Back to top

Analyst Blog

In a bid to expand its operations, Ocwen Financial Corp. (OCN - Analyst Report) is preparing to foray into mortgage origination business. The company has signed a definitive agreement to acquire Homeward Residential Holdings Inc. – an integrated mortgage firm with prime lending and mortgage servicing operations – from WL Ross & Co. LLC. The company will be paying about $588 million in cash and $162 million in Ocwen convertible preferred stock.

Homeward was formed by WL Ross in 2007 by combining the lending platforms of Option One Mortgage Co., American Home Mortgage Servicing and Citi Residential Lending – a unit of Citigroup Inc. (C - Analyst Report). It currently services approximately 422,000 mortgage loans with the total unpaid principal balance of more than $77 billion.

Moreover, Homeward’s mortgage originating operations comprise of correspondent and retail lending. As of September 30, 2012, Homeward had been issuing roughly $10 billion of loans on an annual basis.

Ocwen stated that the deal, still subject to customary regulatory approvals, is expected to close by the end of this year. Also, the company will not have to raise any additional capital to wrap up the acquisition and it would be immediately accretive to earnings (after taking into consideration transaction related costs).

At a time when major mortgage servicers are shying away from mortgage servicing business as a result of stringent regulations related to capitalization and balance sheet risk, Ocwen has been filling up this void by a string of acquisitions. Homeward is the latest deal for the company subsequent to the acquisitions of Saxon Mortgage Services Inc. – mortgage subsidiary of Morgan Stanley (MS - Analyst Report) and Litton Loan Servicing from The Goldman Sachs Group, Inc. (GS - Analyst Report), over the last one year.

Apart from these, Ocwen bought certain mortgage-servicing rights (MSRs) related to non-prime loans from JPMorgan Chase Bank, N.A. – the banking division of JPMorgan Chase & Co. (JPM - Analyst Report) as well as residential MSRs from Bank of America, National Association (BANA) – a unit of Bank of America Corporation (BAC - Analyst Report).

The acquisition of Homeward is expected to be a positive catalyst for Ocwen. The company will be able to further boost its mortgage serving operations and enter the lending market. This would, thus, provide a sustainable source of organic growth going forward.

Ocwen currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term ‘Neutral’ recommendation on the stock.
 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%
STRATTEC SE… STRT 80.24 +3.00%