Ocwen Financial Earnings 2020-06-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from: ____________________ to ____________________

Commission File No. 1-13219

OCWEN FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



Florida		65-0039856
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1661 Worthington Road, Suite 100		33409
West Palm Beach,	Florida
(Address of principal executive office)		(Zip Code)

(561) 682-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	OCN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:



Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No x

Number of shares of common stock outstanding as of July 31, 2020: 130,013,696 shares

OCWEN FINANCIAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS



		PAGE
PART I - FINANCIAL INFORMATION

Item 1.	Unaudited Consolidated Financial Statements	4

	Consolidated Balance Sheets at June 30, 2020 and December 31, 2019	4

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019	5

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019	6

	Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2020 and 2019	7

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019	9

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	63

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	104

Item 4.	Controls and Procedures	107

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	108

Item 1A.	Risk Factors	108

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	108

Item 6.	Exhibits	109

Signatures		110

FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this report, including statements regarding our financial position, business strategy and other plans and objectives for our future operations, are forward-looking statements.

Forward-looking statements may be identified by a reference to a future period or by the use of forward-looking terminology. Forward-looking statements are typically identified by words such as “expect”, “believe”, “foresee”, “anticipate”, “intend”, “estimate”, “goal”, “strategy”, “plan” “target” and “project” or conditional verbs such as “will”, “may”, “should”, “could” or “would” or the negative of these terms, although not all forward-looking statements contain these words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. As a result of the global Coronavirus Disease 2019 (COVID-19) pandemic we are in a period of capital markets volatility and rapidly evolving mortgage lending and servicing ecosystem which have magnified such uncertainties. Readers should bear these factors in mind when considering forward-looking statements and should not place undue reliance on such statements. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those suggested by such statements. In the past, actual results have differed from those suggested by forward-looking statements and this may happen again. Important factors that could cause actual results to differ include, but are not limited to, the risks discussed or referenced under Item 1A, Risk Factors and the following:


•	uncertainty relating to the impacts of the COVID-19 pandemic, including with respect to the response of the U.S. government, state governments, Fannie Mae, Freddie Mac, Ginnie Mae and regulators;


•	the potential for ongoing COVID-19 related disruption in the financial markets and in commercial activity generally, increased unemployment, and other financial difficulties facing our borrowers;


•	the proportion of borrowers who enter into forbearance plans, the financial ability of borrowers to resume repayment and their timing for doing so;


•	impacts on our operations resulting from employee illness, social distancing measures and our shift to greater utilization of remote work arrangements;

•

the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover servicing advances, forward and reverse whole loans, and HECM and forward loan buyouts and put backs, as well as repay, renew and extend borrowings, borrow additional amounts as and when required, meet our MSR or other asset investment objectives and comply with our debt agreements, including the financial and other covenants contained in them;


•	uncertainty relating to the size and timing of a potential issuance of new term notes under our OMART advance financing facility;


•	increased servicing costs based on rising borrower delinquency levels or other factors;


•	reduced collection of servicing fees and ancillary income and delayed collection of servicing revenue a result of forbearance plans and moratoria on evictions and foreclosure proceedings;


•	the impact of our planned reverse stock split on our stock price, market capitalization, and the trading market for our common stock;


•	our ability to regain and maintain compliance with the continued listing standards of the New York Stock Exchange;


•	uncertainty related to our ability to execute on our cost re-engineering initiatives and take the other actions we believe are necessary for us to improve our financial performance;


•	uncertainty related to our ability to grow our lending business and increase our lending volumes in a competitive market and uncertain interest rate environment;


•	uncertainty related to our long-term relationship and remaining agreements with New Residential Investment Corp. (NRZ), our largest servicing client;


•	our ability to execute an orderly and timely transfer of responsibilities in connection with the termination by NRZ of our legacy PHH Mortgage Corporation (PMC) subservicing agreement, including our ability to respond to any concerns raised by regulators, lenders and other contractual counterparties in connection with such transfer;

•

uncertainty related to claims, litigation, cease and desist orders and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification, origination and other practices, including uncertainty related to past, present or future investigations, litigation, cease and desist orders and settlements with state regulators, the Consumer Financial Protection Bureau (CFPB), State Attorneys General, the Securities and Exchange Commission (SEC), the Department of Justice or the Department of Housing and Urban Development (HUD) and actions brought under the False Claims Act regarding incentive and other payments made by governmental entities;


•	adverse effects on our business as a result of regulatory investigations, litigation, cease and desist orders or settlements;


•	reactions to the announcement of such investigations, litigation, cease and desist orders or settlements by key counterparties, including lenders, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae);


•	our ability to comply with the terms of our settlements with regulatory agencies and the costs of doing so;


•	increased regulatory scrutiny and media attention;


•	any adverse developments in existing legal proceedings or the initiation of new legal proceedings;


•	our ability to effectively manage our regulatory and contractual compliance obligations;


•	our ability to interpret correctly and comply with liquidity, net worth and other financial and other requirements of regulators, Fannie Mae, Freddie Mac and Ginnie Mae, as well as those set forth in our debt and other agreements;


•	our ability to comply with our servicing agreements, including our ability to comply with our agreements with, and the requirements of, Fannie Mae, Freddie Mac and Ginnie Mae and maintain our seller/servicer and other statuses with them;


•	our servicer and credit ratings as well as other actions from various rating agencies, including the impact of prior or future downgrades of our servicer and credit ratings;


•	failure of our information technology or other security systems or breach of our privacy protections, including any failure to protect customers’ data;


•	our reliance on our technology vendors to adequately maintain and support our systems, including our servicing systems, loan originations and financial reporting systems, and uncertainty relating to our ability to transition to alternative vendors, if necessary, without incurring significant cost or disruption to our operations;


•	the loss of the services of our senior managers and key employees;


•	uncertainty related to the actions of loan owners and guarantors, including mortgage-backed securities investors, Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the GSEs), Government National Mortgage Association (Ginnie Mae) and trustees regarding loan put-backs, penalties and legal actions;


•	uncertainty related to the GSEs substantially curtailing or ceasing to purchase our conforming loan originations or the Federal Housing Administration (FHA) of the HUD or Department of Veterans Affairs (VA) ceasing to provide insurance;


•	uncertainty related to our ability to continue to collect certain expedited payment or convenience fees and potential liability for charging such fees;


•	uncertainty related to our reserves, valuations, provisions and anticipated realization of assets;


•	uncertainty related to the ability of third-party obligors and financing sources to fund servicing advances on a timely basis on loans serviced by us;


•	the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates;


•	our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties;


•	uncertainty related to the processes for judicial and non-judicial foreclosure proceedings, including potential additional costs or delays or moratoria in the future or claims pertaining to past practices;


•	our ability to adequately manage and maintain real estate owned (REO) properties and vacant properties collateralizing loans that we service;


•	uncertainty related to legislation, regulations, regulatory agency actions, regulatory examinations, government programs and policies, industry initiatives and evolving best servicing practices;


•	our ability to realize anticipated future gains from future draws on existing loans in our reverse mortgage portfolio;


•	our ability to effectively manage our exposure to interest rate changes and foreign exchange fluctuations;


•	our ability to effectively transform our operations in response to changing business needs, including our ability to do so without unanticipated adverse tax consequences;


•	uncertainty related to the political or economic stability of the United States and of the foreign countries in which we have operations; and


•	our ability to maintain positive relationships with our large shareholders and obtain their support for management proposals requiring shareholder approval.

Further information on the risks specific to our business is detailed within this report and our other reports and filings with the SEC including our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K since such date. Forward-looking statements speak only as of the date they were made and we disclaim any obligation to update or revise forward-looking statements whether because of new information, future events or otherwise.

PART I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)



	June 30, 2020			December 31, 2019
Assets
Cash and cash equivalents	$	313,736		$	428,339
Restricted cash (amounts related to variable interest entities (VIEs) of $17,373 and $20,434)	63,813			64,001
Mortgage servicing rights (MSRs), at fair value	1,044,914			1,486,395
Advances, net (amounts related to VIEs of $726,856 and $801,990)	901,009			1,056,523
Loans held for sale ($253,037 and $208,752 carried at fair value)	278,517			275,269
Loans held for investment, at fair value (amounts related to VIEs of $11,664 and $23,342)	6,730,656			6,292,938
Receivables, net	247,616			201,220
Premises and equipment, net	29,695			38,274
Other assets ($24,788 and $8,524 carried at fair value) (amounts related to VIEs of $8,301 and $4,078)	700,482			563,240
Total assets	$	10,310,438		$	10,406,199

Liabilities and Equity
Liabilities
Home Equity Conversion Mortgage-Backed Securities (HMBS) related borrowings, at fair value	$	6,477,616		$	6,063,435
Advance match funded liabilities (related to VIEs)	612,650			679,109
Other financing liabilities, at fair value (amounts related to VIEs of $11,664 and $22,002)	594,222			972,595
Other secured borrowings, net (amounts related to VIEs $184,129 and $240,893)	847,331			1,025,791
Senior notes, net	311,484			311,085
Other liabilities ($1,033 and $100 carried at fair value) (amounts related to VIEs of $95 and $144)	1,034,366			942,173
Total liabilities	9,877,669			9,994,188

Commitments and Contingencies (Notes 20 and 21)

Stockholders’ Equity
Common stock, $.01 par value; 200,000,000 shares authorized; 130,008,898 and 134,862,232 shares issued and outstanding at June 30, 2020 and December 31, 2019 respectively	1,300			1,349
Additional paid-in capital	553,934			556,798
Accumulated deficit	(115,039		)	(138,542		)
Accumulated other comprehensive loss, net of income taxes	(7,426		)	(7,594		)
Total stockholders’ equity	432,769			412,011
Total liabilities and stockholders’ equity	$	10,310,438		$	10,406,199

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Revenue
Servicing and subservicing fees	$	175,240		$	239,960		$	386,723		$	496,576
Reverse mortgage revenue, net	13,759			20,493			36,556			52,616
Gain on loans held for sale, net	33,547			8,318			46,878			17,300
Other revenue, net	4,478			5,567			10,709			11,734
Total revenue	227,024			274,338			480,866			578,226

MSR valuation adjustments, net	(23,434		)	(147,268		)	(197,554		)	(256,266		)

Operating expenses
Compensation and benefits	65,017			82,283			125,745			176,979
Servicing and origination	17,361			21,510			37,617			50,208
Professional services	23,818			37,136			49,455			40,577
Technology and communications	16,111			20,001			31,304			44,436
Occupancy and equipment	16,136			18,699			28,105			35,288
Other expenses	6,366			4,597			9,797			7,845
Total operating expenses	144,809			184,226			282,023			355,333

Other income (expense)
Interest income	3,566			3,837			8,961			8,395
Interest expense	(26,760		)	(28,641		)	(56,742		)	(55,130		)
Pledged MSR liability expense	(41,686		)	(2,930		)	(48,280		)	(46,886		)
Other, net	(57		)	557			1,271			1,577
Total other expense, net	(64,937		)	(27,177		)	(94,790		)	(92,044		)

Loss before income taxes	(6,156		)	(84,333		)	(93,501		)	(125,417		)
Income tax (benefit) expense	(8,110		)	5,404			(69,966		)	8,814
Net income (loss)	$	1,954		$	(89,737	)	$	(23,535	)	$	(134,231	)

Earnings (loss) per share
Basic	$	0.02		$	(0.67	)	$	(0.18	)	$	(1.00	)
Diluted	$	0.02		$	(0.67	)	$	(0.18	)	$	(1.00	)

Weighted average common shares outstanding
Basic	129,769,092			134,465,741			132,313,964			134,193,874
Diluted	129,922,343			134,465,741			132,313,964			134,193,874

Pro forma earnings (loss) per share assuming a one-for-15 reverse stock split (1)
Basic	$	0.23		$	(10.01	)	$	(2.67	)	$	(15.00	)
Diluted	$	0.23		$	(10.01	)	$	(2.67	)	$	(15.00	)


(1)	See Note 17 – Basic and Diluted Earnings (Loss) per Share regarding the reverse stock split expected to be effective in August 2020.

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020		2019			2020			2019
Net income (loss)	$	1,954	$	(89,737	)	$	(23,535	)	$	(134,231	)

Other comprehensive income, net of income taxes:
Reclassification adjustment for losses on cash flow hedges included in net income	40		36			76			70
Change in unfunded pension plan obligation liability	46		337			92			674
Other	—		7			—			13
Comprehensive income (loss)	$	2,040	$	(89,357	)	$	(23,367	)	$	(133,474	)

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019

(Dollars in thousands, except per share data)



	Common Stock			Additional Paid-in Capital		(Accumulated Deficit) Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Income Taxes			Total
	Shares	Amount		Additional Paid-in Capital		(Accumulated Deficit) Retained Earnings						Total
Three Months Ended June 30, 2020 and 2019
Balance at March 31, 2020	129,582,259	$	1,296	$	553,066	$	(116,993	)	$	(7,512	)	$	429,857
Net income	—	—		—		1,954			—			1,954
Equity-based compensation and other	426,639	4		868		—			—

Price	1.99	EPS	-1
Shares	135	P/E	-1
MCap	268	P/FCF	1
Net Debt	6,570	EBIT	218
TEV	6,838	TEV/EBIT	31
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-06-30	Filed 2020-08-04
10-Q	2020-03-31	Filed 2020-05-08
10-K	2019-12-31	Filed 2020-02-26
10-Q	2019-09-30	Filed 2019-11-05
10-Q	2019-06-30	Filed 2019-08-06
10-Q	2019-03-31	Filed 2019-05-07
10-K	2018-12-31	Filed 2019-02-27
10-Q	2018-09-30	Filed 2018-11-06
10-Q	2018-06-30	Filed 2018-07-26
10-Q	2018-03-31	Filed 2018-05-02
10-K	2017-12-31	Filed 2018-02-28
10-Q	2017-09-30	Filed 2017-11-02
10-Q	2017-06-30	Filed 2017-08-03
10-Q	2017-03-31	Filed 2017-05-15
10-K	2016-12-31	Filed 2017-02-23
10-Q	2016-09-30	Filed 2016-10-27
10-Q	2016-06-30	Filed 2016-07-28
10-Q	2016-03-31	Filed 2016-04-28
10-K	2015-12-31	Filed 2016-02-29
10-Q	2015-09-30	Filed 2015-10-29
10-Q	2015-06-30	Filed 2015-07-31
10-Q	2015-03-31	Filed 2015-05-18
10-K	2014-12-31	Filed 2015-05-11
10-Q	2014-09-30	Filed 2014-10-31
10-Q	2014-03-31	Filed 2014-05-02
10-K	2013-12-31	Filed 2014-03-03
10-Q	2013-12-31	Filed 2014-08-18
10-Q	2013-09-30	Filed 2013-11-05
10-Q	2013-06-30	Filed 2013-08-06
10-Q	2013-03-31	Filed 2013-05-08
10-K	2012-12-31	Filed 2013-03-01
10-Q	2012-09-30	Filed 2012-11-02
10-Q	2012-06-30	Filed 2012-08-06
10-Q	2012-03-31	Filed 2012-05-04
10-K	2011-12-31	Filed 2012-02-29
10-Q	2011-09-30	Filed 2011-11-09
10-Q	2011-06-30	Filed 2011-08-04
10-Q	2011-03-31	Filed 2011-05-05
10-K	2010-12-31	Filed 2011-02-28
10-Q	2010-09-30	Filed 2010-11-04
10-Q	2010-06-30	Filed 2010-08-04
10-Q	2010-03-31	Filed 2010-05-07
10-K	2009-12-31	Filed 2010-03-08

8-K	2020-08-04	Shareholder Rights, Amend Bylaw, Exhibits
8-K	2020-08-04	Regulation FD
8-K	2020-08-03	Regulation FD, Exhibits
8-K	2020-07-16	Earnings, Exhibits
8-K	2020-05-27
8-K	2020-05-08
8-K	2020-04-08
8-K	2020-04-03
8-K	2020-04-03
8-K	2020-03-30
8-K	2020-03-11
8-K	2020-02-20
8-K	2020-02-06
8-K	2020-01-27
8-K	2019-11-26
8-K	2019-11-05
8-K	2019-08-07
8-K	2019-08-06
8-K	2019-07-17
8-K	2019-07-01
8-K	2019-05-30
8-K	2019-05-15
8-K	2019-05-07
8-K	2019-03-18
8-K	2019-02-27
8-K	2019-02-22
8-K	2019-02-21
8-K	2018-12-06
8-K	2018-11-16
8-K	2018-11-15
8-K	2018-11-06
8-K	2018-10-17
8-K	2018-10-04
8-K	2018-09-27
8-K	2018-08-21
8-K	2018-08-17
8-K	2018-07-26
8-K	2018-07-17
8-K	2018-06-28
8-K	2018-06-22
8-K	2018-05-23
8-K	2018-05-23
8-K	2018-05-02
8-K	2018-04-17
8-K	2018-04-09
8-K	2018-03-22
8-K	2018-02-28
8-K	2018-02-27
8-K	2018-02-26
8-K	2018-02-09
8-K	2018-02-01
8-K	2018-01-18

EX-10.1	a20200630ex101.htm
EX-10.2	a20200630ex102.htm
EX-31.1	a20200630ex311.htm
EX-31.2	a20200630ex312.htm
EX-32.1	a20200630ex321.htm
EX-32.2	a20200630ex322.htm

OCN 10Q Quarterly Report

Ocwen Financial Earnings 2020-06-30