Ocwen Financial (OCN) spent the last few months preparing its investors for the bad news. And the bad news finally came early Tuesday morning.
After delaying its fourth quarter and year-end financial results on multiple occasions, Ocwen disclosed Tuesday that it recorded a preliminary net loss of $546 million in 2014. On a per share basis, the loss was $4.18 per share.
That’s a stark reversal from 2013, when Ocwen reported net income of $310.4 million, or $2.13 per share.
But, the massive loss wasn’t due to a drop in revenue. In fact, Ocwen generated preliminary revenue of $2.1 billion, up 4% compared to $2.0 billion in the prior year, and its preliminary income from operations was $76.1 million for 2014.
On a pre-tax basis, Ocwen reported a preliminary loss of $443.2 million, compared to $352.5 million pre-tax income in 2013. Ocwen’s preliminary pre-tax income on a normalized basis for 2014 was $284.9 million, compared to the $550.4 million normalized pre-tax income in 2013, the nonbank said Tuesday morning.
The loss was due to “preliminary normalized expenses,” namely a $420.2 million charge-off of goodwill. In March, Ocwen estimated the charge-off to be between $370-$420 million, and actual result came in slightly higher than that estimate.
Additionally, Ocwen recorded a loss of $186.1 million in legal and settlement expenses, primarily related to the settlement with the New York Department of Financial Services.
Last year, Ocwen settled with the NYDFS over its servicing practices to the tune of $150 million. Ocwen also settled with the state of California over Ocwen’s reluctance to provide documentation proving that it could operate in the state and suffered legal threats by mortgage bond investors.
Earlier this year, Ocwen was hit with an avalanche of bad news, in the form of reports that Ocwen was fired as the servicer from two residential mortgage-backed securitizations and accused of costing bond investors $26 billion.
Ocwen also reported losses of $72.3 million for mortgage servicing rights-related fair value changes and $49.5 million of “transition and other items.”
Ocwen’s preliminary normalized results for 2014 were impacted by and include $127.3 million of servicer expenses and uncollectible advances along with $39.4 million in regulatory monitoring costs. In addition, Ocwen’s preliminary net loss results include a charge to record an approximately $77 million valuation allowance against the company’s remaining deferred tax asset, the company said.
"I am encouraged by the progress Ocwen has made so far in 2015. We currently expect to be profitable in 2015 and meet all of our ongoing financial and servicing obligations. In addition to generating substantial cash flow from pending asset sales that have already been announced so far this year, we expect our historical track record of generating substantial cash flow from operations to continue in 2015 and beyond,” Ocwen CEO Ron Faris said.
“To accomplish our objectives we must, among other things, extend our $1.8 billion advance receivable facility that begins amortizing in October 2015, continue meeting our regulatory requirements, execute on our plan to reduce our GSE servicing exposure, continue to comply with our debt covenants and maintain our current servicer ratings, Faris continued.
“We have already significantly advanced our Agency MSR sale strategy at attractive prices, entered into an amendment with Home Loan Servicing Solutions that provides more stability for the Company and reduced our 2015 refinancing risk," Faris added. "We have also continued to make progress and improvements in our risk and compliance management systems, a critical focus of our management team and employees. We are optimistic that the investments we have made and are making in these areas reduce significantly the substantial risks associated with non-compliance with laws and regulations and improves our service to homeowners which will ultimately result in better overall returns to our shareholders."
Ocwen recently announced several massive agency mortgage servicing rights sales that will drop its share of agency servicing even more.
Ocwen stated last month that it intended to sell two portfolios of agency servicing, a $25 billion portfolio and a $9.8 billion portfolio, to Nationstar as Ocwen continues its exit from agency servicing.
The announcements were the latest in a string of agency MSR sales for Ocwen, which said in December that it plans to exit agency servicing entirely.
Earlier this month, Ocwen said that it is “on track” to sell agency MSRs for approximately $55 billion in unpaid principal balance in the next six months for prices “significantly above” its estimated carrying value.