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Ocwen posts first quarter net loss

Company in the middle of even greater regulatory storm

Ocwen Financial Corporation executives prepped investors at the end of last year to expect this latest loss at the start of 2017 as it continues to digest regulatory charges. But despite the predicted loss, Ocwen still managed to beat earnings expectations amid even greater regulatory concerns that cropped up in April.

The company incurred a GAAP net loss of $32.6 million, or $0.26 per share, for the first quarter 2017, compared to a net loss of $111.2 million for the first quarter last year.

Ocwen also reported generated revenue of $321.9 million, down 2.7% compared to the first quarter of the prior year, primarily driven by the impact of portfolio run-off offset by mortgage lending growth.

While the earnings per share loss missed expectations by $0.08, revenue beat expectations by $19.01 million.

The net loss follows a tough past several years for the company. In 2016, Ocwen posted a net loss of $199.4 million (or $1.61 per share) for the full year. In 2015, the company posted a net loss of $246.7 million (or $1.97 per share). And in 2014, the company posted a net loss of $546 million.

In the company’s fourth quarter 2016 earnings call, Ocwen CEO Ron Faris cautioned investors that Ocwen was expecting to post a loss in 2017 due, in part, to “regulatory challenges.”

In Ocwen’s third quarter 10-Q filing with the SEC, the company revealed that it is facing an investigation from the Consumer Financial Protection Bureau over the company’s mortgage servicing practices, and could be facing a fine and/or other disciplinary action.

Faris told the investors in its 4Q16 earnings call that resolving the CFPB’s investigation was a top priority for the company in 2017.

The company was also dealing with the California Department of Business Oversight placing mortgage servicing restrictions on it, which are now removed, along with a settlement with the New York Department of Financial Services that prohibited it from acquiring MSRs in bulk.

The company was still dealing with those regulatory issues, but it was optimistic, at the time, on the future.

During the first quarter earnings call, Faris noted that the company’s servicing portfolio had decreased significantly in the three years that its been operating under servicing restrictions, but said that the company used that time to drastically improve the quality of its operation.

“We believe we have earned the right to allowed to compete again,” Faris said.

The only problem is the company was slapped with even more regulatory problems in April.

The CFPB recently sued Ocwen, accusing the nonbank of “failing borrowers at every stage of the mortgage servicing process.”

In its lawsuit, the CFPB claims that Ocwen illegally foreclosed on borrowers, ignored customer complaints, mishandled borrowers’ money, and failed at the most basic of mortgage servicing actions.

Ocwen answered those charges and accused the CFPB of playing politics with its lawsuit, stating that the bureau is simply seeking to distract from the legislative battle over the agency taking place on Capitol Hill as we speak.

And on top of the CFPB, a raft of state regulators clamped new business restrictions on Ocwen Financial for alleged rampant errors with homeowners’ escrow accounts and other issues at the nonbank.

There is, however, a deal in the works that will help put money into the company after its growing string of losses.

Ocwen and New Residential Investment are reportedly close to a massive mortgage servicing rights deal that would alleviate some of Ocwen’s business concerns and make New Residential a significant investor in Ocwen itself.

Under the terms of the agreement, New Residential would buy approximately $117 billion in mortgage servicing rights from Ocwen. The deal actually involves MSRs that New Residential’s currently has rights to, but would covert them into MRS fully owned by New Residential.

Majority of the recent problems for the company didn’t happen until the second quarter of 2017. However, Faris is still positive on the results as noted in the first earnings release.

“I am pleased that our servicing business had its third consecutive profitable quarter and that our origination business returned to profitability this quarter,” commented Ron Faris, President and CEO, on the first quarter earnings.

 “One area where we continue to invest is in strengthening our risk and compliance infrastructure,” said Faris. “Numerous external and internal compliance reviews over the past year show the strength of our control structure. For example, each of the last four quarters of testing in 2016 by our independent internal review group confirmed that none of the tested National Mortgage Settlement metrics were out of tolerance. Despite recent regulatory allegations, which we believe unfairly characterize our progress and current performance, our recent reviews have not identified past or present systematic issues with our foreclosure sale processes, which is always a last resort for us.”

“I am especially proud of the strong modification results during the quarter which helped over 18,000 struggling families. The financial crisis has not ended for many families in this country, and the Ocwen team continues to provide caring solutions that work,” he concluded. 

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