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Loan servicing giant Mr. Cooper has resumed collecting monthly payments from mortgage borrowers and also expects its loan originations systems to be “fully operational shortly” after a four-day “precautionary shutdown” to contain a cybersecurity threat that exposed the data of an unknown number of customers.

Mr. Cooper collects payments from more than 4 million homeowners on behalf of lenders and investors, but it’s unclear how many had their data exposed as the company continues to investigate a breach discovered on Halloween.

A preliminary analysis has revealed “that certain customer data was exposed, however it will require additional analysis to validate this finding and quantify the scope and type of any such exposure,” Mr. Cooper said in a report to investors Thursday.

“We continue to conduct a thorough investigation and have not reported the total customer impact number at this time,” a spokesperson for the company told Inman in a statement. “Any customer impact number reported in the media is speculation.”

On its website, Mr. Cooper is assuring its customers that it “does not store banking information related to mortgage payments on our systems. This information is hosted with a third-party provider and, based on the information we have to date, we do not believe it was affected by this incident. As a result, we do not believe that any of our customers’ banking information related to mortgage payments was impacted.”

After discovering on Oct. 31 that an unauthorized party had gained access to some of its internal systems, Mr. Cooper shut some systems down from Nov. 1 through Nov. 4, and many customers were unable to make payments or access their accounts, the company said.

The company says it restarted servicing operations on Saturday, Nov. 4, 2023, “to include taking customer calls and payments, remitting to investors, and onboarding new loans.”

Affected borrowers won’t be charged late fees, penalties or be subjected to negative credit reporting related to late payments as a result of the incident, the company said.

Mr. Cooper also originates mortgages, primarily by offering refinancing to homeowners it collects payments from. The company said Thursday that it expects its loan originations systems “to be fully operational shortly, following reestablishment of connectivity with vendors and agencies, and we have already resumed buying mortgage servicing rights.”

Mr. Cooper said it expects to rack up $5 million to $10 million in additional vendor costs as a result of the cyberattack, and that the precautionary shutdown of its systems will have an additional impact on fourth-quarter revenue and expenses.

While the full extent of remediation and legal expenses stemming from the cyberattack can’t yet be quantified, the company said it does “not believe the impact will be material to our results of operations or financial conditions.”

Quest for $1 trillion mortgage servicing portfolio

Source: Mr. Cooper earnings reports.

In the long run, the cyberattack may end up just being a bump in the road in Mr. Cooper’s quest to build a $1 trillion mortgage servicing rights (MSR) portfolio.

Dallas, Texas-based Mr. Cooper reported a $275 million third-quarter profit on Oct. 25, as pretax operating income from loan servicing grew by 65 percent from the previous quarter, to $301 million.

Having grown its MSR portfolio by 10 percent in the last year, Mr. Cooper was collecting payments from 4.29 million borrowers who owed $937 billion in outstanding mortgage debt as of Sept. 30.

Jay Bray

“Our impressive performance, highlighted by rising return on equity, strong book value per share growth, robust capital and record liquidity, reflects the strength of our balanced business model,” Mr. Cooper Chairman and CEO Jay Bray said in an earnings announcement. “With our servicing portfolio now at $937 billion, Mr. Cooper’s consistent track record of growth has propelled us to the nation’s leading servicer, one step closer to achieving our $1 trillion target.”

Rising mortgage rates curb originations

Source: Mr. Cooper earnings reports.

Mr. Cooper generates most of its revenue from the fees it collects from investors and lenders for collecting mortgage payments on their behalf.

But it also originates mortgages through two channels: A direct-to-consumer channel, which offers refinancing to loan servicing clients, and a correspondent channel, which purchases or originates loans from mortgage bankers. Mr. Cooper’s origination business, which primarily serves homeowners seeking to refinance at a better rate, has dwindled as mortgage rates have climbed from historic 2021 lows.

During the third quarter, Mr. Cooper funded 12,468 loans totaling $3.4 billion, half through the direct-to-consumer channel and half through the correspondent channel. That represented an 11 percent drop from the previous quarter and a 40 percent drop from a year ago.

In reporting the impact of the cyberattack to investors Thursday, Mr. Cooper said that due to the precautionary shutdown of its systems it now expects its mortgage originations business will generate no pretax operating earnings during the fourth quarter, and could lose up to $10 million. The loan servicing business is now expected to generate fourth-quarter pretax operating earnings of $200 million to $210 million.

“However, we expect that such operational impacts will be limited to fourth quarter,” the company said.

In June, electronic payment processor ACI Worldwide Corp. agreed to pay a $25 million penalty to the Consumer Financial Protection Bureau (CFPB) to resolve allegations that its subsidiary ACI Payments Inc. accidentally initiated $2.3 billion in mortgage payments to Mr. Cooper from 500,000 homeowners’ bank accounts in April 2021. Mr. Cooper was an ACI client and was not accused of wrongdoing.

Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.

Email Matt Carter

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