Ocwen's cost savings initiatives steer it toward profitability: CEO
Ocwen Financial's cost-cutting initiatives are bearing fruit toward returning to profitability, management said, although the company's third-quarter loss was slightly higher than the same period one year ago.
The West Palm Beach, Fla.-based independent mortgage banker lost $42.8 million for the third quarter, compared with a loss of $41.1 million one year ago; the year ago results do not include any financial impact from PHH. In the second quarter, Ocwen lost nearly $90 million.
"We are pleased with our success to date in re-engineering our cost structure and achieving our integration objectives," President and CEO Glen Messina said in a press release. "We believe that having a core strength in continuous cost improvement is critical for our long-term success. Our entire organization is highly engaged in efforts to achieve and sustain a highly competitive cost structure and return to profitability."
So far this year, Ocwen realized adjusted annualized run-rate expense savings of $268 million. It incurred $51 million of the upfront costs for its re-engineering program through the third quarter; it expects the total cost to be $65 million.
Its targeted savings for its re-engineering initiatives is for $400 million by the third quarter of 2020.
"We have made substantial progress with respect to our key business initiatives while proactively addressing the challenges of a more volatile and uncertain interest rate environment," Messina said. "I continue to be encouraged by our high level of execution relative to our plans to improve financial performance and strengthen our long-term competitiveness."
Ocwen completed its acquisition of PHH at the start of the fourth quarter of 2018.
"With the integration largely complete, we are increasingly focused on growing our lending channels as we look to create a more balanced business that can better perform through the mortgage industry cycle and capitalize on potential growth opportunities," said Messina.
On a pretax basis, Ocwen's results were affected by $18.3 million in severance, retention and other engineering costs. It also accumulated $6.3 million of fair value charges because of the interest rate environment.
On the other hand, it had a $5.1 million pretax gain on the repurchase of senior secured notes.
Its mortgage servicing rights portfolio ended the quarter at $216.8 billion, down from $229.3 billion at the start of the quarter. On Sept. 20, 2018, prior to the close of the PHH deal, Ocwen's portfolio was $161 billion.
But the prepayment speed for its MSRs increased to 17.7% from 12.9% at the end of the fourth quarter. In the same time frame, there was an increase in the delinquency rate to 5.7% from 4.9%.
The servicing segment had a pretax loss of $13.2 million, compared with a $13.9 million loss one year prior.
The origination business had a pretax profit of $8.9 million. However, the forward mortgage business lost $600,000, while the reverse mortgage business earned $9.5 million of pretax income; that included $2.9 million of interest rate driven favorable fair value changes.
During the third quarter Ocwen originated $224 million of forward mortgages and $188 million of reverse mortgages.
But the bulk of Ocwen's loss came at $34 million pretax loss from the corporate and other segment, up from $24.3 million one year prior.
In its investor presentation, Ocwen noted the Consumer Financial Protection Bureau refiled its complaint regarding mortgage servicing practices that was dismissed by a federal judge in September.