Mr. Cooper, an influential publicly traded nonbank that
At the meeting earlier this week, Chairman and CEO Jay Bray confirmed an assertion by Terry Ma, a senior equity research analyst at Barclays, who said, "You reviewed a record number of deals a few quarters ago, but I think that quantity has decreased somewhat today?"
"The first part of the year was, well, we looked at a lot of deals. It was very active. There was a lot of supply. I'd say the summer was even pretty active, but there were a couple of aggressive buyers out there. So we kind of sat on the sidelines and let them bid aggressively," Bray said.
His statements are significant because the company is an influential player in the MSR market and its executives' view may offer other investors who considering the asset class' prospects a sense of recent conditions.
Mr. Cooper's recent "sidelining" hasn't been absolute but it is very much price dependent, Kurt Johnson, the company's executive vice president and chief financial officer clarified during the conference session.
"As we see MSR assets becoming available where we think the returns are great, we still have some flexibility to do that," Johnson said.
But Bray's mention of "aggressive buyers" suggests that high pricing hasn't let up.
That trend has been a function of the volume available for sale in addition to buying activity, Bray said.
Nine banks shed servicing earlier in the year but more recently there hasn't been as much deal flow into the market, he said, noting that slower originations have played a role in this.
"There's still supply out there. We think there's some seasonal slowdown, which we expected, but we look for '25 to be a pretty robust year," Bray said.
He anticipates this will occur because financial struggles for companies more primarily reliant on loan production volumes have only just started to let up. Also, the market's outstanding coupon mix may limit how many borrowers refinance for awhile.
"Originators, I think they're going to need to sell unless margins improve significantly," Bray said.
To be sure, there's a limit to how much to read into Bray's view of the MSR market given public companies have a standard disclaimer about forward-looking remarks being speculative and the fact that part of its sidelining stems from a need to absorb a previous large deal.
"We obviously announced the Flagstar acquisition, which was a large $77 billion in MSRs and a considerable subservicing portfolio. That was a great deal for us and so we've been pretty active with that one," Bray said, noting that this transaction should close in the fourth quarter.
The combination of the servicing and an origination component of the Flagstar deal are positioned to give the company an advantage in a third-party loan channel, said Bray.
"If you're the lowest-cost servicer, which we think we are, if you have the highest retention in the industry — or among the highest, it's just logical that you are going to be the right buyer for the correspondent business and so that we're very bullish on," he said.
Artificial intelligence-driven technology started in a partnership with Google and utilized in conjunction with the company's
"We continue to make investments in AI as we're moving from where we started with documents into the call centers, and it's resulted in a best-in-class efficiency from a servicing standpoint," he said.
Bray said the company has a goal to generate savings of 25% to 30% on a cost-per-loan basis from this initiative.
"Obviously, we have to execute and continue to make investments but we're very, very excited about the opportunity," he said.
Bray also said Mr. Cooper has been gaining new business as a result of the company's
"There's been some consolidation in that industry if you look at SLS, SPS etc., and through that Rushmore has been able to grow," Bray said, referring to Rithm's acquisition of
(Sixth Street Consortium reportedly led the investor group buying SPS and worked with Davidson Kempner on the acquisition,
When asked about loan performance, which could cause demand for its Rushmore and Xome units to pick up if it deteriorated, Bray said distress has remained low and the latter's foreclosure auction business, in particular, has been slow.
However, the two business units are valuable in that they provide fee-for-service activity and act as "kind of a hedge, if you will, if we get into a more difficult credit cycle," he said.
Also some of Mr. Cooper's distressed loan business lines do target the need for specialists to handle complex Federal Housing Administration servicing in the current cycle, and Johnson noted that outstanding loans are more concentrated in the FHA market than they typically are.
"Because of those interest rates that are sub-4%, those customers are now in an FHA loan for much longer," Johnson said, noting that not wanting to give up low rates has deterred many FHA borrowers from applying for alternatives to what are typically starter loans.
