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Ditech Holding Corporation Announces Full Year And Fourth Quarter 2017 Highlights And Financial Results

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Ditech Holding Corporation Announces Full Year And Fourth Quarter 2017 Highlights And Financial Results

- Reported 2017 GAAP net loss of $426.9 million, or $11.61 per share

- Reported fourth quarter 2017 GAAP net loss of $213.0 million, or $5.70 per share

- Successfully emerged from Chapter 11 bankruptcy in February 2018

- Restructured our capital to allow for future growth

PR Newswire

FORT WASHINGTON, Pa., April 16, 2018 /PRNewswire/ -- Ditech Holding Corporation (NYSE:DHCP) today announced a GAAP net loss for the year ended December 31, 2017 of $426.9 million, or $11.61 per share, as compared to a GAAP net loss of $833.9 million, or $23.18 per share for the year ended December 31, 2016. The current year net loss included non-cash fair value charges of $157.1 million due to changes in valuation inputs and other assumptions, a gain of $67.7 million on the sale of the principal insurance agency and substantially all of the insurance agency business, which was completed on February 1, 2017, restructuring costs of $55.7 million and reorganization costs of $37.6 million. Ditech Financial received Fannie Mae's STAR performer for general servicing for servicing of Fannie Mae residential loans during 2017.

GAAP net loss for the quarter ended December 31, 2017 was $213.0 million, or $5.70 per share, as compared to GAAP net income of $42.1 million, or $1.16 per share for the quarter ended December 31, 2016. The current quarter net loss included non-cash fair value charges of $30.8 million due to changes in valuation inputs and other assumptions, reorganization costs of $37.6 million and restructuring costs of $25.3 million.

Full Year and Fourth Quarter 2017 Financial and Operating Overview

Full Year

Total revenue for the year ended December 31, 2017 was $831.3 million, a decrease of $164.5 million as compared to the year ended December 31, 2016, primarily due to decreases of $125.1 million in net gains on sale of loans resulting from an overall lower volume of locked loans and $38.0 million in insurance revenue due to the sale of the principal insurance agency and substantially all of the insurance agency business during the first quarter of 2017.

Total expenses for the year ended December 31, 2017 were $1.3 billion, a decrease of $459.8 million as compared to the year ended December 31, 2016, resulting primarily from decreases of $326.3 million in goodwill and intangible assets impairment charges in 2016, $135.5 million in salaries and benefits primarily due to lower average headcount driven by site closures and various organizational changes to the scale and proficiency of the leadership team and support functions as well as our exit from the reverse mortgage originations business in early 2017, and $22.9 million due to various changes in general and administrative expenses. These decreases were offset in part by $37.6 million in reorganization items recorded during 2017 in connection with our chapter 11 bankruptcy.

Cash and cash equivalents at December 31, 2017 was $286.0 million, an increase of $61.4 million as compared to December 31, 2016. The increase in cash provided by operating activities was primarily a result of an increase in cash provided by origination activities resulting from a higher volume of loans sold in relation to loans originated in 2017 as compared to 2016, offset in part by net changes in working capital items.

Fourth Quarter 2017

Total revenue for the fourth quarter of 2017 was $200.5 million, a decrease of $243.6 million as compared to the prior year quarter, primarily due to decreases of $226.0 million in net servicing revenue and fees and $36.3 million in net gains on sale of loans, partially offset by $20.5 million in higher net fair value gains on reverse loans and related HMBS obligations. The decrease in net servicing revenue and fees was driven by a $182.9 million decrease in fair value changes related to servicing rights as well as a $42.7 million decline in servicing fees. The change in fair value of servicing rights due to valuation inputs and other assumptions was $199.2 million lower in the current year quarter due to a smaller increase in mortgage interest rates. The realization of expected cash flows change to fair value of servicing rights improved by $16.4 million and servicing fees decreased in the current year quarter due to the reduction in our owned MSR portfolio driven by MSR sales and portfolio runoff. The decrease in net gains on sales of loans resulted from an overall lower volume of locked loans, partially offset by a shift in mix to the higher margin consumer channel. The increase in net fair value gains on reverse loans and related HMBS obligations was primarily due to net non-cash fair value adjustments resulting from valuation model assumption adjustments related to buyout loans and changes in market pricing during the fourth quarter of 2017.

Total expenses for the fourth quarter of 2017 were $422.9 million, an increase of $5.7 million as compared to the prior year quarter, resulting from increases of $37.6 million in reorganization items recorded during 2017 in connection with our chapter 11 bankruptcy, $16.4 million in interest expense from the bankruptcy-related debt and $7.5 million due to various changes in general and administrative expenses driven by increases of $16.0 million in loan servicing expenses, $13.7 million in occupancy costs due to site closures and $13.5 million in costs related to the debt restructuring initiative, partially offset by decreases of $20.9 million in advance loss provisions and $10.2 million in transformation expenses. These higher expenses were offset by decreases of $36.6 million in salaries and benefits primarily due to lower average headcount driven by site closures and various organizational changes and severance and $13.2 million in goodwill impairment charges recorded during the prior year quarter.

Fourth Quarter 2017 Segment Results

Results for the Company's segments are presented below.

Servicing

Our subsidiary, Ditech Financial, serviced 1.6 million accounts with a UPB of $188.5 billion as of December 31, 2017. During the quarter ended December 31, 2017, the Company experienced a net disappearance rate of 14.61%, a decrease of 2.17% as compared to the prior year quarter.

The Servicing segment reported $94.1 million of pre-tax loss for the fourth quarter of 2017 as compared to pre-tax income of $83.5 million in the prior year quarter. During the fourth quarter of 2017, the segment generated revenue of $109.3 million, a decrease of $229.2 million as compared to the prior year quarter primarily due to a decrease of $223.2 million in net servicing revenue and fees. The decrease in net servicing revenue and fees was driven by a $182.9 million decrease in fair value changes related to servicing rights as well as a $42.8 million decline in servicing fees. The change in fair value of servicing rights due to valuation inputs and other assumptions was $199.2 million lower in the current year quarter due to a smaller increase in mortgage interest rates. The realization of expected cash flows change to fair value of servicing rights improved by $16.4 million and servicing fees decreased in the current year quarter due to the reduction in our owned MSR portfolio driven by MSR sales and portfolio runoff.

Total expenses in the Servicing segment for the fourth quarter of 2017 were $201.8 million, a decrease of $52.2 million as compared to the prior year quarter, driven by decreases of $20.9 million in advance loss provision, $17.4 million in salaries and benefits resulting primarily from a lower average headcount driven by site closures, organizational changes and a shift from full-time employees to outsourced services, $13.2 million in goodwill impairment recorded during the prior year quarter, $10.1 million in expense allocations, $7.7 million in contractor and other costs, $5.1 million in servicer interest expense due to the reduction in our owned MSR portfolio and $6.0 million in other cost savings, offset in part by increases of $18.5 million in charges associated with default servicing and $12.9 million in accruals for lease cancellation costs related to site closures. Current quarter expenses included $15.4 million of interest expense and $8.8 million of depreciation and amortization.

Originations

Ditech Financial generated total pull-through adjusted locked volume of $2.5 billion for the fourth quarter of 2017, a decrease of $2.4 billion as compared to the prior year quarter. Funded loans in the current quarter totaled $2.7 billion, a decrease of $2.6 billion from the prior year quarter. The combined direct margin for the current quarter was 93 bps, which consisted of a weighted average of 197 bps direct margin in the consumer lending channel and 32 bps direct margin in the correspondent and wholesale channels. The decrease in combined direct margin of 6 bps from the prior year quarter was primarily due to a higher direct expense margin, partially offset by higher gain on sale of loans and fee income margins. The direct expense margin increase was driven by higher compensation in the consumer channel due to incentive plan changes and fixed headcount costs, higher advertising expenses due to a shift in strategy towards digital leads and higher interest expense due to higher average interest rates on our warehouse financing facilities. These were partially offset by lower intersegment expense as a result of lower overall retention volume due to our smaller owned MSR portfolio. The gain on sale of loans margin increased in part due to higher margins in the consumer channel during the fourth quarter of 2017. The Originations business delivered a recapture rate of 18% for the current quarter.

The Originations segment reported $4.2 million of pre-tax loss for the fourth quarter of 2017, a decrease of $25.6 million compared to the prior year quarter. During the fourth quarter of 2017, this segment generated revenue of $69.7 million, a decrease of $35.8 million from the prior year quarter. Net gains on sales of loans decreased $35.6 million as compared to the prior year quarter, primarily due to an overall lower volume of locked loans, partially offset by a shift in mix to the higher margin consumer channel.

Total expenses in the Originations segment for the for the fourth quarter of 2017 were $73.2 million, a decrease of $10.9 million compared to the prior year quarter, driven by decreases of $5.1 million in salaries in benefits resulting from decreases in commissions and incentives, severance and overtime, $4.7 million related to asset impairment charges recorded during the prior year quarter and $4.0 million in intersegment retention expense primarily as a result of lower overall retention volume due to our smaller owned MSR portfolio. Current quarter expenses included $15.7 million of interest expense and $0.7 million of depreciation and amortization.

Reverse Mortgage

The Reverse Mortgage segment serviced 0.1 million accounts with a UPB of $19.4 billion at December 31, 2017. During the year, the business securitized $426.5 million of HECM loans.

The Reverse Mortgage segment reported $28.8 million of pre-tax loss for the fourth quarter of 2017 as compared to pre-tax loss of $39.6 million in the prior year quarter. During the fourth quarter of 2017, this segment generated revenue of $25.8 million, an increase of $17.2 million from the prior year quarter. Net non-cash fair value adjustments improved by $16.5 million for the fourth quarter of 2017 as compared to the same period of 2016 due primarily to valuation model assumption adjustments related to buyout loans and changes in market pricing in the fourth quarter of 2017. Current quarter revenues also included $6.5 million in net servicing revenue and fees and $1.2 million of other revenues.

Total expenses in the Reverse Mortgage segment for the fourth quarter of 2017 were $53.2 million, an increase of $5.7 million from the prior year quarter. The increase in total expenses was driven by a $16.1 million increase in interest expense due primarily to higher average borrowings on master repurchase agreements resulting from higher buyout loan levels, combined with a higher average cost of debt, which included the excess amortization of debt costs of $7.8 million due to securing the DIP and exit warehouse facilities during December 2017. This increase was partially offset by a $7.3 million decrease in salaries and benefits due primarily to lower compensation and benefits and severance as a result of lower origination volume and lower average headcount resulting from our exit from the reverse mortgage originations business in early 2017 and a $2.2 million decrease in general and administrative expenses due primarily to decreases of $3.6 million in loan servicing expenses, $2.7 million in impairment charges recorded during the prior year quarter and $1.1 million in advertising costs due to our exit from the reverse mortgage originations business, partially offset by increases of $4.7 million in loan portfolio expenses and $1.6 million in curtailment related accruals. Current quarter expenses included $18.3 million of interest expense and $0.6 million of depreciation and amortization.

Other Non-Reportable Segment

The Other Non-Reportable segment reported $91.3 million of pre-tax loss for the fourth quarter of 2017, an increase in loss of $52.8 million as compared to the prior year quarter, resulting primarily from higher costs related to our debt restructuring in connection with our chapter 11 bankruptcy.

Other gains were $7.2 million for the fourth quarter of 2017, an increase of $8.2 million from the prior year quarter, resulting from our counterparty fulfilling its obligation under the Clean-up Call Agreement for the mandatory clean-up call of one of the remaining Non-Residual Trusts, which resulted in the subsequent deconsolidation of the trust.

Company Restructuring

On November 30, 2017, Walter Investment Management Corp. filed a Bankruptcy Petition under the Bankruptcy Code to pursue the Prepackaged Plan announced on November 6, 2017. On January 17, 2018, the Bankruptcy Court approved the amended Prepackaged Plan and on January 18, 2018, entered a confirmation order approving the Prepackaged Plan. On February 9, 2018, the Prepackaged Plan became effective pursuant to its terms and Walter Investment Management Corp. emerged from the Chapter 11 Case. The Company continued to operate throughout the Chapter 11 Case and upon emergence changed its name to Ditech Holding Corporation. From and after effectiveness of the Prepackaged Plan, the Company has continued, in its previous organizational form, to carry out its business.

In connection with the Company's ongoing evaluation and analysis of various factors and risks that impact its business and operating results, including recent changes to the forward interest rate curve, and the Company's recent, preliminary 2018 operating performance, including lower originations volumes than expected due in part to an increase in interest rates, the Company now expects that its Adjusted EBITDA for the year ending December 31, 2018 will be materially lower than previously projected. Under its new leadership, the Company continues to develop and execute various strategies to improve the Company's financial and operating performance. As the outcomes of our efforts are difficult to predict given the complex business and economic environment in which we operate and the risks we face, which are described in Item 1A. Risk Factors and elsewhere in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, we no longer intend to provide guidance relating to financial expectations going forward.

About Ditech Holding Corporation

Ditech Holding Corporation is an independent originator and servicer of mortgage loans and servicer of reverse mortgage loans. Based in Fort Washington, Pennsylvania, we have approximately 3,800 employees and service a diverse loan portfolio. For more information about Ditech Holding Corporation, please visit our website at www.ditechholding.com. The information on our website is not a part of this release.

The terms "Ditech Holding," the "Company," "we," "us" and "our" as used throughout this report refer to Ditech Holding Corporation (successor) and its consolidated subsidiaries after the Effective Date, and/or Walter Investment Management Corp. (predecessor) and its consolidated subsidiaries prior to the Effective Date. We use certain acronyms and terms throughout this release that are defined in the Glossary of Terms in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2017 and in our other filings with the SEC.

Disclaimer and Cautionary Note Regarding Forward-Looking Statements

Certain statements in this press release constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that are not historical fact are forward-looking statements. Certain of these forward-looking statements can be identified by the use of words such as "believes," "anticipates," "expects," "intends," "plans," "projects," "estimates," "assumes," "may," "should," "will," "seeks," "targets," or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, and our actual results, performance or achievements could differ materially from future results, performance or achievements expressed in these forward-looking statements. These forward-looking statements are based on our current beliefs, intentions and expectations. These statements are not guarantees or indicative of future performance, nor should any conclusions be drawn or assumptions be made as to any potential outcome of any strategic review we conduct, including any changes in strategy. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described below and in more detail in Item 1A. Risk Factors and in our other filings with the SEC.

In particular (but not by way of limitation), the following important factors, risks and uncertainties could affect our future results, performance and achievements and could cause actual results, performance and achievements to differ materially from those expressed in the forward-looking statements:

  • our ability to operate our business in compliance with existing and future laws, rules, regulations and contractual commitments affecting our business, including those relating to the origination and servicing of residential loans, default servicing and foreclosure practices, the management of third-party assets and the insurance industry, and changes to, and/or more stringent enforcement of, such laws, rules, regulations and contracts;

  • scrutiny of our industry by, and potential enforcement actions by, federal and state authorities;

  • the substantial resources (including senior management time and attention) we devote to, and the significant compliance costs we incur in connection with, regulatory compliance and regulatory examinations and inquiries, and any consumer redress, fines, penalties or similar payments we make in connection with resolving such matters;

  • uncertainties relating to interest curtailment obligations and any related financial and litigation exposure (including exposure relating to false claims);

  • potential costs and uncertainties, including the effect on future revenues, associated with and arising from litigation, regulatory investigations and other legal proceedings, and uncertainties relating to the reaction of our key counterparties to the announcement of any such matters;

  • our dependence on U.S. GSEs and agencies (especially Fannie Mae, Freddie Mac and Ginnie Mae) and their residential loan programs and our ability to maintain relationships with, and remain qualified to participate in programs sponsored by, such entities, our ability to satisfy various existing or future GSE, agency and other capital, net worth, liquidity and other financ
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