Ocwen Financial is partnering with affiliates of Oaktree Capital Management to create a new company that can earn up to a total of $ 100 billion in government-sponsored corporate mortgage service rights.
The company is called MAV Canopy HoldCo I and the partners are expected to invest up to $ 250 million in equity to be used to purchase the MSRs over a three year period. This is evident from a filing by the Securities and Exchange Commission. Under the agreement, Ocwen will contribute 15% and Oaktree 85%. However, in certain circumstances, Ocwen could receive a larger portion of MAV Canopy's distributable income.
In return, the company will operate a licensed entity called MSR Acquisition Vehicle. Until MAV Canopy is fully funded, Ocwen is committed to providing the company with an initial look at opportunities to acquire Fannie Mae or Freddie Mac MSRs that meet certain criteria.
Ocwen's PHH subsidiary will continue to use the loans acquired from MAV. The company said MAV Canopy could add anywhere from $ 50 billion to $ 60 billion in subservicing for Ocwen.
The transaction is expected to close in the first half of 2021. At that time, Oaktree may exercise an option to purchase up to 4.9% of Ocwen's common stock at a price of $ 23.15 per share. In addition, Ocwen will issue Oaktree warrants to purchase an additional 3% of its shares at an exercise price of $ 24.31.
Those options are below Ocwen's share price on December 21, the day before going public, when the deal closed at $ 26.31 per share. The following day it closed at $ 30.16 while it opened at $ 32.15 on December 23.
"This transaction will support our growth goals in subservicing and portfolio recapture, drive scale and provide access to growth capital to acquire MSRs cost and risk efficient," said Glen Messina, President and CEO of Ocwen, in a press release. "We look forward to working with Oaktree to bring MAV to market and realize its growth potential."
Ocwen also gave an update on its fourth quarter activity. "Multiple contracts" have been entered into with undisclosed lenders to provide subservicing, portfolio recapture and MSR transaction services with projected subservicing volumes of between $ 16 billion and $ 24 billion.
These loans should be taken out from the first quarter of 2021.
In addition, Ocwen signed three large-scale MSR contracts valued at approximately $ 16 billion, which will be completed by year-end and carried over in the first quarter.
The maintenance purchases come two months after the company completes legal challenges for its maintenance practices from a total of 30 states. However, it still faces enforcement action from the Consumer Financial Protection Bureau.
At the end of the third quarter, Ocwen was serving $ 186 billion. On October 1, the remaining $ 16 billion in MSRs that New Residential had canceled subservicing earlier this year was reported. That contract was terminated because New Residential had NewRez handle its compliant maintenance in-house. Ocwen continues to serve unqualified New Residential mortgages.
On the origination side, Ocwen stated that it produced a volume of around 10 billion US dollars in the first two months of the fourth quarter. This exceeded the volume in the same period of the third quarter by 32%. In October and November, 23 new correspondence salespeople and MSR co-issue customers were added.