Magazine article American Banker

Ocwen Throws in the Towel on U.S. Subprime Lending

Magazine article American Banker

Ocwen Throws in the Towel on U.S. Subprime Lending

Article excerpt

Ocwen Financial Corp. is out of the subprime lending business in the United States and says it will focus entirely on loan servicing.

At a Friedman, Billings, Ramsey & Co. conference last week, Ocwen chairman and chief executive William C. Erbey said the company permanently closed its wholesale operation -- which was its only channel of subprime originations -- on Aug. 27.

Ocwen president Christine Reich said that "the unit has been operating at a loss for quite some time. It was no longer profitable. The cost of origination was too high vis a vis the loan amounts."

In the first half of 1999, the company's U.S. subprime production unit lost $3 million, compared with a $3.6 million loss for the period a year earlier.

Mr. Erbey said the company would honor its nonconforming commitments through September.

Ms. Reich said the originations business was already dramatically cut in the fourth quarter and that the company took a $13 million charge at that time. She added that Ocwen employees from the wholesale unit were allowed to interview for positions elsewhere in the company, and "virtually everybody that wanted to stay was placed."

Prudential Securities senior analyst Jonathan Adams said Ocwen built its originations platform to bolster its servicing, which was the root of its problems.

"The strategy of originating subprime loans was supposed to provide them (Ocwen) with loans they could service profitably. The theory was that they could minimize losses with their expertise in servicing and make the loans more profitable," Mr. Adams said. "But the market is more complicated than that, and they never properly developed their origination platform. …

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