An initial public offering is planned for a newly created firm that acquires servicing rights.
Home Loan Servicing Solutions Ltd. has been formed to acquire and hold mortgage servicing rights, a filing with the Securities and Exchange Commission indicated.
Its first big acquisition will be financed through an IPO.
The capitalization will enable the purchase of servicing rights from Ocwen Financial Corp., which made the SECÂ filing.
According to Ocwen, the strategic move “could significantly reduce the amount of capital we require.”
The first investment will be some of the servicing rights that the West Palm Beach, Fla.-based firm inherited with its Sept., 1, 2010, acquisition of HomEq Servicing from Barclays Bank PLC. Ocwen will sub-service the servicing portfolio for Home Loan Servicing.
“Although Ocwen’s servicing fee and float income will decline under this sub-servicing agreement, we expect that the impact on net income will be partly offset by increased sub-servicing fee revenue and by reduced expenses for MSR amortization and interest on advance financing,” the filing stated. “We also expect the decline in our match funded advances and MSRs to be partly offset by the reduction in match funded liabilities with the difference accruing to cash.”
The SECÂ filing went on to say that Ocwen could become a “‘capital-light’ fee-for-service business” if the new company successfully acquires all or most of its servicing portfolio over time.
In its fourth-quarter 2010 earnings report, Ocwen said that its mortgage servicing portfolio closed last year at $73.886 billion, falling from $76.140 billion at the end of September. But the servicing portfolio has grown from $50.0 billion at the end of 2009.
Income from continuing operations before taxes last year at Ocwen was $39 million, tumbling from $93 million in 2009.
Ocwen Chief Financial Officer John P. Van Vlack, Ocwen Treasurer Richard Delgado and Ocwen Director David B. Reiner will all resign their posts at Ocwen to run the new company.
After the first acquisition closes, Ocwen Executive Vice President of Finance John V. Britti will be promoted to CFO. Britti’s prior employers include Republic Mortgage Insurance Co., Freddie Mac and Capital One.
