Now Miller is setting his sights on mortgage servicers, betting he’ll profit from changes in government policy. Servicers, who collect mortgage payments, are grabbing market share from banks, which face regulations limiting the amount of capital they can risk on servicing rights. More than $1 trillion in servicing rights have changed hands in the last two years.
“Anytime the government makes a major change, it usually creates a big opportunity,” said Miller. The transfer of servicing rights is similar to when firms had to sell junk bonds about 25 years ago following new regulations, he said.
Nationstar Bet
Nationstar Mortgage Holdings Inc., which is majority owned by Fortress Investment Group LLC, benefited during the boom in refinancing and then suffered as mortgage rates rose. It will again profit as originations return and it buys more servicing rights from banks, according to Miller.
In March, Benjamin M. Lawsky, New York’s top bank regulator, asked Nationstar for information about the “explosive growth” in its mortgage-servicing business, citing hundreds of consumer complaints about the company’s practices.
Miller started buying shares of the Lewisville, Texas-based servicer at the end of last year. The move damaged his fund’s performance since Nationstar shares, hurt partly by the state probe, are down 14 percent this year. Miller said he has long- term confidence in the stock and has been steadily increasing exposure whenever the shares are at $30 or below.
“We’re optimistic in that we’re long-term investors,” Miller said. “Two thirds to three quarters of the time the market goes up, so if you’re longer term oriented, you have to be bullish.”