How one mortgage servicing company is prioritizing home retention during economic uncertainty
Nearly two years ago, Ocwen acquired PHH Corporation, and Glen Messina became the president and CEO of the newly combined companies. Today, Ocwen Financial Corporation is a leading non-bank mortgage servicer and originator providing solutions through its primary brands, PHH Mortgage and Liberty Reverse Mortgage. HousingWire spoke with Messina on the progress that’s been made in reshaping the mortgage servicer and originator, its evolving business model and its progress in turning around the company.
HousingWire: How does the Ocwen of today compare to the companies that merged two years ago?
Glen Messina: The Ocwen of today is a different organization, and I believe we are stronger, more efficient and more diversified. We’ve transformed the business to be both a lender and servicer, and our originations business is growing at a very fast clip to keep up with demand.
In servicing, we are one of the largest and most experienced special servicers, managing more than 1.3 million borrowers, thousands of investors and more than 100 subservicing clients. At the end of Q2, we serviced more than $206 billion in UPB.
On the originations side, we’ve built a scalable, multi-channel lending platform that has grown volume by 16X in just the past year. In August, we originated more than $2.5 billion in loans and flow MSRs, which puts us at an annual run-rate of $30 billion.
One thing that hasn’t changed is our commitment to our customers – helping homeowners is one of our guiding principles and our mission is focused on creating positive outcomes for homeowners, communities and investors.
Financially, we are in the final stages of arguably the most significant turnaround in the mortgage industry – our profitability is improving, our originations business is rapidly growing and our strong subservicing and special servicing capabilities position us very well to continue the momentum we have. We’re really proud of the team and what we have achieved so far.
HW: Historically, Ocwen was a special servicer of non-performing loans, while PHH subserviced performing loans. What’s your strategy now, and how do you intend to grow your servicing business?
GM: We’re executing our strategy of leveraging our historic strengths managing both performing and delinquent loans to offer the market the best of both worlds at a single servicer. We think of our servicing capabilities in four quadrants: performing owned servicing, performing subservicing, special owned servicing and special subservicing. In these four quadrants we service conforming and government mortgages, small balance commercial loans and private securities. We’ve built a multi-channel origination platform to replenish and grow our servicing portfolio across each of the four quadrants, giving us the flexibility to pivot to market opportunities and optimize capital deployment. For example, in the near term, we are building our portfolio of owned performing servicing and subservicing.
Longer term, we believe we are well positioned to assist borrowers needing loss mitigation as they reach the end of their COVID-19 forbearance plans, and in the process provide valuable services to investors. We expect this will lead to growth opportunities in both special owned servicing and special subservicing.
Our core competency for the past decade has been to help homeowners avoid foreclosure, while setting the bar in terms of operational efficiency and improving outcomes for borrowers and investors. Since the mortgage crisis, we’ve completed more than 1.5 million non-foreclosure workouts for consumers – far more than any other servicer. We really hold ourselves up as the best in the business at managing delinquent or high-risk assets and keeping families in their homes.
These competencies are critical in today’s uncertain economic environment. With the COVID-19 pandemic, there are now more than 3.6 million borrowers in forbearance, a significant number of whom may unfortunately end up going into a default scenario.
Given compliance and reputational concerns, in my opinion you’re going to see banks moving away from in-house default servicing, to the extent that they can. As they do, special and default servicing will shift back to subservicers and the non-bank sector.
There are only a handful of servicers that have maintained core competency in loss mitigation and default. This will obviously be attractive as investors and MSR holders cope with the aftermath of the pandemic.
We believe we have a very compelling story to tell when it comes to overall servicing performance. Moody’s ranks us as a leading servicer in terms of total delinquency cycle time performance, and our servicing cost per loan for performing and non-performing loans compares favorably to MBA benchmarks, as does our call center performance in terms of average hold time and call abandonment rate.
HW: You mentioned that you’re ramping up your originations operation. How is that going, and what kind of volume do you expect to generate?
GM: We’re very excited about the multi-channel originations platform that we’ve built. Over the past 18 months, we’ve built the capability to originate through bulk purchases, direct flow arrangements, the Fannie Mae SMP and Freddie Mac CRX programs, and our correspondent and portfolio recapture platforms. In our Liberty Reverse Mortgage operations, we originate through retail, wholesale and correspondents, and we’re a top 3 HECM originator nationwide.
We have built an Enterprise Sales team that markets all these capabilities plus performing and special subservicing and portfolio retention services. There are few companies today offering the breadth of products our team offers under one roof.
We are seeing strong growth across our forward and reverse lending channels and have increased quarter-to-date volume in August by 16X in the past year. We continue to grow our correspondent seller base, expand our delivery partners for the GSE co-issue program and expand our portfolio recapture capacity and capabilities.
To support our growth, we have increased originations headcount by approximately 40% since the beginning of this year, and we plan to increase headcount by an additional 35% through the balance of 2020. This will roughly double our total originations staffing by year-end 2020 versus year-end 2019. We continue to expand our operating capabilities through hiring, technology development and continued process improvement.
HW: On your most recent earnings call, you referenced the Ocwen/PHH Enterprise Sales strategy. Why is this so important for the company’s transformation, and how is it being received in the market?
GM: Our value proposition is simple: if you’re a lender, we can help whether you want to retain, release or recapture mortgage assets. The market has really taken to the idea of having one counterparty to offer all these services. We’re providing liquidity through whole loan and MSR purchases — both directly and through the GSE co-issue platforms.
We’re subservicing both performing and delinquent loans — all private-labeled and customized to each client. And because we’re a lender and not just a subservicer, we’re helping MSR owners recapture customers and defend against runoff. Finally, we’re servicing commercial assets and helping clients originate reverse mortgages.
We can offer all these services and execution strategies as a single enterprise partner. What we’re finding is when our account executives sit down with a client or a prospect, it’s a much broader, more strategic conversation about how we can help grow their business.
Currently, when considering just our top sales prospects, we’re looking at more than $100 billion of new business opportunities across our various channels — thanks to our enterprise sales team.
HW: Most observers expect defaults to rise due to the economic repercussions of the pandemic. What’s your view?
GM: In terms of the fallout from the COVID-19 pandemic, I think we’re still in the early innings. As we disclosed on our Q2 earnings call, we had about 112,000 borrowers in forbearance as of mid-July. The good news is we’ve not seen a lot of new requests, and roughly 35% of our borrowers who are on forbearance plans were still making their payments.
As far as borrowers approaching their initial forbearance period expiration, roughly 22% were fully reinstating and most of those remaining were extending. Only about 1% have gone into to loss mitigation, which is a great sign.
There are millions of credit-stressed borrowers who are going to need modifications of some kind, and this is going to be a significant challenge for our industry. Unfortunately, we expect up to 25% of our borrowers on forbearance who have Ginnie Mae or non-agency mortgages are likely going to need loss mitigation assistance.
What our team brings to the table is extensive experience in curing defaulted assets and helping homeowners stay in their homes. We have home retention experts working directly with borrowers, educating them on their various options and doing everything possible to avoid foreclosure and keep families in their homes. Many of our resident default experts have been with us for a long time and had to manage through the 2008 financial crisis. This in-house knowledge is helping us help homeowners get through the pandemic.
Our goal is always to try to work with the consumers to produce the best outcomes for their families while balancing the needs of the investor. We take our mission to serve consumers very seriously, and we’ve partnered with a number of community advocacy firms — including the NAACP, HomeFree-USA and others — to conduct virtual borrower outreach events in local communities.
HW: When Ocwen and PHH merged, you were facing a turnaround situation as well as the challenge of combining two publicly traded companies. What steps have you taken to return the company to profitability?
GM: Over the past two years, we have executed an enterprise-wide transformation program focused on the integration of two large mortgage companies, improving profitability and building a balanced business model across servicing and originations, while maintaining a strong focus on compliance and quality. I believe what we have accomplished, in a relatively short timeframe, is nothing short of a remarkable turnaround.
Since Q2 2018, we’ve reduced our annualized pre-tax loss by $228 million and increased our annualized adjusted pre-tax earnings run rate before the amortization of NRZ lump-sum payments by more than $350 million. We’ve been executing on continuous cost improvement actions that have reduced our adjusted operating expenses by more than 40%, resulting in a very competitive cost structure. Assuming no adverse changes to market conditions and legal or regulatory matters, we expect adjusted pretax income will be positive for 2020, and we expect positive GAAP earnings in 2021.
HW: Like most of the industry, Ocwen has been operating remotely for the past six months. How difficult was that transition?
GM: When the pandemic was in its earliest stage, we made the call to move our employees to remote work right away. Our human resources, operations and technology teams — and many others who worked around the clock for days — did a spectacular job making this happen. In a very short period of time, we were able to procure the necessary technology and transition our entire global workforce — more than 5,000 associates — to a remote work environment, with the exception of certain jobs that needed to be performed in the office, with minimal disruption to our employees and customers.
We conducted a company-wide survey a couple of months after the transition to see how employees were doing, and 82% of our employees said they were as or more productive working remotely. They like the flexibility of working from home and feel they can better balance their work and personal lives.
Everyone is going through a lot right now with the pandemic, especially those who are trying to balance virtual or hybrid learning for their children with work. It’s hard, and we are trying to do everything we can to help them through this time.
Overall, our employees are operating at a very high level and I couldn’t be prouder of the team. So, I think the transition was executed very well and our employees adapted quite well.
We are looking at business resumption plans and different scenarios, keeping the health and safety of our employees as our top priority. At the end of the day, our current work-from-home model is unlikely to change any time soon. Longer term, we expect remote working will be a permanent part of our business model, and our office environment is likely to look and be utilized very differently from what it was in the past.