Ocwen Financial Announces Operating Results for Third Quarter 2017
- Reported a Q3 2017 net loss of $(6) million, a $38 million improvement over Q2 2017
- Servicing segment recorded a pre-tax profit for fifth consecutive quarter
- Generated $120 million of Cash Flows from Operating Activities during Q3 2017
- Continued focus on helping homeowners, including those recently impacted by hurricanes
WEST PALM BEACH, Fla., Nov. 02, 2017 (GLOBE NEWSWIRE) -- Ocwen Financial Corporation (NYSE:OCN) ("Ocwen" or the "Company"), a leading financial services holding company, today announced operating results for the third quarter of 2017. Ocwen incurred a GAAP net loss of $(6.1) million, or $(0.05) per share, for the three months ended September 30, 2017 compared to net income of $9.5 million for the three months ended September 30, 2016. Ocwen generated revenue of $284.6 million, down 20.8% compared to the third quarter of the prior year, primarily driven by the impact of portfolio run-off and lower HAMP fees due to the expiration of the program. Cash Flows from Operating Activities were $120.5 million for the third quarter and $401.2 million for the nine months ended September 30, 2017, compared to $178.3 million for the third quarter of last year and $350.4 million for the first nine months of last year.
"We continued to make progress during the third quarter on a number of fronts. We transferred the first tranche of mortgage servicing rights under our July agreements with New Residential Investment Corp., and we made progress settling some of our regulatory matters," commented Ron Faris, President and CEO of Ocwen. Mr. Faris continued, "Our servicing business continues to perform well despite portfolio runoff and achieved its fifth consecutive quarterly pre-tax profit. We continue to focus on helping homeowners in need, including those recently impacted by the hurricanes through a variety of targeted programs. I would also note that our own offices, especially those in the United States Virgin Islands, sustained substantial damage, but we have been able to maintain operations with only minimal interruption."
Third Quarter 2017 Results
Pre-tax loss for the third quarter of 2017 was $(26.6) million, a $(28.9) million decline from the third quarter of 2016. Net loss for the third quarter results for 2017 included a one-time tax benefit of $23.2 million related to the release of certain previously established reserves relating to uncertain tax positions.
The Servicing segment recorded $5.7 million of pre-tax income, a $(29.8) million decline versus the third quarter of 2016, driven by $(25.8) million lower HAMP fees. Revenue loss from runoff was offset by operational and financing cost improvements across multiple areas. On September 1, 2017, we transferred legal title for MSRs with $15.9 billion in UPB to NRZ and received a lump sum payment of $54.6 million. Conceptually, these upfront payments are a proxy for the net present value of the difference between higher future fees for servicing the mortgage loans under the relevant 2012 and 2013 agreements and the lower fees for servicing the mortgage loans under the new subservicing arrangements.
The Lending segment recorded $(7.6) million of pre-tax loss for the third quarter of 2017, an $(8.9) million decline versus the third quarter of 2016. Pre-tax results for the quarter included a $(6.8) million write-off of the carrying value of internally-developed software used in our forward lending wholesale channel. Total mortgage lending volume declined by 46% over the third quarter of 2016, driven by our decision to exit the forward lending correspondent channel in the second quarter of 2017 and a 55% reduction in the forward lending wholesale channel over the third quarter of 2016. The correspondent and wholesale volume declines were partially offset by a 102% increase in funded volumes at our higher margin forward lending retail channel and 7% overall growth in reverse lending versus the third quarter of 2016.
Additional Third Quarter 2017 Business Highlights
- Completed 6,544 modifications in the quarter, 9% of which were HAMP modifications. Note that the HAMP program ended on December 31, 2016, but modifications in process at that time continue to close.
- Delinquencies decreased from 11.2% at December 31, 2016 to 9.4% at September 30, 2017, primarily driven by loss mitigation efforts.
- The constant pre-payment rate (CPR) decreased from 15.0% in the second quarter of 2017 to 14.7% in the third quarter of 2017. In the third quarter of 2017, prime CPR was 18.0%, and non-prime CPR was 12.7%.
- In the third quarter of 2017, Ocwen originated forward and reverse mortgage loans with unpaid principal balance of $541.2 million and $227.8 million, respectively.
- Our reverse mortgage portfolio ended the quarter with an estimated $98.7 million in undiscounted future gains from forecasted future draws on existing loans. Neither the anticipated future gains nor the future funding liability are included in the Company's financial statements.
Webcast and Conference Call
Ocwen will host a webcast and conference call on Thursday, November 2, 2017, at 8:30 a.m., Eastern Time, to discuss its financial results for the third quarter of 2017. The conference call will be webcast live over the internet from the Company's website at www.Ocwen.com, click on the "Shareholders" section. A replay of the conference call will be available via the website approximately two hours after the conclusion of the call and will remain available for approximately 30 days.
About Ocwen Financial Corporation
Ocwen Financial Corporation is a financial services holding company which, through its subsidiaries, originates and services loans. We are headquartered in West Palm Beach, Florida, with offices throughout the United States and in the U.S. Virgin Islands and operations in India and the Philippines. We have been serving our customers since 1988. We may post information that is important to investors on our website (www.Ocwen.com).
Forward Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by a reference to a future period or by the use of forward-looking terminology.
Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Our business has been undergoing substantial change which has magnified such uncertainties. Readers should bear these factors in mind when considering such statements and should not place undue reliance on such statements.
Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially. In the past, actual results have differed from those suggested by forward looking statements and this may happen again.
Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the following: uncertainty related to claims, litigation, cease and desist orders and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification, origination and other practices, including uncertainty related to past, present or future investigations, litigation, cease and desist orders and settlements with state regulators, the Consumer Financial Protection Bureau (CFPB), State Attorneys General, the Securities and Exchange Commission (SEC), the Department of Justice or the Department of Housing and Urban Development (HUD) and actions brought under the False Claims Act by private parties on behalf of the United States of America regarding incentive and other payments made by governmental entities; adverse effects on our business as a result of regulatory investigations, litigation, cease and desist orders or settlements; reactions to the announcement of such investigations, litigation, cease and desist orders or settlements by key counterparties, including lenders, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae); our ability to comply with the terms of our settlements with regulatory agencies, increased regulatory scrutiny and media attention; any adverse developments in existing legal proceedings or the initiation of new legal proceedings; our ability to effectively manage our regulatory and contractual compliance obligations; our ability to comply with our servicing agreements, including our ability to comply with our agreements with, and the requirements of, Fannie Mae, Freddie Mac and Ginnie Mae and maintain our seller/servicer and other statuses with them; our ability to contain and reduce our operating costs; the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover advances, repay borrowings and comply with our debt agreements, including the financial and other covenants contained in them; our ability to timely transfer mortgage servicing rights under our July 2017 agreements with NRZ; our ability to maintain our long-term relationship with NRZ under these new arrangements; our ability to realize anticipated future gains from future draws on existing loans in our reverse mortgage portfolio; our servicer and credit ratings as well as other actions from various rating agencies, including the impact of prior or future downgrades of our servicer and credit ratings; volatility in our stock price; the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates; our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties; uncertainty related to legislation, regulations, regulatory agency actions, government programs and policies, industry initiatives and evolving best servicing practices; as well as other risks detailed in Ocwen's reports and filings with the SEC, including its amended annual report on Form 10-K/A for the year ended December 31, 2016 and any current and quarterly reports since such date. Anyone wishing to understand Ocwen's business should review its SEC filings. Ocwen's forward-looking statements speak only as of the date they are made and, we disclaim any obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise.
FOR FURTHER INFORMATION CONTACT:
| Investors: | Media: | |
| Stephen Swett | John Lovallo | Dan Rene |
| T: (203) 614-0141 | T: (917) 612-8419 | T: (202) 973 -1325 |
| E: shareholderrelations@ocwen.com | E: jlovallo@levick.com | E: drene@levick.com |
| Residential Servicing Statistics (Unaudited) (Dollars in thousands) |
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| At or for the Three Months Ended | |||||||||||||||
| September 30, 2017 |
June 30, 2017 |
March 31, 2017 |
December 31, 2016 |
September 30, 2016 |
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| Total unpaid principal balance of loans and REO serviced | $ | 187,468,318 | $ | 194,798,424 | $ | 202,369,014 | $ | 209,092,130 | $ | 216,892,002 | |||||
| Non-performing loans and REO serviced as a % of total UPB (1) | 9.4 | % | 9.6 | % | 10.7 | % | 11.2 | % | 11.4 | % | |||||
| Prepayment speed (average CPR)(2) (3) | 14.7 | % | 15.0 | % | 14.0 | % | 15.1 | % | 15.0 | % | |||||
| (1) | Performing loans include those loans that are less than 90 days past due and those loans for which borrowers are making scheduled payments under loan modification, forbearance or bankruptcy plans. We consider all other loans to be non-performing. |
| (2) | Average CPR for the prior three months. CPR measures prepayments as a percentage of the current outstanding loan balance expressed as a compound annual rate. |
| (3) | Average CPR for the three months ended September 30, 2017 includes 18.0% for prime loans and 12.7% for non-prime loans. |
| Segment Results (Unaudited) (Dollars in thousands) |
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| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Servicing | |||||||||||||||
| Revenue | $ | 246,545 | $ | 319,080 | $ | 802,347 | $ | 951,727 | |||||||
| Expenses | 218,565 | 202,156 | 637,406 | 734,326 | |||||||||||
| Other expense, net | (22,299 | ) | (81,475 | ) | (146,911 | ) | (259,815 | ) | |||||||
| Income (loss) before income taxes | 5,681 | 35,449 | 18,030 | (42,414 | ) | ||||||||||
| Lending | |||||||||||||||
| Revenue | 31,935 | 30,696 | 95,457 | 89,255 | |||||||||||
| Expenses | 38,412 | 30,013 | 100,628 | 85,471 | |||||||||||
| Other income (expense), net | (1,092 | ) | 628 | (1,901 | ) | 1,958 | |||||||||
| Income (loss) before income taxes | (7,569 | ) | 1,311 | (7,072 | ) | 5,742 | |||||||||
| Corporate Items and Other | |||||||||||||||
| Revenue | 6,162 | 9,672 | 20,002 | 22,277 | |||||||||||
| Expenses | 16,502 | 39,509 | 92,308 | 165,556 | |||||||||||
| Other expense, net | (14,325 | ) | (4,559 | ) | (37,311 | ) | (16,208 | ) | |||||||
| Loss before income taxes | (24,665 | ) | (34,396 | ) | (109,617 | ) | (159,487 | ) | |||||||
| Consolidated income (loss) before income taxes | $ | (26,553 | ) | $ | 2,364 | $ | (98,659 | ) | $ | (196,159 | ) | ||||
| OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) |
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| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Revenue | |||||||||||||||
| Servicing and subservicing fees | $ | 233,220 | $ | 302,235 | $ | 761,523 | $ | 906,993 | |||||||
| Gain on loans held for sale, net | 25,777 | 25,645 | 76,976 | 69,074 | |||||||||||
| Other | 25,645 | 31,568 | 79,307 | 87,192 | |||||||||||
| Total revenue | 284,642 | 359,448 | 917,806 | 1,063,259 | |||||||||||
| Expenses | |||||||||||||||
| Compensation and benefits | 90,538 | 92,942 | 272,750 | 287,613 | |||||||||||
| Servicing and origination | 72,524 | 63,551 | 204,947 | 249,230 | |||||||||||
| Professional services | 38,417 | 65,489 | 145,651 | 257,795 | |||||||||||
| Technology and communications | 27,929 | 25,941 | 79,530 | 85,519 | |||||||||||
| Occupancy and equipment | 15,340 | 16,760 | 49,569 | 62,213 | |||||||||||
| Amortization of mortgage servicing rights | 13,148 | (2,558 | ) | 38,560 | 18,595 | ||||||||||
| Other | 15,583 | 9,553 | 39,335 | 24,388 | |||||||||||
| Total expenses | 273,479 | 271,678 | 830,342 | 985,353 | |||||||||||
| Other income (expense) | |||||||||||||||
| Interest income | 4,099 | 5,158 | 12,101 | 14,488 | |||||||||||
| Interest expense | (47,281 | ) | (110,961 | ) | (212,471 | ) | (308,083 | ) | |||||||
| Gain on sale of mortgage servicing rights, net | 6,543 | 5,661 | 7,863 | 7,689 | |||||||||||
| Other, net | (1,077 | ) | 14,736 | 6,384 | 11,841 | ||||||||||
| Total other expense, net | (37,716 | ) | (85,406 | ) | (186,123 | ) | (274,065 | ) | |||||||
| Income (loss) before income taxes | (26,553 | ) | 2,364 | (98,659 | ) | (196,159 | ) | ||||||||
| Income tax benefit | (20,418 | ) | (7,110 | ) | (15,465 | ) | (7,214 | ) | |||||||
| Net income (loss) | (6,135 | ) | 9,474 | (83,194 | ) | (188,945 | ) | ||||||||
| Net income attributable to non-controlling interests | (117 | ) | (83 | ) | (289 | ) | (373 | ) | |||||||
| Net income (loss) attributable to Ocwen stockholders | $ | (6,252 | ) | $ | 9,391 | $ | (83,483 | ) | $ | (189,318 | ) | ||||
| Income (loss) per share attributable to Ocwen stockholders | |||||||||||||||
| Basic | $ | (0.05 | ) | $ | 0.08 | $ | (0.66 | ) | $ | (1.53 | ) | ||||
| Diluted | $ | (0.05 | ) | $ | 0.08 | $ | (0.66 | ) | $ | (1.53 | ) | ||||
| Weighted average common shares outstanding | |||||||||||||||
| Basic | 128,744,152 | 123,986,987 | 125,797,777 | 123,991,343 | |||||||||||
| Diluted | 128,744,152 | 124,134,507 | 125,797,777 | 123,991,343 | |||||||||||
| OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) |
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| September 30, 2017 |
December 31, 2016 |
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| Assets | |||||||
| Cash | $ | 299,888 | $ | 256,549 | |||
| Mortgage servicing rights ($598,147 and $679,256 carried at fair value) | 944,308 | 1,042,978 | |||||
| Advances, net | 197,953 | 257,882 | |||||
| Match funded assets (related to variable interest entities (VIEs)) | 1,243,899 | 1,451,964 | |||||
| Loans held for sale ($200,438 and $284,632 carried at fair value) | 223,662 | 314,006 | |||||
| Loans held for investment, at fair value | 4,459,760 | 3,565,716 | |||||
| Receivables, net | 231,514 | 265,720 | |||||
| Premises and equipment, net | 42,720 | 62,744 | |||||
| Other assets ($19,067 and $20,007 carried at fair value)(amounts related to VIEs of $26,647 and $43,331) | 453,901 | 438,104 | |||||
| Total assets | $ | 8,097,605 | $ | 7,655,663 | |||
| Liabilities and Equity | |||||||
| Liabilities | |||||||
| HMBS-related borrowings, at fair value | $ | 4,358,277 | $ | 3,433,781 | |||
| Other financing liabilities ($447,843 and $477,707 carried at fair value) | 536,981 | 579,031 | |||||
| Match funded liabilities (related to VIEs) | 1,028,016 | 1,280,997 | |||||
| Other secured borrowings, net | 544,589 | 678,543 | |||||
| Senior notes, net | 347,201 | 346,789 | |||||
| Other liabilities ($71 and $1,550 carried at fair value) | 693,119 | 681,239 | |||||
| Total liabilities | 7,508,183 | 7,000,380 | |||||
| Equity | |||||||
| Ocwen Financial Corporation (Ocwen) stockholders' equity | |||||||
| Common stock, $.01 par value; 200,000,000 shares authorized; 130,859,058 and 123,988,160 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
1,309 | 1,240 | |||||
| Additional paid-in capital | 544,392 | 527,001 | |||||
| Retained earnings | 42,400 | 126,167 | |||||
| Accumulated other comprehensive loss, net of income taxes | (1,293 | ) | (1,450 | ) | |||
| Total Ocwen stockholders' equity | 586,808 | 652,958 | |||||
| Non-controlling interest in subsidiaries | 2,614 | 2,325 | |||||
| Total equity | 589,422 | 655,283 | |||||
| Total liabilities and equity | $ | 8,097,605 | $ | 7,655,663 | |||
| OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) |
|||||||
| For the Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Cash flows from operating activities | |||||||
| Net loss | $ | (83,194 | ) | $ | (188,945 | ) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
| Amortization of mortgage servicing rights | 38,560 | 18,595 | |||||
| Loss on valuation of mortgage servicing rights, at fair value | 78,437 | 63,609 | |||||
| Impairment charge (reversal) on mortgage servicing rights | (1,551 | ) | 37,164 | ||||
| Gain on sale of mortgage servicing rights, net | (7,863 | ) | (7,689 | ) | |||
| Realized and unrealized losses on derivative financial instruments | 364 | 2,213 | |||||
| Provision for bad debts | 57,274 | 61,191 | |||||
| Depreciation | 20,430 | 18,277 | |||||
| Loss on write off of fixed assets | 6,834 | — | |||||
| Amortization of debt issuance costs | 1,979 | 10,475 | |||||
| Equity-based compensation expense | 4,489 | 4,000 | |||||
| Gain on valuation of financing liability | (27,024 | ) | — | ||||
| Net gain on valuation of mortgage loans held for investment and HMBS-related borrowings | (18,637 | ) | (22,329 | ) | |||
| Gain on loans held for sale, net | (39,542 | ) | (52,206 | ) | |||
| Origination and purchase of loans held for sale | (3,074,725 | ) | (4,575,264 | ) | |||
| Proceeds from sale and collections of loans held for sale | 3,067,522 | 4,493,887 | |||||
| Changes in assets and liabilities: | |||||||
| Decrease in advances and match funded assets | 285,066 | 343,129 | |||||
| Decrease in receivables and other assets, net | 156,008 | 122,305 | |||||
| (Decrease) increase in other liabilities | (66,321 | ) | 4,749 | ||||
| Other, net | 3,102 | 17,263 | |||||
| Net cash provided by operating activities | 401,208 | 350,424 | |||||
| Cash flows from investing activities | |||||||
| Origination of loans held for investment | (961,642 | ) | (1,185,565 | ) | |||
| Principal payments received on loans held for investment | 311,560 | 528,263 | |||||
| Purchase of mortgage servicing rights | (1,658 | ) | (15,969 | ) | |||
| Proceeds from sale of mortgage servicing rights | 2,263 | 45,254 | |||||
| Proceeds from sale of advances | 6,119 | 74,982 | |||||
| Issuance of automotive dealer financing notes | (129,471 | ) | — | ||||
| Collections of automotive dealer financing notes | 119,389 | — | |||||
| Additions to premises and equipment | (7,365 | ) | (28,649 | ) | |||
| Other | 1,480 | 9,483 | |||||
| Net cash used in investing activities | (659,325 | ) | (572,201 | ) | |||
| OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Dollars in thousands) |
|||||||
| For the Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Cash flows from financing activities | |||||||
| Repayment of match funded liabilities, net | (252,981 | ) | (218,517 | ) | |||
| Proceeds from mortgage loan warehouse facilities and other secured borrowings | 5,810,591 | 6,632,059 | |||||
| Repayments of mortgage loan warehouse facilities and other secured borrowings | (6,016,169 | ) | (6,834,720 | ) | |||
| Payment of debt issuance costs | (841 | ) | (2,242 | ) | |||
| Proceeds from sale of mortgage servicing rights accounted for as a financing | 54,601 | — | |||||
| Proceeds from sale of reverse mortgages (HECM loans) accounted for as a financing (HMBS-related borrowings) | 981,730 | 820,438 | |||||
| Repayment of HMBS-related borrowings | (287,908 | ) | (161,995 | ) | |||
| Issuance of common stock | 13,913 | — | |||||
| Repurchase of common stock | — | (5,890 | ) | ||||
| Other | (1,480 | ) | (1,094 | ) | |||
| Net cash provided by financing activities | 301,456 | 228,039 | |||||
| Net increase in cash | 43,339 | 6,262 | |||||
| Cash at beginning of year | 256,549 | 257,272 | |||||
| Cash at end of period | $ | 299,888 | $ | 263,534 | |||