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Battle for No. 6 Servicer Heats Up

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With Ocwen Financial Corp.’s proposed acquisition of Homeward Residential Holdings Inc., three mortgage servicers will be battling for the title of sixth-biggest servicer. The proposed transaction will also put Ocwen in the loan origination business.

Homeward was created with billionaire investor Wilbur L. Ross Jr.’s successful bid to acquire the servicing operations of American Home Mortgage Investment Corp. in 2007 when American Home Mortgage Investment laid off 6,000 production employees and filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code.

The new company was named American Home Mortgage Servicing Inc.

The initial acquisition was followed in 2008 with the purchase of Option One Mortgage Corp.’s servicing business from H&R Block Inc.

In February 2009, American Home Mortgage Servicing acquired servicing rights on 185,000 loans from Citi Residential Lending.

The aggressive investment strategy has left the Coppell, Texas-based company — which this year adopted the Homeward brand — with a mortgage servicing portfolio of 422,000 loans for $77 billion.

It also has generated $900 million in cash distributions for Ross, according to an announcement Wednesday.

The announcement indicated that Ocwen has reached an agreement with WL Ross & Co. LLC to acquire Homeward for around $588 million in cash and $162 million in Ocwen convertible stock.

The deal is expected to close by Dec. 31.

Ross, himself, said, “Mortgage banking is a business of scope and scale, and we believe that the combined company will fill the void created by the ongoing departures of many banks from the overall industry.”

Customary representations, warranties and covenants, as well as loss-sharing provisions related to certain pre-closing liabilities, are included in the agreement — which is subject to regulatory approvals.

Atlanta-based Ocwen noted Homeward operates a loan origination business that includes correspondent and retail lending channels. All production is agency.

“The acquisition of Homeward significantly advances Ocwen’s twin strategic growth initiatives to add high return servicing assets to its portfolio and expand origination capacity to provide for a sustainable source of future growth,” Ocwen Chairman William Erbey said in the news release. “Homeward brings with it a global servicing platform as well as a growing origination business that is already operating at a $10 billion annual run-rate after launching in late 2011.”

The origination run-rate would put Ocwen on track to rank among the 25-biggest U.S. originators.

Fitch Ratings reported that Ocwen serviced more than 739,000 loans for $112.8 billion as of April 30. The Homeward acquisition will push the portfolio up to around $189.8 billion.

The bolstered servicing portfolio will have Ocwen battling for the sixth-biggest mortgage servicer position with PHH Corp., which serviced $192.8 billion as of June 30, and Nationstar Mortgage Holdings Inc., where the servicing portfolio closed out the second quarter at $193.0 billion.

But Nationstar could pull way ahead of Ocwen and PHH if it is successful in its bid to acquire servicing rights from bankrupt Residential Capital LLC. In its second-quarter earnings report, Nationstar said, “Upon closing, expected to occur in January 2013, subject to the auction process, court and other regulatory approvals, the acquisition would result in an estimated pro-forma UPB of $550 billion.”

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