Ocwen Financial Corporation (NYSE: OCN), parent company of top 5 reverse mortgage lender Liberty Reverse Mortgage, today announced strong fourth quarter 2020 earnings results and cited its reverse mortgage division as a continuing driver of profitability in an earnings call taking place on Wednesday morning.
As the company continues to implement practices to further stabilize its financial position, Ocwen CEO Glen Messina related optimism when discussing the opportunities presented by the reverse mortgage product category, especially as the baby boomer generation continues to mature and older Americans maintain a larger share of collective home equity.
The role of reverse mortgages in diversification
Ocwen has had a tumultuous past couple of years, primarily due to losses in its forward lending arms as well as a drop in its stock price that caused it to fall below the New York Stock Exchange (NYSE) standard in early 2020. However, recent partnerships and improvements in the performance of its lending portfolios have allowed the company to move back into general profitability, and one of the contributing factors to that return is its diversified portfolio that includes Liberty Reverse Mortgage.
Liberty, which rebranded last year as it became a division of the Ocwen-owned PHH Mortgage Corporation, contributes to what Ocwen calls a “balanced and diversified business model,” and the reverse mortgage business segment in particular includes potential areas for growth that the forward side of the equation simply does not, according to a presentation of Ocwen’s results made during the earnings call.
One major component of reverse mortgage potential is the existence of $7.8 trillion in senior home equity, which was recently tabulated by the National Reverse Mortgage Lenders Association (NRMLA) and RiskSpan in its quarterly release of the Reverse Mortgage Market Index (RMMI).
“Our reverse origination platform is positioned to support the financial needs of our growing senior population by tapping into an estimated $7.8 trillion of untapped home equity,” said Ocwen CEO Glen Messina on the earnings call. “Our special servicing expertise and track record of creating non-foreclosure outcomes for consumers positions us to support the roughly 1.8 million homeowners who are still on forbearance who may need loss mitigation assistance.”
Ocwen is also considering extending into other components of the reverse mortgage business, Messina revealed on the call.
“Finally, we continue to evaluate opportunities to expand our capabilities in both forward and reverse servicing,” he said.
Potential regulatory changes
One of the things that has a chance to impact all of Ocwen’s activities between the forward and reverse mortgage sides of the business is changes in regulatory posture, due to the arrival of a new administration in the federal government. While it’s not yet known what kinds of impacts that President Joe Biden’s administration will have on the mortgage industry in the long-term, Ocwen is keeping a close eye on any developments.
“From a regulatory perspective, we are monitoring and we’ll continue to evaluate the impact that the Biden administration’s key agenda items may have on our industry,” Messina explained. “We’ll also […] be monitoring statements from the CFPB regarding any planned priorities or areas of focus.”
The recent issuance of a Mortgagee Letter (ML) extending foreclosure and eviction moratoria as ordered by President Biden is one occurrence that has had an impact on the mortgage industry across both the forward and reverse sides, and the potential impact of further stimulus activity stemming from the COVID-19 pandemic could also include additional protections related to foreclosures and forbearance activities, he said.
“Any changes at the federal level will obviously be uniform across all competitors in the industry, and thus far Ocwen alone as well as the industry has proven to be adaptable in a dynamic regulatory environment,” Messina added.
One setback endured by Ocwen recently on this front, however, stemmed from a complaint filed by the Consumer Financial Protection Bureau (CFPB) against the company in April 2017, which alleged a host of violations on the part of Ocwen, including illegally foreclosing on 1,000 borrowers, mishandling escrow accounts, enrolling consumers in add-on programs without their consent, and knowingly populating its mortgage-tracking software with incorrect or incomplete information. Last month, Ocwen announced it failed to reach a settlement with the CFPB on the matter.
A turnaround, other reverse and adjacent companies going public
All in all, the tone of the earnings call compared with where things were observed one year ago has gone through a notable shift, as Ocwen leadership is optimistic about the direction of the company.
“As I said at the onset, I’m just energized about the opportunities and our potential for 2021 and beyond,” Messina said. “We’ve radically transformed Ocwen. It’s a better balanced, diversified, mortgage originator and servicer. […] We’re stronger, more efficient, and better aligned to future market opportunities as a result of all the hard work of the Ocwen global team. We’re delivering record growth in originations, and we continue to reshape and diversify our servicing portfolio.”
Interestingly, the earnings statements that are relevant to the reverse mortgage industry are only likely to become more plentiful over time. Finance of America, parent company of reverse mortgage lender Finance of America Reverse (FAR), is slated to go public in 2021 and has already given indications about the reverse mortgage arm of that company serving its own portfolio diversity.
Additionally a major investor in lender Longbridge Financial, Home Point Capital, recently described its interest in the reverse mortgage industry in a financial disclosure.
Liberty is the fourth largest reverse mortgage lender in the nation, recording 3,379 HECM endorsements in the 12-month period ending in January, 2021 according to Home Equity Conversion Mortgage (HECM) endorsement data compiled by Reverse Market Insight (RMI).
Read the full financial results of Ocwen Financial Corporation in Q4 2020.
Former staffers from HUD, FHA and the GSEs weigh in on how to press ahead in this volatile reverse mortgage climate.