Aug. 5, 2021, 5:29 p.m. EDT

10-Q: OCWEN FINANCIAL CORP

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions, except per share amounts and unless otherwise indicated)

Effective February 10, 2021, the SEC issued Release No. 33-10890 adopting amendments to Regulation S-K to modernize, simplify and enhance certain financial disclosure requirements. This release amends, among other items, Item 303 of Regulation S-K (Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A). While adoption is not required until fiscal years ending on or after August 9, 2021, we elected to adopt the amended Item 303 of Regulation S-K commencing with our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021. As a result, we compare our quarterly results to the immediately preceding quarter instead of the corresponding quarter of the preceding year. We believe it is helpful to compare our quarterly results to the immediately preceding quarter, because the mortgage industry and our business can be affected by a rapidly changing environment. In addition, we continuously transform our operations and internally measure our performance relative to the most recent period. Accordingly, we believe a comparison of our results of operations to the immediately preceding quarter provides a more relevant and meaningful analysis for investors to assess our

performance than a comparison to the corresponding quarter of the preceding year. As required, we continue to compare our year-to-date results to the corresponding year-to-date results of the preceding year.

General







        $ in billions                                                                            UPB
                                                                  Three Months Ended                              Six Months Ended
                                                        June 30, 2021          March 31, 2021           June 30, 2021           June 30, 2020
        Mortgage servicing originations
        Recapture MSR (1)                              $     0.61             $         0.56          $         1.17          $         0.51
        Correspondent MSR (1)                                2.49                       2.63                    5.12                    1.17
        Flow and Agency Cash Window MSR purchases (2)        6.17                       5.99                   12.15                    4.18
        Reverse mortgage servicing (3)                       0.34                       0.26                    0.60                    0.44
        Total servicing originations                         9.61                       9.44                   19.05                    6.30
        Bulk MSR purchases (2)                              55.13                          -                   55.13                    1.54
        Total servicing additions                           64.74                       9.44                   74.18                    7.84
        Subservicing additions (4)                           3.93                       4.09                    8.02                    7.73
        Total servicing and subservicing UPB additions $    68.67             $        13.53          $        82.20          $        15.57
        


(1)Represents the UPB of loans that have been originated or purchased during the respective periods and for which we recognize a new MSR on our consolidated balance sheets upon sale or securitization.

On June 17, 2021, PMC entered into an asset purchase agreement with Reverse Mortgage Solutions, Inc. (RMS) and its parent, Mortgage Assets Management, LLC (MAM), to acquire certain assets of RMS related to reverse mortgage subservicing. The transaction is expected to close in the second half of 2021, subject to customary closing conditions including regulatory approval. PMC will become the subservicer under a five-year subservicing agreement for reverse mortgages owned by RMS and MAM. RMS serviced approximately 37,000 loans with UPB of $8.4 billion as of June 30, 2021. The transaction would effectively double the size of our reverse servicing business in a capital efficient manner and allow for further economies of scale as we develop our in-house reverse servicing platform.







        $ in billions                                                                 Average UPB
                                                                   Three Months Ended                                       Six Months Ended
                                                          June 30, 2021             March 31, 2021                June 30, 2021           June 30, 2020
        Owned MSR                                     $               108.3       $            90.4             $            100.5       $          68.1
        NRZ                                                            62.9                    65.8                           64.3                 114.9
        Subservicing                                                   17.9                    22.7                           20.9                  17.7
        Reverse mortgage loans                                          6.7                     6.7                            6.7                   6.4
        Commercial and other servicing                                  1.0                     0.7                            0.8                   1.0
        Total serviced UPB (average)                  $               196.8       $           186.3             $            193.2       $         208.1
        


As of June 30, 2021, the total serviced UPB amounted to $237.3 billion. Refer to Note 7 - Mortgage Servicing for further detail of the MSR UPB. Financial Highlights

Maintaining high quality operational execution, through our technology and continuous improvement initiatives, and our commitment to employee engagement and customer satisfaction; and

Uncertainties related to the duration and severity of the pandemic and related economic downturn remain and make it difficult for us to determine the continued ongoing impact the pandemic may have on us and our business, financial condition, liquidity or results of operations. Results of Operations and Financial Condition The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our unaudited consolidated financial statements and the related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.







                                                  Three Months Ended                                                            Six Months Ended
                                         June 30,                March 31,                                             June 30,                  June 30,
        Results of Operations Summary      2021                    2021                         % Change                 2021                      2020                        % Change
        Revenue
        Servicing and subservicing
        fees                           $       184.4       $               171.7                       7  %       $            356.2       $              386.7                      (8) %
        Reverse mortgage revenue, net           29.3                        21.8                      34                        51.1                       36.6                      40
        Gain on loans held for sale,
        net                                     42.7                         5.7                     647                        48.4                       46.9                       3
        Other revenue, net                       9.0                         8.3                       8                        17.3                       10.7                      62
        Total revenue                          265.4                       207.6                      28                       473.0                      480.9                      (2)
        MSR valuation adjustments, net        (72.5)                        21.2                    (442)                     (51.2)                    (197.6)                     (74)
        Operating expenses
        Compensation and benefits               72.2                        68.3                       6                       140.5                      125.7                      12
        Servicing and origination               26.6                        27.5                      (3)                       54.1                       37.6                      44
        Professional services                   25.5                        17.3                      47                        42.9                       49.5                     (13)
        Technology and communications           13.2                        13.1                       -                        26.3                       31.3                     (16)
        Occupancy and equipment                  7.9                         8.9                     (11)                       16.7                       28.1                     (41)
        Other expenses                           4.4                         4.6                      (4)                        9.0                        9.8                      (8)
        Total operating expenses               149.8                       139.6                       7                       289.4                      282.0                       3
        Other income (expense)
        Interest income                          4.2                         3.9                       6                         8.1                        9.0                      (9)
        Interest expense                      (33.5)                      (28.5)                      18                      (62.0)                     (56.7)                       9
        Pledged MSR liability expense,
        net                                   (39.8)                      (37.9)                       5                      (77.7)                     (48.3)                      61
        Loss on extinguishment of debt             -                      (15.5)                 (100)                        (15.5)                          -                  n/m
        Earnings of equity method
        investee                                 0.4                           -                  n/m                            0.4                          -                  n/m
        Other, net                               3.4                         0.3                  n/m                            3.7                        1.3                     187
        Total other expense, net              (65.4)                      (77.5)                     (16)                    (143.0)                     (94.8)                      51
        Income (loss) before income
        taxes                                 (22.2)                        11.6                 (291)                        (10.6)                     (93.5)                     (89)
        Income tax (benefit) expense          (11.9)                         3.1                    (485)                      (8.8)                     (70.0)                     (87)
        Net income (loss)              $      (10.3)       $                 8.5                    (221)         $            (1.8)       $             (23.5)                     (92)
        Segment income (loss) before
        income taxes
        Servicing                      $      (15.4)       $                13.5                    (214) %       $            (1.9)       $             (60.9)                     (97) %
        Originations                            22.5                        36.5                     (38)                       59.0                       35.1                   68
        Corporate Items and Other             (29.4)                      (38.4)                     (23)                     (67.7)                     (67.7)                       -
                                       $      (22.2)       $                11.6                 (291)%           $           (10.6)       $             (93.5)                     (89) %
        n/m: not meaningful
        








        Total Revenue
        The below table presents total revenue by segment and at the consolidated level:
                                                       Three Months Ended                                                            Six Months Ended
                                              June 30,                March 31,                                             June 30,                  June 30,
        Revenue                                 2021                    2021                         % Change                 2021                      2020                        % Change
        Servicing                           $       197.3       $               175.4                      12  %       $            372.7       $              406.6                      (8) %
        Originations                                 55.4                        66.3                     (16)                      121.7                       70.6                      72
        Corporate                                     1.5                         1.3                      17                         2.8                        3.7                     (24)
        Total segment revenue                       254.1                       243.0                       5                       497.1                      480.9                       3
        Inter-segment elimination (1)                11.3                      (35.4)                    (132)                     (24.1)                          -                  n/m
        Total revenue                       $       265.4                       207.6                      28          $            473.0       $              480.9                      (2)
        


(1)The fair value change of inter-segment economic hedge derivatives reported within Total revenue (gain on loans held for sale) is eliminated at the consolidated level with an offset in MSR valuation adjustments, net. Total segment revenue was $254.1 million for the second quarter of 2021, $11.1 million or 5% higher than the first quarter of 2021, driven by a $21.8 million revenue increase from Servicing partially offset by a $10.9 million revenue decrease from Originations. The Servicing revenue increase is mostly due to the net growth of our owned MSR portfolio, including the large MSR bulk acquisitions in June 2021. The decrease in Originations revenue is mostly due to a decline in gains on loans held for sale due to lower forward loan production volume in both the correspondent and recapture channels and a decline in margin in our recapture channel. As compared to the six months ended June 30, 2020, total segment revenue for the six months ended June 30, 2021 was $16.3 million or 3% higher, due to a $51.1 million increase in Originations revenue partially offset by a $33.9 million decline in Servicing revenue. Originations revenue increased primarily due to an increase in production volume, mostly forward recapture and reverse loans. The decline in Servicing revenue is due to a reduction in fees collected on behalf of NRZ after the termination of the PMC servicing agreement by NRZ, and a reduction in ancillary income, mostly due to lower average servicing volume, the COVID-19 environment and lower interest rates, partially offset by the growth in our owned MSR portfolio. We collected $50.0 million lower servicing fees on behalf of NRZ during the six months ended June 30, 2021, as a result of portfolio run-off and the termination of the PMC agreement by NRZ in 2020. The decline in servicing fees collected on behalf of NRZ is partially offset by a $41.6 million decline in servicing fees remitted to NRZ that are separately reported as Pledged MSR liability expense (Other expense), with a $8.3 million net decline in the NRZ servicing fee retained. Total revenue (after elimination of inter-segment derivative fair value changes) was $265.4 million for the second quarter of 2021, $57.9 million or 28% higher than the first quarter of 2021, in part due to the presentation of macro-hedging derivative gains and losses reported within MSR valuation adjustments, net at the consolidated level, as disclosed in Note 4 - Loans Held for Sale, Note 15 - Derivative Financial Instruments and Hedging Activities and Note 19 - Business Segment Reporting. Effective May 2021, we replaced our macro-hedging strategies with two distinct strategies to separately hedge the pipeline and our MSR exposure with third party derivatives. However, we have and may continue to use inter-segment derivatives between the two strategies. Refer to Item 3 - Quantitative and qualitative disclosures about market risk for further detail. See the respective Segment Results of Operations for additional information. MSR Valuation Adjustments, Net

For the six months ended June 30, 2021, we reported a $51.2 million loss in MSR valuation adjustments, net, that included a $92.6 million loss in the Servicing segment, offset by a $17.3 million revaluation gain on MSR purchases in Originations and $24.1 million inter-segment derivative gain. The $92.6 million Servicing loss is due to $106.2 million portfolio runoff, a $28.3 million fair . . .

Aug 05, 2021

COMTEX_391038113/2041/2021-08-05T17:29:15

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