HLSS (MM)

Ocwen Financial Corp (OCN) came up with impressive second-quarter 2013 results again, beating the Zacks Consensus Estimate and recording year-over-year improvement as well. The company’s adjusted earnings came in at $1.02 per share, ahead of the Zacks Consensus Estimate of $1.00 and substantially up from the prior-year quarter figure of 33 cents.

Results benefited from impressive top-line growth and a rise in interest income, partially offset by increased operating and interest expenses. Moreover, a strong balance sheet and good liquidity were the tailwinds.

After considering certain non-recurring items, Ocwen’s net income was $76.7 million or 53 cents per share, way above $44.8 million or 32 cents per share in the prior-year quarter.

Performance Details

Ocwen’s total revenue witnessed significant growth on a year-over-year basis to $530.0 million from $211.4 million in the prior-year quarter. This rise was driven by increased servicing and sub-servicing fees, gain on loans held for sale and other income. Total revenue also surpassed the Zacks Consensus Estimate of $497.0 million.

Operating expenses were $374.8 million, up substantially from $85.9 million in the year-ago quarter. All the expense components increased on a year-over-year basis.

Interest income rose significantly year over year to $9.1 million, while interest expenses leaped 71.2% from the prior-year quarter to $100.0 million.

Income from operations came in at $155.2 million, rising 23.7% from $125.5 million in the year-ago quarter.

As of Jun 30, 2013, Ocwen recorded cash of $439.7 million, up from $220.1 million as of Dec 31, 2012. Further, total assets came in at $7.1 billion, surging 24.6% from $5.6 billion as of Dec 31, 2012.

In the reported quarter, Ocwen completed 28,137 loan modifications (up 16.3% year over year), with Home Affordable Modification Program (HAMP) constituting 39% of the completed modifications.

Other Developments

In Jul 2013, Ocwen sold $2.4 billion of servicing advances and the rights to receive the servicing fees on loans with a UPB of nearly $83.6 billion to Home Loan Servicing Solutions, Ltd. (HLSS) for $707 million.

In Jun 2013, Ocwen entered into a definitive agreement to acquire mortgage servicing rights (MSRs) and advances related to $8.3 billion of largely non-agency UPB from Greenpoint Mortgage Funding, Inc. Earlier, in the same month, the company had announced a deal to buy MSRs worth $78 billion from Calif.-based OneWest Bank, FSB for nearly $2.53 billion.

In Apr 2013, Ocwen closed the deal to acquire Genworth Financial Home Equity Access, Inc. from Genworth Financial, Inc. (GNW) for approximately $22 million in cash. In the same month, Ocwen also completed the acquisition of $87 billion worth of Fannie Mae mortgage servicing rights (MSRs) from Ally Bank.

Further, in Apr 2013, Ocwen sold the diversified fee-based businesses acquired from Residential Capital LLC for $128.8 million to subsidiaries of Altisource Portfolio Solutions S.A.

Our Take

Ocwen’s near-term prospects seem uncertain owing to market volatility and subprime MSR market contraction. However, the company remains committed to new business acquisitions and loan modifications. Going forward, these are expected to boost profitability. Additionally, the company’s recent acquisitions will benefit its financials in the long term.

Notably, with the ongoing fall in home prices, Ocwen might get even more opportunities to acquire distressed servicing portfolios at low prices. On the flip side, sluggish economic recovery and persistently rising operating expenses remain our major concerns.

Ocwen currently carries a Zacks Rank #3 (Hold). Among other peers, Nationstar Mortgage Holdings Inc. (NSM) is scheduled to announce  results on Aug 6.

 
GENWORTH FINL (GNW): Free Stock Analysis Report
 
HOME LOAN SERVC (HLSS): Free Stock Analysis Report
 
NATIONSTAR MTGE (NSM): Free Stock Analysis Report
 
OCWEN FINL CORP (OCN): Free Stock Analysis Report
 
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