• Pretax Operating Income: $235 million.
• Operating ROTCE: 15.8%.
• Tangible Book Value: $71.61 per share, up 12% year-over-year.
• Capital Ratio: 24.4%.
• Liquidity: $3.4 billion.
• Servicing Pretax Income: $318 million, up 39% year-over-year.
• Originations EBT: $47 million.
• Funded Volumes Growth: 38% sequentially.
• Net Income: $204 million.
• MSR Portfolio: $1.5 trillion, representing over 6 million customers.
• Subservicing UPB Addition: $275 billion from Flagstar acquisition.
• Fee Income: $500 million in 2024, over 20% of total revenue.
• Corporate Expenses: $51 million.
• MSR Delinquencies: 1.2%.
• Liquidity Components: $753 million in unrestricted cash.

• Warning! GuruFocus has detected 6 Warning Signs with COOP.

Release Date: February 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Mr. Cooper Group Inc (NASDAQ:COOP) reported a strong pretax operating income of $235 million for the fourth quarter, with an operating ROTCE of 15.8%.
• The company successfully completed the largest acquisition in its history by acquiring Flagstar's mortgage banking operations, adding 1.1 million customers.
• Servicing segment generated $318 million in pretax income, marking a 39% increase year-over-year, with strong cash flow projections continuing into 2025.
• The company won the SHARP Gold Award from Freddie Mac, highlighting its commitment to quality and performance in servicing.
• Moody's placed Mr. Cooper Group Inc (NASDAQ:COOP) on a positive outlook, citing the growing strength and scale of its franchise and solid liquidity.

Negative Points

• The company incurred a $22 million charge for facility shutdown costs due to reduced office space needs.
• There was an $18 million accrual related to a court ruling in a lawsuit associated with a legacy business.
• Corporate expenses were higher than usual due to year-end incentive accruals and stock vesting.
• The refinance recapture rate dropped to 35% due to the impact of a single large portfolio acquisition.
• The company's capital ratio decreased from 27.9% to 24.4%, reflecting increased MSR assets and higher loans held for sale.

Q & A Highlights

Q: Can you discuss the drivers that could help Mr. Cooper Group reach the high end of the revised ROTCE target range of 16% to 20%? How much of this is dependent on interest rates? A: Kurt Johnson, CFO, explained that the services segment, which generates fee-based income, is asset and equity light, contributing to higher ROTCE. The originations segment, if it experiences a favorable environment, can also drive higher ROTCE. Jay Bray, CEO, added that operating leverage is a key driver, highlighting the company's ability to add significant servicing volume with minimal increase in headcount. Michael Weinbach, President, emphasized that execution, rather than interest rates, is crucial, and the company is focused on maintaining momentum across its business segments.

Q: Can Mr. Cooper Group sustain double-digit growth in services fee revenue, and what is the target mix for services revenue? A: Michael Weinbach, President, stated that the company sees significant opportunities to sustain growth in services fee revenue by leveraging its strengths and expanding client relationships. The services revenue stream is stable and less volatile compared to other revenue streams, and the company aims to maximize this higher multiple earnings stream.

Q: What is the outlook for the bulk MSR market, and how does Mr. Cooper Group view its capital flexibility in this area? A: Jay Bray, CEO, noted that the bulk MSR market is returning with attractive levels, and a higher for longer interest rate environment could increase originators' need to sell. The company remains disciplined in acquisitions and believes there will be consolidation opportunities in the industry. Kurt Johnson, CFO, added that while returns may not be at cycle best levels, they remain solid and risk-adjusted, fitting within the company's ROTCE target range.

Q: Can Mr. Cooper Group continue to drive servicing expenses lower through scale, technology, and AI? A: Jay Bray, CEO, and Michael Weinbach, President, both expressed confidence in continuing to drive down servicing expenses. They highlighted ongoing investments in technology and process improvements, which are expected to enhance efficiency and scalability, providing opportunities for further cost reductions.

Q: How does Mr. Cooper Group view its capacity in the Origination business, particularly in maintaining recapture rates during the next refinance opportunity? A: Michael Weinbach, President, explained that the company has maintained buffer capacity to handle rate dips and capitalize on refinance opportunities. The focus is on home equity products, which present significant growth potential given the equity in customers' homes. Jay Bray, CEO, added that investments in the origination platform have improved scalability, allowing the company to quickly ramp up capacity when needed.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.