- Reported a Net Loss of $42.8 million for the third quarter of 2019
- Realized annualized run rate cost savings ahead of our expectations through the third quarter and are targeting a more accelerated pace of cost re-engineering in the fourth quarter
- Enhanced lending capabilities resulted in an increase in funded volume of 29% compared to third quarter 2018 and approximately $2.6 billion of annualized volume in the month of October
- Implemented a hedging program to mitigate a portion of the interest rate risk associated with our servicing portfolio
- Refinanced $470 million of servicing advance (OMART) ABS at favorable terms and paid down $143.2 million of corporate debt including the opportunistic repurchase of $39.4 million in senior secured notes
- Ended the quarter with $345.1 million of cash and $381.2 million of total stockholders' equity, or a book value per share of $2.83
WEST PALM BEACH, Fla., Nov. 05, 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 $42.8 million, or $0.32 per share, for the three months ended September 30, 2019 compared to a net loss of $41.1 million or $0.31 per share for the three months ended September 30, 2018.
Glen A. Messina, President and CEO of Ocwen said, “We have made substantial progress with respect to our key business initiatives while proactively addressing the challenges of a more volatile and uncertain interest rate environment. I continue to be encouraged by our high level of execution relative to our plans to improve financial performance and strengthen our long-term competitiveness. With the integration largely complete, we are increasingly focused on growing our lending channels as we look to create a more balanced business that can better perform through the mortgage industry cycle and capitalize on potential growth opportunities.”
Mr. Messina added, “We are pleased with our success to date in re-engineering our cost structure and achieving our integration objectives. We believe that having a core strength in continuous cost improvement is critical for our long-term success. Our entire organization is highly engaged in efforts to achieve and sustain a highly competitive cost structure and return to profitability.”
Third quarter 2019 Results
Pre-tax loss for the third quarter of 2019 was $38.3 million, which compares to a $40.3 million loss in the third quarter of 2018. Pre-tax results for the quarter were impacted by several significant items, including but not limited to: $18.3 million in severance, retention and other re-engineering costs, $5.1 million gain on repurchase of senior secured notes, and $6.3 million of unfavorable interest rate and valuation assumption driven fair value changes, net of the NRZ financing liability, reverse mortgage servicing and hedge positions.
The Servicing segment recorded $13.2 million of pre-tax loss for the third quarter of 2019. Our servicing business recorded $9.3 million of interest rate and valuation assumption driven unfavorable MSR fair value changes, net of the NRZ financing liability fair value change and hedge positions in the quarter.
The Lending segment recorded $8.9 million of pre-tax income for the third quarter of 2019. Our reverse mortgage lending business recorded $9.5 million of pre-tax income, which included $2.9 million of interest rate driven favorable fair value changes. Our forward lending business incurred a $(0.6) million pre-tax loss.
The Corporate segment recorded $34.0 million of pre-tax loss for the third quarter of 2019. The quarter included $18.3 million of severance, retention and other re-engineering costs and $5.1 million of gain on repurchase of senior secured notes.
Additional Third quarter 2019 Business Highlights
- We have closed MSR acquisitions with $11.9 billion of unpaid principal balance (UPB) to date in 2019.
- Completed 6,245 modifications in the quarter to help struggling families stay in their homes.
- The constant pre-payment rate (CPR) increased from 15.2% in the second quarter of 2019 to 17.7% in the third quarter of 2019 due to lower interest rates. In the third quarter of 2019, prime CPR was 22.1%, and non-prime CPR was 15.0%.
- In the third quarter of 2019, Ocwen originated forward and reverse mortgage loans with unpaid principal balances of $224.1 million and $188.1 million, respectively. Combined October volume was approximately $218 million. Annualized October volume was approximately $2.6 billion.
- Our reverse mortgage portfolio ended the quarter with an estimated $55.5 million in discounted future gains from forecasted future draws on existing loans. Neither the anticipated future gains nor the future funding liability is included in the Company’s financial statements.
Webcast and Conference Call
Ocwen will host a webcast and conference call on Tuesday, November 5, 2019, at 8:30 a.m., Eastern Time, to discuss its financial results for the third 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 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 our cost re-engineering efforts and the other actions we believe are necessary for us to improve our financial performance; our ability to acquire MSRs or other assets or businesses at adequate risk-adjusted returns, including our ability to negotiate and execute purchase documentation and satisfy closing conditions so as to consummate such acquisitions; uncertainty related to our ability to grow our lending business and increase our lending volumes in a competitive market and uncertain interest rate environment, 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 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, Fannie Mae, Freddie Mac and Ginnie Mae, 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 | |||||||||||||||||||||||||||
| September 30, 2019 | | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | ||||||||||||||||||||||
| Total unpaid principal balance of loans and REO serviced | $ | 216,754,784 | $ | 229,283,045 | $ | 251,080,740 | $ | 256,000,490 | $ | 160,996,474 | |||||||||||||||||
| Non-performing loans and REO serviced as a % of total UPB (1) | 5.7 | % | 5.5 | % | 4.7 | % | 4.9 | % | 7.8 | % | |||||||||||||||||
| Prepayment speed (average CPR) (2) (3) | 17.7 | % | 15.2 | % | 12.5 | % | 12.9 | % | 13.7 | % | |||||||||||||||||
- 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.
- 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.
- Average CPR for the three months ended September 30, 2019 includes 22.1% for prime loans and 15.0% for non-prime loans.
| Segment Results (Dollars in thousands) | |||||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Servicing | |||||||||||||||
| Revenue | $ | 250,224 | $ | 217,630 | $ | 752,010 | $ | 674,233 | |||||||
| Expenses | 890 | 185,077 | 556,874 | 523,061 | |||||||||||
| Other expense, net | (262,523 | ) | (46,452 | ) | (324,833 | ) | (142,504 | ) | |||||||
| Income (loss) before income taxes | (13,189 | ) | (13,899 | ) | (129,697 | ) | 8,668 | ||||||||
| Lending | |||||||||||||||
| Revenue | 29,502 | 16,917 | 99,386 | 65,116 | |||||||||||
| Expenses | 20,665 | 18,954 | 63,021 | 57,036 | |||||||||||
| Other income (expense), net | 53 | (28 | ) | 744 | 26 | ||||||||||
| Income (loss) before income taxes | 8,890 | (2,065 | ) | 37,109 | 8,106 | ||||||||||
| Corporate Items and Other | |||||||||||||||
| Revenue | 3,789 | 3,731 | 10,345 | 12,767 | |||||||||||
| Expenses | 23,169 | 13,495 | 36,428 | 49,580 | |||||||||||
| Other expense, net | (14,638 | ) | (14,545 | ) | (45,063 | ) | (43,674 | ) | |||||||
| Loss before income taxes | (34,018 | ) | (24,309 | ) | (71,146 | ) | (80,487 | ) | |||||||
| Consolidated loss before income taxes | $ | (38,317 | ) | $ | (40,273 | ) | $ | (163,734 | ) | $ | (63,713 | ) | |||
| 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, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Revenue | |||||||||||||||
| Servicing and subservicing fees | $ | 247,714 | $ | 213,730 | $ | 742,759 | $ | 658,095 | |||||||
| Gain on loans held for sale, net | 16,013 | 16,942 | 48,683 | 61,135 | |||||||||||
| Other revenue, net | 19,788 | 7,606 | 70,299 | 32,886 | |||||||||||
| Total revenue | 283,515 | 238,278 | 861,741 | 752,116 | |||||||||||
| Expenses | |||||||||||||||
| Compensation and benefits | 73,414 | 63,307 | 250,393 | 211,220 | |||||||||||
| MSR valuation adjustments, net | (134,561 | ) | 41,448 | 121,705 | 91,695 | ||||||||||
| Servicing and origination | 36,619 | 31,758 | 86,827 | 91,452 | |||||||||||
| Professional services | 36,628 | 40,662 | 77,205 | 110,821 | |||||||||||
| Technology and communications | 16,644 | 20,597 | 61,080 | 67,306 | |||||||||||
| Occupancy and equipment | 17,262 | 11,896 | 52,550 | 37,369 | |||||||||||
| Other expenses | (1,282 | ) | 7,858 | 6,563 | 19,814 | ||||||||||
| Total expenses | 44,724 | 217,526 | 656,323 | 629,677 | |||||||||||
| Other income (expense) | |||||||||||||||
| Interest income | 4,129 | 3,963 | 12,524 | 10,018 | |||||||||||
| Interest expense | (285,922 | ) | (61,288 | ) | (387,938 | ) | (189,601 | ) | |||||||
| Gain on repurchase of senior secured notes | 5,099 | — | 5,099 | — | |||||||||||
| Bargain purchase gain | — | — | (381 | ) | — | ||||||||||
| Other, net | (414 | ) | (3,700 | ) | 1,544 | (6,569 | ) | ||||||||
| Total other expense, net | (277,108 | ) | (61,025 | ) | (369,152 | ) | (186,152 | ) | |||||||
| Loss before income taxes | (38,317 | ) | (40,273 | ) | (163,734 | ) | (63,713 | ) | |||||||
| Income tax expense | 4,450 | 845 | 13,264 | 4,541 | |||||||||||
| Net loss | (42,767 | ) | (41,118 | ) | (176,998 | ) | (68,254 | ) | |||||||
| Net income attributable to non-controlling interests | — | (29 | ) | — | (176 | ) | |||||||||
| Net loss attributable to Ocwen stockholders | $ | (42,767 | ) | $ | (41,147 | ) | $ | (176,998 | ) | $ | (68,430 | ) | |||
| Loss per share attributable to Ocwen stockholders | |||||||||||||||
| Basic and Diluted | $ | (0.32 | ) | $ | (0.31 | ) | $ | (1.32 | ) | $ | (0.51 | ) | |||
| Weighted average common shares outstanding | |||||||||||||||
| Basic and Diluted | 134,595,798 | 133,912,425 | 134,329,321 | 133,632,905 | |||||||||||
| OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) | |||||||
| September 30, 2019 | December 31, 2018 | ||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 345,084 | $ | 329,132 | |||
| Restricted cash (amounts related to VIEs of $13,725 and $20,968) | 58,661 | 67,878 | |||||
| Mortgage servicing rights | 1,455,553 | 1,457,149 | |||||
| Advances, net | 212,684 | 249,382 | |||||
| Match funded advances (related to VIEs) | 825,760 | 937,294 | |||||
| Loans held for sale ($207,645 and $176,525 carried at fair value) | 275,579 | 242,622 | |||||
| Loans held for investment, at fair value (amounts related to VIEs of $24,445 and $26,520) | 6,073,687 | 5,498,719 | |||||
| Receivables, net | 152,222 | 198,262 | |||||
| Premises and equipment, net | 43,974 | 33,417 | |||||
| Other assets ($8,339 and $7,568 carried at fair value) (amounts related to VIEs of $4,422 and $2,874) | 513,449 | 379,567 | |||||
| Assets related to discontinued operations | — | 794 | |||||
| Total assets | $ | 9,956,653 | $ | 9,394,216 | |||
| Liabilities and Equity | |||||||
| Liabilities | |||||||
| Home Equity Conversion Mortgage-Backed Securities (HMBS) related borrowings, at fair value | $ | 5,903,965 | $ | 5,380,448 | |||
| Match funded liabilities (related to VIEs) | 687,497 | 778,284 | |||||
| Other financing liabilities ($1,009,779 and $1,057,671 carried at fair value) (amounts related to VIEs of $22,827 and $24,815) | 1,069,594 | 1,127,613 | |||||
| Other secured borrowings, net (amounts related to VIEs of $137,612 and $0) | 708,929 | 382,538 | |||||
| Senior notes, net | 310,788 | 448,727 | |||||
| Other liabilities ($3,319 and $4,986 carried at fair value) | 894,695 | 703,636 | |||||
| Liabilities related to discontinued operations | — | 18,265 | |||||
| Total liabilities | 9,575,468 | 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 September 30, 2019 and December 31, 2018 respectively | 1,346 | 1,339 | |||||
| Additional paid-in capital | 556,097 | 554,056 | |||||
| (Accumulated deficit) retained earnings | (173,415 | ) | 3,567 | ||||
| Accumulated other comprehensive loss, net of income taxes | (2,843 | ) | (4,257 | ) | |||
| Total stockholders’ equity | 381,185 | 554,705 | |||||
| Total liabilities and stockholders’ equity | $ | 9,956,653 | $ | 9,394,216 | |||
| OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) | |||||||
| For the Nine Months Ended September 30, | |||||||
| 2019 | 2018 | ||||||
| Cash flows from operating activities | |||||||
| Net loss | $ | (176,998 | ) | $ | (68,254 | ) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
| MSR valuation adjustments, net | 121,705 | 91,695 | |||||
| Gain on sale of MSRs, net | (571 | ) | (303 | ) | |||
| Provision for bad debts | 26,971 | 40,269 | |||||
| Depreciation | 26,020 | 18,199 | |||||
| Gain on repurchase of senior secured notes | (5,099 | ) | — | ||||
| Equity-based compensation expense | 1,890 | 1,244 | |||||
| Loss (gain) on valuation of financing liability | 123,237 | (11,323 | ) | ||||
| Net gain on valuation of mortgage loans held for investment and HMBS-related borrowings | (50,221 | ) | (8,057 | ) | |||
| Gain on loans held for sale, net | (29,820 | ) | (24,265 | ) | |||
| Bargain purchase gain | 381 | — | |||||
| Origination and purchase of loans held for sale | (872,914 | ) | (1,234,830 | ) | |||
| Proceeds from sale and collections of loans held for sale | 787,683 | 1,154,526 | |||||
| Changes in assets and liabilities: | |||||||
| Decrease in advances and match funded assets | 189,876 | 243,831 | |||||
| Decrease in receivables and other assets, net | 123,283 | 126,829 | |||||
| Decrease in other liabilities | (82,942 | ) | (46,767 | ) | |||
| Other, net | 1,105 | 8,739 | |||||
| Net cash provided by operating activities | 184,070 | 291,533 | |||||
| Cash flows from investing activities | |||||||
| Origination of loans held for investment | (675,898 | ) | (711,035 | ) | |||
| Principal payments received on loans held for investment | 383,806 | 296,800 | |||||
| Purchase of MSRs | (112,417 | ) | (2,729 | ) | |||
| Proceeds from sale of MSRs | 1,159 | 6,138 | |||||
| Acquisition of advances in connection with the purchase of MSRs | (1,457 | ) | — | ||||
| Proceeds from sale of advances | 2,876 | 7,882 | |||||
| Issuance of automotive dealer financing notes | — | (19,642 | ) | ||||
| Collections of automotive dealer financing notes | — | 52,598 | |||||
| Additions to premises and equipment | (1,342 | ) | (7,326 | ) | |||
| Other, net | 5,992 | 5,446 | |||||
| Net cash used in investing activities | (397,281 | ) | (371,868 | ) | |||
| OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS — (continued) (Dollars in thousands) | |||||||
| For the Nine Months Ended September 30, | |||||||
| 2019 | 2018 | ||||||
| Cash flows from financing activities | |||||||
| Repayment of match funded liabilities, net | (90,787 | ) | (284,372 | ) | |||
| Proceeds from mortgage loan warehouse facilities and other secured borrowings | 1,875,926 | 2,211,606 | |||||
| Repayment of mortgage loan warehouse facilities and other secured borrowings | (1,819,728 | ) | (2,522,723 | ) | |||
| Repayment and repurchases of Senior notes | (131,791 | ) | — | ||||
| Proceeds from issuance of additional senior secured term loan (SSTL) | 119,100 | — | |||||
| Repayment of SSTL borrowings | (19,074 | ) | (62,563 | ) | |||
| Payment of debt issuance costs related to SSTL | (1,284 | ) | — | ||||
| Proceeds from sale of MSRs accounted for as a financing | 1,221 | 279,586 | |||||
| Proceeds from sale of Home Equity Conversion Mortgages (HECM, or reverse mortgages) accounted for as a financing (HMBS-related borrowings) | 665,820 | 728,745 | |||||
| Repayment of HMBS-related borrowings | (377,094 | ) | (290,338 | ) | |||
| Capital distribution to non-controlling interest | — | (822 | ) | ||||
| Other, net | (2,363 | ) | (991 | ) | |||
| Net cash provided by financing activities | 219,946 | 58,128 | |||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 6,735 | (22,207 | ) | ||||
| Cash, cash equivalents and restricted cash at beginning of year | 397,010 | 302,560 | |||||
| Cash, cash equivalents and restricted cash at end of period(1) | $ | 403,745 | $ | 280,353 | |||
| (1) Cash and restricted cash as of September 30, 2019 and 2018 includes $345.1 million and $254.8 million of cash and $58.7 million and $25.5 million of restricted cash, respectively. | |||||||