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» Nationstar Shifts Focus to Servicing Texas rank: 40 90+ Day Delinquency Rate Foreclosure Rate ocTober 2013 2.3% Unemployment Rate 1.0% 6.2% year ago 2.5% 1.3% 6.4% year-over-year change -7.5% -22.9% -3.1% Top County 90+ Day Delinquency Rate Morris counTy Foreclosure Rate ocTober 2013 2.6% 4.1% year ago 3.0% 2.9% year-over-year change -14.3% 43.9% Top Core-Based Statistical Area rio grande ciTy-roMa, TX 90+ Day Foreclosure Delinquency Rate Rate ocTober 2013 2.2% 1.9% year ago 2.6% 2.5% year-over-year change -17.0% -21.6% note: The 90+ day delinquecy rate is the percentage of outstanding mortgage loans that are seriously delinquent. The foreclosure rate is the percentage of outstanding mortgage loans currently in foreclosure. State rank is based on the October 2013 foreclosure rate. All figures are rounded to the nearest decimal. The unemployment rate reflects preliminary October 2013 figures released by the Bureau of Labor Statistics. All other data courtesy of LPS Data & Analytics. IN THE NEWS Mortgage Master Opens First Austin Branch Mortgage Master, a super-regional mortgage bank, announced the opening of its first retail branch in Austin, Texas. Mortgage Master received its Texas Mortgage Banker License from the state and is now ready to originate home loans all over the Lone Star State, providing purchase borrowers and refinancers a new outlet for home financing. "After 25 years of responsible mortgage lending, Mortgage Master is excited about doing business in the great state of Texas and helping borrowers find the right mortgage solution when purchasing or refinancing a home," said Mortgage Master president Paul Anastos. Piloting the Austin location are branch manager Larry Weisinger and originators Christian Pfluger III and Christina Cadenhead. Just as the seasons change, so does the effectiveness of certain segments in the mortgage industry. Mortgage originators and servicing companies are facing the reality of declining loan volumes and the entrance of new players to the industry, forcing them to reassess where the best sources of revenue can be found. Nationstar Mortgage saw its stock price fall 17 percent on November 7. The slump was caused by the sale of Nationstar's wholesale channel to Stonegate Mortgage coupled with a less-than-favorable earnings report, the company said. According to Brent Nyitray, director of capital markets for iServe Residential Lending, "Nationstar is going to have to do some restructuring." He explained in a segment on the Mortgage Markets Today radio show that Nationstar has always been a bit of a momentum stock that attracts growth investors who sell when there is a decline in earnings. "The market is going from a momentum/growth story to a basic financial investor story," he added. Nationstar's wholesale channel generated $3.26 billion in the first six months of 2013. Some analysts say that when the bulk of a company's revenue comes from origination and they sell what seems to be an effective channel of origination, it indicates a coming slowdown in the mortgage market in the next several months. Nyitray agrees with that prognosis and said that with this action, Nationstar is indicating the one part of its business that is working and will continue to work is servicing. "In the past, origination and servicing have both been equally profitable," Nyitray explained. "Now they are going to focus for the most part on servicing." One important reason origination has deteriorated is that refinance loans have declined drastically. "The Mortgage Bankers Association Refi Index peaked at 5229 in early May and now has actually declined to 1500," Nyitray said. "When you consider that refis are approximately 65 percent of origination, that's a really big hit. This explains why everyone is experiencing big downturns and why for Nationstar, there doesn't seem to be enough profitability in the wholesale business anymore," he said. Another company affected by the decline is Ocwen Financial, although this company VISIT US ONLINE @ DSNEWS.COM was not so severely impacted because it is mostly a servicer. Originally viewed as a fast growth company, Ocwen recently announced a $500 million buyback, a signal the company is not experiencing much organic growth. "Growth investors will now hesitate to buy that stock when they hear about the offer of a $5 million buyback," Nyitray said. In the midst of these declines, there are two recent IPOs, Stonegate and CherryHill, whose stock prices since going public are relatively flat. Some wonder if their timing was a bit off. "Stonegate could not have gone public last year [in 2012] because they were not big enough," Nyitray said. "However, one advantage Stonegate has is that it is really the only pure originator out there. Some investors don't want to invest in servicing." Stonegate priced its stock at $16 and it went up to $18. On the other hand, Nyitray believes that CherryHill's stock was overpriced. "They started out at $20 per share, and now their stock is trading at $17," he said. Another reason behind declining originations may be that a lot of people are choosing to rent. "American homes for rent saw a 9 percent increase in the same time period that all of this decrease occurred–actually the same day," Nyitray said. He predicts rentals will continue to increase, even if interest rates go up. "The story of the past year will probably be the story going forward." Nyitray predicted. In terms of origination, he says there is still plenty of opportunity. "Although home sales have declined in recent years, that number should be going up because of demographics," he explained. Nyitray believes new construction will make a comeback as the economy improves. "There is a lot of pent-up demand, and that is going to produce a lot of demand for mortgages," he said. "This is a cyclical business, and although the low-hanging fruit of the refi market is gone, there is sti ll a lot of opportunity with traditional growth and the normal building and selling of homes," Nyitray said. "All in all, that's good for the market." Editor's Note: Mortgage Markets Today is run by DS News' parent company, the Five Star Institute. Mortgage Markets Today is an indepth talk radio resource featuring expert guests, quality topics, and timely insights on the secondary market, federal compliance standards, real estate, and mortgage lending. Catch it on the Web at radio.thefivestar.com or download podcasts of the broadcasts from iTunes. 131

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