OCWEN FINANCIAL PROVIDES COMPANY UPDATE
Taking Decisive Action to Address COVID-19
Updating 2020 Earnings Guidance due to Evolving Business and Financial Implications of COVID-19
Ocwen is taking decisive actions to address the COVID-19 global pandemic. These actions include a prohibition on international travel, non-essential domestic travel, and in-person meetings, as well as increased sanitary protocols in its facilities. The Company is following CDC, WHO and local guidelines and its business continuity and crisis management teams and executive leadership are meeting virtually on a daily basis. Ocwen is currently operating through a remote workforce model for approximately 85% of its global workforce. Approximately 10% of its
Liquidity and Covenant Compliance
Ocwen currently expects to be in compliance with all of its financial covenants under its debt agreements at the end of the first quarter. As of
The Company recognizes the considerable uncertainty in the current environment relating to the impact of the COVID-19 pandemic, including with respect to the response of the
Ocwen is responding by focusing on what it can control and by proactively evaluating the potential impact of COVID-19 under various scenarios. For example, the Company is evaluating the potential impact of COVID-19 related borrower job losses and reductions in income, as well as other related impacts as it assesses the timing and magnitude of potential increases in servicer advance levels and servicing costs based on increased borrower delinquency levels, among other factors that could affect its liquidity and financial condition assessments. Ocwen is communicating proactively with Fannie Mae, Freddie Mac,
Ocwen serviced approximately
For the quarter ended
For PLS loans, while they are not explicitly covered under the CARES Act, Ocwen nevertheless intends to provide payment relief to such borrowers along the lines of the guidance the Company has received from several states for borrowers adversely impacted by the COVID-19 pandemic. In particular, the Company intends to grant borrowers an initial three months of forbearance and related protection administrated through a series of one-month forbearance plans each of which advance the due date upon completion and move the resulting missed payment to or near the loan’s maturity as a non-interest bearing balance. As such, Ocwen does not expect to be out of pocket cash for any more than one month for each loan with forbearance protection. Before the completion of this initial period of forbearance, Ocwen will attempt to contact the borrower to assess their ability to resume making payments and discuss other options which may be available if their hardship persists. The Company has a PLS servicing advance financing line that provides financing at weighted average advance rates of 92% of eligible principal and interest advances. As of
For Freddie Mac advances, Ocwen has a servicing advance financing line that provides financing at weighted average advance rates of 98% of eligible principal and interest advances. As of
The Company believes the disruption created by the measures being taken to drive social distancing may give rise to industry-wide elevated delinquency levels. Ocwen is an experienced special servicer with proven capability to assist borrowers who are facing financial difficulties and generate positive outcomes for mortgage loan investors. The Company has the necessary operating processes, practices and systems to track large servicer advance balances at a detailed level and drive strong advance recoveries within elevated delinquency portfolios. Ocwen believes the current environment may create opportunities to assist borrowers who are facing financial difficulties in retaining their homes while improving cash flow for mortgage loan investors.
Recent declines in interest rates and the continued execution of the Company’s originations strategy have led to an increase in mortgage refinancing activity in the Company’s portfolio retention channel. Daily lock volume in
Bid volume in the Company’s correspondent lending channel was approximately
In the current environment, there are several factors that could impact Ocwen’s volume and industry-wide volume levels in all channels, including COVID-19 related impacts to the lending ecosystem (e.g., appraiser unwillingness to enter homes; borrower unwillingness to allow appraisers into homes; title agent office closings; and delays in obtaining, and uncertainty relating to the validity of, verifications of borrower employment), volatility of market interest rates, primary and secondary spread volatility, industry capacity constraints, and uncertainty regarding the future value of newly originated MSRs in light of the current wide spread between the 10-year treasury rate and the 30-year conventional fixed rate mortgage rate.
In this environment, the Company’s current capital allocation priorities are maintaining liquidity to support its operations and funding its flow origination channels. The Company continues to monitor its liquidity and calibrate its originations activity based on its evolving assessment of the business environment and the Company’s liquidity and financial condition. The situation is fluid with many unknowns. As a result, the Company no longer has the visibility necessary to re-calibrate its 2020 lending volume targets at this time. Ocwen continues to proactively execute on its balance sheet optimization initiatives and intends to provide an update on the Company’s capital allocation priorities as well as its mortgage originations activity and targets during its first quarter 2020 earnings call.
Based on the decline in the 10-year treasury rate of 118 basis points from year-end 2019 to
1 For additional detail, please see Ocwen’s 2019 Form 10-K filed with the
Reverse Stock Split
Management is focused on positioning Ocwen’s stock to be an attractive investment to the broadest possible base of investors. As such, the Company intends to seek shareholder approval at its 2020 annual shareholder meeting for a reverse stock split.
As a result of COVID-19 and the associated uncertainty in the capital markets and mortgage lending and servicing ecosystems, as well as impacts on borrower behavior, employee productivity, and the economy generally, Ocwen no longer has the visibility to reaffirm its previous guidance that it expects to achieve pre-tax profitability, excluding income statement notables and amortization of New Residential Investment Corp. (NRZ) lump-sum payments, in the third quarter of 2020 nor that pre-tax earnings, excluding income statement notables, will be positive for the full year 2020. As stated in the Company’s
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 “expect”, “believe”, “foresee”, “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 and we are in the midst of a period of significant capital markets volatility and experiencing significant changes within the mortgage lending and servicing ecosystem 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, uncertainty relating to the impacts of the COVID-19 pandemic, including with respect to the response of the
Note Regarding Financial Performance Estimates and Statements Regarding the Impact of the COVID-19 Pandemic
This press release contains statements relating to our preliminary first quarter financial performance and our current assessments of the impact of the COVID-19 pandemic. These statements are based on currently available information and reflect our current estimates and assessments, including about matters that are beyond our control. We are operating in a fluid and evolving environment and actual outcomes may differ materially from our current estimates and assessments. The Company has not finished its first quarter financial closing procedures. There can be no assurance that actual results will not differ from our current estimates and assessments, including as a result of first quarter financial closing procedures, and any such differences could be material.
Note Regarding Non-GAAP Financial Measures
This press release contains references to non-GAAP financial measures, such as our references to pre-tax profitability, excluding income statement notables and amortization of NRZ lump-sum payments and pre-tax earnings excluding income statement notables.
For additional information relating to these non-GAAP financial measures and Ocwen’s use of these non-GAAP financial measures, see Ocwen’s
We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition. However, these measures should not be analyzed in isolation or as a substitute to analysis of our GAAP expenses and pre-tax income (loss). There are certain limitations to the analytical usefulness of the adjustments we make to GAAP expenses and pre-tax income (loss) and, accordingly, we rely primarily on our GAAP results and use these adjustments only for purposes of supplemental analysis. 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
Pre-tax profitability, excluding income statement notables and amortization of NRZ lump-sum payments refers to our pre-tax income/(loss) after excluding the positive impact of the amortization of NRZ lump-sum payments and after adjusting GAAP pre-tax income/(loss) for the following factors (1) Expense Notables (excluding MSR Valuation Adjustments, net), (2) changes in fair value of our Non-Agency MSRs due to changes in interest rates, valuation inputs and other assumptions, (3) changes in fair value of our Agency MSRs due to changes in interest rates, valuation inputs and other assumptions, net of hedge position, (4) offsets to changes in fair value of our MSRs in our NRZ financing liability due to changes in interest rates, valuation inputs and other assumptions, (5) changes in fair value of our reverse lending portfolio due to changes in interest rates, valuation inputs and other assumptions (6) gains related to exercising servicer call rights, and (7) certain other costs, including pension benefits (collectively, Other) consistent with the intent of providing management and investors with a supplemental means of evaluating our pre-tax income/(loss). Collectively, we refer to these adjustments as “income statement notables.” “Expense Notables” includes (1) expense related to severance, retention and other cost re-engineering actions, (2) certain significant legal and regulatory settlement expense items, (3)
Pre-tax earnings excluding income statement notables adjusts GAAP pre-tax income/(loss) for income statement notables.
FOR FURTHER INFORMATION CONTACT:
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Source: Ocwen Financial Corp.