Ocwen Financial Corp., parent company of PHH Mortgage Corp. and its subsidiary Liberty Reverse Mortgage, posted a $64 million loss in 2023 but sees a generally positive trajectory for its reverse mortgage origination and servicing businesses. This is according to an earnings release and conference call detailing the company’s fourth-quarter and full year 2023 results.
According to its earnings statements, Ocwen has seen mostly positive movement in its reverse mortgage business despite serious challenges in the mortgage industry at large. It posted an increase in gains from reverse mortgages while recalculating its valuation methodologies to reflect the realities of the current market.
Reverse mortgage servicing
Ocwen characterized the performance of its reverse mortgage servicing business as positive, according to chief financial officer Sean O’Neill.
“The reverse space remained strongly profitable but declined slightly quarter over quarter due to declining reverse portfolio balances,” he said during the earnings call. “Continuing a capital-light approach, we grew subservicing volumes by 6% year over year measured in UPB (unpaid principal balance) due to transactions with existing and new capital partners as well as winning new clients.”
O’Neil also pointed out that a second-quarter 2023 transaction considerably boosted the company’s profitability in the segment.
“Our existing reverse servicing insight and valuation expertise helped us to execute a transaction in the second quarter of ’23 that generated significant excess liquidity and pretax income, and we’re expecting to leverage this expertise for more transactions in 2024,” he said.
Reverse mortgage origination
Ocwen’s origination segment broadly maintained profitability despite a seasonal slowdown in Q4 2023. The main driver was its correspondent and co-issue channels, “which overcame small losses in the reverse and consumer direct channels,” O’Neill explained.
Volume was reduced across all channels in Q4, but Ocwen was able to “demonstrate robust margin management and focus on MSR (mortgage servicing rights) cash yields to maintain margins in correspondent and reverse,” O’Neill explained.
“Although we remain a top 10 correspondent lender and a top five reverse lender, we are committed to profitable growth versus rankings.”
Assessing the market
In a question and answer session at the end of the call, corporate leaders were asked about the details of the current state of the reverse mortgage market. Ocwen CEO Glen Messina talked about the existing challenges and opportunities of operating in the reverse space.
“Our firm view has been [that] the reverse mortgage product has really suffered from a lack of distribution,” Messina said. “It has been a small, niche-based industry on players who focus principally on reverse products, and we think that’s limited the growth potential of the product in our view.
“We were named as one of the partners of the year by the National Association of Mortgage Brokers for our efforts to educate the broker community on reverse mortgages.”
NAMB also partnered with the Ocwen-owned Liberty last year for a reverse mortgage certification program.
More forward participation
As more forward mortgage participants seem to be entering the reverse space recently, Messina said that Ocwen is supporting several forward correspondent clients in joining the reverse mortgage business.
“Because we participate in all segments of the reverse industry from an originations perspective — so direct-to-consumer, wholesale and correspondent — we would expect to benefit the most in our correspondent channel by seeing a growth in forward originators moving into the reverse product space.”
Ocwen is also one of the only originators that both services and subservices reverse mortgages on top of its origination activities, which has implications for the business as well.
“[Those activities] create additional growth opportunities for us on the servicing and owned MSR portfolios,” Messina said. “So, look, we’re excited about forward players getting into this industry. We think there’s a large untapped potential out there that needs distribution.”
