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OcwenÕ profits fall sharply in second quarter

Company announces $150 million cost-cutting program

After returning to profitability in the first quarter, reversing a trend that saw it lose $546 million in 2014, Ocwen Financial (OCN) reported Thursday that it also made a profit in the second quarter – albeit a much smaller one.

In the first quarter, Ocwen reported net income of $34.4 million, or $0.27 per share, which was down from the first quarter of 2014, when the company reported net income of $60.5 million, or $0.43 per share.

In the second quarter, Ocwen reported net income of $10 million, or $0.08 per share, compared to net income of $67 million, or $0.48 per share, during the second quarter of 2014.

Ocwen generated revenue of $463 million, down 16% compared to the second quarter of the prior year, the company said.

Income from operations was $111 million during the second quarter compared to $208 million for the same time period last year. Cash from operating activities was $210 million for the three months ended June 30, 2015, up $196 million over the same period last year.

Ocwen President and CEO Ron Faris said that the company is working towards a “strong bank-like” risk and compliance infrastructure and feels that the company’s reduction of debt in the second quarter will take the nonbank closer to becoming more like a bank.

"The company made positive strides on many fronts in the second quarter,” Faris said.

“We continue to work closely with our regulators and monitors, and the environment remains stable,” he continued. “Our efforts to build out a strong 'bank-like' risk and compliance infrastructure are taking hold. We were profitable and generated strong operating cash flow.”

Faris said that Ocwen executed on its asset sale strategy, including the sale of $3 billion of non-performing agency mortgage servicing, noting that the company reduced corporate debt by $264 million while ending the quarter $490 million in available liquidity.

Overall, Ocwen’s total balance of loans serviced has shrunken from more than $435 billion at the end of the second quarter last year to $321.67 billion in the second quarter of this year.

In the second quarter, Ocwen closed on the previously announced sale of $45 billion in mortgage servicing rights from Ocwen Loan Servicing, a wholly-owned subsidiary of Ocwen to Chase, the banking business for JPMorgan Chase & Co. (JPM).

The sale was previously announced in March, and includes 266,000 "high-quality" Fannie Mae loans worth an estimated $45 billion.

Ocwen used proceeds from the sales of agency servicing rights to pay down a portion of its senior secured term loan in June.

In March, the company said it was selling a $25 billion MSR portfolio to Nationstar Mortgage (NSM), just over a month after agreeing to sell another $9.8 billion portfolio of agency servicing to Nationstar.

The company announced in June that it paid down $53.2 million of its senior secured term loan using proceeds from previously announced sales of mortgage servicing rights, but the nonbank did not disclose which sale of MSRs the funds came from.

All those moves were part of strategy laid out by Faris in December, when he said that Ocwen was moving away from agency servicing.

And because of those moves, Faris said that the company is going to undergo a massive cost-cutting initiative.

“We have also launched a cost improvement effort to right size our cost structure in line with the reduction in our assets and revenue,” Faris said.

“Our aim is to reduce our costs by over $150 million, while continuing to enhance the borrower experience, strengthen our risk and compliance infrastructure and deliver strong loss mitigation results,” he added. “Similar to our plan to grow our origination capabilities, this cost improvement initiative is aggressive, but it is a critically important step in our transformation and one that is necessary to ensure our long-term success.”

Ocwen also reported that its pre-tax income for the second quarter of 2015 was impacted by a number of significant items including but not limited to: $30 million of net gains from sales of performing and non-performing agency mortgage servicing rights with a total unpaid principal balance of $56.5 billion, $15 million in strategic advisor expenses and $6 million of monitor costs.

Servicing contributed $45 million of pre-tax income inclusive of the gain on sales of MSRs, and the lending segment generated $14 million of pre-tax income for the second quarter of 2015.

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