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Ocwen nearing massive MSR deal with New Residential

New Residential to buy MSRs for $425 million, acquire nearly 5% of Ocwen

Amid some concerns that New Residential Investment may pull some of its mortgage subservicing from Ocwen Financial, the two companies are reportedly close to a massive mortgage servicing rights deal that would alleviate some of Ocwen’s business concerns and make New Residential a significant investor in Ocwen itself.

Recently, the Consumer Financial Protection Bureau and a group of state regulators accused Ocwen of widespread mortgage servicing issues. Included among the allegations made by the state regulators is whether Ocwen is financially sound enough to continue operating.

Those allegations led S&P Global RatingsMoody’s Investors ServiceFitch Ratings, and Morningstar to take various forms of negative action on the nonbank’s ratings.

As previously reported, New Residential could pull its servicing from Ocwen if the company’s servicer ratings are downgraded significantly, an issue re-raised by the ratings agencies’ recent actions on Ocwen.

But, it looks like that won’t be happening after all.

According to Ocwen, the company is nearing a new deal with New Residential that would “further solidify and enhance the business relationship” between the two companies.

Under the terms of the agreement, New Residential would buy approximately $117 billion in mortgage servicing rights from Ocwen. The deal actually involves MSRs that New Residential’s currently has rights to, but would covert them into MRS fully owned by New Residential.

But Ocwen isn’t losing the servicing entirely. Under the terms of the deal, the MSRs will move to a new subservicing agreement, under which Ocwen would subservice the MSRs for five years.

According to Ocwen, in effect, the new arrangement would convert its existing arrangement with New Residential into a “more traditional subservicing arrangement” and would also include New Residential making upfront payments to Ocwen of $425 million as the MSRs transfer. 

Additionally, as part of the deal, New Residential will make an equity investment in Ocwen and become a 4.9% owner of the nonbank.

The deal is not finalized, but Ocwen’s president and CEO, Ron Faris, said that the company is “excited” about the deal’s potential.

“We are excited about the prospect of this new arrangement and expect that this agreement will further strengthen what I view as an already strong partnership by eliminating some of the uncertainties inherent in the existing arrangement, which will be good for shareholders of both companies,” Faris said a in statement.

The news did wonders for Ocwen’s stock, which tanked recently as a result of the recent regulatory onslaught.

On Monday, Ocwen rose by more than 35%, closing Monday’s trading at $3.10 per share.

The company has a long way to go to get back to the roughly $5 per share it traded at before the regulators moves caused the company’s stock to plummet by roughly $3 per share in one day, but Monday’s move appears to be a good start – at least in the eyes of the investment community.

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