Ocwen Financial Corporation (NYSE: OCN) (“Ocwen” or the “Company”),
a leading non-bank mortgage servicer and originator, today
announced its third quarter 2022 results and provided a business
update. The Company also announced an agreement with funds managed
by Oaktree Capital Management, L.P. (“Oaktree”) for an incremental
investment to acquire mortgage servicing rights (“MSRs”) through
its MSR joint venture, MSR Asset Vehicle LLC (“MAV”).
The Company reported GAAP net income of $37 million for the
third quarter with an adjusted pre-tax loss of $8 million (see
“Note Regarding Non-GAAP Financial Measures” below).
Glen A. Messina, President and CEO of Ocwen, said, “Our balanced
and diversified business model combined with continued cost
improvement enabled us to offset market headwinds and deliver a
solid quarter. Our results reflected improved earnings and strong
growth in book value and earnings per share, primarily driven by
appreciation of our owned MSRs, sustained expense reduction actions
and a continued focus on higher margin originations products.
Looking ahead, we believe we are well positioned to navigate the
market environment and address a potential recession. We are
successfully emphasizing subservicing to drive servicing portfolio
growth, expanding higher margin originations products and clients,
maintaining continuous cost discipline, and allocating capital to
enable efficient growth and maximize returns for our
shareholders.”
On November 2, 2022, Ocwen and Oaktree entered into an agreement
modifying certain terms relating to the capitalization, management
and operations of MAV Canopy HoldCo I, LLC, the parent company of
MAV, in which Ocwen and Oaktree have an ownership interest of 15%
and 85%, respectively. Under the terms of the agreement, the
parties agreed to increase the aggregate capital contributions into
MAV’s parent company by up to an additional $250 million during an
investment period ending May 2, 2024, subject to two annual
extensions upon mutual agreement. At its sole discretion, the
Company may elect to contribute up to its pro rata share of the
additional capital commitment, with the parties’ ownership
interests adjusting to reflect their current percentage ownership,
capital contributions, and book value. For additional details,
please see the Company’s current report on Form 8-K filed with the
Securities and Exchange Commission on November 3, 2022.
Messina commented, “We are excited to complete the agreement
with Oaktree for an incremental capital investment into MAV, which
would provide funding for up to $60 billion of additional MSR
acquisitions at current market pricing. Our partnership with
Oaktree is an important component of our growth strategy. Since the
beginning, we have maintained a strong and mutually beneficial
relationship that has enabled us to drive subservicing growth on a
capital-light basis and achieve great returns on our investment.
Going forward, we are looking to expand partnerships with multiple
investors to drive capital-light servicing portfolio growth.”
Third Quarter 2022 Operating and Business
Highlights
- Earnings per share $11.71 first 9
months of 2022 compared to $2.00 for full-year 2021
- Pre-tax income resulted in $24
million improvement vs Q2’22
- Adjusted pre-tax loss resulted in
$18 million improvement vs Q2’22
- Total servicing portfolio UPB at
$283 billion at quarter end, up 14% compared to 3Q’21
- Total subservicing UPB at $152
billion, up 46% vs. 3Q’21
- Reverse servicing and subservicing
combined UPB of $32 billion, up over 4X compared to 3Q’21
- Consumer Direct and Correspondent
Lending combined YTD originations up 5% YoY
- Higher margin Correspondent products
and services (GNMA, Best Efforts and Non-Delegated) volume up 55%
compared to 3Q’21
- Robust subservicing sales pipeline
of over $350 billion, including $50 billion in Reverse, as of
September 30, 2022; $28 billion additions scheduled in next six
months
- Enterprise-wide expense reductions
on track to exceed $70 million annualized reduction by Q4’22 vs
Q2’22
- Signed two MSR funding partnership
transactions, in addition to the agreement with Oaktree
Webcast and Conference Call
Ocwen will hold a conference call on Thursday, November 3, 2022
at 8:30 a.m. (ET) to review the Company’s third quarter 2022
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 (800)
458-4121 or (646) 828-8193 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 15 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 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 and operations in the United States,
the U.S. Virgin Islands, 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 presentation 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, and includes
statements in this press release regarding the ability of our
recent strategic transactions to improve our earnings.
Forward-looking statements by their nature address matters that
are, to different degrees, uncertain. Our business has been
undergoing substantial change and we are 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, the potential for ongoing
disruption in the financial markets and in commercial activity
generally as a result of international events, changes in monetary
and fiscal policy, and other sources of instability; the impacts of
inflation, employment disruption, and other financial difficulties
facing our borrowers; 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; our ability to
improve our financial performance through cost and productivity
improvements; the extent to which our MSR asset vehicle (MAV),
other transactions and our enterprise sales initiatives will
generate additional subservicing volume, increase market share
within the subservicing market, and result in increased
profitability; the timing and amount of presently anticipated
forward and reverse loan boarding; our ability to close
acquisitions of MSRs and other transactions, including the ability
to obtain regulatory approvals; the quantity, timing and long-term
impact of additional stock repurchases; our ability to continue to
grow our reverse servicing business; our ability to retain clients
and employees of acquired businesses, and the extent to which
acquisitions and our other strategic initiatives will contribute to
achieving our growth objectives; the extent to which we will be
able to execute call rights transactions, and whether such
transactions will generate the returns anticipated; 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 future of our long-term relationship
with Rithm Capital Corp. (formerly New Residential Investment
Corp., or RITM); the performance of our lending business 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, including our ability to identify
and implement a cost-effective response to Ginnie Mae’s recently
announced risk-based capital requirements; 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 our reports and
filings with the SEC, including our annual report on Form 10-K for
the year ended December 31, 2021 and any current report or
quarterly report filed with the SEC since such date.
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 expenses.
We believe these non-GAAP financial measures provide a useful
supplement to discussions and analysis of our financial condition,
because they are measures that management uses to assess the
financial performance of our operations and allocate resources. In
addition, management believes that these presentations may assist
investors with understanding and evaluating our initiatives to
drive improved financial performance. Management believes,
specifically, that the removal of fair value changes of our net MSR
exposure due to changes in market interest rates and assumptions
provides a useful, supplemental financial measure as it enables an
assessment of our ability to generate earnings regardless of market
conditions and the trends in our underlying businesses by removing
the impact of fair value changes due to market interest rates and
assumptions, which can vary significantly between periods. However,
these measures should not be analyzed in isolation or as a
substitute to analysis of our GAAP expenses and pre-tax income
(loss) nor a substitute for cash flows from operations. There are
certain limitations to the analytical usefulness of the adjustments
we make to GAAP expenses and pre-tax income (loss) and,
accordingly, we 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, 2022, without
changing the categories or measurement of items included in our
Notables, we clarified the definition of certain Notables and
combined or separately itemized certain line items in the tables
below in order to be more descriptive regarding the types and
measurement of our Notables, because management believed doing so
would further supplement investors’ means of evaluating our
results. The presentation of past periods has been conformed to the
current presentation.
Expense Notables
In the table titled “Expense Overview”, we adjust GAAP operating
expenses for the following factors: compensation and benefit
expenses related to severance, retention and other actions
associated with cost and productivity improvement efforts;
significant legal and regulatory settlement expense items(a); and
certain other significant activities including, but not limited to,
insurance related expense and settlement recoveries, compensation
or incentive compensation expense or reversals attributable to
stock price changes, and other expenses associated with significant
transactions that are not attributable to or indicative of our
ongoing operations, in order to offer additional visibility on
underlying results and trends and provide investors with a
supplemental means of evaluating our expenses, as evaluated by
management.
(a) |
Including
however not limited to CFPB and certain legacy litigation related
legal expenses and state regulatory action related legal
expenses. |
Expense
Overview |
|
|
|
|
|
|
($ in millions) |
|
Q3'22 |
|
Q2’22 |
|
Q3'21 |
|
|
|
|
|
|
|
|
|
|
I |
Operating Expenses (as reported) |
|
141 |
|
|
144 |
|
|
145 |
|
|
|
Adjustments for
Notables(a)(e) |
|
|
|
|
|
|
|
|
Significant legal and regulatory settlement (expenses)
recoveries |
|
(3 |
) |
|
6 |
|
|
(3 |
) |
|
|
Expense recoveries |
|
0 |
|
|
0 |
|
|
(1 |
) |
|
|
Severance and retention(b) |
|
(8 |
) |
|
(5 |
) |
|
- |
|
|
|
LTIP stock price changes(c) |
|
2 |
|
|
(0 |
) |
|
- |
|
|
|
Facilities consolidation |
|
(3 |
) |
|
- |
|
|
- |
|
|
|
Other(d)(e) |
|
1 |
|
|
0 |
|
|
(1 |
) |
|
|
Expense Notables |
|
(11 |
) |
|
1 |
|
|
(5 |
) |
|
II |
Adjusted Expenses (I + II) |
|
130 |
|
|
145 |
|
|
141 |
|
|
III |
|
|
|
|
|
|
|
|
a) |
Certain
previously presented notable categories with nil numbers for each
quarter shown have been omitted; prior periods have been adjusted
to conform with current period information |
b) |
Severance and retention due to organizational rightsizing or
reorganization |
c) |
Long-term incentive program (LTIP) compensation expense changes
attributable to stock price changes during the period |
d) |
Includes costs associated with strategic transactions including
transaction costs related to the reverse subservicing acquisition
from RMS(MAM) |
e) |
Starting with the three months ended June 30, 2022, we have
separately presented Severance and retention and LTIP stock price
changes as separate Notables to further isolate the estimated
impact of these respective items. In prior periods, Severance and
retention and LTIP stock price changes had been included in
Other. |
Income Statement Notables
In the table titled “Income Overview” below, we show certain
adjustments to GAAP pre-tax income (loss) for the following
factors: Expense Notables, as detailed above; changes in fair value
of our MSRs due to changes in market interest rates, valuation
inputs and other assumptions, net of MSR hedge positions; changes
in fair value in our RITM and MAV Pledged MSR liability due to
changes in market interest rates, valuation inputs and other
assumptions; changes in fair value of our reverse portfolio, net of
HMBS related borrowings due to changes in market interest rates,
valuation inputs and other assumptions; and certain other
non-routine transactions, consistent with the intent of providing
investors with a supplemental means of evaluating our pre-tax
income/(loss), as evaluated by management.
Income
Overview |
|
|
|
|
|
|
($ in millions ) |
|
Q3'22 |
|
Q2'22 |
|
Q3'21 |
|
|
|
|
|
|
|
|
|
|
I |
Reported Pre-Tax Income / (Loss) |
|
33 |
|
|
9 |
|
|
10 |
|
|
|
Adjustments for
Notables(a)(g) |
|
|
|
|
|
|
|
|
Expense Notables (from prior table) |
|
11 |
|
|
(1 |
) |
|
5 |
|
|
|
MSR FV Change, net of MSR hedge(b)(e) |
|
(154 |
) |
|
(98 |
) |
|
(58 |
) |
|
|
RITM/MAV MSR Liability FV Change(c)(e) |
|
91 |
|
|
40 |
|
|
61 |
|
|
|
Reverse FV Change(d)(e) |
|
10 |
|
|
25 |
|
|
18 |
|
|
|
Other(f) |
|
1 |
|
|
(1 |
) |
|
0 |
|
|
II |
Total Income Statement Notables |
|
(41 |
) |
|
(36 |
) |
|
26 |
|
|
III |
Adjusted Pre-tax Income (Loss) (I+II) |
|
(8 |
) |
|
(26 |
) |
|
37 |
|
|
a) |
Certain
previously presented notable categories with nil numbers for each
quarter shown have been omitted; prior periods have been adjusted
to conform with current period information |
b) |
MSR FV changes that are due to changes in market interest
rates, valuation inputs or other assumptions, net of overall
unrealized gains / (losses) on MSR hedge, a component of MSR
valuation adjustment, net. The adjustment does not include
valuation gains on MSR purchases of $3.6M for Q3 2022, $2.6M for Q2
2022 and $2.8M for Q3 2021. |
c) |
FV changes of Pledged MSR liabilities associated with RITM and
MAV transferred MSR that are due to changes in market interest
rates, valuation inputs or other assumptions, a component of
Pledged MSR liability expense |
d) |
FV changes of loans Held For Investment and HMBS related
borrowings due to market interest rates and assumptions, a
component of Reverse mortgage revenue, net |
e) |
The changes in fair value due to market interest rates were
measured by isolating the impact of market interest rate changes on
the valuation model output as provided by our independent valuation
expert |
f) |
Other contains non-routine transactions including but not
limited to gain on debt extinguishment and early asset retirement
recorded in other income expense |
g) |
Starting with the three months ended June 30, 2022, we have
presented MSR fair value changes due to changes in market interest
rates, valuation inputs or other assumptions as one Notable item to
align with the presentation of our income statement. In prior
periods, we separately presented MSR fair value changes due to
changes in market interest rates, valuation inputs or other
assumptions for the Agency and Non-Agency MSRs. |
FOR FURTHER INFORMATION CONTACT:
Dico Akseraylian |
T: (856) 917-0066 |
E: mediarelations@ocwen.com |
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