Ocwen Sees Reverse Mortgage Losses Taper, Big Potential Ahead

On the heels of Ocwen Financial Corporation’s (NYSE:OCN) first quarter losses on its Liberty Home Equity Solutions reverse mortgage business, the non-bank servicer announced losses are dwindling and the company sees future opportunity in reverse mortgage lending.

During the quarter, Ocwen originated $1.2 billion of forward loans and $145 million of reverse loans, said Ocwen CFO and Executive Vice President Michael Bourque during an earnings call Thursday.

Liberty Home Equity Solutions delivered a pretax GAAP loss of $2 million, a $5 million improvement over the first quarter of 2014, said Bill Erbey, Ocwen’s executive chairman, in a news release. Erbey attributed the improvement to higher margins.

“We continue to believe that the loans originated by our reverse lending business during the past two quarters will generate significant future profits as homeowners utilize their available credit lines,” he said.

In the first quarter, Liberty Home Equity Solutions posted a $6.3 million loss compared to a $.3 million loss in the prior quarter ended December 31, 2013. 

Ocwen’s forward lending business was up 26% over the first quarter of 2014.

Overall, Ocwen’s financial performance sank during the second quarter of 2014.  

The financial services holding company reported a net income of $67 million, or $0.48 per share, for the second quarter of 2014 compared to the net income of $76.7 million, or $0.53 per share, for the second quarter of 2013.

Pre-tax earnings on a GAAP basis for the second quarter of 2014 also fell compared to the same quarter last year.

In the area of new business, Ocwen will begin investing in residential mortgage backed securities where Ocwen is the servicer in the third quarter of 2014, Erbey said. 

“We also are actively working on launching a second new business platform about which we expect to provide more details in the coming quarters,” he said.

Ocwen’s business relationships have come under regulatory scrutiny in recent months for potential “conflicts of interest” with other public companies the firm is affiliated with, including Altisource Portfoio Solutions.

In June, Ocwen agreed to pay $3.7 million to end a Massachusetts mortgage lawsuit claiming the company didn’t give homeowners required notices and illegally foreclosed on properties. 

A month later, Ocwen partnered with consumer advocates through the creation of a new Community Advisory Countil to improve servicing relations. 

The council comprises 15 non-profit community advocates and housing counseling agencies nationwide and may add members over time. It will be chaired by Ocwen President and CEO Ronald Faris. 

Faris pointed to Ocwen’s low foreclosure rate and high alternative modification and repayment plan rate as examples of how the company aims to help families keep their homes in the news release regarding second quarter earnings.

“Although many other servicers continue to focus their efforts on foreclosures and short sales which displace families from their homes and communities, we continue to strive to reduce delinquencies and loan losses by keeping more families in their homes through sensible repayment and loan modification plans,” he said.

Written by Cassandra Dowell

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