Loan servicing giant Mr Cooper is laying off another 420 workers

Investors warned of “breaking even” in the second quarter as rising mortgage rates led to a bigger than expected drop in lending.

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Rising mortgage rates are having a bigger than expected impact on loan applications from lending servicing giant Mr Cooper, prompting the firm to lay off more than 400 additional staff and warning investors that it will not expects net income to “break even” in the second quarter.

Mr. Cooper’s primary business is collecting mortgage payments from nearly 4 million borrowers. Rising mortgage rates make this business more profitable because borrowers whose payments the company collects are less likely to refinance their mortgage and potentially end up with another loan servicer.

But rising mortgage rates are also limiting the company’s ability to offer mortgages. As interest rates soared, Mr Cooper’s direct lending business – the refinancing of existing homeowner loans – was down 32% from a year ago, to 7.8 billion dollars of loans refinanced in the first quarter of 2022.

The decline in Mr. Cooper’s origination business prompted the company to lay off 250 workers in the first quarter. In an April 28 earnings call, Mr Cooper CEO Jay Bray warned that more layoffs were on the way.

The company has cut about 420 additional employees, most of whom work in loan origination, a spokesperson for Mr. Cooper confirmed to Inman. The layoffs, first reported Thursday by an industry publication, Asset Securitization Reportmake up about 5% of Mr. Cooper’s workforce, the spokesperson said.

“The mortgage industry faces an environment of rapidly rising interest rates and rising inflation, which has resulted in lower origination volumes,” Cooper said in a statement provided to Inman. “It is with deep regret that we have had to eliminate positions as part of our efforts to manage costs and ensure that we position the business for long-term success.”

At the end of 2021, Mr Cooper had 8,200 employees, so the 670 redundancies announced so far mean the company has reduced its workforce by at least 8% since then.

In a May 25 regulatory filing, Mr Cooper warned that due to rising mortgage rates, he now expects mortgage originations to generate a pre-tax operating profit of $40-50 million. in the second quarter, down from the previous forecast of $65 million to $85 million.

As a result, Mr Cooper “expects net income to be roughly break-even in the second quarter, excluding potential mark-to-market gains on his MSRs (mortgage servicing rights) and severance, reflecting the pressure on volumes and margins in its origination segment,” the company revealed.

Meanwhile, Mr. Cooper’s loan servicing business is booming as fewer borrowers are enticed to refinance their loan and potentially end up with another servicing agent. For every 1% improvement in the prepayment rate in Mr. Cooper’s favor, the company’s loan servicing segment is expected to generate an additional $15 million in pretax income each quarter, or $60 million annually, a the company said in the April 28 investor presentation.

In its May 25 regulatory filing, the company disclosed that prepayment times “have continued to decline so far in the second quarter.”

The prepayment rate on Mr. Cooper’s mortgage servicing portfolio was 23.7% in the first quarter of 2021 and 15.1% in the first three months of this year. Mr Cooper said he now expects the prepayment rate to fall to an average of 11.8% in the second quarter, which will lift second quarter pretax operating profit to 25 million, with “additional strong growth in the third and fourth quarters due to higher interest income and lower amortization.

A number of real estate companies are downsizing to adjust to this year’s rapidly rising mortgage rates, primarily mortgage lenders like Better, Guaranteed Rate, Keller Mortgage, LoanDepot, Pennymac, Rocket, Tomo and Wells Fargo, but also companies that provide services to lenders. , such as Blend and Doma.

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