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Nationstar Beats, Will Buy Greenlight To Up Originations

Nationstar Mortgage Holdings shares jumped Tuesday after the loan servicer reported first-quarter earnings and revenue above expectations and raised guidance for this year and next.

Nationstar (NSM) also said it will buy Greenlight Financial Services, a privately held direct-to-consumer mortgage loan originator, for up to $75 million cash.

The company has made a string of acquisitions that included the purchase of a Bank of America (BAC) servicing portfolio last quarter.

But Greenlight marks a strategic shift, bulking up loan originations by about $8 billion annually. Nationstar's Q1 originations rose 11% vs. the prior quarter to $3.4 billion.

Q1 earnings rose 27% vs. a year earlier to 85 cents a share. Analysts expected 73 cents. Revenue surged 163% to $431.1 million, also topping forecasts. Loan original revenue was $185.7 million.

Nationstar rose 6% to 39.99 in the stock market Tuesday.

Servicing To Originations Higher mortgage servicing revenue was key. Nationstar and some peers had reported some trouble in the prior quarter.

Its servicing portfolio, measured by unpaid principal balance, jumped 50% to $312 billion vs. the prior quarter.

"In servicing we grew our portfolio organically and through high-return acquisitions," CEO Jay Bray said in a press statement.

Nationstar has taken advantage of an industry shift in mortgage servicing from banks to nonbanks.

Its servicing portfolio has helped the company drive new loan originations, says FBR Capital Markets analyst Paul Miller.

"The bulk of their originations come from their servicing portfolio," Miller told IBD.

"But they can only milk that for so long. After that dries up, they have to do something to move away from using their servicing portfolio" as a primer for loan originations.

That's the motivation for the Greenlight deal, Miller says.

Raises Guidance Nationstar sees full-year EPS of $4.05 to $4.75, well above analyst consensus of $4.14.

"A preliminary analysis of the quarter and expected volumes on both the mortgage origination and servicing front indicate to us that the company's FY '13 and FY '14 guidance is readily achievable," Sterne Agee analyst Henry Coffey said in a client note.

Nationstar went public in March 2012, and shares have risen steadily in sync with the housing recovery.

Its stock price rose 221% from May 4, 2012, to its all-time high 41.76 on March 6.

Nationstar peers also rallied Tuesday. Ocwen Financial (OCN) rose 3%, Walter Investment Management (WAC) 2% and Home Loan Servicing Solutions (HLSS) 1%.

Ocwen last Thursday said Q1 EPS soared 172% to 68 cents, beating estimates by 4 cents. Revenue climbed 147% to $406.7 mil, also topping views.

Ocwen has been beefing up its servicing portfolio and last quarter bought privately held Ally Bank's mortgage servicing rights.

During Q1, Nationstar's loan delinquency rate fell to 13.8% from 15.3% in the previous quarter as the company focused on improving quality of its loan portfolio performance.

Nationstar disclosed Friday that it had halted foreclosures vs. borrowers in 23 states on a request by four state attorneys general, but resumed proceedings after an internal review.