I started a small position in Home Loan Servicing Solutions. They are 100% in the loan servicing business. A relatively new spin off with a yield just below 7%. I don't expect much capital appreciation short term as I think the yield will set the price. They are not a REIT but pledge to distribute at least 90% of profits. To me, this means future secondaries as they will have no other recourse to buy more servicing rights. Has anyone else looked into HLSS ?
HLSS is currently in the process of digesting a secondary almost as large as its outstanding market cap. I figure this has something to do with Rescap.In case anyone here was wondering who will get the Rescap mortgage servicing rights, I think it'll be HLSS because of their association with OCN who bought the mortgages. Their name tells you what their business is: Home Loan Servicing Solutions. Now I just need to hope they didn't overpay for the rights.
Looks like OCN will get the Rescap mortgages that NCT turned down. HLSS is an offshoot of OCN and seems to be where they offload a lot of their mortgage servicing contracts. (you can read about the business relationship on the HLSS message board) HLSS has been slowly dropping in price lately. Some of us think in preparation for a secondary to buy the Rescap mortgage servicing rights. Not sure. Bears watching if you like this sector.
HLSS just announced greater than expected earnings and will raise their yield. Pre payment was smaller than expected but had they been larger than expected, the picture would have gone the other way. Hey, that's just part of the risk with this type of investment. My opinion is if you like the idea of NCT going into mortgage servicing, HLSS, which is dedicated totally to this business is worth a look.
Not all banks are getting out of servicing loans. Wells is picking them up by the tons. However, they are doing a lot of cherry picking But even with that they are not buying the loans, just servicing.