Onity Group Inc. · NYSE:ONIT
Onity — Ocwen Financial — Investor Presentation (March 2013)
28 slides from Onity's investor presentation, Mar 13, 2013
Slide 1: Investor Presentation March 2013
Investor Presentation March 2013 © 2013 Ocwen Financial Corporation. All rights reserved.
Slide 2: Who we are and what we do
2 Who we are and what we do Leading provider of residential and commercial mortgage loan servicing and residential mortgage lending » Publicly - traded (NYSE: OCN ) mortgage servicer with more than $5.0 billion in market capitalization » 20 + years of innovation in loss mitigation » #1 in servicing
Slide 3: Investment Highlights
High - quality earnings with cash - generation well in excess of earnings Investment Highlights 3 Embedded growth from recent acquisitions Substantial competitive advantages in cost, performance & scalability Significant pipeline from ongoing foreclosure crisis Long history of growth in UPB and prof
Slide 4: Highly Scalable Platform with Lowest Operating Cost in the Industry
$835 $260 Industry Average Ocwen Highly Scalable Platform with Lowest Operating Cost in the Industry 4 4 Lowest operating cost for non - performing mortgage servicing Over a decade of experience with world - wide operations Rapid scalability as technology relies upon robust dialogue engines Cost per
Slide 5: Demonstrated superior performance in modifications, defaults
Modifications Outstanding as % of Portfolio and % of Modifications 60+ days late for Subprime Private Securities Source: BlackBox Logic Demonstrated superior performance in modifications, defaults… Ocwen modifies more loans and has lower re - default rate 5 Ocwen Mods Outstanding, 54.15% Ocwen Mods
Slide 6: …and generating greater cash-flow from borrowers
…and generating greater cash - flow from borrowers Source: BlackBox Logic as of December 2012 Percentage of loans in subprime PLS that have made 10 or more payments in the past 12 months Making all 12 payments 60.0% 54.0% 72.9% 65.3% 60.0% 62.0% 64.0% 66.0% 68.0% 70.0% 72.0% 74.0% Ocwen Non - Ocwen
Slide 7: Unique track-record of successful large acquisitions
7 Advances as a % of UPB (1) Delinquency Percentage (90+ Days) by Portfolio Unique track - record of successful large acquisitions, driving down delinquencies and advances 1) Includes advances not on Ocwen’s books due to transfer to HLSS 18% 23% 28% 33% 38% 43% Legacy Ocwen Saxon HomEq Litton Saxon
Slide 8: Historical Growth in UPB
Historical Growth in UPB Dollars in billions at year - end Pro forma $470 billion at end of Q1 2013 includes Ally subservicing book of $123 billion Ocwen has a solid track - record of growth with substantial opportunities for more $11 $43 $74 $204 $470 2000 2005 2010 2012 Q1 2013 CAGR = 36% 8
Slide 9: Historical Performance
Historical Performance $360 $496 $845 2010 2011 2012 Total Revenue ($ million) $38 $78 $181 2010 2011 2012 Net Income ($ million) $122.4 $188.8 $289.4 2010 2011 2012 Normalized Pre - tax Income ($ millions) $0.36 $0.71 $1.31 2010 2011 2012 Diluted EPS 9
Slide 10: Operating cash-flow substantially exceeds earnings
* Adjusted cash flow from operations starts with Net cash provided by operating activities on Statement of Cash Flows and subtracts advance reductions used to pay down match - funded liabilities Operating cash - flow substantially exceeds earnings 10 $119 $180 $201 $220 $719 $19 $45 $51 $65 $181 Q1
Slide 11: Strong operations and conservative accounting
Strong operations and conservative accounting OPERATIONS - As advances are collected, it frees substantial cash in the form of equity supporting the financing – in 2012 OCN collected over $1.4 billion in advances, including $346 million of equity in those advances TIMING DIFFERENCES Things we do tha
Slide 12: Which company should be worth more?
Which company should be worth more? 12 (700) (450) (200) 50 300 550 800 1,050 1,300 Company A Company B Operating Cash Flow (in $mn) Net Income (in $mn)
Slide 13: Earnings Growth Opportunities
Earnings Growth Opportunities Legacy Ocwen Portfolio Homeward and ResCap Bank divestiture and other opportunities Built - in earnings tail Long - term opportunities 4Q 2012 2013 - 2014 Next 2 - 3 years Another 3 - 5 years Beyond 7 years • $127 Billion • $470 Billion • Originations • Prime servicing
Slide 14: Still in the middle innings of the crisis
Still in the middle innings of the crisis: approximately $1 trillion UPB transferred with another $1 trillion to go Source: Fannie Mae, Freddie Mac, FHFA, Bloomberg, Mortgage Bankers Association, and Green Street Advisors. 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Last 4 Year Average Oct - 12 REO In Foreclosure P
Slide 15: A Stronger Economy Would Support Further Upside
15 A Stronger Economy Would Support Further Upside Reduced delinquencies and Re - defaults Lower involuntary CPR with little incentive to prepay Lower Costs and Higher Revenue Improving Economy (Lower unemployment, hig her home appreciation, higher interest rates)
Slide 16: Earnings Growth Opportunities
Earnings Growth Opportunities Legacy Ocwen Portfolio Homeward and ResCap Bank divestiture and other opportunities Built - in earnings tail Long - term opportunities 4Q 2012 2013 - 2014 Next 2 - 3 years Another 3 - 5 years Beyond 7 years • $250 Billion pipeline • $1 Trillion opportunity Additional Up
Slide 17: Ocwen's portfolio generates a long-tail of profitability
Ocwen’s portfolio generates a “long - tail” of profitability Note: Normalized Pre - tax profit excludes transition - related expenses that typically occur in year 1 17 Normalized Pre - Tax Profit Year 1 indexed to 100 100 153 139 99 71 0 20 40 60 80 100 120 140 160 180 Year 1 Year 2 Year 3 Year 4 Ye
Slide 18: Earnings Growth Opportunities
Earnings Growth Opportunities Legacy Ocwen Portfolio Homeward and ResCap Bank divestiture and other opportunities Built - in earnings tail Long - term opportunities 4Q 2012 2013 - 2014 Next 2 - 3 years Another 3 - 5 years Beyond 7 years • Non - prime re - emergence • Prime expansion • Reverse Mortga
Slide 19: Investment Highlights
High - quality earnings with cash - generation well in excess of earnings Investment Highlights 19 Embedded growth from recent acquisitions Substantial competitive advantages in cost, performance & scalability Significant pipeline from ongoing foreclosure crisis Long history of growth in UPB and pro
Slide 20: Appendix
20 Appendix • Adjusted cash flow from operations calculation • Servicing & Advances Overview • Cash - flow sensitivities • Balance Sheet • History of Deleveraging • HLSS Update • Data on Non - foreclosure Resolution Rate & Modification Re - default Appendix
Slide 21: Adjusted Cash-Flow From Operations Calculation
Adjusted Cash - Flow From Operations Calculation 21 Cash flows from operating activities Net income $ 180,923 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of mortgage servicing rights $ 72,897 Other Amortization & Depreciation $ 12,697 Other losses &
Slide 22: Mortgage servicing overview
22 Mortgage servicing overview Residential mortgage loan servicing primarily involves: » Collection and transfer of mortgage payments from borrowers » Cash management and escrow account responsibilities » Mitigation of losses through loan modifications, short sales and other options » Administration
Slide 23: Mortgage servicing overview – Advance Quality
23 Mortgage servicing overview – Advance Quality Advances are very high - quality assets Advances self - liquidate at par Advances have the right to be repaid at “top - of - the - waterfall,” i.e. they are paid before any other payments to the trust Advances are substantially over - collateralized,
Slide 24: Cash-flow is strong even under adverse conditions
Cash - flow is strong even under adverse conditions 24 24 Pre - payments on non - prime loans are very insensitive to interest rates with voluntary pre - pay rates of less than 5% Even at 50% higher rates, cash - flows remain high Even if delinquencies increase 25%, free cash flow would only decreas
Slide 25: Conservative Balance Sheet
Conservative Balance Sheet… 25 Highly rated assets (as reported 12/31/12 ) $ 1,765 million of equity supported by high quality assets with limited recourse debt The balance sheet consists of high quality / low risk assets consisting primarily of advance receivables » Advances are over - collateraliz
Slide 26: Leverage Decreases Quickly After Major Acquisitions
Leverage Decreases Quickly After Major Acquisitions 26 - 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Litton acquisition Saxon & Chase acquisitions Homeward merger HomEq acquisition Total Debt/Consolidated Net Worth
Slide 27: HLSS Update
27 On December 24, 2012, HLSS completed a successful follow - on equity offering raising $462 million at a share price of $ 19, up from the $14 price of the initial offering – the offering was substantially over - subscribed. We expect that HLSS should be able to continue raising funds to purchase a
Slide 28: Performance – Leader in pre-foreclosure loan resolutions
28 Performance – Leader in pre - foreclosure loan resolutions through sustainable modifications Ocwen maximizes NPV for investors by keeping borrowers in their homes Modification acceptance rates are very high for all modification types… Modification Type 2011 2012 HAMP 90.6% 93.2% Non - HAMP 77.9%