The share price of Nationstar Mortgage Holdings Inc (NYSE:NSM) plunged more than 25% on Tuesday’s trading session after the company posted weaker than expected quarterly results. The first quarter net loss came at $0.53 per share compared to the analysts’ estimates of gain of $0.71 per share. It came as a huge disappointment for investors. A large part of the loss almost $0.77 per share came from a $110 million write down on the value of its mortgage servicing rights. Moreover, it also accounted a $17 million charge to adjust for faster amortization. It lowered the earnings by as much as $0.12 per share.
The performance
Nationstar’s performance was negatively affected by prepayments as mortgage rates declined in January. The worst affected segment was servicing segment as the revenue declined by 49% to $109 million, sequentially. The constant prepayment rate of segment came at 13.8% compared to 13.3%, and should be attributed to lower interest rates.
However, it was not a complete loss for the company as Nationstar benefitted from mortgage rates in originations. The division posted a sequential revenue growth of 9% as revenue surged to $158 million from the prior quarter.
The expectations
Nationstar highlighted in its press release that significant percentage of interest rate drop recorded in January has reversed since end of the last quarter. It is expected to have a positive impact on voluntary prepayment in coming quarters. It indicates that there will be no pressure on the company to opt for additional write downs led by faster prepayments. Also, the probability of rate decline in coming period is quite low; given mortgage rates remain higher than their January lows.
Nationstar Mortgage Holdings Inc (NYSE:NSM) servicing segment provides converts a small part of unpaid principal amount into pre-tax income, and therefore, Nationstar investors would be hoping for higher interest rates in the coming quarters.
