Ocwen gives liquidity update on potential servicing advances

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Ocwen Financial has approximately $749 million of liquidity from various sources to deal with servicing issues arising from the coronavirus, a company press release said.

The West Palm Beach, Fla., nonbank should be in compliance with all of the financial covenants under its debt agreements as of the end of the first quarter.

But because of the uncertain economic situation, Ocwen said it could no longer reaffirm previous guidance on a return to pretax profitability net of certain items.

Ocwen has approximately $264 million in unrestricted cash, undrawn committed availability of $104 million under its servicer advance funding facilities, $225 million under its MSR financing facilities and $156 million under its mortgage warehouse funding facilities.

"The duration and magnitude of the COVID-19 impact is uncertain and we anticipate that the impact to our business will be largely determined by the number of homeowners who need assistance and the duration of assistance needed," President and CEO Glen Messina said in the press release. "We are proactively working with industry trade groups, the agencies and our regulators to support their efforts on stabilizing the housing finance system in response to what may be an unprecedented level of requests for assistance from homeowners impacted by the COVID-19 pandemic."

At the end of the first quarter, Ocwen serviced approximately $200 billion. New Residential, which owns the majority of those servicing rights, has the responsibility of covering reimbursements on $114 billion in unpaid principal balance that Ocwen subservices. That is paid to Ocwen daily on advances for loans in private-label mortgage-backed securities and weekly on loans serviced for Fannie Mae and Freddie Mac.

However, New Residential, prior to the pandemic, notified Ocwen that it was terminating the agency subservicing agreement that covers $42 billion; Ocwen said it had an annualized loss of $12 million on these loans in the fourth quarter. New Residential was expected to repatriate the loans in the second and third quarters.

Other subservicing clients have the responsibility to reimburse Ocwen for advances within one week to 30 days after they were made on roughly $17 billion in the portfolio. Ocwen has sole advancing responsibility on approximately $69 billion in unpaid principal balance, broken down as 39% in private-label MBS, 24% Freddie Mac, 19% Ginnie Mae and 18% Fannie Mae.

Ocwen provided approximately 27,500 COVID-19 related forbearance plans to its customers as of the end of the first quarter. New Residential has the responsibility to advance on approximately 16,800 or 61%, Ocwen has the responsibility to advance on approximately 9,400 or 34%, and no advances are required on approximately 1,300 or 5% of the loans subject to these forbearance plans.

Of those loans Ocwen is making the advances on, there are 3,900 that it will receive reimbursement from the MSR owner.

With the other 5,500 loans, the 68% that are private-label and 20% that are Freddie Mac, Ocwen can use its own servicing advance lines to make the payments. Fannie Mae advances are funded through corporate cash.

For private-label borrowers, a group not covered under the CARES Act, Ocwen intends to grant an initial three months of forbearance and related protection through a series of one-month forbearance plans. The resulting missed payments will be moved to or near the loan's maturity as a non-interest bearing balance. As such, Ocwen does not expect to be out of pocket for any more than one month for each of these loans.

For its originations business, the portfolio retention channel saw an increase in daily lock volume in March at 2.5 times what it did in January, because of the low rate environment.

Bid volume in the correspondent lending channel was approximately $3 billion in February and approximately $5 billion in March. First-quarter 2020 correspondent lock volume was approximately $618 million and funded volume originated through all flow production channels was approximately $1.85 billion.

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MSR Coronavirus Mortgage defaults Ocwen Financial Subservicing New Residential Investment Corp. Nonbank Private-label GSEs