Ocwen Explores New Product Alternatives As Reverse Business Shrinks

Ocwen Financial Corp. (NYSE:OCN), the parent company of Liberty Home Equity Solutions, reported a loss of $0.9 million in pre-tax reverse mortgage revenue during the third quarter of 2018, and executives are looking to new products to add to their offerings.

Overall reporting a company-wide net loss of $41 million, executives blamed the reverse mortgage number on rising interest rates that “continue to drive unfavorable valuations due to shortening the life of the portfolio and lower margins.”

“Lending volumes continue to be challenged in line with industry trends. HUD endorsements — a measure of market volume — continued to decline and were 6% lower than the second quarter,” chief accounting officer Cathy Dondzila said on the company’s third-quarter earnings call on Tuesday morning.

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She said Ocwen is exploring different ways to improve the reverse mortgage side of the company.

“The business continues to work on efficiencies through process automation, cost control, and sales and marketing in response to these market-based headwinds,” she said. “We are exploring new products and other alternatives to capture more of the market.”

Liberty Home Equity Solutions is ranked number five among the top 10 HECM lenders, with 2,795 reverse mortgage loans endorsed in the past year, according to the latest data from Reverse Market Insight.

Based on its third-quarter report, Ocwen originated reverse mortgages with unpaid principal balances of $147.5 million during this three-month period. Furthermore, Ocwen reports that its reverse portfolio had an estimated $98.4 million in undiscounted future gains from projected future draws on existing loans by the end of the third quarter — noting that neither these anticipated future gains nor the future funding liability are included in the company’s financial statements.

The company also experienced a $1.2 million in pre-tax revenue loss on the forward side.

Last month, Ocwen officially acquired PHH Corporation in a $358 million cash transaction, naming Glen Messina, who was the CEO of PHH, Ocwen’s new CEO and president.

During the call, Messina said Ocwen has identified a two-phase plan to improve the company’s numbers.

“We’ve establish a set of initiatives to enable our return to profitability, reduce the ongoing operation cash loss, and improve our competitive position,” Messina said.

Phase one will include initiatives such as re-engineering the cost structure, replenishing portfolio runoff, and restoring a growth focus. Phase 2 is focused on sustainability and will be a longer term plan, with initiatives like digitizing and diversifying the business model.

Written by Maggie Callahan