Onity Group Inc. · NYSE:ONIT
Onity — Ocwen Financial — Investor Presentation (June 2012)
23 slides from Onity's investor presentation, Jun 4, 2012
Slide 1: Investor Presentation June 2012
Investor Presentation June 2012 © 2012 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 special servicing » Publicly - traded (NYSE: OCN) pure play mortgage servicer with about $2.0 billion in market capitalization » 20+ years of innovation in loss mitigation » #1 in servicing quality
Slide 3: Mortgage servicing overview
3 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 4: Mortgage servicing overview – Advance Quality
4 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, a
Slide 5: Ocwen Has Produced Substantial Shareholder Value
5 Ocwen Has Produced Substantial Shareholder Value While the S&P 500 index increased by only 6% between 12/31/2010 and 5/15/2012, Ocwen’s share price increased by 62% during the same period .
Slide 6: Acquisition Updates
Acquisition Updates Litton Acquisition meeting or exceeding pro forma expectations Delinquencies have been reduced substantially since boarding, 3 point drop in delinquencies Boarded about 240,000 loans that were 1/3 over 60 - days delinquent while quickly improving performance – proving the scalabi
Slide 7: Summary of investment highlights
Summary of investment highlights 7 Ocwen is well positioned to take advantage of attractive growth opportunities Highly scalable platform with lowest operating cost in the industry Deploying capital to take advantage of attractive opportunities Substantial cash flow generation Superior servicing and
Slide 8: Growing demand for high-touch servicers in $10 trillion industry
8 $10.3 trillion in residential mortgages outstanding as of December 31, 2011 $1.3 trillion of delinquent loans Top four banks service 51% of total loans, but focused on prime “low touch” loans » “High touch” servicers are best equipped to improve loan performance Ocwen currently looking at over $25
Slide 9: We have a strong pipeline of attractive growth opportunities
9 We have a strong pipeline of attractive growth opportunities Ocwen began purchasing non - performing loans in 1992 and has serviced subprime loans since 1996 Track record of growing the business over an extended time period Growth opportunities Ocwen is currently working with two large banks on su
Slide 10: Ocwen's key differentiators are directly proportional to delinquency of target portfolios
10 Ocwen’s key differentiators are directly proportional to delinquency of target portfolios Ocwen has » A 70% cost advantage in servicing non - performing loans » A proven ability to reduce delinquencies and advances » Best in class 90+ day to current roll rates of 14% for subprime adjustable rate
Slide 11: Highly scalable platform with lowest operating cost in the industry
Highly scalable platform with lowest operating cost in the industry 11 11 1. Source: Analysis of first quarter 2012 MIAC cost per non - performing loan compared to Ocwen’s marginal cost study for the same period Can quickly scale its servicing platform to efficiently board acquired portfolios with o
Slide 12: Proven ability to close transactions and effectively board loans
Litton Saxon HomEq Proven ability to close transactions and effectively board loans 3 Acquired portfolio has $38.6 billion in UPB and approximately $2.5 billion in servicer advances for a purchase price of $247.2 million (closed September 1, 2011) Over 240,000 loans with 1/3 delinquent Delinquency r
Slide 13: Superior servicing and loss mitigation practices
13 Superior servicing and loss mitigation practices… 1. Source: Bank of America/Merrill Lynch report dated July 2009, based on 2006 vintage loans on data from December 2008 to M ay 2009. 2. Source: Corelogic LoanPerformance, Barclays Capital, March 2011 Roll rate from 90+ days delinquent to current
Slide 14: Effective at driving down delinquencies and advances
14 … with differing levels of advances as a % of UPB Delinquency Percentage (90+ Days) by Portfolio (1) …Effective at driving down delinquencies and advances 4 20% 25% 30% 35% 40% 45% Legacy Ocwen Saxon HomEq Litton 1. Based on UPB where Ocwen is required to make servicer advances as of 3/31/2012 3
Slide 15: Revenue in bps – Legacy Saxon Servicing, HomEq & Litton Portfolios
15 Revenue in bps – Legacy Saxon Servicing, HomEq & Litton Portfolios 4 15 Revenue exceeds contractual rate soon after boarding due to recapture of deferred servicing fees and due to ancillary income 40.0 80.5 72.2 70.2 73.5 84.3 72.9 70.5 54.2 60.7 69.3 67.9 67.6 67.0 68.5 45.7 53.8 72.1 30 40 50 6
Slide 16: Capital / UPB and pre-tax return on capital
1. Illustrative numbers representing different deal types Capital / UPB (1) As performance improves, capital requirements fall and return on capital increases Pre - tax return on capital (1) Margins expand as Revenue per UPB grows without a concomitant increase in expense Portfolio becomes less capi
Slide 17: Substantial cash flow generation
Substantial cash flow generation 17 17 Without any new UPB, the existing portfolio is expected to generate substantial free cash flow Cash provided by operating activities was $373 million for Q1 2012, $982 million for 2011 Even if delinquencies increase 25%, free cash flow would only decrease 15% i
Slide 18: Conservative balance sheet
Conservative balance sheet… 18 Highly rated assets (as reported 3/31/12) Source: Company filings. 1. Excludes $56.3 million of Loans, Net - Restricted for Securitization Investors arising from FAS 167 accounting rule change. 2. Includes $78.4 million of goodwill. 3. Adjusted for Impact of Saxon, Cha
Slide 19: Strong collateral protection
19 $381 $248 $309 $272 $1,223 $630 28 28 $494 $0 $400 $800 $1,200 $1,600 $2,000 $2,400 Collateral >=BBB Collateral Term Loan ($ in millions) MSRs DSF Advances Cash Term Loan Strong collateral protection 1. Collateral is shown as of Mar 31,2012 plus the pro - forma for Saxon and JPM acquisitions Inve
Slide 20: …with upside potential
Book value Internal valuation Ocwen Litton Saxon Chase 20 …with upside potential 7 MSR values according to various methodologies Implied book value / share Our industry - lowest cost to service creates incremental value embedded in the MSR Adjusting to reflect Ocwen’s lower advance ratio would furth
Slide 21: Summary of investment highlights
Proven ability to close transactions and effectively board loans Summary of investment highlights 21 Why now – Ocwen is well positioned to take advantage of attractive growth opportunities Highly scalable platform with lowest operating cost in the industry Deploying capital to take advantage of attr
Slide 22: HLSS Transaction Update
22 22 HLSS Transaction Update In March 2012, HLSS completed an initial public offering that could eventually enable Ocwen to significantly reduce capital needs » HLSS is structured in a tax efficient manner as a Passive Foreign Investment Company (“PFIC”), offering investors yield in the form of div
Slide 23: HLSS initial purchase of assets from Ocwen
23 In March 2012, HLSS completed its initial purchase of assets from Ocwen, relating to 15.2 billion in UPB. Total proceeds from the sale are as follows: $37.5 million of the cash proceeds were used to repay the term loan, and the remainder will be available for general purposes, including future ac