Liberty Parent Details Reverse Mortgage Servicing Plans After RMS Acquisition

Ocwen Financial Corporation (NYSE: OCN), parent company of top reverse mortgage lender Liberty Reverse Mortgage, recorded strong numbers in its reverse mortgage business in Q2 2021 and detailed some of what it plans to do in the reverse mortgage business sector after its wholly-owned subsidiary PHH Mortgage Corporation acquired the operations, employees and assets of Reverse Mortgage Solutions (RMS) from its previous owner, Mortgage Assets Management, LLC (MAM).

This is according to an earnings presentation of the company’s financial results from the second quarter of 2021, and an accompanying conference call by company leadership held on Thursday morning. In addition to offering more details about the acquisition of the RMS servicing platform, the company also detailed that the overall reverse mortgage volume from Liberty is up nearly 50% year-over-year, and company leaders continue to tout Liberty’s performance as a contributing factor to the company’s financial position.

Reverse mortgage volume is up

In the company’s earnings release, Ocwen states that the acquisition of the RMS servicing platform will assist in transforming Liberty into an end-to-end service provider for reverse mortgage borrowers and should bolster the lender’s position in the space.

“This will uniquely position the company to be the only full-service provider in the attractive and growing reverse mortgage market and is expected to close in Q4,” the company said.

Previously when the deal was initially announced, the closing of the deal valued at $12.4 million was expected to close in Q3 2021, but no reason was given in released materials for the new timetable of Q4.

Ocwen CEO Glen Messina detailed some of the outlook on the reverse mortgage sector, including how Liberty has performed over the past 12 months during the earnings presentation held on Thursday morning.

“The previously announced RMS platform acquisition will help us expand our presence in reverse mortgages, and we believe uniquely positions us as the only full-service provider in this space, creating another new growth opportunity for us,” he said. “Reverse mortgage endorsement volume increased 21% for the first half of 2021 versus the same period in the prior year, and we are certainly a beneficiary of this growth,” he added later.

Messina is also pleased at the pace of reverse mortgage volume growth for Liberty when comparing current figures to the same period in 2020.

“Reverse volume is up 47% year over year,” he said. “Pre-tax income in reverse originations is on average about six times out of forward. And in addition to growing overall reverse volume, we are focused on driving retail originations, which are the highest margin in reverse. Retail reverse volume is up 150% year over year in the first half as compared to the same time last year.”

‘Long-term growth opportunity’ in end-to-end reverse mortgage service

Messina went into additional detail about what the RMS deal will mean for both Ocwen broadly and Liberty specifically, citing the potential opportunity that exists in the reverse mortgage business based on its growth over the past year as well as services the company can provide that are currently absent from the existing market landscape.

“As part of our efforts to diversify servicing revenue sources during the second quarter, we executed an agreement with Reverse Mortgage Solutions and their parent company, Mortgage Assets Management (MAM), to acquire the reverse servicing platform and real estate-owned (REO) businesses,” Messina said. “Upon closing we will become the sub-servicer for RMS and MAM under a five year sub-servicing agreement, which would roughly double our reverse servicing portfolio.”

Also cited as a positive addition based on the deal was the RMS company’s reverse mortgage servicing capabilities and its experienced personnel, as well as customized technology RMS has access to in order to accomplish its tasks in the space. In addition to the acquisition, Messina describes the proverbial “door” that has been opened to partner with MAM parent company Waterfall Asset Management, which adds additional growth potential.

“The transaction supports our strategy to stand up an in-house reverse servicing capability and to expand our sub-servicing product offering to include forward servicing, small balance commercial and reverse mortgages,” Messina explained. “We do expect the acquisition to be mildly diluted for 2021 largely due to integration and restructuring costs. But, we do believe it will become pre-tax income accretive beginning in 2022.”

The acquisition of RMS will also provide Liberty the opportunity to be a unique player in the reverse mortgage space by offering a full loan lifetime of service from beginning to end, something also previously alluded to by Liberty President Mike Kent in an interview with RMD this summer.

“With the closing of this transaction, we will be the only reverse mortgage company that originates, securitizes and directly services our reverse mortgages providing our customers and partners with an end-to-end solution,” Messina said. “We believe this enables significant growth potential and further solidifies our position as a premier provider in the reverse mortgage space with a differentiated model. The transaction is expected to close in the fourth quarter of this year, obviously subject to regulatory approval and other customary closing conditions.”

Messina ended his portion of the presentation by reiterating general excitement about what the acquisition of RMS could mean for Ocwen, PHH and Liberty.

“To wrap up here, we’re excited to partner with Mortgage Assets Management and Waterfall investments in the reverse mortgage market which we believe is a long term growth opportunity for us,” he said.

Current reverse servicing landscape

In the question-and-answer portion of the call, Messina fielded different questions related to the RMS acquisition which helps provide some additional context to the value of the deal from Ocwen’s perspective.

“The beauty of the transaction that we’re doing with RMS is it gives us a reverse platform to, again, create balance in our reverse servicing portfolios,” Messina said. “Based on the UPB, the RMS sub-service that we’re taking on will have about a 50/50 balance between owned reverse servicing and sub-service reverse servicing. Our expectation is that we want to continue to grow both of those portfolios.”

Messina also described the reverse servicing market itself as an opportunity due to the relatively few number of players there are in the space from his point-of-view.

“It’s over an $80 billion sub-servicing market out there for reverse mortgages with limited competition,” he said. “So, we do think there’s an opportunity to continue to grow that piece of our business. Our focus has always been balancing diversification, and that’s consistent with how we’re approaching the reverse servicing space.”

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