Ocwen Financial Corp. is in talks to sell a nearly 5% stake to its biggest client, New Residential Investment Corp., as part of a deal that would finalize a long-expected sale of mortgage servicing rights.

The deal would seem to put to rest questions about whether New Residential would pull its massive $117 billion subservicing portfolio from Ocwen and move it to another servicer — such as Nationstar Mortgage Holdings, which like New Residential, has ties to the private equity firm Fortress Investment Group. With an equity stake in Ocwen, New Residential would have an incentive to ensure the servicer remains in business.

From a liquidity perspective, this gets Ocwen on the right track and the sinister view of 'us versus Ocwen' no longer exists as a result of this deal," Michael Nierenberg, New Residential's chairman, president and CEO, said Monday during the company's first-quarter earnings conference call.

In an ominous echo of the rescue deals of 2007 and 2008, Nierenberg framed the transaction as something undertaken to benefit the entire industry.

"Having Ocwen as a healthy counterparty to the mortgage servicing system is something that we think is extremely important," Nierenberg said.

New Residential, a real estate investment trust that's been very active in the MSR market, would pay $425 million for full ownership of the MSR portfolio, which accounts for nearly 60% of the loans that Ocwen services. It currently owns just a portion of the MSRs, acquired when New Residential purchased the assets of a former Ocwen affiliate, Home Loan Servicing Solutions. Ocwen would subservice the portfolio under the terms of a new, five-year contract.

In addition, New Residential would pay $13.9 million for about 6.1 million shares of Ocwen common stock, or about a 4.9% stake. The deal is expected to close at the end of the second quarter or early in the third quarter, Nierenberg said.

The deal would give Ocwen a much-needed cash infusion as it mounts a defense against a recent Consumer Financial Protection Bureau lawsuit and regulatory orders from more than 20 state attorneys general, all alleging widespread errors in its handling of mortgages.

During New Residential's earnings call, analysts asked whether further aligning itself with Ocwen could become a liability. But Nierenberg sought to assure investors that New Residential would be adequately protected from Ocwen's regulatory problems.

"We'll have standard rights in our servicing agreements with them that protect us from anything that, quite frankly, would or could go potentially wrong with the regulators," he said, adding later, "I know Ocwen's in the middle of a little bit of a storm, but in conversations with Ron [Faris, Ocwen's CEO] and his team, they are doing everything they can to right their ship."

Ocwen has already made efforts to improve its servicing practices and New Residential would gain more control over how loans in the portfolio are managed, including which vendors will receive work for the disposition of foreclosed properties. (Ocwen typically relies on an affiliate, Altisource Portfolio Solutions, for these tasks.)

Ocwen's stock, which plummeted after the regulatory news, was up more than 35% Monday, while New Residential's stock also increased moderately. Ocwen reports first quarter 2017 earnings on Wednesday.

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