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Compass Point: Buy Ocwen now, company is ready to grow

Financial analyst upgrades nonbank, raises price targets

As HousingWire wrote recently, things are looking up, just a bit, for Ocwen Financial.

Over the last few months, the maligned nonbank has attempted to put some of what it calls “legacy issues” behind it.

One of the issues previously facing Ocwen was a threat that New Residential Investment could pull subservicing rights from Ocwen based upon Ocwen’s substandard servicer rankings from Standard & Poor’s.

But that threat disappeared after S&P recently upgraded Ocwen’s servicer rankings, thanks to a number of number of internal operational improvements undertaken at the nonbank.

Ocwen also disclosed during its second quarter earnings that it is it trying to buy its way out from under the servicing restrictions placed upon it by its settlement with the California Department of Business Oversight, even setting $15 million aside during in the second quarter to pay for a potential settlement.

As a result of these moves, and some others, Ocwen’s stock rose over the last few months, and according to a new report from Compass Point Research & Trading, the stock is going to continue to rise.

While Ocwen closed Wednesday’s trading at $3.29, Compass Point is projecting the stock to go much higher.

In Compass Point’s new report, analyst Fred Small states that the firm is upgrading Ocwen from a “Neutral” to a “Buy” and raising its price target to $4.50.

Compass Point notes that Ocwen’s stock is up 88% in the third quarter, riding the wave of the positive news mentioned above, as well as the $30 million settlement Ocwen entered into in June over accusations that the company falsely certified that it was in compliance with Federal Housing Administration and Home Affordable Modification Program rules.

Ocwen is still only in negotiations with the CDBO over removing the restrictions on it, which include the company being prohibited from acquiring new mortgage servicing rights in California without CDBO approval, but Compass Point notes that there is significant upside for the company should the negotiations prove successful.

In fact, Compass Point currently projects that Ocwen will be able to return to profitability in 2018, a significant development considering Ocwen finished in the red in 2014, 2015 and expects to do so again in 2016.

“While profitability remains challenged in the near-term, we anticipate regulatory costs will begin to recede over the next few quarters, providing a chance for investors to focus on potential normalized earnings in the second half of 2017 and fiscal 2018,” Small notes in Compass Point’s report.

Compass Point notes that its projection isn’t without risk, especially considering that the California matter isn’t settled yet and the other regulatory hurdles that Ocwen still must clear.

Those hurdles include the New York Department of Financial Services and the National Mortgage Settlement, which Ocwen ran afoul of last week, as the National Mortgage Monitor announced that the nonbank failed two compliance tests.

Despite those issues, Compass Point is still bullish on Ocwen, at least for now.

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