Ocwen Counts Reverse Mortgage Losses in Q1

Ocwen Financial Corporation (NYSE:OCN) suffered losses on its Liberty Home Equity Solutions reverse mortgage business during the first quarter of 2014, but the company still sees this segment as a billion dollar opportunity.

The non-bank servicer saw profits fall for both of its forward and reverse mortgage lending segments on a quarterly basis amid regulatory scrutiny that has placed the company in headlines.

Ocwen’s reverse mortgage subsidy, Liberty Home Equity Solutions, posted a $6.3 million loss for the first quarter compared to a $0.3 million loss in the prior quarter ended December 31, 2013. On the forward lending side, profits dropped from $15.1 million in the previous quarter to $6.9 million.

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Overall, the company’s lending segment generated earnings of $0.6 million during the quarter compared to $14.8 million in the fourth quarter of 2013.

Despite the first quarter performance, Ocwen has added value for its reverse mortgage channel based on the company’s internal forecast, which includes a modest growth in market share, said Chief Financial Officer and Executive Vice President John Britti during an earnings call Thursday.

“We end up with a total value for this business of about $1.2 billion,” said Britti.

Ocwen, which has been at the center of federal regulatory probes in recent months, saw earnings grow 74% per share during the quarter on a year-over-year basis.

The company reported net income of $75.8 million, or $0.53 per share, for the first quarter compared to net income of $45.1 million, or $0.31 per share, for the comparable period a year ago. Additionally, Ocwen generated $551.3 million in revenue during the quarter, a 36% increase when compared to year-ago revenue for the same period.

Though earnings per share rose, they were well below analysts expectations and the company’s stock has already been feeling the effects.

Ocwen executives largely cited higher operational costs resulting from federal regulatory pressures, like those taken by the New York’s Department of Financial Services, as having impacted first quarter performance.

“Increased compliance and operational risk management does not come without a cost, as you can see from our first quarter normalized earnings,” stated Ocwen Chairman Bill Erbey.

Ocwen suffered quarterly losses on its mortgage servicing rights (MSR) portfolio, which saw a loss of $5.1 million during the first quarter of 2014 compared to a $19.1 million growth during the prior quarter ended December 31, 2013.

Last week, New York’s DFS “indefinitely” froze Ocwen’s agreement to purchase MSRs on $39 billion of loans from Wells Fargo, as part of its crusade concerned with the rapid growth at which non-bank servicers acquire MSRs.

“Ocwen continues to work cooperatively with the New York Department of Financial Services to address their concerns that led to an indefinite hold on our Wells Fargo transaction,” stated Ron Faris, president and CEO of Ocwen.

The company remains optimistic that these regulatory efforts will serve a purpose for a greater good in the future.

“We believe that increased regulatory scrutiny will, over time, benefit the industry and Ocwen by building greater confidence in the system and rewarding those with efficient and effective servicing processes,” stated Faris. “Nevertheless, new requirements and the associated investments have raised costs for the industry, including Ocwen. This places an increased premium on operational scale and proficiency in operations, two areas of competitive strength for Ocwen.”

Written by Jason Oliva

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  • Oh yeah, sure, all of that explains the losses in the reverse division.

    How about a huge part of that loss coming from the downward pressure on revenues due to the new but significantly reduced PLFs (when compared to Standards) and new restrictions on first year disbursements? If Ocwen admitted that, then they would be admitting that without greatly increased endorsement volume, Liberty will be seeing lower net profits for years to come.

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