As Ocwen Financial Corp. marches forward in its effort to become an ‘equity light’ fee-for-service business, its Home Loan Servicing Solutions (HLSS) spin-off is preparing an initial public offering (IPO) of approximately 18.3 million shares, according to a Securities and Exchange Commission (SEC) filing dated Aug. 10.
The SEC filing states that, simultaneously with HLSS' public offering, the company's founder, Ocwen Chairman William C. Erbey, will purchase $10 million of the ordinary shares at a price-per-share equal to the IPO price in a private placement.
HLSS, whose executive officers are currently in senior management positions at Ocwen, was formed to acquire mortgage servicing assets, which include mortgage servicing rights, rights to fees and other servicing income, and associated servicing advances, the SEC filing says. The company will not originate or purchase loans, but will instead engage "high-qualit,y third-party" servicers, including Ocwen, to administer the loans underlying its mortgage servicing assets.
HLSS will use the proceeds from its IPO to purchase the right to receive servicing fees and revenues from Ocwen Loan Servicing LLC. The company's initial purchase of assets relates to a portion of assets that Ocwen acquired when it bought HomEq Servicing last September. The unpaid principal balance on the subprime and Alt-A loan portfolio underlying the servicing assets was approximately $17 billion at the end of June, and the amount of associated servicing advances outstanding was about $604 million, the SEC filing states.
HLSS also stated its intent to buy substantially all of the remaining mortgage servicing rights currently owned by Ocwen Loan Servicing.
"We believe that the current dynamics of the subprime and Alt-A mortgage servicing market have created a unique opportunity where the supply of mortgage servicing rights potentially for sale outweighs the number of potential buyers," HLLS said in its filing.
Those dynamics, specifically, include higher servicing costs resulting from increased regulatory oversight and historically high distressed-loan levels; looming capital changes imposed by Basel III; and the belief that non-prime servicing has become less attractive to servicers because of "increasingly negative publicity and heightened government and regulatory scrutiny," the statement says.
Once Ocwen closes on its previously announced acquisition of Litton Loan Servicing, the company will become the largest non-prime servicer, according to comments from Erbey included in an Aug. 4 regulatory filing from Ocwen.
"We continue to make progress toward our goal of selling mortgage servicing assets to a new entity, Home Loan Servicing Solutions, while retaining a servicing contract," Erbey said in the SEC filing. "This is a part of our strategic plan for Ocwen to become an "equity-light' fee-for-service business."
