Ocwen Financial Corp. on Thursday sold securities backed by fees
it collects on a pool of $11.8 billion in mortgages, offering
investors yields of as much as 10%, according to people familiar
with the deal.
The deal was the first by any company to securitize the
so-called mortgage servicing rights, which are the fees paid to
firms that collect and distribute interest payments.
Ocwen and other firms have been amassing servicing rights from
large banks that have found the business more costly due to
regulatory scrutiny and higher capital costs. Ocwen, which has
drawn fire from homeowners and mortgage bond investors for its
servicing methods, will use the proceeds to purchase more
servicing, according to a term sheet.
Investors including hedge funds bought $123.6 million of the
securities in return for payments at an annual rate of 0.21% of the
underlying pool for 14 years, the people said. The amount sold is
less than the $136 million discussed with investors last week.
Investors said the main risk is that the underlying pool of
loans shrinks as homeowners refinance their loans, reducing
payments on the securities. Some investors said they didn't buy
because they believe the underlying mortgage pool will shrink
faster than the rate expected by Ocwen, delivering a yield below
10%.
But because the notes are secured debt of Ocwen, investors also
factored in the risk that the firm wouldn't be able to meet its
obligations, investors said. Ocwen is rated B-plus by Standard
& Poor's Ratings Services.
The acquisition of servicing rights by Ocwen and other firms has
drawn scrutiny from regulators concerned about the firms ability to
handle the increased volume. This month, New York Superintendent of
Financial Services Benjamin Lawsky halted a deal in which Wells
Fargo & Co. agreed to sell to Ocwen the rights to service $39
billion of loans.
The drumbeat of criticism of mortgage servicers continued on
Wednesday when Steve Antonakes, deputy director of the Consumer
Financial Protection Bureau, said he was "deeply disappointed by
the lack of progress" made by the industry in the treatment of
borrowers.
Ocwen declined to comment, a spokeswoman said.
Write to Al Yoon at albert.yoon@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires