Ocwen Financial Corporation (NYSE: OCN) (“Ocwen” or the “Company”),
a leading non-bank mortgage servicer and originator, today
announced its first quarter 2023 results and provided a business
update.
The Company reported GAAP net loss of $40 million for the first
quarter, an improvement of $40 million compared to the fourth
quarter of 2022. The net loss was primarily driven by unrealized
MSR fair value changes due to market interest rates. The Company
also reported an adjusted pre-tax income of $6 million, an
improvement of $2 million compared to the fourth quarter of 2022
(see “Note Regarding Non-GAAP Financial Measures” below). First
quarter results reflect lower interest rates and origination
volumes compared to the fourth quarter.
Glen A. Messina, Chair, President and CEO of Ocwen, said, “We
produced solid results in the first quarter, driven by our balanced
and diversified business, cost management actions and strong
performance in our servicing segment. We have improved
profitability for three consecutive quarters on an adjusted pre-tax
basis, and net income has significantly improved from the previous
quarter. Our servicing segment continues to be the key driver of
earnings, and we are growing our servicing portfolio with a focus
on capital-light subservicing and higher margin originations
products. We have increased our MSR hedge coverage and are
prudently managing capital and liquidity to address market risks
and opportunities.”
Messina commented, “As we continue to execute our business
strategy, we believe we are well-positioned to navigate the market
environment ahead and deliver long-term value for our shareholders.
Overall, I am proud of how our team is executing and excited about
the potential for our business.”
Additional First Quarter 2023 Operating and Business
Highlights
- Achieved a 12% cost reduction in
Servicing and Overhead, and a 55% cost reduction in Originations
compared to Q2’22 baseline
- Increased mix of higher margin
products to 31% of owned MSR originations compared to 27% in Q4’22;
expanded Correspondent Lending and Flow seller base by 8% compared
to Q4’22
- Total servicing UPB of $298 billion,
up 3% compared to Q4’22
- Total subservicing UPB of $162
billion, up 5% vs. Q4’22
- Since the upsize in November 2022,
MSR Asset Vehicle LLC (“MAV”) has purchased MSRs totaling $17
billion UPB at attractive pricing levels
- Robust subservicing sales pipeline
of over $325 billion, as of March 31, 2023; $30 billion
subservicing additions targeted in remainder of 2023
- Entered into reverse subservicing
contract with Finance of America Reverse LLC
- On May 2, 2023, the Court entered
final judgment in Ocwen’s favor in the CFPB matter and closed the
case
- On March 22, 2023, S&P raised
PHH’s forward servicer ratings from Average to Above Average and
affirmed the ratings outlook as Stable
- Book value per share of $55 as of
March 31, 2023
Webcast and Conference Call
Ocwen will hold a conference call on Thursday, May 4, 2023, at
8:30 a.m. (ET) to review the Company’s first quarter 2023 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 (855) 327-6837 or (631)
891-4304 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.
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 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, and includes
statements in this press release regarding our growth
opportunities. 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, the impact of recent failures and
re-organizations of banking institutions and continued uncertainty
in the banking industry; 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; our ability to timely reduce operating costs, or
generate offsetting revenue, in proportion to the recent
industry-wide decrease in originations activity; the impact of
cost-reduction initiatives on our business and operations;
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; the extent to which 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; 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 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. (Rithm); MAV’s continued ownership of its
MSR portfolio following the end of MAV’s investment commitment
period, and any impact on our subservicing income as a result of
the sale of MAV’s MSRs; 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); the reactions of
key counterparties, including lenders, the GSEs and Ginnie Mae, to
our regulatory engagements and litigation matters; 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 risk-based capital requirements that take effect in
late 2024; 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, 2022.
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.
Beginning with the three months ended March 31, 2023, for
purposes of calculating Income Statement Notables and Adjusted
Pre-Tax Income, we changed the methodology used to calculate MSR
Valuation Adjustments due to rates and assumption changes to use a
runoff calculation that reflects the actual runoff of the fair
value of the MSR instead of the realization of expected cash flows
(the prior methodology). We made this change because
reporting on the actual runoff of the MSR fair value provides an
additional supplemental piece of information for investors to
assess this fair value runoff in addition to realization of
expected cash flows (which are still provided in the financial
statements), and this supplemental piece of information mirrors the
way that management assesses the performance of our Servicing
segment and the owned MSR portfolio.
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) |
|
Q1'22 |
|
Q4’22 |
|
Q1’23 |
|
|
|
|
|
|
|
|
|
|
I |
Operating Expenses (as reported) |
|
127 |
|
|
120 |
|
|
114 |
|
|
|
Adjustments for
Notables(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant legal and regulatory settlement expenses |
|
5 |
|
|
(1 |
) |
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense recoveries |
|
4 |
|
|
(0 |
) |
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and retention(b) |
|
(1 |
) |
|
(6 |
) |
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTIP stock price changes(c) |
|
11 |
|
|
(6 |
) |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office facilities consolidation |
|
- |
|
|
(1 |
) |
|
(0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(d) |
|
(1 |
) |
|
1 |
|
|
0 |
|
|
II |
Expense Notables |
|
17 |
|
|
(13 |
) |
|
(4 |
) |
|
III |
Expenses, net of Notables (I + II) |
|
144 |
|
|
107 |
|
|
110 |
|
|
(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), rebranding, and MAV
upsize
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, Rithm and MAV Pledged MSR liability and ESS financing
liability at fair value due to changes in market interest rates,
valuation inputs and other assumptions, net of MSR hedge positions;
changes in fair value of our reverse loans held for investment and
HMBS related borrowings, net 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) |
|
Q1'22 |
|
Q4’22 |
|
Q1’23 |
|
|
|
|
|
|
|
|
I |
Reported Pre-Tax Income (Loss) |
|
61 |
|
|
(79 |
) |
|
(38 |
) |
|
Adjustments for
Notables(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense Notables (from prior table) |
|
(17 |
) |
|
13 |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward MSR Valuation Adjustments due to Rates and Assumption
Changes, net(b)(d)(e) |
|
(91 |
) |
|
72 |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse Mortgage Fair Value Change due to Rates and Assumption
Changes(c)(d) |
|
18 |
|
|
(4 |
) |
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other(f) |
|
1 |
|
|
1 |
|
|
1 |
|
II |
Total Income Statement Notables |
|
(90 |
) |
|
83 |
|
|
44 |
|
III |
Adjusted Pre-tax Income (Loss) (I + II) |
|
(28 |
) |
|
4 |
|
|
6 |
|
(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 Valuation Adjustments that are due to changes in market
interest rates, valuation inputs or other assumptions, net of
overall fair value gains / (losses) on MSR hedge, including FV
changes of Pledged MSR liabilities associated with MSR transferred
to RITM and MAV that are due to changes in market interest rates,
valuation inputs or other assumptions, a component of MSR valuation
adjustment, net, the adjustment does not include valuation gains on
MSR purchases of $1.1M for Q1 2022, $2.6M for Q4 2022 and $1.9M for
Q1 2023; effective in the fourth quarter of 2022, in our
consolidated statements of operations we now present all fair value
gains and losses of Other financing liabilities, at fair value in
MSR valuation adjustments, net (previously reported in Pledged MSR
liability expense); other financing liabilities, at fair value
include the financing liabilities recognized upon transfers of MSRs
that do not meet the requirements for sale accounting treatment
(also referred as Pledged MSR liability) and for which we elected
the fair value option - refer to Note 1 to the consolidated
financial statements; the presentation of past periods has been
conformed to the current presentation(c) FV changes of loans HFI
and HMBS related borrowings due to market interest rates and
assumptions, a component of gain on reverse loans held for
investment and HMBS-related borrowings, net(d) 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 third-party valuation expert(e) Beginning
with the three months ended March 31, 2023, for purposes of
calculating Income Statement Notables and Adjusted Pre-Tax Income,
we changed the methodology used to calculate MSR Valuation
Adjustments due to rates and assumption changes; the presentation
of past periods has been conformed to the current presentation; if
we had used the methodology employed prior to Q1 2023, MSR
Valuation Adjustments due to rates and assumption changes, net for
Q1’22, Q4’22 and Q1’23 would have been $(74)M, $65M and $38M and
Adjusted Pre-tax Income (Loss) for Q1’22, Q4’22 and Q1’23 would
have been $(11)M, $(3)M and $(3)M. See Note Regarding Non-GAAP
Financial Measures for more information(f) Includes non-routine
transactions
Consolidated Balance Sheet
Assets ($ in millions) |
Mar 31, 2023 |
|
Dec 31, 2022 |
|
Mar 31, 2022 |
Cash and cash equivalents |
217 |
|
208 |
|
269 |
Restricted Cash |
39 |
|
66 |
|
76 |
Mortgage servicing rights, at fair value |
2,581 |
|
2,665 |
|
2,323 |
Advances, net |
657 |
|
719 |
|
730 |
Loans held for sale |
849 |
|
623 |
|
725 |
Loans held for investment |
7,669 |
|
7,511 |
|
7,459 |
Accounts receivable, net |
200 |
|
181 |
|
213 |
Investment in equity method investee |
37 |
|
42 |
|
35 |
Premises and equipment, net |
19 |
|
20 |
|
21 |
Other Assets |
359 |
|
364 |
|
446 |
Total Assets |
12,627 |
|
12,399 |
|
12,298 |
Liabilities & Stockholders’ Equity ($ in
millions) |
Mar 31, 2023 |
|
Dec 31, 2022 |
|
Mar 31, 2022 |
HMBS Related Borrowings |
7,471 |
|
7,327 |
|
7,119 |
Other Financing Liabilities |
1,153 |
|
1,137 |
|
872 |
Advance match funded liabilities |
470 |
|
514 |
|
497 |
Mortgage loan warehouse facilities |
948 |
|
703 |
|
959 |
MSR Financings, net |
915 |
|
954 |
|
893 |
Senior notes, net |
602 |
|
600 |
|
617 |
Other Liabilities |
653 |
|
709 |
|
807 |
Total Liabilities |
12,211 |
|
11,943 |
|
11,764 |
Total Stockholders’ Equity |
416 |
|
457 |
|
534 |
Total Liabilities and Stockholders’ Equity |
12,627 |
|
12,399 |
|
12,298 |
Consolidated Statement of Operations
($ in millions) |
Mar 31, 2023 |
|
Dec 31, 2022 |
|
Mar 31, 2022 |
Revenue |
|
|
|
|
|
|
|
|
Servicing and subservicing fees |
232 |
|
|
219 |
|
|
213 |
|
|
Gain on reverse loans held for
investment and HMBS-related borrowings, net |
21 |
|
|
19 |
|
|
13 |
|
|
Gain on loans held for sale,
net |
3 |
|
|
5 |
|
|
(3 |
) |
|
Other
Revenue, net |
6 |
|
|
7 |
|
|
9 |
|
Total Revenue |
|
262 |
|
|
251 |
|
|
232 |
|
MSR Valuation
Adjustments, net |
|
(69 |
) |
|
(100 |
) |
|
35 |
|
|
|
|
|
|
|
|
Operating
Expenses |
|
|
|
|
|
|
|
Compensation and benefits |
58 |
|
|
66 |
|
|
68 |
|
|
Servicing and origination |
16 |
|
|
13 |
|
|
14 |
|
|
Technology and
communication |
13 |
|
|
14 |
|
|
15 |
|
|
Professional services |
13 |
|
|
11 |
|
|
12 |
|
|
Occupancy and equipment |
9 |
|
|
10 |
|
|
10 |
|
|
Other
expenses |
5 |
|
|
6 |
|
|
8 |
|
Total Operating Expenses |
|
114 |
|
|
120 |
|
|
127 |
|
|
|
|
|
|
|
|
Other Income
(Expense) |
|
|
|
|
|
|
|
Interest income |
14 |
|
|
15 |
|
|
7 |
|
|
Interest expense |
(62 |
) |
|
(60 |
) |
|
(38 |
) |
|
Pledged MSR liability
expense |
(70 |
) |
|
(62 |
) |
|
(60 |
) |
|
Earnings of equity method
investee |
0 |
|
|
(1 |
) |
|
12 |
|
|
Other,
net |
1 |
|
|
(2 |
) |
|
(0 |
) |
Total Other Income (Expense), net |
|
(117 |
) |
|
(110 |
) |
|
(79 |
) |
|
|
|
|
|
|
|
|
Income (loss) before income
taxes |
(38 |
) |
|
(79 |
) |
|
61 |
|
|
Income
tax expense (benefit) |
2 |
|
|
1 |
|
|
3 |
|
Net Income (loss) |
|
(40 |
) |
|
(80 |
) |
|
58 |
|
For Further Information Contact:
Dico Akseraylian, SVP, Corporate Communications(856)
917-0066mediarelations@ocwen.com
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