Ocwen Financial Corp.
) has agreed to buy a majority stake in the portfolio of mortgage
collection rights from Ally Bank - a unit of Ally Financial Inc.
This is the latest addition to Ocwen's long list of mortgage
servicing rights (MSR) acquisitions.
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The stake buyout is estimated to be worth $585 million. The deal
is subject to the approval of both Fannie Mae and Freddie Mac,
according to Ally Financial.
As per the terms of the deal, the sale comprises MSRs pertaining
to mortgage loans with an unpaid principal balance of $85 billion
as of Jan 31, 2013. Also, an estimated $5 billion of agency MSR
was generated on commitments made through the end of February.
Ally Financial may also sell the remaining stake in the portfolio
to Ocwen under the terms of the deal. However, Ally Financial has
received a lot of attention from other potential buyers and is
considering those options before arriving at a final decision.
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. The company, which failed the recent
Federal Reserve's Stress Test, 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 it
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 some time now. In Nov 2012, in collaboration with
Walter Investment Management Corp.
), Ocwen won a bid to acquire Residential Capital's MSRs. Earlier
in Oct 2012, Ocwen had announced to acquire Homeward Residential
Holdings Inc. from WL Ross & Co. LLC.
Further, Ocwen has acquired Saxon Mortgage Services Inc. from
) and Litton Loan Servicing from
The Goldman Sachs Group, Inc.
). In addition, 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 4 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 #2 (Buy).