MSR Sales Help Ocwen Liquidity, But Outlook Weak

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Ocwen Financial Corp.’s recent and upcoming sales of mortgage servicing rights will help cut its debt. But its ongoing business model doesn’t look promising.

The sale of MSRs on $90 billion in loans has been announced by the Atlanta-based company since the beginning of this year.

Based on its total servicing portfolio as of Dec. 31, 2014, the sales and planned sales represent around 23 percent of the loans it services.

That was according to a report by Moody’s Investors Service.

In addition, more sales of MSRs on non-performing agency loans are expected by Ocwen in the future.

The ratings agency expects the proceeds from the MSR sales will be used
to significantly decrease Ocwen’s financial leverage.

The improved liquidity position has prompted Moody’s to raise Ocwen’s corporate family and senior secured bank term loan ratings.

“We estimate that the cash generated from the completed and announced MSR sales will allow the company to fully repay its $1.2 billion senior secured bank term loan,” Moody’s stated. “Furthermore, even after fully repaying the senior secured bank term loan, if the company decides to finance its unencumbered servicer advances, it should have enough cash to repay the company’s $350 million of outstanding unsecured debt in a stress scenario, such as a termination of Ocwen as servicer of its remaining MSR contracts without compensation.”

But while Ocwen will have enough resources to withstand a stressed scenario, it still faces significant challenges to reestablish a resilient business model.

It will continue struggling to
overcome its residual regulatory issues.

And even if it does put the problems behind it, Ocwen still lags the competition in an industry that is already highly competitive.

The servicer has been prohibited by regulators from acquiring more MSRs until the end of this year. In addition, it is saddled with monitors in New York and California, and it’s not clear when the monitors will go away.

One of Ocwen’s few sources of growth will be its fledgling origination business — and that isn’t promising.

Based on Mortgage Daily’s First Quarter 2015 Mortgage Origination Survey, Ocwen’s $1.1 billion in production didn’t even position it among the 25-biggest mortgage lenders.

“The highly competitive prime loan origination market is dominated by the largest banks, as well as established non-bank participants,” Moody’s stated. “As a non-prime servicer, Ocwen will face branding issues in trying to penetrate the market, which will be compounded by the highly publicized regulatory issues the company already faces.”


Mortgage Daily Staff


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