Ocwen in Race to Buy Ally's MSRs - Analyst Blog
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. ( WAC ), 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 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, 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 Report
MORGAN STANLEY (MS): Free Stock Analysis Report
OCWEN FINL CORP (OCN): Free Stock Analysis Report
WALTER INV MGMT (WAC): Free Stock Analysis Report
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