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Nov 06, 2018

Ocwen Financial Announces Operating Results for Third Quarter 2018

  • Reported a net loss of $41 million, or $0.31 per share

  • Ended the quarter with $255 million of cash

  • Completed acquisition of PHH Corporation for $358 million in cash

  • Glen A. Messina became the President and Chief Executive Officer of Ocwen and a member of its Board of Directors

  • Helped over 9,100 struggling families remain in their homes through loan modifications

WEST PALM BEACH, Fla., Nov. 06, 2018 (GLOBE NEWSWIRE) -- Ocwen Financial Corporation (NYSE:OCN) (Ocwen or the Company), a leading financial services holding company, today announced operating results for the third quarter of 2018. Ocwen reported a GAAP net loss of $(41.1) million, or $(0.31) per share, for the three months ended September 30, 2018 compared to a net loss of $(6.1) million for the three months ended September 30, 2017. Ocwen generated revenue of $238.3 million and Cash Flows from Operating Activities of $93.7 million for the three months ended September 30, 2018, and ended the quarter with $254.8 million of cash.

Glen A. Messina, President and CEO of Ocwen, said, “We believe our acquisition of PHH on October 4, 2018 provides us with the opportunity to transform to a stronger, more efficient company, better able to serve our customers and clients, and positions us for a return to growth and profitability. In the near term, our goal is returning to profitability in the shortest timeframe possible, taking into consideration the robust, prudent integration process we are undertaking. We believe our return to profitability will largely depend on realization of acquisition synergies and our ability to replenish portfolio runoff, among other factors.”

Mr. Messina continued, “Based on the Company’s current situation and our assessment of the current industry environment, we have established a set of initiatives to enable our return to profitability and improve our competitive position. In the near term, we will be focused on executing the integration, re-engineering our cost structure, returning to growth and fulfilling our regulatory commitments. Throughout this process, Ocwen will continue its long-standing commitment to enabling and preserving homeownership for underserved and at-risk customers, and this core value will continue to be a guiding principle as we move the Company forward.”

Third Quarter 2018 Results

Pre-tax loss for the third quarter of 2018 was $(40.3) million, a $(13.7) million increase from the third quarter of 2017.

The Servicing segment recorded $(13.9) million of pre-tax loss for the third quarter of 2018. The business was negatively impacted by lower revenue from a smaller portfolio and higher professional fees. We also recorded gains related to our investments in seasoned residential loans acquired through executing RMBS call rights in the second quarter of 2018, which were not repeated in the third quarter.

The Lending segment recorded $(2.1) million of pre-tax loss for the third quarter of 2018. Our reverse mortgage lending business recorded $(0.9) million of pre-tax loss and our forward lending recapture business incurred a $(1.2) million pre-tax loss. Both businesses have been negatively impacted by higher interest rates. In addition, the reverse mortgage lending industry continues to adjust to the impact of HUD program changes introduced in the fourth quarter of 2017.

The Corporate segment recorded a $(24.3) million pre-tax loss for the third quarter of 2018, which includes $(12.5) million of corporate interest expense and $(9.1) million of CFPB and state regulatory related legal fees and escrow related testing expenses.

Additional Third Quarter 2018 Business Highlights

  • The combined Ocwen and PHH servicing portfolio totaled 1.7 million loans representing unpaid principal balance of $287 billion as of September 30, 2018.
  • Completed 9,179 modifications in the quarter to help struggling families stay in their homes, 15% of which included debt forgiveness totaling $44 million.
  • Delinquencies decreased from 8.3% at June 30, 2018 to 7.8% at September 30, 2018, primarily driven by loss mitigation efforts.
  • The constant pre-payment rate (CPR) decreased from 14.3% in the second quarter of 2018 to 13.7% in the third quarter of 2018. In the third quarter of 2018, prime CPR was 16.2%, and non-prime CPR was 12.4%.
  • In the third quarter of 2018, Ocwen originated forward and reverse mortgage loans with unpaid principal balances of $172.3 million and $147.5 million, respectively.
  • Our reverse mortgage portfolio ended the quarter with an estimated $98.4 million in undiscounted 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, November 6, 2018, at 8:30 a.m., Eastern Time, to discuss its financial results for the third quarter of 2018. 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 is a financial services holding company which, through its subsidiaries, services and originates loans. We are headquartered in West Palm Beach, Florida, with offices throughout the United States and in the U.S. Virgin Islands and operations in India and the Philippines. We have been serving our customers since 1988. We may post information that is important to investors on 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: our ability to successfully integrate PHH’s business, 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 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 or others, 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 comply with our servicing and subservicing 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; our ability to contain and reduce our operating costs, the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover advances, repay borrowings and comply with our debt agreements, including the financial and other covenants contained in them; our ability to timely transfer mortgage servicing rights under our agreements with NRZ; our ability to maintain our long-term relationship with NRZ; 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; our ability to execute an effective chief executive officer leadership transition; as well as other risks detailed in Ocwen’s and, prior to the merger closing, PHH’s reports and filings with the SEC, including each of their respective annual reports on Form 10-K for the year ended December 31, 2017 and any current and quarterly reports since such date. Anyone wishing to understand Ocwen’s business should review its and PHH’s 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:  
Stephen Swett John Lovallo  
T: (203) 614-0141 T: (917) 612-8419  
E: shareholderrelations@ocwen.com E: jlovallo@levick.com  
     
     


Residential Servicing Statistics
(Dollars in thousands) 
 
  At or for the Three Months Ended
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
Total unpaid principal balance of loans and REO serviced $ 160,996,474   $ 167,127,014   $ 173,388,876   $ 179,352,554   $ 187,468,318  
           
Non-performing loans and REO serviced as a % of total UPB (1) 7.8 % 8.3 % 9.0 % 9.3 % 9.4 %
           
Prepayment speed (average CPR)(2) (3) 13.7 % 14.3 % 12.9 % 14.4 % 14.7 %
  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. Constant Prepayment Rate 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 September 30, 2018 includes 16.2% for prime loans and 12.4% for non-prime loans.
               
               
Segment Results
(Dollars in thousands)
             
  For the Three Months Ended
September 30,
  For the Nine Months Ended
September 30,
  2018   2017   2018   2017
Servicing              
Revenue $ 217,630     $ 246,545     $ 674,233     $ 802,347  
Expenses 185,077     218,565     523,061     637,406  
Other expense, net (46,452 )   (22,299 )   (142,504 )   (146,911 )
Income (loss) before income taxes (13,899 )   5,681     8,668     18,030  
               
Lending              
Revenue 16,917     31,935     65,116     95,457  
Expenses 18,954     38,412     57,036     100,628  
Other income (expense), net (28 )   (1,092 )   26     (1,901 )
Income (loss) before income taxes (2,065 )   (7,569 )   8,106     (7,072 )
               
Corporate Items and Other              
Revenue 3,731     6,162     12,767     20,002  
Expenses 13,495     16,502     49,580     92,308  
Other expense, net (14,545 )   (14,325 )   (43,674 )   (37,311 )
Loss before income taxes (24,309 )   (24,665 )   (80,487 )   (109,617 )
Consolidated loss before income taxes $ (40,273 )   $ (26,553 )   $ (63,713 )   $ (98,659 )
 


 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS 
(Dollars in thousands, except per share data)
 
  For the Three Months Ended
September 30,
  For the Nine Months Ended
September 30,
  2018   2017   2018   2017
Revenue              
Servicing and subservicing fees $ 213,730     $ 233,220     $ 658,095     $ 761,523  
Gain on loans held for sale, net 16,942     25,777     61,135     76,976  
Other 7,606     25,645     32,886     79,307  
Total revenue 238,278     284,642     752,116     917,806  
               
Expenses              
Compensation and benefits 63,307     90,538     211,220     272,750  
Professional services 40,662     38,417     110,821     145,651  
MSR valuation adjustments, net 41,448     33,426     91,695     115,446  
Servicing and origination 31,758     52,246     91,452     128,061  
Technology and communications 20,597     27,929     67,306     79,530  
Occupancy and equipment 11,896     15,340     37,369     49,569  
Other 7,858     15,583     19,814     39,335  
Total expenses 217,526     273,479     629,677     830,342  
               
Other income (expense)              
Interest income 3,963     4,099     10,018     12,101  
Interest expense (61,288 )   (47,281 )   (189,601 )   (212,471 )
Gain (loss) on sale of mortgage servicing rights, net (733 )   6,543     303     7,863  
Other, net (2,967 )   (1,077 )   (6,872 )   6,384  
Total other expense, net (61,025 )   (37,716 )   (186,152 )   (186,123 )
               
Loss before income taxes (40,273 )   (26,553 )   (63,713 )   (98,659 )
Income tax expense (benefit) 845     (20,418 )   4,541     (15,465 )
Net loss (41,118 )   (6,135 )   (68,254 )   (83,194 )
Net income attributable to non-controlling interests (29 )   (117 )   (176 )   (289 )
                               
Net loss attributable to Ocwen stockholders $ (41,147 )   $ (6,252 )   $ (68,430 )   $ (83,483 )
               
Loss per share attributable to Ocwen stockholders              
Basic $ (0.31 )   $ (0.05 )   $ (0.51 )   $ (0.66 )
Diluted $ (0.31 )   $ (0.05 )   $ (0.51 )   $ (0.66 )
               
Weighted average common shares outstanding              
Basic 133,912,425     128,744,152     133,632,905     125,797,777  
Diluted 133,912,425     128,744,152     133,632,905     125,797,777  
 


 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS 
(Dollars in thousands, except share data)
 
  September 30,
 2018
  December 31,
 2017
Assets      
Cash $ 254,843     $ 259,655  
Mortgage servicing rights ($999,282 and $671,962 carried at fair value) 999,282     1,008,844  
Advances, net 166,024     211,793  
Match funded assets (related to variable interest entities (VIEs)) 935,080     1,177,357  
Loans held for sale ($145,417 and $214,262 carried at fair value) 217,436     238,358  
Loans held for investment, at fair value (amounts related to VIEs of $28,373 and $0) 5,307,560     4,715,831  
Receivables, net 155,937     199,529  
Premises and equipment, net 25,873     37,006  
Other assets ($7,826 and $8,900 carried at fair value)(amounts related to VIEs of $19,954 and $27,359) 399,002     554,791  
Total assets $ 8,461,037     $ 8,403,164  
       
Liabilities and Equity      
Liabilities      
HMBS-related borrowings, at fair value $ 5,184,227     $ 4,601,556  
Match funded liabilities (related to VIEs) 714,246     998,618  
Other financing liabilities ($646,842 and $508,291 carried at fair value)(amounts related to VIEs of $26,643 and $0) 719,319     593,518  
Other secured borrowings, net 345,425     545,850  
Senior notes, net 347,749     347,338  
Other liabilities ($2,567 and $635 carried at fair value) 589,327     769,410  
Total liabilities 7,900,293     7,856,290  
       
Equity      
Ocwen Financial Corporation (Ocwen) stockholders’ equity      
Common stock, $.01 par value; 200,000,000 shares authorized; 133,912,425 and 131,484,058 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively 1,339     1,315  
Additional paid-in capital 553,443     547,057  
Retained earnings (accumulated deficit) 5,909     (2,083 )
Accumulated other comprehensive loss, net of income taxes (1,135 )   (1,249 )
Total Ocwen stockholders’ equity 559,556     545,040  
Non-controlling interest in subsidiaries 1,188     1,834  
Total equity 560,744     546,874  
Total liabilities and equity $ 8,461,037     $ 8,403,164  
 


 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Dollars in thousands)
 
  For the Nine Months Ended  September 30,
  2018   2017
Cash flows from operating activities      
Net loss $ (68,254 )   $ (83,194 )
Adjustments to reconcile net loss to net cash provided by operating activities:      
MSR valuation adjustments, net 91,695     115,446  
Gain on sale of mortgage servicing rights, net (303 )   (7,863 )
Provision for bad debts 40,269     57,274  
Depreciation 18,199     20,430  
Loss on write-off of fixed assets -     6,834  
Amortization of debt issuance costs 2,261     1,979  
Equity-based compensation expense 1,244     4,489  
Gain on valuation of financing liability (11,323 )   (27,024 )
Net gain on valuation of mortgage loans held for investment and HMBS-related borrowings (8,057 )   (18,637 )
Gain on loans held for sale, net (24,265 )   (39,542 )
Origination and purchase of loans held for sale (1,234,830 )   (3,074,725 )
Proceeds from sale and collections of loans held for sale 1,154,526     3,067,522  
Changes in assets and liabilities:      
Decrease in advances and match funded assets 243,831     285,066  
Decrease in receivables and other assets, net 126,829     160,169  
Decrease in other liabilities (46,767 )   (66,321 )
Other, net 6,478     3,466  
Net cash provided by operating activities 291,533     405,369  
       
Cash flows from investing activities      
Origination of loans held for investment (711,035 )   (961,642 )
Principal payments received on loans held for investment 296,800     311,560  
Purchase of mortgage servicing rights (2,729 )   (1,658 )
Proceeds from sale of mortgage servicing rights 6,138     2,263  
Proceeds from sale of advances 7,882     6,119  
Issuance of automotive dealer financing notes (19,642 )   (129,471 )
Collections of automotive dealer financing notes 52,598     119,389  
Additions to premises and equipment (7,326 )   (7,365 )
Other, net 5,446     1,480  
Net cash used in investing activities (371,868 )   (659,325 )
 


 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — (continued)
(Dollars in thousands)
 
  For the Nine Months Ended
September 30,
  2018   2017
Cash flows from financing activities      
Repayment of match funded liabilities, net (284,372 )   (252,981 )
Proceeds from mortgage loan warehouse facilities and other secured borrowings 2,211,606     5,810,591  
Repayments of mortgage loan warehouse facilities and other secured borrowings (2,585,286 )   (6,016,169 )
Proceeds from sale of mortgage servicing rights accounted for as a financing 279,586     54,601  
Proceeds from sale of reverse mortgages (HECM loans) accounted for as a financing (HMBS-related borrowings) 728,745     981,730  
Repayment of HMBS-related borrowings (290,338 )   (287,908 )
Issuance of common stock     13,913  
Capital distribution to non-controlling interest (822 )    
Other, net (991 )   (2,321 )
Net cash provided by financing activities 58,128     301,456  
       
Net increase (decrease) in cash and restricted cash (22,207 )   47,500  
Cash and restricted cash at beginning of year 302,560     302,398  
Cash and restricted cash at end of period (1) $ 280,353     $ 349,898  
       
(1)  Cash and restricted cash as of September 30, 2018 and September 30, 2017 includes $254.8 million and $299.9 million of cash and $25.5 million and $50.0 million of restricted cash respectively.

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Source: Ocwen Financial Corp.