JPMorgan agrees mortgage deal with Ocwen Financial

JPMorgan Chase has agreed to buy rights to service $45bn of prime mortgages from Ocwen Financial, the home-loan servicing group being watched closely by regulators, as it seeks to improve the stickiness of earnings from its core retail division.

The deal involves servicing rights for 260,000 mortgages owned by government-supported Fannie Mae, and will bring JPMorgan's portfolio for overseeing billing, collections and foreclosures on US mortgages to about $1tn, second only to Wells Fargo's $1.8tn.

The fair value of mortgage-servicing rights held by Federal Deposit Insurance Corp-insured lenders has dropped by about half since the crisis, to $40bn at the end of last year, amid stubbornly low interest rates and falling volumes of loan originations. But banks still see good opportunities in deepening relationships with mortgage-servicing customers, allowing them to cross-sell products from other units including credit cards and car loans. About half of the homeowners involved in the deal with Ocwen are existing Chase customers, the bank said.

"Buying this prime servicing book will improve the quality of our servicing portfolio and will help drive a stronger and less volatile mortgage business," said Kevin Watters, head of Chase's mortgage banking unit.

Terms of the deal were not disclosed, but analysts said JPMorgan, the biggest US bank by assets, was likely to have paid about $400m in cash, netting Ocwen a roughly $100m gain on its book value.

Regulatory clearance for the deal will come as a relief to Ocwen, which said in March that it was looking to offload the $45bn portfolio to boost liquidity.

The Atlanta-based company, the biggest servicer of subprime mortgages in the US, has been under close scrutiny from regulators, with New York's Department of Financial Services accusing it of a string of shortcomings including backdating foreclosure notices to struggling homeowners.

In December, chairman Bill Erbey stood down from the company he had led for decades as part of a $150m settlement with the DFS. That deal included a ban on Ocwen acquiring any more mortgage-servicing rights until it improved its processes.

Shares in the company have fallen more than 80 per cent since the beginning of last year, while the financials index is up about 14 per cent over that period. This week Ocwen said it had avoided a "going concern" opinion from its auditor which could have raised questions about its ability to survive.

Thursday's announcement showed that [Ocwen] "succeeded at doing what they told you they were going to do," said Henry Coffey, an analyst at Sterne Agee in Nashville. "They need to keep executing this year on things they outlined, building up the business, cleaning house."

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