Release Date: April 23, 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 ROTCE of 16.8%, up from 15.8% last quarter, benefiting from the Flagstar acquisition.
• The company's balance sheet is robust with a capital ratio of 25.5% and liquidity at $3.9 billion.
• Servicing segment generated $332 million in pretax income, at the high end of guidance, due to growth, operating leverage, and low speeds.
• Originations outperformed guidance with $53 million in pretax income, driven by strong momentum in home equity loans and cash-out refinances.
• Mr. Cooper Group Inc (NASDAQ:COOP) received the Fannie Mae STAR Award, being the only servicer to earn recognition in all three categories, highlighting operational excellence.

Negative Points

• The company experienced an $82 million negative MSR mark net of hedges, impacting net income.
• Corporate overhead segment expenses were $51 million, aligning with guidance but still a notable cost.
• The total portfolio saw a slight decline, ending at $1.5 trillion, with a shift of $60 billion in subservice loans to other servicers.
• The MSR hedge coverage ratio was slightly below the target at 72%, compared to the 75% target.
• Stock repurchases were suspended in advance of the Rocket transaction, potentially affecting shareholder returns.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with COOP.

Q: Can you provide an overview of Mr. Cooper Group's first-quarter financial performance? A: Jay Bray, Chairman and CEO, highlighted that the first quarter demonstrated the power of their scalable platform, with ROTCE increasing to 16.8% from 15.8% last quarter. The balance sheet is strong with a capital ratio of 25.5% and liquidity at $3.9 billion. The Servicing segment generated $332 million in pretax income, and Originations outperformed with $53 million in pretax income.

Q: How is the integration of Flagstar progressing? A: Michael Weinbach, President, reported that the integration of Flagstar, the largest acquisition in the company's history, is on schedule. All new customers and team members have been onboarded successfully, and the integration is proceeding smoothly, contributing to strong performance in the Servicing segment.

Q: What are the key drivers behind the strong performance in the Originations segment? A: Michael Weinbach explained that strong momentum in home equity loans and cash-out refinances drove the Originations segment's performance. Cash-outs accounted for 46% of volume, and second liens grew to 21%. These products are popular for accessing home equity, offering a cost-effective alternative to credit cards.

Q: How is Mr. Cooper leveraging AI in its operations? A: Michael Weinbach highlighted the use of AgentiQ, an AI-powered tool in call centers that enhances customer interactions by providing relevant prompts to agents. This tool is part of their broader strategy to improve customer experience and operational efficiency.

Q: What are the expectations for the upcoming combination with Rocket? A: Jay Bray expressed excitement about the pending combination with Rocket, emphasizing the potential to create a fully integrated homeownership platform. The merger aims to leverage Rocket's brand and marketing capabilities with Mr. Cooper's servicing platform to enhance customer experience and drive growth.

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