Mortgage

Ocwen is no longer the nation’s largest subprime mortgage servicer

Impact of exit from agency servicing becoming evident

[CORRECTION: Ocwen was never the largest mortgage servicer – they are the largest non-bank servicer. Ocwen was never the largest prime servicer, but they are the largest subprime servicer. The article is now clarified.]

The impact of Ocwen Financial’s (OCN) exit from agency mortgage servicing is beginning to materialize.

According to a recent report from Fitch Ratings, Ocwen is no longer the country’s largest subprime mortgage servicer.

Ocwen is now the third-largest prime mortgage servicer, falling behind Bank of America (BAC) and Nationstar Mortgage (NSM), in 1st and 2nd respectvely.

Fitch’s report is based on data from 2014’s fourth quarter, but Ocwen recently announced several massive agency mortgage servicing rights sales that will drop its share of agency servicing even more.

Ocwen stated last month that it intended to sell two portfolios of agency servicing, a $25 billion portfolio and a $9.8 billion portfolio, to Nationstar as Ocwen continues its exit from agency servicing.

As part of that plan, Ocwen announced recently that it agreed to sell a $9.6 billion mortgage servicing rights portfolio to Green Tree Servicing, a subsidiary of Walter Investment Management (WAC).

That announcement came on the heels of reports that Ocwen intended to sell a $45 billion portfolio of agency servicing to JPMorgan Chase (JPM).

The announcements were the latest in a string of agency MSR sales for Ocwen, which said in December that it plans to exit agency servicing entirely.

“We estimate the difference between our $1.1 billion book value and fair value of our agency MSRs is between $400 and $500 million dollars,” Ocwen CEO Ron Faris said at the time.

Earlier this month, Ocwen said that it is “on track” to sell agency MSRs for approximately $55 billion in unpaid principal balance in the next six months for prices “significantly above” its estimated carrying value.

Despite Ocwen’s exodus from agency servicing, the company still maintained a robust non-agency MSR portfolio, Fitch said in the report.

As of the fourth quarter of 2014, Ocwen remained the largest servicer of non-agency residential mortgage-backed securities, Fitch said in the report. Nationstar ranked second and Bank of America was third in the ranking of non-agency RMBS servicers.

Overall, Wells Fargo (WFC) continued as the nation’s largest mortgage servicer, with 9.2 million loans totaling $1.61 trillion in unpaid principal balance as of Dec. 31, Fitch said.

JPMorgan Chase (JPM) ranked second overall, with 6.5 million loans totaling $950 million in unpaid principal balance.

Ocwen’s market strength is still seen in non-agency subprime mortgage servicing, where the nonbank still holds the largest share, servicing 44.8% of all non-agency first-lien subprime mortgages, Fitch said.

Another development that will bring Ocwen some comfort is the recent extension of its servicing contracts with New Residential (NRZ), which just purchased Home Loan Servicing Solutions (HLSS) for approximately $1.2 billion.

According to another Fitch report, there was some thought that New Residential’s acquisition of HLSS was a prelude to it pulling servicing from Ocwen. But the contract extension between Ocwen and New Residential puts those concerns to bed, at least for now.

The new agreements between Ocwen and New Residential extends the term over which Ocwen is entitled to be the named servicer on the loans in which the rights were sold to HLSS, and imposes a standstill on the right of HLSS to replace Ocwen as the named servicer for a two-year period to April 2017.

According to Fitch’s report, the new agreement will reduce the near-term uncertainty that Ocwen's non-agency mortgage servicing business could potentially be lost to competitors, including Nationstar.

“The risk of Ocwen losing a large portion of its non-agency business to Nationstar arose following the announcement in February that New Residential, managed by an affiliate of Fortress was acquiring HLSS,” Fitch said in the report.

“Affiliates of Fortress also manage funds that own the majority of the parent company of Nationstar, a competitor of Ocwen's among large non-bank U.S. RMBS servicers,” Fitch continued. “While Ocwen is intentionally shedding select MSRs, the loss of the servicing of the HLSS loans would have been detrimental to the company, in our view.”

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