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Kass: Nationstar vs. Ocwen

Fine Points on Nationstar's Accounting

Discount on advances purchased is recognized under "interest income" in the proportion of advance collected:

  • This component contributed $6.5 million to first-quarter 2013 earnings and $11.5 million to fourth-quarter 2012 earnings.
  • The accurate number for second quarter 2013 will be disclosed in the 10Q, and we estimate it to be in the range of $20 million to $25 million.

Mortgage-servicing rights on book are mark-to-market:

  • Nationstar increased its mortgage-servicing rights mark by $118 million.
  • 50% of the benefit is passed onto excess spread holder.
  • Unlike Ocwen, Nationstar does not have 100% ownership of mortgage-servicing rights.

Accrued servicing fees are recognized on balance sheet:

  • For first quarter 2013, it was $101 million -- the company does not provide any further details.

Mortgage-servicing liabilities are provided on the balance sheet:

  • The amount provisioned has been between $81 million and $83 million since second quarter 2012, though the servicing portfolio has more than doubled over the past year. This might be underprovided.
  • Delinquent agency portfolios recently acquired should have increased this amount by $125 million to $150 million.

Legacy book:

  • The company recognizes a $7 million to $8 million loss on its legacy book every quarter despite improvements in credit and interest rate markets over the past two years.
  • The legacy book might still be overvalued at $257 million.
At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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