Ocwen Financial Corporation, parent company to PHH Mortgage Corporation and its subsidiary, Liberty Reverse Mortgage, posted a net loss of $40 million for Q1 2023, an improvement from the $80 million net loss posted in Q4 2022. It’s a loss the company attributes to a $39 million reduction in unrealized mortgage servicing rights (MSR) fair value, which stems from lower interest rates.
On the other hand, the company’s reverse mortgage performance posted gains, leaders said in a Thursday morning conference call on quarterly performance. Both reverse mortgage servicing and origination posted gains, with origination posting a profit.
Ocwen’s overall performance
Ocwen Financial CEO Glen Messina said during the call that he is pleased with the performance of the company’s “balanced and diversified” business model, which is increasingly focused on the reverse mortgage business.
In addition to origination, reverse mortgage servicing and subservicing are a key element of Ocwen’s portfolio, and these segments showed gains, according to Messina and Ocwen CFO Sean O’Neill.
“We produced solid results in the first quarter, driven by our balanced and diversified business, cost management actions and strong performance in our servicing segment,” Messina said. “We delivered adjusted pre-tax income of $6 million for the quarter, a $2 million dollar improvement versus the fourth quarter of 2022. Our first quarter results reflect improved servicing performance partially offset by headwinds from lower industry origination volumes.”
Should an economic recession take place, Messina said the business model diversification should help weather the storm.
“Our operating performance and proven capabilities have supported material growth in forward and reverse subservicing,” he said. “We believe our emphasis on growing subservicing and owned MSRs also helps mitigate our exposure to liquidity demands due to advancing requirements in the event of a recession.”
Ocwen has also demonstrated leadership in the areas of forward and reverse mortgage servicing, according to Messina.
“In reverse, for our clients where we have assumed managing claims collateral to support HUD assignment claims, we have driven a 23% reduction in aged assignment claims and a 56% increase in loan assignments,” he said.
Reverse mortgage business
MSR valuation declined for Ocwen in Q1, but that was not the case for reverse, according to O’Neill. Forward MSRs posted a net loss of $47 million for the quarter, while reverse MSRs performed more favorably.
“The reverse MSR gained $7 million in the quarter as reverse MSRs are a natural hedge to the forward MSR,” he said.
On the servicing side, however, both forward and reverse are trending toward profitability, and the “result was a positive $30 million — or up $5 million from the last quarter — of adjusted pre-tax income,” O’Neill said. “Reverse servicing also improved by 16% quarter-over-quarter, primarily due to better ancillary fees as we improve claim filing processes for the Ginnie Mae HECM reverse loans and saw better tail securitization gain.”
While lower volumes in the origination segment continue for both the forward and reverse sides, unlike the forward side, reverse posted a profit in Q1.
“The reverse channel in origination created a small profit for the quarter, and is showing momentum in new application volume heading into the second quarter, as well as adding new clients,” O’Neill said.
FAR subservicing deal
O’Neill noted in the call the deal struck between Ocwen and Finance of America Reverse (FAR) to provide subservicing for the lender.
“We also won a major new client in the reverse space and should see those MSRs — or hope to see those MSRs — start to board later in the year,” he said.
A shareholder asked Messina about the recent Ocwen/FAR subservicing agreement, and Messina replied that while the company is optimistic about what it could mean, there won’t be tangible results until the close of the current quarter.
“We’re excited about the subservicing agreement we just executed with the Finance of America Reverse,” he said. “I think we stand ready to serve them and deliver value for them. I’d say the agreement is hot off the press, so to speak. We’re still working with FAR to determine what, when and how much of [their] subservicing volume comes our way, but we’re going to continue to work with them. And once we get a closer read on it, we’ll certainly provide an update in our next earnings call.”
