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Why Ocwen Financial Corp. Is Plunging Today

By Jordan Wathen – Feb 29, 2016 at 12:06PM

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The mortgage servicer reported disappointing fourth-quarter earnings and a new business line for automotive financing.

What: Shares of Ocwen Financial Corp. (OCN 0.24%) are plunging by about 19% as of 11 a.m. EST Monday after the company announced disappointing fourth-quarter earnings results.

So what: For the fourth quarter, Ocwen Financial Corp. reported a net loss of $224.3 million, or $1.79 per share, compared to a net loss of $521.8 million, or $4.16 per share in the year-ago period.

The company noted that servicing revenue fell 8%, due to sales of mortgage servicing rights and the runoff of its portfolio. It also took a sizable $102 million deferred tax asset valuation allowance hit this quarter. That non-cash charge represented roughly half of the company's fourth quarter loss.

Now what: Ocwen is diversifying away from mortgages and mortgage servicing. It promoted its new automotive lending business in its press release detailing its fourth quarter results. The company noted that its newly launched business line, "Automotive Capital Services," had entered eight markets and executed credit lines with 22 dealers for loans valued at $19 million as of Feb. 25, 2016.

In the annual report, Ocwen describes this business as being in the "pilot" stages. Eventually, the company hopes to securitize the loans and use warehouse financing, which will free up more balance sheet capacity for more automotive lending. It's an interesting strategy shift in a business that has drawn substantial regulatory scrutiny over the last two years. 

Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Ocwen Financial. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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