M&A and Sales Fuel Gains at Ocwen

Ocwen recorded earnings gains and record revenue in the fourth quarter fueled in part by merger, acquisition and sales activity.

Among other things, the company completed the merger that resulted in Homeward Residential Holdings becoming a subsidiary in the fourth quarter of 2012. This added $76.7 billion in unpaid principal balance to its servicing portfolio.

During the period, Ocwen generated $65.2 million in net income, or 47 cents per share, up from $9.7 million, or 8 cents per share, for the fourth quarter of 2011. It also produced record revenue of $236.4 million, up 51% from the same period a year ago.

In addition to the merger, among highlights during the quarter that it noted in its earnings was the boarding of flow nonperforming loan subservicing portfolios from an unnamed large bank. These had a UPB of $3.3 billion.

Ocwen also noted that during the quarter it completed 23,926 modifications, of which 33 were done through HAMP.

In addition, it completed the sale of $1.9 billion to Home Loan Servicing Solutions of rights to receive the servicing fees on about $34.6 billion UPB of assets and associated servicing advances.

The company said it used the sales proceeds to repay match funded borrowing related to the sold advances, repay a portion of its senior secured term loan and fund a portion of the Homeward purchase price as it continues to service the portfolio under a subservicing agreement with HLSS.

Also, in “subsequent events” listed in its fourth quarter earnings, Ocwen noted that its first-quarter earnings for this year will reflect the acquisition of certain Residential Capital assets in a bankruptcy sale.

These include the purchase of $107.3 billion in servicing rights on private-label, Freddie Mac and Ginnie Mae loans, $42.1 billion of master servicing agreements, and $25.9 billion of subservicing contracts. The company said it also assumed subservicing on behalf of ResCap for about $91.4 billion of Fannie Mae loans and $31.5 billion of Freddie Mac loans.

The aggregate purchase price, including $1.5 billion of related servicing advances, was $2.1 billion, according to Ocwen, which noted that this amount is subject to post-closing adjustments.

The company indicated it also will subservice about $9 billion of private label loans on ResCap’s behalf until it obtains certain consents and court approvals that will allow it to purchase those mortgage servicing rights.

Ocwen noted that it financed the ResCap acquisition using $480 million in net additional capital raised through the term loan market plus about $1.3 billion borrowed pursuant to three servicing advance facilities.

“With the closing of Homeward and ResCap, Ocwen’s servicing portfolio will have increased by 270% to almost $470 billion, excluding master servicing,” president and CEO Ron Faris said in a press release. “The 52%-plus growth rate in revenue and earnings we have produced over the past two years should accelerate in coming years as a result of these transactions.”

Ocwen is planning to resell some of its acquired assets.