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

Ocwen Financial Corporation Reports Strong Core Second Quarter Results Before IO Write-down

• Core earnings strong
• Capital up year to date
• Loss on sale of entire AAA-rated agency to IO portfolio
• Exporing strategic alliances

West Palm Beach, FL. – Ocwen Financial Corporation (NYSE: OCN) ("OCN" or the "Company") today reported earnings for the second quarter ended June 30, 1998 of $0.40 per diluted share before the impact of a $1.02 per diluted share charge against earnings related to the Company’s decision to immediately discontinue its investments in AAA-rated agency interest-only and inverse interest-only securities (together, "IOs"). Excluding the IO related charge, the Company reported earnings of $24.5 million for the 1998 second quarter and returns on average assets and average equity of 2.45% and 22.52%, respectively, for the second quarter of 1998. Including the IO related charge, the Company reported a net loss of $37.9 million, or $(0.62) per diluted share, for the 1998 second quarter. This compares to net income of $18.8 million for the second quarter of 1997, or $0.35 per diluted share and returns on average assets and average equity of 2.75% and 32.29%, respectively, for the second quarter of 1997.

Excluding the IO related charge, for the first six months of 1998 the Company reported earnings of $46.8 million or $0.76 per diluted share and returns on average assets and average equity of 2.58% and 21.75%, respectively. Including the IO related charge, net loss for the first six months of 1998 totaled $15.6 million, as compared to net income of $35.8 million for the same period in 1997. Diluted earnings per share were $(0.25) for the six months ended June 30, 1998 versus $0.66 for the same period in 1997.

William C. Erbey, Chairman and Chief Executive Officer, said, "Obviously, the write-down was very disappointing. However, we are very pleased with the strong results in our major lines of business, which remain very profitable and ahead of our 1998 business plan. Very simply, these results clearly demonstrate the underlying strengths of our core businesses.".

Mr. Erbey added, "In addition to our major business lines, OCN has historically invested in a portfolio of AAA-rated agency IOs. Due to unprecedented levels of mortgage prepayments and a continued inversion in the shape of the yield curve, what we until very recently believed to be a sound investment strategy has become one of increasing volatility and sensitivity to interest rate movements. Therefore, we have decided to put this behind us and discontinue this investment activity. To that end, we wrote-down the book value of the IOs by $77.6 million in the second quarter and on July, 27, 1998, we disposed of the entire portfolio at book value.".

Mr. Erbey continuesd, "Our ability to generate strong earnings in the first half of 1998 from our core businesses confirms the correctness of our and intent to use our high level of liquidity and capitalization will will enable us to focus on and continue to focus on and continue to grow these businesses both domestically and internationally. Since we went public, and looking back before that time, we have generated an impressive financial record which reflects our proven ability to successfully manage servicing-intensive assets. Ocwen has consistently outperformed the industry. In the last three years, OcwenCN has earned an average 28% return on equity and a 58% growth rate in earnings per share.s. We believe that OCN’s core businesses will continue to see substantial growth and profitability in the future.".

Mr. Erbey further stated, "Today, OCN is the largest purchaser of domestic distressed residential and commercial real estate loans (based on 1997 and 1996 loan acquisition volumes) and a leading servicer of distressed mortgage loans in the United States. of servicing-intensive assets. This leadership position reflects our experience and expertise in this business and our use of advanced computer systems and proprietary software. Moreover, we are the first financial services company designated by rating agencies as a top-ranked Special Servicer for both commercial and residential assets. With the outstanding platform we have established, OCN is uniquely positioned to benefit from economic downturns. Accordingly, as part of our strategic focus on further development of our core competencies and fee-based business lines, we have engaged an investment bank to identify strategic partnerss who can enable us to expand our franchise and further grow our core business lines both domestically domestically and internationally. Given OCN’sBy combining our strengths in systems and technology with strategic partners who have the ability to finance assets globally and provide and the dynamic growth and globalization of the mortgage markets, we believe that combining our strengths with others who have greater resources and additional wider brand name recognition, we believe that we will be able to penetrate the distressed asset market place more effectively and will enable us to add value to our various constituencies. I am excited about the opportunities that such alliances may offer in the years to come."

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

Revenues, excluding the impairment loss, increased $39.6 million or 63% in the second quarter of 1998 from a year ago and were up $49.1 million or 42% for the first six months of 1998.

• Net interest income before provision for loan losses increased $6.1 million or 22% to $34.2 million in the second quarter of 1998. In the first six months of 1998, net interest income increased $5.9 million or 13% to $51.3 million. The increase in net interest income during the second quarter of 1998 was largely due to a $21.3 million increase in interest income on loans available for sale offset by a $15.1 million increase in interest expense on obligations outstanding under lines of credit.

• Non-interest income, excluding the impairment loss, increased $34.8 million or 105% to $68.1 million in the second quarter of 1998. This increase is due primarily to a $10.5 million increase in gains on sales of interest earning assets, an $8.6 million increase in servicing fees and other charges, a $5.9 million increase in gain on real estate owned and a $9.8 million increase in other income. The increase in servicing fees reflects a significant increase in loans serviced for others, from $5.51 billion at December 31, 1997 to $8.17 billion at June 30, 1998, primarily as a result of securitizations of single family residential discount loans and subprime loans held by the Company, and agreements to service mortgage loans for others. OCN has also increasingly entered 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 June 30, 1998, the Company has been designated as a special servicer for pools of loans totaling approximately $8.7 billion in unpaid principal balance. In the first six months of 1998, non-interest income excluding the impairment loss increased 108% to $113.5 million.

• Impairment loss on AAA-rated agency IOs amounted to $77.6 million, or $62.4 million after tax, for the second quarter and first six months of 1998. The entire AAA-rated agency IO portfolio was sold on July 27, 1998 at book value.

Provision for loan losses increased $1.8 million in the second quarter of 1998 as compared to 1997 due to the establishment of a $2.1 million general reserve on discount loans. Provision for loan losses decreased by $5.7 million during the first six months of 1998 primarily as a result of the recapture of previously established provisions for loan losses in connection with the securitization of single-family residential discount loans during the first quarter of 1998 and the inclusion in the provision for loan losses for the first quarter of 1997 of $2.0 million of additional reserves provided in connection with the unsecuritized discount loans remaining from the first quarter 1997 securitization.

Expenses rose $28.1 million or 90% in the second quarter of 1998 as a result of: growth in our core business lines and expenses of OTX and Ocwen U.K. which amounted to $3.5 million and $11.3 million, respectively. Details of this growth include:

• Compensation and employee benefits increased $10.1 million or 51% primarily due to an 83% increase in the average number of employees from 823 to 1,510.

• Occupancy and equipment expense increased $4.6 million or 116%.

• Distributions on capital securities amounted to $ 3.4 million during the second quarter of 1998 as compared to $0 during the same period of 1997.

• Other operating expenses increased by $9.1 million primarily due to a $5.8 million increase in loan related expenses, a $2.2 million increase in professional expenses and a $1.4 million increase in marketing expenses.

• Other operating expenses increased by $9.1 million primarily due to a $5.8 million increase in loan related expenses, a $2.2 million increase in professional expenses and a $1.4 million increase in marketing expenses.

Income tax benefit was recorded at a rate of 14.4% for the second quarter of 1998 as compared to income tax expense of 21.7% for the comparable period in the prior year. The Company estimates that its effective tax rate for 1998 will approximate 11.5% before the use of a net operating loss carry-forward which resulted in a $2.53.4 million increase in tax benefit ofor the first half of 1998.

Recent developments

On April 24, 1998, the Company and Ocwen Asset Investment Corp. (NYSE: OAC) ("OAC") completed 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 ("UK") operations of Cityscape Financial Corp ("Cityscape"). As consummated, the Company acquired Cityscape’s mortgage loan portfolio and residential subprime mortgage loan origination and servicing businesses for £249.6 million ($421.3 million) and assumed £20.3 million ($34.3 million) of Cityscape’s liabilities. OAC acquired Cityscape’s securitized mortgage loan residuals for £33.7 million ($56.9 million). In addition, the Company and OAC entered into an agreement for Ocwen Federal Bank FSB (the "Bank") to service the securitized mortgage loan residuals purchased by OAC in the transaction.

On May 12, 1998, the Company established a wholly-owned subsidiary, Ocwen Technology Xchange, Inc. ("OTX"), to supply its advanced mortgage loan servicing, resolution and origination work flow technology to the mortgage and real estate industries. OTX will also license its DATATrak^TM technology. The Company decided to form OTX in order to leverage the Company’s servicing experience and technology and in conjunction with seeking to benefit from the opportunities presented by current inefficiencies in the real estate market, where there is an estimated $110 billion spent on real estate closings each year. The foundation of OTX was strengthened by the Company’s previous acquisition of two software companies: Amos, Inc. a developer of mortgage loan servicing and origination software and workflow technology, in October of 1997, and DTS Communications, Inc., a leading real estate technology company, in January of 1998.

On May 19, 1998, the Company announced the promotion of four key executives. The promoted executives are Christine A. Reich, who was promoted to the position of President; John R. Erbey, who was named Senior Managing Director and General Counsel as well as Chairman and Chief Executive Officer of OTX; and Jordan C. Paul and Ronald M. Faris, who were promoted to the newly created position of Executive Vice President.

On June 29, 1998, the Company completed the securitization of 4,522 subprime single family residential mortgage loans with an aggregate unpaid principal balance of $382.7 million. The Company recorded a net gain of $9.7 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 residual security.

On June 29, 1998, the Company, as part of a larger transaction involving the Company, Black Rock Finance LP and Residential Funding Corporation, completed the securitization of 1,155 single family residential mortgage discount loans with an aggregate unpaid principal balance of $98.3 million. The Company recorded a net gain of $12.2 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 June 30, 1998, the Company completed the securitization of 14,179 UK subprime single family residential mortgage loans with an aggregate unpaid principal balance of £218.1 million ($363.8 million), the largest such securitization in the history of the UK. The Company recorded a net gain of £5.5 million ($9.1 million) on the sale of £222.0 million ($370.3 million) 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 residual security.

For the six months ended June 30, 1998, the Company purchased discount loans with a total unpaid principal balance of approximately $673.7 million. Combined purchases and originations of subprime single family loans for the same period amounted to approximately $1.103 billion of unpaid principal balance, including $292.8 million purchased from the US operations of Cityscape and $421.3 million purchased in connection with the acquisition of the UK operations of Cityscape as previouslyonously announced..

The remainder of this release contains summary information on the Company’s segment profitability, specific areas of results, financial condition and average balances and rates, as well as the Company’s interim unaudited consolidated financial statements.

Net income summary by business activity

The Company continues to engage in significant discount loan acquisition and resolution activities and a variety of other mortgage lending activities, which generally reflect the Company’s desire to focus on business lines which leverage its core competency, the servicing and management of servicing intensive assets. The following table presents the estimated contribution by business activity to the Company’s net income for the periods indicated.

(1) Exclusive of the IO portfolio earnings from securities amounted to $____ and $____ for the second quarter of 1998 and 1997, respectively, and $____ and $____ for the six months ended June 30, 1998 and 1997, respectively.

Revenues

Net Interest Income

Interest income of $87.1 million for the second quarter of 1998 increased by $20.1 million or 30% over that of the second quarter of 1997. This increase is the result of a $1.07 billion increase in average interest-earning assets, offset by a 135 basis point decrease in the average yield earned. The decline in the average yield earned for the first second quarter of 1998 is primarily due to a decline in the yield on securities available for sale (primarily due to declining yields on the IO portfolio and a $4.2 million charge on the subprime residual securities due to accelerated prepayments of mortgage loans) offset in part by an increase in the yield on the loan portfolio (primarily due to additional interest received in connection with the payoff of nonresidential loans.) Of the $1.07 billion net increase in average interest-earning assets, $281.6 million and $862.5 million related to securities available for sale and loans available for sale, respectively, offset by $162.0 million decrease related to the loan portfolio. The $862.5 million increase in loans available for sale is primarily as a result of $292.8 million purchased from the U.S. operations of Cityscape and $421.3 million purchased in connection with the acquisition of the UK operations of Cityscape. The average yield on interest-earning assets was 10.24% and 11.47% in the second quarter of 1998 and 1997, respectively, and 9.60% and 10.79% in the first six months of 1998 and 1997, respectively. For the first six months of 1998, interest income amounted to $144.8 million, a $23.3 million or 19% increase over the same period in 1997.

Interest expense of $52.9 million for the second quarter of 1998 increased by $14.1 million or 36% over the comparable period in the prior year as a result of a $836.5 million or 36% net increase in the average balance of interest-bearing liabilities. Of the $836.5 million net increase in the average balance of interest-bearing liabilities, $924.2 million and $145.1 million related to increases in borrowings under lines of credit and securities sold under agreements to repurchase, respectively, offset by a $187.4 million decline in certificates of deposit. The average rate paid on interest-bearing liabilities was 6.65% and 6.63% in the second quarter of 1998 and 1997, respectively. For the first six months of 1998, interest expense amounted to $93.4 million, a $17.4 million or 23% increase over the same period of the prior year.

As a result of the above, net interest income before provision for loan losses of $34.2 million for the second quarter of 1998 increased by $6.1 million or 22% from the second quarter of 1997 and the net interest margin for the second quarter of 1998 decreased to 4.02% from 4.81% for the second quarter of 1997. Net interest income of $51.3 million for the first six months of 1998 increased $5.9 million or 13% over the comparable period of the prior year and the net interest margin declined 64 basis points to 3.40%.

Non-interest Income

Exclusive of the $77.6 million impairment loss on the IO portfolio, non-interest income for the second quarter of 1998 amounted to $68.1 million, an increase of $34.8 million or 105% from that of the second quarter of 1997. The increase was primarily due to a $10.5 million or 45% increase in gains on sales of interest-earning assets, an $8.6 million or 178% increase in servicing fees and other charges, a $5.9 million increase in gain on real estate owned, and a $9.8 million increase in other income which includes $2.9 million of gains on sales of investments in real estate, $2.7 million of brokerage commissions earned in connection with the UK loan originations, and a $1.1 million increase in management fees received from OAC. Gains on sales of interest-earning assets for the second quarter of 1998 of $33.8 million were primarily comprised of a $9.7 million gain recognized in connection with the securitization of 4,522 subprime single-family residential mortgage loans with an aggregate unpaid principal balance of $382.7 million, a $12.2 million gain recognized in connection with the securitization of 1,155 discount single family residential mortgage loans with an aggregate unpaid principal balance of $98.3 million, a $9.1 million gain recognized in connection with the securitization of 14,179 UK subprime single family residential mortgage loans with an aggregate unpaid principal balance of £218.1 million ($363.8 million) and a $2.8 million gain recognized on the sale of discount loans. Gains on sales of interest-earning assets for the first six months of 1998 increased by $22.4 million from the same period in 1997 and includes $24.6 million in gains earned during the first quarter in connection with two securitizations of discount and subprime mortgage loans.

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 $7.12 billion and $2.50 billion during the second quarter of 1998 and 1997, respectively, and $6.63 billion and $2.27 billion during the first six months of 1998 and 1997, respectively. At June 30, 1998, Ocwen serviced 125,318 loans for third parties totaling $8.17 billion.

Impairment loss on AAA-Rated Agency IOs

Impairment loss on AAA-rated agency IOs was $77.6 million, or $62.4 million after tax, for the second quarter and first six months of 1998. This change charge resulted from the Company's decision to discontinue this activity and write-down the book value of the IO portfolio. On July 27, 1998 the Company disposed of the entire IO portfolio at book value.

Equity in Earnings of Investment in Joint Ventures

On December 12, 1997, BCBF LLC (the "LLC"), a joint venture between the Company and Black Rock Finance LP, distributed all of its remaining assets to its partners. As a result, no equity in earnings of investment in joint venture was recorded during 1998. During the second quarter of 1997, the Company recorded $1.3 million of income related to its investment in joint ventures consisting primarily of net interest income. Income from the joint venture amounted to $15.7 million for the first six months of 1997 and includes $9.2 million of net gains related to the securitization of single-family residential loans in the first quarter of 1997.

Provision for Loan Losses

The Company’s provision for loan losses increased $1.8 million in the second quarter of 1998 as compared to 1997 due to the establishment of aan additional $2.1 million of general reserve established on discount loans. Provision for loan losses decreased by $5.7 million during the first six months of 1998 to $11.9 million primarily as a result of the recapture of previously established provisions in connection with the securitization of single-family residential discount loans during the first quarter of 1998 and the inclusion in provision for the first quarter of 1997 of $2.0 million of additional reserves provided in connection with the unsecuritized discount loans remaining from the first quarter 1997 securitization. At June 30, 1998, OCN had allowances for losses of $22.9 million and $4.1 million on its discount loan and loan portfolios, respectively, which amounted to 1.58% and 1.475% of the respective balances. The Company maintained reserves of 1.61% and 1.397% % on its discount loans and loan portfolios, respectively, at December 31, 1997.

Expenses

Non-interest Expense

Non-interest expense of $55.8 million for the second quarter of 1998, which includes $3.5 million and $11.3 million related to OTX and Ocwen UK, respectively, increased by $24.7 million or 79% as compared to the same period for 1997. Compensation and employee benefits increased by $10.1 million as the average number of employees increased to 1,510 from 823. Occupancy and equipment expense increased $4.6 million primarily due to an increase in data processing costs, general office equipment expenses and rent expense, all largely attributable to an increase in corporate and loan production office space and the increase in the number of employees discussed above. Other operating expenses increased by $9.1 million primarily due to a $5.8 million increase in loan related expenses, a $2.2 million increase in professional expenses and a $1.4 million increase in marketing expenses.

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

In August 1997, Ocwen Capital Trust I, a wholly-owned subsidiary of Ocwen, issued $125.0 million of 10 7/8% Capital Securities. Distributions amounted to $3.4 million and $6.8 million during the three and six months ended June 30, 1998, respectively, as compared to $0 for the same periods in 1997.

Income Taxes

Income tax benefit (expense) amounted to $6.4 million and $(5.1) million during the second quarter of 1998 and 1997, respectively, and $5.8 million and $(8.7) million for the first six months of 1998 and 1997, respectively. The Company’s income taxes reflect an expected tax rate of 11.52% for 1998 and a $2.53.4 million tax benefit resulting from the use of prior year net operating loss carryforwards. This compares to an effective tax rate of 21.4% for 1997. The Company’s expected tax rate is less than its statutory tax rate primarily due to tax credits of $4.3 million and $2.9 million for the second quarter of 1998 and 1997, respectively, and $9.0 million and $6.5 million for the first six months of 1998 and 1997, respectively, resulting from investments in low-income housing tax credit interests. No valuation allowance was required at June 30, 1998 because it is expected that losses and tax credits will be utilized to offset taxable income and tax expense.

Assets and Liabilities

At June 30, 1998, the Company had $3.51 billion of total assets as compared to $3.07 billion at December 31, 1997, an increase of $436.4 million or 14%. The increase in total assets was primarily due to a $161.3 million increase in loans available for sale, a $112.5 million increase in securities available for sale, primarily short duration collateralized mortgage obligations, and a $74.1 million increase in investment securities. OCN acquired discount loans with a combined total unpaid principal balance of approximately $585.8 million during the three months ended June 30, 1998 resulting in total acquisitions of $673.7 million for the six months ended June 30, 1998. In addition, OCN purchased and originated single family residential loans to subprime borrowers with a total unpaid principal balance of approximately $619.2646.8 million during the second quarter of 1998, including $421.3 million purchased from the U.K. operations of Cityscape. At June 30, 1998, the Company had $2.95 billion of total liabilities as compared to $2.52 billion at December 31, 1997. The increase in total liabilities was due primarily to a $161.6 million increase in deposits and a $203.2 million increase in obligations outstanding under lines of credit (obtained to finance the acquisition and origination of single family residential subprime loans).

Capital

Stockholders’ equity increased $7.6 million or 2% during the first six months 1998 from $419.7 million at December 31, 1997 to $427.3 million at June 30, 1998 primarily as the result of a $24.4 million increase in net unrealized gains on securities available for sale, offset by a net loss of $15.6 million. At June 30, 1998, stockholders’ equity included $19.4 million of net unrealized gains on securities available for sale, as compared with $5.0 million of net unrealized losses at December 31, 1997.

Forward-Looking Statements

Certain statements contained herein are not, and certain statements contained in future filings by the Company with the Securities and Exchange Commission (the "SEC"), 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. These 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(s) or by the use of forward-looking terminology, such as "anticipate," "believe," "commitment," "consider," "continue," "could," "encourage," "estimate," " expect," "intend," "may," " plan," "present," "propose," "prospect," "will," future or conditional verb tenses, similar terms, variations on such terms or negatives of such terms. Although the Company believes the anticipated results or other expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that those results or expectations will be attained. Actual results could differ materially from those indicated in such statements due to risks, uncertainties and changes with respect to a variety of factors, including, but not limited to, international, national, regional or local economic environments, government fiscal and monetary policies, prevailing interest or currency exchange rates, government regulations affecting financial institutions (including regulatory fees and capital requirements), competitive products and pricing, credit, prepayment, basis and asset/liability risks (including interest and related prepayments risk with respect to residential and subordinate securities related by the Company from its securitizations), loan servicing effectiveness, the course of negotiations and the ability to reach agreement with respect to the material terms of any particular transaction, satisfactory due diligence results, satisfaction or fulfillment of agreed upon terms and conditions of closing or performance, the timing of transaction closings, acquisitions and the integration of acquired businesses, software integration, development and licensing, the financial and securities markets, the availability of and costs associated with obtaining adequate and timely sources of liquidity, dependence on existing sources of funding, availability of discount loans for purchase, size and nature of the secondary market for mortgage loans and the securitization market, geographic concentrations of assets, other factors generally understood to affect the real estate acquisition, mortgage and leasing markets and securities investments, and other risks detailed from time to time in the Company's reports and filings with the SEC, including its Registration Statements on Form S-1 and periodic reports on Forms 10-Q, 8-K and 10-K. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result(s) 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.

__________________________

(1) Includes the Company’s pro rata share of average assets held by the joint venture for the three and six months ended June 30, 1997.

(2) Exclusive of the impairment loss of $77,645 ($62,368 after tax), the annualized return on average assets would have been 2.45% and 2.58% for the three and six months ended June 30, 1998, respectively, and the annualized return on average equity would have been 22.52% and 21.75% for the three and six months ended June 30, 1998, respectively.

(3) Before provision for loan losses, and including equity in earnings of investment in joint venture for the three and six months ended June 30, 1997. Exclusive of the pre-tax impairment loss of $77,645, the efficiency ratio would have been 54.53% and 54.48% for the three and six months ended June 30, 1998, respectively.

OCWEN FINANCIAL CORPORATION
AVERAGE BALANCE/RATE ANALYSIS

OCWEN FINANCIAL CORPORATION
AVERAGE BALANCE/RATE ANALYSIS