Financial Data and Key Metrics Changes - The company experienced a total economic return of negative 14.5% for the second quarter, and negative 1.4% excluding a loss contingency accrual of $1.92 per share [5][16] - The book value decreased to $12.14 per share, reflecting the impact of the loss contingency accrual [16] - A comprehensive loss of $221.8 million or $2.13 per share was reported, which would have been $21.9 million or 21¢ per share without the accrual [16] Business Line Data and Key Metrics Changes - First lien originations increased to $48 million UPB in Q2, up 68% from $29 million UPB in Q1, outpacing the nationwide trend of 16% [8] - Second liens brokered amounted to $44 million UPB, with the company beginning to originate second liens in its own name [9] Market Data and Key Metrics Changes - The 30-year fixed mortgage rate rose from 6.6% to a high near 6.9%, stabilizing in the 6.7% to 6.8% range by the end of the quarter [6][7] - The volume of MSR available in the bulk market has decreased by about 30% year over year [26] Company Strategy and Development Direction - The company is enhancing its direct-to-consumer originations platform to recapture loans in its portfolio that may refinance [8] - Significant investments in AI technologies are being made to improve efficiencies and customer experiences [11][12] - The core strategy focuses on low coupon MSR paired with agency RMBS to benefit from stable prepayments and wide agency spreads [31] Management's Comments on Operating Environment and Future Outlook - The management noted ongoing tariff threats and geopolitical tensions as potential market weighers, but also highlighted opportunities in the current environment [30] - The company expects RMBS and MSR portfolios to respond positively if the Federal Reserve cuts rates later in the year [7] Other Important Information - The company issued $115 million in senior notes due in 2030 for net proceeds of $110.8 million, part of which will be used for refinancing [19] - The economic debt to equity ratio increased to 7x, which is within the historical leverage range of 5 to 8 [20] Q&A Session Summary Question: Is the current leverage level a new standard? - Management confirmed that the leverage of 7x is within the historical range and reflects current market conditions [34][35] Question: Update on economic return performance in July? - The company reported an economic return of about 1.5% for July [36] Question: Differences between expected returns and EAD metric? - Management explained that EAD is based on historical purchase yields, while expected returns reflect forward-looking market conditions [43] Question: Thoughts on financing strategy and shift from repo to unsecured? - The issuance of a baby bond was primarily to prefinance the maturity of existing convertible debt [63] Question: Impact of steepening yield curve on the portfolio? - Management indicated that a steepening yield curve could have counterbalancing effects on MSR values, affecting both float income and prepayment assumptions [70] Question: Plans for second liens in the investment portfolio? - The company is open to retaining second liens if yields are attractive, but will also consider selling them [55] Question: Expense structure and AI investment impact? - Most AI-related expenses will be recognized as operational expenses rather than capitalized, affecting the expense ratio [88][92]

Mr Cooper Group (COOP) Q1 2025 Earnings Call April 23, 2025 07:00 AM ET Company Participants Kenneth Posner - Senior Vice President of Strategic Planning & Investor RelationsJay Bray - Chairman & CEOMike Weinbach - PresidentKurt Johnson - Executive VP & CFO Kenneth Posner Good morning. My name is Ken Poster, and I'm SVP of Strategic Planning and Investor Relations at Mr. Cooper Group. With me today are Jay Bray, Chairman and CEO Mike Weinbach, President and Curt Johnson, Executive Vice President and CFO. Th ...