NEW YORK (TheStreet) -- Shareholders of Ocwen Financial (OCN) have had a pretty rough ride this year, especially over the past week, but it appears the negative market reaction has been overdone, setting up quite an opportunity for long-term investors looking to jump in, or for current investors considering adding to their holdings.
Ocwen's shares closed at $38.07 Tuesday, down 9% for the day and giving up 31% so far this year, following a 60% return during 2013.
The company specializes in servicing mortgage loans for lenders. This includes collecting payments from borrowers and remitting payments to Fannie Mae (FNMA), Freddie Mac (FMCC) and other investors, including lenders for loans held in portfolio, as well as handling all other aspects of servicing. That includes paying taxes and insurance for escrowed loans, as well as handling the entire servicing process for nonperforming loans, including foreclosure and even the repossession, maintenance and disposal of real estate.
The aftermath of the credit crisis has been a golden period for Ocwen, because so many banks ran into trouble servicing loan and handling the foreclosure process, which ultimately cost them billions of dollars in regulatory fines and relief payments to borrowers. Please see Dan Freed's in-depth profile of Ocwen founder William Erbey for a discussion of the company's competitive advantage, its somewhat complex structure and history.
Ocwen on Jan. 22 announced a deal with Wells Fargo Bank, NA -- the main subsidiary of Wells Fargo (WFC) -- to purchase the rights to service 184,000 mortgage loans with a balance of about $39 billion. This would have been a beautiful deal for Ocwen, which has greatly expanded over the past several years, through the purchase of servicing rights for large mortgage loan portfolios from many companies, including subsidiaries of Barclays (BCS), Goldman Sachs (GS), as well as Residential Capital and O&H Acquisition Corp. Ocwen's servicing portfolio, on a pro forma basis, including "substantially completed" previous acquisitions grew to roughly $473 billion in November from $204 billion at the end of 2012, according to the company's Jan. 28 presentation to lenders.