Why Nationstar Mortgage Holdings Inc (NSM) Is Riding High Thanks to Bank of America Corp (BAC)

A fledgling industry just a year ago, the mortgage servicing business is now red-hot, fueled by big banks shedding mortgage servicing rights in an attempt to stay ahead of new capital rules. Nationstar Mortgage Holdings Inc (NYSE:NSM) is one of those servicers that has been growing by leaps and bounds, and it has one of the biggest banks to thank for its success: Bank of America Corp (NYSE:BAC) .

A symbiotic relationship
Following the latest purchase of mortgage servicing rights from B of A with partner Newcastle Investment Corp. (NYSE:NCT) , Nationstar has been flying high. After gobbling up $215 billion of MSRs from the big guy, the servicer jumped right into a deal with KB Home (NYSE:KBH) to deliver mortgage services to prospective home buyers. The very same week, Nationstar priced an asset-backed security worth $900 million. Doubtless, the proceeds will be used to purchase more MSRs — possibly from Bank of America, which is planning another auction soon.

Nationstar Mortgage Holdings IncThe relationship between the bank and servicer goes back to June of last year, when the newly minted public company bought $10 billion worth of MSRs from B of A, a definite step in the right direction. In return, the bank has been able to reduce its MSR portfolio, a key ingredient in CEO Brian Moynihan’s streamlining process.

The positive effect of this pseudo-alliance is evident in Nationstar’s recent investor presentation, where the servicer gave the big bank its due. In an announcement that undoubtedly had investors salivating, the servicer presented guidance for this year of adjusted EBITDA per share of $9.50 to $11.05, and $12.30 to $14.30 for 2014. Of that amount, the recent shopping spree at B of A accounts for $2.20 to $2.55 for 2013, and a whopping $4.65 to $5.40 for next year, once the portfolio is fully integrated. Of the estimated earnings per share for 2014, the B of A acquisition is expected to contribute $2.30 to $2.70 of the $5.60 to $6.50 Nationstar has predicted.

A resurgent industry
Nationstar and Newcastle weren’t the only recipients of the big bank’s recent largesse. Walter Investment Management Corp (NYSEMKT:WAC) left the table with $93 billion of MSRs, adding to its recent acquisition of Metlife Inc (NYSE:MET)‘s mortgage servicing platform.

Although rising star Ocwen Financial Corporation (NYSE:OCN) left the recent B of A auction empty-handed, this ambitious servicer is the front-runner in the current race to scoop up Ally Financial’s stable of MSRs representing $122 billion in loans, valued at approximately $1 billion. I fully expect them to show up at the next Bank of America MSR sale, as well, so keep your eyes peeled.

There seems to be no shortage of institutions willing to sell off their servicing rights, and, as long as that is the case, these companies will prosper. Nationstar, which is predicting a rise in net income of nearly 50% from 2013 to 2014, is definitely reaping the rewards of the new capital rules for banking institutions — and is more than willing to give credit where credit is due. Bank of America, take a bow.

The article Why Nationstar Is Riding High Thanks to Bank of America originally appeared on Fool.com and is written by Amanda Alix.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!