End of a New Residential subservicing agreement to benefit Ocwen
The cancellation by New Residential of a money-losing subservicing agreement should benefit Ocwen's financial results going forward, the company said.
The fourth quarter's net income of $34.8 million equaled what Ocwen disclosed earlier in the month.
"We believe our progress on growth and cost re-engineering creates a solid foundation for our transformation into a diversified mortgage originator and servicer that can perform through the mortgage industry cycle," Ocwen president and CEO Glen Messina said in a press release. "We are excited about the opportunities available to us to increase shareholder value through building multiple origination sources, continued strong operational execution and our continuous cost re-engineering initiatives."
"In this context, we do not view the unprofitable New Residential subservicing portfolio we are exiting as core to the sustainable business model we are building. We look forward to executing the next phase of our plans targeted at improving our long-term competitiveness and financial performance."
The $42 billion agency portfolio — which is 20% of the unpaid principal balance that Ocwen services — had an estimated annualized loss of $12 million in the fourth quarter, a presentation accompanying the earnings release said. It represented 8% of Ocwen's net servicing fees and 22% of the net servicing fees it earned from New Residential.
Ocwen will still service $77 billion of nonagency MSRs for New Residential. That represents 36% of its servicing UPB and 70% of its delinquencies. This portfolio had an estimated annualized loss of between $25 billion and $30 billion.
New Residential's NewRez subsidiary will assume the servicing function for the agency MSRs. The transfers should take place in the second and third quarters.
"Both New Residential and Ocwen have evolved tremendously since we first announced our agency subservicing agreement with PHH. We believe this transfer is in the best long-term interests of our company as we execute on our business strategy," Michael Nierenberg, New Residential chairman, CEO and president, said in a separate press release.
New Residential owns 4.3% of Ocwen's common stock and does not plan to sell that stake, the press release added.
Expense savings from its cost re-engineering efforts coming in significantly ahead of expectations drove Ocwen's fourth-quarter results. In the third quarter, the company lost $43 million, while a year ago, Ocwen lost $2.3 million.
For all of 2019, Ocwen lost $142.1 million, more than double the 2018 loss of $70.8 million.
"We made terrific progress in 2019 on improving profitability, building a sustainable business model and reducing enterprise risks," Messina said. "We have built a significant originations platform that we expect to generate enough volume to grow our owned servicing portfolio in 2020, as well as to take advantage of opportunities to grow and diversify our subservicing, excluding New Residential, with the support of potential capital partners."
Ocwen's servicing segment had $58.9 million of pretax income in the fourth quarter, including $31.1 million of favorable MSR fair value changes, net of the New Residential financing liability fair value change and hedge positions. In the fourth quarter a year ago, it had a pretax loss of $40.6 million.
As of Dec. 31, 2019, Ocwen serviced $212.4 billion, down from $216.8 billion at the end of the third quarter and $256 billion at the end of 2018.
Its lending segment reported pretax income $3.6 million in the fourth quarter, driven by the reverse mortgage business' pretax income of $4.3 million. The forward lending business lost $700,000.
Ocwen originated $2.8 billion for all of 2019. For 2020, the company just upped its projections to between $15 billion and $20 billion, based on January's annualized pace of $9 billion.
The corporate and other reporting segment posted a pretax loss of $25.3 million for the fourth quarter, versus pretax income of $29.8 billion one year prior.