Mr Cooper Group (COOP) Barclays 22nd Annual Global Financial Services Conference 2024 summary

MSR market and acquisition strategy

• MSR market activity was high early in the year but has since normalized, with expectations for robust activity in 2025 due to non-bank originators needing to sell unless margins improve.

• The Flagstar acquisition added $77 billion in MSRs and a significant sub-servicing portfolio, aligning with core business strengths and providing growth in capital-light sub-servicing.

• Integration of Flagstar is progressing well, with closure expected in Q4 and anticipated operational synergies.

• The TPO platform from Flagstar brings 150 new clients, expected to drive incremental volume and profits in the correspondent channel.

• Origination footprint is expanding, with strong performance in correspondent and direct-to-consumer channels, and continued investment in capacity.

Financial performance and guidance

• Servicing EBT is expected to hit or exceed the high end of $80-$300 million guidance for Q3, driven by strong operating leverage and cost efficiencies.

• Originations are trending at the high end or above the $35-$45 million pre-tax profit guidance for Q3, with strong loan and funding volumes.

• ROE guidance for 2025 is 14%-18%, with confidence in reaching the midpoint due to a balanced business model and margin expansion in a rate rally environment.

• The MSR fund is progressing, with anchor investors in documentation and capital deployment expected in early 2025.

• Capital allocation remains focused on stock repurchases and MSR asset growth, with flexibility above the 20%-25% tangible net worth target.

Technology and operational efficiency

• Ongoing investments in AI and digital tools are reducing servicing costs, with a target to lower cost per loan by 25%-30%.

• AI is automating call summaries and improving agent efficiency, enhancing both cost structure and customer experience.

• Project Flash and front office modernization are streamlining origination processes, increasing capacity and scalability.

• Digital self-service tools have halved call volumes over three years, further driving efficiency.