Liberty Reverse parent records losses in Q2, remains bullish about reverse mortgage business

The company recorded a pre-tax loss of $26 million, down from $6 million income in Q2 2021

Florida-based mortgage services company Ocwen Financial — the parent company of top 10 reverse mortgage lender Liberty Reverse Mortgage — recorded a pre-tax loss of $26 million in Q2 2022 compared to income of $6 million one year prior, attributing losses to higher interest rates and spreads as well as asset sales. This is according to a company earnings presentation prior to the market’s opening on Thursday.

While the company’s reverse mortgage division has not been immune to the radically different market environment compared to the status quo at the start of the year, company CEO Glen Messina described that Liberty Reverse Mortgage continues to be a major factor in its portfolio diversification efforts considering recently-recorded gains in senior-held home equity and positively-trending demographics for the segment.

Reverse mortgage business performance

Reverse mortgage servicing and subservicing had a combined unpaid principal balance (UPB) of $32 billion, an increase of over four times when compared directly with the period from one year prior, the company said. The company’s $400 billion subservicing sales pipeline has $70 million composed of reverse mortgage subservicing, and reverse mortgage originations are up 27% year-over-year according to the results.

Nevertheless, the reverse mortgage segment has not been immune from the market conditions pervading the broader mortgage space, Messina explained.

“The reverse market has been adversely impacted by the interest rate environment as well,” Messina said in the earnings presentation. “Reverse mortgage Interest rates are up over 125 basis points in the second quarter after increasing about 25 basis points in the first quarter, and in the second quarter reverse spreads widened to roughly four times our observed levels in 2021.”

This has had an adverse impact on reverse mortgage refinance opportunities, Messina said, conforming to the trends observed in reverse mortgage performance metrics over much of 2022 as detailed by analysts. Earlier this week, analysts described that a boom of HECM-to-HECM (H2H) refinances was essentially over, and recommended that originators pivot to finding new borrowers as opposed to refinancing existing loans.

Reverse mortgage outlook for Ocwen, Liberty

Messina acknowledged this industry pivot to new borrowers, but also described the company’s belief that the industry is excited about Ocwen and Liberty’s entrance into reverse mortgage subservicing, and that trends in the business remain favorable.

“[W]e believe prospective clients are excited about our entry into the market, our end-to-end capabilities and proven servicing skills,” he said. “Long term, we still like the reverse market. Demographic trends remain favorable, with 12,000 people turning age 65 every day. Senior home equity is at record levels with over $11 trillion at the end of the first quarter, an increase of over $500 billion versus the fourth quarter of 2021.”

Messina also discussed the reputational perceptions of the reverse mortgage industry, with Ocwen believing they’re moving in a positive direction concerning their potential as a tool for retirement planning.

“We believe the legacy stigma is diminishing around reverse mortgages and [that the product] is becoming more accepted as a retirement planning tool,” he explained. “In this business environment, we’re focused on a deliberate strategy comprised of five initiatives to drive business performance and deliver value for our shareholders.”

Leveraging the balance of a diversified business model, including the reverse mortgage segment, is a key component of that balance, he said.

“We’re leveraging the strengths of our balanced and diversified business model, driving prudent growth adapted for the environment, reducing our cost structure across the organization, optimizing liquidity, diversifying financing sources and repositioning for higher rates and allocating capital to maximize value for shareholders,” Messina said.

Growth strategy, recent downsizing

Regarding the way that Ocwen plans on growing its reverse mortgage business, Messina mentioned that direct-to-consumer retail originations maintain the highest revenue margins translating to a major focus of the company’s efforts. However, Ocwen does also see the potential for the reverse mortgage business to become more competitive in the future.

“With increased competition expected in reverse from legacy forward originators as well as traditional reverse originators, the market transition to customer acquisition, and the larger correspondent clients who may be shifting to direct HMBS issuance, growing reverse direct-to-consumer retail is a critical component of our growth strategy,” he said.

However, Messina also alluded to recent layoffs as an occurrence in spite of the company’s overall perspective on growing the direct-to-consumer reverse mortgage business.

“Not withstanding the unfortunate but necessary downsizing we initiated we’re pleased with our team’s progress to reposition us to optimize performance for the current market environment,” he said.

Messina also spoke specifically about a more challenging operating environment, as substantial volume declines and potentially stagnant growth on the forward side are forecasted by industry analysts.

“We will continue to leverage the strength of our balanced business model as we seek to drive prudent growth adapted for the environment, reduce our cost structure, optimize liquidity and diversify financing sources, and allocate capital to maximize value for our shareholders,” Messina said.

After the Q2 earnings presentation Thursday morning, Ocwen’s stock price had reduced over 19% as of 3 p.m. EST at $28.29, a reduction of $6.92. Shares opened at $35 on Thursday. Earnings per share were $1.12, over a dollar down from analyst estimates according to

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