Ocwen Financial posts 2Q revenue of $553.1M, up 2% Y/Y
Regulatory, compliance costs drag on $67M net income
Ocwen Financial (OCN) reported net income of $67 million, or $0.48 per share, for the second quarter of 2014, compared to net income of $76.7 million, or $0.53 per share, for the second quarter of 2013.
Ocwen generated revenue of $553.1 million, up 2% compared to the second quarter of 2013. Income from operations grew by 22% to $207.6 million for the second quarter of 2014 as compared to $170 million for the second quarter of 2013.
"Our normalized pretax earnings were lower in the quarter as a result of significant compliance and regulatory-related costs and higher interest expense," commented Bill Erbey, Ocwen's executive chairman. "However, I am pleased to report that income in our Lending businesses improved over last quarter. Our Forward Lending business was up 26% over the first quarter of 2014 driven by better expense performance, and our Reverse Lending business delivered a pretax GAAP loss of only $(2) million, a $5 million improvement over the first quarter of 2014, driven primarily by higher margins."
“We continue to believe that the loans originated by our Reverse Lending business during the past two quarters will generate significant future profits as homeowners utilize their available credit lines," he said.
Net income for the six months ended June 30, 2014 was $142.8 million, or $1.02 per share, as compared to $121.9 million, or $0.84 per share, for the same period in 2013. Revenue in the first half of 2014 increased 16% from the first half of 2013 to a total of $1.1 billion.
Pre-tax earnings on a GAAP basis for the second quarter of 2014 were $77.2 million, a 12% decrease as compared to the second quarter of 2013. Ocwen's normalized pre-tax earnings for the second quarter of 2014 were $110.2 million, a 7% decrease from the first quarter of 2014-a). Normalized pretax earnings were impacted by a 2% increase in operating expenses and higher interest expense resulting from Ocwen's recent debt issuances.
During the second quarter of 2014, Ocwen incurred a total of $33 million in normalized expenses, including $19.3 million in MSR-related fair value adjustments, $8.3 million of on-going integration and technology-related expenses and $5.4 million of compensation expense associated with the surrender of stock options in the quarter.
"We are excited to see an increase in modification offers in the second quarter as well as July after a decline in March. This can be a leading indicator of strong Servicing results in the future. Our transition-related expenses continue to decrease as we make progress integrating our ResCap acquisition. On the other hand, we continue to add significant compliance and regulatory-related costs that more than offset our integration savings in the quarter," Erbey said.
"Additionally, in the quarter we repurchased over 2.6 million shares of common stock. From April 1st through July 28th, Ocwen has returned over $200 million to shareholders through a combination of repurchases under our $500 million share purchase program and repurchases of common stock issued as a result of the conversion of our Series A convertible preferred stock," he said.
"Finally, in the area of new business, we expect to begin investing in residential mortgage backed securities where Ocwen is the servicer in the third quarter of 2014. We also are actively working on launching a second new business platform about which we expect to provide more details in the coming quarters," he said.
Other highlights include:
- On May 12, 2014, Ocwen completed the issuance and sale of $350.0 million of 6.625% Senior Notes due 2019 in a private offering. The company received net proceeds of $343.8 million after deducting underwriting fees and offering expenses. The notes are general senior unsecured obligations and will mature on May 15, 2019.
- Completed 27,468 loan modifications with HAMP modifications accounting for 42% of the total. Modifications that included some principal reduction accounted for 50% of total modifications.
- The constant pre-payment rate ("CPR") increased from 11.2% in the first quarter of 2014 to 12.9% in the second quarter of 2014 driven by higher total debt payoffs, REO sales and amortization. In the second quarter of 2014, prime CPR was 14.4%, and non-prime CPR was 11.3%.
- Delinquencies declined from 13.8% at March 31, 2014 to 12.9% at June 30, 2014.
- Deferred servicing fees ("DSF") related to delinquent borrower payments amounted to $561.8 million at the end of the quarter. Ocwen does not recognize DSF as revenue until collected, and it does not accrue DSF on its balance sheet.
- Originated forward and reverse mortgage loans with UPB of $1.2 billion and $145 million, respectively.
- Lending operations delivered $7.1 million of pre-tax profit, up substantially from the first quarter of 2014.
- Ocwen completed the repurchase of 2,603,334 shares of its common stock for a total outlay of $92.3 million.
"Although many other servicers continue to focus their efforts on foreclosures and short sales which displace families from their homes and communities, we continue to strive to reduce delinquencies and loan losses by keeping more families in their homes through sensible repayment and loan modification plans," said Ron Faris, President and CEO. "As reported in the most recent Making Home Affordable Program Performance Report through May 2014, Ocwen has completed 279,834 HAMP first lien modifications, more than any other servicer. We have completed 63,422 HAMP principal reduction modifications, more than the next three highest competitors combined.
“Even more impressive is the fact that for homeowners who were not accepted for HAMP or who were disqualified from HAMP, Ocwen has the lowest foreclosure rate and the highest alternative modification and repayment plan rate. In other words, a family who has its home loan serviced by Ocwen has a significantly better chance of remaining in their home than if their loan is serviced by other large servicers,” Faris said. “As third party studies have confirmed, Ocwen's superior results in helping consumers avoid foreclosure through sustainable loan modifications also result in improved cash flow, lower delinquency rates and lower expected losses for loan investors. We have always been a strong supporter of the Making Home Affordable Program, and we are extremely proud that twenty percent of all active first lien HAMP modifications are serviced by Ocwen, a rate 33% greater than the next highest servicer."