Ocwen Financial Corp. late Monday disclosed that it will buy Saxon Mortgage for almost $60 million in cash, a deal that will push its subprime servicing-related contracts to almost $110 billion.

Investment banking officials told ASR sister publication National Mortgage News (NMN) that Ocwen is expected to shutter most of the Saxon servicing platform, transferring all of the receivables to its existing operation.

The West Palm Beach, Fla.-based nonbank came to terms with Saxon's owner, Morgan Stanley, last week, according to a new Securities and Exchange Commission filing.

According to figures compiled by NMN and the Quarterly Data Report, Ocwen controls $94 billion of subprime MSRs, ranking first nationwide. Saxon will add another $14 billion of nonprime MSRs to its portfolio. (In total, Saxon controls $26.6 billion of MSRs, some of them conventional in nature.)

Ocwen said it will finance the purchase “primarily with a combination of cash on-hand, cash generated through operations, available credit and two new committed servicing advance facilities.”

Those facilities are being funded by Wells Fargo Bank, and Credit Suisse. The line of credit will total upwards of $1.1 billion, reflecting the large amount of servicing advances tied to the portfolio.

Ocwen Strong 3Q11 Earnings  

Unlike the third quarter last year in which Ocwen reported a net income loss of $8.8 million, the mortgage servicer had a better result this year with a $20.2 million net income profit.

Total revenue in the third quarter was $122.5 million, a 28% increase compared to the same quarter in 2010 that saw $95 million in revenue.

One reason for the higher earnings in the last quarter was the September acquisition of Litton Loan Servicing, which brought in a portfolio of $38.6 billion in unpaid principal balance. This acquisition increased Ocwen's total residential servicing portfolio to $106 billion in unpaid principal balance.

Another highlight from the third quarter was that the servicer completed 15,743 loan modifications, with 16% of these being HAMP modifications. Ron Faris, president and CEO of Ocwen, said there was also a high number of modifications because of the company's shared appreciation modification program, which allows delinquent borrowers with underwater mortgages who stay current on their modified loan to receive forgiven principal over a three-year period.
Ocwen also generated approximately $173 million in cash flow from operations in the third quarter.

A negative quarter-over-quarter highlight was that the delinquency rate increased from 24.2% to 28.7%. Faris said the Litton acquisition, which contains a high number of delinquent loans, was the main reason for this increase.

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