Ocwen to Spin Off Services, Technology Unit
As has been rumored for months now, Ocwen Financial Corporation ($44.85 -0.74%) said Friday morning that it will look to spin off its technology and business process outsourcing business line, Ocwen Solutions, separating it from its core subprime mortgage servicing operation. Company officials confirmed they are targeting Q2 2009 for the spin off, with current OCN shareholders receiving shares of the new publicly-traded company as part of the transaction.
Ocwen Solutions serves the mortgage and consumer finance industries through three business segments: mortgage services, technology products and financial services. The business line uses many of the proprietary approaches and technology that have made Ocwen Financial Corporation's servicing platform what it is today, the company said.
"We believe that there are a number of benefits to making Ocwen Solutions an independent company," said Ocwen chairman and CEO William Erbey. "As an independent company, Ocwen Solutions will be better positioned to pursue business opportunities with other servicers. The separation will allow potential investors to choose between the contrasting business models of servicing and business process outsourcing, as each is valued differently by the equity markets."
More than a few service providers in the mortgage space this year have looked to spin off their solutions businesses -- Fidelity National Information Services Inc. ($44.02 0.38%) successfully spun off its Lender Processing Services, Inc. ($32.19 0.12%) business unit earlier this year, a unit that provides key services to mortgages servicers nationwide. And The First American Corp. ($22.75 -0.22%) has said it will also look to spin off its information solutions division at some point in the near future, although it has delayed the transaction thus far due to dour market conditions.
Ocwen Solutions operates what Erbey characterized as an "asset light" business model, with less than $24 million in tangible assets at Sept. 30, 2008 -- but the business unit has generated approximately $163 million of trailing twelve months revenue, he said. Erbey also said that the spin-off would allow Ocwen Solutions to offer stock to potential acquisition targets.
The solutions unit at Ocwen provides a wide range of services and technology to servicers and originators, as well as investors -- a list that includes due diligence, underwriting, valuation, default process, property preservation, loss mitigation processing, title, and business process outsourcing. The company has thus far been a mid-tier player in the mortgage services space, but the spin-off clearly signals Ocwen's intent on raising its profile in the space going forward.
As for Ocwen Financial, the company's core mortgage servicing business handles approximately 342,000 mortgages, approximately 85 percent of which are subprime, representing an aggregate unpaid balance of $42 billion.
Ocwen has publicly touted its loss mitigation initiatives this year, highlighting recently that the company has achieved loan workouts avoiding foreclosures for approximately 60,000 homes around the country.
"The robust and scalable technology and approaches that have enabled us to help many at-risk homeowners -- and also keep loans performing -- will be increasingly available through Ocwen Solutions to the growing number of companies and institutions that need to improve the performance of challenged portfolios," said Erbey, who said that Ocwen Financial is itself aggressively looking to grow its servicing portfolio as well over the next fiscal year.
Ocwen Financial recently applied to convert to a bank holding company, according to an American Banker report. The servicer had ditched its previous charter with the Office of Thrift Supervision back in 2005; and while the company has not commented on its pending application, more than a few sources have speculated the large subprime servicer is looking to access liquidity via the U.S. Treasury in order to fund its operations and cover servicer advances.
Write to Paul Jackson at firstname.lastname@example.org.
Disclosure: The author was long common shares of LPS, and held no other relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
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