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Rapid Servicing Growth at Nationstar Prompts Cautious Outlook

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Phenomenal growth in the size of Nationstar Mortgage Holdings Inc.’s mortgage servicing portfolio has led to a lower outlook for its mortgage servicer ratings.

An announcement last month from the Lewisville, Texas-based company indicated that it had agreed to acquire mortgage servicing rights on around 1.3 in residential loans for $215 billion from Bank of America Corp. More than half of the loans are non-agency. The addition of the loans was expected to double the size of Nationstar’s total servicing portfolio.

Executives at Nationstar said they expect to board the agency loans by June and the private-label loans by August.

The deal with BofA was on top of Nationstar’s July 2012 acquisition of MSRs on 270,000 loans for $63.7 billion from Aurora Loan Services.

In an announcement this week, Nationstar said that its mortgage servicing portfolio was 1.8 million loans for $300 billion as of Feb. 1.

In all, Nationstar has completed 344 servicing transfers since 2008.

The rapid expansion prompted Standard & Poor’s Ratings Services to change its outlook for Nationstar’s residential mortgage primary, subprime and special loan servicer ratings to “developing.”

The outlook was changed from “positive” for subprime. The prior outlooks for primary and special servicing were “stable.”

S&P’s current rankings for primary and subprime servicing are “above average,” while the special loan servicing ranking is “average.”

The ratings agency said that Nationstar executives expect to handle the heavier workload by leveraging existing capacity and infrastructure, expanding into new markets and possibly leveraging existing BofA resources.

“In our opinion, Nationstar has handled prior servicing transfers in a deliberate manner, with minimal disruption to borrowers, and we have received no significant inquiries from investors regarding prior servicing transfers to Nationstar,” S&P wrote. “However, we have revised the outlook to developing to reflect our concern that the increase of the portfolio by over 100 percent could affect the above-average ranking if Nationstar is not able to acquire the proper infrastructure and personnel to service the portfolio appropriately.”

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