Weeks ahead of the anticipated release of Ocwen's fourth-quarter earnings report, CEO Ron Faris has issued a notice that the company expects to see a loss based on mounting regulatory pressures, expenses, and a recent ratings downgrade by a major credit ratings agency.
In a note to stakeholders released Thursday, Faris reviewed a handful of the regulatory hurdles Ocwen has had to deal with in the past year, including a long-running investigation from New York's top financial regulator that eventually resulted in a $150 million settlement. The company plans to take an additional $50 million charge to its Q4 expenses as a result of that agreement after already setting aside $100 million in Q3.
Aside from that (and the firm's recent agreement that allowed it to continue operating in California), he said Ocwen closed 25 exams from state regulators in the past year, leaving 21 pending investigations still open. Based on current dealings with regulators, the company doesn't expect any major fines, penalties, or settlements ahead, though management does anticipate resolving two legacy matters for a total of less than $1 million, he added.
Also expected to take a toll on Q4 earnings is an expected increase in servicing expenses and uncollectable receivables and a $13 million expense for third-party monitoring costs.
"As a result of the items just discussed and other fourth quarter events, we expect to record a loss in the fourth quarter of 2014 and for the total year," Faris wrote.
Looking ahead, Faris anticipates "the level of these types of expenses will decrease significantly" this year as Ocwen clears out some of its remaining legacy issues. As of February 3, he said the company had $249 million in cash, and its cash forecast indicates it should have sufficient liquidity going forward.
Faris' letter came one day after Fitch Ratings announced a downgrade to Ocwen's primary, master, and special servicer ratings, citing "weaknesses in Ocwen's corporate governance and operational control framework" and pointing specifically to some of the last year's regulatory issues.
Including that announcement, Ocwen says its servicer ratings have fallen below the minimum criteria established in 482 private-label securities agreements. However, the company is currently not aware of plans from any securities trustee to move their servicing as a result of those changes.
Responding to the Fitch announcement, Faris said recent actions have been based largely on public information and "have not pointed to actual servicing performance deficiencies."
"Objective data on PLS performance continues to show that Ocwen excels in managing loss mitigation timelines, bringing borrowers current on their payments and keeping them current," he said. "For these reasons, we believe it is in the best interests of all stakeholders to continue to keep Ocwen on the job."