SEC Filing | Ocwen Financial Corporation

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ocn-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from: ____________________ to ____________________

Commission File No. 1-13219

OCWEN FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Florida		65-0039856
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1661 Worthington Road, Suite 100		33409
West Palm Beach,	Florida
(Address of principal executive office)		(Zip Code)

(561) 682-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	OCN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No x

Number of shares of common stock outstanding as of October 31, 2022: 7,590,348 shares

OCWEN FINANCIAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS


		PAGE
PART I - FINANCIAL INFORMATION

Item 1.	Unaudited Consolidated Financial Statements	5

	Consolidated Balance Sheets at September 30, 2022 and December 31, 2021	5

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021	6

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021	7

	Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2022 and 2021	8

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	10

	Notes to Unaudited Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	59

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	98

Item 4.	Controls and Procedures	102

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	102

Item 1A.	Risk Factors	102

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	103

Item 6.	Exhibits	103

Signatures		104

FORWARD-LOOKING STATEMENTS

This Quarterly Report 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. All statements, other than statements of historical fact included in this report, including statements regarding our financial position, business strategy and other plans and objectives for our future operations, are forward-looking statements.

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. Readers should bear these factors in mind when considering forward-looking 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 from those suggested by such statements. 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 include, but are not limited to, the risks discussed under Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021 and the following:

•the potential for ongoing disruption in the financial markets and in commercial activity generally related to changes in monetary and fiscal policy, international events including the conflict in Ukraine and other sources of instability;

•the impacts of inflation, employment disruption, and other financial difficulties facing our borrowers;

•our ability to timely reduce operating costs, or generate offsetting revenue, in proportion to the recent industry-wide decrease in originations activity and the impact of cost-reduction initiatives on our business and operations;

•the amount of common stock that we may repurchase under any future stock repurchase programs, the timing of such repurchases, and the long-term impact, if any, of repurchases on the trading price of our stock;

•uncertainty relating to the continuing impacts of the COVID-19 pandemic, including with respect to the response of the U.S. government, state governments, the Federal National Mortgage Association (Fannie Mae), and Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the GSEs), the Government National Mortgage Association (Ginnie Mae) and regulators;

•the proportion of borrowers who enter into forbearance plans, the financial ability of borrowers to resume repayment and their timing for doing so;

•the extent to which our mortgage servicing rights (MSR) joint venture with Oaktree Capital Management L.P. and its affiliates (Oaktree), other transactions and our enterprise sales initiatives will generate additional subservicing volume and result in increased profitability;

•our ability, and the ability of MSR Asset Vehicle LLC (MAV), to bid competitively for, and close acquisitions of, MSRs on terms that will enable us to achieve our growth objectives and a favorable return on our investment in MAV;

•our ability to identify, enter into and close additional strategic transactions, including the ability to obtain regulatory approvals, enter into definitive financing arrangements, and satisfy closing conditions, and the timing for doing so;

•our ability to efficiently integrate the operations and assets of acquired businesses and to retain their employees and customers over time;

•the extent to which we will be able to execute call rights transactions, and whether such transactions will generate the returns anticipated;

•the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover servicing advances, forward and reverse whole loans, and Home Equity Conversion Mortgage (HECM) and forward loan buyouts and put-backs, as well as 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;

•increased servicing costs based on rising borrower delinquency levels or other factors, including an increase in severe weather events resulting in property damage and financial hardship to our borrowers;

•reduced collection of servicing fees and ancillary income and delayed collection of servicing revenue as a result of forbearance plans and moratoria on evictions and foreclosure proceedings;

•our ability to improve our financial performance through cost re-engineering initiatives and other actions;

•our ability to maintain and increase market share in our target markets, including in forward and reverse servicing;

•our ability to reduce expenses in our mortgage origination business in response to market adjustments;

•uncertainty related to our long-term relationship with Rithm Capital Corp. (formerly New Residential Investment Corp., our largest subservicing client as of September 30, 2022;

•uncertainty related to past, present or future claims, litigation, cease and desist orders and investigations relating to our business practices, including those brought by private parties and 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);

•adverse effects on our business as a result of regulatory investigations, litigation, cease and desist orders or settlements and the reactions of key counterparties, including lenders, the GSEs and Ginnie Mae;

•the costs of complying with the terms of our settlements with regulatory agencies and disputes as to whether we have fully complied;

•any adverse developments in existing legal proceedings or the initiation of new legal proceedings;

•our ability to efficiently manage our regulatory and contractual compliance obligations and fully comply with all applicable requirements;

•uncertainty related to changes in legislation, regulations, government programs and policies, industry initiatives, best servicing and lending practices, and media scrutiny of our business and industry;

•the extent to which changes in the law as well as changes in the interpretation of law may require us to modify our business practices and expose us to increased expense and litigation risk;

•our ability to interpret correctly and comply with current or future liquidity, net worth and other financial and other requirements of regulators, the GSEs and Ginnie Mae, as well as those set forth in our debt and other agreements, including our ability to identify and implement a cost-effective response to Ginnie Mae’s recently announced risk-based capital requirements that take effect in late 2024;

•our ability to comply with our servicing agreements, including our ability to comply with our agreements with the GSEs and Ginnie Mae and maintain our seller/servicer and other statuses with them;

•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;

•failure of our, or our vendors’, information technology or other security systems or breach of our, or our vendors’, privacy protections, including any failure to protect customers’ data;

•our reliance on our technology vendors to adequately maintain and support our systems, including our servicing systems, loan originations and financial reporting systems, and uncertainty relating to our ability to transition to alternative vendors, if necessary, without incurring significant cost or disruption to our operations;

•increased difficulty recruiting and retaining existing or new senior managers and key employees;

•increased compensation and benefits expense as a result of rising inflation and labor market trends;

•uncertainty related to the actions of loan owners and guarantors, including mortgage-backed securities investors, the GSEs, Ginnie Mae and trustees regarding loan put-backs, penalties and legal actions;

•uncertainty related to the GSEs substantially curtailing or ceasing to purchase our conforming loan originations or the Federal Housing Administration (FHA) of the HUD, Department of Veterans Affairs (VA) or United States Department of Agriculture (USDA) ceasing to provide insurance;

•uncertainty related to our ability to continue to collect certain expedited payment or convenience fees and potential liability for charging such fees;

•uncertainty related to our reserves, valuations, provisions and anticipated realization of assets;

•uncertainty related to the ability of third-party obligors and financing sources to fund servicing advances on a timely basis on loans serviced by us;

•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 the processes for judicial and non-judicial foreclosure proceedings, including potential additional costs or delays or moratoria in the future or claims pertaining to past practices;

•our ability to adequately manage and maintain real estate owned (REO) properties and vacant properties collateralizing loans that we service;

•our ability to realize anticipated future gains from future draws on existing loans in our reverse mortgage portfolio;

•our ability to effectively manage our exposure to interest rate changes and foreign exchange fluctuations;

•our ability to effectively transform our operations in response to changing business needs, including our ability to do so without unanticipated adverse tax consequences;

•increasingly frequent and costly disruptions to our operations as a result of severe weather events;

•uncertainty related to the political or economic stability of the United States and of the foreign countries in which we have operations; and

•our ability to maintain positive relationships with our large shareholders and obtain their support for management proposals requiring shareholder approval.

Further information on the risks specific to our business is detailed within this report and our other reports and filings with the SEC including our Annual Report on Form 10-K for the year ended December 31, 2021, our Quarterly Report on Form 10-Q and our Current Reports on Form 8-K since such date. Forward-looking statements speak only as of the date they were made and we disclaim any obligation to update or revise forward-looking statements whether because of new information, future events or otherwise.

PART I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)


	September 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	226,570	$	192,792
Restricted cash ($11,859 and $9,759 related to variable interest entities (VIEs))	45,269		70,654
Mortgage servicing rights (MSRs), at fair value	2,714,225		2,250,147
Advances, net ($540,142 and $587,059 related to VIEs)	642,461		772,433

Loans held for sale ($725,218 and $917,534 carried at fair value) ($0 and $462,144 related to VIEs)	729,638		928,527
Loans held for investment, at fair value ($6,802 and $7,879 related to VIEs)	7,402,285		7,207,641
Receivables, net	170,838		180,707





Investment in equity method investee	38,711		23,297
Premises and equipment, net	18,782		13,674
Other assets ($25,014 and $21,886 carried at fair value) ($2,857 and $1,530 related to VIEs)	371,290		507,250

Total assets	$	12,360,069	$	12,147,123

Liabilities and Equity
Liabilities
Home Equity Conversion Mortgage-Backed Securities (HMBS) related borrowings, at fair value	$	7,208,385	$	6,885,022
Other financing liabilities, at fair value ($341,965 and $238,144 due to related party) ($6,802 and $7,879 related to VIEs )	989,722		804,963
Advance match funded liabilities ($456,233 and $512,297 related to VIEs)	457,452		512,297
Mortgage loan warehouse facilities	819,557		1,085,076
MSR financing facilities, net	1,020,606		900,760

Senior notes, net ($228,122 and $222,242 due to related party)	597,129		614,797

Other liabilities ($23,747 and $3,080 carried at fair value)	721,112		867,514

Total liabilities	11,813,963		11,670,429

Commitments and Contingencies (Notes 21 and 22)

Stockholders’ Equity

Common stock, $.01 par value; 13,333,333 shares authorized; 7,934,594 and 9,208,312 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	79		92

Additional paid-in capital	556,290		592,572
Accumulated deficit	(8,229)		(113,604)
Accumulated other comprehensive loss, net of income taxes	(2,034)		(2,366)


Total stockholders’ equity	546,106		476,694
Total liabilities and stockholders’ equity	$	12,360,069	$	12,147,123

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED 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,
	2022		2021		2022		2021
Revenue
Servicing and subservicing fees	$	215,562	$	206,585	$	643,316	$	562,764
Reverse mortgage revenue, net	6,885		5,035		17,379		56,162
Gain (loss) on loans held for sale, net	18,931		59,702		16,665		108,136

Other revenue, net	8,344		11,779		26,084		29,078
Total revenue	249,722		283,101		703,444		756,140

MSR valuation adjustments, net	95,159		(6,320)		190,989		(57,562)

Operating expenses
Compensation and benefits	71,320		68,960		223,202		209,413
Servicing and origination	18,998		27,932		52,264		82,044
Technology and communications	14,380		14,737		43,983		41,050
Professional services	17,196		18,379		38,049		61,245
Occupancy and equipment	12,396		8,962		32,121		25,699


Other expenses	7,118		6,466		23,178		15,422
Total operating expenses	141,408		145,436		412,797		434,873

Other income (expense)
Interest income	13,732		7,869		30,590		15,993
Interest expense ($10,578, $10,238, $31,461 and $21,351 on amounts due to related party)	(50,395)		(40,623)		(126,131)		(102,591)
Pledged MSR liability expense ($28,845, $(2,094), $104,202, and $(2,094) on amounts due to related party)	(131,635)		(91,160)		(292,616)		(168,820)
Earnings of equity method investee	3,346		932		19,281		1,282
Gain (loss) on extinguishment of debt	—		—		914		(15,458)


Other, net	(5,538)		1,900		(9,936)		5,554
Total other income (expense), net	(170,490)		(121,082)		(377,898)		(264,040)

Income (loss) before income taxes	32,983		10,263		103,738		(335)
Income tax expense (benefit)	(3,956)		(11,289)		(1,637)		(20,108)
Net income	$	36,939	$	21,552	$	105,375	$	19,773



Earnings per share
Basic	$	4.33	$	2.35	$	11.71	$	2.21
Diluted	$	4.17	$	2.29	$	11.34	$	2.13

Weighted average common shares outstanding
Basic	8,530,209		9,189,030		8,998,298		8,960,696
Diluted	8,866,925		9,401,858		9,295,857		9,270,751

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	36,939	$	21,552	$	105,375	$	19,773

Other comprehensive income (loss), net of income taxes:


Change in unfunded pension plan obligation liability	91		(386)		273		(1,119)
Other	16		18		60		63
Comprehensive income	$	37,047	$	21,184	$	105,707	$	18,717

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Dollars in thousands)


	Common Stock			Additional Paid-in Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Income Taxes		Total
	Shares	Amount

Balance at June 30, 2022	9,189,005	$	92	$	591,132	$	(45,168)	$	(2,141)	$	543,915
Net income	—	—		—		36,939		—		36,939




Repurchase of common stock	(1,254,411)	(13)		(36,494)		—		—		(36,507)




Equity-based compensation and other	—	—		1,652		—		—		1,652
Other comprehensive income, net of income taxes	—	—		—		—		107		107
Balance at September 30, 2022	7,934,594	$	79	$	556,290	$	(8,229)	$	(2,034)	$	546,106

Balance at June 30, 2021	9,189,030	$	92	$	590,252	$	(133,461)	$	(9,783)	$	447,100
Net income	—	—		—		21,552		—		21,552








Equity-based compensation and other	—	—		1,587		—		—		1,587
Other comprehensive loss, net of income taxes	—	—		—		—		(368)		(368)
Balance at September 30, 2021	9,189,030	$	92	$	591,839	$	(111,909)	$	(10,151)	$	469,871

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Dollars in thousands)



	Common Stock			Additional Paid-in Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Loss, Net of Income Taxes		Total
	Shares	Amount

Balance at December 31, 2021	9,208,312	$	92	$	592,572	$	(113,604)	$	(2,366)	$	476,694
Net income	—	—		—		105,375		—		105,375




Repurchase of common stock	(1,338,498)	(13)		(38,755)		—		—		(38,768)




Equity-based compensation and other	64,780	1		2,473		—		—		2,474
Other comprehensive income, net of income taxes	—	—		—		—		332		332
Balance at September 30, 2022	7,934,594	$	79	$	556,290	$	(8,229)	$	(2,034)	$	546,106

Balance at December 31, 2020	8,687,750	$	87	$	556,062	$	(131,682)	$	(9,095)	$	415,372
Net income	—	—		—		19,773		—		19,773
Issuance of common stock	426,705	4		12,165		—		—		12,169





Issuance of common stock warrants, net of issuance costs	—	—		19,956		—		—		19,956
Equity-based compensation and other	74,575	1		3,656		—		—		3,657
Other comprehensive income, net of income taxes	—	—		—		—		(1,056)		(1,056)
Balance at September 30, 2021	9,189,030	$	92	$	591,839	$	(111,909)	$	(10,151)	$	469,871

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)


	For the Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net income	$	105,375	$	19,773
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
MSR valuation adjustments, net	(190,989)		57,562
Loss on sale of MSRs, net	317		64

Provision for bad debts	15,235		16,069
Depreciation	7,649		7,527

Amortization of debt issuance costs and discount	7,526		5,438
Amortization of intangibles	3,332		—
Equity-based compensation expense	2,773		3,697
Loss (gain) on extinguishment of debt	(914)		15,458



Loss on valuation of Pledged MSR financing liability	184,936		71,273
Net loss (gain) on valuation of loans held for investment and HMBS-related borrowings	15,802		(9,993)
Earnings of equity method investee	(19,281)		(1,282)
Distribution of earnings from equity method investee	5,175		—
Gain on loans held for sale, net	(16,665)		(108,136)

Origination and purchase of loans held for sale	(13,489,346)		(12,987,522)
Proceeds from sale and collections of loans held for sale	13,527,586		12,411,398
Changes in assets and liabilities:
Decrease in advances, net	101,753		69,868
Decrease in receivables and other assets, net	22,350		9,659
Decrease (increase) in other liabilities	(23,083)		9,582
Other, net	83		(3,271)
Net cash provided by (used in) operating activities	259,614		(412,836)

Cash flows from investing activities
Origination of loans held for investment	(1,493,951)		(1,214,772)
Principal payments received on loans held for investment	1,322,519		1,172,011
Acquisition of loans held for investment, net	(4,089)		—
Acquisition of reverse mortgage subservicing agreements	(6,906)		—
Purchase of MSRs	(174,886)		(785,194)
Proceeds from sale of MSRs	149,051		—


Proceeds from sale of advances	2,462		305


Additions to premises and equipment	(4,760)		(2,062)
Purchase of real estate	(863)		(6,057)
Proceeds from sale of real estate	6,156		8,350
Proceeds from sale of premises and equipment	135		624

Investment in equity method investee	(33,750)		(18,512)
Distribution of capital from equity method investee	32,385		—
Other, net	(1)		(74)
Net cash used in investing activities	(206,498)		(845,381)
Cash flows from financing activities
Repayment of advance match funded liabilities, net	(54,845)		(64,716)

Repayment of other financing liabilities	(85,476)		(62,076)
Proceeds from (repayment of) mortgage loan warehouse facilities, net	(265,519)		617,457
Proceeds from MSR financing facilities	379,739		680,711
Repayment of MSR financing facilities	(257,757)		(170,500)
Repurchase and repayment of Senior notes	(23,625)		(319,156)
Proceeds from issuance of Senior notes and warrants	—		647,944
Repayment of senior secured term loan (SSTL) borrowings	—		(188,700)
Payment of debt issuance costs	(1,261)		(16,173)
Proceeds from sale of MSRs accounted for as secured financing	78,742		130,024
Proceeds from Excess Servicing Spread (ESS) liability financing	36,241		—
Proceeds from sale of Home Equity Conversion Mortgages (HECM, or reverse mortgages) accounted for as a financing (HMBS-related borrowings)	1,507,617		1,119,742
Repayment of HMBS-related borrowings	(1,319,811)		(1,161,609)

Issuance of common stock	—		9,878
Repurchase of common stock	(