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Aug 06, 2019

Ocwen Financial Announces Operating Results for Second Quarter 2019

  • Reported a Net Loss of $89.7 million which was impacted by significant pre-tax items: $40.7 million of unfavorable interest rate and valuation assumption driven fair value changes and $10.1 million in re-engineering costs for the second quarter of 2019

  • Completed the final phase of our loan transfer process and transition from REALServicing® to Black Knight MSP®
     
  • Completed the merger of our two primary licensed legal entities Ocwen Loan Servicing and PHH Mortgage Corporation
     
  • Continued to execute on our cost re-engineering plan and realized annualized run rate cost savings ahead of our expectations through the second quarter of 2019
     
  • Closed a $300 million MSR financing facility on a fully committed basis on July 1
     
  • Ended the quarter with $288 million of cash and $423 million of total stockholders' equity

WEST PALM BEACH, Fla., Aug. 06, 2019 (GLOBE NEWSWIRE) -- Ocwen Financial Corporation (NYSE:OCN) (“Ocwen” or the “Company”), a leading non-bank mortgage servicer and originator, today reported a net loss of $89.7 million, or $0.67 per share, for the three months ended June 30, 2019 compared to a net loss of $29.8 million or $0.22 per share for the three months ended June 30, 2018.

Glen A. Messina, President and CEO of Ocwen said, “Through continued strong execution, we have made significant progress and achieved a number of important objectives of our key business initiatives.  I continue to be pleased with the results of our integration, cost re-engineering, MSR sourcing, and lending growth efforts. Despite a more challenging market and business environment to achieve MSR portfolio growth, we remain committed to strengthening the Company and returning to profitability in the shortest time frame possible while maintaining our capital allocation discipline.”

Second Quarter 2019 Results

Pre-tax loss for the second quarter of 2019 was $84.3 million, which compares to a $28.4 million loss in the second quarter of 2018. Pre-tax results for the quarter were impacted by a number of significant items, including but not limited to: $40.7 million of unfavorable interest rate and valuation assumption driven fair value changes and $10.1 million in severance, retention and other re-engineering costs in the quarter.

The Servicing segment recorded $59.0 million of pre-tax loss for the second quarter of 2019. The business was negatively impacted by portfolio runoff and loan boarding driven timing delay in default activity. We also recorded $48.7 million of unfavorable interest rate and valuation assumption driven MSR fair value changes, net of the NRZ financing liability fair value change in the quarter.

The Lending segment recorded $8.4 million of pre-tax income for the second quarter of 2019. Our reverse mortgage lending business recorded $11.9 million of pre-tax income, which included $8.0 million of interest rate driven favorable fair value changes. Our forward lending business incurred a $3.6 million pre-tax loss.

The Corporate segment recorded $33.7 million of pre-tax loss for the second quarter of 2019. The quarter included $10.1 million of severance, retention and other re-engineering costs.

Additional Second Quarter 2019 Business Highlights

  • We closed MSR acquisitions with $10.8 billion of unpaid principal balance (UPB) to date in 2019.

  • Completed 5,301 modifications in the quarter to help struggling families stay in their homes, 16% of which included debt forgiveness totaling $24 million.

  • Delinquencies decreased from 4.7% at March 31, 2019 to 3.7% at June 30, 2019, primarily driven by loss mitigation efforts.

  • The constant pre-payment rate (CPR) increased from 12.5% in the first quarter of 2019 to 15.2% in the second quarter of 2019. In the second quarter of 2019, prime CPR was 16.2%, and non-prime CPR was 14.3%.

  • In the second quarter of 2019, Ocwen originated forward and reverse mortgage loans with unpaid principal balances of $150.6 million and $142.1 million, respectively.

  • Our reverse mortgage portfolio ended the quarter with an estimated $60 million in discounted future gains from forecasted future draws on existing loans. Neither the anticipated future gains nor the future funding liability are included in the Company’s financial statements.

Webcast and Conference Call

Ocwen will host a webcast and conference call on Tuesday, August 6, 2019, at 8:30 a.m., Eastern Time, to discuss its financial results for the second quarter of 2019. The conference call will be webcast live over the Internet from the Company’s website at www.Ocwen.com, click on the “Shareholders” section. A replay of the conference call will be available via the website approximately two hours after the conclusion of the call and will remain available for approximately 30 days.

About Ocwen Financial Corporation

Ocwen Financial Corporation (NYSE: OCN) is a leading non-bank mortgage servicer and originator providing solutions through its primary brands, PHH Mortgage Corporation (PHH Mortgage) and Liberty Home Equity Solutions, Inc. (Liberty). PHH Mortgage is one of the largest servicers in the country, focused on delivering a variety of servicing and lending programs. Liberty is one of the nation’s largest reverse mortgage lenders dedicated to education and providing loans that help customers meet their personal and financial needs. We are headquartered in West Palm Beach, Florida, with offices in the United States and the U.S. Virgin Islands and operations in India and the Philippines, and have been serving our customers since 1988. For additional information, please visit our website (www.Ocwen.com).

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by a reference to a future period or by the use of forward-looking terminology. Forward-looking statements are typically identified by words such as “believe”, “expect”, “foresee”, “forecast”, “anticipate”, “intend”, “estimate”, “goal”, “strategy”, “plan” “target” and “project” or conditional verbs such as “will”, “may”, “should”, “could” or “would” or the negative of these terms, although not all forward-looking statements contain these words.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Our business has been undergoing substantial change which has magnified such uncertainties. Readers should bear these factors in mind when considering such statements and should not place undue reliance on such statements.

Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially. In the past, actual results have differed from those suggested by forward looking statements and this may happen again.

Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the following: uncertainty related to our ability to successfully integrate the business and operations of PHH Corporation (PHH), and to realize the strategic objectives, synergies and other benefits of the acquisition at the time anticipated or at all, including our ability to integrate, maintain and enhance PHH’s servicing, subservicing and other business relationships, including its relationship with New Residential Investment Corp. (NRZ); uncertainty related to our cost re-engineering efforts and the other actions we believe are necessary for us to improve our financial performance; our ability to invest in MSRs or other assets at adequate risk-adjusted returns, including our ability to negotiate and execute purchase documentation and satisfy closing conditions so as to consummate the acquisition of MSRs that have been awarded to us; uncertainty related to claims, litigation, cease and desist orders and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification, origination and other practices, including uncertainty related to past, present or future investigations, litigation, cease and desist orders and settlements with state regulators, the Consumer Financial Protection Bureau (CFPB), State Attorneys General, the Securities and Exchange Commission (SEC), the Department of Justice or the Department of Housing and Urban Development (HUD) and actions brought under the False Claims Act by private parties on behalf of the United States of America regarding incentive and other payments made by governmental entities; adverse effects on our business as a result of regulatory investigations, litigation, cease and desist orders or settlements; reactions to the announcement of such investigations, litigation, cease and desist orders or settlements by key counterparties, including lenders, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae); our ability to comply with the terms of our settlements with regulatory agencies and the costs of doing so; increased regulatory scrutiny and media attention; any adverse developments in existing legal proceedings or the initiation of new legal proceedings; our ability to effectively manage our regulatory and contractual compliance obligations; our ability to interpret correctly and comply with liquidity, net worth and other financial and other requirements of regulators as well as those set forth in our debt and other agreements; our ability to comply with our servicing agreements, including our ability to comply with our agreements with, and the requirements of, Fannie Mae, Freddie Mac and Ginnie Mae and maintain our seller/servicer and other statuses with them; the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover advances, repay, renew and extend borrowings, borrow additional amounts as and when required, meet our MSR or other asset investment objectives and comply with our debt agreements, including the financial and other covenants contained in them; our ability to timely and cost effectively transfer mortgage servicing rights under our agreements with NRZ; our ability to maintain our long-term relationship with NRZ under these arrangements; our ability to realize anticipated future gains from future draws on existing loans in our reverse mortgage portfolio; our servicer and credit ratings as well as other actions from various rating agencies, including the impact of prior or future downgrades of our servicer and credit ratings; as well as other risks detailed in Ocwen’s reports and filings with the SEC, including its annual report on Form 10-K for the year ended December 31, 2018 and any current and quarterly reports since such date.  Anyone wishing to understand Ocwen’s business should review its SEC filings. Ocwen’s forward-looking statements speak only as of the date they are made and, we disclaim any obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise.


FOR FURTHER INFORMATION CONTACT:

Investors: Media:
Hugo Arias Dico Akseraylian
T: (856) 917-0108 T: (856) 917-0066
E: hugo.arias@ocwen.com E: mediarelations@ocwen.com
   
   


Residential Servicing Statistics
(Dollars in thousands)
  At or for the Three Months Ended
June 30, 2019   March 31, 2019   December 31, 2018   September 30, 2018   June 30, 2018
Total unpaid principal balance of loans and REO serviced $ 229,283,045     $ 251,080,740     $ 256,000,490     $ 160,996,474     $ 167,127,014  
Non-performing loans and REO serviced as a % of total UPB (1) 3.7 %   4.7 %   4.9 %   7.8 %   8.3 %
Prepayment speed (average CPR)(2) (3) 15.2 %   12.5 %   12.9 %   13.7 %   14.3 %

(1) Performing loans include those loans that are less than 90 days past due and those loans for which borrowers are making scheduled payments under loan modification, forbearance or bankruptcy plans. We consider all other loans to be non-performing.

(2) Average CPR for the prior three months. CPR measures prepayments as a percentage of the current outstanding loan balance expressed as a compound annual rate.

(3) Average CPR for the three months ended June 30, 2019 includes 16.2% for prime loans and 14.3% for non-prime loans.

               
               
Segment Results
(Dollars in thousands)
             
  For the Three Months Ended June 30,   For the Six Months Ended  June 30,
  2019   2018   2019   2018
Servicing              
Revenue $ 242,510     $ 230,509     $ 501,784     $ 456,605  
Expenses 290,087     166,888     555,984     337,984  
Other expense, net (11,429 )   (61,535 )   (62,308 )   (96,053 )
Income (loss) before income taxes (59,006 )   2,086     (116,508 )   22,568  
               
Lending              
Revenue 28,794     19,002     69,885     48,197  
Expenses 21,026     17,785     42,357     38,081  
Other income, net 591     182     691     55  
Income before income taxes 8,359     1,399     28,219     10,171  
               
Corporate Items and Other              
Revenue 3,034     4,070     6,557     9,036  
Expenses 20,381     20,977     13,258     36,086  
Other expense, net (16,339 )   (14,983 )   (30,427 )   (29,129 )
Loss before income taxes (33,686 )   (31,890 )   (37,128 )   (56,179 )
               
Consolidated loss before income taxes $ (84,333 )   $ (28,405 )   $ (125,417 )   $ (23,440 )
 


 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS 
(Dollars in thousands, except per share data)
 
  For the Three Months Ended June 30,   For the Six Months Ended June 30,
  2019   2018   2019   2018
Revenue              
Servicing and subservicing fees $ 239,182     $ 222,227     $ 495,045     $ 444,365  
Gain on loans held for sale, net 15,075     24,393     32,670     44,193  
Other revenue, net 20,081     6,961     50,511     25,280  
Total revenue 274,338     253,581     578,226     513,838  
               
Expenses              
MSR valuation adjustments, net 147,268     33,118     256,266     50,247  
Compensation and benefits 82,283     69,838     176,979     147,913  
Servicing and origination 21,510     28,276     50,208     59,694  
Technology and communications 20,001     23,906     44,436     46,709  
Professional services 37,136     32,389     40,577     70,159  
Occupancy and equipment 18,699     12,859     35,288     25,473  
Other expenses 4,597     5,264     7,845     11,956  
Total expenses 331,494     205,650     611,599     412,151  
               
Other income (expense)              
Interest income 3,837     3,355     8,395     6,055  
Interest expense (31,571 )   (77,503 )   (102,016 )   (128,313 )
Bargain purchase gain (96 )       (381 )    
Other, net 653     (2,188 )   1,958     (2,869 )
Total other expense, net (27,177 )   (76,336 )   (92,044 )   (125,127 )
               
Loss before income taxes (84,333 )   (28,405 )   (125,417 )   (23,440 )
Income tax expense 5,404     1,348     8,814     3,696  
Net loss (89,737 )   (29,753 )   (134,231 )   (27,136 )
Net income attributable to non-controlling interests     (78 )       (147 )
Net loss attributable to Ocwen stockholders $ (89,737 )   $ (29,831 )   $ (134,231 )   $ (27,283 )
               
Loss per share attributable to Ocwen stockholders              
Basic and Diluted $ (0.67 )   $ (0.22 )   $ (1.00 )   $ (0.20 )
               
Weighted average common shares outstanding              
Basic and Diluted 134,465,741     133,856,132     134,193,874     133,490,828  
                       


 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS 
(Dollars in thousands, except per share data)
 
  June 30,
 2019
  December 31,
 2018
Assets      
Cash $ 287,724     $ 329,132  
Restricted cash (amounts related to variable interest entities (VIEs) of $15,489 and $20,968) 60,708     67,878  
Mortgage servicing rights (MSRs), at fair value 1,312,633     1,457,149  
Advances, net 229,167     249,382  
Match funded advances (related to VIEs) 875,332     937,294  
Loans held for sale ($135,691 and $176,525 carried at fair value) 196,071     242,622  
Loans held for investment, at fair value (amounts related to VIEs of $25,324 and $26,520) 5,897,731     5,498,719  
Receivables, net 187,985     198,262  
Premises and equipment, net 57,598     33,417  
Other assets ($7,760 and $7,568 carried at fair value)(amounts related to VIEs of $1,418 and $2,874) 522,844     379,567  
Assets related to discontinued operations     794  
Total assets $ 9,627,793     $ 9,394,216  
       
Liabilities and Equity      
Liabilities      
Home Equity Conversion Mortgage-Backed Securities (HMBS) related borrowings, at fair value $ 5,745,383     $ 5,380,448  
Match funded liabilities (related to VIEs) 671,796     778,284  
Other financing liabilities ($868,610 and $1,057,671 carried at fair value) (amounts related to VIEs of $23,697 and $24,815) 931,451     1,127,613  
Other secured borrowings, net 516,481     382,538  
Senior notes, net 447,577     448,727  
Other liabilities ($3,934 and $4,986 carried at fair value) 892,211     703,636  
Liabilities related to discontinued operations     18,265  
Total liabilities 9,204,899     8,839,511  
       
Stockholders’ Equity      
Common stock, $.01 par value; 200,000,000 shares authorized; 134,595,798 and 133,912,425 shares issued and outstanding at June 30, 2019 and December 31, 2018 respectively 1,346     1,339  
Additional paid-in capital 555,696     554,056  
(Accumulated deficit) retained earnings (130,648 )   3,567  
Accumulated other comprehensive loss, net of income taxes (3,500 )   (4,257 )
Total stockholders’ equity 422,894     554,705  
Total liabilities and stockholders’ equity $ 9,627,793     $ 9,394,216  
 


 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Dollars in thousands)
 
  For the Six Months Ended  June 30,
  2019   2018
Cash flows from operating activities      
Net loss $ (134,231 )   $ (27,136 )
Adjustments to reconcile net loss to net cash provided by operating activities:      
MSR valuation adjustments, net 256,266     50,247  
Gain on sale of MSRs, net (869 )   (1,036 )
Provision for bad debts 17,158     25,879  
Depreciation 19,563     12,640  
Equity-based compensation expense 1,664     772  
Gain on valuation of financing liability (76,981 )   (8,642 )
Net gain on valuation of mortgage loans held for investment and HMBS-related borrowings (37,201 )   (7,930 )
Gain on loans held for sale, net (19,887 )   (16,744 )
Bargain purchase gain 381      
Origination and purchase of loans held for sale (501,696 )   (838,581 )
Proceeds from sale and collections of loans held for sale 513,706     800,982  
Changes in assets and liabilities:      
Decrease in advances and match funded assets 91,679     182,481  
Decrease in receivables and other assets, net 79,931     86,606  
Decrease in other liabilities (79,753 )   (68,556 )
Other, net (927 )   5,588  
Net cash provided by operating activities 128,803     196,570  
       
Cash flows from investing activities      
Origination of loans held for investment (427,021 )   (487,472 )
Principal payments received on loans held for investment 232,514     186,216  
Purchase of MSRs (99,382 )    
Proceeds from sale of MSRs 1,401     224  
Proceeds from sale of advances 2,132     4,726  
Issuance of automotive dealer financing notes     (19,642 )
Collections of automotive dealer financing notes     52,581  
Additions to premises and equipment (1,133 )   (6,398 )
Other, net 3,700     3,577  
Net cash used in investing activities (287,789 )   (266,188 )
       


 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — (continued)
(Dollars in thousands)
 
  For the Six Months Ended June 30,
  2019   2018
Cash flows from financing activities      
Repayment of match funded liabilities, net (106,488 )   (247,924 )
Proceeds from mortgage loan warehouse facilities and other secured borrowings 1,137,418     1,546,226  
Repayment of mortgage loan warehouse facilities and other secured borrowings (1,222,471 )   (1,812,568 )
Proceeds from issuance of SSTL 119,100      
Repayments of SSTL (12,716 )   (58,375 )
Payment of debt issuance costs related to SSTL (1,284 )    
Proceeds from sale of MSRs accounted for as a financing 876     279,586  
Proceeds from sale of Home Equity Conversion Mortgages (HECM, or reverse mortgages) accounted for as a financing (HMBS-related borrowings) 425,106     499,576  
Repayment of HMBS-related borrowings (228,015 )   (181,548 )
Capital distribution to non-controlling interest     (822 )
Other, net (1,118 )   (991 )
Net cash provided by financing activities 110,408     23,160  
       
Net decrease in cash and restricted cash (48,578 )   (46,458 )
Cash and restricted cash at beginning of year 397,010     302,560  
Cash and restricted cash at end of period (1) $ 348,432     $ 256,102  
       
(1)  Cash and restricted cash as of June 30, 2019 and 2018 includes $287.7 million and $228.4 million of cash and $60.7 million and $27.7 million of restricted cash, respectively.

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Source: Ocwen Financial Corp.