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Ocwen Financial in Atlanta reported record levels of revenue in the second quarter after almost doubling the size of its mortgage servicing portfolio in the last 12 months.
August 2 -
Nationstar Mortgage remains the "stalking-horse" bidder for ResCap's residential servicing portfolio, sources said. Ocwen Financial, Berkshire Hathaway and an unnamed hedge fund have also emerged.
September 20 -
The federal agencies treat PE players as "slippery" characters, impose "draconian" limits on them and make the troubled European economy more appealing for bank deals, investor Ross says.
May 22
In deciding to sell Homeward Residential Holdings, Wilbur Ross had to reconcile a golden market opportunity with a burning investment deadline.
Independent mortgage servicers are poised for explosive growth as litigation, new capital rules and risk weighting push traditional banks out of the business, Ross said in an interview. However, after owning Homeward for five years it was time to free up some cash.
WL Ross & Co. annnounced Wednesday it would
"At some point, private equity needs to sell things," Ross said. "We are not running away from the mortgage space."
WL Ross still has stakes in Berkeley Point Capital, a multifamily mortgage originator and servicer, and five U.S. banking companies.
The firm explored taking Homeward public, he said. "We were preparing to file a registration statement but decided to do a brief M&A process in parallel to that," Ross said.
And he is not cashing out completely. WL Ross would get $162 million of convertible preferred stock in Ocwen.
"This investment has brought us $900 million in distributions. It has treated us quite well," he said. "We wanted that ongoing equity play because we think the market will view this deal favorably. In fact, it already has."
Ocwen's stock rose 20% to close at $34.88. Nearly six times the normal number of shares changed hands.
Homeward services 422,000 mortgage loans with an aggregate unpaid balance of $77 billion. WL Ross formed Homeward in 2007 by combining American Home Mortgage Servicing, Option One Mortgage, a large servicing portfolio from Citi Residential Lending and other entities.
The combined company would have a $205 billion servicing portfolio. The deal is expected to close by year end.
"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," said William Erbey, Ocwen's executive chairman, in a press release. The company did not return a call for comment.
The deal comes at great time for Ocwen, which is seeking more loans to feed its servicing business, said Kevin Barker, an analyst with Compass Point.
Ocwen has $127 billion in unpaid principal balances it currently services, with a 15% runoff rate. Homeward originates $10 billion each year.
Ocwen has been ramping up its origination business, too. It owns 49% in Correspondent One, a company that facilitates the purchase of mortgages and resells them on the secondary market. Ocwen said in its second-quarter report that its Correspondent One relationship should help it substantially grow its volume.
Correspondent One provides Ocwen with $1 billion to $2 billion of originations monthly, Barker said in a research note, adding Ocwen could see $22 billion to $34 billion of "sustainable servicing inflows annually" with the combined force of Correspondent One and Homeward.
"They needed to do something to keep their earnings sustainable," Barker said. Ocwen reported second-quarter earnings of $44.8 million, up nearly 70% from a year earlier, and met analysts' estimates, according to Thomson Reuters.
Barker said, however, that he was a bit surprised by the timing. Ocwen is reported to be among the bidders for the $365 billion servicing portfolio and origination arm of Residential Capital Corp., which is set to be auctioned by the bankruptcy court on Oct. 23. Barker said Ocwen will likely still be a bidder for ResCap, but likely not as aggressive.
"I thought they'd wait to see what happens with ResCap first," Barker said.
Ross, who is known for investing in distressed industries like coal and steel, has made several banking investments during the downturn. He has large interests in Amalgamated Bank in New York; BankUnited (BKU) in Miami Lakes, Fla.; Cascade Bancorp (CACB) in Bend, Ore.; Sun Bancorp (SNBC) in Vineland, N.J.; and Talmer Bank and Trust in Troy, Mich.
WL Ross is looking to grow its five U.S. banks via acquisitions and other means, said Jim Lockhart, the vice chairman of WL Ross, on Bloomberg Radio on Wednesday. Low interest rates are squeezing the margins of many lenders, but community and midsize banks remain attractive investments, he said. "Community banks are flush with cash at the moment and are looking for small businesses to lend money to," Lockhart said.
