Ocwen Financial Corp. (OCN), the loan- servicing firm whose stock has more than doubled this year, gained the most since 2009 after agreeing to buy WL Ross & Co.’s Homeward Residential Holdings Inc. for $750 million in cash and convertible preferred stock.
Ocwen jumped 20 percent to close at $34.88 in New York, the top performer on the 1,989-company Russell 2000 Index. (RTY) Homeward services about 422,000 mortgages with an unpaid principal balance exceeding $77 billion, West Palm Beach, Florida-based Ocwen said today in a statement.
Chief Executive Officer William Erbey, Ocwen’s biggest shareholder, has led the company’s expansion since the 2008 financial crisis as other firms exit the mortgage-servicing business. Erbey oversaw the purchases of servicing units from Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) last year.
“Homeward brings with it a global servicing platform as well as a growing origination business that is already operating at a $10 billion annual run-rate,” Erbey, 63, said in the statement.
Ocwen has advanced 141 percent this year. Erbey owned 13 percent of the shares as of Aug. 21, according data compiled by Bloomberg.
WL Ross, led by billionaire investor Wilbur Ross, organized Homeward in 2007 and has since added assets from Citigroup Inc. (C) and Option One Mortgage Corp., a division of H&R Block Inc. (HRB) Ocwen will pay $588 million in cash and $162 million in Ocwen convertible preferred stock. The deal will add to earnings immediately, according to the statement.
“It’s been a good holding for us,” Ross, 74, said in a phone interview. “We also recognize that mortgage-servicing is a scale business. Therefore we would need to be either the acquisitor and roll up more or be an acquiree.”
Ross said that he explored an initial public offering for Homeward before deciding to sell it to Ocwen. Homeward had an internal rate of return of 14 percent a year, he said.
Mortgage servicing is “a good business to be in,” Ross said. “I don’t think it’s topped out. We wouldn’t have kept convertible stock if we did.”
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