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Ocwen Selloff Sparks Gutsy Upgrade

Stocks in this article: OCN WFC

NEW YORK (TheStreet) -- Ocwen Financial (OCN) received an upgrade Thursday from Compass Point analyst Kevin Barker, after a regulator halted a planned deal and shares sold off sharply.

Ocwen Financial shares were down by nearly 14% at one point Thursday following a report in The Wall Street Journal -- later confirmed by Ocwen -- that the New York Department of Financial Services had "halted indefinitely" a planned purchase of mortgage servicing rights on 184,000 loans with a total principal balance of $39 billion from Wells Fargo (WFC).

The shares recovered Thursday afternoon and finished the day down 4.2% to $41.38. They were up 2.6% to $42.40 in early trading Friday.

Barker's price target for Ocwen is $57, and the analyst in a client note on Thursday argued the stock could rise to $60 if the company's deal with Wells Fargo is eventually completed, and the company "continues buying portfolios, aggressively utilizes their cash flow to buy back stock or make an accretive acquisition."

Barker then raised what he calls "perhaps the most important unanswered question at this point."

If DFS' concerns are prospective, meaning the regulator is concerned with the company's capacity to on-board new loans, we feel confident that OCN can take steps to ensure future compliance (e.g. installing a monitor). If DFS' concerns are due to current servicing practices, however, then the situation is likely to become more complicated given the DFS consent order the company is already operating under. Given the historical precedent with the DFS and mortgage-related approvals we believe their concerns are likely prospective.

Other analysts, including Oppenheimer's Ben Chittenden and Sterne Agee's Henry Coffey, stood by their recommendations of Ocwen in reports also published Thursday, but those are easier calls to make. Kudos to Kevin Barker for stepping in to raise his recommendation on a stock when regulators are breathing down its neck and the shares are tumbling. That's what analysts are supposed to do.

For more about Ocwen and related companies like Home Loan Servicing Solutions (HLSS), and Altisource Portfolio Solutions (ASPS) read this profile of chairman Bill Erbey.

Follow @dan_freed

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

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