Ocwen Financial Corporation (NYSE: OCN), the parent company of leading reverse mortgage lender Liberty Reverse Mortgage, announced on Monday that its subsidiary PHH Mortgage Corp. has closed a deal to acquire the vast majority of assets of Reverse Mortgage Solutions (RMS) from its seller, Mortgage Assets Management, LLC (MAM). The final total of the deal had an aggregate purchase price at closing of approximately $12.4 million, subject to certain holdbacks and adjustments, the company said.
The deal will allow Liberty to become a complete end-to-end reverse mortgage provider from origination through servicing, according to Liberty President Mike Kent in an interview with RMD in June. The final sale price of RMS to Ocwen represents a substantial drop in the value of the company and its assets compared to previous instances in which it has been sold, based on prior reporting.
Completing the sale
As previously detailed, the assets purchased by Ocwen in this transaction include substantially all of the RMS reverse mortgage servicing platform and all of the outstanding equity interests in the RMS Real Estate Owned business, REO Management Solutions, LLC.
“Concurrent with the closing of the transaction, PHH became the sub-servicer under a five-year sub-servicing agreement for reverse mortgages owned by RMS and MAM and assumed approximately 350 reverse servicing and REO employees,” the announcement regarding the deal’s closing reads. “In addition, certain third-party sub-servicing agreements were assigned from RMS to PHH. As a result, PHH became the sub-servicer for approximately 57,000 reverse mortgages, or approximately $14.3 billion in unpaid principal balance (UPB), which were transferred to PHH’s reverse servicing platform concurrent with the closing.”
PHH expects to begin servicing its owned portfolio of roughly 34,000 reverse mortgages with a UPB of approximately $6.7 billion in Q4 2021. The final terms are subject to necessary approvals and conditions that remain outstanding.
According to Ocwen Financial President and CEO Glen Messina, the deal represents a significant opportunity for Liberty, PHH and Ocwen simultaneously.
“We are very pleased to complete this transaction which triples our total owned and sub-serviced reverse portfolio and enables additional growth opportunities through a five-year sub-servicing agreement,” Messina said in the announcement of the deal’s closing. “The acquisition provides us with a high-quality reverse servicing platform, experienced people and customized reverse technology and supports our strategy to build an in-house reverse servicing platform.”
The transaction will help bolster Ocwen’s existing reverse mortgage servicing portfolio, the company expects, positioning Liberty as the only lender which will originate, securitize and directly service reverse mortgage clients, Messina explained.
“We are excited to officially welcome a highly talented group of employees to our company, and we look forward to our expanded partnership with [MAM parent] Waterfall to continue supporting their growth objectives in the reverse mortgage industry.”
RMS: a rollercoaster of value and ownership
The deal that places RMS under the auspices of Ocwen pales in comparison to previous deals involving the sale of the company, indicative of the financial tumult that the company has been on for the past few years.
In September 2012, Walter Investment Management Corporation announced its intent to purchase RMS in a deal valued at approximately $122 million. In the aftermath of notable exits from the reverse mortgage space by prominent banking institutions, RMS increased its role in facilitating the secondary market through Ginnie Mae’s home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) program. The company issued $1.1 billion of securities during the first half of 2012.
The deal for Walter’s purchase was closed that November, which at the time saw RMS servicing approximately $12.4 billion in UPB of reverse mortgages, having issued roughly $1.8 billion of HMBS by late 2012. Those totals made RMS the fourth largest reverse mortgage servicer and the largest issuer of HMBS in the sector that year.
However, after enduring heavy reverse mortgage losses throughout 2016, Walter had decided to shut down RMS’ HECM originations business effective January 2017. The following year, Walter had filed for Chapter 11 bankruptcy protection, in which it shed $800 million of outstanding corporate debt. After the bankruptcy, Walter emerged under a new name: Ditech Holding Corporation. Unfortunately, the reorganization did not provide an end to Ditech’s corporate woes, and by late 2018 the company had been delisted from the New York Stock Exchange.
In late 2019 after a protracted legal fight and a court-approved bankruptcy plan cleared the way for a final sale, Ditech Holding Corporation completed a stock and assets sale comprising RMS to buyer MAM. That deal was not without apparent controversy. It led to a lawsuit filed by MAM against its former president that alleged she inappropriately directed the company to spend millions of dollars with a reverse mortgage consultancy firm while maintaining an ownership stake in that firm. The detail of her involvement in the consultancy had allegedly not been made known to MAM at the time.
That suit was quietly settled before progressing to trial earlier this year, RMD has learned, ultimately culminating in the sale of RMS to Ocwen/PHH first made public this past summer.