Ocwen Financial Corp.
) has emerged as the top contender to buy a portfolio of mortgage
collection rights worth $1 billion from Ally Bank - a unit of
Ally Financial Inc. This the latest development in Ocwen's long
list of mortgage servicing rights (MSR) acquisitions.
In Oct 2012, Ally Financial announced that it was looking to
divest its MSR portfolio in order to reduce its exposure to the
perilous mortgage business. Ally Financial had received a $17.2
million bailout package from the government after it suffered
massive losses during the 2008 sub prime loan crisis. This deal
will help Ally Financial raise money to pay back the taxpayers.
For Ocwen, this deal will add to its already powerful growth
trajectory. The company has been on an acquisition spree for
quite sometime now. In Nov 2012, Ocwen, in collaboration with
Walter Investment Management Corp.
), won a bid to acquire Residential Capital's MSRs. The deal
value was estimated to be around $3 billion. Earlier in Oct 2012,
Ocwen had announced to acquire Homeward Residential Holdings Inc.
- an integrated mortgage firm with prime lending and mortgage
servicing operations - from WL Ross & Co. LLC.
Further, 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, as well as residential MSRs
from Bank of America, National Association.
Amid a situation where major mortgage servicers are shying away
from mortgage servicing business due to stringent regulations and
balance sheet risk, Ocwen has been filling up this void through a
string of acquisitions. Moreover, it is comparatively well-
positioned than the other servicers since it focuses primarily on
servicing operations unlike the others.
As delinquency rates continue to fall, mortgage servicing is
turning out to be a lucrative business, much different from the
situation four years ago, when majority of the companies were
turning away from it. Hence, if Ocwen wins the bid to acquire the
aforesaid MSRs, its financial performance would surely improve in
the long term.
Ocwen currently retains a Zacks Rank #3 (Hold).
GOLDMAN SACHS (GS): Free Stock Analysis
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