mba 515 final project final
TRANSCRIPT
Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Kelly A. Giambra
MBA 515: Business Environment, Innovation and Entrepreneurship
Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Southern New Hampshire University
May 15, 2016
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Abstract
This paper discusses a business analysis of Nationstar Mortgage Holdings, Inc.
and the United States (U.S.) mortgage industry. Nationstar Mortgage Holdings Inc. (NSM)
(Nationstar) is one of the largest residential mortgage servicers in the U.S. The Company was
initially founded in 1994 and is headquartered in Lewisville, Texas (About Nationstar, 2016).
Nationstar is a Delaware formed corporation since 2011, and includes wholly-owned subsidiaries
that provide servicing, originations, and transaction based services to single family residences.
(Form 10-K, 2016) The Company maintains a servicing portfolio of approximately $402+
billion with more than 2.5 million customers (About Nationstar, 2016).
Select a market domain such as transportation, healthcare, manufacturing, or the service industry. This selected domain will be your area of focus throughout the MBA program, although you will be able to change if you need to. Begin by evaluating the business environment of the market domain. Then, select a specific company within the market domain. The company you select should be a company where you can envision intrapreneurial and entrepreneurial opportunities, as you will identify and assess these opportunities in this project. Finally, evaluate the trends relevant to the business environment of your company and market domain.
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
I. Market Domain Analysis of the U.S. Mortgage Industry
A. Historical Significance and Dramatic Changes Over Time
The U.S. mortgage industry has evolved over time and is significantly different when
compared to the 1930’s Pre-Great Depression era (Green and Wachter, 2005). Mortgages
around that time were often featured with variable interest rates, higher down payments, balloon
payments, and shorter maturity periods of around five to ten years (Green and Wachter, 2005).
During the 19th century, most mortgages did not involve large banks or financial institutions, and
were instead issued by “landowners, neighbors, or small community lenders” (Mosson, 2012). In
addition, borrowers not only had equity needed to refinance, but they could easily sell their
homes if necessary (Green and Wachter, 2005).
During the Great Depression from the periods of 1931 to 1935, there was a decline in
property values which led to a wave of foreclosures when borrowers became unable to sell their
homes (Green and Wachter, 2005). From the periods of 1949 to 1979, the amount of U.S.
mortgage debt increased by roughly 46 percent of household income and proceeded to increase
by 73 percent post 1980 (Green and Wachter, 2005). Alongside this trend, total household
mortgage expenses increased by 15 percent of total household assets in 1949, to 28 percent in
1979, and again to 41 percent in 2001 (Green and Wachter, 2005). This growth in debt had
shaped the market’s shift into securitization.
Securitization is defined as the business practice of pooling and selling subprime loans so
that the investors would not hold onto the interest, also referred to as “mortgage-backed
securities” (MBS) (FCIC, 2011). Securitization involved the Government Sponsored Enterprises
(GSE’s) process of packaging such loans into MBS and then selling the rights to principal and
interest payments to investors in the secondary market (FCIC, 2011). Holders of an MBS have
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
the right to receive principal and interest payments from borrowers in the pool held by a trust on
behalf of the investors (FCIC, 2011).These types of loans dominated the mortgage market during
the subprime lending crisis (Mosson, 2012).
B. Historical Factors and the Dissolution of Mortgage Lenders
Inhibiting Factors: The Subprime Lending Crisis and Housing Bubble Burst
A significant inhibiting factor in the U.S. mortgage industry involved the 2007 subprime
mortgage crisis. A subprime mortgage is a type of loan made out to high-risk borrowers with
lower credit scores, who cannot qualify for a conventional loan (Carther, 2009). Subprime
lending was a contributing factor that led to the many notable mortgage companies. In fact, in
2007, Freddie Mac’s CEO Richard Syron had warned of this, stating that home prices “appeared
to be overvalued” and trillions of dollars in home value would eventually be lost (Bianco, 2008).
The subprime lending crisis was also accompanied by the housing bubble burst, which
eventually resulted in high numbers of delinquencies and foreclosures (Carther, 2009).
Subprime lending first began in the years 2003 to 2007, when the government passed
several regulations under the Clinton Administration, Bush Administration, Congress, and
Department of Housing and Urban Development (HUD), making it easier for lower income
consumers to purchase homes (Pritchard, 2014). As a result, GSE’s like Fannie Mae and Freddie
Mac were encouraged to offer more of these types of loans to lower income homebuyers. U.S.
banks and mortgage companies had jumped on the opportunity to solicit subprime loans, and
allowed for risky lending practices with lax proof of income requirements (Pritchard, 2014).
The number of originations from subprime loans increased from 9 percent in 1996 to 20
percent in 2006, with total subprime mortgages amounting to $600 billion in 2006 (Bianco,
2008). These numbers led to a majority of lenders taking numerous risks (Bianco, 2008). U.S.
homeownership rates had also risen from 64 percent to 69.2 percent in the years 1994 to 2004
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
(Bianco, 2008). The demand helped to fuel the market, as rising home prices and consumer
spending that led to increased home values. Increased refinances in turn led to rising household
debt which was different than the earlier decades (Bianco, 2008).
When the recession hit in 2007, property values plummeted, and this caused many
subprime borrowers to fall underwater and default on their payments (Bianco, 2008). The
foreclosure crisis mainly involved the subprime market, since the loans carried higher interest
rates then “prime” or conventional loans, making them more difficult to pay off (Mallach, 2009).
By the end of 2006, the housing bubble burst resulted in lenders facing over 15 million in loan
debt (Mallach, 2009). In addition, the foreclosure crisis caused home prices to drop while
lenders began to tighten their credit requirements. In 2006, there were 1.2 million foreclosure
filings in the U.S. and most were subprime loans (Mallach, 2009).
As a result, many mortgage lenders either faced lawsuits or went out of business. For
example, in 2007, Ameriquest was one of the U.S.’s largest subprime lenders who closed its
doors and laid off 3,800 employees (Bianco, 2008). There were also several other mortgage
companies that either closed or downsized operations including: WJ Bradley Mortgage, North
Milwaukee State Bank, Barclays, Ally (GMAC), and Alterna Mortgage (Robertson, 2007).
Many of these companies either filed Chapter 11 bankruptcy or were shut down by the FDIC.
Enabling Factors: Delinquencies and Foreclosures
Create New Business for Mortgage Servicing Companies
The growing number of delinquencies and foreclosures provided an entirely new
paradigm as it enabled new opportunities for mortgage servicing companies. These companies
began to recognize the niche markets surrounding foreclosure prevention. In 2010, several large
banks were sued for deceptive practices by the U.S. Department of Justice (DOJ) in the National
Mortgage Settlement Lawsuit (NSM). The lawsuit resulted in recovery for victims of subprime
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
and predatory lending in the amount of 25 billion dollars in 2012 (Elias, 2014). The NSM
involved five of the largest mortgage servicers: Ally Financial, Bank of America, Citigroup, JP
Morgan Chase, and Wells Fargo, all who were sued at both the state and federal level (National
Mortgage, 2014).
Negotiations of the settlement occurred amongst the Office of the Attorney General
(AG), the DOJ, as well as other federal agencies such as the Department of Housing and Urban
Development (HUD). The settlement distributed $2.5 billion dollars to forty-nine (49) states
with California, Florida, Texas, New York, and Illinois receiving the largest percentage of funds
(National Mortgage, 2014). Furthermore, homeowners who lost their properties to foreclosure
between the dates January 1 to December, 31, 2008 were given cash payments (National
Mortgage, 2014). The settlement set aside $3 billion to refinance underwater mortgages for
borrowers (National Mortgage, 2014).
A final result of the settlement required mortgage servicers to offer homeowners
alternatives to foreclosure through various home retention programs. (National Mortgage, 2014).
An approximate $17 billion was reserved for loan modifications, short sales, forbearance
programs, and other programs for qualifying borrowers (National Mortgage, 2014). The
settlement ordered mortgage servicers to restructure and improve policies handling mortgage
loans and foreclosures (National Mortgage, 2014). The settlement also permitted federal and
state governments to proceed with criminal prosecutions for any offenses or violations of fair
lending laws (National Mortgage, 2014).
C. Impact of Factors: Opportunities for Change and Innovation
Mortgage Laws and Regulations That Impact the Business
Prior to the National Mortgage Settlement lawsuit, there were several state and federal
laws passed to help homeowners with subprime mortgages (Rosenbleeth, 2008). A most
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
significant part of such legislation was the Mortgage Reform and Anti-Predatory Lending Act of
2007, passed in the U.S. House of Representatives. The law created a licensing requirement for
all mortgage loan originators such as brokers, and set several regulatory standards for all
mortgages (Rosenbleeth, 2008). The law also amended parts of the Truth in Lending Act
(TILA), and amended parts of the Home Ownership Equity Protection Act of 1994 (HOEPA)
(Rosenbleeth, 2008).
HOEPA provides foreclosure prevention by allowing borrowers and their lenders to
modify their mortgages (Bond, Musto, & Yilmaz, 2009). As such, lenders approved by the
Federal Housing Administration (FHA) may refinance borrowers into lower payments through
principal reduction and re-amortization of a new term (Bond, Musto, & Yilmaz, 2009). TILA
mandates that a lender fully disclose costs and benefits of each type of mortgage product and
fully disclose the payment terms of the mortgage (Rosenbleeth, 2008).
Regulations in the Mortgage Reform Act subsequently required lenders to take “duty of
care” when offering loan products to consumers (Rosenbleeth, 2008). The authority to enforce
duty of care is monitored by HUD, the Office of the Comptroller of the Currency (OCC), the
Federal Trade Commission (FTC), and the FDIC (Rosenbleeth, 2008). Title I of the Mortgage
Reform Act prohibits an originator from receiving compensation for steering customers into
unaffordable loans (Rosenbleeth, 2008).If the mortgage company violates any regulations under
Title I or TILA the borrower has a “cause of action” and can sue the lender for civil damages
(Rosenbleeth, 2008). Nevertheless, Title II of the Mortgage Reform Act will set minimum
standards that the secured creditor must make a “good faith” determination in approving the
borrower for a mortgage loan (Rosenbleeth, 2008).
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
The Mortgage Forgiveness Debt Relief Act of 2007 was another law passed to prevent
foreclosure as a result of the poor housing market (Rosenbleeth, 2008). This act amended the
Internal Revenue Service (IRS) Code of 1986 to prevent borrower tax penalties from loan
modifications (Rosenbleeth, 2008). The federal law helps families obtain lower principal and
interest payments without facing higher taxes. Additional programs included Bush’s Federal
Housing Administration (FHA) Secure program and the HOPE NOW alliance which consists of
counselors, investors, and lenders who help homeowners in need of assistance (Rosenbleeth,
2008). Each of these programs were designed to help homeowners in ARM loan products who
could not repay once the interest rate reset (Rosenbleeth, 2008).
In 2009, Obama introduced the Making Home Affordable Act (MHA), which helps
homeowners in default with loan modifications or refinance, unemployment forbearance plans,
or short sale and deed-in-lieu of foreclosure options. As a part of MHA, Obama introduced the
Home Affordable Modification Program (HAMP), which is a loan modification program for
eligible borrowers that could possibly reduce their monthly payment to a more affordable
payment. In 2012 and 2013, Obama further announced amendments to the MHA by expanding
eligibility criteria, and extending the application deadline for MHA programs to December 31,
2016 (Making Home, 2015.)
Finally, U.S. Congress and President Obama passed and The Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, which established the Consumer Financial
Protection Bureau (CFPB) within the Federal Reserve System (FRS) (Carpenter, 2014). The
CFPB writes rules and passes a numerous federal consumer financial protection laws
(Carpenter, 2014). The CFPB also enforces the laws that regulate banking institutions to ensure
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
compliance. Most recently, the CFPB implemented new federal mortgage rules that began in
January 2014 (Carpenter, 2014).
These regulations have helped to provide homeowners shopping for a mortgage, with
better protections from unethical business practices (Mortgage Rules, 2014). The CFPB rules
require banks to limit the amount of servicing fees and provide clear monthly billing statements
to borrowers (Mortgage Rules, 2014). The monthly billing statements are also required to notify
the borrower in advance when the interest rate changes on an ARM mortgage (Mortgage Rules,
2014). Lastly, the CFPB will require servicers to immediately offer workout assistance when
borrowers fall behind on payments (Mortgage Rules, 2014).
Further, in October 2015, the CFPB passed the TILA-RESPA Integrated Disclosures
Rule (TRID), making loan originations increasingly expensive (CFPB, 2015). The new TRID
rules provided an amendment to both TIL/Regulation Z and Regulation X disclosure
requirements that must be issued to borrowers for most mortgage transactions (CFPB, 2015). As
a result, total net gains from loan originations made by banks and servicers decreased by 60% in
the fourth quarter of 2015 from TRID (Swanson, 2016). Originations were reportedly up three
trillion in 2006 and decreased to about 1.1 trillion in 2014, while increasing slightly to 1.2 trillion
in 2015 (Whalen, 2014). Ultimately, it is becoming more expensive for lenders to originate
loans, as sales costs, processing, underwriting, and closing costs are now increasing (Swanson,
2016).
The Mortgage Industry Today Offers New Opportunities for Growth
In the present, the subprime mortgage crisis is dwindling away, however, regulations
continue increase as evidenced by TRID (Whalen, 2013). As a result, many large banks like
JPMorgan Chase, are leaving the lending and servicing business (Whalen, 2013). With large
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
banks exiting the industry, non-bank specialty servicers like Nationstar Mortgage Holdings
(NSM) are jumping on opportunities to expand (Pangindian, 2013). Nationstar and Ocwen
Financial (OCM) have recently become major players noted to be “best equipped” when it comes
to servicing distressed assets (Pangindian, 2013). Further, a business practice known as “high-
tech servicing” is now on the horizon (Pangindian, 2013). High-tech servicing is a process that
involves regular and frequent contact with borrowers to prevent loan default and foreclosure
(Pangindian, 2013). Both companies have expanded in portfolio size as they continue to acquire
servicing rights of large pools of loans from banks leaving the servicing business (Pangindian,
2013).
Lastly, non-bank servicers have stepped up to meet the needs of consumers, as the
servicing industry continues to handle remaining distressed assets from the crisis (Whalen,
2013). The supply of Mortgage Servicing Rights (MSR) and distressed assets are one of the
most attractive investment strategies for companies like Nationstar and Ocwen (Whalen, 2013).
As profits from originations continue to decrease, Nationstar has recently innovated a new digital
and mobile service known as Xome in to improve their customer’s home buying experience
(Whalen, 2013). Nevertheless, the challenges remain the regulators such as the CFPB, FHFA,
FHA, the Fed, the OCC, and FDIC, all whom oversee the mortgage industry and approve
distressed loan servicing and MSR transfers (Whalen, 2013).
II. Competitive Readiness of Nationstar Mortgage Holdings, Inc.
A. Internal Factors: SWOT Analysis
Nationstar’s financial portfolio mainly consists of purchased mortgage servicing assets,
subservicing of accounts from other lenders, and loan originations (About Nationstar, 2016).
Their customer base includes various members of the real estate market: homeowners, buyers,
sellers, investors, and realtors (Form 10-K, 2016). The Company’s primary investors consist of
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Government Sponsored Entities (GSEs) like Fannie Mae and Freddie Mac, private label
investors, Ginnie Mae, investors in mortgage servicing rights (MSRs), and clients who hire them
to subservice their accounts (Form 10-K, 2016). As of December 31, 2015, Nationstar is the
largest non-bank servicing company and the fourth largest mortgage servicer in the U.S. (Form
10-K, 2016). Their servicing consists of loan administration, payment processing, escrow
accounts, collecting insurance, home retention and foreclosure prevention, and foreclosures
disposition for the owners of the loans (Form-10K, 2016).
Strengths: Customer Centric Model
Nationstar utilizes a customer centric “high-touch” mortgage servicing model which
helps to improve borrower repayments (About Nationstar, 2016). The Company strongly values
home preservation and main goals are to decrease the number of borrower delinquencies and
defaults on mortgages. The high touch servicing model involves regular and frequent borrower
contact to offer an array of payment assistance and loss mitigation options to struggling
homeowners. This helps to not only preserve assets for its investors and clients, but also
preserves neighborhoods to maintain property values (Form 10-K, 2016).
Strengths: Growing Servicing Portfolio
Nationstar has been gradually increasing its servicing portfolio since 2007 (Form 10-K,
2016). The increase is mainly due to acquisitions of MSRs and mortgage loan originations.
During 2015, the Company continued to incorporate a “capital light strategy”. This strategy uses
less capital by growing their MSR portfolio and selling roughly $4.6 billion in MSRs at market
value, while continuing to retain subservicing rights (Form 10-K, 2016). In addition, last
October 2015, Nationstar acquired a private-label subservicing contract of approximately $55
billion for a top performing financial institution (Form 10-K, 2016). The Company expects a
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
large number of loans to board at the beginning of 2016, thus growing the MSR portfolio in 2016
(Form 10-K, 2016).
Strengths: Multiple Sources of Revenue
Nationstar has multiple sources of revenue that may be used to purchase MSR’s in order
to meet their returns with little or no capital (Form 10-K, 2016). Revenues are earned through
servicing fees as “basis points” of the unpaid principal balances of loans and late fees,
modification fees, and incentives (Form-10K, 2016). Revenues from loan originations are earned
through application fees used to cover the costs of processing and underwriting. Nationstar also
maintains licensure in all 50 states to originate its own residential loans through Greenlight
Financial Services (Greenlight) and Nationstar brand (Form 10-K, 2016). Additional revenue
sources include a customer retention focused origination platform, new subservicing clients
(expected to grow in upcoming years), expansion into private label subservicing, and its Xome
high-tech real estate system (Form 10-K, 2016).
Weaknesses: Earnings Are Based On Estimates
Nationstar’s earnings are based on financial models and estimates, especially when
calculating the fair market value of assets such as MSRs (Form 10-K, 2016). If the Company’s
assets are found to be incorrect, it could lead to inaccurate reporting to investors. In determining
the value of MSRs, certain assumptions are made about repayment within pools of mortgage
loans, rates of delinquencies, rates of default, interest rate forecasts, and costs to service the loans
(Form 10-K, 2016). If any of these amounts are inaccurate, or if market rates decrease, it could
decrease the value of certain assets and therefore impact the business (Form 10-K, 2016).
Weaknesses: Substantial Debts
Nationstar has significant debt obligations that may limit necessary financial and
operating activities to fulfill future needs. The Company’s indebtedness require a large part of
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
their operating cash flow to pay principal and interest payments and therefore reduce capital
available for other purposes (Form 10-K, 2016). This could make it difficult for Nationstar to
repay debt toward senior notes and subject them to increased vulnerability I n changing interest
rates (Form 10-K, 2016). Furthermore, the failure to repay debts could result in default and the
Company’s filing of bankruptcy.
Weaknesses: Nationstar Services High Risk Loans
Nationstar services higher risk loans which make them more expensive to service when
compared to servicing conventional mortgages (Form 10-K, 2016). The loans are more
expensive because they require frequent interactions with borrowers and a greater degree of
monitoring. In addition, higher risk loans have higher compliance costs which increases
servicing costs. Any changes to the government assistance programs under the Home Affordable
Refinance Program (HARP), the Home Affordable Modification Program (HAMP), the Making
Home Affordable plan (MHA), and other payment programs could negatively impact future
revenues (Form 10-K, 2016).
Weaknesses: Servicing Rights and Contracts May be Terminated
The investors and owners of the loans serviced, as well as the loans subserviced by
Nationstar can be terminated at any time (Form 10-K). The Company must also follow strict
investor guidelines as required by the various GSE’s, FHA, and Ginnie Mae. These investors
reserve the right to terminate Nationstar as a servicer, and also sell the MSRs to another third
party, which could impact profits (Form 10-K, 2016). Nationstar is highly dependent on revenue
from GSEs like Fannie Mae, Freddie Mac, and Ginnie Mae. In addition, Nationstar is frequently
involved in lawsuits, audits, and federal, state, and local government investigations (Form 10-K,
2016).
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Opportunities: Strategic Initiatives
Nationstar has a good strategy in place in order to drive its 2016 business growth. The
Company reported 2015 fourth quarter adjusted earnings of $34 million, driven mostly by
improved profits from servicing and earnings from loan originations (Nationstar Reports, 2016).
Nationstar generated net income in the fourth quarter of $79 million or 73 cents per share and
reported its best annual performance since 2012 (Nationstar Reports, 2016.).Nationstar
additionally has big plans to completely reshape the company and its public image by
introducing a new brand name, “Mr. Cooper” to help connect better to its customers (Nationstar
Reports, 2016). Some key strategies for 2016 will include focusing on multiple segments,
acquiring more MSRs, increasing loan originations, expanding their government portfolio of
FHA and VA loans, and reducing operating costs (Business Wire, 2016).
Opportunities: Improved Housing Market in the U.S.
The improved housing market in the U.S. offers significant opportunities for Nationstar
to increase revenue. According to the National Association of Realtors (NAR), existing home
sales have increased from the adjusted annual rate of 5.45 million in December 2015 to 5.47
million in January 2016, exceeding forecasts (Freddie Mac, 2016). In addition, home price
appreciation showed an 8.2 percent yearly growth rate for existing home sales (Freddie Mac,
2016). This combination of low interest rates and increases in property values are likely to
increase the number of homeowners seeking to refinance in 2016 (Freddie Mac, 2016).
Mortgage rates are expected to remain low allowing for refinancing activity to continue to
increase (Freddie Mac, 2016).
Opportunities: U.S. Economic Growth
Nationstar is expected to benefit from the improved U.S. economy. According to
Bankrate.com, “despite the volatility in financial markets and weaknesses with foreign markets,
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
an economic recession is unlikely in the U.S.” (Hamrick, 2016). The Federal Reserve (the Fed)
did propose to increase interest rates, however, it may not occur for at least a few more months
(Hamrick, 2016). The 2016 job market is likely to remain steady with the average monthly
growth in payrolls at 187,000, and no changes to unemployment rates (Amadeo, 2016). The
average annualized GDP will remain at 2.2% in 2016 and 2-3% which is ideal (Hamrick, 2016).
Threats: Increase in Compliance Costs
The compliance costs for Nationstar may continue to grow as the aftermath of the 2008
financial crisis has led to additional regulations. According to the Fed, the increase in compliance
costs in the home mortgage business has made it difficult for lenders to earn profits, thus forcing
them to leave the business (Federal Reserve, 2015). Most specifically, TILA-RESPA Act
requires that mortgage related transactions comply with new rules and also use the new CFPB
disclosure forms under TRID. Further, the new qualified mortgage (QM) loans became effective
in January 2014. As a result, servicers have increased their expenses on process improving
processes, quality assurance, and customer service leading to rising servicing costs (Mortgage
Bankers Association & PwC, 2015). Servicers are also finding it challenging to re-rain staff and
new system resources to comply with these very complex rules (Federal Reserve, 2015).
Threats: Fluctuations in Interest Rates
Fluctuations in interest rates may affect Nationstar’s overall business performance.
According to Freddie Mac and the Primary Mortgage Market Survey, a 30 year fixed-rate
mortgage averaged at 3.71 percent for the week ending March 31, 2016 (Freddie Mac, 2016).
This change is not significant when compared to the previous year where the interest rate
averaged at 3.70 percent (Freddie Mac, 2016). Interest rates play a crucial role with driving
loans, securities, deposit pricing, borrowing costs, loan demand, and default rates (Hayes, 2013.
Rate increases many not only impact Nationstar’s ability to realize gains from the sale of assets,
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
but also reduce the number of loan originations (Hayes, 2013). Increasing rates also impact a
borrower’s ability to repay their mortgage debt. This may result in an increase in Nationstar’s
nonperforming assets and reductions in revenue for the Company (Hayes, 2013).
Threats: Changing Mortgage Regulations
Nationstar’s business is regulated by various governmental and regulatory authorities.
Recent changes in these regulations are disrupting the mortgage servicing industry (Accenture,
2014). In January of 2014, the Consumer Financial Protection Bureau (CFPB) passed a new set
of servicing rules that amended Regulation X, RESPA, Regulation Z, and TILA (Accenture,
2014). The Dodd-Frank Act (DFA), also passed new “Qualified Mortgage” rules making
underwriting standards much more difficult for homeowners to qualify for a mortgage (Learner,
2015). Alongside the CFPB rules, investors like Fannie Mae and Freddie Mac have changed
their servicing requirements, to require servicers to respond quickly to delinquent borrowers
(Accenture, 2014). As a result, the changes in policies and regulations may have a negative
impact on Nationstar’s strategies for growth and expansion.
B. External Factors: PEST Analysis
Political Factors and Nationstar
There are several political factors that impact business for non-bank mortgage servicers
like Nationstar and their ability to earn profits. As the Company states in its 2015 Annual
Report, “external factors that may affect our estimates on profits may involve the political
environment and the overall U.S. and world economy (Form 10-K, 2016). Nationstar also
contracts with vendors who have operations in India and the Philippines to reduce servicing costs
(Form 10-K, 2016). As a result, the Company may additionally be adversely impacted by
changes in political or economic stability at the international level.
Political Factors: The Great Depression and Economic Recession
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
The events of both the 1930s Great Depression and 2008 economic recession has had a
significant influence on the U.S. mortgage industry over time. For instance, thousands of banks
had failed at the beginning of the Great Depression, damaging both the U.S. housing market and
global economy. In 1932, unemployment rates had increased to 23.6 percent and roughly 25
percent of the country’s mortgage debt was in default (FHFA, 2016). Many blamed the economic
downturns from both crisis on government regulations, automatic stabilizers, and fiscal and
monetary policies (Beattie, 2016).
Indeed, the most recent U.S. housing crisis in 2008 has been frequently compared by
economists to the 1930’s Great Depression. This is because there were similar events when
banks diversified their services to include riskier investments such as real estate (Beattie, 2016).
Political Factors: The U.S. Government
In response and throughout time, the government has responded to the financial crisis
through reformatory action and regulations. For example, in 1933 as a part of the New Deal Act,
Roosevelt introduced the Home Owners’ Loan Act which helped to refinance mortgages to slow
down foreclosure rates. In 1934, the National Housing Act was passed to establish FHA’
federally backed insurance for home mortgages made by FHA lenders (FHFA, 2016). Though
the 2008 financial crisis proved to be much worse than the Great Depression and further
prompted additional reform, as seen with the Bush and Obama Administration in recent years.
These financial crisis are a reminder that as sources of risk change and new risks emerge in the
financial system, regulation and oversight is imperative (Reyes, 2013).
Economic Factors and Nationstar
There are several economic factors that influence Nationstar which may include interest
rates, housing supply and demand, stability, unemployment rates, and credit availability. As
Nationstar, noted in their 2015 Annual Report, “financial statements are prepared based on
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
estimates and actual results will vary due to adverse changes in the economy, increased interest
rates, changes in prepayment assumptions, and declines in home prices (Form 10-K, 2015)”.
Therefore, the external conditions in the mortgage industry must be carefully monitored since
they may affect future market changes.
Economic Factors: Interest Rates
Mortgage interest rates are a primary economic factor that drives the purchase and
refinance industry. Rising interest rates are likely to result in more loans closing at the below-
market rates, eventually leading to a loss for lenders (OCC, 2014). Rising interest rates will
reduce a homebuyer’s ability or willingness to take out a mortgage, and higher rates will lease to
a decline in loan originations which impacts company profits (OCC, 2014). Changes in interest
rates may also affect the value of loans and falling interest rates could cause borrowers to pursue
more favorable terms with another company (OCC, 2014). Furthermore, while there are many
factors that drive interest rates, lenders set rates according to market activities of Mortgage
Backed Securities (MBS) (Tanneeru, n.d.).
Economic Factors: Supply and Demand
Supply and demand in the mortgage industry is an additional economic factor that will
drive the business for Nationstar. According to the Company: “real estate markets are subject to
fluctuations, due to factors such as the relative relationship of supply to demand” (Form 10-K,
2016). When there is an over-supply of housing the prices are typically lower while an under-
supply would cause prices to rise. An oversupply in properties, may also have an adverse effect
of property values and a decline in the number of loan originations. Interest rates may also
impact demand because when rates are low, more consumers become interested in mortgage
products. However, low interest rates are attributed to low demand as rates will decrease during
this time.
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Economic Factors: The U.S. Housing Market
The upcoming 2016 housing market is expected to improve since rising incomes and job
growth are expected to have a positive impact on home sales (Searcey, 2015). The NAR reported
existing home sales are forecasted to expand due to supply, buyer demand, and steady economic
growth (Desanctis, 2016). Overall, analysts have reported that the market is showing signs of a
turnaround, as renters find ways to enter the mortgage market (Searcey, 2015). Economists are
also predicting that home buying will continue to rise as long as the economy keeps growing and
unemployment continues to fall (Searcey, 2015). Moreover, income is a key driver of demand in
the housing market because the higher the level of aggregate or consumer income, the greater the
demand for housing.
Social Factors and Nationstar
As of December 31, 2015, Nationstar services 2.5 million homeowners throughout the
U.S. (Form 10-K, 2016). Thus, current social factors that impact the Company may include the
challenges of U.S. homeownership, changing demographics, foreclosure prevention, mortgage
affordability, and community preservation.
Social Factors: U.S. Homeownership
Recent studies have shown that U.S. Homeownership has become inaccessible for many
due to the rising cost of rent, leaving the lower and middle class with less income to purchase a
home (Searcy, 2015). Alongside this trend, fewer borrowers have been able to qualify for
mortgages and this includes all age backgrounds (Searcy, 2015). Under the CFPB’s new
Qualified Mortgage rule, the maximum debt to income (DTI) needed to qualify for a loan is 43
percent. However, only 36 percent of renters could afford a 30 year fixed rate mortgage,
assuming a 5 percent down payment on a median priced home in their neighborhood (JCHS,
2015).
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Social Factors: Changing Demographics
Changing demographics in the U.S. has created a major shift in housing trends. For
instance, populations are now shifting toward an increased number of minorities in most new
households (JCHS, 2015). However, minority populations have been historically known for
having lower income, fewer assets, and lower credit scores, thus leaving them less able to qualify
for a mortgage (Searcey, 2015). In addition, a recent 2015 report released by Zillow, found that
more than 25 percent of African American loan applications are denied, compared to 10 percent
of white Americans (Press Releases, 2015). Less than half of Hispanics and African Americans
were found to own their own homes, compared to three-fourths of whites (Press Releases, 2015).
These social factors place mortgage lenders at risk of litigation and negative publicity likely to
have a negative impact on business (SASB, 2014).
Social Factors: Discrimination
There have been a number of lawsuits filed against lenders due discrimination involving
African American and Hispanic borrowers. One recently included a 2013 complaint that was
filed by the CFPB and DOJ for charging higher mortgage to African American and Hispanic
borrowers who had similar credit as white borrowers (SASB, 2014). In 2012, Wells Fargo Bank
was also sued and settled a 175 million dollar lawsuit for allegations of similar discriminatory
practices (SASB, 2014). Thus, as the current social environment continues to evolve, mortgage
companies must demonstrate fair and responsible lending to restore social value and contribute
to higher levels of home ownership in the U.S. (SASB, 2014).
Social Factors: Foreclosure Prevention
Foreclosure prevention events have led to a decline in U.S. default and foreclosure rates.
Throughout the media, there have been many articles about the stress and trauma faced by
homeowners after losing their homes to foreclosure (Rossi, 2010). Negative attitudes toward
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
lenders have also prompted some borrowers to walk away from their properties to avoid the
stigma associated with foreclosure (Rossi, 2010). Moreover, a 2008 study conducted by
TransUnion, found that borrowers are more likely to prioritize credit card payments as opposed
to paying their mortgage (Rossi, 2010). These factors help to provide insight toward behavioral
trends and delinquency rates on mortgages (Rossi, 2010). Such information is important to
Nationstar when it comes to strategic planning in servicing delinquent accounts.
Technological Factors and Nationstar
Technological factors may consist of how Nationstar uses the internet, online services,
and advancement with computer systems to improve business. Technological factors may also
consider how generations can shift thus changing their technical expectations from businesses.
Such information Technology (IT), has become increasingly important in facilitating mortgage
servicing operations. As Nationstar’s chief marketing officer, Dahlstrom reported, “if there’s
any industry that’s old school and old fashioned, it’s mortgage, so we’re trying to think of
ourselves as a consumer product company that embraces technology”, (Cowan, 2016).
Technological Factors: Increased Spending
Subsequently, mortgage technology has changed over the years thus prompting servicers
like Nationstar to increase spending on new technology. Technology is important for the health
of the industry because good systems and internal controls lead to operational efficiency
(Lebowitz, n.d.). Furthermore, with new regulations under the CFPB and TRID, the costs of
servicing a mortgage is becoming more expensive. In 2013, the cost for lenders to service
delinquent mortgages averaged $2,300 per loan per year, nearly five times the cost in 2008
(Light, 2013).
Technological Factors: The Internet and Automation
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
The internet and automation have become being prevalent in the mortgage servicing
industry in recent years (Lebowitz, n.d.). Nationstar has responded to this by advancing their
computer systems though automation and programs that improve productivity (Form 10-K,
2016). The Company has implemented new technology to improve the speed in processing a
loan, posting payments, answering consumer questions, and issuing reports to management
(Citrix, 2016).,. Mortgage servicers must invest in this technology to improve their service level
to borrowers, bankers, and investors which provides a competitive advantage (Lebowitz, n.d.).
Technological Factors: New Business Lines
Thus, in 2015 Nationstar revealed its new “swipe and click” website and mobile app
called “Xome” (Form 10-K, 2016). Xome technology allows for homebuyers to conveniently
search property listings, select a real estate agent, and apply for a mortgage through a dashboard
(Form 10-K, 2016). Additionally, Nationstar conducted recent consumer research prompting the
launch of their new business line “Mr. Cooper”, to be seen in 2016 (Cowan, 2016). The
Company spent about 5 million on the branding in hopes that the innovation leads to a new ethos
of “personal, customer-focused and easily navigable online service” (Cowan, 2016).
Technological Factors: Risks from Rapid Growth
Nationstar recently experienced rapid growth from several mergers and acquisitions over
the past few years (Citrix, 2014). This level of growth can put a strain on an IT infrastructure and
put customers at risk of privacy breaches. Such growth without enough systems in place may
also make it difficult to meet servicing level agreements and handle the new customers (Citrix,
2014). If systems are not in place to handle large loan volumes, it could subject the company to
loss of revenues, lower numbers of originations, and security breaches. Nationstar has responded
by investing in better IT security to provide the tools and oversight needed for disaster recovery,
data loss prevention, and regulatory compliance (Citrix, 2016).
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
III. Opportunities and Trends: Intrapreneurial and Entrepreneurial Opportunities
A. Intrapreneurial Opportunities for Nationstar Mortgage Holdings, Inc.
Nationstar actively engages in intrapreneurial activities at both the individual employee
level and at team level when it comes to new business lines. According to the Company: “We are
blessed with an incredible culture that promotes innovation, enthusiasm, and passion (About
Nationstar, 2015)”. The Company offers several programs including the “Artists in Residence”
program, “Community Outreach Team”, “Random Acts of Kindness” project, and participation
in “Habitat for Humanity” (About Nationstar, 2015). Furthermore, since Nationstar is focused on
keeping people in their homes, they continue to develop business lines and volunteering
opportunities that help others, while making their team even stronger.
Nationstar earns revenue through the quality delivery of loan servicing, originations, and
mortgage transactions to mostly single family residences throughout the United States (U.S.)
(About Nationstar, 2015). The Company provides services to homeowners, home buyers,
sellers, investors, and other real estate players (About Nationstar, 2015). Because Nationstar is
focused on preserving homeownership, expanding its already existing Community Outreach
business line to underserved borrowers would fulfill this objective further. As a servicer of high
risk loans, a significant increase in delinquencies could have a significant impact on revenues,
expenses, liquidity, and on the valuation of our MSRs as follows (Form 10-K, 2015).
B. Intrapreneurial Assessment: Expansion of Community Outreach to Underserved States
Though the number of delinquencies and foreclosures has declined over recent years,
foreclosure prevention activities continue to remain a primary need in many local communities
(Treasury, 2013). In addition, the mortgage industry has drastically changed since the 2008
financial crisis thus leading to increased public interest in models of that more consumer focused
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
and value based while minimizing risk and maintaining capital gain (Accenture, 2013). At the
beginning of the financial crisis, industry business models were focused mainly on collecting
mortgage payments for investors instead of customer service to homeowners in need of
assistance (Treasury, 2013).
However since 2009, business models shifted toward helping homeowners avoid
foreclosure when Obama launched the Making Home Affordable (MHA) program (Treasury,
2013). At that point servicers were provided with both a structured framework and financial
incentives to encourage modifications (Treasury, 2013). Recent data shows evidence of a need
for mortgage lenders to focus on community outreach to underserved states. In fact, a 2015
oversight review by the federal inspector general of the Troubled Asset Relief Program (TARP),
reported that the U.S. Treasury has done far too little to help troubled homeowners in certain
states (Mantel, 2015).
In the latest TARP quarterly report to Congress, the federal inspector called for the
Treasury to step up its outreach efforts in states where homeowners were underserved to increase
participation in the Home Affordable Modification Program (HAMP) (Prevost, 2015). Therefore,
since Nationstar services all 50 states, an intrapreneurial opportunity exists to expand outreach to
these distressed areas. It has also been found that communication between servicers and
homeowners applying for assistance improves proactive outreach to newly delinquent
homeowners and in resolving borrower complaints (Treasury, 2013). Thus, the Treasury issued
several requirements for servicers like Nationstar who participate in MHA-HAMP (Treasury,
2013). Part of the requirements are for servicers to provide each distressed homeowner with a
Single Point of Contact (SPOC) to help with foreclosure prevention options (Treasury, 2013).
Benefits of Community Outreach in Minimizing Delinquencies and Foreclosures
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Expanding outreach to underserved states would mainly benefit Nationstar’s ability to
preserve assets for its investors by saving more homes from foreclosure. These underserved
states also present opportunities for Nationstar to find more struggling homeowners to apply for
assistance programs under MHA including HAMP. In addition, community outreach benefits the
customer service relationship through improved communication, while complying with
regulations (Treasury, 2013). To date, only 1.5 million homeowners received HAMP
modifications which is half of what was expected by the Treasury (Prevost, 2015). As a result,
the government called for improve its outreach especially to states that have been underserved by
the program (Prevost, 2015). Specifically, more outreach is needed in states such as Alaska,
Arkansas, Indiana, Iowa, Kansas, Michigan, North Dakota, Oklahoma, Tennessee and Texas
(Prevost, 2015).
Nationstar is considered a nonbank specialty servicer whom a significant part of its
business focuses on servicing delinquent or defaulted loans (Lee, 2014). Though large banks
still control most of the mortgage servicing, nonbanks have been rapidly expanding, This has led
to concerns raised by the Federal Housing Finance Agency (FHFA), especially with the three
fastest growing non-banks Ocwen, Nationstar, and Walter Investment (Lee, 2014). Specifically,
these three companies have been targeted by the FHFA out of concern that rapid growth has led
them to become ill equipped in adequately serving distressed borrowers (Lee, 2014). Thus, an
additional benefit of Nationstar’s expansion of community outreach services is the improvement
of both proactivity and level of compliance with regulatory directives.
Furthermore, recent data on loan modification approvals has indicated that between 2009
and 2014, both Ocwen and Nationstar approved fewer of these programs than the largest banks
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
(Lee, 2014). Whereas, “Bank of America, CitiMortgage, JPMorgan Chase, and Wells Fargo had
higher approval rates of 43 percent, 44 percent, 29 percent, and 30 percent, respectively (Lee,
2014)”. In addition, despite a positive housing outlook for 2015, there are still millions of
homeowners whom are non-responsive to lenders and in danger of foreclosure (Griffin, 2015).
There are also over three million Home Equity Lines of Credit (HELOCS) with interest rates due
to reset over the next few years on underwater homes. This could lead to new wave of mortgage
defaults in the near future (Griffin, 2015). As a result, outreach expansion would benefit
Nationstar’s overall performance in these areas.
Nationstar Mortgage Holdings, Inc.: Level of Effort
And Resources Needed for Mortgage Outreach Expansion
One of the most important lessons of servicers in recent years is proactivity has been
extremely effective in reducing default rates and establishing good rapport with consumers
(Barnard, 2014). Nationstar already maintains the business analysts and workforce needed to
improve its outreach services to its borrowers. Thus, costs to expand outreach are likely to be
minimum. In essence, improved outreach services are likely to improve loan performance and
reduce foreclosure (Barnard, 2014). Therefore the costs would outweigh the benefits.
Nationstar would need to expand marketing activities to underserved areas in offering
foreclosure alternatives. Such activities may include efforts toward borrowers who have refused
to communicate with Nationstar in the past due to anger, fear, and embarrassment (Barnard,
2014). Hence the goal of increased marketing should emphasize on making borrowers feel more
comfortable contacting their servicer when they need homeowner assistance. Nationstar must be
able to effectively drive the message that they are there to help borrowers to keep their homes as
opposed to accelerate the foreclosure process (Barnard, 2014).
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
In addition, Nationstar can utilize internet based communication, email, text messaging
and social media to advertise foreclosure prevention services while targeting underserved states.
Furthermore, offering borrower incentives like $15 dollar gift cards if borrowers qualify for a
modification, or waiving past due interest, and forgiving part of the principal are additional
strategies that may be utilized (Barnard, 2014). Proactive outreach can also be improved by
printing messages on billing statements alerting borrowers that if they have a problem, there are
options for help (Barnard, 2014).
Some costs of outreach activities may be compensated by investors. For instance,
investors like Fannie Mae, Freddie Mac, and FHA will compensate their servicer for outreach
services because they are a part of their service level agreements (Barnard, 2014). However,
some private investors may not offer the same compensation. On the downside, servicing costs
are going up so Nationstar may utilize alternative resources through partnerships and alliances.
Nationstar may expand outreach to underserved areas through partnerships with states and local
communities (Griffin, 2015). Nationstar currently maintains alliances with counselors, mortgage
companies, and other market participants (Nationstar Mortgage, 2014).
Nationstar has initially started its Community Outreach Team in May of 2013, creating
an infrastructure for partner relationships, government funding, the Hope Loan Port, and social
media (Nationstar Mortgage, 2014). The Hope Loan Port is a component of the HOPE NOW
alliance which Nationstar actively participates in (Nationstar Mortgage, 2014). HOPE NOW was
formed in 2007 and is an alliance between counselors, mortgage companies, and investors that
helps maximize outreach efforts to help homeowners in distress (Nationstar Mortgage, 2014).
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
With its alignment, Nationstar can expand on actively participating in HOPE NOW events
offered in underserved areas, and meet face to face with clients in these communities.
Last, Nationstar may continue to utilize resources through HUD approved housing
counselors and non-profit housing assistance agencies (Griffin, 2015). These resources are an
important link to connecting borrowers to Nationstar and strengthening relationships with
distressed homeowners. As Nationstar stated “Few would argue that the consumer mortgage
experience is broken, and it’s time for someone to challenge convention and status quo in the
industry,” So mortgage outreach to underserved states would be advantageous in further
improving the customer experience.
References:
C. Entrepreneurial Opportunities: Develop a list of entrepreneurial opportunities outside the confines of the company you selected. Each opportunity in your list should have supporting rationale based on your market domain evaluation and PEST analysis.
D. Entrepreneurial Assessment: Select one entrepreneurial opportunity from your list to assess. How viable is the opportunity? Your response should be supported with evidence from your market domain evaluation and PEST analysis. E. Trends: Evaluate key trends affecting the global business environment of your selected market domain. These could be geographic, political, or societal trends, or they could be trends specific to your market domain. F. Impact on Opportunities: Determine how these trends will impact the development of your selected intrapreneurial and entrepreneurial opportunities. G. Impact on Sustainability: Determine how these trends will affect the sustainability of your selected company. Which trends could be used to improve sustainable business operations?
Nationstar Mortgage Holdings, Inc.: Entrepreneurial Opportunities
Nationstar Mortgage Holdings, Inc. (Nationstar) is not only the second largest servicer of
subprime mortgages, but also one of the mortgage industry’s fastest growing players. The
Company earns revenue through the quality delivery of loan servicing, originations, and
mortgage transactions to mostly single family residences throughout the United States (U.S.)
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
(About Nationstar, 2015). Nationstar provides services to homeowners, home buyers, sellers,
investors, and other real estate players (About Nationstar, 2015). In addition, the Company is a
servicer of high risk loans consisting of delinquent accounts and foreclosures (Form 10-K, 2015).
Nationstar has innovated its business growth through various intrepreneurial and
entrepreneurial opportunities that became available in recent years when many large banks exited
the industry. However, the first quarter 2016 earnings are showing a 53 cent per share loss due
to falling revenue of 15 percent to 382 million and the third consecutive quarterly miss (Gara,
2016). The Company CEO, Jay Bray, attributes the loss to spending on opportunities within the
servicing transfer market and spending on new real estate technology (Gara, 2016). Nationstar
has also recently invested in its newly created Xome platform and the “Mr. Cooper” brand line.
Entrepreneurial Opportunities in the Mortgage Industry
The 2008 mortgage meltdown had previously caused limited access to secondary markets
required for lenders to be able to make new mortgages, leaving the industry with fewer
opportunities (Connor, 2013). In a recent article in Forbes, it was mentioned that several
“lessons in entrepreneurship” emerged from the 2008 mortgage crisis (Connor, 2013). The article
stresses the importance of lenders being able to think and act entrepreneurially to adjust business
for survival in a volatile industry (Connor, 2013). Thus, recognizing the industry’s current
entrepreneurial opportunities, is imperative to thrive in upcoming years. The projected market for
2016, consists of a widespread shift from foreclosure and loss mitigation, to the strengthening of
business lines that cater to the improving real estate market (Delgado, 2016).
In light of this, the following potential entrepreneurial opportunities are relevant to
Nationstar and the 2016 mortgage industry:
Paperless Mortgages and “eClosing” Documents
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Electronic Closing (“e-closing”) and Electronic Mortgages (“e-mortgages) are the
processes by which an entire mortgage transaction uses technology for the consumer’s review,
application, and signing of loan documents electronically (CFPB, 2014). The main difference
between this and traditional mortgages are that documents are sent via electronic format such as
PDF, HTML, or TIFF, as opposed to standard paper documents. The usage of “eDelivery”
allows for documents to be sent to the consumer through either a secured email or online portal
within a vendor platform. The consumer may then sign documents electronically instead of
using ink signatures. Mortgages lenders also benefit from e-mortgages through reduced costs,
increased efficiency, reduced operational errors, and improved data quality (CFPB, 2014).
Alternative Mortgage Lending Options
With many of the larger banks now exiting a majority of the mortgage business,
consumers have been seeking mortgages through alternative lending sources. For instance, new
key players have included non-bank lenders like Nationstar, marketplaces, brokers, and online
mortgage lending (Bundrick, 2016). Market places such as Lendingtree, Zillow, and eLoan, also
provide for new opportunities to generate the leads needed for originations. Whereas, mortgage
brokers have entered the market to serve as the middle man between the consumer and lender to
complete the loan package. Alternative lending options are a rising trend in the mortgage
industry as evidenced by the growth of Quicken Loans who is now the second largest lender in
the U.S. (Bundrick, 2016). Quicken Loans recently launched their “Rocket Mortgage” service
which offers mortgage approvals online within the matter of minutes (Bundrick, 2016).
Struggling Homeowners in Underserved States
It has been reported by the Treasury that to date, only 1.5 million homeowners received
HAMP modifications which is half of what was predicted (Prevost, 2015). As a result, the
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
government called for improvement of its outreach especially to states that have been
underserved by the program (Prevost, 2015). Specifically, more outreach is needed in states such
as Alaska, Arkansas, Indiana, Iowa, Kansas, Michigan, North Dakota, Oklahoma, Tennessee and
Texas (Prevost, 2015). Expanding outreach to underserved states is an opportunity for Nationstar
to preserve assets for its investors by saving more homes from foreclosure. These underserved
states also present opportunities for Nationstar to find more struggling homeowners to apply for
assistance programs under MHA including HAMP. In addition, community outreach benefits the
customer service relationship through improved communication, while complying with
regulations (Treasury, 2013).
Technological Advancement in the Mortgage Industry
There have been several recent and emerging technological opportunities for Nationstar
and the mortgage industry. With new regulations and a changing economy, the upcoming trends
in 2016 technology will reshape the mortgage business. Automation in 2016 is expected to
advance the mortgage industry’s productivity, integrity, and deliverability (PWC, 2016).
Automation allows for checks and verifications of borrower data in real-time throughout the loan
process to help streamline the process for the consumer (PWC, 2016). The automated
verification process can speed up the origination process by improving timeliness of mortgage
approvals. In addition, online mortgage offers, direct-to-consumer, and self-servicing driven by
refinances are additional opportunities for 2016. Online offerings can cater to the self-service
consumer by using search engine marketing, lead acquisitions, and operating loan officer and
call center platforms.
Nationwide Mortgage Holdings, Inc.: Entrepreneurial Assessment
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
The current opportunities in the mortgage industry present many options for Nationstar to
continue to innovate the technological development of their mortgage services. Implementation
of these up and coming high-tech and paperless mortgages present a viable entrepreneurial
opportunity for the Company to increase profits. In October 2015, Nationstar already
launched its new Xome interface to help specifically with their purchase market.
Xome is a digitalized platform that assists the consumer with the real estate
buying experience from start finish (About Xome, 2015). As Xome mentions on
their website: “We believe that the process of buying/selling a home shouldn’t
undermine the excitement of home ownership” (About Xome, 2015).
Thus, Xome is expected to help make the home-buying process more
transparent through the usage of app messaging, dashboards, and real-time
status updates (About Xome, 2015). It also offers access to agents and various
services to buyers and sellers. The system additionally includes a listing service
for properties available for sale or rent, while also serving as a “one stop”
shopping service (About Xome, 2015). Homebuyers are now able to browse
everything from selecting a real estate agent and applying for a mortgage, to
tracking the status of a purchase through their online dashboard (About Xome,
2015). Ultimately, the advantage of Xome over competitors is that it allow
consumers to save money. In fact, customers who use their service are likely to
earn 1% commission from the sale and purchase of a home, saving up to $8,000
on the transaction (About Xome, 2016).
However, since the Xome program mainly caters to the purchase market,
Nationstar must continue to develop technology that not only extends to online
refinances and loan modifications but an entirely paperless process. Nationstar
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
already has plans to innovate through its new brand name “Mr. Cooper”, which
will expand its traditional mortgage lending into a foundation for these newer,
higher tech mortgages. Since the mortgage business has always been form and
paper intensive, developing a paperless system will allow for even more
advantages over competitors (Orchestrate, 2016).
Furthermore, the ideal mortgage system under the Dodd-Frank and Wall Street
Reform Act is a system that is electronic, automated, and built for speed (Orchestrate, 2016). An
error-free system that includes, underwriting, efficient processing; and a system that delivers a
“repeatable, commoditized process” will ensure compliance with these latest reforms
(Orchestrate, 2016). Increasingly, mortgage related technologies are allowing for the
communicating and exchange of information online, making it faster when compared to printing
and mailing of all forms and documents (Orchestrate, 2016).
Key Trends Affecting Technology and Paperless Transactions in the Mortgage Industry
Technology and paperless transactions are the future of mortgage lending and
entrepreneurship for the industry in 2016. Hence, Nationstar has an opportunity to innovate into
these more high tech mortgage services to accompany its already existing Xome platform. In
2016, online servicing will take over virtually every step in the mortgage transaction process
from application to closing (Ingall, 2016). In the upcoming years, more consumers are likely to
shop for mortgages and refinances from their mobile devices. Self-servicing will be an
additional trend for mortgage services, and this is likely to lead to more automation in the
mortgage process (Ingall, 2016).
The traditional mortgage process is expected to phase out in upcoming years, as the
industry continues to shift towards online and paperless lending (Ingall, 2016). This new
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
technology will increase Nationstar’s profits by making the borrowing experience more
accessible, cost efficient, faster, and easier to obtain. Moreover, traditional mortgage lending is
expected to phase out with new millennial borrowers, and as regulations from TILA-RESPA
Integrated Disclosures Rule (TRID), press lenders to step up the quality of their mortgage
services (West, 2016).
In attempt to achieve this standard, trends are showing larger financial institutions
devoting a considerable amount of time and money into technology (West, 2016). In fact, the
Xerox 11th Annual Path to Paperless Survey, found that 92 percent of mortgage industry
professionals are expecting an increase in eDelivery services for loans due to TRID (West,
2016). The increase in these services are likely to improve the speed of closing as borrowers will
be able to receive documents electronically (West, 2016). In addition, 51 percent of all mortgage
professionals predict that all mortgage loans will close fully online within the next 4 years, up
from 33 percent in the previous year (West, 2016). The e-signing of documents were also found
to be considered “highly important” by 61 percent of mortgage professionals (West, 2016).
The overall benefits of these upcoming trends will be to accelerate the processes of
applications, closing disclosures, and document delivery, to decrease the time that it takes to
process a loan (West, 2016). The Xerox survey additionally showed a continued shift from
shuffling paper to online platforms that facilitate communication with all parties and at every
stage of the loan process (West, 2016). The usage of smart phones and mobile tablets have
doubled from 16 percent to 32 percent between the years 2014 to 2015 by mortgage
professionals (West, 2016). These statistics are signs that new trends for e-mortgages are
upcoming especially with millennial generations who are now the largest group of homebuyers
in today’s market.
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
We may already see these trends with some of Nationstar’s competitors. For instance,
Union Home Mortgage, implemented their new “vLoan” technology which walks a borrower
through first-time borrowing, purchases, and refinances, and the entire application process
through closing within a 21 day turnaround time (Ingall, 2016). A second example of a new
company, is with “Lenda”. Lenda incorporates a platform that underwrites, appraises, and closes
a loan from start to finish “three times faster than the industry average. “Lenda” also provides
borrowers with a free interest rate quote, paperless loan processing, and a turnaround time for
approval in about 45 days (Ingall, 2016). These high-tech companies are likely to become
competition for Nationstar in upcoming years if they fail to implement the same technology.
Impact of Development of e-Mortgages and the Mortgage Industry
There are several lending institutions who have already put e-mortgage technologies into
use though there is a continued need for more advancement (E-Mortgages, 2015). Hence,
Nationstar’s development of a paperless process will offer its customers many benefits such as
improved workflows, improved data quality, and minimized costs and delays (PWC, 2015). The
concept of e-mortgage” has been in the U.S. since the year 2000, shortly after the passage of the
Uniform Electronic Transactions Act (UETA) (PWC, 2015). The technology was immediately
accepted by investor Fannie Mae, however, most lenders have been slow to adapt due to many
factors as addressed in Nationstar’s PEST analysis (E-Mortgages, 2015).
It is now about 15 years later and the technology evolved significantly, making it much
easier for Nationstar to implement. The components of an e-mortgage will consist of technology
across every aspect of the mortgage process from the initial application to closing to include: “e-
sign, e-doc, e-vault, e-disclosure, e-closing, e-notary and e-recording solutions, as well as
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Mortgage Electronic Registration Systems’ (MERS) e-registry and e-service solutions” (E-
Mortgages, 2015).
Regulations and enforcement of paperless mortgages have recently been cleared, so
Nationstar will now be able to drive strategic change with the support of federal and most state
governments. In addition, the CFPB’s Ability-to-Repay/Qualified Mortgage (ATR/QM)”Know
Before You Owe” rules passed last August 2015, encourage the development of e-Mortgages
since they reduce costs for lenders (E-Mortgages, 2015). The new CFPB rules have also
required lenders to maintain an electronic audit trail of all mortgage documents so that regulators
have easier access to loan files (E-Mortgages, 2015).
Implementation of new paperless systems in the mortgage industry can present a number
of challenges. For instance, Nationstar would to need to deal with customers who are resistant to
accepting the changes, along with challenges with privacy and security regulations. One client in
particular is the U.S. Department of Housing and Urban Development (HUD), who has been
resistant to accept e-signatures on documents (PWC, 2015). Still, the developmental trends are
moving toward this technology and it is expected that the mortgage industry will close more than
half of all loans as an e-Mortgage within the next seven years (E-Mortgages, 2015).
Impact on Sustainability of Business Operations and the Mortgage Industry
Despite the challenges of technology in the mortgage business, the future of the industry
is continuing to progress toward a completely digital process (Nukois, 2016). As noted by one
analyst “There will a risk of extinction for companies that are either slow to realize the change in
the market or simply do not adapt” (Delgado, 2016). The current “paper-intensive” process is
especially unappealing to younger borrowers who have become accustomed to a world of digital
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
technology (Nukois, 2016). In fact, a study conducted by PWC found that 84% of borrowers said
that they would like a faster mortgage process (PWC, 2015).
Moreover, the average mortgage application may consist of about 500 pages per package
(PWC, 2015). Fannie Mae additionally conducted a study into how to improve the mortgage
process including electronic processing. It was found that digital mortgages could decrease the
average loan closing time from 52 to 22 days (Fannie Mae, 2015). Therefore the statistics are an
indicator that these mortgages will become a sustainable opportunity for Nationstar.
There will be many advantages for Nationstar to implement e-mortgages. For one,
lenders who implement a digital mortgage process are likely to differentiate themselves in the
marketplace, allowing for market share protection and increased growth (PWC, 2015). Second,
the mortgage industry is likely to save about 1 billion per year, since going paperless decreases
operating costs and increases profit margins (PWC, 2015). Third, today’s consumers are seeking
transparency and ease of use, as the general public continues to grow accustomed to paperless
transactions (PWC, 2015).
Subsequently, a majority of the benefits for Nationstar’s implementation involve the
reduction of costs. For instance, the Mortgage Bankers Association (MBA) found that e-
mortgages not only speed up the process 30 days, but also lowers costs by about $1,100 per loan
(PWC, 2015). Costs are reduced in various areas like: processing and underwriting, errors and
re-work, printing and shipping, warehousing, and execution. E-mortgages will also improve
quality control and regulatory compliance, as lenders are able to automate many aspects of
quality control (QC) and compliance programs. This would enable Nationstar to better able to
streamline processes and examination of workflow outcomes (PWC, 2015).
37
Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
Lastly, as more mortgage lenders are applying new business strategies to attract
millennial borrowers, there is a need for Nationstar to implement similar processes in order to
stay competitive. This will include the implementation of social media, consumer portals,
recruiting programs, and loan programs that cater to millennials (Nukois, 2016). The current
sustainability trends are showing progress toward these high tech mortgages. However, the
complexity of the mortgage process and the constant changes make it challenging to comply with
regulatory demands such as TRID (Nukois, 2016). The biggest challenge for companies like
Nationstar will involve integrating the technology so that it is a compliant, digital processing
environment that will still offer a positive customer experience (Nukois, 2016). .
:
38
Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
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40
Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
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41
Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
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Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
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43
Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
%5C2016%5C03%5C01%5C&CoName=NATIONSTAR+MORTGAGE+HOLDINGS+
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44
Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
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45
Final Project: Business Analysis of Nationstar Mortgage Holdings, Inc.
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46