Ocwen Financial subsidiary PHH Mortgage Corp. announced Monday that it plans to purchase a $ 48 billion portfolio of mortgage service rights from AmeriHome, a lender that Western Alliance Bank is acquiring.
PHH plans to purchase outstanding MSRs as of the reporting date for a total of approximately $ 607 million, subject to an adjustment for the outflow, and reimburse AmeriHome for the outstanding service advances, as per the company's 8-K filing with Securities and Exchange emerges commission.
If the final planned purchase of bulk MSRs by the Ocwen subsidiary meets all the necessary conditions, including approval of the PHH-Western Alliance funding agreement, it could be completed by the end of June. Once closed, the formal transfer of service rights could take place in September, adding 16% to PHH's portfolio. The AmeriHome portfolio contains 178,000 home loans that have either been sold or securitized by two government sponsored companies, Fannie Mae and Freddie Mac. This will be added to Ocwen's total portfolio of 1.1 million loans.
The transaction contributes significantly to the goal Ocwen announced in its preliminary results for the first quarter of amassing MSRs with a total of up to $ 150 billion in unpaid principal this year to improve economies of scale and customer base. It is also one of the largest service rights transactions on record since Citigroup sold a $ 97 billion portfolio in 2018. AmeriHome Mortgage had a portfolio of services of $ 99 billion as of December 31, 2020.
"We believe that executing a bulk MSR transaction of this magnitude reflects the strength, quality and scalability of our service platform," said Glen Messina, President and CEO of Ocwen, in a press release.
Monday's announcement increased Ocwen stock by 2.8% on the day to $ 34 per share.
Ocwen had said in its preliminary earnings that it had enough letters of intent to hit roughly half, or $ 68 billion, of its ideal MSR purchase target. The AmeriHome deal is included in this amount.
Earlier this year, Ocwen announced that PHH would purchase a $ 14 billion MSR portfolio from Texas Capital Bank. When the Western Alliance completed its acquisition of parent company Aris Mortgage Holding from AmeriHome in April, it had determined that it would sell a smaller MSR package valued at $ 750 million.
Large mortgage acquisitions can put more pressure on banks to sell service rights due to Basel III restrictions on core capital. Hence, they must weigh this consideration against the value of customer relationships with borrowers. The percentage of Tier 1 or Tier 1 capital that MSRs can make up is capped at 10% or 25% for banks with assets less than $ 50 billion. Additionally, due to a banner year for long-term, fixed-rate origins, depositaries that rely on short-term funding are more likely to have overcrowded balance sheets that they want to release. Originations totaled an estimated $ 3.8 trillion last year, which is a record for the industry, according to the Mortgage Bankers Association. The trade in service rights has grown considerably as a result.
"What we are beginning to see are those whose balance sheets have grown beyond what they ever had to retire in the past," said Tom Piercy, managing director of Incenter Mortgage Advisors, in an interview.