Acquisition expected to enhance earnings and reduce debt
Onity Group, formerly Ocwen Financial, is expanding its reverse mortgage business by acquiring the reverse lending assets of Mortgage Assets Management (MAM) from Waterfall Asset Management. The announcement comes as Onity reported a decline in its second-quarter income.
According to Onity’s second-quarter earnings results and a subsequent conference call on Thursday, the company executed a letter of intent for the acquisition on July 26. This is Onity’s second interaction with MAM’s reverse mortgage assets, following its acquisition of Reverse Mortgage Solutions (RMS) assets from MAM in late 2021.
Onity is the parent company of the top reverse mortgage brands in the country, including Liberty Reverse Mortgage and PHH Mortgage.
The deal, expected to close in the second half of 2024, will inject approximately $3 billion in reverse mortgage servicing portfolio into Onity’s holdings. PHH subservices these loans. Onity will exchange $51.7 million in preferred stock for the MAM assets.
“We are pleased to announce the proposed transaction with Waterfall,” Onity CEO Glen Messina said during the earnings call. “We expect this transaction to be accretive to earnings and cash flows immediately upon closing, while strengthening our position in reverse servicing as a hedge to forward [mortgage servicing rights (MSRs)], providing incremental asset management opportunities, and improving our capital structure.”
Onity chief financial officer Sean O’Neil added that the deal includes seller-provided financing, with plans to reduce corporate debt by around $40 million using the proceeds.
“This transaction strengthens and expands an already healthy relationship between our two firms,“ O’Neil added. “The Waterfall affiliate MAM has been a subservicing client of ours for some time now, so we know these assets well from a performance perspective.”
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The Florida-based non-bank servicer and originator noted in its earnings report a decline in income for Q2 2024, primarily due to a decrease in values of certain MSRs.
Nonetheless, the company saw growth in several other key metrics. The servicing unpaid principal balance (UPB) rose by 6%, and the subservicing UPB increased by 10% compared to the end of 2023.
Onity’s total origination volume surged 51% to $7 billion quarter-over-quarter, reflecting strong “replenishment capabilities” for MSRs. As of June 30, Onity’s total liquidity stood at $231 million, and its book value per share reached $57.
The reverse mortgage segment, though showing growth in origination volume, has faced challenges in profitability due to lower margins on loans.
O’Neil, attributed the quarter’s positive performance to the forward servicing business, which saw increased revenue and cost reductions.
“Servicing yet again improved its contribution to adjusted pretax (income) for the quarter,” he said. “This was driven by the forward servicing business where higher revenue —including higher servicing fees and seasonally higher float — plus continued improvements in our cost structure combined to generate an additional $16 million in adjusted [payment-to-income (PTI)] versus the prior quarter.”
Reverse mortgage origination volume saw growth, increasing to $184 million in Q2 from $166 million in Q1. However, the benefits of higher volume were partially offset by lower margins, impacting the PTI ratio for the reverse origination segment.
The acquisition deal is still subject to regulatory approval but is expected to close in the second half of 2024. With this move, Onity continues to strengthen its position in the reverse mortgage market, despite facing some financial headwinds in the recent quarter.
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