Ocwen Financial Corp. more than doubled its first-quarter profit as the firm boarded new mortgage servicing rights and drove down costs on delinquencies by working through troubled loans using deeds-in-lieu of foreclosure and loan modifications among other solutions.
By quarter end, the mortgage servicer's 1Q profit hit $45.1 million, or 31 cents a share, up from $19.3 million, or 14 cents a share, in 2012.
Revenue also shot up 147% year-over-year to $406.7 million in 1Q.
The firm’s CEO Ron Faris said Ocwen's (OCN) integration of new MSRs continued in 1Q, with Ocwen currently working through distressed loans within those portfolios.
The firm recorded 24,184 loan modifications in the first quarter and expects loan mods to continue. Loans modified through the government’s Home Affordable Modification Program accounted for 34% of all company-wide modifications in 1Q.
In February, Ocwen completed the acquisition of servicing rights and other assets from Residential Capital, bringing $269 billion in unpaid principal balance into its portfolio and $1.5 billion in related servicing advance receivables.
The company also offloaded $703 million in servicing advances and rights to receive servicing fees on $15.9 billion of unpaid principal balance to Home Loan Servicing Solutions in March.
The company’s Homeward lending operations originated $2.4 billion in loans, with HARP refinancings making up () of the originated pool.
"Ocwen’s first quarter continued the pattern of strong financial performance and growth we have experienced over the past three years," said Ron Faris, President and CEO.
"Declining pre-payments on our legacy non-agency portfolio combined with lower interest expense on advances should strengthen our earnings picture. Our integration of both Homeward and ResCap is progressing as planned, and we completed the transition of the Homeward serviced loans to the Ocwen platform in mid-April. Moreover, our successful acquisition of Ally’s Fannie and Freddie portfolios demonstrates the value of ResCap’s prime loan servicing capability to our ongoing growth."
Analysts with Compass Point Research & Trading expect Ocwen’s stock to be a little weak with core operating expenses rising. But the increase in costs are to be expected with the firm’s large servicing acquisitions leading to higher expenses.
"The total servicing portfolio now stands at $469 billion, from $204 billion in 4Q12," Compass Point said.
Still the research firm doesn’t expect the high expenses to necessarily last.
"We expect the stock to be a little weak due to the operating miss, but the elevated expenses should have been expected and will abate over time as the portfolio matures," Compass Point said.
"We have seen this scenario play out several times before. The company makes a large servicing acquisition, expenses are very high and future profits from the servicing book are questioned."