Things at Ocwen just went from bad to much, much worse

Very bad news for Ocwen…

Just when it looked Ocwen Financial (OCN) may finally begetting some good news, in the form of Moody’s Investors Service saying that the $1.3 billion acquisition of Ocwen associate Home Loan Servicing Solutions (HLSS) by New Residential Investment (NRZ) will actually help stabilize Ocwen’s own servicing operations and improve Ocwen’s future prospects, the troubled nonbank was just hit with an avalanche of bad news.

According to a report from Compass Point Research and Trading, the HLSS deal will actually have a “material adverse impact” on Ocwen’s servicing margins, due to the increased cost of maintaining the relationship with HLSS, and operational changes that are required by regulators, including the New York Department of Financial Services.

But that’s not all. Compass Point believes that New Residential may actually pull the servicing on the HLSS portfolio from Ocwen.

“We believe the risk of having servicing pulled on private label trusts or transferred by New Residential is high,” Compass Point Analysts Kevin Barker and Jesus Bueno said in the report. “If this were to occur, it would have a serious adverse impact on the sustainability of Ocwen’s business model.”

Barker and Bueno cite the recent servicer downgrades as a reason for a potential Ocwen-HLSS separation.

Read on.

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