Why Nationstar Mortgage Shares Plunged

Why Nationstar Mortgage Shares Plunged

Are tough times on the horizon, or are they already here?

Are tough times on the horizon, or are they already here?

By Alex Dumortier, CFA
via The Motley Fool

Shares of Nationstar Mortgage (NYSE: NSM ) declined 17.2% on Thursday after the residential mortgage servicer announced third-quarter results that included a laundry list of negative surprises, including an earnings miss and slashed earnings guidance for 2013 and 2014.

Nationstar Mortgage also announced that it is selling its non-core wholesale and distributed retail origination channels to Stonegate Mortgage. As a result of the transaction and other downsizing measures, Nationstar’s head count is expected to fall by some 1,100 employees.

Now what: Nationstar’s negative earnings surprise follows Ocwen Financial’s third-quarter earnings-per-share miss of 60%. As Bloomberg News commented today: “Mortgage origination and servicing companies including Nationstar and Walter Investment are facing increased competition amid falling new loan volumes and fresh rivals.” Long-term investors who anticipate a turn in the cycle (i.e., capital to leave the sector and fees to firm up) may wish to begin looking at Nationstar Mortgage or one of its competitors; however, the prevailing wind is not favorable and riding out the cycle could require much patience, along with a tolerance for volatility.

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