Mr. Cooper Group(COOP) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The servicing portfolio grew 14% to $992 billion at year-end, establishing the company as the industry's number one servicer [11][19] - For the full year, ROTCE was 12.5$660 million, primarily driven by servicing [23][35] - Tangible book value at the end of the year was $63.67, reflecting a strong financial position [23] Business Line Data and Key Metrics Changes - The company acquired Home Point, adding an$83 billion portfolio, which was accretive to tangible book value [24] - Servicing income for the quarter totaled $229 million, slightly ahead of revised guidance, with expectations for steady growth but at a pace below portfolio growth [35] - The DTC platform is highly profitable, with investments aimed at driving lower costs and faster turn times [39] Market Data and Key Metrics Changes - The company is currently boarding a$90 billion portfolio for a new client, indicating strong market demand [34] - The option adjusted spreads from bulk MSR deals have more than doubled in the last three years, reflecting favorable market conditions [20] Company Strategy and Development Direction - The strategic focus is on return on equity, with expectations to reach mid to upper teens by the end of 2025 [15][71] - The company aims to play a leadership role in the mortgage industry with a scalable platform offering best-in-class efficiency [17] - Investments in technology, including AI, are expected to drive operational leverage and enhance customer experience [6][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth opportunities available, citing a significant pipeline of deals with rich margins [32] - The company anticipates some headwinds in 2024, including potential margin pressure from lower interest rates, but expects to offset this with increased originations [35][57] - Delinquencies have fallen to 1.3%, the lowest level in the company's history, indicating strong asset quality [72] Other Important Information - The company issued $1 billion in senior notes, enhancing liquidity and financial flexibility [41][43] - The balance sheet is described as being in the strongest shape ever, with a capital ratio of 29.3%, well above the target range [74] Q&A Session Summary Question: How should we think about your ability to onboard new MSRs over the next few quarters? - Management indicated that technology and processes are not limitations, and they can handle significant onboarding volumes [77][78] Question: Can you elaborate on the guidance for ROE 14% to 18%? - Management explained that the ability to invest in attractive MSRs will boost earnings, impacting the ROE positively [82][83] Question: What is the outlook for the servicing book mix between forward MSR and subservicing? - The expected mix for the first quarter is about two-thirds subservicing and one-third owned MSR, with a goal of achieving a 50-50 mix over the year [134] Question: How do you avoid a melting ice cube effect for the servicing portfolio? - Management stated that with an 80% recapture rate and low CPRs, the melting ice cube concept does not apply, as they are growing the portfolio through acquisitions and subservicing [120][121] Question: What are the implications of potential regulatory changes? - Management believes that their capital ratios are well above what is required of banks, indicating no concerns regarding regulatory impacts on growth [127][128]