Ocwen Financial Corp
is pursuing a deal in which the mortgage servicer will sell mortgage servicing rights to a newly formed corporation called Home Loan Servicing Solutions.
The move is expected to free up capital, allowing Ocwen to continue in the role of subservicer, according to Securities and Exchange Commission
The securities involved in the sale include MSRs purchased from Barclays Bank (BCS)
back in September when Ocwen acquired the HomEq Servicing business.
While a transaction amount was not disclosed, Home Loan Servicing Solutions will fund the acquisition using proceeds from an initial public offering of $316.2 million, according to securities filings
. The company is expected to trade on the NASDAQ.
Home Loan Servicing Solutions describes itself in SEC filings as an entity formed to acquire mortgage-servicing assets — mainly primary and subprime loans. Its founder is William Erbey, chairman of Ocwen's board of directors. Erbey has pledged to purchase $10 million of the newly formed company's shares.
Ocwen touts the transaction as one that will free up capital, while detaching Ocwen from the liabilities and expenses associated with ownership of the portfolio.
"Although Ocwen's servicing fee and float income will decline under this subservicing agreement, we expect that the impact on net income will be partly offset by increased subservicing fee revenue and by reduced expenses for MSR amortization and interest on advance financing," Ocwen said in an SEC filing. "We also expect the decline in our match-funded advances and MSRs to be partly offset by the reduction in match-funded liabilities with the difference accruing in cash."
Ocwen said it will use the cash generated to pay down debt and to repurchase stock — or possibly other mortgage servicing rights. Overall, the firm said the funding required to run Ocwen's business "as-is" is greater than the income loss it will experience through the sale.
Ocwen reported a $38 million, or 36 cent per share, profit for the 2010 fiscal year on Thursday. That is up from a profit of $300,000 a year earlier when investors received nothing back on a per-share value. For the fourth quarter, Ocwen posted a profit of $9.9 million, compared to $9.4 million a year earlier.
The company's stock price lifted 1.96% early Thursday morning, with shares trading at $10.91 per share, up from $10.70 at close on Wednesday.
Write to Kerri Panchuk.