Ocwen stocks are up after announcing the sale of $9.8 billion in mortgage servicing rights, but some analysts worry about how this will affect Ocwen’s non-agency business

Ocwen has announced that it’s selling $9.8 billion in residential mortgage servicing rights to Nationstar Mortgage and that it expects the deal to close by the end of March, pushing its stock price up more than 4% in trading (Nationstar is up 7.8%). Despite the initial rally, some analysts worry that this could be the sign of a major shift that leaves Ocwen out in the cold.

Ocwen Kingstown Capital

Ocwen intends to get rid of its Agency portfolio

“This transaction represents the first step in the execution of our previously-announced strategy to transfer certain types of non-strategic servicing,” said Ronald M. Faris, Chief Executive Officer of Ocwen. “We look forward to exploring additional MSR transactions with Nationstar.”

Faris is referring to Ocwen’s intention to stop servicing loans owned by Fannie Mae and Freddie Mac (the loans being sold to Nationstar are Freddie Mac mortgages) and only deal with non-agency mortgages in the future (that includes sub-primes, but not exclusively). Ocwen has gotten into serious legal trouble because of the way it has treated borrowers, forcing the previous CEO to step down and causing Ocwen to move away from Agency loans. So it’s not surprising that Ocwen is starting to unload MSRs, even if this specific deal was unexpected.

Sterne Agee sees strategic shift away from Ocwen

But there are two big reason to be skeptical about the new deal. First, we don’t know how much Ocwen is getting paid for the mortgage servicing rights. Even if investors support Ocwen’s decision to stop servicing Freddie Mac mortgages, if the company took a big hit to get rid of these loans it might not look nearly as promising.

More importantly, this could make it harder for Ocwen to hang onto its market share in the non-agency servicing space that it cares about. Sterne Agee analysts Henry Coffey Jr, Jason Weaver, and Calvin Hotrum argue that this sale, along with the pending sale of Home Loan Servicing Solutions to New Residential Investment amounts to a strategic shift away from the Ocwen complex (OCN, HLSS, RESI, ASPS) to the Fortress complex (FIG, NRZ, NSM)

“OCN is not a ‘zero’ but whatever risk there was that OCN could lose its non-agency portfolio this risk was just increased. OCN’s largest competitor was just given the key to the house so to speak with the pending acquisition of HLSS. HLSS is the largest single counter party in OCN’s non agency servicing business and it, more than anyone else can/could play a major role in deciding where this servicing will go,” they write.