Ocwen regains profitability ahead of rebranding set for June

Ocwen Financial's net income got back in the black as it moved toward a rebranding next month, thanks largely to servicing gains and cost cutting measures.

The company generated $30 million in net income during the first fiscal period of the year, compared with a net loss of $47 million the previous quarter. It also improved on its performance in the first quarter of last year, when it was $40 million in the red.

"Overall, this was a strong quarter for financial results, both GAAP and adjusted pre tax income," said Sean O'Neil, chief financial officer of the company, during its earnings call. 

The recovery is in line with its plan to get a fresh start under the name Onity Group. The rebranding of the company and its ticker symbol reflects the phrase "on it," with the aim of portraying it as a dependable investment. The change is pending a shareholder vote May 28.

Like some other servicers, Ocwen's gain under generally accepted accounting principles rested partly on a one-time improvement in valuations in the first quarter. During the previous quarter, the company and some other servicers also had recorded negative adjustments in valuations.

The company has also seen longer-term improvements to its financial position and balance sheet deleveraging, including an 8.5% or $9.7 million year-over-year decrease in GAAP operating expenses, and a 14% reduction in legacy servicing advances.

When one-time quarterly charges are omitted, Ocwen's pretax results have been consistently strong, O'Neil said.

Figures in the company's investor presentation report show it generated $38 million on that basis from servicing during the quarter and $2 million in originations.

"Both our servicing and originations businesses continued their profitable trend," he said.

While generating profit from origination remains challenging for the time being, the company has been able to take a diverse approach to production that has benefited the broader operation, Glen Messina, chairman, president and CEO, said during the earnings call.

"We've added multichannel origination capabilities to replenish and grow our servicing portfolio," he noted.

All of Ocwen's origination channels returned to profitability during the quarter, according to O'Neil.

"Higher margins on lower volumes drove the profitability, with reverse origination seeing the largest improvement. Lower profits in correspondent were offset by gains in reverse and bringing consumer-direct back to breakeven," he said.

While servicing was the main source of profitability during the quarter, executives said they are  seeing reasons to selectively sell some after modeling their value and finding it more financially advantageous than holding the assets.

The company has entered letters of intent to sell up to $6 billion in mortgage servicing rights, Messina said. Its joint venture mortgage-servicing rights investment vehicle has entered into LOIs to sell $10 billion.

"While this may temporarily suppress total servicing growth, we believe it's overall accretive for our shareholders, and our enterprise sales team can replenish all the MSRs over the next six months," he said.

The company's adjusted return on equity rose to 13.8% from 9.4% the previous quarter, Keefe, Bruyette & Woods analysts noted in a report on Ocwen's earnings.

Ocwen's stock opened at $25.90 on Thursday and was trading at $25.07 shortly before 11 a.m. Eastern time.