After prolonged regulatory issues hampered Ocwen Financial Corp. 's OCN profitability and goodwill since 2013-end, the company is now making efforts to minimize collateral damage by providing a clearer picture of its present financial standing and undertaking measures to enhance liquidity by selling its servicing rights.
This initiative helped boost investors' confidence, as witnessed in the 5.5% rise in share prices in the after-market trading session yesterday.
Additional Factors to Impact Fourth-Quarter Results
Last month, Ocwen revealed items expected to impact fourth-quarter earnings, which included an additional expense of $50 million to meet the New York Department of Financial Services (DFS) settlement, $64 million related to uncollectable receivables and other servicing expenses as well as monitoring costs of roughly $13 million.
Further, the company disclosed that it expects to record a loss in the upcoming release and for the full-year 2014 due to an elevated expense level. Presently, Ocwen shed light on certain non-recurring items that are expected to further weigh on the fourth-quarter results.
A non-cash charge of around $370-$420 million to write-off goodwill is expected to be incurred along with a $15 million reserve to be formed in relation with its remediation plan to deal with issues concerning certain erroneously dated borrower correspondence.
Sale of Servicing Rights
Ocwen projects to complete the sale of mortgage servicing rights (MSRs) of nearly 277,000 loans owned by Federal National Mortgage Association FNMA , also known as Fannie Mae, by mid-2015. However, the $45 billion transaction is subject to approvals by the government-backed mortgage agency and the Federal Housing Finance Agency (FHFA).
Previously, the company had announced the sale of servicing rights on $9.8 billion of loans backed by Federal Home Loan Mortgage Corporation FMCC , also known as Freddie Mac, to Nationstar Mortgage Holdings Inc. NSM .
Both these deals amounting to around $55 billion worth of agency loans are anticipated to produce around $550 million over the next six months. Moreover, this will boost Ocwen's strategy to downsize its agency servicing portfolio.
Additional Updates
Ocwen further disclosed a deal related to the sale of non-performing and performing loan assets, which is projected to yield about $40 million on closure (expected later this month).
Further, the company holds over $215 million in average daily cash balance since the start of this year indicating a strong liquidity position, which is expected to be adequate going forward.
Our Take
With Ocwen's endless tryst with regulators and rising settlement charges taking a toll on profitability, loss expected in the upcoming release did not come as a surprise. However, the company's better-than-expected liquidity and positive outlook to continue to have adequate liquidity for its business going forward will surely compel investors to reconsider the company's future prospects.
Currently, Ocwen carries a Zacks Rank #3 (Hold).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
