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Mortgage Market Privatizing Faster Than We Thought: Ocwen Chairman

Stocks in this article: OCN BAC WFC JPM

NEW YORK ( TheStreet) -- Efforts to attract more private capital into the U.S. mortgage market are occurring faster than anticipated, according to the chairman of the nation's fourth-largest mortgage servicer.

"Several recent developments suggest that the longer term development of a private mortgage market may emerge even more rapidly than we had assumed," said Bill Erbey, chairman of Ocwen Financial (OCN) on the company's second-quarter earnings call Thursday.

Erbey cited a "greater probability" of reform of government-sponsored enterprises (GSEs) such as Fannie Mae (FNMA), Freddie Mac (FMCC) and Ginne Mae which together currently support about 90% of the residential mortgage market.

Erbey said he sees "an emerging bipartisan consensus to shift more of the prime space to private capital." As the nation's largest special servicer, Ocwen specializes in collecting and processing payments on non-prime mortgages.

In his comments, Erbey specifically cited legislation sponsored by Bob Corker (R., Tenn.) and Mark Warner (D., Va.), aimed at unwinding the GSEs.

"We believe the likely outcome of any legislative changes is a greater role for private market capital, and that presents opportunities for Ocwen to expand further in the prime servicing space," Erbey said.

Ocwen's chairman also cited bipartisan efforts to reform the Federal Housing Administration, which he believes will "shrink the volume of Ginnie Mae and support use of special servicers," according to an initial transcript of the call.

An FHA reform bill that passed through the Senate Banking Committee Wednesday contains an amendment to allow the FHA to transfer mortgage subservicing duties to specialty servicers, according to a report Thursday from Compass Point Research and Trading.

While Compass Point's analysts remain pessimistic the bill will become law, they argue "committee-level passage in the Senate is a meaningful step and the inclusion of the subservicing transfer authority is noteworthy because the provision is now officially part of the legislative framework."

Ocwen and other special servicers have grown dramatically in recent months as the largest banks, including Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) have moved to shed servicing assets due in part to reputational risk and new capital requirements that make it less profitable. At the end of June, Ocwen's servicing portfolio consisted of $436 billion in mortgages.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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