Ocwen Posts Strong Earnings, Sees Reverse Mortgage Change as Positive

Ocwen Financial (NYSE: OCN), parent company of Liberty Home Equity Solutions, announced Thursday third quarter net income of $67 million, or 44 cents per share, up 16% from $51.4 million, or 37 cents per share in the third quarter of 2012.

The company also announced a $500 million share repurchase program, as well as operating results of its reverse mortgage business, which it says negatively impacted its bottom line upon recent product changes but is a long term investment.

Ocwen has been actively acquiring mortgage servicing rights, now amounting to a $435 billion portfolio including the recent purchase of $78 million in mortgage servicing rights from OneWest in June. The company says it expects to grow by an additional $100 billion by the end of 2013. Company executives maintained growth is strong but steady.

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“Ocwen’s revenue growth and cash-flow remain very strong with revenue from our existing portfolio trending ahead of projections,” said Bill Erbey, Ocwen’s Chairman upon the earnings announcement. “Notwithstanding our record revenues, revenues were suppressed due to delays, that have now been resolved, in boarding the OneWest transaction. As expected, margins were below historical levels due to the timing involved in transitioning ResCap and OneWest. We have been quite cautious in our servicing transfers making certain that we have sufficient resources to support the transition of these portfolios.”

The company’s lending segment contributed $5.7 million of pre-tax income on $33.5 million of revenue, although Liberty Reverse Mortgage dragged income by $3.2 million, Ocwen said. Ocwen acquired the company for $22 million in a deal that closed in April and changed the name earlier this year.

Recent product changes are seeing as a positive development, despite short term losses, Erbry said in a call with analysts.

“As we have said in the past, we view this as a long-term investment, and the changes in the reverse program put it on a sounder footing,” he said. “So we view the HUD changes as generally positive.”

Liberty Home Equity Solutions was ranked the No. 1 lender by volume for retail and wholesale originations combined in the most recent report from Reverse Market Insight.

Written by Elizabeth Ecker

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  • The RMI report for lenders dated October 1, 2013 presenting endorsement activity for September 2013 shows that Security One Lending/RMS is lender leader for endorsements for fiscal year 2013 with Liberty coming in second.

    It is surprising that Liberty dragged down the net income of Ocwen. Perhaps Ocwen finds the losses are easily absorbed as long as Liberty is providing it with HECMs to service; however, such a conclusion does not seem reasonable since servicing fees are no longer set aside or charged to borrowers.

    If the results from reverse mortgage operations continue to drag down overall Ocwen net income, one wonders how long Ocwen is willing to carry its Liberty unit. Most observers and industry participants are bracing themselves for enormous reductions in revenues throughout calendar 2014. With FHA showing signs of wanting to decrease annual endorsement totals in all categories of single family mortgages including HECMs, one wonders when the level of lender revenues obtained in 2009 through 2013 will return. It would seem the recovery of those revenues will be a slow process without a significant contribution from a return of proprietary revenue mortgages which seems more of a dream than near event.

    The Liberty/Ocwen story will be interesting to follow through the next few years. Of course the endorsement information for October was not good for Liberty. It only had 257 endorsements for October 1013 only about 32.1% of the total of the leader for the month, AAG at 801.

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