Bank executives attribute a nearly 50% increase in the unpaid principal balance of its mortgage loan portfolio to completing the acquisition of Ocwen assets on July 1.
Earnings from the acquisition “fueled growth in EPS despite the somewhat higher prepayment rate on assets recently boarded on Ocwen's platform,” says John Van Vlack, HLSS president and CEO.
It resulted in an overall annualized prepayment rate of 13.7% in the third quarter that “ultimately will result in lower default related prepayments," he said.
Going forward, HLSS aims to restructure its capital structure to ensure minimal exposure to “repo or mark-to-market risk” while continuing to implement a conservative financing strategy, said chairman William Erbey.
Quarter highlights include purchasing from Ocwen the mortgage servicing rights on nonagency mortgage loans with UPB of $83.3 billion.
The acquisition made possible the Aug. 8 completed issuance of $200 million one-year and $200 million three-year term notes.
HLSS’ servicing asset valuation remained stable during the quarter.
As of Sept. 30, interest income from MSRs was over $74 million, up from $14 million in the third quarter of 2012.
Operating expenses, however, increased from almost $2 million in the same quarter of 2012 to $3.6 million this year also due to the transfer of Ocwen assets.
Nonetheless, $71.8 million in income from operations largely compensated for these expenses.