Maybe there’s finally some good news for embattled nonbank Ocwen Financial (OCN). In a new report, analysts from Moody’s Investors Service say that the $1.3 billion acquisition of Ocwen associate Home Loan Servicing Solutions (HLSS) will actually help to stabilize Ocwen’s own servicing operations and improve Ocwen’s future prospects.
On Monday, New Residential Investment (NRZ), which is managed by an affiliate of Fortress Investment Group (FIG), announced plans to acquire Home Loan Servicing Solutions, which was under pressure from investors to separate itself from Ocwen.
While New Residential said that it doesn’t currently plan to terminated HLSS’ relationship with Ocwen, the sale to New Residential will help both Ocwen and HLSS moving forward, Moody’s analysts Mark Branton, Gene Berman, and Yehudah Forster said.
“The sale is credit positive for Ocwen's servicing because, by reducing financing concerns at HLSS, an Ocwen spin-off, Ocwen’s own servicing operations become more stable,” the Moody’s analysts said. “Likewise, strengthening Ocwen's ability to meets its servicer advance obligations reduces the likelihood of servicing disruptions for the residential mortgage-backed securities serviced by Ocwen.”
That should come as welcome news to investors who owned RMBS deals with Ocwen-serviced loans, considering that Fitch Ratings recently downgraded hundreds of RMBS classes because they contained Ocwen-serviced loans.
“The rating action reflects the increased risk of a temporary servicer disruption,” Fitch said in its report. “The small number of affirmed classes are expected to pay off in full imminently. The short projected time until payoff mitigates potential servicer disruption risk.”
When the New Residential deal was announced, HLSS CEO John Van Vlack said that the deal addresses the uncertainty associated with the company’s future financing obligations.
“Of the strategic proposals received, New Residential's was the most attractive for a variety of reasons including valuation and certainty of execution,” Van Vlack said. “We believe that New Residential is well positioned to provide support and act as a strategic financing party to Ocwen over the long-term."
One positive of the New Residential deal is the impact on Ocwen’s funding, the Moody’s analysts said.
“The $1.3 billion sale of HLSS to New Residential stabilizes HLSS, which helps Ocwen to continue to fund servicer advances on loans backing RMBS,” the Moody’s analysts said. “In addition, 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 stability.”
Another positive of the deal is the expectation that the New Residential acquisition will reduce the likelihood of RMBS servicing disruptions for Ocwen-serviced loans.
“With more secure funding in place, the likelihood of disruptions in servicing advance payments and recoupments decreases,” the Moody’s analysts said.
“Further, New Residential executives said New Residential will continue its existing relationship with Ocwen,” the Moody’s analysts concluded. “However, the new ownership marginally increases the likelihood of servicing transfers from Ocwen if it doesn’t adequately fulfill its servicing obligations. Any such transfers would likely be more orderly, benefiting from increased oversight and planning, than if Ocwen had been forced to transfer servicing.”