Liberty Reverse parent company Ocwen posts annual profit and touts reverse mortgages as key to its future
In 2021, Ocwen Financial Corporation (NYSE:OCN), parent company of leading reverse mortgage lender Liberty Reverse Mortgage, posted its first annual profit since 2013, but a decline in earnings in the fourth quarter. The company also views its current and future interests in the reverse mortgage industry through Liberty and its recently completed acquisition of Reverse Mortgage Solutions (RMS) as a critical driver of its operations.
That’s according to a Friday morning earnings call discussing Ocwen’s fourth-quarter and full-year 2021 financial results. In particular, the acquisition of RMS appears to have bolstered the company’s confidence in its total sub-services portfolio, and the company described favorable conditions in its origination business, particularly with Liberty versus its portfolio of term mortgages.
RMS acquisition, origination environment
After closing the deal with RMS in October, Ocwen expected this acquisition to be diluted in the near term according to Glen Messina, CEO of the company.
“Fourth quarter adjusted pretax income includes a pretax loss of $4 million in the reverse service, and this is largely related to staffing actions to support the addition of 60,000 loans by the end of the year. end of the third quarter of 2022,” he said. “This will roughly double our portfolio of reverse subservices. Assuming the current longboard schedule and subject to investor approval, we expect run rate-adjusted pre-tax income for the reverse service to improve by approximately $7 million by the third quarter. of 2022 compared to the fourth quarter of 2021.”
The deal appears to only reinforce Ocwen’s commitment to the reverse mortgage business, according to Messina’s statements.
“In response to market conditions, we continue to focus on expanding our customer base and on higher margin products and services, intensifying our focus on the reverse and direct consumer, and driving continuous improvement of costs,” he said.
Liberty’s gross lending volume performance for home equity conversion mortgages (HECM) increased 16% in Q4 2021, and nearly 60% from 2020 figures according to Messina.
“In the fourth quarter, according to Reverse Market Insight, we increased our reverse market share by three points to 9.4%,” Messina said. “And now, with the acquisition of RMS, we are the only end-to-end service provider in the reverse industry.”
Becoming such a lender was a stated goal for Liberty the day after the deal was announced, according to interviews conducted by RMD. However, the aim is also to diversify the portfolio according to Messina.
“With the closing of the acquisition of the RMS reverse service platform, we are now able to compete in both reverse sub-service and downstream,” he said. “The investments we’ve made in our platform are being recognized with over $56 billion in subservice additions in 2021. And our subservice pipeline has never been stronger.”
Since the start of 2022, Ocwen through Liberty and the acquisition of RMS has created more than $57 billion in reverse mortgage underservicing opportunities, he added.
“Accelerated growth” in 2022, reverse resistance to headwinds
Ocwen Financial’s chief financial officer, June Campbell, described the RMS acquisition in very optimistic terms for the company, but that ambition won’t be clearer until the second half of the year, she said.
“We’re excited about our reverse subservicing platform,” she said. “This uniquely positions our reverse service business for accelerated growth this year. [W]We expect $11 million in higher reverse mortgage revenue from onboard and committed volume this year, $25 billion of UPB’s $27 billion is under a five-year sub-service agreement years. With scale and an optimized cost structure, we expect the acquisition to be accretive to our reverse service business in the second half of the year, reaching $5 million in adjusted pretax earnings in the fourth quarter.
In a Q&A session following the presentation, Messina was asked about the issues facing term mortgages related to rising interest rates and reduced refinances. Messina acknowledged that these are headwinds for Ocwen’s business, but was unsure what impact they would have on the setback.
“We are seeing a gain in sales margins across all channels. We expect them to contract. And in 2022, I think it’s going to be a tough environment and set-ups with rising rates and a shrinking mortgage market,” he explained. “Having said that, we don’t expect to see the same pressure in the opposite direction. In fact, we expect reverse spreads to be flat, and maybe even up a bit over the course of 2022.”
He went further, describing the broad optimism Ocwen has found in his reverse mortgage business as a boon to the entire business landscape, citing the oft-discussed demographic trends and the 2022 HECM lending limit. as two key realities in this space, in addition to figures from the National Reverse Mortgage Lenders Association (NRMLA) regarding levels of real estate equity held by seniors.
“We think there’s an opportunity in the opposite direction to continue to grow this business, it’s a growing market,” he said. “[10,000] new people turn 65 every day. And, this group has approximately $10 trillion in real estate capital. In addition to the continued appreciation in home prices, as well as the increase in the maximum claim amount to over $970,000, I believe this will help fuel the growth of the reverse mortgage market despite rising rates. higher interest. We are therefore very optimistic about the reverse activity, and we see it as a key element of our margin expansion initiatives in 2022.”