Ocwen, Walter Acquisitions Pose Future Credit Risks: Moody’s

Ocwen Financial Corporation (NYSE:OCN) and Walter Investment Management Corp. (NYSEAMEX:WAC) had a busy year as both companies looked to increase their mortgage servicing portfolios.

But it seems that gobbling up a number of mortgage servicing rights could pose future credit risks for both Ocwen and Walter, according to a report by Moody’s Investors Corp. (NYSE:MCO).

Ocwen’s and Walter’s purchasing activities this year earned them spots in Moody’s top-10 mortgage servicer list in 2012. Ranked according to size, Ocwen entered the ranks at 5, while Walter weighed in at number 10, respectively. 

Ocwen’s 2012 track record involves a momentous $22 million acquisition of Genworth Financial Home Equity Access’ (GFHEA) reverse mortgage division, as well as teaming up with Walter on a $3 billion bid for mortgage servicing rights belonging to Residential Capital, LLC (ResCap). 

Additionally, Ocwen announced in October plans to acquire Homeward Residential, Inc., including the company’s residential mortgage servicing and origination divisions.

Deriving the majority of revenues from servicing what Moody’s calls “serious delinquent loans,” Ocwen and Walter have been able to acquire billions of dollars of servicing business, ultimately leading to both companies’ growth. 

Though both companies expect these transactions to close early 2013—with Ocwen’s expectations to close Homeward by end of 2012—Moody’s suggests that portfolio expansions for both companies will lead to some operational complexities as the “heightened regulatory and litigation environment” leaves mortgage servicers little room for operational issues.   

Written by Jason Oliva

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