Recently,
Ocwen Financial Corp.
(
OCN
) won a bid to acquire Residential Capital's (ResCap)
mortgage-servicing rights (MSRs) in collaboration with
Walter Investment Management Corp.
(
WAC
) for a sum of $3 billion, higher than the initial valuation of
$2.5 billion. The offer needs to be approved by the bankruptcy
court in a hearing scheduled on November 19.
Ocwen will take over ResCap's business (subject to the pending
approval), which includes the rights to serve nearly 2.4 million
mortgages with an outstanding value of $374 billion. The company
faced a serious competition from
Nationstar Mortgage Holdings Inc.
(
NSM
) at the ResCap bankruptcy auction in New York. Nationstar acted
as the stalking horse bidder for the auction. For this, Ocwen
will pay Nationstar a break-up fee of $24 million, which was
included in its final bid amount.
Amidst 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 by a
string of acquisitions. Moreover, it is better positioned than
the other servicers since it focuses only on servicing operations
unlike the others.
Recently, Ocwen announced a deal to acquire Homeward Residential
Holdings Inc. - an integrated mortgage firm with prime lending
and mortgage servicing operations - from WL Ross & Co. LLC.
The company will be paying about $588 million in cash and $162
million in Ocwen convertible preferred stock. This marks its
foray into mortgage origination business.
Besides this, in a span of one year, Ocwen has acquired Saxon
Mortgage Services Inc. - the mortgage subsidiary of
Morgan Stanley
(
MS
) - and Litton Loan Servicing from
The Goldman Sachs Group, Inc.
(
GS
). Also, the company bought certain MSRs related to non-prime
loans from JPMorgan Chase Bank, N.A. - the banking division of
JPMorgan Chase & Co.
(
JPM
) - as well as residential MSRs from Bank of America, National
Association - a unit of
Bank of America Corporation
(
BAC
).
We believe that the deal, if approved, would enhance Ocwen's
position as one of the biggest non-bank mortgage servicers in an
industry dominated mostly by the banking giants. Further, as
delinquency rates continue to slump, the company stands to
benefit from the purchase of MSRs going forward.
However, we remain concerned about the possible objections
raised by the creditors of ResCap regarding the takeover of
liabilities as a part of the sale. Also, employees of ResCap may
be in the danger zone, given Ocwen's outsourcing practices.
Ocwen currently retains a Zacks #2 Rank, which translates into a
short-term Buy rating. However, considering the fundamentals, we
maintain a long-term 'Neutral' recommendation on the stock.
BANK OF AMER CP (BAC): Free Stock Analysis
Report
GOLDMAN SACHS (GS): Free Stock Analysis
Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
MORGAN STANLEY (MS): Free Stock Analysis
Report
(NSM): ETF Research Reports
OCWEN FINL CORP (OCN): Free Stock Analysis
Report
WALTER INV MGMT (WAC): Free Stock Analysis
Report
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