Home Loan Servicing Completes Acquisition of Subprime MSRs

Home Loan Servicing Solutions completed an acquisition from Ocwen Financial Corp. of rights to receive servicing fees and other advances on subprime and alt-A residential mortgage loans.

The MSRs unpaid principal balance is valued at approximately $10.6 billion as of May 20.

The MSR purchase price of roughly $425 million includes $377 million for servicing advances and $48 million for the associated MSR rights on loans described by the buyer as similar to previously acquired Ocwen assets.

To finance the deal, according to SVP and CFO, Home Loan Servicing Solutions, James Lauter, in addition to $79 million in cash from operations HLSS borrowed approximately $346 million “under existing servicing advance financing facility.”

Under the terms of the sale the purchase price may be adjusted within 90 days of the closing “to reflect any adjustments in the calculation of the UPB of the underlying mortgage loans or servicing advance balances acquired.”

The acquisition includes Ocwen’s title and MSR interest rights and the associated servicing advances, along with the buyer’s commitment to purchase servicing advances that may be required after the closing date.

In return Ocwen has agreed to continue to subservice the loans at a monthly base fee at 12% of the servicing fees collected and will retain “any ancillary income payable to the servicer.”

In addition, Ocwen will earn monthly performance-based incentive fees.

To finance the acquisition, he said, on May 21 HLSS Servicer Advance Receivables Trust issued $850 million in asset-backed term notes secured by servicing advance receivables.

Hence, the aggregate outstanding commitment available on the funding notes dropped from $1.3 billion prior to the issuance of the asset-backed notes to $800 million.