Real Estate

Ocwen Doubling Down On PHH Mortgage’s Loan Originations

Acquisition of Texas Capital Bank’s correspondent lending business is expected to double the channel’s volume for PHH Mortgage.

Nonbank mortgage lender and servicer Ocwen Financial Corp. continues to pursue a strategy of building its loan servicing portfolio by growing the loan origination business of its subsidiary, PHH Mortgage.

Ocwen last week announced that it’s acquired the correspondent lending business of Texas Capital Bank, a move that’s expected to roughly double PHH Mortgage’s correspondent lending business.

The deal with Texas Capital Bank comes on the heels of a $498 million debt restructuring, and PHH Mortage’s recruitment of a new head of correspondent lending, Andy Peach, from rival Mr. Cooper.

Ocwen CEO Glen Messina said in a statement that the moves “are major steps toward achieving our goal of adding at least $100 billion in new servicing in 2021.”

PHH Mortgage will hire “the majority” of the employees Texas Capital Bank employs in correspondent lending, and is also purchasing the rights to service 60,000 mortgages totaling $14 billion.

In its most recent annual report to investors, Ocwen said it serviced 1.1 million mortgage loans with an aggregate unpaid principal balance of $188.8 billion at the end of 2020. The average unpaid principal balance was down 15 percent from 2019, however, due in part to the termination of a subservicing contract with Ocwen’s biggest servicing client — mortgage real estate investment trust New Residential Investment Corp.

Although Ocwen generates most of its revenue through loan servicing, it’s been working to expand its ability to originate mortgages through retail, wholesale and correspondent channels. The foundation of that strategy was Ocwen’s acquisition of PHH Corporation, the parent Company of PHH Mortgage, for $360 million in October 2018.

The move allowed Ocwen to get back into correspondent mortgage lending during the second quarter of 2019, which added $5.7 billion to its mortgage servicing portfolio in 2020.

PHH Mortgage buys closed mortgages from a network of third-party correspondent lenders, and sells and securitizes them — retaining the rights to service the loans. At the end of 2020, Ocwen said PHH Mortgage had relationships with 131 approved correspondent sellers, up from 46 at the end of 2019.

The acquisition of Texas Capital Bank’s correspondent lending business gives PHH Mortgage access to 200 new correspondent lenders. During the fourth quarter of 2020, Ocwen said Texas Capital Bank’s correspondent lending business originated $2.4 billion in loans. PHH Mortgage originated $2.59 billion through the correspondent channel during the same period, so the deal has the potential to double PHH Mortgage’s correspondent lending business.

Originating mortgages not only helps Ocwen build its mortgage servicing portfolio, but the company generates profits when it sells and securitizes loans it acquires through its retail, wholesale and correspondent networks.

Ocwen Financial 2020 revenue by source

Source: Ocwen Financial 2020 annual report.

With its servicing portfolio shrinking, Ocwen saw the fees it collected for servicing and subservicing mortgages drop by 24 percent in 2020, to $737.3 million. The company said revenue generated by its Liberty Reverse Mortgage brand also fell 30 percent, to $60.7 million, largely due to a change in accounting policy.

But revenue from gain on sale of loans held for sale was up 258 percent last year, to $137.2 million. That increase was attributed not only to growth in the correspondent lending channel, but increased “recapture” of loans the company refinanced.

Working through legal issues

As it builds its mortgage origination business, Ocwen has been working to resolve legal and regulatory matters — including some that PHH Mortgage was entangled in before Ocwen acquired the company:

  • In 2018, PHH Corp. and Realogy Holdings Corp. agreed to pay $17 million to settle a class-action lawsuit alleging the companies provided kickbacks to affiliated title and settlement providers through a defunct joint venture, PHH Home Loans. (PHH Home Loans went out of business after Realogy entered into a new joint venture, Guaranteed Rate Affinity, with mortgage company Guaranteed Rate Inc.)
  • PHH Corp. had previously won a court battle with the Consumer Financial Protection Bureau, which attempted to fine the company $109 million over allegations that reinsurance fees it charged amounted to kickbacks.
  • In 2019, PHH Mortgage agreed to pay $750,000 to settle allegations that between 2010 and 2012, it foreclosed on the homes of six active-duty service members without obtaining the necessary court orders.

Ocwen has also been dealing with state and federal litigation relating to its own servicing practices dating back to the 2008 financial crisis. In 2017, the Consumer Financial Protection Bureau sued Ocwen, claiming the company had “engaged in significant and systemic misconduct at nearly every stage of the mortgage servicing process,” including illegally foreclosing on homeowners, failing to credit payments, and botching the management of escrow accounts, hazard insurance and private mortgage insurance.

In January of this year, Ocwen said court-ordered mediation with the CFPB in the 2017 case had concluded without resolution, after it had boosted its reserves to pay for a potential settlement by $13.1 million. Ocwen then won a court judgement in March, which found most of the CFPB’s claims were precluded by a 2012 national mortgage settlement that led to an agreement that required Ocwen to provide up to $2 billion in relief to homeowners.

The CFPB appealed that decision this week, National Mortgage News reported. After the CFPB filed its 2017 suit, at least 20 states made similar claims, which have all been resolved, NMN’s Kate Berry said.

In October, Ocwen agreed to provide $11 million in relief to Florida residents to settle allegations that it failed to make timely payments of some borrowers’ insurance premiums, imposed improper lender-placed insurance, and overcharged for property preservation inspections.

Ocwen said Florida was the last state to settle.

Although the company said it had “sound legal and factual defenses to all of the State of Florida’s claims,” it chose to settle the case “without admitting liability in order to avoid the further distraction and expense of litigation.”

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