Why Mortgage Service Providers' Shares Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of mortgage service providers came under heavy pressure following an earnings miss from Walter Investment Management (NYSE: WAC  ) , which tumbled as much as 24%. Peer Nationstar Mortgage Holdings (NYSE: NSM  ) couldn't escape the pressure and dipped as much as 10% as well.

So what: For the quarter, Walter Investment reported a 13% increase in year-over-year revenue to $176.4 million and a profit of $0.64. Unfortunately for shareholders, Wall Street had been expecting $0.67 in EPS. However, management didn't seem deterred by its small miss, guiding 2013 EBITDA to $650 million to $725 million, which is well ahead of current estimates. Management cited recent acquisition of $93 billion in unpaid principal balance residential servicing assets from Bank of America (NYSE: BAC  ) that are backed by Fannie Mae as all the more reason to be excited about the company's long-term growth.

Now what: I had, admittedly, thought Walter Investment had gotten ahead of itself in terms of valuation prior to this quarterly report, but the downside reaction to a very small miss and what I'd deem solid guidance seems a bit much. The same goes for Nationstar, which is currently down 5% in sympathy with Walter Investment. Both companies will need to continue to deliver for shareholders, but, if Walter Investment's EBITDA guidance is any indication, the mortgage servicing sector is doing just fine.

Craving more input? Start by adding Walter Investment Management and Nationstar Mortgage Holdings to your free and personalized Watchlist so you can keep up on the latest news with each company. 

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