The recent sale of Home Loan Servicing Solutions, Ltd. (NASDAQ: HLSS), an Ocwen affiliate, to New Residential Investment Corp. (NYSE: NRZ) could spell some improvement ahead for the beleaguered non-bank mortgage servicer, according to a report from Moody’s Investors Service.
Last week, New Residential announced it had entered into an agreement to acquire all of the outstanding shares of HLSS in a transaction totalling approximately $1.3 billion. The deal signaled a 9% premium to HLSS’s closing price on Feb. 20, a was a possible portent of Ocwen stabilizing its own servicing operations.
“The sale is credit positive for Ocwen’s servicing because by reducing financial concerns at HLSS, an Ocwen spin-off, Ocwen’s own servicing operations become more stable,” Moody’s said in a report issued Feb. 24. “Likewise, strengthening Ocwen’s ability to meet its servicer advance obligations reduces the likelihood of servicing disruptions for the residential mortgage-backed securities serviced by Ocwen.”
The credit positive rating is a breath of fresh air for Ocwen, which finished 2014 mired in controversy — not the least of which was a $150 million settlement with the New York Department of Financial Services — amid a series of downgrades from Moody’s, Fitch Ratings and Standard & Poor’s regarding the company’s servicing capabilities.
There look to be slim chances this year of large material fines or settlements from regulatory investigations, Ocwen President and CEO Ronald Faris stated in a letter to shareholders earlier this month, despite the anticipation of posting “a record loss” in the fourth quarter of 2014.
A positive note for Ocwen as a result of the New Residential deal is that the sale “potentially boosts HLSS’s future liquidity and capital resources, and, in turn, its ability to fund future servicer advances, all of which further bolsters Ocwen’s servicing ability,” Moody’s said.
“Of the strategic proposals received, New Residential’s was the most attractive for a variety of reasons including valuation and certainty of execution,” said John Van Vlack, CEO of HLSS, on the transaction with New Residential. “We believe that New Residential is well positioned to provide support and act as a strategic financing party to Ocwen over the long-term.”
As for New Residential, which is managed by an affiliate of Fortress Investment Group (NYSE: FIG), the company is confident the transaction will enhance its earnings growth potential and its ability to generate strong returns for its shareholders.
“The acquisition will significantly add to the value of our book of mortgage servicing assets and expand our relationships with mortgage servicers to include both Nationstar Mortgage and Ocwen Financial Corp., which are the two largest non-bank servicers in the United States,” said New Residential CEO Michael Nierenberg in a written statement.
Written by Jason Oliva