Headquartered in West Palm Beach, Florida Oniti Groupparent company of the top five reverse mortgage lenders Liberty Reverse Mortgagerevenue will decline in the second quarter of 2024.
Despite poor financial performance, Onity—formerly known as irving financial corp.. – Doubled down on the reverse mortgage sector by signing an agreement to acquire reverse loan assets Mortgage asset management (MAM) from Waterfall Asset Management.
That’s according to the company’s second-quarter earnings results and a subsequent conference call with company leaders Thursday.
Acquisition of MAM reverse assets
Onity and Waterfall signed a letter of intent on July 26, another interaction with MAM’s reverse mortgage assets, following the company’s (then operating as Ocwen) acquisition of MAM’s assets. Reverse Mortgage Solutions (RMS) will be available from MAM in late 2021.
“The transaction will include a reverse mortgage servicing portfolio currently comprised of PHH Mortgage, the unpaid principal balance is expected to be approximately $3 billion. “In consideration of the acquisition, the company intends to issue new, non-convertible cumulative preferred stock with a par value of $51.7 million to Waterfall.”
The deal remains subject to regulatory approval but is expected to close in the second half of 2024.
“We are pleased to announce the proposed transaction with Waterfall,” Onity Chief Executive Officer Glen Messina said in a statement. “We expect this transaction to be immediately accretive to earnings and cash flow upon closing while strengthening our presence in reverse services.” position as a hedge forward [mortgage servicing rights (MSRs)]provide incremental asset management opportunities and improve our capital structure.
Messina went on to call MAM a “valuable service customer.” Onity Chief Financial Officer Sean O’Neil provided more details during the earnings call.
“This transaction strengthens and expands an already healthy relationship between our two companies,” O’Neill said. “Waterfall affiliate MAM has been a client of our services for some time, so we know these assets very well from a performance perspective.
“This transaction is also accompanied by financing provided by the seller and is accretive to earnings per share and cash. Our intention is that, upon completion of the transaction, we will use the proceeds to further reduce the company’s debt, which is expected to be $40 million.
profit result
Declines in certain MSR values slightly reduced Onity’s second-quarter 2024 revenue, but the company touted improvements in several other metrics. Compared to the end of 2023, servicing unpaid principal balance (UPB) and servicing UPB increased by 6% and 10%, respectively.
The company said total issuance increased 51% quarter-over-quarter to $7 billion, demonstrating “MSR replenishment capabilities.” As of June 30, total liquidity increased to $231 million, and book value per share increased to $57.
O’Neill said the company remains bullish on its forward and reverse mortgage servicing businesses, but it was the forward business that helped deliver better operating results in the second quarter.
“Services once again increased its adjusted pre-tax (income) contribution in the quarter,” he explained. “This was driven by the forward services business, where higher revenue, including higher service fees and seasonally higher float, coupled with continued improvements in our cost structure, combined to generate $16 million of additional Adjusted income. [payment-to-income (PTI)] Compared to the previous season.
Reverse origination volume increased from $166 million in the first quarter to $184 million in the second quarter, but the benefit of increased volume was partially offset by lower loan margins, resulting in a lower PTI ratio for the reverse origination business. Low.
Reversal still bullish
Despite some challenges, company leaders expressed continued optimism about Onity’s presence in the inverse space, echoing previous statements about Liberty’s contribution to the company’s diversified portfolio.
“We believe our position as a top reverse lender can create additional upside opportunities through lower interest rates,” Messina said. “Historically, reverse origination volume and profitability have declined as interest rates have declined. And increase.”
During the Q&A session at the end of the call, O’Neill was asked specifically about the reverse services space, and he said Onity continues to see a lot of upside.
“In terms of reverse services, the returns are very substantial,” O’Neill said. “It’s just a smaller business. Either there’s a smaller pool of candidates to serve, or there are fewer assets to launch and own.
“So, as you can imagine, we do participate in the raw inverse counterparty and broker markets for inverse MSRs, but not as much volume as the forward market. It continues to generate profits for us.
