Ocwen subsidiary PHH to buy $48B in mortgage servicing rights

Ocwen Financial subsidiary PHH Mortgage Corp. announced Monday that it plans to purchase a $48 billion mortgage servicing rights portfolio from AmeriHome, a lender that Western Alliance Bank is acquiring.

PHH plans to purchase MSRs outstanding as of the closing date for a total price of approximately $607 million, subject to adjustment for run-off, and will reimburse AmeriHome for outstanding servicing advances, according the company’s related 8-K filing with the Securities and Exchange Commission.

If the Ocwen subsidiary’s latest planned purchase of bulk MSRs clears all necessary conditions, including the approval of financing agreement between PHH and Western Alliance, it could close by the end of June. Subsequent to that closing, the formal transfer of the servicing rights could occur in September and increase the size of PHH’s portfolio by 16%. The AmeriHome portfolio contains 178,000 home loans either sold to or securitized by either of two government-sponsored enterprises, Fannie Mae and Freddie Mac. That will be added to Ocwen’s total portfolio of 1.1 million loans.

The transaction goes a long way toward a goal Ocwen announced in its preliminary first-quarter earnings to amass MSRs with a total unpaid principal balance of up to $150 billion this year as part of efforts to build efficiencies of scale and its customer base. It’s also one of the largest servicing rights transactions seen since Citigroup sold a $97 billion portfolio representing the vast majority of its business in 2018. AmeriHome Mortgage had a total $99 billion servicing portfolio as of Dec. 31, 2020.

“We believe the execution of a bulk MSR transaction of this magnitude reflects the strength, quality and scalability of our servicing platform,” Ocwen President and CEO Glen Messina said in a press release.

The announcement Monday boosted Ocwen’s stock by 2.8% on the day to $34 per share.

Ocwen had said in its preliminary earnings that it had enough letters of intent to fulfill roughly half or $68 billion of its ideal MSR purchase goal. The AmeriHome deal is included in that amount.

Earlier this year, Ocwen announced that PHH would be buying a $14 billion MSR portfolio from Texas Capital Bank. Western Alliance had noted when it closed on its purchase of AmeriHome’s corporate parent Aris Mortgage Holding in April that it would be selling a smaller $750 million package of MSRs.

Large mortgage acquisitions can put more pressure on banks to sell servicing rights due to Basel III restrictions on Tier 1 capital, so they must weigh that consideration against the value of customer relationships with borrowers. The percentage of Tier 1 or core capital that MSRs can constitute is capped at 10%, or 25% for banks with less than $50 billion in assets. On top of all that, a banner year for long-term fixed rate originations makes it more likely that depositories that rely on short-term funding will have crowded balance sheets they want to free up. Originations last year totaled an estimated $3.8 trillion that marks a record for the industry, according to the Mortgage Bankers Association. Servicing rights trades have become more sizable as a result.

“What we’re starting to see are those whose balance sheets have expanded beyond what they historically have ever had starting to peel back,” said Tom Piercy, managing director of Incenter Mortgage Advisors, in an interview.

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