United States and says it will focus entirely on loan servicing.
At a Friedman, Billings, Ramsey & Co. conference last week, Ocwen chairman and chief executive William C. Erbey said the company permanently closed its wholesale operation -- which was its only channel of subprime originations -- on Aug. 27.
Ocwen president Christine Reich said that "the unit has been operating at a loss for quite some time. It was no longer profitable. The cost of origination was too high vis a vis the loan amounts."
In the first half of 1999, the company's U.S. subprime production unit lost $3 million, compared with a $3.6 million loss for the period a year earlier.
Mr. Erbey said the company would honor its nonconforming commitments through September.
Ms. Reich said the originations business was already dramatically cut in the fourth quarter and that the company took a $13 million charge at that time. She added that Ocwen employees from the wholesale unit were allowed to interview for positions elsewhere in the company, and "virtually everybody that wanted to stay was placed."
Prudential Securities senior analyst Jonathan Adams said Ocwen built its originations platform to bolster its servicing, which was the root of its problems.
"The strategy of originating subprime loans was supposed to provide them (Ocwen) with loans they could service profitably. The theory was that they could minimize losses with their expertise in servicing and make the loans more profitable," Mr. Adams said. "But the market is more complicated than that, and they never properly developed their origination platform."
Mr. Adams added that even at its best, Ocwen's subprime production was only nominally profitable and not a good use of capital.
Mr. Reich said production would continue in its United Kingdom unit, which has $257.4 million of assets. Ocwen bought the business from Cityscape Financial Corp. for $421.3 million in the second quarter, assuming $34.3 million of Cityscape's liabilities there.
Mr. Adams said Ocwen might be successful overseas, given different pricing and borrower behavior, but he added that "it still remains to be seen whether a U.S. company, without strong expertise in subprime originations, can successfully pursue that business in the U.K."
In light of last year's liquidity crunch and the subsequent hit to the sector, Ocwen decided to focus on its servicing capabilities and has beefed up its operations through acquisitions and technology.
In mid-August, the company said it would service 17,660 of Southern Pacific Funding Corp.'s subprime residential loans, which had an unpaid principal balance of $1.3 billion.
The deal boosted Ocwen's portfolio, and Ms. Reich said the company is "actively selling our services," though no deals of comparable size are in the works.
Mr. Adams said Ocwen's decision to exit the originations business is likely a step in the right direction, particularly in a sector where lenders are "competing fiercely for production."