Ocwen Financial Corporation has a market cap of $5.23 billion; its shares were traded at around $35.15 with a P/E ratio of 35 and P/S ratio of 10.6.
Highlight of Business Operations:Total liabilities decreased by $751,911 or 22% during the first nine months of 2012 largely due to a $711,298 decline in match funded liabilities and a $82,554 decrease in debt securities, offset in part by a $28,070 increase in other liabilities and an $18,955 increase in lines of credit and other secured borrowings. Reductions in match funded liabilities as a result of the sale and transfer of advances to HLSS and the collection of advances acquired from Litton more than offset borrowings to fund the MSRs and advances acquired in the second quarter. Debt securities were reduced to zero as a result of converting the remaining principal balance of the 3.25% Convertible Notes and redeeming the 10.875% Capital Securities. Lines of credit and other secured borrowings increased as liabilities resulting from the sales of MSRs to HLSS accounted for as financings exceeded repayments on the senior secured loan (including required prepayments from the proceeds received from the HLSS Transactions).
We define liquidity as unencumbered cash balances plus unused, collateralized advance financing capacity. Our liquidity as of September 30, 2012, as measured by cash and available credit, was $464,217, a decrease of $86,850, or 16%, from December 31, 2011. At September 30, 2012, our cash position was $270,503 compared to $144,234 at December 31, 2011. We had $193,714 of available credit on collateralized but unused advance financing capacity at September 30, 2012 compared to $406,833 at December 31, 2011. Available credit was reduced to zero in the first and second quarters of 2012 because we borrowed the maximum amount, given the available collateral, principally in order to support the MSR acquisitions that closed during the second quarter of 2012, including two that closed on April 2. In the third quarter, we used $875,278 of the proceeds from our sales to HLSS of Rights to MSRs and related advances to pay down our borrowing under the senior secured term loan and the advance financing facilities. We repaid in full the borrowings under two of our advance financing facilities and terminated these facilities in September 2012.
The increase in modifications also contributed to revenue growth because when we return a loan to performing status we generally recognize any deferred servicing fees and late fees on the loan. As of September 30, 2012, we estimate that the balance of deferred servicing fees related to delinquent borrower payments was $295,195 compared to $220,044 at December 31, 2011 and $224,658 as of September 30, 2011. The increase is primarily due to servicing acquisitions in the second quarter 2012 MSR acquisitions. For loans modified under HAMP, we earn HAMP fees in place of late fees.
Nine months ended September 2012 versus September 2011. Residential servicing and subservicing fees for the first nine months of 2012 were 85% higher than the same period of 2011 primarily due to a 53% increase in the average UPB of assets serviced. Annualized revenue increased relative to average UPB in the first nine months of 2012 to 0.67% as compared to 0.55% for the 2011 period due primarily to the change in mix discussed above that resulted from the Litton Acquisition and the second quarter MSR transactions. Servicing fees for the nine months ended September 30, 2012 include $177,251 earned on the Litton portfolio as compared to $14,560 for the same period in 2011 (one month of revenue). The MSR portfolios acquired in the second quarter of 2012 generated $104,025 of servicing fees during the first nine months of 2012. Total completed modifications increased by 11% as compared to the first nine months of 2011. Excluding HAMP fees, we recognized loan servicing fees and late charges of $79,040 and $41,889 during the first nine months of 2012 and 2011, respectively, for completed modifications. HAMP fees were 97% higher for the first nine months of 2012 than the same period of 2011.
Cash flows for the nine months ended September 30, 2011. Our operating activities provided $803,621 of cash primarily due to $699,516 of collections of servicing advances (primarily on the HomEq Servicing portfolio) and net income adjusted for amortization and other non-cash items. Also, amounts to be recovered from the custodial accounts of trustees declined by $20,992. Balances required to be maintained in interest-earning debt service accounts increased by $34,250 because of the funding of a new account related to the advance facility established to fund the advances acquired as part of the Litton Acquisition. This increase was offset in part by lower balance requirements for debt service accounts related to the HomEq and other match funded facilities as a result of repayments of the borrowings. Operating cash flows were used principally to repay borrowings under advance financing facilities and the senior secured term loans.
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