Executive Vice President & Chief Financial Officer, MR COOPER GROUP INC
Mortgage servicing is thriving due to homeowners deciding not to sell, says Mr. Cooper Group CEO
Mr. Cooper Group CEO Jay Bray joins 'The Exchange' to discuss hedging rising rates with investment in mortgage servicing, ...
About Kurt Johnson
In a September 2023 interview, Mr. Cooper Group CEO Jay Bray stated that the company's mortgage servicing business is "crushing it right now" and "doing incredibly well," attributing this to existing homeowners choosing not to sell their homes. Bray noted that the origination side of the business "has slowed down dramatically" due to interest rates, though the company is investing in its origination platform in preparation for the next cycle. He said Mr. Cooper has acquired over $100 billion in servicing in 2023, benefiting from servicing being sold in the marketplace. Bray expressed the personal view that mortgage rates will not decline until the second quarter of 2024 and will "stay higher for longer." He stated that home prices are unlikely to come down significantly due to a supply imbalance, as many homeowners with low interest rates have no incentive to sell. Regarding potential market distress, Bray said the company is not seeing anything concerning currently, as homeowners have substantial equity, but he predicted some stress could emerge within a year to 18 months. He also discussed the company's home auction business, suggesting a future marketplace for retail home sales through competitive bidding.
Transcript (16 segments)
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Host0:01
A long time, popularity of ARMs. All right. Stay right there because while higher rates continue to tinder mortgage demand, they might provide a sort of silver lining to our next guest. Shares of Mr. Cooper Group are up a whopping 41%. So could it be a hedge against rising rates? Joining us is Chairman and CEO of the Mr. Cooper Group. Jay, good to have you with us. You sort of have the mortgage market straddled. You are a large mortgage servicer but also an originator. Which one is doing best and why?
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Kurt Johnson0:46
The servicing business is crushing it right now. We have a balanced business model as you mentioned, both on the origination side as well as the servicing side. Existing homeowners are staying in their home and that is great for the servicing business. So it is doing incredibly well.
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Host1:07
And the origination side of the business less well, I would take it?
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Kurt Johnson1:10
Absolutely. That business has slowed down dramatically and it is really all due to rates. We don't really see that returns for, you know, probably until sometime next year. And I don't think that rates will go down. And so we are investing in our origination platform. We want to be ready for the next cycle. But right now, it is all about servicing.
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Host1:33
And Jay, you mentioned a couple months ago that with all the bank consolidation, with trying to get out of the mortgage market, that there would be opportunities as you take on some of these assets. How has that played out?
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Kurt Johnson1:47
Just like I said. It has been fantastic. If you look at the marketplace today, there is a lot of servicing that is being sold and we have been a big beneficiary of that. We will have acquired already this year over $100 billion in servicing. So we think that trend will continue and don't see it slowing down anytime soon.
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Host2:06
And obviously distress in the mortgage market is next to nothing right now, but as we see the home builders with high price buying down some of the mortgage rates and buyers struggling to get into new construction, do you anticipate over the next coming years that you might see some distress in the market because people are stressing so much?
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Kurt Johnson2:27
I think that you could see some distress. Like to your point, we are not really seeing anything right now that is concerning. Homeowners have a ton of equity. But over time, you know, you will see some stress. But I think that we are probably a year to 18 months away from that.
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Host2:43
I want to talk about yet another thread in your business and that is the home auction business which you are in, right? Home auctions. And I was speaking to a friend of mine from Australia and he said almost every home in Australia is sold at an auction where people actually go and bid. Talk to me about that line of business for you and do you see that as something that could be a growth avenue for your company? Will people become more accustomed to going and actually bidding in an active way at auction on a home?
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Kurt Johnson3:21
Tyler, I do think that it will come. I think that there will be a marketplace where you will actually see kind of retail homes being sold. Today our auction is predominantly focused on the government programs. So we sell through — our marketplace is called Zone. But I do think that you will see a marketplace where people can actually go and list their home and be a competitive bidding process just like you described in Australia.
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Host3:51
And just looking into your crystal ball, I keep hearing everyone say mortgage rates are high, but we expect them to pull back in the fall and they have literally been saying that for months now. You are in the business. In your crystal ball, where do you see rates going in the fall?
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Kurt Johnson4:07
I do not see them going down. The way I think about it personally, I don't think that you will see rates go down until probably the second quarter of next year. Rates will stay higher for longer. If you look at the overall unemployment, you know, just the strength of the economy. I think rates are going to stay higher for longer.
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Host4:32
If rates go up — typically speaking, if rates go up and stay up, you would think that would retard price growth. But it doesn't seem really to have done that in a big way.
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Kurt Johnson4:45
No, you are talking about home prices?
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Host4:47
Home prices, yes.
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Kurt Johnson4:48
Because of the supply. Like you talked about earlier, there is just not — millions of homeowners have the 3% interest rates, right. And so there is no incentive for them to sell. If they did sell, where would they go? So I think because of the supply imbalance, you are not going to see, you know, prices come down.