Wells Fargo & Company (NYSE:WFC)’s canceling of Ocwen Financial Corp (NYSE:OCN)’s deal will impact shares of both Ocwen Financial and Altisource Portfolio Solutions S.A. (NASDAQ:ASPS), notes Sterne Agee. Henry J. Coffey, Jr. and team at Sterne Agee said in their report published soon after Thursday’s cancellation announcement wonder whether the Wells Fargo deal will go back to market.
Wells Fargo cancels Ocwen deal
According to a regulatory filing with the Securities and Exchange Commission, Ocwen Financial Corp (NYSE:OCN) disclosed that the long-delayed $2.7 billion mortgage servicing rights deal with Wells Fargo & Company (NYSE:WFC) is now officially dead. However, Ocwen will receive its entire $25 million deposit back. In a brief release announcing the cancellation, Wells Fargo said the cancellation of the deal is not expected to be material to its consolidated financial results.
As reported by ValueWalk in February, Benjamin M Lawsky, who heads New York’s Dept. of Financial Services, applied the brakes on Ocwen Financial Corp’s plans to acquire from Wells Fargo the mortgage servicing rights for a package of loans worth $39 billion. Mortgage servicing companies like Ocwen take over the administration of loans owned by investors, handling functions such as billing, collections, and foreclosures in the case of defaulting borrowers.
Rafferty Capital Markets’ Vice President Richard X. Bove said in his note in February that he felt the action from the Dept. of Financial Services and related issues will ultimately lower the willingness of banking companies to make home loans.
Cancellation will impact Ocwen, Altisource
In their report dated Nov. 13, 2014, the Sterne Agee analysts anticipated that shares of both Ocwen and Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) would remain under pressure after the cancellation of the deal. The analysts note that the cancellation is all related to the transaction blocked earlier this year by the Dept. of Financial Services.
According to the Sterne Agee analysts, adding in the fair value premium reported in Ocwen’s 10Q to the company, MSRs would increase the tangible book value to $13.24. The analysts’ estimation of MSR or liquidation value is closer to $23. The analysts believe shares will trade between these two extremes until the loan servicer is better able to articulate its growth strategy.
The analysts also point out that an estimated 70% to 75% of Altisource Portfolio Solutions’ revenue is generated from Ocwen or Ocwen-owned and serviced loans, with most of this tied to its default management services. The Sterne Agee analysts anticipate that Nationstar could win the bid if the Wells Fargo & Company (NYSE:WFC) deal comes back to market.