7. Mr. Cooper Group Inc. (NASDAQ:COOP)
Number of Hedge Fund Investors: 33
Mr. Cooper Group Inc. (NASDAQ:COOP) is a prominent player in the residential mortgage industry, offering services in mortgage servicing, origination, and asset management. The current low-interest-rate environment benefits the mortgage sector by boosting refinancing and new mortgage activity. With interest rates remaining favorable, Mr. Cooper Group Inc. (NASDAQ:COOP) is well-positioned to take advantage of these increased opportunities.
Recently, Mr. Cooper Group Inc. (NASDAQ:COOP)’s subsidiary, Nationstar Mortgage Holdings Inc., announced a $750 million offering of 6.5% Senior Notes due in 2029. These notes will have an annual interest rate of 6.5% and will mature on August 1, 2029.
Diamond Hill Select Strategy stated the following regarding Mr. Cooper Group Inc. (NASDAQ:COOP) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon, Texas Instruments and Mr. Cooper Group Inc. (NASDAQ:COOP). Mortgage-servicing company Mr. Cooper Group is benefiting from a high interest-rate environment, which is supporting increased profitability in the mortgage-servicing business.”
Jay Bray, Chairman, President, and CEO of Mr. Cooper Group, shared this during their most recent earnings call:
“For the second quarter, pre-tax operating income came in at $219 million, which is up 46% year-over-year. Operating ROTCE was 15.3%, up nearly 400 basis points from a year ago. At the end of last year, we said we expected ROTCE in a range of 14% to 18% in 2025.
We’re pleased to be in that range already, and we’re feeling positive about our momentum heading into next year. I’m super excited with the 17% year-over-year increase in TBV, which reached $68.67 at the end of the quarter. This was a function of earnings plus stock repurchase, which has reduced the share count by 4% over the last year and by a cumulative 35% since inception. The Board approved an additional $200 million for stock repurchase. I would add that despite stock repurchase and asset growth, we’ve maintained a rock-solid balance sheet with our capital ratio still above our stated target range and ample liquidity. Turning to operations. The servicing team produced fantastic results with $288 million in pre-tax income, up a massive 58% from a year ago.
These results reflect strong growth with the portfolio ending the quarter at $1.2 trillion together with exceptional efficiency gains. In fact, you couldn’t ask for a better demonstration of operating leverage. Now shifting to originations where the environment remains challenging. Pre-tax operating income was $38 million, which was at the high end of our guidance thanks to strong execution in both our DTC and correspondent channels. Now let’s turn to Slide 4 and take you through the transaction with Flagstar. We announced we’re acquiring Flagstar’s mortgage operation from $1.4 billion in cash. This is a simple transaction structure in that it’s an acquisition of assets not a business combination. The assets include Flagstar’s MSRs and advances, which totals $1.2 billion; its subservicing business with total UPB of $270 billion as well as a third-party lending platform.
Additionally, we will subservice $9 billion in Flagstar loans remaining on their balance sheet. The total UPB is approximately $356 billion. The acquisition will be funded with cash on hand and MSR line draws. Flagstar servicing operations will be integrated onto our platform in a quick efficient and thoughtful manner.”
