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JPMorgan Buys $45 Billion in Fannie Mae MSRs from Ocwen Financial

06/26/2015

According to reports, $45 billion in mortgage servicing rights (MSRs) on Fannie Mae originated loans are being purchased by JPMorgan Chase from Ocwen Financial. With this, the presence of embattled mortgage servicing giant within the agency mortgage market will be reduced. In response to investor scrutiny and government sanctions, this sell is just one more of several MSR sales completed by Ocwen.

For 2015, $34.8 billion in MSRs for both Fannie Mae and Freddie Mac loans have been sold by Ocwen to Nationstar Mortgage Holdings. The sales were completed in two separate transactions.  According to a company spokesperson for Ocwen Financial, finalization of the sale to JPMorgan is part of the corporate strategy that will reduce the size of the servicing portfolio.

Decline of the Fastest-Growing Servicing Company

At one time, Ocwen was ranked as the fastest-growing servicing company in existence. However, with the sale to JPMorgan being the largest to date, it becomes evident that Ocwen Financial is feeling a tremendous amount of investor and regulatory pressure.

At the end of 2014, Ocwen agreed to pay $150 million in connection with a consent order associated with the NY Department of Financial Services pertaining to performance in servicing certain mortgages. However, the penalty was also said to be due to conflicts of interest between related parties.

Currently, some people who have residential backed mortgage securities from Ocwen are threatening to leave the company or actually abandoning it while asking regulators to remove the company as the servicer. On the other hand, certain related parties to include Altisource Residential, Altisource Asset Management, and Altisource Portfolio Solutions and Home Loan Service solutions have reconfigured.

Getting Hit Hard

Asking Ocwen Financial to be removed as a servicer of mortgage securities were 119 holders or RMBS securities with an $82 billion unpaid principal balance. This included companies like Neuberger Berman, BlackRock, and PIMCO. Recently, termination notices for three more RMBS deals serviced by Ocwen for an unpaid principal balance of $820 million were sent to the company.

As stated by Kevin Barker, analyst with Compass Point, the various termination requests have caused ratings of Ocwen to take a downward spiral, bringing the most recent total terminations to $25 billion in unpaid principal balance. However, Barker strongly feels the number will continue to climb.

Although Ocwen is facing tremendous scrutiny, the company still believes it will play a key role within the mortgage market with servicing non-agency loans being the primary focus. That would include mortgages secured during the credit bubble and private label loans. In fact, just this past February, the company services roughly 40 percent of all outstanding subprime mortgages secured from 2004 through 2007.

In addition, Ocwen services 23 percent of option ARMs, 22 percent of Alt-A loans, and 8 percent of prime jumbo loans. Last week, the company filed restated financial results, taking great care not to use language that would put its ability to operate into question. As stated by Ron Faris, Ocwen’s CEO, the company will continue to service Ginnie Mae loans but also originate and service loans from both Fannie Mae and Freddie Mac.

The future of Ocwen Financial remains unclear as many RMBS holders are becoming increasingly more frustrated. However, the company did receive some good news as reported by Reuters. A US judge threw out a class action racketeering lawsuit pertaining to home inspections. Although the company still faces many more challenges, this is one step in the right direction.

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