Ocwen Asset Inv. Co (OAC) Message Board

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Strategies & Market Trends : Ocwen Asset Inv. Co (OAC)

OAC 15.43

-5.8%

Jan 21 4:00 PM EST

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To: Labrador who wrote (14)	2/7/1998 6:06:00 PM
From: Labrador	of 64

I listened again to the conference call. I think the mark-to-market loss on the I/O portfolio is about 50 cents per share. The actual writedown taken is about 10 cents which is included in the 50 cent amounts. This mark is based on current prepayment speeds for the life of the I/O investment. This will not actually occur -- even if rates remain constant the prepayments will go down as the investments become more seasoned. The 16 to 20 cents reduction in earnings for the quarter, I believe includes the writedown and the lower expected yield on the I/O investments based on a book yield of 13%. They expect a 13+ percent yield on these investments, based on book value (which has not been written down by about $8 million) and a yield to maturity of 20+ percent based on the market value. The expected yield to maturity on the portfolio should be above 15% per comments. Expected dividends remain over $1.90 per share -- I believe. This is of course based on taxable income. I think that book earnings will come in at around $1.65 or so. They indicated that earnings will be hurt by about 16-20 cents for the quarter. so maybe earnings will come in around 20-23 cents, which is reduced for the $2.2 million writedown for impairment on the I/Os. I still see the yield on this investment (OAIC) being north of 10% at an $18 per share price in 1998, maybe higher in future periods. While no longer is this the highflying stock that will hit $25 during 1998, I think that we can easily see $20 again during 1998. The current earnings potential on the OAIC portfolio is at approx. 15.70% given current prepayment speeds. A killer would be a precipitous further decline in long term rates. I dont expect this -- but I am not good at guessing long term rate movements. What would be good would be a decline in ST rates (or long-term rates to increase or both). I like the moves into the subprime area -- I think that prepayment risks here will not be as great given recent investments. Again I am in this for the long-term and would appreciate comments.

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