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42 | Th e M Rep o RT O r i g i nat i O n S e r v i c i n g a na ly t i c S S e c O n da r y m a r k e t SERVICING Department LocaL eDition Ocwen reports Second-Quarter income of $67m It's worse than last year, but busIness Is growIng. GEORGIA // Second-quarter profits at Ocwen Financial fell short compared to last year as costs came up. The company reported a net income of $67.0 million last quar- ter, a decline of nearly $10 million from the year ago period. While revenue was up 2 percent year-on-year to $553.1 million, normalized pretax earn- ings took a 7-percent hit, which Ocwen chairman Bill Erbey ex- plained was the result of higher regulatory and compliance costs and interest expense. The firm's origination num- bers improved over the first quarter, owing in part to a pickup in demand for mortgages after a slow winter. Ocwen reported originating $1.2 bil- lion unpaid principal balance in forward loans, with business growing 26 percent over Q1. Meanwhile, the company's re- verse mortgage business came to a balance of $145 billion, deliver- ing a pretax loss of $2 million—a $5 million improvement from the first quarter. "We continue to believe that the loans originated by our Reverse Lending business during the past two quarters will gener- ate significant future profits as homeowners utilize their avail- able credit lines," Erbey said. Overall, lending operations delivered $7.1 million in pretax profit, up from the first quarter but down from a year ago. Meanwhile, servicing net in- come (pretax) was $91.5 million, down from $137.7 million in Q2 2013 as higher expenses wiped out a small gain in revenue. At the same time, Ocwen reported an increase in modifi- cation offers, possibly indicating stronger servicing results in the future. In the area of new business, Erbey said the company expects to begin investing in residential mortgage-backed securities where Ocwen is the service in the third quarter of this year. He also hinted at the launch of a second new busi- ness platform that will be revealed in the coming quarters. Ocwen is one of the nation's largest mortgage servicers, falling only below some of the biggest banks. As a non-bank operating in an increasingly regulated field, the company has drawn scrutiny in recent months concerning its quick growth and business practices. Earlier this year, New York's Department of Financial Services halted a servicing-rights agreement between Ocwen and Wells Fargo as the department reviewed possible conflicts of interest between the company and its vendors. In response, Ocwen pledged to cooperate to resolve any po- tential problems, and president and CEO Ron Faris said the company is continuing its efforts to help the housing industry. "We continue to work closely with national and local non-profit consumer advocacy groups to bet- ter serve our customers, neighbor- hoods, and communities," Faris said. "Our ability to continue to lower delinquencies, lower losses, and keep families in their homes, benefits all stakeholders, includ- ing our shareholders, lenders, loan investors, and consumers." Shareholder Firm Files class action against Ocwen the plaIntIffs contend that ocwen dIdn't tell them It was breakIng the law. GEORGIA // A Pennsylvania law firm announced it has filed a class-action lawsuit against Ocwen, claiming the company misled shareholders about its practices and earnings. In a complaint filed with the U.S. District Court for Southern Florida, the Law Offices of Howard G. Smith, a firm that focuses on representing investors, accused the Atlanta- based mortgage company of failing to disclose to its shareholders that its servicing practices "violated applicable regulations and laws" and that its executives were involved in funneling millions of dollars in fees through Altisource Portfolio Solutions, a related company. The class action comes as Ocwen continues working to get out from under the microscope of financial regulators like Benjamin Lawsky, New York's superintendent of financial services. In a letter addressed to the company's executive board in early August, Lawsky said his department is currently reviewing a "troubling transaction" between Ocwen and Altisource, which he said "appears [to be] designed to funnel as much as $65 million in fees annually from already- distressed homeowners ... for minimal work." That letter came months after Lawsky first voiced his concerns about Ocwen's relationship with affiliate companies that provide fee-based services and whether those transactions are priced fairly. In another headache for the company, Ocwen recently announced that an audit of financial statements for 2013 and the first quarter of 2014 revealed they "can no longer be relied upon as being in compliance with generally accepted accounting principles." Ocwen said the discovered flaw dealt with how the company recorded the value of mortgage-servicing rights sold in a transaction with Home Loan Servicing Solutions, Ltd. Due to the change, the company plans to restate its financial results, anticipating a $17 million increase in pre-tax income for 2013 and a decline of the same amount for Q1 2014. The class-action complaint also cites that announcement, saying Ocwen's financial results SERVICING Continued on 44