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Aug 02, 2017

Ocwen Financial Announces Preliminary Operating Results for Second Quarter 2017

  • Reported a Q2 2017 net loss of $(44) million, a $43 million improvement over Q2 2016
  • Generated $195 million of Cash from Operating Activities during Q2 2017
  • Continued focus on community outreach programs with "Summer of Help and Hope" events
  • Assisted over 11,000 additional struggling families through loan modifications

WEST PALM BEACH, Fla., Aug. 02, 2017 (GLOBE NEWSWIRE) --  Ocwen Financial Corporation, (NYSE:OCN) ("Ocwen" or the "Company"), a leading financial services holding company, today announced preliminary operating results for the second quarter of 2017. Ocwen incurred a GAAP net loss of $(44.4) million, or $(0.36) per share, for the three months ended June 30, 2017 compared to a net loss of $(87.2) million for the three months ended June 30, 2016. Ocwen generated revenue of $311.3 million, down 16.6% compared to the second quarter of the prior year, primarily driven by the impact of portfolio run-off and lower HAMP fees due to the expiration of the program offset by mortgage lending growth. Cash Flows from Operating Activities were $195.1 million for the second quarter and $280.7 million for the six months ended June 30, 2017, compared to $172.2 million during the first six months of last year.

"Despite the recent regulatory setbacks, we made progress during the second quarter on a number of fronts. We signed our agreements relating to mortgage servicing rights transfer and subservicing with New Residential Investment Corp. We settled additional legacy litigation matters further reducing future uncertainty; and we specifically identified approximately $12 million in annual corporate overhead cost savings that we expect to realize in the second half of this year. We also saw our servicing business achieve its fourth consecutive quarterly pre-tax profit, and for this quarter, after adjusting for various items such as legal settlements, Ocwen recorded an overall adjusted pre-tax profit of $2.8 million," commented Ron Faris, President and CEO of Ocwen. Mr. Faris continued, "Just as important, we continued our successful community outreach efforts, assisting over 11,000 struggling families."

Second Quarter 2017 Results

Pre-tax loss for the second quarter of 2017 was $(41.6) million, a $54.8 million improvement from the second quarter of 2016. Pre-tax results for the quarter include a number of significant items: $(33.6) million of legal settlement-related expenses (after allowing for expected insurance and other recoveries), $(5.6) million of CFPB and state regulatory matter-related defense costs, $(3.7) million of unfavorable GNMA & GSE MSR Fair Value changes and $(1.5) million of severance and other items. Excluding these significant items, the Company had an adjusted pre-tax income of $2.8 million during the second quarter of 2017.

The Servicing segment recorded $9.2 million of pre-tax income, a $21.4 million improvement versus the second quarter of 2016, despite $(23.0) million lower HAMP fees.

The Lending segment recorded $(0.6) million of pre-tax loss for the second quarter of 2017, a $(5.6) million decline versus the second quarter of 2016. Total mortgage lending volume declined by 26.1% over the second quarter of 2016, driven by a 70% reduction in the Forward Lending Correspondent channel as the Company decided to exit that channel in the second quarter of 2017.  The Correspondent volume decline was offset by a 96% increase in the higher margin Forward Lending Retail channel and 33% overall growth in Reverse Lending volumes.

Additional Business Highlights

  • Completed 11,029 modifications in the quarter, 24% of which were HAMP modifications.
  • Delinquencies decreased from 11.2% at December 31, 2016 to 9.6% at June 30, 2017, primarily driven by loss mitigation efforts.
  • The constant pre-payment rate (CPR) increased from 14.0% in the first quarter of 2017 to 15.0% in the second quarter of 2017.  In the second quarter of 2017, prime CPR was 18.2%, and non-prime CPR was 13.0%.
  • In the second quarter of 2017, Ocwen originated forward and reverse mortgage loans with unpaid principal balance of $699.5 million and $275.4 million, respectively.  The Forward Lending originations decrease of 16.9% versus the first quarter of 2017 was primarily driven by our exit from the Correspondent channel and focus on higher margin retail and wholesale originations.
  • Our reverse mortgage portfolio ended the quarter with an estimated $105.4 million in undiscounted future gains from future draws on existing loans. Neither the anticipated future gains nor the future funding liability are included in the Company's financial statements.
  • Partnered with the Hardest Hit Fund Program across 18 states and launched "Summer of Help & Hope" borrower outreach events.

Webcast and Conference Call

Ocwen will host a webcast and conference call on Wednesday, August 2, 2017, at 8:30 a.m., Eastern Time, to discuss its financial results for the second quarter of 2017. 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, originates and services 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 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 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; 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 contain and reduce our operating costs, including our ability to successfully execute on our cost improvement initiative; the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover advances, repay borrowings and comply with debt covenants, including the financial and other covenants contained in them; our ability to timely transfer mortgage servicing rights under our July 2017 agreements with NRZ; our ability to maintain our long-term relationship with NRZ under these new 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; volatility in our stock price; the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates; our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties; uncertainty related to legislation, regulations, regulatory agency actions, government programs and policies, industry initiatives and evolving best servicing practices; as well as other risks detailed in Ocwen's reports and filings with the SEC, including its amended annual report on Form 10-K/A for the year ended December 31, 2016 (filed with the SEC on 5/15/17) and any current and quarterly reports since such date. 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.

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures, such as our reference to adjusted pre-tax income. We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition. We believe these non-GAAP financial measures provide an alternative way to view certain aspects of our business that is instructive. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, Ocwen's reported results under accounting principles generally accepted in the United States. Other companies may use non-GAAP financial measures with the same or similar titles that are calculated differently to our non-GAAP financial measures. As a result, comparability may be limited. Further information may be found on Ocwen's website.

Preliminary Results

The financial results and other financial data presented in this press release are preliminary, based upon the Company's estimates and subject to completion of the Company's financial closing procedures and issuance of its financial statements as of and for the quarter ended June 30, 2017.  Moreover, the financial results and other financial data have been prepared on the basis of currently available information.  The Company's final financial results and other financial data could differ materially from its preliminary financial results and other financial data.  The Company's final financial results will be set forth in the Company's Form 10-Q for the second quarter of 2017.

Residential Servicing Statistics (Preliminary, Unaudited)
(Dollars in thousands)

 At or for the Three Months Ended
June 30, 2017March 31,
December 31,
September 30,
June 30, 2016
Total unpaid principal balance of loans and REO serviced$194,798,424 $202,369,014 $209,092,130 $216,892,002 $229,276,001 
Non-performing loans and REO serviced as a % of total UPB (1)9.6%10.7%11.2%11.4%11.9%
Prepayment speed (average CPR)(2) (3)15.0%14.0%15.1%15.0%14.2%

(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, 2017 includes 18.2% for prime loans and 13.0% for non-prime loans.

Segment Results (Preliminary, Unaudited)
(Dollars in thousands)
 For the Three Months Ended
June 30,
 For the Six Months Ended
June 30,
 2017 2016 2017 2016
Revenue$271,784  $325,120  $555,802  $632,547 
Expenses201,928  257,751  418,842  532,070 
Other expense, net(60,638) (79,553) (124,613) (178,340)
Income (loss) before income taxes9,218  (12,184) 12,347  (77,863)
Revenue32,776  35,376  63,522  58,660 
Expenses32,886  31,181  62,217  55,558 
Other income (expense), net(504) 815  (810) 1,329 
Income (loss) before income taxes(614) 5,010  495  4,431 
Corporate Items and Other       
Revenue6,740  12,558  13,840  12,604 
Expenses45,666  96,086  75,804  126,047 
Other expense, net(11,286) (5,696) (22,984) (11,648)
Loss before income taxes(50,212) (89,224) (84,948) (125,091)
Corporate Eliminations       
Other income (expense), net       
Income (loss) before income taxes       
Consolidated loss before income taxes$(41,608) $(96,398) $(72,106) $(198,523)

(Dollars in thousands, except per share data) 

(Preliminary, Unaudited)

 For the Three Months Ended
June 30,
 For the Six Months Ended
June 30,
 2017 2016 2017 2016
Servicing and subservicing fees$255,801  $307,262  $528,303  $604,758 
Gain on loans held for sale, net28,255  27,857  51,199  43,429 
Other27,244  37,935  53,662  55,624 
Total revenue311,300  373,054  633,164  703,811 
Compensation and benefits90,411  98,422  182,212  194,671 
Servicing and origination64,516  89,987  132,423  185,679 
Professional services65,405  121,399  107,234  192,306 
Technology and communications24,254  32,709  51,601  59,578 
Occupancy and equipment16,480  20,708  34,229  45,453 
Amortization of mortgage servicing rights12,697  8,347  25,412  21,153 
Other6,717  13,446  23,752  14,835 
Total expenses280,480  385,018  556,863  713,675 
Other income (expense)       
Interest income4,239  5,140  8,002  9,330 
Interest expense(81,128) (91,033) (165,190) (197,122)
Gain on sale of mortgage servicing rights, net1,033  853  1,320  2,028 
Other, net3,428  606  7,461  (2,895)
Total other expense, net(72,428) (84,434) (148,407) (188,659)
Loss before income taxes(41,608) (96,398) (72,106) (198,523)
Income tax expense (benefit)2,828  (9,180) 4,953  (104)
Net loss(44,436) (87,218) (77,059) (198,419)
Net income attributable to non-controlling interests(71) (160) (172) (290)
Net loss attributable to Ocwen stockholders$(44,507) $(87,378) $(77,231) $(198,709)
Loss per share attributable to Ocwen stockholders       
Basic$(0.36) $(0.71) $(0.62) $(1.60)
Diluted$(0.36) $(0.71) $(0.62) $(1.60)
Weighted average common shares outstanding       
Basic124,582,280  123,893,752  124,300,171  123,993,545 
Diluted124,582,280  123,893,752  124,300,171  123,993,545 

(Dollars in thousands, except share data)

(Preliminary, Unaudited)

 June 30,
 December 31,
Cash$251,472  $256,549 
Mortgage servicing rights ($625,650 and $679,256 carried at fair value)975,185  1,042,978 
Advances, net219,214  257,882 
Match funded assets (related to variable interest entities (VIEs))1,292,908  1,451,964 
Loans held for sale ($239,491 and $284,632 carried at fair value)260,959  314,006 
Loans held for investment, at fair value4,223,776  3,565,716 
Receivables, net252,797  265,720 
Premises and equipment, net56,409  62,744 
Other assets ($18,037 and $20,007 carried at fair value) ($26,570 and $43,331 related to VIEs)399,672  438,104 
Total assets$7,932,392  $7,655,663 
Liabilities and Equity   
HMBS-related borrowings, at fair value$4,061,626  $3,433,781 
Other financing liabilities ($441,007 and $477,707 carried at fair value)533,806  579,031 
Match funded liabilities (related to VIEs)1,108,377  1,280,997 
Other secured borrowings, net643,860  678,543 
Senior notes, net347,063  346,789 
Other liabilities ($11 and $1,550 carried at fair value)657,413  681,239 
Total liabilities7,352,145  7,000,380 
Ocwen Financial Corporation (Ocwen) stockholders' equity   
Common stock, $.01 par value; 200,000,000 shares authorized; 124,778,548 and 123,988,160 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively1,248  1,240 
Additional paid-in capital529,188  527,001 
Retained earnings48,652  126,167 
Accumulated other comprehensive loss, net of income taxes(1,338) (1,450)
Total Ocwen stockholders' equity577,750  652,958 
Non-controlling interest in subsidiaries2,497  2,325 
Total equity580,247  655,283 
Total liabilities and equity$7,932,392  $7,655,663 

(Dollars in thousands)

(Preliminary, Unaudited)

 For the Six Months Ended
June 30,
 2017 2016
Cash flows from operating activities   
Net loss$(77,059) $(198,419)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Amortization of mortgage servicing rights25,412  21,153 
Loss on valuation of mortgage servicing rights, at fair value51,959  59,104 
Impairment of mortgage servicing rights4,650  39,030 
Gain on sale of mortgage servicing rights, net(1,320) (2,028)
Realized and unrealized (gains) losses on derivative financial instruments(31) 2,080 
Provision for bad debts31,918  32,785 
Depreciation13,439  11,850 
Amortization of debt issuance costs1,334  6,498 
Equity-based compensation expense3,263  3,079 
Net gain on valuation of mortgage loans held for investment and HMBS-related borrowings(11,381) (14,451)
Gain on loans held for sale, net(29,512) (35,794)
Origination and purchase of loans held for sale(2,243,475) (2,883,124)
Proceeds from sale and collections of loans held for sale2,217,259  2,789,433 
Changes in assets and liabilities:   
Decrease in advances and match funded assets226,742  215,525 
Decrease in receivables and other assets, net87,548  75,208 
(Decrease) increase in other liabilities(28,053) 40,955 
Other, net8,043  9,285 
Net cash provided by operating activities280,736  172,169 
Cash flows from investing activities   
Origination of loans held for investment(698,473) (675,665)
Principal payments received on loans held for investment192,569  238,838 
Purchase of mortgage servicing rights(1,657) (12,432)
Proceeds from sale of mortgage servicing rights1,464  15,122 
Proceeds from sale of advances3,719  66,651 
Issuance of automotive dealer financing notes(85,076)  
Collections of automotive dealer financing notes76,264   
Additions to premises and equipment(7,243) (17,312)
Other2,277  8,179 
Net cash used in investing activities(516,156) (376,619)

(Dollars in thousands)

(Preliminary, Unaudited)
 For the Six Months Ended
June 30,
 2017 2016
Cash flows from financing activities   
Repayment of match funded liabilities, net(172,620) (152,668)
Proceeds from mortgage loan warehouse facilities and other secured borrowings4,216,466  4,173,609 
Repayments of mortgage loan warehouse facilities and other secured borrowings(4,475,642) (4,368,903)
Payment of debt issuance costs(841) (2,242)
Proceeds from sale of reverse mortgages (HECM loans) accounted for as a financing (HMBS-related borrowings)664,453  522,981 
Repurchase of common stock  (5,890)
Other(1,473) (794)
Net cash provided by financing activities230,343  166,093 
Net decrease in cash(5,077) (38,357)
Cash at beginning of year256,549  257,272 
Cash at end of period$251,472  $218,915 

Stephen Swett	
T: (203) 614-0141	
E: shareholderrelations@ocwen.com 

John Lovallo
T: (917) 612-8419
E: jlovallo@levick.com	

Dan Rene
T: (202) 973 -1325
E: drene@levick.com