Earlier this year, when Ocwen Financial reported a net loss for the second quarter, marking its fourth straight quarter of taking a loss, the company’s executives said that despite the “legacy” issues Ocwen faced, they believed the company was on a path back to profitability.
“We believe we can deliver positive earnings again,” Ocwen executives said in July.
What they didn’t say is just how long it would take the nonbank to get back into the black.
As it turns out, it only took one quarter.
Ocwen reported its third-quarter earnings on Wednesday after the market closed, revealing that the nonbank posted a GAAP net income of $9.5 million, or $0.08 per share.
The net profit delivered by Ocwen in the third quarter is the first time the nonbank posted a profit since the second quarter of 2015.
It’s been a rough road back to profitability for Ocwen.
In the first quarter of this year, Ocwen posted a net loss of $111.2 million (or $0.90 per share), and in the second quarter, Ocwen reported a net loss of $87.2 million in the second quarter (or $0.71 per share).
Those results were in line with Ocwen’s recent earnings figures. Before that, Ocwen actually posted profits – albeit small ones – in the first and second quarters of 2015.
In the first quarter of 2015, Ocwen reported net income of $34.4 million, while in the second quarter, Ocwen reported net income of $10 million.
Ocwen’s rough third quarter undid those profits, when the nonbank posted a net loss of $66.8 million. And the results were far worse for Ocwen in the fourth quarter of 2015, when the nonbank posted a net loss of $224.3 million.
For the full year 2015, Ocwen took a net loss of $246.7 million, which followed a loss of $546 million in 2014.
And while Ocwen returned to profitability in the third quarter this year, it’s unlikely that the company will post a profit for the year. In February, Ocwen disclosed that it expected to post a loss in 2016, and a profit of $9.5 million doesn’t counteract the loss of $198.4 million in the first two quarters of the year.
But it’s still a positive sign for Ocwen.
According to Ocwen’s earnings release, the company’s pre-tax income for the third quarter of 2016 was $2.4 million, a $98.8 million improvement from the second quarter of 2016.
The company said that its pre-tax results for the quarter include a number of “significant items,” including but not limited to: $12 million of gains from the execution of servicer “clean up” call rights and $5.7 million from the sale of agency mortgage servicing rights on approximately $3.3 billion of unpaid principal balance.
Ocwen also reported some significant costs in the third quarter, including $15.1 million for third-party monitor costs, the result of its various settlements with the New York Department of Financial Services, the National Mortgage Settlement and the California Department of Business Oversight.
Ocwen revealed earlier this year that it was working to rid itself of the restrictions placed upon it by the California Department of Business Oversight, which prohibited Ocwen from acquiring any additional mortgage servicing rights for loans in California until the CDBO is “satisfied that Ocwen Loan Servicing can satisfactorily respond to the requests for information and documentation made in the course of a regulatory exam.”
Ocwen said earlier that it set aside $15 million in the second quarter for a potential settlement with the CDBO.
As it turns out, that may not be enough money to buy its way out from under the California restrictions, as Ocwen also disclosed Wednesday that it set aside an additional $10 million in reserves in the third quarter for a potential regulatory settlement with California.
So, all told, Ocwen now has $25 million set aside for a potential settlement with the CDBO.
In a statement, Phyllis Caldwell, who took the role of independent chairwoman of Ocwen’s board of directors earlier this year, said the nonbank hopes to reach a settlement with California by the end of the year.
Ocwen said that its servicing segment recorded $33.2 million of pre-tax income on “strong performance” under the Making Home Affordable streamline modification program, significant operating cost improvements, gains from the execution of servicer “clean up” call rights and MSR sales and continued reductions in advances and match funded advances.
This quarterly profit for the servicing segment represents a $47.9 million improvement versus the second quarter of 2016, the company said.
“We are very pleased with the financial result this quarter, recording our first quarterly profit since the second quarter of 2015,” Ocwen President and CEO Ron Faris said.
“We saw terrific execution from our servicing team, which completed more than 21,000 modifications in the quarter, successfully delivered $12 million of gains on servicer ‘clean up’ call rights transactions and continued to reduce operating costs,” Faris added. “Our mortgage lending business saw growth in origination volume, but we must improve margins.
“I am also proud to say that despite some of the challenges of the past, we have continued to invest in our corporate culture, risk management, compliance, service excellence and technology,” Caldwell said. “We have maintained our leadership in helping families struggling with their mortgage payments as evidenced by our No. 1 status in the HAMP program. We are also making progress in building our new asset generation businesses. Most importantly, the entire Ocwen team is devoted to working in the best interest of homeowners and investors to deliver positive outcomes.”
