Ocwen Financial Corporation (NYSE: OCN) saw lending revenues decline by $7 million between the first and second quarters of 2018, and management blamed the drop on weaker demand for reverse mortgages.
“Much of the decline was a result of the drop in reverse lending profitability, driven by higher competition for lower reverse mortgage volumes in the industry, higher interest rates, and wider investor spread, lowering investor pricing and execution margin in the second quarter,” chief accounting officer Cathy Dondzila said on the company’s second-quarter earnings call Thursday morning. “Overall, funding volumes were challenged compared to the prior quarter, and we continue to see margin compression and rates increase and prepayment rates decline.”
Home Equity Conversion Mortgage originations fell to their lowest single-month total since 2005 in June, with just 2,838 loans according to Reverse Market Insight’s most recent data set. Ocwen’s reverse mortgage origination arm, Liberty Home Equity Solutions, has generated 1,768 HECMs through the end of last month, down 17% from this time last year.
Ocwen CEO John Britti remained upbeat about the company’s fortunes relative to others in the marketplace.
“While we are far from immune to these general trends, we have, I believe, nonetheless weathered them better than most. Our volume and margins in both forward and reverse have held up better than the industry as a whole,” Britti said. “Some of this is a function of the underlying business.”
Still, Britti didn’t predict sunnier times ahead.
“We fully expect the second half of the year will remain challenging for our lending businesses,” he said.
The West Palm Beach, Fla.-based company — which is currently in the process of acquiring fellow mortgage company PHH Inc. (NYSE: PHH) — reported an overall net loss of $30 million for the second quarter of 2018, which still marks a $15 million gain from the same quarter last year.
Ocwen’s stock tumbled in the wake of the earnings release, dropping $0.34 — or 7.8% — to close at $4.00 per share.
Written by Alex Spanko