Mega servicer Ocwen Financial Corp. (OCN) feels positioned to benefit from rising home prices and improved U.S. employment numbers as it continues to lean heavily on the acquisition of mortgage servicing rights.
In just the second quarter, the company’s profit reached $76.7 million, or 53 cents a share, up 71% from $44.8 million, or 32 cents a share, in 2Q 2012.
The company also announced it would be reaching an, as yet, unmentioned settlement to homeowners.
"The largest normalizing item is for $52.8 million for an expected contribution to a consumer relief fund pursuant to a possible settlement with state and federal agencies," the filing states.
Since rising home prices and jobs tend to aid servicers working with troubled borrowers, Ocwen feels uniquely positioned to benefit from changes in the mortgage market. The company even reaffirmed its committment to focusing on MSRs as the real estate environment shifts once again.
"We believe that higher interest rates will have little negative impact on earnings, as we have only a modest component of income related to originations, and assets and debt are match funded," said Bill Erby, chairman of Ocwen. "Higher employment and an improving housing market, on the other hand, should boost Ocwen's earnings."
Most of Ocwen’s earnings stem from its nonprime portfolio – a segment that generally sees higher earnings when employment and home prices rise, lowering the overall delinquency rate as more borrowers make timely payments.
The firm’s pre-tax earnings on a GAAP basis were much higher, reaching $87.5 million in the second quarter. However, that figure was impacted by Ocwen's decision to move $52.8 million into reserves as it prepares to contribute to a consumer relief fund set up as part of a mortgage settlement with state and federal regulators.
Ocwen also faced $26.5 million in expenses during the quarter from MSR acquisitions involving Homeward Residential, ResCap and Ally Financial (ALLY).
In the second quarter alone, Ocwen completed its purchase of Liberty Home Equity Solutions from Genworth Financial (GNW) for $22 million. Furthermore, the company finalized its acquisition of Fannie Mae and Freddie Mac MSRs from Ally Bank, a deal involving an unpaid principal balance of $87 billion.
The company also sold its diversified fee-backed businesses to subsidiaries of Altisource Portfolio Solutions (ASPS).
In addition, Ocwen sold $376.6 million of servicing advances and rights to receive servicing fees on $10 billion of UPB toHome Loan Servicing Solutions, and then entered into a MSR purchase and sale agreement with OneWest Bank over $78 billion in UPB of MSRs.
Ocwen’s Homeward lending operation originated $1.6 billion of funding with another $568 million originated through partnerships, the company stated.
Going forward, the major servicer shows no signs of slowing down when it comes to MSR transactions.
"We continue to build capacity in anticipation of further acquisitions to meet our obligations to our clients, borrowers, RMBS investors and shareholders," the firm said.