Nationstar Mortgage Earnings Miss; Shares Extend Losses

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Nationstar Mortgage Holdings (NSM) swung to a quarterly profit on skyrocketing originations and stronger servicing revenue. But earnings just missed views, sending shares lower Tuesday a day after diving on worries that easy mortgage portfolio pickings are gone.

Nationstar earned 61 cents a share in Q3, reversing a year-earlier 4-cent loss. Excluding various items, it earned 64 cents — a penny shy of forecasts. Revenue leapt 205% to $277.2 million, beating views for $268.9 million.

Shares fell 10% to 27.11. That followed Monday's 9% dive after MetLife (MET) agreed to sell its $70 billion mortgage servicing portfolio to JPMorgan Chase (JPM). A rival, Ocwen Financial (OCN) lost 6% Monday but rose 2% Tuesday.

Nationstar didn't bid for the MetLife portfolio, CEO Jay Bray told analysts, though at one time the firm included it as a possible deal. Bray said most of the loans were recent with high credit scores, and didn't meet Nationstar criteria.

"It's not the highest and best use of capital for Nationstar," Bray said. "I do think it fits better with someone like Chase.

Still, portfolio deals are growing more competitive. Nationstar last month lost a bidding war for the mortgage servicing business of Ally Financial's Residential Capital. Ocwen won at $3 billion. Its shares rose, and Nationstar sold off on that news.

But Bray says there remains a "supply-demand imbalance" as banks exit the business. Its pipeline of prospective deals has grown to $600 billion in loans, and it expects to close on $30 billion of them in Q4.

Bray said: "The market dynamic is very positive due to historic wide spreads, government initiative and market consolidation.

Nationstar originates, sells and services loans held by banks, government-sponsored entities and others.

Sterne Agee analyst Henry Coffey, in a client note, cited stronger origination gains and locked-in-deals growth. He maintained a neutral rating with a 35 target.

Nationstar came public in March at 14 a share, soaring 166% to its Oct. 3 peak.

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