Ocwen Financial Corporation (NYSE: OCN), parent company of Liberty Home Equity Solutions, recorded strong numbers in its reverse mortgage business in Q2 2019 in spite of the company’s larger aim to return to overall profitability, according to financial documents released this week and a Tuesday morning earnings call.
“Our reverse lending business recorded pre-tax income of $12 million, which included $8 million of favorable net fair value changes, related to interest rate changes,” said Ocwen Chief Financial Officer June Campbell in Tuesday’s Q2 earnings call. “Unrecognized value related to future draw commitments on loans purchased or originated prior to January 1, 2019 is estimated to be $60 million on a present-value basis and will be recognized over time as future draws are securitized or sold.”
Also touted was the recent launch of EquityIQ, Liberty’s proprietary reverse mortgage product.
“We believe [EquityIQ] will offer meaningful value to borrowers through higher overall LTVs compared to existing proprietary offerings, eliminating FHA mortgage insurance to drive lower costs so borrowers can realize more proceeds for their use, and loan amounts up to $4 million, which allows borrowers with higher home values an opportunity to access equity above FHA limits,” said Ocwen CEO Glen Messina on the earnings call.
The launch of EquityIQ was also described as part of Ocwen’s initiative to grow its lending volume and achieve a more balanced revenue mix, Campbell added.
Liberty has maintained its position as one of the top 10 companies in the reverse mortgage industry by volume for July 2019 according to recently-released data from Reverse Market Insight (RMI). The company currently sits at 1,703 endorsements thus far in 2019. This puts the company in 6th place on the top 10 rankings.
The broader outlook for Ocwen was not as positive. Pre-tax loss for Q2 2019 was $84.3 million, up from a $28.4 million loss in Q2 2018.
“Pre-tax results for the quarter were impacted by a number of significant items, including but not limited to: $40.7 million of unfavorable interest rate and valuation assumption driven fair value changes and $10.1 million in severance, retention and other re-engineering costs in the quarter,” the company’s earnings release reads.
Still, the performance of Liberty was touted by Messina as a point of positivity in Ocwen’s portfolio.
“We have a profitable, high-quality reverse mortgage business with a lower credit risk profile compared to other industry participants,” he said. “We have incurred limited buyout activity to-date and our projected peak outstanding balance of buyouts is expected to be at manageable levels.”