Ocwen (OCN) to Sell $9.8B MSR to Nationstar, Shares Up 8.3% - Analyst Blog

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Following the accusation regarding its inability to serve excessive volume, Ocwen Financial Corp. ( OCN ) has entered into an agreement to sell a portfolio of mortgage servicing rights ("MSR") to Nationstar Mortgage Holdings Inc. ( NSM ). The portfolio is held by Ocwen's wholly owned subsidiary, Ocwen Loan Servicing, LLC.

New York's Department of Financial Services ("DFA") had raised concerns over Ocwen's ability to handle the increase in servicing volume. As a result, the company had to cancel its deal to buy residential MSRs from Wells Fargo & Co. ( WFC ) in Nov 2014. Moreover, the DFA prohibited Ocwen to acquire any additional MSRs till necessary improvements are made.

Shares of Ocwen, which have been trending drastically down, surged 8.3% on the news yesterday - indicating positive market sentiments. We believe that Ocwen's step toward lifting the burden of claims has triggered bullishness of the stock.

Per the agreement, Ocwen will sell the MSRs on a portfolio of 81,000 performing loans worth $9.8 billion. The deal is, however, subject to approvals by Federal Home Loan Mortgage Corp. ( FMCC ) or "Freddie Mac," which owns the loans, and other customary conditions. Further, the transaction is expected to close in Mar 2015, with the transfer of loan servicing scheduled to complete by Apr 2015.

Additionally, the deal is in sync with Ocwen's strategy to transfer its non-strategic servicing rights.

Further, the company had reached a settlement with the DFS, as a result of which, Ocwen announced the inclusion of an additional expense of $50 million in its fourth-quarter results (scheduled to release on Feb 26). The company anticipated recording loss in the reported quarter as well as the full-year 2014 owing to high expenses.

Nevertheless, the sale is expected to lighten Ocwen's servicing volume, besides infusing liquidity into the company. Recently, the company reportedly sold Ginnie Mae EBO Loans with a principal balance of $253 million to an unrelated third party, after an early buyout of the pool on the same day.

Since Dec 2013, the company had been in news for all the wrong reasons. Ocwen is subject to regulatory investigations from California Department of Business Oversight ("DBO"). The DBO threatened to suspend Ocwen's license for violation of subpoena and regulatory orders. Moreover, questions were raised about the independence and integrity of the company's internal review group's ("IRG") operations.

Whether Ocwen can turn tables with such deals still remains to be seen. However, we believe that the company has taken a step in the right direction, and such initiatives should bring about a gradual but definite turnaround.

Ocwen currently carries a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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