Ocwen Financial Corporation
1675 Palm Beach Lakes Boulevard
West Palm Beach, FL 33401
NYSE symbol: OCN

Ocwen Financial Corporation Reports First Quarter Results

West Palm Beach, FL - Ocwen Financial Corporation (NYSE: OCN) ("Ocwen" or the "Company") reported net income of $22.3 million in the first quarter of 1998, 31% higher than the first quarter of 1997. Diluted earnings per share for the quarter were $0.36 versus $0.31 for the same period a year ago. Returns on average assets and average equity were 2.88% and 20.75%, respectively, for the first quarter of 1998 compared with 2.61% and 32.05%, respectively, for the first quarter of 1997. The decrease in the return on average equity reflects the strengthening of the Company’s equity to assets ratio resulting from the capital raised in 1997.

William C. Erbey, Chairman and Chief Executive Officer, said, "We are pleased with the first quarter results. Net income for the first quarter of 1998 of $22.3 million was the highest ever reported by Ocwen for a first quarter, reflecting solid performance from our major business lines."

All references below regarding changes are based on comparisons to the same period a year ago.

Revenues rose $9.5 million or 18% in the first quarter of 1998 from a year ago.

• Net interest income before provision for loan losses decreased $178,000 or 1% to $17.2 million in the first quarter of 1998. The decrease in net interest income during the first quarter of 1998 was largely due to a net $4.0 million charge related to the securities available for sale portfolio during the first quarter of 1998 due to declining interest rates and the resulting increase in prepayment speeds offset by a $473.9 million increase in average interest-earning assets.

• Non-interest income increased $24.1 million or 113% to $45.4 million in the first quarter of 1998. This increase is due primarily to a $12.0 million increase in gains on sales of interest earning assets, a $4.7 million gain included in other income recognized in connection with the sale of investments in low-income housing tax credit interests and a $4.5 million increase in servicing fees and other charges. The increase in servicing fees reflects a significant increase in loans serviced for others, from $5.51 billion at December 31, 1997 to $6.57 billion at March 31, 1998, primarily as a result of securitizations of single family residential discount loans and subprime loans held by the Company, and the acquisition of rights to service single family residential discount loans. OCN has also placed increased emphasis on entering into Special Servicing arrangements whereby the Company services loans that become greater than 60 days past due and receives additional fees to the extent certain loss mitigation parameters are achieved. Through April 30, 1998, the Company has been designated as a special servicer for pools of loans totaling approximately $3.5 billion in unpaid principal balance.

• On December 12, 1997, BCBF LLC (the "LLC"), a joint venture between the Company and BlackRock Finance L.P., distributed all of its remaining assets. Equity in earnings of the Company’s investment in joint ventures amounted to $0 as compared to $14.4 million in the first quarter of 1997.

Provision for loan losses decreased by $7.5 million primarily as a result of a reduction in reserves for discount loans. This reflects a decline in the discount loan portfolio resulting from the securitization of single-family residential discount loans during the first quarter of 1998.

Expenses rose $14.8 million or 65% in the first quarter of 1998.

• Compensation and employee benefits increased $6.6 million or 44% primarily due to an 82% increase in the average number of employees from 629 to 1,147.

• Occupancy and equipment expense increased $3.6 million or 128%.

• Distributions on capital securities amounted to $3.4 million as compared to $0 in 1997.

Recent developments

On January 30, 1998, the Company was assigned the special servicing rights to a pool of 6,309 subprime mortgage loans underlying a subordinate security acquired by Ocwen Asset Investment Corp. (NYSE:OAC), a publicly held real estate investment trust managed by Ocwen Capital Corporation ("OCC"), a wholly owned subsidiary of Ocwen. The Company, through its wholly owned subsidiary Ocwen Federal Bank FSB (the "Bank"), will become the special servicer of any loans which are 60 days or more delinquent.

On March 13, 1998, DTS Communications, Inc. ("DTS"), a wholly-owned real estate technology subsidiary of Ocwen, was honored from over 100 nominees as the recipient of this year’s Inman Innovator Award for "Software Applications that help the Real Estate Industry be more efficient and speed up the Real Estate Transaction Process." DTS has developed technology tools to automate real estate transactions over the Internet. DTS Data Trak ™ software allows real estate professionals access to ancillary services necessary to close a real estate transaction or loan. DTS has been recognized by Microsoft Corporation for its Microsoftâ component-based architecture to facilitate electronic data interchange. DTS continues to attract top tier mortgage origination, loss mitigation, mortgage servicing and real estate brokerage firms seeking to reduce the time necessary to order, track and process services used to close real estate transactions. It is anticipated that five of the top mortgage originators will be on-line by the end of the fourth quarter.

On March 17, 1998, pursuant to a definitive agreement executed by OAC with a Wall Street firm related to OAC’s acquisition of a subordinate security, the Bank was designated the special servicer for the nonperforming securitized loans underlying the subordinate security.

On March 18, 1998, the Company completed the securitization of 1,439 subprime single family residential mortgage loans with an aggregate unpaid principal balance of $161.4 million. The Company recorded total gains of $7.9 million on the sale of the senior classes of securities in connection with this transaction. The Company continues to service the loans for a fee and has retained an interest in the related subordinate security.

On March 25, 1998, Standard & Poor’s raised its counterparty rating on Ocwen to "BB-" from "B+". Standard & Poor’s also raised the counterparty rating on the Bank to "BB+" from "BB". The "B-" trust preferred rating of Ocwen Capital Trust I, a subsidiary of Ocwen, was affirmed.

On March 26, 1998, the Company, as part of a larger transaction involving the Company, BlackRock Capital Finance L.P. ("BlackRock") and Union Bank of Switzerland ("UBS"), completed the securitization of 3,777 discount single family residential mortgage loans with an aggregate unpaid principal balance of $227.5 million. The Company recorded total gains of $16.7 million on the sale of the senior classes of securities in connection with this transaction. The Company continues to service the loans for a fee and has retained an interest in the related subordinated securities.

On March 31, 1998, the Company completed the sale of its investment in two low-income housing tax credit projects and realized a gain of $4.7 million on proceeds of $21.9 million.

On March 31, 1998, the Company purchased 7,518 additional shares of common stock of Ocwen Financial Services, Inc. ("OFS") for $40.0 million, increasing its ownership from 93.7% to 97.8%.

On April 28, 1998, the Company and OAC announced the joint closing of the transaction previously agreed to by the Company for the acquisition of substantially all of the assets, and certain liabilities, of the United Kingdom operations of Cityscape Financial Corp. As consummated, the Company acquired Cityscape’s mortgage loan portfolio and mortgage loan origination and servicing businesses for £249.6 million ($415.9 million) and assumed £7.2 million ($12.0 million) of Cityscape’s liabilities. OAC acquired Cityscape’s securitized mortgage loan residuals for £33.7 million ($56.2 million). The amount paid by the Company is subject to adjustment to account for the actual balances on the closing date of the mortgage loan portfolio and the assumed liabilities. In addition, the Company and OAC entered into an agreement for the Bank to service the securitized mortgage loan residuals purchased by OAC in the transaction.

For the period January 1, 1998 through May 1, 1998, the Company purchased discount loans with a total unpaid principal balance of approximately $432.4 million. Combined purchases and originations of subprime single family loans for the same period amounted to approximately $964.5 million of unpaid principal balance, including $411.1 million purchased in connection with the acquisition of the United Kingdom operations of Cityscape Financial Corp.

The remainder of this release contains information on specific areas of results, a financial summary, and the interim unaudited consolidated financial statements.

Revenues

Net Interest Income

Interest income of $58.0 million for the first quarter of 1998 increased by $3.5 million or 6% over that of the first quarter of 1997. This increase is the result of a $473.9 million increase in average interest-earning assets, offset by a $4.0 million charge net of reserves taken against the securities available for sale portfolio during the first quarter of 1998, resulting in a 127 basis point decrease in the average yield earned. Of the $473.9 million net increase in average interest-earning assets, $260.9 million and $220.7 million related to discount loans and loans available for sale, respectively. The average yield on interest-earning assets was 8.79% and 10.06% in the first quarter of 1998 and 1997, respectively.

Interest expense of $40.9 million for the first quarter of 1998 increased by $3.7 million or 10% over the comparable period in the prior year as a result of a $200.0 million or 9% net increase in the average balance of interest-bearing liabilities. Of the $200.0 million net increase in the average balance of interest-bearing liabilities, $281.2 million and $93.7 million related to increases in borrowings under lines of credit and securities sold under agreements to repurchase, respectively, offset by a $173.0 million decline in certificates of deposit. The average rate paid on interest-bearing liabilities was 6.64% and 6.58% in the first quarter of 1998 and 1997, respectively.

As a result of the above, net interest income before provision for loan losses of $17.2 million for the first quarter of 1998 decreased by $178,000 or 1% from the first quarter of 1997 and the net interest margin for the first quarter of 1998 decreased to 2.60% from 3.20% for the first quarter of 1997.

Equity in Earnings of Investment in Joint Venture

On December 12, 1997, the LLC distributed all its remaining assets to its partners. As a result, no equity in earnings of investment in joint ventures was recorded during the first quarter of 1998. During the first quarter of 1997, the Company recorded $14.4 million of income related to its investment in joint ventures. The Company’s pro rata share of the income from the joint ventures in the first quarter of 1997 consisted primarily of $1.7 million of net interest income, a $9.2 million net gain related to the securitization of single-family residential loans in the first quarter and the recapture of $2.5 million of valuation allowances established in 1996 by the Company on its equity investment in joint ventures as a result of the resolution and securitization of loans.

Non-interest Income

Non-interest income of $45.4 million for the first quarter of 1998 increased by $24.1 million from that of the first quarter of 1997 primarily due to a $12.0 million or 71% increase in gains on sales of interest-earning assets, a $4.5 million or 87% increase in servicing fees and other charges, and a $4.7 million gain recognized in connection with the sale of investments in low-income housing tax credit interests and $829,000 in management fees received from OAC included in other income. Gains on sales of interest-earning assets for the first quarter of 1998 of $28.7 million were primarily comprised of a $7.9 million gain recognized in connection with the securitization of 1,439 subprime single-family residential mortgage loans with an aggregate unpaid principal balance of $161.4 million, a $16.7 million gain recognized in connection with the securitization of 3,777 discount single family residential mortgage loans with an aggregate unpaid principal balance of $227.5 million, a $2.0 million gain recognized on the sale of $12.9 million in unpaid principal balance of small commercial discount loans, and a $2.3 million gain recognized on the sale of certain REMIC residual securities.

The increase in servicing fees and other charges reflects an increase in loan servicing and related fees as a result of an increase in loans serviced for others. The unpaid principal balance of loans serviced for others averaged $6.12 billion and $2.04 billion during the first quarter of 1998 and 1997, respectively, an increase of 200%. At March 31, 1998 Ocwen serviced 79,677 loans for third parties totaling $6.57 billion.

Provision for Loan Losses

The Company’s provision for loan losses decreased by $7.5 million to $2.3 million primarily as a result of a reduction in reserves for discount loans. This reflects a decline in the discount loan portfolio resulting from the securitization of single-family residential discount loans during the first quarter of 1998. At March 31, 1998, Ocwen had allowances for losses of $19.5 million and $4.0 million on its discount loan and loan portfolios, respectively, which amounted to 1.66% and 1.43% of the respective balances. The Company maintained reserves of 1.64% and 1.39% on its discount loans and loan portfolios, respectively, at December 31, 1997.

Expenses

Non-interest Expense

Non-interest expense of $34.1 million for the first quarter of 1998 increased by $11.4 million or 50% as compared to the same period for 1997. Compensation and employee benefits increased by $6.6 million as the average number of employees increased to 1,147 from 629. Occupancy and equipment expense increased $3.6 million primarily due to an increase in data processing costs, general office equipment expenses and rent expense, all largely attributable to an increase in leased corporate and loan production office space and the increase in the number of employees discussed above.

Distributions on Company-obligated, Mandatorily Redeemable Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company

In August 1997, Ocwen Capital Trust I, a wholly-owned subsidiary of Ocwen, issued $125.0 million of 10 7/8% Capital Securities. Distributions on the Capital Securities accrue from the date of original issuance and are payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 1998, at an annual rate of 10 7/8% of the liquidation amount of $1,000 per capital security. Distributions accrued amounted to $3.4 million and $0 during the three months ended March 31, 1998 and 1997, respectively.

Income Taxes

Income tax expense amounted to $573,000 and $3.6 million during the first quarter of 1998 and 1997, respectively. The Company’s income tax expense is reported net of tax credits of $4.7 million and $3.6 million for the first quarter of 1998 and 1997, respectively, resulting from investments in low-income housing tax credit interests. Exclusive of such amounts, the Company’s effective tax rate amounted to 23.0% and 34.7% during the first quarter of 1998 and 1997, respectively. The decline in the effective tax rate is primarily the result of the utilization of $8.6 million net operating loss carryforwards by Investor Mortgage Insurance Holding Company ("IMI"), a wholly-owned subsidiary of Ocwen. IMI had at March 31, 1998 net operating loss carryforwards of $1.1 million which can only be used to offset future taxable income of IMI.

Assets and Liabilities

At March 31, 1998, the Company had $3.42 billion of total assets as compared to $3.07 billion at December 31, 1997, an increase of $352.0 million or 11%. Ocwen acquired discount loans with a combined total unpaid principal balance of approximately $87.9 million during the three months ended March 31, 1998 (which amount was $432.4 million as of May 1, 1998), as compared to $442.9 million during the three months ended March 31, 1997. In addition, Ocwen purchased and originated single family residential loans to subprime borrowers with a total unpaid principal balance of approximately $479.8 million during the first quarter of 1998, including $292.8 million purchased from the U.S. operations of Cityscape Financial Corp. At March 31, 1998, the Company had $2.85 billion of total liabilities as compared to $2.52 billion at December 31, 1997. The increase in total liabilities is due largely to obligations outstanding under lines of credit (obtained to finance the acquisition and origination of single family residential subprime loans), which increased $323.4 million to $441.7 million at March 31, 1998 from $118.3 million at December 31, 1997.

Capital

Stockholders’ equity increased $27.6 million or 7% during the three months ended March 31, 1998 from $419.7 million at December 31, 1997 to $447.3 million at March 31, 1998 primarily attributable to net income of $22.3 million and a $5.2 million decrease in net unrealized losses on securities available for sale. At March 31, 1998, stockholders’ equity included $145,000 of net unrealized gains on securities available for sale, compared with $5.0 million of net unrealized losses on securities available for sale at December 31, 1997.

Certain statements contained herein are not, and certain statements contained in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or in the Company’s other public or shareholder communications, may not be based on historical facts and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements which are based on various assumptions (some of which are beyond the Company’s control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "could," "believe," "expect," "anticipate," "continue," "intends," "plans," "presents," or similar terms or variations on those terms, or by the use of the negative of such terminology. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, the growth or decline of, and the availability of product to purchase in, the discount loan industry, fiscal and monetary policies of the U.S. or U.K. governments, changes in government regulations affecting financial institutions and real estate investment trusts, including regulatory fees, capital requirements and taxation, changes in prevailing interest and currency exchange rates, acquisitions and the integration of acquired businesses, software integration, development and licensing, credit interest rate and operational risk management, asset/liability management, recognition and existence of current and future reserves, the financial and securities markets and the availability of and costs associated with sources of liquidity. The Company does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Attached are the financial summary, the average balance and rate analysis tables and the unaudited interim consolidated financial statements.

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(1) Includes the Company’s pro rata share of average assets held by the joint venture for the three months ended March 31, 1997.

(2) Before provision for loan losses, and including equity in earnings of investment in joint venture for the three months ended March 31, 1997.

OCWEN FINANCIAL CORPORATION
AVERAGE BALANCE/RATE ANALYSIS