Ocwen Financial Corp.'s heavy investment in technology is paying off in improved efficiency.
The West Palm Beach, Fla., company has spent more than $50 million in recent years on hardware and software to help it wring profits from a competitive but fast-growing niche: servicing seriously delinquent mortgage loans.
Ocwen's efficiency ratio, which measures what a company spends to produce $1 of revenue, has improved from 64.1% at the beginning of 1995 to 47.5% at the end of the third quarter this year.
And its performance is beginning to attract attention on Wall Street.
"They have the most state-of-the-art technology" of any servicer, said Henry Hayssen, an analyst at Duff & Phelps.
The company has bought more than $5 billion of delinquent subprime mortgage loans since 1991 from banks, thrifts, and the Department of Housing and Urban Development. It has brought about 75% of these loans current.
Ocwen's success at making late borrowers pay is so great that it is the only company to earn a "special servicer" designation from Duff & Phelps. The company also was named a "preferred servicer for high-risk loans" by Freddie Mac and is recommended by Standard & Poor's.
Since its stock was first offered in September 1996, the price per share has almost quadrupled. It was trading at about $25 this week.
Key to Ocwen's success is a traditional servicing software package that has been heavily customized, said Christine Reich, managing director.
Included in the revisions are decision models and scripting engines that help Ocwen's 100 loan counselors decide how to get borrowers to pay, she said.
Ocwen's software first helps counselors rate a borrower's interest in keeping the home. It then helps determine the most profitable course of action. The system takes into account state foreclosure regulations and current home values culled on-line from a network of real estate brokers.
The company also uses an imaging system that makes key loan documents available almost instantaneously to counselors. "If it's just stored on optical, which is cheaper, it can take 10 seconds to pull onto a screen. That just isn't usable for us," Ms. Reich said.
Having documentation on hand helps loan collectors answer excuses often made by delinquent borrowers.
For example, a borrower saying a spouse did not sign the note can be answered by a counselor viewing the appropriate document on-line.
The system "gives collectors and loss mitigation specialists the information they need to make the best decisions possible," Mr. Hayssen said.
Ocwen is also a master at handling the foreclosure process efficiently, Mr. Hayssen said. The imaging system lets the company deliver documents to closing attorneys in 24 hours, he said. "In this business, time is money," he added.
Ocwen can foreclose on a property in just 12 months in borrower-friendly New Jersey. This is twice as fast as the industry average in that state.
Ocwen's use of technology is motivated by simple goals, Ms. Reich said: "We wanted to reduce the cost of servicing and reduce the head count."
The company was founded in 1988 by chief executive officer William Erbey, former president of GE Mortgage Insurance.
Most software modifications are done in-house. Ocwen has a technology staff of about 100.
Ocwen estimates it has spent about $15 million on technology this year.
Updating and revising technology is crucial, Ms. Reich said. The company revises its system every four weeks, often based on feedback from employees.
In 1999 Ocwen plans to begin selling its servicing software to other companies.
It bought Amos Inc., a client/server software architect, Nov. 6 to help in this effort.