Ocwen Financial re-stated its plans to grow through additional subservicing and
The company reported a net loss of $40 million due largely to fluctuations in the value of mortgage servicing rights, but it improved on its numbers on a consecutive-quarter basis due to revenue growth and cost cutting. Ocwen had recorded an $80 million net loss the previous quarter,
"We are seeing the benefits of slower MSR runoff, higher float earnings, and low delinquencies as well as the benefit of our portfolio growth and cost reduction actions," Chairman and CEO Glen Messina said during the company's earnings call.
But he acknowledged challenges in reporting profitability on an unadjusted basis due to the effect of lower interest rates on mortgage servicing rights.
The downward pressure on valuations could persist if recent market conditions continue, Messina said.
"Industry sources are speculating trading volumes may exceed last year's level of $1 trillion. While this represents a potential investment opportunity in low coupon MSRs it is driving reduced investment demand for current coupon MSRs and generally puts downward pressure on MSR values," said Messina.
"We continue to take a prudent view of our liquidity and capital" in light of banking disruptions, Messina said, noting that the former was up 7% over the previous quarter at $233 million.
Ocwen is "well in excess of any covenants or requirements" from its counterparties, including the portion of new standards from the Federal Housing Finance Agency and Ginnie Mae that go into effect this year, Chief Financial Officer Sean O'Neil said during the call.
One offset to the fluctuation in value of Ocwen's owned traditional MSRs are their counterparts in the reverse mortgage market, O'Neil said. The latter offset roughly 9% of the former, according to the company's earnings presentation.
"Reverse MSRs are a natural hedge to the forward MSR," O'Neil noted.
In an industry that's been
The company added roughly $13 billion in subservicing overall during the quarter, and its goal is to add another $30 billion between the second and fourth quarters, said Messina. It added $4.7 billion in MSRs during the first quarter.
On an adjusted basis and outside of standard accounting principles, overall the company reported pretax income of $6 million in the quarter, compared with a restated $4 million the previous quarter.
The restatement reflects a change in methodology when calculating the figure such that it's now based on actual runoff rather than modeled, O'Neil said.
While unrealized losses on servicing during the first quarter kept Ocwen in the red, the business segment also contributed a sizable and increasing amount of revenue to the company's top line.
Servicing-related revenue grew to $232 million during the quarter from $219 million the previous one and $232 million a year earlier.
On an adjusted basis, servicing contributed $30 million in pretax income during the quarter as compared to $25 million a quarter earlier and a loss of $2 million a year earlier.
Originations reported an adjusted, pretax loss of $2 million after breaking even the previous quarter. The company had recorded a $3 million loss in origination during the same period a year earlier and is introducing higher-margin products to bolster results.
Ocwen released its first-quarter results the day after reporting
Finance of America reports earnings next week.
