Ocwen Financial Profile
Ocwen Financial Corporation operates as a financial services company that services and originates both forward and reverse mortgage loans, through its primary brands, PHH Mortgage and Liberty Reverse Mortgage. The company is a leader in the reverse mortgage business with a strong brand and its reverse mortgage servicing platform.
The company has offices and operations in the U.S., in the United States Virgin Islands (USVI), in India and the Philippines. As of December 31, 2023, approximately 76% of the company’s workforce is located outside the U.S. The company provides solutions through its primary operating, wholly-owned subsidiary, PHH Mortgage Corporation (PHH).
The company’s core competencies revolve around its Servicing business with an Originations platform to replenish and pursue growth of its servicing portfolio.
The company’s Servicing business consists of two components, its owned MSR servicing portfolio and its subservicing portfolio that complement each other when managing scale. The company invests its capital to fund purchases and originations of its owned MSRs, for which it establishes a targeted return on investment. The company’s net return is impacted by fair value changes of its owned MSRs, net of hedging, that vary based on market conditions. The company’s subservicing portfolio generates a relatively stable source of revenue to enhance its returns.
In 2021, the company expanded its servicing and subservicing portfolio with the launch of MAV, its MSR joint venture with Oaktree. In 2022 and 2023, the company further executed on its capital-light growth strategy with new MSR capital partner relationships to effectively convert MSR servicing portfolios into subservicing portfolios. The company targets a balanced mix of its portfolio between servicing and subservicing based on capital allocation and returns. The company’s servicing operations and customer interactions do not differentiate whether loans are serviced or subserviced. In 2021, the company also expanded its capability in reverse subservicing by acquiring the Mortgage Assets Management, LLC (MAM) servicing platform.
The company’s Originations business’ strategy is to provide self-sustained replenishment opportunities to its servicing portfolio and profitable growth. The company’s Originations success is built on its relationships with borrowers, lenders and other market participants. The company purchases MSRs through bulk portfolio purchases, through flow purchase agreements with its network of mortgage companies and financial institutions, and through participation in the Agency Cash Window (or Co-Issue) programs. In order to diversify its sources of servicing and reduce its reliance on others, the company has been developing its origination of MSRs through different channels, including its portfolio recapture channel, retail, wholesale and correspondent lending. In 2021, the company expanded its correspondent lending channel by acquiring Texas Capital Bank’s (TCB) network of approximately 220 correspondent lenders.
Segments
The company operates through Servicing and Originations segments.
Servicing
Servicing business is primarily consisting of the company’s residential forward mortgage servicing business that accounts for the majority of its total revenues, its reverse mortgage servicing business, and its small commercial mortgage servicing business. The company’s servicing clients include some of the largest financial institutions in the U.S., including the GSEs, Ginnie Mae and non-Agency residential mortgage-backed securities (RMBS) trusts, and other large MSR investors, including Rithm, MAV and MAM (RMS). As of December 31, 2023, the company’s servicing and subservicing portfolio consisted of approximately 1.3 million loans.
Servicing involves the collection of principal and interest payments from borrowers, the administration of tax and insurance escrow accounts, the collection of insurance claims, the management of loans that are delinquent or in foreclosure or bankruptcy, including making servicing advances, evaluating loans for modification and other loss mitigation activities and, if necessary, foreclosure referrals and the sale of the underlying mortgaged property following foreclosure (REO) on behalf of mortgage loan investors or other servicers. Master servicing involves the collection of payments from servicers and the distribution of funds to investors in mortgage and asset-backed securities and whole loan packages. Reverse servicing includes additional functions, such as the funding of borrowers under their approved borrowing capacity, the repurchase of loans and assignment to HUD upon reaching a limit (based on the maximum claim amount) and the securitization of tails under the Ginnie Mae program. The company earns contractual monthly servicing fees (which are typically payable as a percentage of UPB) pursuant to servicing agreements as well as other ancillary fees relating to its servicing activities, such as late fees.
The company owns MSRs outright, where it typically receives all the servicing economics, and it subservices on behalf of other institutions that own the MSRs, in which case it typically earns a smaller fee for performing the subservicing activities. Special servicing is a form of subservicing where the company generally manages only delinquent loans on behalf of a loan owner. The company typically earns subservicing and special servicing fees either as a percentage of UPB or on a per loan basis based on delinquency status. The company’s reverse owned servicing activities are reflected in its financial statements with the portfolio of securitized reverse loans held for investment and the related HMBS borrowings.
Servicing advances are an important component of the company’s business and are amounts that it, as MSR owner, are required to advance to, or on behalf of, investors if it does not receive such amounts from borrowers. These amounts include principal and interest payments, property taxes and insurance premiums and amounts to maintain, repair and market real estate properties on behalf of the company’s servicing clients. Most of its advances have the highest reimbursement priority such that the company is entitled to repayment of the advances from the loan or property liquidation proceeds before most other claims on these proceeds.
The company’s servicing and subservicing portfolios naturally decrease over time as homeowners make regularly scheduled mortgage payments, prepay loans prior to maturity, refinance with a mortgage loan not serviced by it or involuntarily liquidate through foreclosure or other liquidation process. The company’s ability to maintain or grow its servicing revenue or the size of its servicing and subservicing portfolios depends on its ability to acquire the right to service or subservice additional mortgage loans at a rate that exceeds portfolio runoff and any client terminations. The company’s Originations segment focuses on profitably replenishing and growing its servicing and subservicing portfolios.
Originations
The primary source of revenue of the company’s Originations segment is gain on loan sales. The company originates and purchases residential mortgage loans that it promptly sells or securitizes on a servicing retained basis, thereby generating mortgage servicing rights. The company’s mortgage loans are conventional (conforming to the underwriting standards of the GSEs) and government-insured loans (insured by the FHA or VA) (collectively Agency loans). The company generally packages and sells the loans in the secondary mortgage market, through GSE and Ginnie Mae guaranteed securitizations and whole loan transactions. The company originates forward mortgage loans directly with customers (consumer direct channel) as well as through correspondent lending arrangements. The company originates reverse mortgage loans in all three channels, through its correspondent lending arrangements, broker relationships (wholesale) and retail channels.
In addition to its originated MSRs, the company acquire MSRs through multiple channels, including flow purchase agreements, the Agency Cash Window co-issue programs and bulk MSR purchases. The company’s Originations business also includes the sourcing and acquisition of new subservicing clients.
Retail Lending: The company originates forward and reverse mortgage loans directly with borrowers through its retail lending business. The company’s forward lending business benefits from its servicing portfolio by offering rate and term refinance options to qualified borrowers seeking to lower their mortgage payments and cash-out refinance options. Depending on borrower eligibility, the company refinances eligible customers into conforming or government-insured products. The company focuses on increasing recapture rates on its existing servicing portfolio to grow this business. The company also originates retail reverse loans to non-Ocwen servicing customers.
Correspondent Lending: The company’s correspondent lending operation purchases forward and reverse mortgage loans that have been originated by a network of approved third-party lenders, under its lending and risk management programs. The company employs an ongoing monitoring and renewal process for participating lenders that includes an evaluation of the performance of the loans they have sold to it. The company performs pre- and post-funding review procedures to ensure that the loans it purchases conform to its requirements and to the requirements of the investors to whom it sells loans. The company focuses on expanding its network of correspondent lenders and increased participation of its existing relationships.
Wholesale Lending: The company originates reverse mortgage loans through a network of approved brokers. Brokers are subject to a formal approval and monitoring process. The company underwrites all loans originated through this channel consistent with the underwriting standards required by the ultimate investor prior to funding.
MSR Purchases: The company purchases MSRs through flow purchase agreements, the Agency Cash Window co-issue programs and bulk MSR purchases. The Agency Cash Window programs it participates in, and purchases MSRs from, allow mortgage companies and financial institutions to sell whole loans to the respective Agency and sells the MSR to the winning bidder servicing released. In addition, the company partners with other originators to replenish its MSR through flow purchase agreements.
New Servicing and Subservicing Acquisitions: The company’s enterprise sales department strives to expand its network of servicing and subservicing clients and source new flow and co-issue or subservicing agreements.
Regulation
The company’s business is subject to extensive regulation and supervision by federal, state, local and foreign governmental authorities, including the Consumer Financial Protection Bureau (CFPB), the Department of Justice or the Department of Housing and Urban Development (HUD), the Securities and Exchange Commission (SEC) and various state agencies that license the company’s servicing and lending activities. Accordingly, the company is regularly subject to examinations, inquiries and requests, including civil investigative demands and subpoenas. The GSEs and their conservator, the Federal Housing Finance Agency (FHFA), Ginnie Mae, the United States Treasury Department, various investors, non-Agency securitization trustees and others also subject the company to periodic reviews and audits.
The company must comply with a large number of federal, state and local consumer protection and other laws and regulations, including, among others, the CARES Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Telephone Consumer Protection Act (TCPA), the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act (FDCPA), the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, as well as individual state laws pertaining to licensing, general mortgage origination and servicing practices and foreclosure and federal and local bankruptcy rules,
Rithm Capital Corp. Relationship
The company services loans on behalf of Rithm under various agreements, including traditional subservicing agreements, where Rithm is the legal owner of the MSRs, and in connection with legacy MSR transfers, referred to as Rights to MSRs, where Ocwen retains legal title to the underlying MSRs but Rithm has generally assumed risks and rewards consistent with an MSR owner.
Oaktree and MAV Relationship
The company has a strategic alliance with Oaktree to support refinancing the company’s corporate debt and help advance the company’s growth initiatives. The Oaktree relationship included the launch of an MSR investment vehicle (referred as MAV or MAV Canopy) to scale up the company’s servicing business in a capital efficient manner and investments in the company’s debt and equity.
History
Ocwen Financial Corporation, a Florida corporation, was founded in 1988. The company was incorporated in 1991.
