Walter Reports Settlement Regarding Servicing Practices

Mortgage & Real Estate

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Walter Investment Management Corp. revealed in both its fourth-quarter earnings release and a separate annual report filing with the Securities and Exchange Commission a potential settlement regarding a Federal Trade Commission and Consumer Financial Protection Bureau investigation into its Green Tree subsidiarys servicing practices.

“We have agreed to a proposed stipulated order with the FTC and CFPB which is subject to approval by the FTC, CFPB and the court and expect the settlement approval process may take a month or two,” said Mark J. O’Brien, Walter Investment’s chairman and CEO. “We believe the proposed settlement is in the best interest of our business and all stakeholders.”

If approved, the stipulated order would require Green Tree to pay a fine and restitution, the amounts of which having been previously accrued in the company’s financial statements, Walter Investment said in its 10-K filing. Green Tree will also consent to injunctions to its mortgage servicing and collection practices under the agreement.

Walter posted net losses in the fourth quarter and overall fiscal year, in part as a result of factors including a markdown of the fair value of mortgage servicing rights and hefty legal and regulatory costs, the company reported Thursday.

The Tampa, Fla.-based company incurred a net loss of $44 million for the fourth quarter of 2014, or a loss of $1.17 per diluted share, according to the Feb. 26 release. In that announcement, the company also unveiled plans to consolidate its Green Tree Servicing and Ditech brands under the name “Ditech, a Walter Company.”

Walter Investment’s revenue for the fourth quarter fell $85.3 million year-over-year to $317.5 million in 2014, largely due to a $46 million decline in net servicing fees and a $70.2 million drop in the fair value of mortgage servicing rights.

Meanwhile, the company’s expenses rose 12% from 2013 in the fourth quarter to $429.9 million, largely due to more than $50 million in legal and regulatory costs.

For the full 2014 fiscal year, Walter Investment lost $110.3 million, or $2.93 per diluted share. The company had posted a net income of $253.5 million in the previous year.

Both the servicing and originations segments of the company posted fourth-quarter declines in revenue. The servicing division’s revenue fell 30% from the same period in 2013 to $113.8 million, in no small part because of that hit in the fair value of mortgage servicing right. However, that was offset somewhat by increased gross servicing fees and revenue. Legal and regulatory charges, higher salaries due to hiring, and increases in advance positions further ate away profits for the segment.

The originations segment saw an even steeper decline of 34% in revenue to $89.5 million during the fourth quarter from the same period the year prior. A shift in volume mix from the higher margin consuming lending channel to the lower margin correspondent lending channel was primarily responsible for the decrease.

One segment of the company that did see an improvement in its results in the fourth quarter was Walter Investment’s reverse mortgage division. Revenue here grew by 36% over 2013 to $53.2 million.

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