Ocwen Hurt by Decline In VA Foreclosure Rate
Foreclosures on VA-guaranteed single-family loans are declining at an accelerating rate and it is hurting the bottom line of Ocwen Financial Corp., which has an exclusive property management contract with the Department of Veterans Affairs.
Based in West Palm Beach, Fla., Ocwen reported that servicing fees on VA properties fell to $3.4 million in the second quarter from $6 million in the same period in 2004.
Ocwen chairman and chief executive William Erbey told investors and analysts the company's servicing and loan processing units achieved positive non-interest revenue growth, but continued prepayments on servicing rights and a "sharply reduced" number of VA transactions offset those positive trends.
In early 2004, Ocwen took over the management of 11,000 foreclosed single-family homes from VA.
VA foreclosures have slowed since then and the agency is delivering fewer properties to Ocwen to manage and sell. "They're selling at a pretty rapid rate but they are getting fewer properties," said Keith Pedigo, director of the VA loan guarantee program.
Presently, Ocwen is managing approximately 7,500 VA properties.
VA foreclosures are projected to total 13,300 by the end of the 2005 fiscal year, which ends Sept. 30. Foreclosures totaled 16,000 in FY 2004 and 20,500 in FY 2002.
Meanwhile, Ocwen reported a 68% drop in second-quarter profits. The servicing company, which has shed its federal thrift charter, posted second-quarter earnings of $2.9 million, compared to $9.1 million in the second quarter of 2004.
The company completed its "debanking" initiative in the second quarter by selling the deposits of Ocwen Federal Bank FSB and surrendering its thrift charter. All the remaining assets and liabilities of the bank have been transferred to a new subsidiary Ocwen Loan Servicing LLC, the company said.
(Ocwen Financial Corp. acquired a German bank, Bankhaus Oswald Kruber KG, in October 2004. Under its license, BOK can engage in traditional banking activities, as well as investment banking, underwriting and securities trading transactions.)
Ocwen is now in a position to "grow our servicing business in the coming months," Mr. Erbey said during a July 28 conference call, "although we will continue to maintain a conservative stance with respect to pricing we encounter in the market."
As a subservicer and investor, Ocwen serviced $38.7 billion in mortgage loans as of June 30, up from $34.5 billion at Dec. 30. This increase occurred despite continuing runoff in purchased mortgage servicing rights.
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