Ocwen Financial Corp.’s deal to acquire PHH Corp. for $360 million will bring together two companies in the midst of resurrecting their businesses after a string of regulatory and financial setbacks.
Here's a look at three key reasons the acquisition makes sense for both sides:
Accelerate subservicing transformation
After the deal's expected close in the second half of 2018, the combined company will service 1.9 million loans with an unpaid principal balance of $328 billion. It will also give Ocwen stronger portfolio defense capabilities because of its retail mortgage lending business. In announcing the deal, Ocwen trumpeted the fact it would have the capability to originate over $3 billion of both forward and reverse mortgages.
Ocwen said it will pay PHH shareholders $360 million, or $11 per diluted common share, which is a "35% discount to PHH’s
"This decision follows a comprehensive assessment of the risks and opportunities associated with operating the business and the strategic alternatives available to us," PHH Corp. President and CEO Robert Crowl said in a PHH press release.
Both companies have been working to revitalize their businesses by focusing almost exclusively on subservicing. Ocwen also disposed of its correspondent lending business and said it entered into agreement to sell its wholesale production unit to an undisclosed buyer. It is still evaluating an exit from the reverse mortgage lending business.
PHH's subservicing strategy emerged after it lost several major private-label origination clients; it also sold its joint venture with Realogy (a former sister company) to Guaranteed Rate.
By focusing solely on subservicing, PHH's only origination business would have been defending its subservicing portfolio. And the "PHH 2.0" transformation was quite costly; the company reported quarterly losses totaling $217 million in 2017, including $49 million in the fourth quarter and
The changes in the tax code cost PHH $30 million during the fourth quarter, and it also incurred $31 million in pretax losses from the private-label servicing business that it is exiting, PHH reported after the acquisition was announced. It also had favorable pretax items totaling $16 million. PHH also paid $38 million of its
Ties to New Residential
Ocwen's shift to subservicing has come primarily through
Ocwen and PHH are New Residential's third- and fourth-largest subservicers. Ocwen has only $3.7 billion of its subservicing unpaid principal balance that's not connected to New Residential. It serviced $78.3 billion on its own behalf and
Meanwhile, about 58% of PHH's subservicing portfolio is MSRs owned by New Residential. The unpaid principal balance of PHH's entire servicing portfolio was $148.2 billion at year-end, with subservicing accounting for more than 90%.
While Ocwen won't leapfrog New Residential's other subservicers, the PHH deal with make it a closer No. 3 counterparty during a critical time for the two companies ahead of it.
Nationstar Mortgage Holdings is New Residential's largest subservicer and the two companies
New Residential also owns a roughly
While Ocwen will strengthen its ties to New Residential, acquiring PHH will also let it diversify its subservicing portfolio with the addition of other MSR owners. Likewise, New Residential is
Overcoming regulatory obstacles
Ocwen's troubles have been driven largely by years of regulatory scrutiny over its handling of loss mitigation and foreclosures, including a series of lawsuits spearheaded by the Consumer Financial Protection Bureau and regulators from about 30 states. It has steadily been chipping away at those claims through a
By acquiring PHH, Ocwen can more quickly
"This transaction gives us the opportunity to migrate to their [PHH's] existing Black Knight LoanSphere MSP servicing platform more quickly and with less risk than had we just implemented the system ourselves," Ocwen President and CEO Ron Faris said in an Ocwen press release.
The deal will give Ocwen "a superior foundation" to enable it to resume new business and growth activities in order to offset runoff in the servicing portfolio, the release adds.
PHH has been at the center of a lawsuit involving the constitutionality of the CFPB. In January, the U.S. Court of Appeals for the D.C. Circuit affirmed a lower court ruling throwing out a
PHH had sued in part over the fine, but also claimed the CFPB's leadership structure and funding outside the congressional appropriations process were unconstitutional.
The case was remanded back to the CFPB for
Kate Berry contributed to this report.