The shift to direct-to-consumer originations helped Ocwen Financial to turn a profit based on its preliminary first-quarter earnings.
The promising start to 2021, along with current industry conditions and a recent deal
“Assuming we achieve successful execution of our plans for the balance of the year, we believe we are on track to achieve our profitability goals for 2021,” said Glen Messina, Ocwen’s president and CEO, in an earnings call.
The nonbank mortgage origination and servicing company reported $9 million in net income for the quarter, compared with a $7 million loss in the final three months of 2020. That also reflects a large improvement from the pandemic-disrupted first quarter of last year, when Ocwen posted a $25 million loss.
Ocwen’s first-quarter pretax income totaled $12 million, compared with a $1 million loss in the fourth quarter of 2020 and an $87 million loss in last year's first quarter.
The origination segment took in $66 million in revenue during the quarter, increasing from $54 million last quarter and $38 million a year ago. Its servicing arm posted $123 million in revenue compared to $116 million in the fourth quarter and $214 million one year ago.
Ocwen’s stock price rose following the earnings call Wednesday morning, finishing 7.8% higher for the day at $29.02.
Origination volume amounted to just under $14 billion, down $1.2 billion from the previous quarter’s $15.2 billion. But the company’s shift to more of its production coming from the higher-earning direct-to-consumer channel rather than third-party originators accounted for a weighted average margin increase to 67 basis points from 56 bps. This helped offset the quarter-to-quarter $10 billion decrease to $179 billion in its MSR portfolio.
With the acquisition of Texas Capital Bank’s MSR portfolio and correspondent business, Ocwen expects approximately 60,000 loans to be transferred to its servicing operations later this year. Its current correspondent-lending volume will also nearly double. The deal is expected to close in the second quarter.
Messina sees current trends favorable to further movement in the mortgage industry. His company was the beneficiary of first-quarter market dynamics supporting both mergers and acquisition activity as well as bulk servicing portfolio sales.
“We do expect that M&A-related activity is likely to continue,” Messina said. “We also expect the robust bulk market to continue.”
The restructuring of corporate debt has also improved Ocwen’s 2021 outlook and should diversify its investor base, according to Messina. The new terms mean none of Ocwen’s debt will need to be repaid before 2025. As a result, Moody’s and Standard & Poor’s recently upgraded Ocwen’s rating to stable, and Messina expects this to help the company going forward.
“We've de-risked our balance sheet by extending our debt maturities, allowing us to access the necessary asset-based financing at a lower cost to support our growth objectives,” he said.
