Liberty Pilots Jumbo Product Amidst Strong Reverse Performance for Ocwen

Ocwen Financial Corporation (NYSE: OCN), parent company of Liberty Home Equity Solutions, recorded fourth quarter and full year 2018 losses overall, but a continuing point of positivity in the midst of other business difficulties continues to be the company’s reverse mortgage division, according to financial statements released this week. The company also announced the launch of a successful pilot program offering proprietary jumbo reverse mortgages.

Echoing what many companies have been saying in the reverse space concerning the increasing availability of more proprietary products, this could be a path to increased volume, and Ocwen has already begun its efforts to make an impact in the proprietary space, Dondzila noted.

“Proprietary products are becoming more readily available in response to HUD program changes,” said Cathy Dondzila, chief accounting officer and SVP of Ocwen Financial Corporation on a conference call Wednesday announcing the company’s results. “We successfully launched a proprietary jumbo reverse mortgage pilot program in the fourth quarter, and continue to explore other, new products and alternatives to capture more of the market.”

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The reverse mortgage business in general also recorded gains as the forward mortgage division recorded losses.

“Our reverse lending business recorded pre-tax income of $8 million as lower interest rates drove favorable valuations,” Dondzila said.

Overall reverse mortgage endorsement volume dropped, but the company illustrated that volume declines were well in-line with larger Home Equity Conversion Mortgage (HECM) program activity and that the volume decline is not unique to Ocwen’s own operations.

“Funded loan volume continued to decline under industry trends for originations under the available HUD programs. HUD endorsements, a measure of market volume, continued to decline, and were 18 percent lower than in the third quarter,” Dondzila said.

The business is also looking to enhance its efficiencies through product automation and cost controls in sales and marketing to respond to these new market realities, Dondzila shared.

While some of the company’s losses were mitigated due to its October acquisition of mortgage company PHH Corporation, looking at the figures without incorporating the PHH deal’s effects on earnings showed that the reverse mortgage division of the company performed positively in relation to other areas of the company’s portfolio.

“Excluding PHH revenue, the $7 million decline in servicing revenue due to continued portfolio run-off was offset by the $9 million favorable valuation impacts from our reverse mortgage portfolios due to lower interest rates in the fourth quarter,” said Dondzila.

The incorporation of PHH into Ocwen’s operations is part of a wider reorganization and cost reduction strategy designed to return Ocwen to overall profitability in the next 12-15 months, according to company CEO Glen Messina. Ocwen plans to shed 2,100 jobs total, while also reducing its U.S.-based business footprint from 10 locations to four.

Liberty currently sits in fifth place on Reverse Market Insight’s list of top Federal Housing Administration-approved lenders, with 2,069 HECMs having been originated during the 12 months ended in January. An analyst asked Messina if he believes the servicing business is profitable today when not considering other activities.

“On a direct cost basis, that is correct, yes,” Messina said.

After the release of its financial results, Ocwen’s stock was up 14 percent in late day trading.

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