Ocwen: Getting Back On Track After Regulatory Heat

Following months of regulatory controversy, Ocwen Financial Corporation (NYSE: OCN) says the chances of any large material fines or settlements from current regulatory investigations are slim, according to a letter issued to shareholders on Thursday.

“Based on our current engagement with state regulators, we are not aware of nor do we anticipate any material fines, penalties or settlements, although we do expect to resolve two open legacy matters for a total of less than $1 million,” writes President and CEO Ronald Faris in the letter. “As of the end of the day on February 3, 2015, we had $249 million in cash, and our cash forecast indicates that we will continue to have sufficient liquidity going forward.”

However, the company does expect “a a record loss” in the fourth quarter of 2014 and for the total year, he says, acknowledging the impact of past settlements and other 2014 activity. 

In January, the corporation’s wholly-owned subsidiary Ocwen Loan Servicing reached a $2.5 million settlement with the state of California following allegations of noncompliance with state homeowner laws.

The agreement was the second in two months to be paid by Ocwen to state regulatory agencies. In December, the servicer, which is the parent company of Liberty Home Equity Solutions, paid a $150 million settlement to the New York Department of Financial Services to resolve allegations related to the company’s foreclosure practices.

“We will be recording an additional $50 million expense related to our NY Settlement in the fourth quarter of 2014, since we reserved for $100 million in the third quarter of 2014 in accordance with GAAP and based on information available at the time we finalized our third quarter financial statements,” he says, adding that the company will have a negative tax rate for the year as well. 

Regarding Ocwen’s liquidity, Faris says the company is currently in “good standing” with all of its outstanding debt agreements, including its Senior Secured Term Loan.

In addition, “Since we made our $150 million cash payment to the NY DFS on December 31st, 2014, we have had an average daily cash balance of over $175 million,” he says.

Ocwen ended the year with approximately $85 million of reserves against Corporate advances, a coverage ratio of 13%, he says.

“We anticipate that the level of these types of expenses will decrease significantly in 2015 as we have substantially cleared out legacy issues related to acquisitions and other servicing transfers,” he says.

Through Dec. 31, 2014 Ocwen completed approximately $1.7 billion of its $2 billion principal reduction commitment under its National Mortgage Settlement, he says, adding “we remain committed to helping struggling families.”

Read the letter here.

Written by Cassandra Dowell

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