences associated with mergers, acquisitions and divestitures and legislative and regulatory actions and reforms. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.   NON-GAAP MEASURES This presentation contains certain references to non-GAAP measures. Please refer to the Appendix and Notes for more information on non-GAAP measures.


Slide 3

This communication is being made in respect of the proposed merger transaction involving WMIH Corp. (“WMIH”) and Nationstar Mortgage Holdings Inc. (“Nationstar”). WMIH has filed a registration statement on Form S-4 with the SEC on March 22, 2018, which includes a preliminary joint proxy statement of WMIH and Nationstar and a preliminary prospectus of WMIH, and each party will file other documents regarding the proposed transaction with the SEC. The information in the preliminary joint proxy statement/prospectus is not complete and may be changed. The definitive joint proxy statement/prospectus will be sent to the stockholders of WMIH and Nationstar after the registration statement is declared effective by the SEC. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. Before making any voting or investment decision, investors and security holders of WMIH and Nationstar are urged to carefully read the entire registration statement and joint proxy statement/prospectus and any other relevant documents filed with the SEC, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. The documents filed by WMIH and Nationstar with the SEC may be obtained free of charge at the SEC’s website at www.sec.gov. In addition, the documents filed by WMIH may be obtained free of charge from WMIH at www.wmih-corp.com, and the documents filed by Nationstar may be obtained free of charge from Nationstar at www.nationstarholdings.com. Alternatively, these documents, when available, can be obtained free of charge from WMIH upon written request to WMIH Corp., 800 Fifth Avenue, Suite 4100, Seattle, Washington 98104, Attn: Secretary, or by calling (206) 922-2957, or from Nationstar upon written request to Nationstar Mortgage Holdings Inc., 8950 Cypress Waters Blvd, Dallas, TX 75019, Attention: Corporate Secretary, or by calling (469) 549-2000. WMIH and Nationstar and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of WMIH and/or Nationstar, as applicable, in favor of the approval of the merger. Information regarding WMIH’s directors and executive officers is contained in WMIH’s Annual Report on Form 10-K for the year ended December 31, 2017, its Current Report on Form 8-K filed on March 9, 2018, and the joint proxy statement/prospectus, which are filed with the SEC. Information regarding Nationstar’s directors and executive officers is contained in Nationstar’s Proxy Statement on Schedule 14A, dated April 17, 2018, and its Annual Report on Form 10-K for the year ended December 31, 2017, which are filed with the SEC. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the registration statement and the joint proxy statement/prospectus and other relevant documents filed with the SEC when they become available. Free copies of these documents may be obtained as described in the preceding paragraph. . ADDITIONAL INFORMATION FOR STOCKHOLDERS


Slide 4

SERVICING ORIGINATIONS XOME Top performing servicer of agency and non-agency, forward and reverse mortgages, owned MSR and subservicing portfolios Focused on customer service and asset performance to customers and investors Integrated platform for origination of conventional agency and government-insured loans Organic source of servicing customers, including recapture Real estate solutions provider to Nationstar, third parties, home buyers/sellers Asset management, property disposition, title, close, valuation, and field services through integrated technology 1 2 3 $500 BILLION SERVICING PORTFOLIO LARGEST NON-BANK Servicer in the u.s.(2) Loans(3) $19+ BILLION Originated 16th LARGEST Originator in the u.s.(1) 3RD LARGEST servicer in the u.s.(1) 11+ THOUSAND XOME PROPERTIES SOLD(3) 414+ THOUSAND COMPLETED XOME ORDERS(3) Nationstar at a Glance REFER TO NOTES ON PAGE 13


Slide 5

REFER TO NOTES ON PAGE 13 WMIH Transaction Overview Nationstar will be a better positioned business with a significantly enhanced free cash flow profile Transaction Benefits Accretive to cash net income; Accretive to book value Synergies without typical M&A operational risks or reliance on integration or cost savings Combination will position Nationstar strongly to cement its place as a leader in the industry, and continue its growth trajectory Transaction Update Expect to close WMIH transaction in the third quarter of 2018 Closing is subject to shareholder vote and regulatory approvals from 54 states and jurisdictions NSM has achieved regulatory approvals from over 80% of the states and jurisdictions requiring approval Transaction Overview On February 13, 2018 NSM announced plans to merge with WMIH For NSM shareholders electing cash, deal offers near-term cash liquidity at $18 per share For NSM shareholders electing stock, deal offers increase in ownership and potential upside through growing NSM platform


Slide 6

$ MM, EXCEPT PER SHARE DATA Q4'17 Q1'18 % QoQ CONSOLIDATED GAAP PTI $58 $206 MARK-TO-MARKET - ($152) ADJUSTMENTS $8 $3 ADJUSTED PRETAX INCOME(4) $66 $58 (12%) GAAP EPS $0.41 $1.61 ADJUSTED EPS(4) $0.43 $0.44 2% Posted quarterly adjusted EPS(4) of $0.44 GAAP EPS of $1.61 Servicing recorded quarterly adjusted earnings(4) of $69 million Achieved adjusted servicing profitability of 5.5 bps Originations recorded quarterly adjusted earnings(4) of $25 million Xome® recorded quarterly adjusted earnings(4) of $14 million HIGHLIGHTS Financial Overview QUARTERLY HIGHLIGHTS $ MM, UNLESS NOTED Q4'17 Q1'18 % QoQ ADJ SERVICING PROFITABILITY (BPS) 5.8 5.5 (5%) AVERAGE UPB $536 $504 (6%) CPR, NET OF RECAPTURE 11.0% 8.9% 19% 60+ DAY DELINQUENCY RATE 3.4% 3.2% 6% RECAPTURE 26% 27% 4% FUNDED VOLUME $5,152 $5,087 (1%) XOME 3RD PARTY REVENUE % 25% 27% 8% KEY METRICS REFER TO NOTES ON PAGE 13


Slide 7

Servicing – the Foundation of our Business HIGHLIGHTS $ MM, UNLESS NOTED Q4'17 Q1'18 % QoQ OPERATIONAL $284 $291 2% AMORTIZATION (55) (48) 13% MARK-TO-MARKET - 152 TOTAL REVENUES 229 395 72% EXPENSES (173) (182) (5%) OTHER 21 7 GAAP PRETAX INCOME $77 $220 MARK-TO-MARKET - (152) ADJUSTMENTS(5) 1 - ADJUSTED PRETAX INCOME(4) $78 $69 (12%) ADJUSTED PROFITABILITY 5.8 5.5 (5%) AVERAGE UPB ($B) $536 $504 (6%) CPR, NET OF RECAPTURE 11.0% 8.9% 19% 60+ DAY DELINQUENCY RATE 3.4% 3.2% 6% OVERVIEW Achieved $69 million adjusted pretax income(4), 5.5 bps adjusted profitability Prepayment speeds improved by 19% QoQ Amortization improved 13% QoQ Executing a two-year initiative to increase efficiency while improving the customer experience Creates a lower cost platform Opportunity to offer additional products Requires strategic technology investments SERVICING ADJUSTED PTI (BPS) +10% improvement YoY 5.4 0.4 bps related to subservicing deboarding fee As interest rates rise, prepayment speeds decline, increasing the profitability of our portfolio REFER TO NOTES ON PAGE 13 (6)


Slide 8

$ MM, UNLESS NOTED Q4'17 Q1'18 % QoQ REVENUES $142 $128 (10%) EXPENSES ($112) ($109) 3% GAAP PRETAX INCOME $30 $19 (37%) ADJUSTMENTS(7) $4 $5 ADJUSTED PRETAX INCOME(4) $34 $25 (26%) PULL THROUGH LOCK VOLUME $4,796 $4,862 1% FUNDED VOLUME $5,152 $5,087 (1%) PURCHASE MIX(8) 37% 40% 8% CONSUMER DIRECT MIX(8) 60% 56% (7%) RECAPTURE 26% 27% 4% Originations - Organic Creation of Servicing Assets at Attractive Margins OVERVIEW Earned $25 million adjusted pretax income(4) Achieved March adjusted pretax income of $12 million(4) Attained profitability in new customer acquisition & purchase channels Maintained volume during a challenging environment $4.9 $5.3 $5.3 $4.6 $4.3 $5.1 $5.2 FUNDED VOLUME BY CHANNEL(9) $5.1 HIGHLIGHTS $ MM, UNLESS NOTED MARCH 2018 FUNDED VOLUME $1,759 ADJUSTED PRETAX INCOME(4) $12 MARCH 2018 OPERATING RESULTS INITIATIVES Launching Home Intelligence in 2H18 Creating a unique digital mortgage experience - offering debt consolidation products Expanding product offerings (Personal loans, insurance, and credit card) REFER TO NOTES ON PAGE 13 Transitioning from an interest rate driven rate-term refi product to personalized debt consolidation refi offering


Slide 9

Building a customer acquisition machine for the next wave of consumer finance ~750,000 Nationstar customers could save an average of $525 per month by reorganizing their debt REFER TO NOTES ON PAGE 13


Slide 10

Posted $14 million adjusted pretax income(4) Property sales improved 6% QoQ Gaining momentum with third-party Exchange Third-party inflows represent 36% of total Reentered Field Services business Plan to achieve $20 million run-rate EBITDA by FYE 2018(6) OVERVIEW HIGHLIGHTS XOME® - high-margin fee income business providing end-to-end real estate solutions Q1'18 REVENUE COMPOSITION ($M) 3RD PARTY INFLOW % 16% 24% 29% 36% 36% $MM, UNLESS NOTED Q4'17 Q1'18 % QoQ GAAP PRETAX INCOME $12 $22 83% ADJUSTMENTS(10) - - (8) ADJUSTED PRETAX INCOME(4) $12 $14 17% DEFAULT PROPERTIES SOLD 2,725 2,880 6% DEFAULT PROPERTY LISTINGS AT PERIOD END 6,886 6,849 (1%) REFERRAL PROGRAM PROPERTY LISTINGS 734 977 33% REFERRAL PROGRAM PROPERTIES SOLD 409 322 (21%) FULFILLMENT ORDERS COMPLETED 96,281 111,339 16% 3RD PARTY REVENUE %(11) 25% 27% 8% REFER TO NOTES ON PAGE 13 Xome serves as both a strong complement to our business and an integral part of our unique home loan experience


Slide 11

2018 Goals & Progress 2018 TARGETS(6) XOME ORIGINATIONS SERVICING 6.0+ ADJUSTED PROFITABILITY BASIS POINTS $140 ANNUAL ADJUSTED PRETAX INCOME MILLION $60 ANNUAL ADJUSTED PRETAX INCOME MILLION CORPORATE $30 ANNUAL SAVINGS FROM PRIOR YEAR MILLION 5.5 ADJUSTED PROFITABILITY BASIS POINTS $25 ADJUSTED PRETAX INCOME MILLION $14 ADJUSTED PRETAX INCOME MILLION $9 SAVINGS FROM PRIOR YEAR MILLION Q1’18 RESULTS FOCUS Increase efficiency and reduce costs while providing best in class customer experience Offer personalized debt consolidation refi solutions to customers Diversify product offerings Continue to win third-party business and grow referral programs Ramp property inspection and preservation orders Cost optimization of corporate groups Reduce corporate debt expense REFER TO NOTES ON PAGE 13


Slide 12

Basis points Q1’17 Q2’17 Q3'17 Q4’17 Q1'18 Operating Revenue 30.2 28.8 26.7 25.4 26.7 Labor costs 5.1 5.1 4.4 4.3 4.9 Direct corporate allocation 3.3 3.1 3.1 2.9 3.4 Other direct expenses 4.6 5.3 6.6 5.6 6.1 Total Expenses 13.0 13.5 14.0 12.8 14.4 Other (income) / expense (0.1) (0.3) (2.1) (2.8) (1.9) Adj. operating income b/f amortization 17.2 15.6 14.7 15.4 14.1 MSR amortization (8.8) (8.6) (7.8) (6.9) (6.2) Excess spread accretion 3.5 3.3 3.2 2.8 2.4 Total amortization (5.2) (5.3) (4.6) (4.2) (3.8) Adjusted operating income 12.0 10.4 10.1 11.3 10.3 MSR financing liability payments 1.7 1.5 1.3 1.2 1.2 Excess spread payments – principal 3.5 3.3 2.7 3.0 2.4 Excess spread payments – interest / other 1.7 1.5 1.4 1.3 1.3 Total financing structure payments 7.0 6.4 5.4 5.5 4.9 Adjusted Pretax income(12) 5.0 4.0 4.7 5.8 5.5 Excess Spread / Financing MTM (2.2) 2.0 0.6 (0.2) (4.0) MSR MTM (0.4) (8.9) (4.0) 0.3 16.0 Total MTM adjustments (2.7) (6.8) (3.4) 0.0 12.0 ADJUSTMENTS (0.2) (0.5) (0.2) (0.1) (0.0) GAAP Pretax Income 2.2 (3.4) 1.1 5.7 17.4 Average UPB ($B) $470 $494 $521 $536 $504 Appendix: Servicing Operational P&L REFER TO NOTES ON PAGE 13


Slide 13

Appendix: Footnotes Inside Mortgage Finance as of 12/3/17 As of Q1’18 Last twelve months The Company utilizes non-GAAP (or “adjusted”) financial measures as the measures provide additional information to assist investors in understanding and assessing the Company’s and our business segments’ ongoing performance and financial results, as well as assessing our prospects for future performance. The adjusted financial measures facilitate a meaningful analysis and allow more accurate comparisons of our ongoing business operations because they exclude items that may not be indicative of or are unrelated to the Company’s and our business segments’ core operating performance, and are better measures for assessing trends in our underlying businesses. These adjustments are consistent with how management views our businesses. Management uses non-GAAP financial measures in making financial, operational and planning decisions and evaluating the Company’s and our business segment’s ongoing performance. Adjusted earnings (loss) eliminates the effects of mark-to-market adjustments which primarily reflects unrealized gains or losses based on the changes in fair value measurements of MSRs and their related financial liabilities for which a fair value accounting election was made. These adjustments which can be highly volatile and material due to changes in credit markets, are not necessarily reflective of the gains and losses that will ultimately be realized by the Company. Adjusted earnings (loss) also eliminates, as applicable, restructuring costs, rebranding and integration costs, gain (losses) on sales of fixed assets, certain legal settlement costs that are not considered normal operational matters, and other adjustments based on facts and circumstances that would provide investors a supplemental means for evaluating the Company’s core operating performance. The Company launched our own reverse servicing system and terminated our existing contract with a subservicer. As a result, Q4'17 servicing adjustments include duplicative staffing costs associated with boarding the reverse portfolio from a subservicer to Nationstar platform. Q1'18 servicing adjustments are associated with consulting expenses. Estimates of future profitability and illustrative economic value are forward looking and based on a number of factors outside our control. Results could differ materially. Q4'17 originations adjustments include costs associated with IT development expense. Q1'18 originations adjustments include ramp costs related to purchase and NCA channels and IT development expenses. Based on a percentage of pull through adjusted lock volume. Excludes volume from Home Community Mortgage joint venture which ended in Q3’16 Q4'17 Xome adjustment includes costs associated with transaction expenses. Q1’18 Xome adjustments were related to a strategic decision to sell RED’s non-core brokerage web hosting business and legal fees. Calculation excludes revenue earned from Real Estate Digital business lines which were sold in February 2018. Basis points ("bps") are calculated as annualized adjusted servicing pretax income $ amount/Total average UPB X 10000.

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Section 3: EX-99.2 (EX-99.2)

EX-99.2

Exhibit 99.2

 

LOGO

THOMSON REUTERS STREETEVENTS
EDITED TRANSCRIPT
NSM—Q1 2018 Nationstar Mortgage Holdings Inc Earnings Call
EVENT DATE/TIME: MAY 03, 2018 / 1:00PM GMT
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LOGO

MAY 03, 2018 / 1:00PM, NSM—Q1 2018 Nationstar Mortgage Holdings Inc Earnings Call
Jay Bray Nationstar Mortgage Holdings Inc.—Chairman, President & CEO
C O N F E R E N C E C A L L P A R T I C I P A N T S
Bose Thomas George Keefe, Bruyette, & Woods, Inc., Research Division—MD
Douglas Michael Harter Crédit Suisse AG, Research Division—Director
Kevin James Barker Compass Point Research & Trading, LLC, Research Division—VP and Senior Analyst
PRESENTATION
Operator
Good day, ladies and gentlemen and thank you for standing by.
Welcome to the Nationstar Mortgage Holdings Inc. First Quarter 2018 Earnings Call. (Operator Instructions)
As a reminder, this conference is being recorded. It’s my pleasure to turn the call to Mr. Amar Patel.
Amar R. Patel—Nationstar Mortgage Holdings Inc.—Executive VP & CFO
Good morning, everyone, and thank you for joining our first quarter 2018 earnings call.
Before we get started, I would like to remind you that our quarterly press release and earnings supplement are available from the Shareholder Relations section of the website, www.nationstarholdings.com. In addition, we will make forward-looking statements during today’s call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today, containing our earnings release and quarterly supplement. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in the earnings release and in the quarterly supplement available on the website.
All right. Now I’d like to turn the call over to Nationstar Chairman and CEO, Jay Bray.
Jay Bray—Nationstar Mortgage Holdings Inc.—Chairman, President & CEO
Thanks Amar, and good morning, everyone. Before discussing the quarter, I wanted to provide a brief overview of the company as well as an update on our previously announced merger with WMIH. Nationstar is one of a kind company with team members and a set of assets that are almost impossible to replicate. We have been the largest non-bank servicer for the past 3 years running, and we are currently the third largest servicer in the United States. We provide customer-centric mortgage servicing solutions for over 3 million customers and earn fees on over $500 billion in loans. While servicing is the foundation of our business model, our Origination segment replenishes our portfolio and allows us to gain new customers at attractive returns.
We ended the year as the 16th largest originator with $19 billion in funded volume over the last 12 months. (technical difficulty) state services business, which supports Nationstar and other third parties with a range of services including title, close, valuation and property preservation and inspection.
Over the last year, we have fulfilled our 414,000 services orders and sold over 11,000 properties.
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MAY 03, 2018 / 1:00PM, NSM—Q1 2018 Nationstar Mortgage Holdings Inc Earnings Call
Let’s discuss the latest on the merger. As you know, in February, we announced our agreement to merge with WMIH Corp., and we are excited about the transaction.
We firmly believe that this transaction creates value for all shareholders.
The transaction provides near-term liquidity for those shareholders electing cash while preserving long-term value for those electing stock. Shareholders electing stock benefit from an increase in ownership of 14% and accretion to cash EPS of approximately 20% through the use of the net operating loss carryforward of WMIH.
We will be a better positioned business with additional free cash flow created by the cash tax savings. We plan to utilize this increased cash flow for continued investments and deleveraging.
We’ve been working diligently on the changing control process, including regulatory approvals.
Today, we have received approval from over 80% of the 54 states and jurisdictions. Upon completion of the shareholder vote in mid-June and all regulatory approvals, we anticipate a third quarter close.
Now let’s look at the first quarter results. The company had a strong start to the year, we experienced improved revenue and servicing from reduced amortization, achieved profitability in our newly launched production channels and expanded our third-party clients at Xome. We reported GAAP net income of $160 million or $1.61 per diluted share, and adjusted earnings of $44 million or $0.44 per diluted share.
These results were driven largely by servicing, which generated 5.5 basis points of adjusted probability on a servicing portfolio of over $500 billion.
Originations had earned $25 million adjusted pretax income and produced $5.1 billion in funded volume.
Xome earned $14 million adjusted pretax income and sold over 2,800 properties through the exchange business. We reentered the field services business at Xome, and we look forward to developing this business over the course of 2018.
Now let’s move into Servicing. Servicing earned $69 million adjusted pretax income or 5.5 basis points in adjusted profitability. Our Servicing portfolio ended with $500 billion and 3.2 million customers.
We have built a self-sustained platform that will benefit from rising interest rates. As interest rates rise, prepayments speeds decline, which increases the value of our portfolio and improves our financial results.
In the first quarter, total revenue improved as a result of higher operational revenue and decreased amortization. The 13% amortization improvement stemmed from a reduction in prepayment speeds, net of recapture, which decline 2 CPR from the prior quarter.
Over the first quarter, expenses increased 5%, driven by temporary increases in staffing costs to optimize advanced recoveries. This allows us to shorten our collection timelines and reduce our financing cost while improving overall liquidity.
We have demonstrated our platform and scale to take an additional — take on additional growth through more subservicing wins, organic replenishment and continued acquisitions.
While boarding activity is seasonally light in the first quarter, we have transfers scheduled in the second half of the year that will help achieve growth in the portfolio by at least 5% or above $533 billion.
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MAY 03, 2018 / 1:00PM, NSM—Q1 2018 Nationstar Mortgage Holdings Inc Earnings Call
will take time and investment to achieve. We will provide a more detailed update on these as we execute them, although prepayment environment and identified cost savings for 2018 will drive continued improvement in our results and allow us to achieve our stated target of 6 basis points of adjusted profitability.
Now let’s move into Originations. Originations performed in line with our expectations in a challenging marketing environment. The segment delivered $25 million in adjusted pretax income on funded volume of $5.1 billion. The 30-year mortgage rate increased over 40 basis points during the quarter, and the banks reported a 21% decline in origination volume quarter-over-quarter.
This decline came in a bit worse than the 16% decrease in consensus forecast from MBA, Fannie and Freddie. And for us, our volume was flat from the prior quarter, so a great result. Correspondent volume increased 10% versus the prior quarter, which accounted for the total revenue decline of 10% quarter-over-quarter.
We continue to diversify our offerings. This past year, we made investments to expand our purchase and new customer acquisition channels. These channels have already achieved profitability, and we are thrilled that they are positioned to contribute to our overall results and growth efforts.
After interest rates moved significantly in the first quarter, we acted quickly and recalibrated the business to the current market environment. In March, we achieved $12 million adjusted pretax income for the month. We maintained our full year target of $140 million pretax income for 2018. We will be able to drive further new customer growth through our latest customer tool, which we call Home Intelligence. This was a new product launch and next, I’d like to provide some detail around this exciting tool.
We are in a great position to help both new and existing customers improve their financial well-being by offering personalized debt consolidation solutions in a very simple and effective manner.
Today, the U.S. consumer debt load is at an all-time high. Many of our customers face financial stress, as debt balances from credit card, auto or student loans continue to rise. However, the mortgage market remains extremely healthy. Home equity is at a record high and default rates are at record lows. Our own portfolio has over $400 billion in home equity or an average of $100,000 per customer.
As you can see on the slide, we were able to help Scott, one of our customers, achieve over $500 in monthly cash savings by utilizing the available equity in his home, refinancing his current mortgage and finding a significantly lower rate on homeowners insurance.
This data-driven solution is called Home Intelligence. And it’s a tool to leverage what we know about our customers and matching them with the right product mix from our suite of solutions.
There are over 60 million outstanding mortgages in the United States and approximately 19 million of these consumers have a profile similar to Scott’s, substantial home equity and high interest-rate consumer rate, where we could save him over $500 a month. This presents a significant opportunity to improve the financial situation of our customers as well as significantly expand our customer base. Home Intelligence will positively impact the financial situation for various homeowners and provide a powerful new customer acquisition channel for volume growth even in the current interest rate environment.
Now let’s move to Xome. This quarter, Xome achieved $14 million in adjusted pretax income, while the origination market is down and delinquencies remain near all-time lows, Xome achieved 17% quarter-over-quarter earnings expansion, primarily from third-party growth. Third party volume accounted for 36% of total inflows, and I think it’s important to recognize third-party customers are replacing Nationstar volume. This is an impressive achievement, and I’m extremely proud of the team.
The exchange business sold over 2,800 properties in the quarter, a 6% increase over the prior quarter.
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MAY 03, 2018 / 1:00PM, NSM—Q1 2018 Nationstar Mortgage Holdings Inc Earnings Call
consolidating their vendor footprint to high performers with national scale and expanding business with vendors who offer comprehensive solutions across the mortgage life cycle. Xome is building on strong new business acquisition momentum. We executed 6 new third-party customer wins in the first quarter, and we have a very active and attractive sales pipeline.
Xome did execute 1 strategic transaction during the quarter. In 2014, the company acquired Real Estate Digital, a data provider and aggregator powering online real estate for Xome and many third parties.
The first quarter adjustment of $8 million was related to a strategic decision to sell RED’s non-core brokerage web hosting business. Xome will retain the data side of RED. Xome has a proven track record of incubating, launching and expanding services.
We recently began taking orders for our field service business, which fulfills property preservation and inspection orders. Last year, Nationstar spent $185 million on field service orders with third parties, and we plan to capture a significant portion of this revenue opportunity as the business ramps. We are targeting a $20 million earnings run rate in field services by the end of 2018.
In closing, this morning’s first quarter results reflect our team’s commitment to operational excellence, and we are reaffirming our 2018 targets.
As we look to 2018 and beyond, we do so from a position of financial and operational strength. We have achieved scale and efficiency, and we believe there is a compelling opportunity for significant cost savings across the platform in the next 2 years while improving the customer experience. Coupled with the benefits of a rising rate environment and enhanced free cash flow from the merger, we will continue to build value for our shareholders over the long term.
2018 is a defining year for our company, and I would like to personally thank all of you for your partnership.
And now I’d like to turn it over to the operator for Q&A.
Q U E S T I O N S A N D A N S W E R S
Operator
(Operator Instructions) And our first question is from the line of Doug Harter from Crédit Suisse.
Douglas Michael Harter—Crédit Suisse AG, Research Division—Director
Jay, hoping you could put a little color behind the move from the profitability of servicing in the first quarter to the over 6 basis points for the year. How much of that is cost saves? And how much of that’s further amortization declines?
Jay Bray—Nationstar Mortgage Holdings Inc.—Chairman, President & CEO
I think the way to think about it, it’s probably about 50-50, honestly. If you look at the amortization, that’s — well actually, it’s probably 3 components. One is the overall revenue. As we sit today, we actually are ahead of schedule, we think, from the overall pipeline and growing the portfolio to 5% that we previously outlined. So I think revenue is, call it, 1/3 of it, I think 1/3 of it is amortization and a 1/3 of it is expense cuts.
So — and I mean the amortization, obviously, the quarter was — came in a little better than expected from an amortization standpoint. The second quarter, I think, is in line with kind of how we thought about the quarter and then the expense saves, as we’ve talked about, we have a number of initiatives underway. So we feel good about that as well.
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MAY 03, 2018 / 1:00PM, NSM—Q1 2018 Nationstar Mortgage Holdings Inc Earnings Call
And just on the boardings, I mean, is — are most of the boardings going to be, kind of, be back-end loaded? Such that, kind of, the growth really happens in the third and fourth quarter? Or should we see some additional boardings in the second quarter?
Jay Bray—Nationstar Mortgage Holdings Inc.—Chairman, President & CEO
You’ll see more in the second than you saw in the first. But yes, you’ll see the majority — I mean, as we sit today, you’ll probably see somewhere between 16 billion and 20 billion total additions in the second quarter, probably close to 50 billion in the third and ramp down to about 25 billion in the fourth. So you will see more in the second, third will be the biggest and then fourth will come in around that 25 billion as we sit today.
Operator
And our next question is from Bose George with KBW.
Bose Thomas George—Keefe, Bruyette, & Woods, Inc., Research Division—MD
Yes, actually first just on the field services revenue at Xome. Was there any of that in the first quarter? And then can you just reiterate — sorry, that music wasn’t from me — can you just reiterate — can you reiterate what you said about the annual revenue and EBITDA from the fuel services revenue once that’s fully — once it’s fully ramped? And also I assume that’s fairly seasonal so can you just, sort of, give us the break out in like how it falls on a quarterly basis, roughly?
Jay Bray—Nationstar Mortgage Holdings Inc.—Chairman, President & CEO
Sure, for — the first question, the first quarter, no, there was 0 revenue or EBITDA. I think when we exit the year, we would expect that business to be at a $20 billion EBITDA kind of run rate. And it’s about an 18% margin business, call it, Bose. And so...
Amar R. Patel—Nationstar Mortgage Holdings Inc.—Executive VP & CFO
That’s about $110 million to $120 million in revenue.
Unidentified Company Representative
Yes, so $110 million to $120 million in revenue. And I mean, I think, you’re right. I mean, you will see some seasonality, obviously, slowing down in the first and the fourth and strongest in the second and third. I mean, that’s how we’re thinking about it.
Bose Thomas George—Keefe, Bruyette, & Woods, Inc., Research Division—MD
Okay, great. And then actually back — on the servicing, sort of, the pipeline for larger transactions, can you just talk about what you’re seeing out there on that front?
Jay Bray—Nationstar Mortgage Holdings Inc.—Chairman, President & CEO
Yes, I mean, in the first quarter, we acquired a couple of bulks in the smaller range, call it $3 billion to $5 billion range. We’re having a lot of success on the subservicing side, partnering with previous partners and some new partners as well, which will — most of that will board in the third quarter.
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MAY 03, 2018 / 1:00PM, NSM—Q1 2018 Nationstar Mortgage Holdings Inc Earnings Call
it’s pretty consistent with what we thought would happen. You’re seeing more supply coming to market from a variety of different players. I think it’s the first step in what ultimately may lead to industry consolidation, but you’re seeing originators selling some servicing now, which we expected to happen. And so I think we’re pretty bullish about the pipeline and what’s to come.
Bose Thomas George—Keefe, Bruyette, & Woods, Inc., Research Division—MD
Actually, just one more. In terms of the strategy on that — the consumer loan, home equity loan product. How far along do you think you are? When do you think we could start seeing some traction with that business? And are there other companies out there that are doing it successfully at the moment?
Jay Bray—Nationstar Mortgage Holdings Inc.—Chairman, President & CEO
Well I think — I mean the interesting thing, right, and you’re probably seeing this in the overall marketplaces, the refinance segment of the market has moved towards debt consolidation or cash out. So you move from rate term to really debt consolidation. And even today, it’s probably close to 67% of our refi business. So it’s starting to happen. I think with the new app that we’re rolling out, we’ll do that on a pilot kind of databases, call it May June-ish and then roll it out in a more meaningful way in the third quarter. And we’re pretty bullish about it. I think it’s going to — in our mind, there’s a lot of people that talk about debt consolidation. There’re a lot of people that attack it in different ways. But there’s really not 1 place you can go to, to kind of truly understand the value of your home. And Xome gives us all the assets we need to make that a very rich user experience, and then also be able to kind of take a look at the liability side of your balance sheet and help you figure out the best solution. And I think home intelligence is going to do that for not only our customers but new customers. And it may, in all cases, not be a refinance, a debt reconsolidation refinance. So we’ll have other products such as personal loan, second liens, homeowner insurance. I think — our goal is to put more money into our customers’ pockets, and I think it’ll — this will do that. So you should expect more updates from us, call it, on the third quarter call, is the way to think about it.
Operator
And our next question is from the line of Kevin Barker with Piper Jefferies.
Kevin James Barker—Compass Point Research & Trading, LLC, Research Division—VP and Senior Analyst
Help us understand some of the mix shift between non-agency, agency and subservicing. Obviously, agency — nonagency servicing tends to have, or the capacity to have better margins than some of the other servicing. And then we’re obviously seeing a big mixed shift towards a larger subservicing portfolio and a capital-light model. Could you help us understand like the different profitability that you expect on a pretax basis between non-agency, agency and then subservicing as well?
Jay Bray—Nationstar Mortgage Holdings Inc.—Chairman, President & CEO
Yes, Amar, you want to take the first piece of that and I can — I mean, I think, the way I think about it, Kevin, is — I mean, you know this but our portfolio has changed dramatically, right, from a delinquency profile standpoint. So now we are, call it, 97% less than 60 days delinquent. And that in and of itself, I mean, if you look at the agency piece of that business, that’s highly profitable, right? I mean, the margin on that is very strong and so I think the profitability between the private label and, frankly, the Fannie, Freddie and Ginnie has evolved and is pretty consistent now. Because you’ve such a clean book on your Fannie, Freddie and Ginnie businesses. And on the subservicing, yes, I think, look, we’ve always said we’re going to be thoughtful on how we think about subservicing, and we’ve got arguably the best client in the history of the world with USAA and we’ve added some other clients along the way, and it’s performing as we expected. It’s performing in that 2 to 3 basis point range and the margins are
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MAY 03, 2018 / 1:00PM, NSM—Q1 2018 Nationstar Mortgage Holdings Inc Earnings Call
Amar R. Patel—Nationstar Mortgage Holdings Inc.—Executive VP & CFO
The only thing I’d add to that is on — so Jay talked about subservicing profitability being the 2 or 3 basis points. MSR profitability can be — it’s certainly internally higher, but it requires capital investment. And the MSR probability, depending on how much leverage you put on it, can vary. If you put no leverage on to it, it could be 10 to 12 basis points.
And I think that is consistent, like Jay said, across the various investor types, agency, nonagency. What — the differentiator is the price. Because the credit dynamics could be different than the price for agency, it’s higher than nonagency, and that’s what brings it to a common profitability.
Kevin James Barker—Compass Point Research & Trading, LLC, Research Division—VP and Senior Analyst
You mentioned 10 to 12 basis points of potential profitability. Are you realizing that level of profitability within the agency and nonagency portfolios today?
Amar R. Patel—Nationstar Mortgage Holdings Inc.—Executive VP & CFO
Well, as I mentioned, that is without any financing applied to it.
Jay Bray—Nationstar Mortgage Holdings Inc.—Chairman, President & CEO
Or coinvestor.
Amar R. Patel—Nationstar Mortgage Holdings Inc.—Executive VP & CFO
Or coinvestor or anything like that. And obviously, we’ve used a number of different capital structures for our own profitability. And so our overall is less because we applied coinvest to that. So you take our MSR probability, which is north of 8 to 9 basis points, along with our subservicing profitability, that winds us to this 6 basis points, or 5.5 or 6 basis points profitability.
Kevin James Barker—Compass Point Research & Trading, LLC, Research Division—VP and Senior Analyst
And so if that’s running at like 8 or 9 and the subservicing is running at 2 or 3 and you continue to have this mix shift towards more subservicing in the capital-light model, which obviously has higher ROE given it requires very little E. Could you help us understand — if the 6 basis points is sustainable going into 2019, 2020 as you make this mix shift?
Amar R. Patel—Nationstar Mortgage Holdings Inc.—Executive VP & CFO
Well we made the mix shift really last year as we — as our portfolio will up being 60% or approximately 60% MSR, 40% subservicing. And given the boarding activity that we’ve outlined for this year, we expect that to not really changed that much. So with our current mix shift of additions that we’re putting on with MSRs and subservicing, we certainly believe that’s sustainable.
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MAY 03, 2018 / 1:00PM, NSM—Q1 2018 Nationstar Mortgage Holdings Inc Earnings Call
overall performance, I mean, I think, you’re going to continue to see default cost come down. We’ve invested heavily there. We continue to invest heavily in the claims area, et cetera, to recover our money faster. And I think there’s opportunity for the default costs to continue to decline. So I think between kind of maintaining our mix where we’re at today, I think with the cost initiatives that we have and, frankly, I think with default costs continuing to come down, both from an efficiency standpoint and from a performance standpoint, yes, I think we are — we feel good about the coming years and the overall probability that we outlined.
Kevin James Barker—Compass Point Research & Trading, LLC, Research Division—VP and Senior Analyst
And then in regards to the corporate segment, you saw a pretty big drop in expenses, and you’re guiding to further expenses. Can you just detail what are the main drivers of that? And whether that can — whether the current run rate will sustain, suffer or decline as we move through 2018?
Amar R. Patel—Nationstar Mortgage Holdings Inc.—Executive VP & CFO
Right, I mean, the — we targeted a $30 million reduction year-over-year, and we’re off to a great start in Q1 given the fact that we’ve got a $9 million reduction for the quarter. We don’t — we think the overall corporate expense will pick up a bit over the course of the year, but we feel comfortable in achieving the $30 million target. Now that reduction is caused by a few things. We’ve been buying back debt along the way last year and this year. And we will reduce our overall corporate debt expense and that’s a — corporate debt expense, that’s about half of it. And the other half is overall efficiencies we’re getting in the corporate segments. We’re consolidating some of the functions that we’ve had previously, and that was the large pickup that we saw in Q1.
Operator
And ladies and gentlemen this concludes of our Q&A session and program for today. Thank you for participating. You may all disconnect. Have a wonderful day.
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