After announcing a deal to acquire Homeward Residential Holdings
Ocwen Financial Corp.
) is now planning a $2.5 billion bid for Residential Capital's
(ResCap) mortgage-servicing rights (MSRs) in collaboration with
Walter Investment Management Corp.
). This was reported by The New York Post on Thursday.
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Ocwen, in partnership with Walter Investment, will be putting the
bid on October 23 in the ResCap bankruptcy auction in New York.
Apart from Ocwen and Walter Investment, other bidders include
Nationstar Mortgage Holdings Inc.
), mortgage servicer Seterus as well as
Berkshire Hathaway Inc.
), in partnership with a small firm.
ResCap, a subsidiary of Ally Financial Inc., had filed for Chapter
11 bankruptcy in May. Further, as per a bankruptcy filing by
ResCap, the bidder needs to win the confidence of the Government
Sponsored Entities (GSEs) -
) and Ginnie Mae - as they own, insure or guarantee nearly 68% of
loans in the servicing portfolio.
At a time when major mortgage servicers are shying away from
mortgage servicing business as a result of stringent regulations
and balance sheet risk, Ocwen has been filling up this void by a
string of acquisitions. However, it is not that the company will
not have to follow regulations related to mortgage servicing, but
it is better positioned than the other servicers as it focuses only
on servicing operations unlike the others.
Over the last one year, Ocwen has acquired Saxon Mortgage Services
Inc. - mortgage subsidiary of
) and Litton Loan Servicing from
The Goldman Sachs Group, Inc.
), Also, the company bought certain MSRs related to non-prime loans
from JPMorgan Chase Bank, N.A. - the banking division of
JPMorgan Chase & Co.
) as well as residential MSRs from Bank of America, National
Association - a unit of
Bank of America Corporation
As delinquency rates continue to fall, mortgage servicing is
turning out to be a lucrative business unlike the situation four
year ago, when majority of the companies were turning away from it.
Hence, if Ocwen, in partnership with Walter Investment, wins the
bid to acquire the aforesaid MSRs, then it would definitely improve
its financial performance in the longer term.
Ocwen currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the stock.