Why Ocwen Financial Corp. Plunged 27% This Morning

By Markets Fool.com

Continue Reading Below

What: Shares of Ocwen Financial were down about 27% as of 11:30 a.m. EDT Friday after reporting its second-quarter financial results last night.

So what: Ocwen's latest financials reflected the challenges that the mortgage-servicer has faced lately, with revenue falling 16% and net income plunging 85% compared to 2014's second quarter. Declines in the total principal balance of the loans it services were largely to blame for the revenue shortfall, but Ocwen has also not been able to cut expenses nearly as much as its overall sales have fallen, and that has had a disproportionately large impact on its bottom line.

In part because of its expense concerns, Ocwen announced a new cost-cutting program. The mortgage servicer wants to find more than $150 million in potential savings on the expense side of the business. Yet at the same time, it still wants to ensure it sustains its quality control and allows for longer-term increases in processing and origination capacity.

Now what: As ugly as Ocwen's results were, the true task ahead of CEO Ron Faris and his management team is continuing to rebuild the mortgage servicer's reputation among regulatory agencies and its credit providers. With efforts to strengthen its risk management and compliance divisions, Ocwen hopes to regain the trust of the officials who are monitoring its progress, and being smart about reducing nonperforming assets and holding onto its best investment opportunities will be the best way Ocwen can start moving toward a full recovery.

Yet amid skepticism about whether its cost-cutting initiatives will be adequate, today's stock-price decline reflects a lack of confidence in Ocwen's long-term trajectory. Until Ocwen shows investors more tangible results from its efforts, investors can expect a volatile ride in the stock.

Continue Reading Below

The article Why Ocwen Financial Corp. Plunged 27% This Morning originally appeared on Fool.com.

Dan Caplinger 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.