MSR tricky beastMortgage Servicing Rights can be a very lucrative capital light sector
However, the accounting is very tricky and has to be taken with a grain of salt.
First right now, IOU Financial is nowhere breakeven.
I'm not saying this is a fraud or anything, and they do have masive amount of receivable thet are winding down and cash on hand so that's your safety net.
However their loan portfolio volume has to grow significantly
for the current SG&A overhead of approx $11m to be justified solely from their
servicing cashflow
from my very rough calculation they need to grow the loan portfolio
about 5.5X or from current $103mil to about $567mil
They currently have agreement with Neuberger Berman to purchase up to
US$150mil so in that case it will take about 3.1Years to breakeven.
let's say they make origination at about current speed.
It will take about 9Q or 2.25years for them to break even at current speed.
Maybe Neuberger Berman is so happy they will increase the purchase speed in the future.
I don't know yet
I'm student of graham so let's say we look down at project a scenario 3years out
when they breakeven with current agreement