Ocwen shutting down largest origination channel; exiting wholesale forward lending

Nonbank also settles with 2 more states

Ocwen Financial quietly announced earlier this year that it planned to exit correspondent lending to focus on what the nonbank called its “higher margin” channels – retail and wholesale.

As it turns out, the company’s focus on wholesale lending lasted all of two months.

Ocwen revealed Thursday that it plans to exit its wholesale forward lending business, shutting down its largest origination channel.

Ocwen disclosed its plans in a filing with the Securities and Exchange Commission that was mostly focused on Ocwen settling with two more states to remove some of restrictions that were placed on their mortgage business as part of a multi-state regulatory action against the nonbank earlier this year.

But under that section of the SEC filing, Ocwen disclosed that it is exiting wholesale forward lending, having agreed to sell “certain assets related to the business” to an undisclosed buyer.

The company did not provide any additional details on the financial terms of the deal, nor does the company provide a reason for selling the wholesale forward business.

Ocwen said that the unnamed buyer is “expected to assume a facilities lease and to offer positions to certain Ocwen employees in the business.”

Ocwen said that it estimates that it will take a loss of approximately $7 million related to the forward lending business sale in its third quarter 2017 results. According to the SEC filing, the loss is primarily related to the company writing off the “capitalized balance of internally developed software for the wholesale forward lending business.”

Ocwen also said that it expects to incur an additional $1 million to $2 million of severance expense following the closing of the transaction, which is expected to take place in the fourth quarter of this year.

By exiting correspondent lending and wholesale forward lending this year, the company will be losing its two largest origination channels.

In 2016, Ocwen’s wholesale forward lending channel produced $2.04 billion in loans, making it the company’s largest origination channel. During the same time period, Ocwen’s second largest origination channel was its forward correspondent channel, which was responsible for $1.73 billion in loans.

Over the last few years, Ocwen’s wholesale forward lending channel saw significant growth. In 2014, the wholesale forward lending channel was responsible for $856 million in loans. That figure rose to $1.33 billion in 2015, and $2.04 billion last year.

But, according to Ocwen’s most recent earnings filing, both its wholesale forward and correspondent forward channels were on track to see drops in originations this year.

Through the first six months of 2017, Ocwen’s wholesale forward origination channel was responsible for $717.44 million, compared to $835.18 million in the same time period last year – a drop of 14%.

The drop was more significant in correspondent forward lending. In the first six months of last year, Ocwen’s correspondent forward lending channel was responsible for $892 million in originations, compared to $456.8 million this year – a drop of 49%.

On the other hand, Ocwen’s retail forward channel grew in the first two quarters of 2017, rising from $173.8 million last year to $365.78 million this year – an increase of 110%.

Ocwen said that it plans to remain in retail forward lending and all existing channels of reverse mortgage lending.

As for other news in the SEC filing, Ocwen said that it also reached settlement agreements with Alabama and Minnesota, taking the total number of states where Ocwen reached an agreement on the servicing restrictions to 17.

Previously, Ocwen settled with New Mexico, Virginia, and West Virginia. Before that, the nonbank reached settlements with Georgia, Idaho, Illinois, Maine, Michigan, Mississippi, Montana, Rhode Island, South Carolina, and Wisconsin.

Many of the states previously took regulatory actions against Ocwen over alleged escrow issues by restricting Ocwen’s ability to acquire new mortgage servicing rights and originate new loans in each state.

These new settlements contain similar terms as the previous settlements, which remove some of the restrictions on Ocwen’s business but establish new ones as well.

As with the previous settlements, Ocwen’s new settlements with Alabama and Minnesota prohibit the nonbank from acquiring any new residential mortgage servicing rights until April 30, 2018.

Ocwen also agreed to develop a plan to move away from its proprietary REALServicing platform, which is used to process and apply borrower payments, communicate payment information to borrowers, and maintain loan balance information.

Each of the states' consent agreements restrict Ocwen from boarding new loans through REALServicing. Ocwen said that this restriction does not apply to loans already serviced on REALServicing, including modifications or loans that are converted to an arrangement where Ocwen acts as a subservicer.

“Ocwen is pleased to have reached resolutions with two additional states, Alabama and Minnesota, to resolve regulatory actions brought against the company, bringing the total number of states where we have reached a resolution to 17,” Ocwen spokesperson John Lovallo said in a statement. “We continue to work cooperatively with the remaining 14 state regulatory agencies and two state attorneys general to reach acceptable resolutions.”

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