Ocwen Financial Corporation (NYSE: OCN) (“Ocwen” or the “Company”),
a leading non-bank mortgage servicer and originator, today provided
preliminary information regarding its third 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 loss of $9.4 million and a pre-tax
loss of $11.4 million for the three months ended September 30,
2020, compared to a net loss of $42.8 million and a pre-tax loss of
$38.3 million for the three months ended September 30, 2019.
Adjusted pre-tax income was $13.5 million for the quarter compared
to a $42.0 million adjusted pre-tax loss excluding NRZ lump-sum
amortization in the prior year period (see “Note Regarding Non-GAAP
Financial Measures” below).
Glen A. Messina, President and CEO of Ocwen, said, “Our
performance across the business is progressing consistent with our
expectations. The execution of our strategy to drive balance,
diversification, cost leadership and operational excellence is
delivering improved profitability, originations growth across all
channels, and continued strong operating performance in our
servicing business. Our total liquidity position has improved from
last quarter and we are making good progress on our plans to
implement an MSR asset vehicle to support our continued growth and
diversification efforts.”
Mr. Messina continued, “I believe the Ocwen of today is
stronger, more efficient, more diversified, and well positioned to
capitalize on current and emerging growth opportunities. I am very
proud of our global team for their continued commitment to our
mission of creating positive outcomes for homeowners, communities
and investors.”
The Company reported the following preliminary results for the
third quarter 2020 (see “Note Regarding Non-GAAP Financial
Measures” and “Note Regarding Financial Performance Estimates”
below):
- Pre-tax loss was $11.4 million
compared to pre-tax loss of $38.3 million for the third quarter
2019. Adjusted pre-tax income was $13.5 million; fourth consecutive
quarter of positive adjusted pre-tax income.
- Annualized pre-tax loss improved by
$208 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 $376 million compared to
the combined annualized adjusted pre-tax earnings run rate of Ocwen
and PHH Corporation for the second quarter 2018.
- Notable items for the quarter
include, among others, $13.8 million of re-engineering and COVID-19
related expenses, $5.8 million for legal and regulatory reserves
and $4.4 million of MSR valuation adjustments.
- Resolved legacy regulatory matter
with the State of Florida Office of the Attorney General and Office
of Financial Regulation on October 15, 2020. The Company has now
resolved all state actions from 2017.
- Approximately $6.7 billion of
servicing UPB originated through forward and reverse lending
channels, up 67% from prior quarter; average daily lock volume of
approximately $145 million in October to date.
- Added approximately $4.7 billion of
interim subservicing UPB from existing subservicing clients and $15
billion of opportunities in late-stage discussions. Strong pipeline
with top 10 prospects representing approximately $125 billion in
combined subservicing, flow and recapture services
opportunities.
- Approximately $413 million of
unrestricted cash and available credit at September 30, 2020, up
from $314 million at June 30, 2020; previously identified balance
sheet optimization actions on track.
- Continued progress on the
implementation of MSR asset vehicle (“MAV”) and the Company is in
advanced discussions with potential investors. MAV is expected to
provide funding for up to $55 billion in synthetic subservicing and
enable portfolio retention services.
- Approximately 75,000 forbearance
plans outstanding as of October 9, 2020, down from a peak of
approximately 131,000 forbearance plans outstanding at the end of
the second quarter. Servicer advance levels are approximately 27%
below base case servicer advance levels as of September 30,
2020.
Webcast and Conference Call
Ocwen will hold a conference call on Tuesday, October 20, 2020
at 8:30 a.m. (ET) to review the Company’s preliminary third 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 third quarter 2020
results in early November.
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
continuing impacts of the COVID-19 pandemic, including 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, 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; the proportion
of borrowers who enter into forbearance plans, the financial
ability of borrowers to resume repayment and their timing for doing
so; 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; our ability to
consummate a transaction with investors to implement our planned
mortgage asset vehicle, the timeline for making such a vehicle
operational, including obtaining required regulatory approvals, and
the extent to which such a vehicle will accomplish our objectives;
the future of our long-term relationship and remaining servicing
agreements with NRZ; our ability to timely adjust our cost
structure and operations following the completion of the loan
transfer process in response to the previously disclosed
termination by NRZ of the PMC subservicing agreement; our ability
to continue to improve our financial performance through cost
re-engineering efforts and other actions; our ability to continue
to grow our lending business and increase our lending volumes in a
competitive market and uncertain interest rate environment; our
ability to execute on identified business development and sales
opportunities; uncertainty related to past, present or future
claims, litigation, cease and desist orders and investigations
regarding our servicing, foreclosure, modification, origination and
other practices brought by government agencies and private parties,
including 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; 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, the GSEs 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 the
requirements of the GSEs and Ginnie Mae and maintain our
seller/servicer and other statuses with them; 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 any future downgrades; 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 |
|
Q3’19 |
|
Q3’20(c) |
|
|
OCN |
PHH |
OCN + PHH |
OCN + PHH (Annualized) |
|
OCN |
OCN (Annualized) |
|
OCN |
OCN (Annualized) |
I |
Expenses (as reported) (a) |
206 |
|
|
71 |
|
|
277 |
|
|
1,107 |
|
|
|
45 |
|
|
179 |
|
|
|
|
II |
Reclassifications (b) |
— |
|
|
1 |
|
|
1 |
|
|
5 |
|
|
|
— |
|
|
— |
|
|
|
|
III |
Deduction of MSR valuation adjustments, net |
(33 |
) |
|
— |
|
|
(33 |
) |
|
(132 |
) |
|
|
135 |
|
|
538 |
|
|
|
|
IV |
Operating Expenses (I+II+III) |
173 |
|
|
72 |
|
|
245 |
|
|
979 |
|
|
|
179 |
|
|
717 |
|
|
150 |
|
|
598 |
|
|
Adjustments for Notables |
|
|
|
|
|
|
|
|
|
|
|
Re-engineering costs |
(5 |
) |
|
(3 |
) |
|
(8 |
) |
|
(32 |
) |
|
|
(18 |
) |
|
|
|
|
(7 |
) |
|
|
|
Significant legal and regulatory settlement expenses |
(7 |
) |
|
(3 |
) |
|
(11 |
) |
|
(42 |
) |
|
|
(4 |
) |
|
|
|
|
(6 |
) |
|
|
|
NRZ consent process expenses |
(1 |
) |
|
— |
|
|
(1 |
) |
|
(2 |
) |
|
|
(0 |
) |
|
|
|
|
0 |
|
|
|
|
PHH acquisition and integration planning expenses |
(2 |
) |
|
— |
|
|
(2 |
) |
|
(8 |
) |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
Expense recoveries |
6 |
|
|
— |
|
|
6 |
|
|
23 |
|
|
|
2 |
|
|
|
|
|
— |
|
|
|
|
COVID-19 Related Expenses |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
(6 |
) |
|
|
|
Other |
1 |
|
|
(1 |
) |
|
— |
|
|
(1 |
) |
|
|
3 |
|
|
|
|
|
(0 |
) |
|
|
V |
Expense Notables |
(9 |
) |
|
(7 |
) |
|
(16 |
) |
|
(63 |
) |
|
|
(17 |
) |
|
|
|
(19 |
) |
|
|
VI |
Adjusted Expenses (IV+V) |
164 |
|
|
65 |
|
|
229 |
|
|
916 |
|
|
|
162 |
|
|
648 |
|
|
130 |
|
|
522 |
|
(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 $1,107 on a combined basis
(b) Reclassifications made to PHH reported expenses to conform
to Ocwen presentation
(c) OCN changed the presentation of expenses in Q4’ 19 to
separately report MSR valuation adjustments, net from operating
expenses
Income Statement Notables
In the table titled “Income Statement Notables”, we adjust GAAP
pre-tax loss for the following factors (1) Expense Notables, (2)
changes in fair value of our Agency and Non-Agency MSRs due to
changes in interest rates, valuation inputs and other assumptions,
net of hedge positions, (3) offsets to changes in fair value of our
MSRs in our NRZ financing liability due to changes in interest
rates, valuation inputs and other assumptions, (4) changes in fair
value of our reverse originations portfolio due to changes in
interest rates, valuation inputs and other assumptions, (5) certain
other transactions, including but not limited to pension benefit
cost adjustments and gains related to exercising servicer call
rights and fair value assumption changes on other investments
(collectively, Other) and (6) amortization of NRZ lump-sum cash
payments consistent with the intent of providing management and
investors with a supplemental means of evaluating our net
income/(loss).
($ in
millions) |
Q2’18 |
|
Q3’19 |
|
Q3’20 |
|
|
OCN |
PHH |
OCN + PHH |
OCN + PHH (Annualized) |
|
OCN |
OCN (Annualized) |
|
OCN |
OCN (Annualized) |
I |
Reported Pre-Tax Income /
(Loss)(a) |
(28 |
) |
|
(35 |
) |
|
(63 |
) |
|
(253 |
) |
|
|
(38 |
) |
|
(153 |
) |
|
|
(11 |
) |
|
(25 |
) |
|
|
Adjustment for
Notables |
|
|
|
|
|
|
|
|
|
|
|
Expense Notables (from prior table) |
9 |
|
|
7 |
|
|
16 |
|
|
|
|
17 |
|
|
|
|
19 |
|
|
|
|
Non-Agency MSR FV Change(b) |
(5 |
) |
|
— |
|
|
(5 |
) |
|
|
|
(252 |
) |
|
|
|
(14 |
) |
|
|
|
Agency MSR FV Change, net of macro hedge(b) |
|
|
|
|
|
63 |
|
|
|
|
4 |
|
|
|
|
NRZ MSR Liability FV Change (Interest Expense) |
9 |
|
|
— |
|
|
9 |
|
|
|
|
198 |
|
|
|
|
10 |
|
|
|
|
Reverse FV Change |
4 |
|
|
— |
|
|
4 |
|
|
|
|
(3 |
) |
|
|
|
4 |
|
|
|
|
Debt Repurchase Gain |
— |
|
|
— |
|
|
— |
|
|
|
|
(5 |
) |
|
|
|
— |
|
|
|
|
Other |
(6 |
) |
|
|
(6 |
) |
|
|
|
2 |
|
|
|
|
1 |
|
|
|
II |
Total Income Statement Notables |
11 |
|
|
7 |
|
|
18 |
|
|
72 |
|
|
|
21 |
|
|
83 |
|
|
|
25 |
|
|
|
III |
Adjusted Pre-tax Income (Loss) (I+II) |
(17 |
) |
|
(28 |
) |
|
(45 |
) |
|
(181 |
) |
|
|
(18 |
) |
|
(70 |
) |
|
|
14 |
|
|
54 |
|
|
IV |
Amortization of NRZ Lump-sum Cash Payments |
(35 |
) |
|
— |
|
|
(35 |
) |
|
(141 |
) |
|
|
(42 |
) |
|
(98 |
) |
|
|
— |
|
|
|
V |
Adjusted Pre-tax Income (Loss) excluding Amortization of
NRZ Lump-sum (III+IV)(c) |
(53 |
) |
|
(28 |
) |
|
(81 |
) |
|
(322 |
) |
|
|
(42 |
) |
|
(168 |
) |
|
|
14 |
|
|
54 |
|
|
(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 $12 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 third 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
third 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 third 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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