U.S. Markets closed

Leon Cooperman Boosts Ownership of Embattled Company

- By Yamil Berard

Hedge fund manager Leon Cooperman (Trades, Portfolio) has raised his ownership stake in a struggling home mortgage servicing company.

The CEO of Omega Advisors owns more than 15.3 million shares, or over 11%, of Florida-based Ocwen Financial Corp. (OCN). The guru investor purchased over 50,000 shares, based on the most recent update to his portfolio.

Year to date, Ocwen stock is up 18%. Over the last three years, however, Ocwen stock dove 60% after a series of enforcement actions involving attorney generals in multiple states, the Consumer Financial Protection Bureau and others. Just last April, the U.S. Consumer Financial Protection Bureau sued Ocwen for "systemic misconduct at nearly every stage of the mortgage servicing process." The agency has accused Ocwen of illegally foreclosing on homeowners, botched escrow accounts and failures to credit borrower's payments. Ocwen has fired back saying the federal agency is unconstitutional and operates without sufficient oversight from the president or Congress.

Among other problems, in 2013, the company reached a $2 billion settlement with California's attorney general for accusations of mortgage servicing misconduct. Back in October 2013, Ocwen stock was trading at $55 a share. In Friday afternoon trading, Ocwen was up almost 3% to $3.66 a share.


Guru trades

Star investor Cooperman has had his eye on Ocwen for a while. He first began buying shares in 2012. But he sold out on two separate occasions: in the fourth quarter of 2013 and the third quarter of 2014, GuruFocus shows.


In May 2017, he bought roughly 8.4 million shares for an average price of $2 a share.

Months later, on Jan. 19, he bought 5.6 million shares for an average price of $3.11; then, on Jan. 23, sold 235,000 shares for an average price of $3.19 a share.

On Feb. 6, he bought 1.5 million shares for $3.15 a share.

His last buy on Feb. 13 added 54,000 shares for a total of more than 15.38 million shares at an average price of $3.57 a share.

Ocwen is among Cooperman's largest holdings. Others include Atlas Energy Group (NYSE:ATLSW) and THL Credit Inc. (TCRD).

As of the latest update on Feb. 14, the guru's portfolio holds 72 stocks and is valued at $2.67 billion.


Ocwen hasn't been the only target of federal regulators.

Last May, Cooperman's Omega Advisors reached a $4.9 million settlement with the Securities and Exchange Commission for insider trading.

According to the SEC filing, "Cooperman generated substantial illicit profits by purchasing securities in Atlas Pipeline Partners (APL) in advance of the sale of its natural gas processing facility in Elk City, Oklahoma."

SEC records show Cooperman allegedly used his status as one of Atlas' largest shareholders "to gain access to the executive and obtain confidential details about the sale of this substantial company asset.

"Cooperman and Omega Advisors allegedly accumulated APL securities despite explicitly agreeing not to use the material nonpublic information for trading purposes, and when APL publicly announced the asset sale its stock price jumped more than 31 percent."

After the SEC's action, Cooperman sent a five-page letter to investors. In it, he said he was in disagreement with the commission's actions. And, nor he or the firm had engaged in anything that was "unlawful."

"We have done nothing improper and categorically deny the Commission's allegations," he wrote.

Ocwen's financial health

The West Palm Beach-based company is one of the largest nonbank mortgage servicers in the U.S.

It has over 9,000 employees serving more than 1.5 million customers, according to its website. It says it specializes in "helping families achieve their financial and homeownership goals." It originates traditional and reverse mortgage loans, according to its website.

Ocwen's price-book ratio is 0.80 versus the median of 1.22 and its price-sales ratio is 0.35 versus a median of 3.50. The price-book ratio is ranked higher than 99% of more than 1,500 of its peers.

According to GuruFocus, its revenue growth has been a loss of 13.50% in the last 12 months. Revenue over the last 10 years has grown by 10.80%, however.

Its growth in book value has declined by 15.90% over the last 12 months. Its free cash flow growth is 437% over the last 12 months.

Its operating margin is -10.21%, and its return on equity is -15.15% while its return on assets is -1.2%.

GuruFocus ranks it 4 out of 10 in financial strength and 6 of 10 in profitability and growth.

It has a market cap of $488 million.

Ocwen announced this week it will buy PHH Corp. (PHH) for $360 million. The goal is to create an industry-leading servicing platform.

This article first appeared on GuruFocus.