Talk about a fire sale. Mortgage servicing provider Ocwen Financial (NYSE: OCN) is busy getting rid of servicing rights to almost $90 billion worth of mortgages held by Fannie Mae and Freddie Mac.
This sell-off is only one major development in a company that's undergoing a host of them. To put it mildly.
A bad apple?
Ocwen, which concentrates on the subprime segment, has had it pretty tough over the past few months.
For a start, it's landed in hot water over the way it conducts its business. Last year the New York Department of Financial Services claimed that some of the firm's actions likely caused "significant harm" to certain mortgage holders. The company agreed to pay $150 million in penalties and restitution to the state in order to settle the matter, and Ocwen's founder and chairman William Erbey stepped down as part of the settlement.
This legal ugliness probably didn't come as a surprise, since between December 2011 and November 2014 the firm was the subject of over 13,500 complaints received by the Consumer Federal Protection Bureau. That made Ocwen the no. 3 target for mortgage-related gripes behind Wells Fargo and Bank of America.
The New York settlement wasn't the end of Ocwen's problems, however. Far from it.
One looming headache is the very real threat of its stock being de-listed by the New York Stock Exchange. The NYSE is huffy that Ocwen failed to file its 10-K form (basically, its annual report), and is thus no longer in compliance with its listing standards.
Whenever that paperwork is filed, it surely won't look very good.
According to Ocwen's preliminary figures, in fiscal 2014 its revenue was essentially stagnant over the preceding year at a shade over $2.1 billion. Its bottom line, however, plunged deep into the red with a loss of nearly $550 million (2013 net profit: $298 million). A rise in several cost items, including a $420 million charge for goodwill impairment and a 37% increase in interest expense (to nearly $542 million), was the reason for the steep and abrupt loss. The bill for that legal settlement didn't help either.
So far, outside of the settlement the company has been fairly mum about the specifics of those cost items, particularly which of its units is the source of that goodwill charge.
Regardless, it seems that liquidity is a concern -- in a recent press release, Ocwen took pains to say it "has had an average daily cash balance of over $215 million and continues to forecast that it will have sufficient liquidity going forward."
It looks like much of that liquidity will come from asset sell-offs.
Ocwen says it's signed a letter of intent with an unnamed buyer to take the servicing rights to about $45 billion worth of Fannie Mae mortgages. According to a report in The Wall Street Journal, the counterparty is finance industry battleship JPMorgan Chase. Subsequent to that news, Ocwen said it reached an agreement to unload roughly $25 billion in Fannie and Freddie loans to Nationstar Mortgage Holdings.
That was on top of a previous agreement between the two mortgage servicers for $9.8 billion worth of Freddie loans, as well as a similar deal of comparable size with Walter Investment Management's Green Tree Loan Servicing subsidiary.
Ocwen has stated that, combined, the $45 billion in servicing rights apparently destined for JPMorgan Chase and Nationstar's initial sub-$10 billion buy would bring it around $550 million in proceeds.
A hazy outlook at best
Ocwen's apparent determination to shed those assets, plus its shyness in providing more detail about the 2014 accounting, give the impression of a company in panic.
Hopefully, the firm will be more forthcoming about recent developments next Thursday, when it releases Q1 2015 results and hosts a conference call to discuss them.
I don't think I'd hold my breath, though. And as far as investing in the company's shares is concerned, it's probably best to stay well away until the smoke clears.
Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Bank of America, Ocwen Financial, and Wells Fargo, and owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.