Ocwen Posts Big Loss, Erasing Profits for 2015

Ocwen posted a net loss of $66.8 million in the third quarter. Revenue was $405 million, down 21% compared to the third quarter of 2014.

For the full year 2014, Ocwen recorded a net loss of $546 million, a stark reversal from 2013, when Ocwen reported net income of $310.4 million.

The company told its shareholders in September that it expected to post a loss in 2015 as well, citing lower revenue expectations coupled with higher expected operating, interest and tax expenses.

Ocwen actually posted profits – albeit small ones – in the first and second quarters of this year. In the first quarter, Ocwen reported net income of $34.4 million, while in the second quarter, Ocwen reported net income of $10 million, but those profits have been undone by Ocwen’s rough third quarter.

According to the company, its cash flows from operating activities were $239 million for the third quarter, compared to $349 million during the same period last year.

The company said that its pre-tax loss for the third quarter of 2015 was $55.9 million.

According to the company’s earnings statement, its pre-tax results were impacted by a “number of significant items” including:

$41.2 million of net gains from sales of performing and non-performing agency mortgage servicing rights relating to loans with a total unpaid principal balance of $22.0 billion
A loss of $23.4 million of interest rate driven impairment of the company’s Ginnie Mae MSRs carried at lower of cost or fair value
A loss of $17.4 million in restructuring costs, which included severance payments to 300 of the company’s residential servicing employees at Ocwen’s facility in Waterloo, Iowa, which represented 10% of the company’s approximately 2,900 U.S.-based employees; and Fiserv platform exit costs, which the company stated was going to cost $10 million
A loss of $12.5 million of monitor costs
A loss of $11.1 million in legacy servicing claim reserves
A loss of $11.0 million in legal and other settlement costs
A loss of $8.2 million of expense incurred pursuant to the company’s agreement with New Residential Investment Corp. in connection with downgrades to the company’s Standard & Poor’s servicer ratings

Additionally, the company’s servicing segment recorded a $12.7 million pre-tax loss inclusive of the gain on sales of MSRs, MSR fair value changes and legacy servicing claim reserves.

“In the third quarter, we continued to make progress on our strategic and operating initiatives,” Ron Faris, president and CEO of Ocwen, said.

“Our asset sale strategy has succeeded in generating proceeds and gains for the company, enabling us to reduce leverage and focus on simplifying our operations,” Faris said.

“Our operating cash flow remained strong, enabling us to end the quarter with more than $731 million in available liquidity, including $459 million of cash on hand,” Faris continued. “The capital markets also continue to demonstrate strong support for the company, as we were able to successfully refinance our $1.8 billion OMART servicing advance facility and execute an amendment with our term loan lenders to give us more flexibility moving forward.”

At the end of July, Faris told investors that the second half of 2015 will be “challenging” from an income perspective for Ocwen.

Ocwen has been undergoing a shift in its business model over the last 18 months, ever since its $150 million settlement with the New York Department of Financial Services over its servicing practices.

In December of last year, Faris announced that Ocwen was moving away from agency servicing, which the company has done throughout this year.

In fact, Ocwen’s servicing portfolio has fallen significantly in 2015.

As of Sept. 30, 2014, Ocwen’s servicing portfolio was $411.28 billion in unpaid principal balance.

As of Sept. 30, 2015, Ocwen’s servicing portfolio had fallen to $288.07 billion, a decrease of more than $123 billion.

Ocwen noted that it originated forward and reverse mortgage loans with unpaid principal balances of $1.1 billion and $198.5 million, respectively, in the third quarter.

“We are making solid progress in developing our lending capabilities including expansion of our product offering,” Faris said. “Additionally, we are progressing as expected on the cost improvement initiatives that we laid out in the third quarter and anticipate identifying additional opportunities to reduce our operating costs. We remain committed to investing in our risk, compliance and technology infrastructure, and delivering best-in-class service to our customers.”