Mr. Cooper Posts Q2 Revenue Miss

Key Points

• EPS of $3.04 and revenue of $608 million for Q2 2025 both missed analyst expectations.

• The mortgage servicing portfolio ended at $1.51 trillion, up 25% year over year from Q2 2024.

• Expense control led to sharply lower costs, with total company-wide expenses down $100 million compared to Q1 2025.

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Mr. Cooper Group (NASDAQ:COOP), a leader in mortgage servicing and a major originator, released its second-quarter 2025 earnings on July 23, 2025. The results revealed both earnings per share and revenue coming in below analyst estimates. Earnings per share (GAAP) stood at $3.04, below the $3.18 consensus, Revenue was $608 million, nearly 10% short of the $674.24 million expectation.

Despite falling short on top-line and bottom-line GAAP targets, the quarter showcased continued growth in its core servicing business, improved profitability in originations, and a disciplined approach to expense management.

Business Snapshot and Strategic Focus

Mr. Cooper operates at the center of the U.S. housing finance market, with a business built around mortgage servicing and origination. Servicing means collecting mortgage payments, handling escrow, and managing customer relationships for homeowners, while originations refers to creating new residential mortgage loans for sale to investors.

Its business model centers on managing a massive portfolio of residential mortgages. Key success factors include servicing scale, cost efficiency, growth in fee-based subservicing, and technology-driven improvements. By focusing on expanding both owned and subserviced loans, it reduces capital risk while growing recurring revenue. The company also invests heavily in technology, which supports operational efficiency and customer service.

Quarterly Highlights: Growth, Profits, and Underlying Trends

The most notable development for Mr. Cooper this quarter was the continued expansion of its servicing portfolio. The unpaid principal balance, the total value of mortgages serviced, reached $1,509 billion—up 25% from the prior year. This growth is significant, given that the company already leads the industry in scale. While the portfolio dipped slightly compared to the previous quarter, Net servicing revenue climbed to $426 million in the servicing segment, supported by a sharp drop in expenses to $148 million from $240 million in Q1 2025.

The company achieved healthier profit metrics, with pretax operating income in the servicing segment at $332 million for the second consecutive quarter (Q2 and Q1 2025, non-GAAP). Including all items, servicing pretax income was $364 million. The segment also saw improved credit quality, as the share of loans 60 days or more delinquent fell to 1.4% from 1.5% in Q1 2025. A key metric, the annualized constant prepayment rate (CPR), which measures how quickly borrowers are paying off their loans early, increased to 7% from 5% in Q1 2025.

Subservicing remains a major component of the business. Here, the company manages loans on behalf of other investors without owning the credit risk. This strategy allows for growth without tying up large amounts of capital. The subservicing balance finished the period at $778 billion, just off the previous quarter’s $780 billion. After quarter-end, the company announced the formation of a new mortgage servicing rights (MSR) fund with $200 million in initial capital, signaling further plans to grow this segment.

The Originations segment -- where new home loans are created -- delivered strong profit growth. Pretax income rose to $64 million from $45 million in Q1 2025, with funded origination volume climbing 14% to $9.4 billion (33,051 loans). The direct-to-consumer channel, focused on lending directly to homeowners, contributed $2.6 billion, while the correspondent channel, which partners with other lenders, brought in $6.8 billion. The overall recapture rate, which measures the share of existing borrowers who return for new loans, slipped to 47% from 51% in Q1 2025.

Technological innovation was again highlighted by management as a driver of cost efficiency and enhanced service. Recent investments in digital tools and artificial intelligence, including features like Agent IQ for customer support agents, continue to streamline the customer experience. The company took pride in being recognized as a “Best Workplace in Texas.”

Financial Strength, Cost Control, and Upcoming Changes

Company-wide expenses (GAAP) dropped sharply to $330 million, compared with $430 million in Q1 2025.

Tangible book value per share -- a balance sheet measure that strips out intangible assets -- rose to $75.90 from $72.53. Return on tangible common equity (ROTCE), which measures profit relative to tangible equity held by shareholders, increased to 17.2%, in line with the company's target range. The company ended the quarter with $783 million in cash and equivalents and $5,099 million in stockholders’ equity, providing flexibility heading into a pending merger with Rocket. Stock buybacks remain suspended as a result of the upcoming transaction.

There were some challenges to note. Both revenue and earnings per share (GAAP) fell short of analyst expectations, a point that will draw attention from investors. The recapture rate slippage in originations and the uptick in prepayment rates may indicate emerging market pressures.

Looking Ahead: Guidance and What to Watch

Management did not offer quantitative forward guidance in this earnings release. Leadership highlighted the pending Rocket merger and the launch of the new MSR Fund as significant near-term developments. The company continues to focus on expanding its customer base, growing fee-based revenue, and scaling its loan originations while maintaining cost discipline.

With the merger expected to close in the fourth quarter of 2025, the outlook for mortgage originations, especially through direct-to-consumer channels, and the impact of technology investments are also key areas to monitor.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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