Ocwen Financial Corporation (NYSE: OCN) (“Ocwen” or the “Company”),
a leading non-bank mortgage servicer and originator, today provided
preliminary information regarding its second quarter 2020 results
and progress on the Company’s key business priorities. A
presentation with additional detail regarding today’s announcement
is available on the Ocwen Financial Corporation website at
www.ocwen.com (through a link on the Shareholder Relations page).
The Company reported a net income of $2.0 million and a pre-tax
loss of $6.2 million for the three months ended June 30, 2020,
compared to a net loss of $89.7 million and a pre-tax loss of $84.3
million for the three months ended June 30, 2019. Adjusted pre-tax
income was $18 million for the quarter compared to a $27 million
adjusted pre-tax loss in the prior year period (see “Note Regarding
Non-GAAP Financial Measures” below).
Glen A. Messina, President and CEO of Ocwen, said, “Our
turnaround and profitability trajectory have strong momentum and we
are delivering on what we committed to do. We have established a
profitable, multi-channel originations platform that is delivering
remarkable growth, we have a competitive cost structure and our
proven special servicing skills position us well to capitalize on
current and emerging industry growth opportunities. Over the past
24 months we have improved our annualized pre-tax loss by $228
million and annualized adjusted pre-tax earnings run rate excluding
amortization of NRZ lump-sum payments by more than $350
million.”
Mr. Messina continued, “Ocwen is one of the few remaining
large-scale special servicers, and we believe we are one of the
best servicers for non-performing loans, with decades of
experience. We believe we are well positioned to assist homeowners
and investors in the current environment and deliver growth,
profitability and value for shareholders. I am incredibly proud of
today’s Ocwen and our global team for their steadfast focus on our
mission of creating positive outcomes for homeowners, communities
and investors. We continue to explore all strategic options to
leverage our proven operating capability in this environment to
fully realize the value of our platform.”
The Company reported the following preliminary results for the
second quarter 2020 (see “Note Regarding Non-GAAP Financial
Measures” and “Note Regarding Financial Performance Estimates”
below):
- Pre-tax loss was $6.2 million compared to pre-tax loss of $84.3
million for the second quarter 2019. Adjusted pre-tax income was
$17.8 million, included $10.0 million of amortization of NRZ
lump-sum payments; third consecutive quarter of positive adjusted
pre-tax income. COVID-19 impact was immaterial during the
quarter.
- Annualized pre-tax loss improved by $228 million compared to
the combined annualized pre-tax loss of Ocwen and PHH Corporation
for the second quarter 2018; annualized adjusted pre-tax earnings
run rate excluding amortization of NRZ lump-sum payments improved
by more than $350 million compared to the combined adjusted
annualized earnings run rate of Ocwen and PHH Corporation for the
second quarter 2018.
- Approximately $4.0 billion of servicing UPB originated through
forward and reverse lending channels, up 75% from prior quarter;
average daily lock volume of approximately $100 million in July to
date.
- Approximately $314 million of unrestricted cash at June 30,
2020, up from $264 million at March 31, 2020; previously identified
balance sheet optimization actions on track.
- Approximately 112,000 forbearance plans outstanding as of July
13, 2020, down from a peak of approximately 132,000 forbearance
plans outstanding at the end of the second quarter. Servicer
advance levels are approximately 17% below base case servicer
advance levels as of June 30, 2020.
- Following receipt of shareholder advisory approval in May 2020,
Ocwen’s Board of Directors has determined to move forward with a
reverse stock split in a ratio of 1:25. The Company currently
expects to make the reverse split effective in early August.
Webcast and Conference Call
Ocwen will hold a conference call on Friday, July 17, 2020 at
8:30 a.m. (ET) to review the Company’s preliminary second quarter
2020 operating results. A live audio webcast and slide presentation
for the call will be available at www.ocwen.com (through a link on
the Shareholder Relations page). 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. The Company expects to release final second quarter 2020
results in early August.
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 and Liberty Reverse Mortgage. 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 “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 U.S. government, state governments, Fannie Mae,
Freddie Mac, Ginnie Mae and regulators, as well as the potential
for ongoing disruption in the financial markets and in commercial
activity generally, increased unemployment, and other financial
difficulties facing our borrowers; impacts on our operations
resulting from employee illness, social distancing measures and our
shift to greater utilization of remote work arrangements; 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 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 increased borrower
delinquency levels or other factors; the impact of our planned
reverse split on the price and trading market for our common stock;
our ability to maintain compliance with the continued listing
standards of the New York Stock Exchange; the future of our
long-term relationship and remaining servicing agreements with NRZ;
our ability to execute an orderly and timely transfer of
responsibilities in connection with the previously disclosed
termination by NRZ of the PHH Mortgage Corporation (PMC)
subservicing agreement; the reactions of regulators, lenders and
other contractual counterparties, rating agencies, stockholders and
other stakeholders to the announcement of the termination by NRZ of
the PMC subservicing agreement; our ability to adjust our cost
structure and operations as the loan transfer process is being
completed in response to the previously disclosed termination by
NRZ of the PMC subservicing agreement, including unanticipated
costs and the timeline on which we can execute on these actions;
our ability to devote sufficient management attention and financial
resources to our growth and other strategic objectives as we
operate in the midst of a period of significant capital markets
volatility and change within the mortgage lending and servicing
ecosystem; uncertainty related to our ability to execute on
continuous 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 and at sufficient volume to achieve
our growth goals, including our ability to allocate resources for
investment, 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 together with Fannie Mae, the GSEs)
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; limits on our ability to
repurchase our own stock as a result of regulatory settlements and
other conditions; 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 impact on Ocwen of our
implementation of the CECL methodology for financial instruments
(ASU 2016-13 and ASU 2019-04); our ability to fund 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 and
uncertainties detailed in Ocwen’s reports and filings with the SEC,
including its annual report on Form 10-K for the year ended
December 31, 2019 and its current and quarterly reports since such
date. Anyone wishing to understand Ocwen’s business should review
its SEC filings. Our 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.
Note Regarding Non-GAAP Financial Measures
This press release contains references to non-GAAP financial
measures, such as our references to adjusted pre-tax income (loss)
and adjusted pre-tax income (loss) excluding amortization of NRZ
lump-sum payments.
We believe these non-GAAP financial measures provide a useful
supplement to discussions and analysis of our financial condition.
In addition, management believes that these presentations may
assist investors with understanding and evaluating our cost
re-engineering efforts and other initiatives to drive improved
financial performance. 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 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. Readers are cautioned not to
place undue reliance on analysis of the adjustments we make to GAAP
expenses and pre-tax income (loss).
Beginning with the three months ended June 30, 2020, we refined
our definitions of Expense Notables, which we previously referred
to as “Expenses Excluding MSR Valuation Adjustments, net, and
Expense Notables,” and Income Statement Notables in order to be
more descriptive of the types of items included.
Expense Notables
In the table titled “Expense Notables”, we adjust GAAP operating
expenses for the following factors (1) expenses related to
severance, retention and other actions associated with continuous
cost and productivity improvement efforts, (2) significant legal
and regulatory settlement expense itemsa, (3) NRZ consent process
expenses related to the transfer of legal title in MSRs to NRZ, (4)
PHH acquisition and integration planning expenses, and (5) certain
other significant activities including, but not limited to,
insurance related expense and settlement recoveries, compensation
or incentive compensation expense reversals and non-routine
transactions (collectively, Other) consistent with the intent of
providing management and investors with a supplemental means of
evaluating our expenses.
($ in millions) |
Q2’18 |
|
Q2’19 |
|
Q2’20(c) |
|
|
OCN |
PHH |
OCN + PHH |
OCN + PHH (Annualized) |
|
OCN |
OCN (Annualized) |
|
OCN |
OCN (Annualized) |
I |
Expenses (as reported) (a) |
206 |
|
71 |
|
277 |
|
1,107 |
|
|
331 |
|
1,326 |
|
|
|
|
II |
Reclassifications (b) |
— |
|
1 |
|
1 |
|
5 |
|
|
— |
|
— |
|
|
|
|
III |
Deduction of MSR valuation adjustments, net |
(33 |
) |
— |
|
(33 |
) |
(132 |
) |
|
(147 |
) |
(589 |
) |
|
|
|
IV |
Operating Expenses (I+II+III) |
173 |
|
72 |
|
245 |
|
979 |
|
|
184 |
|
737 |
|
|
145 |
|
579 |
|
|
Adjustments for Notables |
|
|
|
|
|
|
|
|
|
|
|
Re-engineering costs |
(5 |
) |
(3 |
) |
(8 |
) |
(32 |
) |
|
(10 |
) |
|
|
|
(9 |
) |
|
|
Significant legal and regulatory settlement expenses |
(2 |
) |
(3 |
) |
(5 |
) |
(20 |
) |
|
— |
|
|
|
|
(1 |
) |
|
|
CFPB & state regulatory defense & escrow analysis
costs |
(5 |
) |
— |
|
(6 |
) |
(22 |
) |
|
(6 |
) |
|
|
|
— |
|
|
|
NRZ consent process expenses |
(1 |
) |
— |
|
(1 |
) |
(2 |
) |
|
(1 |
) |
|
|
|
— |
|
|
|
PHH acquisition and integration planning expenses |
(2 |
) |
— |
|
(2 |
) |
(8 |
) |
|
— |
|
|
|
|
— |
|
|
|
Expense recoveries |
6 |
|
— |
|
6 |
|
23 |
|
|
— |
|
|
|
|
7 |
|
|
|
COVID-19 Related Expenses |
|
|
|
— |
|
|
— |
|
|
|
|
(6 |
) |
|
|
Other |
1 |
|
(1 |
) |
— |
|
(1 |
) |
|
— |
|
|
|
|
1 |
|
|
V |
Expense Notables |
(9 |
) |
(7 |
) |
(16 |
) |
(63 |
) |
|
(17 |
) |
|
|
(9 |
) |
|
VI |
Adjusted Expenses (IV+V) |
164 |
|
65 |
|
229 |
|
916 |
|
|
168 |
|
670 |
|
|
135 |
|
542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Q2’18 expenses as per OCN Form 10-Q of $206 filed on July
26, 2018 and PHH Form 10-Q of $71 filed August 3, 2018, annualized
to equal $1,107 on a combined basis
(b) Reclassifications made to PHH reported expenses to conform
to Ocwen presentation
(c) OCN changed the presentation of expenses in Q4’ 19 to
separately report MSR valuation adjustments, net from operating
expenses
Income Statement Notables
In the table titled “Income Statement Notables”, we adjust GAAP
pre-tax loss for the following factors (1) Expense Notables, (2)
changes in fair value of our Agency and Non-Agency MSRs due to
changes in interest rates, valuation inputs and other assumptions,
net of hedge positions, (3) offsets to changes in fair value of our
MSRs in our NRZ financing liability due to changes in interest
rates, valuation inputs and other assumptions, (4) changes in fair
value of our reverse originations portfolio due to changes in
interest rates, valuation inputs and other assumptions, (5) certain
other non-routine transactions, including but not limited to
pension benefit cost adjustments and gains related to exercising
servicer call rights and fair value assumption changes on other
investments (collectively, Other) and (6) amortization of NRZ
lump-sum cash payments consistent with the intent of providing
management and investors with a supplemental means of evaluating
our net income/(loss).
($ in millions) |
Q2’18 |
|
Q2’19 |
|
Q2’20 |
|
|
OCN |
PHH |
OCN + PHH |
OCN + PHH (Annualized) |
|
OCN |
OCN (Annualized) |
|
OCN |
OCN (Annualized) |
I |
Reported Pre-Tax Income / (Loss)(a) |
(28 |
) |
(35 |
) |
(63 |
) |
(253 |
) |
|
(84 |
) |
(337 |
) |
|
(6 |
) |
(25 |
) |
|
Adjustment for
Notables |
|
|
|
|
|
|
|
|
|
|
|
Expense Notables (from prior table) |
9 |
|
7 |
|
16 |
|
|
|
17 |
|
|
|
9 |
|
|
|
Non-Agency MSR FV Change(b) |
(5 |
) |
— |
|
(5 |
) |
|
|
|
|
|
3 |
|
|
|
Agency MSR FV Change, net of macro hedge(b) |
|
|
|
|
|
95 |
|
|
|
3 |
|
|
|
NRZ MSR Liability FV Change (Interest Expense) |
9 |
|
— |
|
9 |
|
|
|
(46 |
) |
|
|
(1 |
) |
|
|
Reverse FV Change |
4 |
|
— |
|
4 |
|
|
|
(8 |
) |
|
|
6 |
|
|
|
Other |
(6 |
) |
|
(6 |
) |
|
|
— |
|
|
|
3 |
|
|
II |
Total Income Statement Notables |
11 |
|
7 |
|
18 |
|
72 |
|
|
58 |
|
230 |
|
|
24 |
|
|
III |
Adjusted Pre-tax Income (Loss) (I+II) |
(17 |
) |
(28 |
) |
(45 |
) |
(181 |
) |
|
(27 |
) |
(107 |
) |
|
18 |
|
71 |
|
IV |
Amortization of NRZ Lump-sum Cash Payments |
(35 |
) |
— |
|
(35 |
) |
(141 |
) |
|
(31 |
) |
(123 |
) |
|
(10 |
) |
|
V |
Adjusted Pre-tax Income (Loss) excluding Amortization of
NRZ Lump-sum (III+IV)(c) |
(53 |
) |
(28 |
) |
(81 |
) |
(322 |
) |
|
(58 |
) |
(230 |
) |
|
8 |
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Q2’18 pre-tax loss as per respective Forms 10-Q filed on
July 26, 2018 and August 3, 2018, respectively, annualized to equal
$(253) million on a combined basis
(b) Represents FV changes that are driven by changes in interest
rates, valuation inputs or other assumptions, net of unrealized
gains / (losses) on macro hedge. Non-Agency = Total MSR excluding
GNMA & GSE MSRs. Agency = GNMA & GSE MSRs. The adjustment
does not include $14 million valuation gains of certain MSRs that
were opportunistically purchased in disorderly transactions due to
the market environment in Q2 2020 (nil in Q2 2018).
(c) Represents OCN and PHH combined adjusted pre-tax income
(loss) excluding amortization of NRZ lump-sum cash payments,
annualized to equal $(322) million on a combined basis in Q2’18
Note Regarding Financial Performance
Estimates
This press release contains statements relating to our
preliminary second 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
second 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 second quarter
financial closing procedures, and any such differences could be
material.
FOR FURTHER INFORMATION CONTACT:
Investors: |
Media: |
June Campbell |
Dico Akseraylian |
|
T: (856) 917-3190 |
T: (856) 917-0066 |
|
E:
shareholderrelations@ocwen.com |
E: mediarelations@ocwen.com |
|
|
|
|
a Including however not limited to CFPB, Florida Attorney
General/Florida Office of Financial Regulations and Massachusetts
Attorney General litigation related legal expenses, state
regulatory action related legal expenses and state regulatory
action settlement related escrow analysis costs (collectively, CFPB
and state regulatory defense and escrow analysis expenses)
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