The sale of former nonprime lender Saxon Mortgage Services Inc. has been completed. While the deal will likely create a top-10 servicer, it also resulted in hundreds of layoffs and a consent order against a Wall Street giant.
Saxon has been acquired by Ocwen Financial Corp. from Morgan Stanley for $73.8 million. Saxon was originally acquired by Morgan Stanley Mortgage Capital in December 2006.
Saxon was spun off from Dominion, a Virginia-based energy company, in a 2001 initial public offering. At the time, it originated Alt-A and subprime mortgages.
As part of the sale, Morgan Stanley agreed to a consent order with the Federal Reserve Board which addresses “a pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing” at Saxon, according to a Fed announcement. The order requires the investment banker to hire an independent consultant to review Saxon’s foreclosure proceedings that were pending at any time in 2009 and 2010.
“The review is intended to provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process,” the Fed stated. “The foreclosure review will be conducted in a manner consistent with the reviews currently underway at several large mortgage servicers that consented to enforcement actions brought by the banking agencies last year.”
A civil money penalty will follow the order, according to the Fed.
Morgan Stanley would need to establish rigorous procedures if it re-enters the mortgage servicing space during the term of the order.
Saxon was ranked as the 34th largest mortgage servicer, the Fed reported.
In a FORM 8-K filing with the Securities and Exchange Commission on Tuesday, Ocwen disclosed that the acquisition included $22.2 billion in mortgage servicing, though it already sub-serviced around $9.9 billion of the loans.
With the acquisition, Ocwen servicing portfolio increases to around $145 billion, putting it in contention for a top-10 mortgage servicer spot. Another $15 billion in mortgage servicing rights expected to be acquired this month from JPMorgan Chase & Co. will push the portfolio to around $160 billion.
But the acquisition won’t be casualty-free.
Saxon has already notified the state of Texas that it intends to layoff 680 North Texas employees as of May 28.
“The purchase agreement for the Saxon transaction was amended subsequent to the filing of the prior 8-K so that the company acquired the seller’s servicing business and assets, including substantially all of its MSR portfolio and sub-servicing agreements and certain other assets, rather than its stock and employees,” Ocwen’s latest SEC filing stated. “As the company no longer expects to incur any material transition or shut down costs associated with the Saxon transaction, the base purchase price increased from the estimated base purchase price of $59.3 million disclosed in the prior 8-K.”