Ocwen to Sell MSRs to Green Tree, Delays 2014 Results - Analyst Blog
Ocwen Financial Corp. OCN continues with its strategy of selling mortgage-servicing rights (MSRs) in an effort to restructure and shrink its business. The company announced that its subsidiary, Ocwen Loan Servicing, LLC has signed an agreement in principle with Green Tree Loan Servicing LLC, for sale of a $9.6 billion portfolio of MSRs.
The up-for-sale portfolio comprises nearly 55,500 mainly performing loans owned by Freddie Mac. Green Tree is an indirectly held and wholly owned subsidiary of Walter Investment Management Corp. WAC.
The transaction, subject to definitive agreement, requires approvals from Freddie Mac and the Federal Housing Finance Agency. Further, Ocwen expects the deal to close by April-end, while loan servicing transfer will likely take place in May.
Earlier, the company had announced the sale of a $9.8 billion portfolio of MSRs, backed by Freddie Mac, to Nationstar Mortgage Holdings Inc., while a $45 billion portfolio of MSRs owned by Fannie Mae are being sold to JPMorgan Chase & Co. JPM. Ocwen anticipates receiving roughly $650 million of proceeds from the sale of MSRs over the next few months.
In separate but related news, Ocwen, in a filing with the Securities and Exchange Commission, stated its intention to file 2014 Annual Report by Monday, Mar 23. Previously, the company was supposed to file the same by Mar 17.
The news of Ocwen delaying the filing of 2014 results made investors wary of the company’s problems. This led to a fall of nearly 3% in its share price.
The decision to delay its results follows the company’s revelation that it continues to review its affiliate, Home Loan Servicing Solutions, Ltd.'s HLSS capability to meet its obligations for financing new servicing advances. Ocwen further stated, “A failure by HLSS to fund new serving advances could have a material negative impact on the Company's financial condition.”
Additionally, Ocwen is seeking clarification regarding the accounting treatment for the $150 million fine paid to the New York Department of Financial Services for its business mismanagement in Dec 2014. Notably, as part of this settlement, the company’s CEO and founder, William Erbey had resigned (read more: Ocwen's $150M Settlement: A Clean Slate or a New Burden?).
Since then, Ocwen has been trying to shrink its operations, and providing updates about MSRs sale and 2014 results. The company anticipates reporting a loss in 2014 owing to an elevated expense level. Additionally, a non-cash charge of around $370–$420 million to write-off goodwill is predicted to be incurred, along with the creation of a $15 million reserve for its remediation plan to deal with issues concerning certain erroneously dated borrower correspondence.
We believe that Ocwen will continue with its sale of MSRs in sync with its plan to reorganize operations. The company has been taking initiatives to update investors about its financial health. Further, the company is expected to be able to overcome its shortcomings and regain profitability in the quarters ahead.
Currently, Ocwen carries a Zacks Rank #2 (Buy).
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