Ocwen Financial (OCN) Provides Business Update and Preliminary Q3 Results

Ocwen Financial Corporation (NYSE: OCN) (“Ocwen” or the “Company”), a leading non-bank mortgage servicer and originator, today provided preliminary information regarding its third quarter 2020 results and progress on the Company’s key business priorities. A presentation with additional detail regarding today’s announcement is available on the Ocwen Financial Corporation website at www.ocwen.com (through a link on the Shareholder Relations page).

The Company reported a net loss of $9.4 million and a pre-tax loss of $11.4 million for the three months ended September 30, 2020, compared to a net loss of $42.8 million and a pre-tax loss of $38.3 million for the three months ended September 30, 2019. Adjusted pre-tax income was $13.5 million for the quarter compared to a $42.0 million adjusted pre-tax loss excluding NRZ lump-sum amortization in the prior year period (see “Note Regarding Non-GAAP Financial Measures” below).

Glen A. Messina, President and CEO of Ocwen, said, “Our performance across the business is progressing consistent with our expectations. The execution of our strategy to drive balance, diversification, cost leadership and operational excellence is delivering improved profitability, originations growth across all channels, and continued strong operating performance in our servicing business. Our total liquidity position has improved from last quarter and we are making good progress on our plans to implement an MSR asset vehicle to support our continued growth and diversification efforts.”

Mr. Messina continued, “I believe the Ocwen of today is stronger, more efficient, more diversified, and well positioned to capitalize on current and emerging growth opportunities. I am very proud of our global team for their continued commitment to our mission of creating positive outcomes for homeowners, communities and investors.”

The Company reported the following preliminary results for the third quarter 2020 (see “Note Regarding Non-GAAP Financial Measures” and “Note Regarding Financial Performance Estimates” below):

• Pre-tax loss was $11.4 million compared to pre-tax loss of $38.3 million for the third quarter 2019. Adjusted pre-tax income was $13.5 million; fourth consecutive quarter of positive adjusted pre-tax income.
• Annualized pre-tax loss improved by $208 million compared to the combined annualized pre-tax loss of Ocwen and PHH Corporation for the second quarter 2018; annualized adjusted pre-tax earnings run rate excluding amortization of NRZ lump-sum payments improved by more than $376 million compared to the combined annualized adjusted pre-tax earnings run rate of Ocwen and PHH Corporation for the second quarter 2018.
• Notable items for the quarter include, among others, $13.8 million of re-engineering and COVID-19 related expenses, $5.8 million for legal and regulatory reserves and $4.4 million of MSR valuation adjustments.
• Resolved legacy regulatory matter with the State of Florida Office of the Attorney General and Office of Financial Regulation on October 15, 2020. The Company has now resolved all state actions from 2017.
• Approximately $6.7 billion of servicing UPB originated through forward and reverse lending channels, up 67% from prior quarter; average daily lock volume of approximately $145 million in October to date.
• Added approximately $4.7 billion of interim subservicing UPB from existing subservicing clients and $15 billion of opportunities in late-stage discussions. Strong pipeline with top 10 prospects representing approximately $125 billion in combined subservicing, flow and recapture services opportunities.
• Approximately $413 million of unrestricted cash and available credit at September 30, 2020, up from $314 million at June 30, 2020; previously identified balance sheet optimization actions on track.
• Continued progress on the implementation of MSR asset vehicle (“MAV”) and the Company is in advanced discussions with potential investors. MAV is expected to provide funding for up to $55 billion in synthetic subservicing and enable portfolio retention services.
• Approximately 75,000 forbearance plans outstanding as of October 9, 2020, down from a peak of approximately 131,000 forbearance plans outstanding at the end of the second quarter. Servicer advance levels are approximately 27% below base case servicer advance levels as of September 30, 2020.

Webcast and Conference Call

Ocwen will hold a conference call on Tuesday, October 20, 2020 at 8:30 a.m. (ET) to review the Company’s preliminary third quarter 2020 operating results. A live audio webcast and slide presentation for the call will be available at www.ocwen.com (through a link on the Shareholder Relations page). A replay of the conference call will be available via the website approximately two hours after the conclusion of the call and will remain available for approximately 30 days. The Company expects to release final third quarter 2020 results in early November.

Expense Notables

In the table titled “Expense Notables”, we adjust GAAP operating expenses for the following factors (1) expenses related to severance, retention and other actions associated with continuous cost and productivity improvement efforts, (2) significant legal and regulatory settlement expense itemsa, (3) NRZ consent process expenses related to the transfer of legal title in MSRs to NRZ, (4) PHH acquisition and integration planning expenses, and (5) certain other significant activities including, but not limited to, insurance related expense and settlement recoveries, compensation or incentive compensation expense reversals and non-routine transactions (collectively, Other) consistent with the intent of providing management and investors with a supplemental means of evaluating our expenses.

(a) Q2’18 expenses as per OCN Form 10-Q of $206 filed on July 26, 2018 and PHH Form 10-Q of $71 filed August 3, 2018, annualized to equal $1,107 on a combined basis

(b) Reclassifications made to PHH reported expenses to conform to Ocwen presentation

(c) OCN changed the presentation of expenses in Q4’ 19 to separately report MSR valuation adjustments, net from operating expenses

Income Statement Notables

In the table titled “Income Statement Notables”, we adjust GAAP pre-tax loss for the following factors (1) Expense Notables, (2) changes in fair value of our Agency and Non-Agency MSRs due to changes in interest rates, valuation inputs and other assumptions, net of hedge positions, (3) offsets to changes in fair value of our MSRs in our NRZ financing liability due to changes in interest rates, valuation inputs and other assumptions, (4) changes in fair value of our reverse originations portfolio due to changes in interest rates, valuation inputs and other assumptions, (5) certain other transactions, including but not limited to pension benefit cost adjustments and gains related to exercising servicer call rights and fair value assumption changes on other investments (collectively, Other) and (6) amortization of NRZ lump-sum cash payments consistent with the intent of providing management and investors with a supplemental means of evaluating our net income/(loss).

(a) Q2’18 pre-tax loss as per respective Forms 10-Q filed on July 26, 2018 and August 3, 2018, respectively, annualized to equal $(253) million on a combined basis

(b) Represents FV changes that are driven by changes in interest rates, valuation inputs or other assumptions, net of unrealized gains / (losses) on macro hedge. Non-Agency = Total MSR excluding GNMA & GSE MSRs. Agency = GNMA & GSE MSRs. The adjustment does not include $12 million valuation gains of certain MSRs that were opportunistically purchased in disorderly transactions due to the market environment in Q2 2020 (nil in Q2 2018).

(c) Represents OCN and PHH combined adjusted pre-tax income (loss) excluding amortization of NRZ lump-sum cash payments, annualized to equal $(322) million on a combined basis in Q2’18

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