Analyzing Mr. Cooper Group’s Financial Position: Ticker: (COOP) A Potential Short Candidate?
The Mr. Cooper Group, recognized as the third-largest lender in the United States, has recently come under scrutiny, presenting a scenario that some might consider indicative of a potential short position in its stock. It’s important to note that Rebellion Research does not engage in shorting stocks; however, a close examination of Mr. Cooper’s recent financial and legal troubles provides a compelling narrative.
Mr. Cooper’s Legal and Financial Troubles
Mr. Cooper Group faced a significant setback with a $20 million fine due to unauthorized withdrawals totaling $2.8 billion from 480,000 customers’ bank accounts. This incident raises questions about the company’s operational integrity and its reliance on such capital for business activities.
Revenue Decline and Questionable Loan Practices
The company has seen its revenue decrease significantly, from $3.3 billion to $2.1 billion in just two years. This drop coincides with the end of the Covid-19 government stimulus era, which featured historically low-interest rates. During this period, Mr. Cooper, like many lenders, wrote numerous loans at very low rates. With the current rise in interest rates, the value and marketability of these loans could be in jeopardy, potentially leaving a significant portion of their loan portfolio valued much lower than reported on the balance sheet.
Balance Sheet Deterioration
A glaring concern is the notable deterioration in Mr. Cooper’s balance sheet. The company’s net tangible assets have plummeted from nearly zero to a negative $2.5 billion. Despite this, the company’s stock price has remained relatively buoyant, which may not reflect the underlying financial distress.
Insider Stock Sales
Adding to the skepticism is the fact that the company’s CEO has sold approximately $7 million worth of stock in the past five months. Such actions often lead to speculation about the confidence of internal stakeholders in the company’s future prospects.
The Mortgage Market’s Shifting Landscape
The mortgage market appears to be on the cusp of a significant shift. Many borrowers who secured loans at the height of the market with low rates might soon face higher rates that they can’t afford. This situation could lead to increased defaults and foreclosures, reminiscent of past housing market crises.
Settlements and Unreliable Balance Sheet
Mr. Cooper’s recent settlement with forty-four state agencies over the erroneous initiation of electronic transactions further complicates its financial picture. The inability to reliably estimate a bid on many of its loans due to these unsettled issues casts doubt on the accuracy and reliability of its balance sheet.
