Onity Group Inc. · NYSE:ONIT
Onity — Ocwen Financial — Investor Presentation (September 2013)
44 slides from Onity's investor presentation, Sep 9, 2013
Slide 1: Investor Presentation September 2013
Investor Presentation September 2013 © 2013 Ocwen Financial Corporation. All rights reserved.
Slide 2: Forward-Looking Statement and Non-GAAP Measures
FORWARD-LOOKING STATEMENT: Our presentation contains certain forward-looking statements that are made pursuant to the safe harbor provisions of the federal securities laws. These forward-looking statements may be identified by a reference to a future period or by the use of forward-looking terminolo
Slide 3: Investment Highlights: Best in Class Servicer with Unique Advantages
Investment Highlights: “Best in Class” Servicer with Unique Advantages Leading provider of residential and commercial mortgage loan servicing and residential mortgage lending 20+ years of innovation in loss mitigation #1 in servicing quality in third-party studies Low cost, scalable servicing platfo
Slide 4: Investment Highlights: Strong Cash-flows and Substantial Prospects for Growth
Investment Highlights: Strong Cash-flows and Substantial Prospects for Growth Sustained history of growth in servicing portfolio Compound annual growth rate of 36% in unpaid principal balance (UPB) since 2000* Over $500 billion servicing portfolio at the end of Q2 2013 on a pro forma basis* From 201
Slide 5: The Ocwen Advantage: Highly Scalable Platform with Lowest Operating Cost
The Ocwen Advantage: Highly Scalable Platform with Lowest Operating Cost Cost per non-performing loan1 Lowest operating cost for non-performing mortgage servicing 70% cost Over a decade of experience with advantage world-wide operations Superior performance lowering delinquencies provides additional
Slide 6: Low-cost, Scalable Servicing Platform and Technology
Low-cost, Scalable Servicing Platform and Technology that Helps Keep Borrowers in their Homes Proprietary servicing system developed over 20+ years at a cost of over $150 million Utilizes advanced optimization algorithms to reduce variability and losses by evaluating loan resolution alternatives Rat
Slide 7: LOCOM Accounting and Superior Productivity Creates Embedded Value in MSRs
What this Means: LOCOM Accounting and Superior Productivity Creates Embedded Value in MSRs Our industry-lowest cost to service creates incremental value embedded in our MSRs Millions of Dollars as of Q2 2013 Fair market value reflects third-party estimates of value Internal valuation revises third-p
Slide 8: The Ocwen Advantage: More Modifications with Lower Re-default Rates
The Ocwen Advantage: More Modifications with Lower Re-default Rates Comparison of Modification and Re-default Rates for Subprime Securities Ocwen Mods Outstanding, 56.50% Modifications outstanding as a percent of portfolio for subprime securities Non-Ocwen Mods Outstanding, 47.08% Non-Ocwen Mod 60+,
Slide 9: A Track Record of Growth Since 2000
A Track Record of Growth Since 2000 Historical Growth in UPB End of Period UPB in Billions of Dollars * Q2 2013 pro-forma numbers; include estimates for OneWest and Green Point acquisitions and recently closed sub-servicing deal, and excludes Ally sub-servicing portion which is to be transferred to
Slide 10: Unique Track-record of Successful Large Acquisitions
The Ocwen Advantage: Unique Track-record of Successful Large Acquisitions Scalable technology allows for efficient boarding of large, high touch portfolios Number of Approx. Days Date Portfolio loans UPB Notice to Board 3Q2009 Freddie Mac – TBW DQ Loan Subservicing 24,000 $4.2 billion 11 days 4Q2009
Slide 11: Successful Large Acquisitions: Delinquency and Advances
The Ocwen Advantage: Unique Track-record of Successful Large Acquisitions Delinquency Percentage (90+ Days) by Portfolio(1) Advances as % of UPB(1),(2) 1) Excludes loans on the ResCap platform 2) Includes advances not on Ocwen’s books due to transfer to HLSS 11
Slide 12: Multiple Sources of Growth
Multiple Sources of Growth Additional upside from economic recovery Beyond 5 years Another 3-5 years Next 2-3 years 2013 - 2014 Prime expansion Non-prime re-emergence $400 billion potential pipeline1 Reverse Mortgages Over $1 trillion opportunity2 Other adjacent lending One West - $78 billion 2Q 201
Slide 13: Strong Pipeline
Strong Pipeline Strong pipeline of opportunities Current probability-weighted pipeline of $400 billion of UPB of specifically identified opportunities that we may close over next 12-18 months Bank divestiture Still in the “middle-innings” of the melt-down, with serious delinquencies, loans in forecl
Slide 14: Embedded Growth: Long Tail to Existing Book's Earnings
Embedded Growth: Long “Tail” to Existing Book’s Earnings Normalized Pre-Tax Profit1 Across Multiple Deals Forecasts Year 1 indexed to 100 1) Normalized Pre-tax profit excludes transition-related expenses that typically occur in year 1 14
Slide 15: Embedded Growth: A Stronger Economy Would Support Improved Profitability
Embedded Growth: A Stronger Economy Would Support Improved Profitability US Unemployment Rate1 Lower delinquency and re-default rates Lower involuntary prepayments that account for most non-prime CPR Higher interest rates – 10 year swap rate is up over ~135 bps in past nine Jun 2011 Jun 2012 Jun 201
Slide 16: Long-term: Multiple Opportunities for Growth
Long-term: Multiple Opportunities for Growth Prime expansion Acquisition of Homeward Residential added origination platform in 2013 Acquisition of ResCap provided a top prime loan servicing platform Non-prime re-emergence Home-ownership rates dropping to lowest level in 50 years as many buyers shut-
Slide 17: Strong Forecasted Cash-flows, especially with an Improving Economy
Strong Forecasted Cash-flows, especially with an Improving Economy Forecasted 10-year Cumulative Adjusted Cash Flow from Operations Scenario 1 : Base case - No UPB growth, with cash reinvested at 5% return Scenario 2 : Base case with 50% immediate reduction in CPR and 50% delinquency reduction in 20
Slide 18: Balance Sheet: Ocwen Substantially Under-Levered Compared to Peers
Balance Sheet: Ocwen Substantially Under-Levered Compared to Peers Debt Capacity – Peer Comparison(1) (2) 1) Comparison based on last reported data, as on 30th June 2013 2) Adjustment to Ocwen reported numbers consists of fair value adjustment of $637 million on MSRs – see slide on MSR valuation 3)
Slide 19: Experienced Management Team
Experienced Management Team William C. Erbey, Executive Chairman With Ocwen and predecessors since 1983; Chairman of the Board of Directors since September 1996 1975 to 1983, General Electric Capital Corporation, last position as President & CEO of General Electric Mortgage Insurance Corporation Ron
Slide 20: Recent Transactions Update
Recent Transactions Update Homeward All loans were moved from Homeward platform by mid-April Integration and performance as planned ResCap Also progressing as planned Significant portion of private label securities moved from legacy ResCap platform to Ocwen’s platform All loans expected to be moved
Slide 21: Investment Summary
Investment Summary Leading provider of residential and commercial mortgage loan servicing Low cost, scalable servicing platform and technology that helps keep borrowers in their homes Sustained history of growth in servicing portfolio with strong near-term and long-term growth prospects Strong cash-
Slide 22: Appendix
Appendix Mortgage servicing 101 High quality asset nature of advances Portfolio summary Normalized pre-tax income Historical performance – quarterly and annual Historical cash flow data and adjusted cash flow from operations reconciliation Historical performance – total debt/net worth Historical per
Slide 23: Mortgage Servicing
Mortgage Servicing 101 Residential mortgage loan servicing primarily involves: Collection and transfer of mortgage payments from Borrower Borrower Borrower Borrower borrowers Borrower Borrower Borrower Cash management and escrow account responsibilities Mitigation of losses through loan modification
Slide 24: Advances are High Quality Assets
Advances are High Quality Assets OCN advance collateral coverage 6/30/13 Advances self-liquidate at par $3.4 Billion ~1.1% Advances have the right to be repaid at “top-of- Advance Servicer the-waterfall,” i.e. they are paid before any other Advances Rate $319.3 Billion payments to the trust (Propert
Slide 25: Portfolio Summary, 2Q 2013
Portfolio Summary, 2Q 2013 End of Period Servicing Portfolio in Billions of Dollars of UPB Total $ 436.3 (1) 1) Non-Agency includes $0.3 billion of mortgage loans held for sale 25
Slide 26: Pro-forma Portfolio Summary, 2Q 2013
Pro-forma Portfolio Summary, 2Q 2013 End of Period Servicing Portfolio in Billions of Dollars of UPB (1) Total $ 505.8 (2) 1) Pro-forma portfolio includes estimates for OneWest and Green Point acquisitions and the recently closed sub-servicing deal and excludes Ally sub-servicing portion which is to
Slide 27: Normalized Pre-Tax Income Growth – Up 130% from Q2 2012
Normalized Pre-Tax Income Growth –Up 130% from Q2 2012 Normalized Pre-Tax Income Millions of Dollars Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Income before income taxes (GAAP) $70.2 $80.7 $76.5 $51.3 $87.5 Normalization Items: 1 Acq Transaction Costs 1.8 - 2.2 38.2 26.5 2 Funding Prepay/Cancellation
Slide 28: Q2 2013 Normalization: Income Statement Impact
Q2 2013 Normalization: Income Statement Impact Millions of Dollars Q4 2012 Q1 2013 Q2 2013 Revenue Servicing and subservicing - $5.4 $2.2 Process management fees - $9.6 - Subtotal (A) - $15.0 $2.2 Operating Expense Compensation and benefits - $29.0 $18.7 Amortization of servicing rights - - -Servici
Slide 29: Historical Performance - Quarterly
Historical Performance - Quarterly 29
Slide 30: Historical Performance - Annual
Historical Performance - Annual Millions of Dollars Millions of Dollars Millions of Dollars 30
Slide 31: Strong Cash-flows that Lead Earnings
Strong Cash-flows that Lead Earnings Millions of Dollars * 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. See reconciliation on next slide in this presenta
Slide 32: Adjusted Cash Flow from Operations Calculation Q2 2013
Consolidated Statement of Cash Flows – Adjusted Cash Flow from Operations Calculation Q2 2013 Adjusted Cash Flow from Operations of $295 million Three Months Ended Thousands of Dollars Sep 30, 2012 Dec 31, 2012 March 31,2013 June 30, 2013 Net Cash Provided by Operating Activities (A) 533,529 381,703
Slide 33: Demonstrated Ability to De-lever After Acquisitions
Demonstrated Ability to De-lever After Acquisitions Total Debt/Consolidated Net Worth (1) at end of period HomEq acquisition 1)Total debt = Total liabilities excl. Other liabilities; Net worth = Total equity minus goodwill 33
Slide 34: Our ROE has been Increasing Over Time
Our ROE has been Increasing Over Time Note: Net Income / Total Equity. Normalized net income is calculated as reported normalized pre-tax income (non-GAAP) less income tax assuming same as reported tax rate for the quarter 34
Slide 35: Ocwen Generates More Cash-Flow to Mortgage Investors
Ocwen Generates More Cash-Flow to Mortgage Investors Ocwen outperforms other subprime servicers in generating cash-flow from borrowers Ocwen Others All 12 payments: 62.6% 55.0% Source: BlackBox Logic – Subprime securities data. Ocwen data does not include recently acquired Homeward and ResCap loans
Slide 36: Leader in Pre-foreclosure Loan Resolutions through Sustainable Modifications
Performance – Leader in Pre-foreclosure Loan Resolutions through Sustainable Modifications Ocwen maximizes NPV for investors by Modification acceptance rates are very high for keeping borrowers in their homes all modification types... % of Resolutions 2011 2012 H1 2013 Modification Type 2012 H1 2013
Slide 37: Historical Prepayment Rates for Prime Loans
Historical Prepayment Rates for Prime Loans Historical drivers of prime prepayments 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Debt Pay Offs Regular Principal Amortization REO/CO/Other Involuntary Note: Historical prepayments data, includes historical ResCap loans 37
Slide 38: Historical Drivers of Non-Prime Prepayments
Historical Drivers of Non-Prime Prepayments Stable voluntary prepayments combined with declining delinquencies expected to drive down future prepayments 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Debt Pay Offs Regular Principal Amortization REO/CO/Other Involuntary Note: Historical Ocwen prepayments da
Slide 39: Strong Operations and Conservative Accounting
Strong Operations and Conservative Accounting Operations As advances are collected, it frees substantial cash – in the first half of 2013 OCN collected $429 million in advances Timing Differences Things we do not do that would accelerate earnings Most MSR’s carried at LOCOM i.e. no earnings write-up
Slide 40: Estimated Impact of Normalization and Alternate Accounting Policies
Estimated Impact of Normalization and alternate Accounting Policies (1) (1) Assuming advances purchased at discount are booked as earnings when collected 40
Slide 41: Strong Balance Sheet with High Quality Assets
Strong Balance Sheet with High Quality Assets $ 1,882 million of equity2 supported by high quality assets with low amount of recourse debt High quality assets (as reported 06/30/13) ($ in Millions) Assets 6/30/2013 % of Total The balance sheet has high quality / low risk assets Investment Grade Qual
Slide 42: Loans Serviced
Loans Serviced UPB (in millions ) Loan Count June 30, 2013 March 31, 2013 (1) June 30, 2013 March 31, 2013 (1) Mortgage loans held-for-sale $ 299 $ 338 1,719 1,743 Owned mortgage servicing rights GSE 127,139 44,597 757,366 289,286 GNMA 33,568 36,060 213,278 224,994 Non agency 183,167 191,595 1,183,0
Slide 43: Owned MSR Portfolio by Vintage
Owned MSR Portfolio by Vintage Total owned servicing Portfolio Origination Vintage (in thousands) 2009+ 2008 & prior Total Unpaid principal balance $ 121,943,982 $ 221,930,339 $ 343,874,321 MSR carry value 956,409 828,043 1,784,452 MSR value/UPB 0.78% 0.37% 0.52% Origination Vintage Unpaid principal
Slide 44: State Concentration of Serviced Assets
State Concentration of Serviced Assets UPB State (in millions) Loan Count CA $ 70,982 285,199 FL 27,604 180,588 NY 20,737 88,123 TX 17,558 169,817 NJ 15,348 72,611 IL 13,715 90,008 MD 11,745 57,131 MA 13,079 59,920 VA 10,758 56,848 Other 142,647 1,095,199 Total primary servicing $ 344,173 2,155,444
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