Ocwen Financial Corporation (NYSE: OCN) (“Ocwen” or the “Company”),
a leading non-bank mortgage servicer and originator, today
announced it has executed an agreement with special purpose
entities owned by funds and accounts managed by Oaktree Capital
Management, L.P. (“Oaktree”) for a debt investment in the Company
that would generate $250 million in proceeds, and provided
preliminary information regarding its fourth quarter 2020
results. A presentation with additional detail regarding
today’s announcement will be available on the Ocwen Financial
Corporation website at www.ocwen.com (through a link on the
Shareholder Relations page) prior to the Company's preliminary
fourth quarter 2020 earnings conference call scheduled for
Wednesday, February 10, 2021 at 8:30 am ET.
Oaktree Investment
The announcement of the anticipated debt investment from Oaktree
marks the completion of a thorough and rigorous strategic review
process that began in May 2020. The Company intends to utilize $100
million of the proceeds to pay down and support the refinancing of
its existing corporate debt. The remaining proceeds of $150 million
are expected to be utilized to support continued growth in
servicing and to further diversify the Company’s originations
channel, including through potential acquisitions. The transaction
is subject to the refinancing of Ocwen’s existing corporate debt
and certain other closing conditions. Barclays and Credit Suisse
acted as Placement Agents to Ocwen in connection with Oaktree’s
investment. For additional details, please see the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 9, 2021.
This investment is in addition to the strategic relationship
announced with Oaktree in December 2020 to launch an MSR asset
vehicle to acquire Fannie Mae and Freddie Mac MSRs. The combined
agreements with Oaktree are expected to provide up to $463 million
of capital to accelerate growth and reduce capital structure
risk.
Glen A. Messina, President and CEO of Ocwen, said, “We initiated
the strategic review process in May 2020 to evaluate all options to
maximize value for our shareholders. The strategic review was
fulsome, robust and included potential sale and merger
transactions. We ultimately determined that the investment from
Oaktree is the best long-term value creation option for our
shareholders. The alliance with Oaktree provides meaningful growth
capital while supporting our corporate debt refinancing. We believe
it enables a level of growth, EPS accretion, and potential value
creation that we could not achieve on a stand-alone basis. We look
forward to a long-term alliance with Oaktree, a well-respected,
large-scale investor experienced in the mortgage sector.”
Preliminary Fourth Quarter Results
The Company reported a net loss of $7.2 million and a pre-tax
loss of $0.8 million for the three months ended December 31, 2020,
compared to net income of $34.8 million and pre-tax income of $37.2
million for the three months ended December 31, 2019. The Company’s
profitability in the quarter was significantly impacted by certain
legacy legal matters as further detailed below. Adjusted pre-tax
income was $15.2 million for the quarter compared to a $13.6
million adjusted pre-tax loss excluding NRZ lump-sum amortization
in the prior year period; fifth consecutive quarter of positive
adjusted pre-tax income (see “Note Regarding Non-GAAP Financial
Measures” below).
Mr. Messina commented, “We have successfully transformed Ocwen
into a balanced and diversified mortgage originator and servicer
that is well-positioned for profitable growth. The actions taken to
maintain our cost leadership position and execute on a
multi-channel growth strategy are driving improved profitability,
record originations growth and continued strong operating
performance in our servicing business. Looking ahead, we are
focused on sustainable long-term profitability by accelerating our
growth trajectory, strengthening recapture performance, improving
our cost leadership position, maintaining high-quality operational
execution and expanding servicing revenue opportunities.”
The Company reported the following preliminary results for the
fourth quarter 2020 (see “Note Regarding Non-GAAP Financial
Measures” and “Note Regarding Financial Performance Estimates”
below):
- Fourth quarter annualized pre-tax
loss improved by $242 million compared to the combined annualized
pre-tax loss of Ocwen and PHH Corporation for the second quarter
2018; fourth quarter annualized adjusted pre-tax earnings run rate
excluding amortization of NRZ lump-sum payments improved by $383
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 million of additional accrual related to
the Company’s efforts to resolve the legacy CFPB matter, $4 million
of other legal accruals and $1 million of other net favorable
items.
- Added approximately $30 billion of
servicing and subservicing UPB in the quarter, up 4X from prior
year.
- Adequate liquidity at December 31,
2020 with approximately $285 million of unrestricted cash;
approximately $190 million in MSR investments in the quarter.
Webcast and Conference Call
Ocwen will hold a conference call on Wednesday, February 10,
2021 at 8:30 a.m. (ET) to review the Company’s preliminary fourth
quarter 2020 operating results and to provide a business update. A
live audio webcast and slide presentation for the call will be
available by visiting the Shareholder Relations page at
www.ocwen.com. Participants can access the conference call by
dialing (877) 407-0792 or (201) 689-8263 approximately 10 minutes
prior to the call. 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 fourth quarter and
full-year 2020 results in mid-February.
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).
Note Regarding Financial Performance
Estimates
This press release contains certain statements relating to our
preliminary fourth quarter financial performance. These statements
are based on currently available preliminary information and are
subject to material changes following completion of our quarter-end
and year-end closing procedures and other adjustments that may be
made before our financial results are finalized and the audit of
our financial statements is complete. There can be no assurance
that actual final results will not differ from the preliminary
financial results presented in the press release and any such
differences could be material. In addition, these preliminary
results are not comprehensive financial results for the fourth
quarter, should not be viewed as a substitute for complete GAAP
financial statements or more comprehensive financial information,
and are not indicative of the results for any future period.
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. 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, our ability to consummate on
favorable terms or at all the additional debt financing that is a
condition to issuance and sale of the senior secured notes to
Oaktree; our ability to satisfy the other conditions precedent to
the issuance and sale of the senior secured notes to Oaktree; our
ability to refinance our Senior Secured Term Loan and redeem the
6.375% senior unsecured notes due 2021 and the 8.375% senior
secured second lien notes due 2022; our ability to obtain
regulatory approvals and satisfy the closing conditions under the
Transaction Agreement relating to our MSR joint venture with
Oaktree and the timing for doing so; our ability to deploy the
proceeds of the senior secured notes, if issued, in suitable
investments at appropriate returns; uncertainty relating to the
future 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), the Federal Home Loan
Mortgage Corporation (Freddie Mac, and together with Fannie Mae,
the GSEs), the Government National Mortgage Association (Ginnie
Mae) and regulators, as well as the impacts on borrowers and the
economy generally; 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 collect anticipated tax refunds, including on the timeframe
expected; the future of our long-term relationship and remaining
servicing agreements with New Residential Investment Corp. (NRZ);
our ability to continue to improve our financial performance
through cost re-engineering efforts and other actions; our ability
to continue to grow our origination business and increase our
origination 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),
and 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 related responses by key counterparties,
including lenders, the GSEs and Ginnie Mae; our ability to comply
with the terms of our settlements with regulatory agencies, as well
as general regulatory requirements, 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 interpret correctly and comply
with 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 our agreements with, and 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 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 our annual report on Form 10-K for the year
ended December 31, 2019 and current and quarterly reports since
such date, as well as our annual report on Form 10-K for the year
ended December 31, 2020 when available. Anyone wishing to
understand Ocwen’s business should review our 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 |
|
Q4 '19 (c) |
|
Q4 '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 |
|
|
|
139 |
|
|
|
|
|
144 |
|
|
|
II |
Reclassifications (b) |
— |
|
|
1 |
|
|
1 |
|
|
5 |
|
|
|
— |
|
|
— |
|
|
|
|
III |
Deduction of MSR valuation adjustments, net |
(33 |
) |
|
— |
|
|
(33 |
) |
|
(132 |
) |
|
|
|
|
|
|
|
|
|
IV |
Operating Expenses (I+II+III) |
173 |
|
|
72 |
|
|
245 |
|
|
979 |
|
|
|
139 |
|
|
557 |
|
|
144 |
|
|
577 |
|
|
Adjustments for Notables |
|
|
|
|
|
|
|
|
|
|
|
Re-engineering costs |
(5 |
) |
|
(3 |
) |
|
(8 |
) |
|
(32 |
) |
|
|
(14 |
) |
|
|
|
|
(6 |
) |
|
|
|
Significant legal and regulatory settlement expenses |
(2 |
) |
|
(3 |
) |
|
(5 |
) |
|
(20 |
) |
|
|
(3 |
) |
|
|
|
|
(16 |
) |
|
|
|
CFPB & state regulatory defense & escrow analysis
costs |
(5 |
) |
|
— |
|
|
(6 |
) |
|
(22 |
) |
|
|
(4 |
) |
|
|
|
|
(1 |
) |
|
|
|
NRZ consent process expenses |
(1 |
) |
|
— |
|
|
(1 |
) |
|
(2 |
) |
|
|
— |
|
|
|
|
|
0 |
|
|
|
|
PHH acquisition and integration planning expenses |
(2 |
) |
|
— |
|
|
(2 |
) |
|
(8 |
) |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
Expense recoveries |
6 |
|
|
— |
|
|
6 |
|
|
23 |
|
|
|
15 |
|
|
|
|
|
11 |
|
|
|
|
Covid-19 Related Expenses |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
(3 |
) |
|
|
|
Other |
1 |
|
|
(1 |
) |
|
— |
|
|
(1 |
) |
|
|
(0 |
) |
|
|
|
|
(1 |
) |
|
|
V |
Expense Notables |
(9 |
) |
|
(7 |
) |
|
(16 |
) |
|
(63 |
) |
|
|
(7 |
) |
|
|
|
|
(16 |
) |
|
|
VI |
Adjusted Expenses (IV+V) |
164 |
|
|
65 |
|
|
229 |
|
|
916 |
|
|
|
133 |
|
|
531 |
|
|
128 |
|
|
514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $1,107 on a combined basis(b) Reclassifications made to
PHH reported expenses to conform to Ocwen presentation(c) OCN
changed the presentation of expenses in Q4’ 19 to separately report
MSR valuation adjustments, net from operating expenses
________________________a Including however not limited to
CFPB, Florida Attorney General/Florida Office of Financial
Regulations and Massachusetts Attorney General litigation related
legal expenses, state regulatory action related legal expenses and
state regulatory action settlement related escrow analysis costs
(collectively, CFPB and state regulatory defense and escrow
analysis expenses)
Income Statement Notables
In the table titled “Income Statement Notables”, we adjust GAAP
pre-tax loss for the following factors (1) Expense Notables, (2)
changes in fair value of our Agency and Non-Agency MSRs due to
changes in interest rates, valuation inputs and other assumptions,
net of hedge positions, (3) offsets to changes in fair value of our
MSRs in our NRZ financing liability due to changes in interest
rates, valuation inputs and other assumptions, (4) changes in fair
value of our reverse originations portfolio due to changes in
interest rates, valuation inputs and other assumptions, (5) certain
other transactions, including but not limited to pension benefit
cost adjustments and gains related to exercising servicer call
rights and fair value assumption changes on other investments
(collectively, Other) and (6) amortization of NRZ lump-sum cash
payments consistent with the intent of providing management and
investors with a supplemental means of evaluating our net
income/(loss).
($ in
millions) |
Q2 '18 |
|
Q4 '19 |
|
Q4 '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 |
) |
|
|
37 |
|
|
149 |
|
|
|
(1 |
) |
|
(3 |
) |
|
|
Adjustment for Notables |
|
|
|
|
|
|
|
|
|
|
|
Expense Notables (from prior table) |
9 |
|
|
7 |
|
|
16 |
|
|
|
|
7 |
|
|
|
|
16 |
|
|
|
|
Non-Agency MSR FV Change(b) |
(5 |
) |
|
— |
|
|
(5 |
) |
|
|
|
— |
|
|
|
|
(6 |
) |
|
|
|
Agency MSR FV Change, net of macro hedge(b) |
|
|
|
|
|
(61 |
) |
|
|
|
(9 |
) |
|
|
|
NRZ MSR Liability FV Change (Interest Expense) |
9 |
|
|
— |
|
|
9 |
|
|
|
|
30 |
|
|
|
|
4 |
|
|
|
|
Reverse Lending FV Change |
4 |
|
|
— |
|
|
4 |
|
|
|
|
3 |
|
|
|
|
11 |
|
|
|
|
Other |
(6 |
) |
|
|
(6 |
) |
|
|
|
(3 |
) |
|
|
|
0 |
|
|
|
II |
Total Income Statement Notables |
11 |
|
|
7 |
|
|
18 |
|
|
72 |
|
|
|
(25 |
) |
|
|
|
|
16 |
|
|
|
|
III |
Adjusted Pre-tax Income (Loss) (I+II) |
(17 |
) |
|
(28 |
) |
|
(45 |
) |
|
(181 |
) |
|
|
12 |
|
|
50 |
|
|
|
15 |
|
|
61 |
|
|
IV |
Amortization of NRZ Lump-sum Cash Payments |
(35 |
) |
|
— |
|
|
(35 |
) |
|
(141 |
) |
|
|
(26 |
) |
|
(104 |
) |
|
|
— |
|
|
|
V |
Adjusted Pre-tax Income (Loss) excluding Amortization of
NRZ Lump-sum
(III+IV)(c) |
(52 |
) |
|
(28 |
) |
|
(81 |
) |
|
(322 |
) |
|
|
(14 |
) |
|
(54 |
) |
|
|
15 |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $15 million
valuation gains of certain MSRs that were opportunistically
purchased in disorderly transactions due to the market environment
in Q4 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
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 |
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