Ocwen Monetary’s profitability improved due to beneficial properties within the worth of its mortgage servicing rights through the third quarter.
Underneath typically accepted accounting rules, Ocwen reported $37 million in web earnings, up from $10 million in the second quarter and $22 million a yr earlier because of the MSR beneficial properties.
Analysts typically appeared favorably on the outcomes, however famous some concern that the corporate’s profitability was largely reliant on the elevated market valuations, which may fluctuate over time.
“Whereas OCN did report $37 million of GAAP web earnings, the corporate benefited from a number of favorable one-time gadgets,” Kyle Joseph, John Hecht and Derek Sommers, fairness analysts at Jefferies mentioned in a analysis be aware Thursday.
Administration acknowledged that the corporate took an adjusted, pretax loss to $8 million with the MSR beneficial properties excluded. Nonetheless, executives additionally famous it wasn’t as giant because the one it took the earlier fiscal interval.
“Our adjusted pretax loss was considerably diminished versus the second quarter,” Messina mentioned through the firm’s earnings name.
Value-cutting measures are persevering with, and the corporate is on monitor to regain profitability on a pretax, adjusted foundation by the fourth quarter, administration mentioned in response to an analyst’s query through the name.
Executives additionally mentioned the corporate needs to make use of a diversified, balanced enterprise mannequin to attain its goals such that it might revenue from servicing however not be overly reliant on MSR valuations. These valuations not solely may be unstable but in addition will impose a new capital burden on a small portion of its portfolio underneath new guidelines going into impact in a few years.
“We’re driving progress with a bias towards capital mild subservicing,” Ocwen President and CEO Glen Messina mentioned through the name.
One of many methods Ocwen is trying to obtain its goals is to kind extra MSR acquisition automobiles like MAV Cover HoldCo I, a partnership it has with associates of Oaktree Capital Administration.
The MAV three way partnership entails an association the place Oaktree has supplied 85% of the fairness capital for the acquisition of servicing rights from government-sponsored enterprises Fannie Mae and Freddie Mac, and Ocwen has contributed 15%. Ocwen additionally has supplied subservicing for the MSRs. The corporate has expanded this partnership and has two extra pending agreements with different companies, executives mentioned through the name. Different partnerships will not be configured precisely like MAV, they mentioned.
Inclusive of partnerships just like the one with MAV, greater than half of Ocwen’s portfolio was subserviced based mostly on the unpaid principal steadiness of loans on the finish of the third quarter. In distinction, the owned Ginnie Mae portfolio that will probably be topic to a better capital requirement on the finish of 2024, is comparatively small.
The corporate mentioned Thursday it is contemplating 4 choices that would carry its Ginnie Mae exposures into compliance in time.
These choices embrace making a separate entity supported by Ocwen’s PHH working subsidiary for Ginnie Mae servicing, or forming a capital mild construction for it. Ocwen alternately might convert the MSRs to subservicing or artificial servicing. Another choice could be to switch conventional Ginnie Mae MSRs (versus those associated to reverse mortgage securitizations) with different belongings.
Reverse mortgages and conventional originations will proceed to be topic to effectivity measures, administration famous within the name. Certainly one of these is a transfer to consolidate the features of the reverse mortgage platform and the system used for conventional residence loans in each origination and servicing the place they’ve processes in widespread. Some firms have discovered the 2 forms of programs tough to mix prior to now, however Ocwen executives mentioned they’ve seen early indications that the transfer might supply economies of scale.
“We’re one of many few opponents within the reverse house who has the potential to execute this technique,” Messina mentioned. “The preliminary outcomes are promising.”