UPDATE: Home Loan Servicing Closes Down 3% Post-IPO

Home Loan was originally owned by the president of Ocwen Financial, which eventually hopes its servicing rights and obligations to sell to the new company

- Ocwen will remain as a paid administrator, without the burden of servicing advances on its books, which goes to Home Loan

- Part of the strategy to Ocwen Ocwen president to make a fee-for-service company with a higher return on equity

- Home Loan Servicing Ocwen be helmed by former executives

(Updates throughout with more details and the risks associated with the relationship with Home Ocwen Loan Servicing.)

Shares of Home Loan Servicing Solutions Ltd (HLSS), a company founded by Ocwen Financial Corp. (OCN) the executive to buy some mortgage-related rights and obligations of Ocwen, fell 3.1% on the first trading Wednesday.

The company's shares closed at $ 13.56 on the Nasdaq, down from their initial public offering of $ 14. The 13.3 million shares sold at the low end of the expected price of $ 14 to $ 16.

Headquartered in the Cayman Islands, Home Loan Servicing was created to provide mortgage-servicing rights and other income from maintenance to acquire mortgage loans. By only acquiring the rights, the company will not originate or purchase mortgage loans, in fact it is not really service the loans. It plans to Ocwen to hire to do that.

Prior to the IPO, Home Loan Servicing was wholly owned by William C. Erbey, president of Ocwen Financial, the 13.3 million shares sold in the deal represented 95% of the float, so he owns approximately 5% after the IPO.

The proceeds from the IPO will be used for the right to maintenance and other fees received by Ocwen Loan Servicing LLC, a subsidiary of Ocwen Financial, a part of the pooling and servicing agreements to purchase. The directors were in senior management positions at Ocwen Financial to the IPO, when - with the exception of Erbey - resigned from the Home Loan Servicing Ocwen to join. The company plans to eventually buy "substantially all" the remaining mortgage servicing rights currently held by Ocwen Loan Servicing.

That fits into the strategy of Erbey's making Ocwen in a more equity-light "fee-for-service business. The chairman of the two companies created role Home Loan Servicing in tax lightning Ocwen in Ocwen profit Fri last week.

"In the short term [Home Loan Servicing] should give us additional capital for growth without dilution for existing shareholders, and make Ocwen competitive on transactions. Over time, we hope most of the Ocwen mortgage servicing rights and progress to move on [Home Loan]. The impact of this should be higher return on equity than we can achieve this by keeping the assets on the balance Ocwen's included, "Erbey said in an earnings Fri last week.

However, in the acquisition of servicing rights, Home Loan also shoulders the cost of maintenance associated cash advances to delinquent principal, taxes and interest on mortgages to cover. These advances liquidity for mortgage-backed securitisations, they are not intended to provide credit to mortgage lenders and homeowners.

Maintenance payments are usually reimbursed for payments that are ultimately made by a house or by the liquidation of the property. But all the foreclosure process extends increases the amount of maintenance progress to be made, and increases the time needed to get reimbursed.

Foreclosures timelines are generally increased during the last two years due to an increase in the number of delinquent loans, and regulators could further increase the timeline, based on research into whether banks have complied with shield laws. Home Loan Servicing warns that an increase in foreclosure timelines could increase interest costs and reduce the money available to pay operating expenses or to pay dividends.

A reduction of Ocwen Loan Servicing Administrator's rating may also hurt business, Home Loan Servicing warns. In December, Ocwen Loan Servicing Administrator Fitch ratings downgraded from RPS2 to RPS3 and RSS2 to RSS3 and kept it on negative rating watch.

Ocwen's stock closed Wednesday at $ 16.11, down 2 cents.

Home Loan says that the business plan will result in predictable costs and revenues, generating a stable income stream. It plans to at least 90% of its net income to distribute to its shareholders through dividends. On 30 January Home Loan The board declared a conditional interim dividend of 10 cents per share per month for each of the three full months after the IPO. On an annual basis of $ 1.20, resulting in a yield of 8.6% at the IPO price.

The strategy is complicated by the transfer of legal ownership of mortgage-servicing rights of the seller, that the prior approval or consent of various third parties, including credit rating agencies is required. This is the case with the original deal with Ocwen Loan Servicing, who lack the necessary approvals and consents as of the IPO closing. Home Loan Servicing says no impact on business strategy or performance. If a seller has failed the necessary approvals and consents, the company plans instead to acquire the rights to the maintenance fees that the current manager receives, as it has done with the first batch Ocwen's.

To compensate for the maintenance work after Home Loan buys the rights, Ocwen Loan Servicing, a monthly base fee initially equal to 12% of the maintenance fees collected per month, with the possibility of a monthly performance-based incentive payment to deserve.

The mortgage assets that service the new company will buy will be a part of the assets acquired by Ocwen Loan Servicing at the purchase of the U.S. subprime mortgage-servicing business of HomEq Servicing in september 2010. The estimated price for the initial purchase is $ 181 million. The company says it obtained the advice of the Mortgage Industry Advisory Corporation, an independent valuation company, the fairness of the purchase price.

One of the risks Home Loan mentions in its prospectus, its status as a new company. It has no track record of performance to show investors. It warns that the business model has not been tested and its activities do not begin until after the IPO and the first acquisition of Ocwen. The closing of this first acquisition is not specified in the prospectus of the company.


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